Grubhub has agreed to pay $42 million to settle a class action lawsuit from investors who claimed the food delivery service withheld news about declining sales and failed to act to correct problems leading to a 40% drop in share prices.
Attorneys representing the plaintiffs are asking the judge to award them $12.6 million in fees under the settlement, or about 30% of the total payout.
The legal action dates to November 2019 when named plaintiff Roei Azar filed his complaint in federal court in Chicago through attorney Brian Cochran, of the Chicago office of Robbins Geller Rudman & Dowd; Samuel Rudman, of the firm’s Melville, N.Y. office, along with Guri Ademi and Jesse Fruchter, of Ademi & O’Reilly, in Cudahy, Wis.
The lawyers also filed the complaint on behalf of all people who bought common stock in Grubhub from July 30 through Oct. 28, 2019. The lawsuit said the Chicago-based company controlled 40% of the online food delivery market in early 2018 before losing ground to DoorDash and Uber Eats. While Grubhub “outwardly eschewed” a pricing war “race to the bottom,” the complaint also accused the company of representing “its superior business model, which focuses on securing exclusive restaurant partnerships built around Grubhub’s data-rich platform and the provision of exceptional customer service to diners, would allow it to continue to profitably increase its user base.”
According to the complaint, Grubhub needed to rely on those operational advantages because competitors had either outside revenue sources or access to private capital allowing them to sustain promotional pricing. It leveraged that position through a 2018 partnership with Yum! Brands in which the company bought $200 million of common Grubhub stock and signed an exclusivity deal.
After that deal, the lawsuit said Grubub announced expansions outside larger metropolitan markets. The complaint cited contemporary statements from CEO Matthew Maloney, named as a defendant along with President and Chief Financial Officer Adam DeWitt, and said pledges of “economically sustainable growth in all types of markets” were among materially false and misleading statements. Paired with failure to disclose a decline in orders and lower revenues from newer customers, the alleged result was Grubhub “tracking tens of millions of dollars below its revenue and earnings guidance and such guidance lacked any reasonable basis.”
In July 2020, Robbins Geller Rudman & Dowd, along with AsherKelly Law, of Southfield, Michigan, filed a similar complaint on behalf of City of Pontiac Reestablished General Employees’ Retirement System and City of Pontiac Police & Fire Retirement System. U.S. District Judge Charles Norgle denied a motion to dismiss the complaint in September 2021, and on Dec. 8, 2022, the attorneys asked U.S. District Judge Matthew Kennelly to approve a settlement.
The motion for approval said claims administrators sent more than 70,600 notices to potential class members and stockbrokers and that no objections have yet been received, although the deadline to file is Dec. 22.
Also on Dec. 8, Robbins Geller Rudman & Dowd asked Kennelly to award it 30% of the $42 million settlement pool, a total of $12.6 million, as well as almost $230,000 in litigation expenses, plus interest. The pension funds would get $1,000 each as lead plaintiff awards, although the settlement notice stipulated the funds could collectively yield $10,000.
Robbins Geller Rudman & Dowd said it pursued the litigation “without the benefit of any (Securities and Exchange Commission) or other government investigation, findings or settlements.” To justify the fee request the firm noted Kirkland & Ellis - “a leading defense firm in complex civil cases” - represented Grubhub, and further said the settlement could “reflect as much as 50% of recoverable damages. This range is multiples above the median recovery of 1.8% in securities class actions in 2021.”
The settlement motion did not estimate how much individuall class members might receive from the settlement. According to the settlement motion, the remaining money, roughly $29 million, would be prorated to class members who submit authorized claims based on a formula of individual recognized loss compared to the entire pool, factoring details like when class members owned and bought or sold Grubhub shares.