On March 9, 2022, the Honorable Robert W. Gettleman of the United States District Court for the Northern District of Illinois denied the defendants’ motion to dismiss. The ruling permits the City of Chicago’s civil law enforcement action against meal delivery giant DoorDash and its Caviar subsidiary to proceed, with the court recognizing that “plaintiff’s thorough complaint states a claim” for deceptive and unfair trade practices under Chicago’s consumer protection ordinances.
Cohen Milstein represents the City of Chicago in this trailblazing lawsuit, which is the result of a comprehensive investigation directed by Chicago’s Department of Law and Department of Business Affairs and Consumer Protection. Chicago alleges that DoorDash deceives consumers—and unfairly harms restaurants and drivers—with misleading restaurant listings, fees, menu prices, and allocation of driver tips. Filed the same day as Chicago’s parallel action against Grubhub, the lawsuit aims to establish a fairer and more transparent marketplace for meal delivery in the city. Chicago’s lawsuits against DoorDash and Grubhub are the first comprehensive law enforcement actions against meal delivery companies in the United States.
On August 27, 2021, The City of Chicago sued DoorDash and Caviar in the Circuit Court for Cook County, Illinois, alleging that the companies’ business practices violated city ordinances prohibiting unfair and deceptive trade practices and unfair competition.
DoorDash, including Caviar, is now the nation’s—and Chicago’s—largest online meal ordering and delivery company. DoorDash operates through its eponymous app and website, as well as through the Caviar app and website, which focus on delivery from upscale restaurants. These platforms’ business model consists of (a) charging fees to consumers for ordering and delivery, and (b) charging a commission to restaurants that contract with them for marketing, order processing, and delivery. The DoorDash and Caviar platforms together list more than 3,100 Chicago restaurants and account for more than 1 in 3 online delivery transactions.
Chicago’s investigation found that DoorDash for years had fueled its growth with deceptive and predatory tactics, but that the volume and impact of this misconduct surged with the onset of the COVID-19 pandemic. Beginning in March 2020, as public health restrictions shut down Chicago restaurant dining, consumer demand for meal delivery soared—tripling across the industry. Restaurants’ ability to subsist on takeout and delivery orders became a make-or-break proposition, driving many of them to work with third-party meal delivery platforms, like DoorDash and Caviar, despite the punishing commissions these companies charged for their service. Until November 2020, when Chicago enacted an emergency ordinance temporarily capping these commissions at 15%, DoorDash and Caviar charged restaurants as much as 30% of each food order. Restaurants found themselves in the untenable position of not being able to keep their doors open without third-party meal delivery services, but hardly being able to survive with them, either.
As alleged in Chicago’s complaint, DoorDash and Caviar’s unlawful practices include the following conduct:
- The DoorDash platform advertises ordering and delivery from numerous unaffiliated restaurants in Chicago—those that do not contract with DoorDash—without their consent. DoorDash simply “scrapes” the restaurant’s menu and hours information from the Internet without verifying it, resulting in widespread inaccuracies. These listings misleadingly convey to Chicago consumers that DoorDash and the restaurant are working together. When this practice predictably results in customer service problems, restaurants are left with consumer complaints and reputational harm not of their own making.
- DoorDash and Caviar’s fees for their service are a modern-day bait-and-switch: These platforms entice consumers by advertising delivery for a set price upfront (the “Delivery Fee”), then tacking on additional fees—including a “Service Fee”—at the end of the transaction. The “Service Fee” is nothing more than a second, hidden delivery fee; it provides no separate benefit and is charged only on delivery orders—never on pickup orders. Even at checkout, the platforms hide these additional fees by grouping them with taxes, suggesting that the fees are government-imposed. The full consumer fees can be as high as nearly four times (Caviar) to six times (DoorDash) the low price of delivery the platforms misleadingly advertise upfront.
- DoorDash and Caviar also hide from consumers that the menu prices of affiliated restaurants—restaurants that contract with DoorDash and Caviar for order and delivery services—on both platforms are in many instances higher than the prices available from the restaurants themselves, thereby inflating the overall cost to consumers, including higher service fees.
- The DoorDash platform deceptively offers consumers deals such as $5 or 20% off, without disclosing that the consumer must meet a substantial minimum order threshold to receive the advertised discount.
- Between July 2017 and September 2019, DoorDash misled consumers in Chicago to believe that they were using the “tip” feature on the DoorDash platform to supplement the income of the driver who delivered their food, over and above the base pay DoorDash provided. Instead, DoorDash largely used the consumer’s “tip” to subsidize its own agreed payment to the driver—not only deceiving consumers but depriving drivers of tip income.
Incorporating these tactics into its business model, DoorDash experienced tremendous growth that only accelerated during the pandemic. Including Caviar, DoorDash’s share of the national meal delivery market grew from 38% in February 2020, just before the pandemic, to 57% in July 2021—more than double that of its closest competitor, UberEats. DoorDash capitalized on its pandemic-fueled success with an initial public offering in November 2020. As of August 2021, DoorDash was valued at nearly $64 billion dollars, and was expanding into new territory—delivery from grocery stores, flower shops, drug stores, and pet stores.
As DoorDash soared, however, the Chicago restaurant sector suffered. Approximately half of Chicago’s 7,500 restaurants closed during the pandemic, either temporarily or permanently. As part of its investigation, the City heard from local restaurants that described their dire economic straits and the direct role that DoorDash’s predatory tactics have played in destabilizing their ability to stay in business.
Chicago’s lawsuit seeks injunctive relief in the form of key modifications to DoorDash and Caviar’s business practices, restitution for restaurants and consumers hurt by those practices, and fines for violations of Chicago’s consumer protection ordinances.
Case name: City of Chicago v. DoorDash, Inc., and Caviar, LLC, Case No. 1:21-cv-05162 (N.D. Ill.)