How the Hunger for Delivery Services During COVID-19 Fueled Litigation

Logan Zucchino – On January 30, 2020, the World Health Organization declared a Public Health Emergency of International Concern regarding a fairly new and unexplained pandemic, COVID-19. At that time, there were 98 confirmed cases of the virus, and no country outside of China reported any deaths. As of April 6, 2021, the worldwide deaths related to COVID-19 surpassed three million. Looking back to the early months of the pandemic, many people were fearful, anxious, and taking various precautions to protect themselves and their families against the barely understood pandemic.

Without a thorough understanding of the virus and how it was spread, the first steps taken, in accordance with guidance from the Centers for Disease Control and Prevention (CDC), were to limit interactions and large public gatherings. As such, some of the most popular forms of social interaction were quickly shut down, including sports venues, night clubs, and restaurants. Throughout 2020, an estimated 110,000 restaurants shut their doors due to the COVID-19 pandemic. Restaurant owners were fearful of their livelihood, as many states forced the shutdown of indoor dining, leading to unexpected unemployment liability, loss of business, and wasted supplies. With CDC guidance, statewide mandates, and public fear, the outlook for restaurant survival seemed grim during the early stages of the pandemic.

Not surprisingly, after a long period of nervousness and being confined in their homes, people began to long for the simple pleasures from before the virus. Whether it was going to the movies, or ordering their favorite meal, people began to look for safe and permissible ways to reconnect to their lives. During the peak periods of statewide shutdowns, one of the few ways to achieve this was through ordering food from restaurants for either pick up or delivery. While restaurants struggled to adapt to the new landscape, certain businesses began to thrive.

Enter food delivery services.

As of March 20, 2020, GrubHub and Uber’s stocks were trading at $31.71 and $21.33, respectively. Fast forward a year later throughout the pandemic, those stocks were trading at $62.30 and $57.08, respectively, posting a yearlong gain of 96.5% and 167.60%, respectively. While the stock market demonstrated incredible volatility, food delivery services thrived. Certain reports suggested that the amount of business doubled for food delivery services from the start of the pandemic through November 2020. For companies that were already deeply scrutinized and often battling lawsuits, the exponential growth in demand led to a simultaneous growth in lawsuits.

Early in July, 2020, a class action lawsuit was filed against Uber, GrubHub, and Postmates, alleging antitrust violations associated with “pandemic pricing” and most-favored-nation provisions (MFN’s) imposed by the platforms to participating restaurants. The surge in fees charges to participating restaurants allegedly began to increase prices to consumers. DoorDash, the next leading third-party service, was ultimately not named in the lawsuit due to their service’s commitment to not use MFN’s.

A few months later in October, GrubHub was the subject of another class action lawsuit accusing the delivery service of adding over 150,000 restaurants to their platform without the restaurants’ permission. The lawsuit was predicated on the allegation that GrubHub’s unpermitted addition of the restaurants damaged the restaurants’ reputation and ability to control their online presence. The practice also led to complications with orders being received and delivered, as GrubHub drivers were often left to figure out the order themselves and contact the restaurant directly to place the order.

More recently, DoorDash came into the spotlight, but as the plaintiff in a litigation regarding alleged excessive surcharges from their software provider. The provider, Olo, was accused of breach of contract and fraudulent inducement, leading to alleged damages in excess of $7.0 million. While Olo expressly denied the allegations as baseless, the lawsuit is a prime example of how unforeseen circumstances and rapidly increasing demand can lead to a loss of oversight into business operations.

Ultimately, the recent lawsuits against the largest third-party delivery services have demonstrated the impacts of growing demand coupled with external operational factors. The lawsuits can serve an important example for businesses looking to capitalize on the opportunities that appear in times of crisis – that taking on more demand than can be properly managed and overlooked may end up biting back.

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