A federal judge won’t put the brakes on a city of Chicago lawsuit accusing DoorDash of fraud and deceptive marketing.
The city sued the food delivery company, along with Caviar, a subsidiary it acquired in 2019, alleging it inflates prices for restaurant menu items without disclosing the markup to consumers. It also said DoorDash lists a low delivery fee up front, such as $2.99, then calculates the actual fee and services at checkout, bringing the total to $6.84. Other allegations include failing to disclose when promotions apply only for orders that exceed a minimum cost as well as adding a $1.50 “Chicago fee” intended to convey city government required or authorized the charge.
Further allegations include accusing DoorDash of listing some restaurants without their consent, misleading consumers into thinking a business relationship exists, as well as soliciting tips for drivers and then using that revenue to reduce how much the company pays those independent contractors, which it calls Dashers. The city said consumer tips were paid in addition to DoorDash’s guaranteed minimum until July 2017, but from then until September 2019, the company began using tips to reach the guaranteed minimum without telling users.
Arguing for dismissal, DoorDash maintained “their various fees, pricing, promotions and tipping structure are not deceptive because they are disclosed at some point — either at the checkout screen or somewhere in the voluminous terms and conditions,” Gettleman wrote. DoorDash further maintained its “conduct regarding unaffiliated restaurants is neither deceptive nor unfair because whether defendants have a contract with the restaurants is immaterial to consumers, and any allegations regarding unfairness to the restaurants are not actionable under” the municipal code section the city cited in its complaint.
Gettleman rejected that position, saying the city plausibly alleged consumer confusion. In one example, he said, the city noted tips are identified as a “Dasher Tip” and told users “100% goes to your driver.” He said Chicago’s complaint “adequately alleged that reasonable consumers would understand this statement to mean that tips would provide a supplement to the driver’s income, not that the tips would reduce defendants’ payment obligations.”
DoorDash said its model aligns with the “tip credit” approach restaurants use and technically the drivers did get 100 percent of each tip. But Gettleman said the question of consumer deception shouldn’t be resolved on a dismissal motion. He added that other issues, such as the Chicago Fee and other charges, “rely on factual questions that the court cannot resolve without a developed factual record.”
The Chicago Fee came about during the early days of COVID-19, Gettleman wrote, when the City “enacted an emergency ordinance that limited commissions defendants could charge restaurants.” Chicago alleged DoorDash then imposed the fee on its users to recover lost revenue on the restaurant side. DoorDash said calling it a fee instead of a tax allayed user confusion, but Gettleman said it remains to be seen if the city can prove what a reasonable consumer might believe.
DoorDash further maintained challenges to its tipping policy shouldn’t be viable because the city filed its lawsuit on Aug. 27, 2021, some 23 months after the company reverted to its original tipping structure, meaning the city could at most bring claims for the remaining month in a two-year window. Gettleman said that argument is a matter of recovery, not whether the city is entitled to sue.
Gettleman gave DoorDash until April 14 to answer the city’s complaint.
DoorDash is represented in the action by attorneys from the firms of Forde & O’Meara; Gibson, Dunn & Crutcher, and Riley Safer Holmes & Cancila.
The city is represented by attorneys from its Department of Law and from the firm of Cohen Milstein Sellers & Toll.