Stout v. GrubHub Inc.

Background

Jesse Stout sued Grubhub Inc. individually and allegedly on behalf of the general public. He alleged that Grubhub marketed its $9.99-per-month Grubhub+ subscription as providing “Unlimited Free Delivery,” but charged a $2.50 “CA Driver Benefits Fee” on California orders. Stout asserted claims under California’s unfair-competition law, the Consumer Legal Remedies Act, and the state false-advertising law. He sought injunctions stopping Grubhub from charging the fee to Grubhub+ subscribers and from misrepresenting its delivery fees.

Grubhub moved to compel arbitration and stay the proceedings. The court found that the December 14, 2020 Terms of Use applied to Stout because he placed Grubhub orders after that date and received notice of the updated terms. Those terms required individual arbitration of disputes related to Grubhub and prohibited arbitration of class, representative, or public-injunctive-relief claims. They also provided for severing and staying a claim or request for relief that could not be arbitrated while the remaining claims proceeded in arbitration.

Public and Private Injunctive Relief

The court applied California’s McGill rule. That rule makes unenforceable an agreement that waives the statutory right to seek public injunctive relief in any forum. Public injunctive relief primarily prevents future unlawful conduct that threatens the general public; relief primarily benefiting an individual or a defined group of similarly situated people is private injunctive relief.

The court treated Stout’s requested injunctions separately. An order barring the CA Driver Benefits Fee would primarily benefit current Grubhub+ subscribers and therefore sought private injunctive relief. An order barring Grubhub from misrepresenting its delivery fees would address false advertising directed at the broader public and therefore sought public injunctive relief. The court rejected the argument that the Terms of Use’s severability language made the entire arbitration agreement unenforceable. It concluded that the agreement allowed the public-injunctive-relief request to be severed from the claims and private relief subject to arbitration.

Disposition

The court granted in part and denied in part Grubhub’s motion to compel arbitration. The underlying claims and the request for private injunctive relief for Grubhub+ subscribers must be arbitrated. The request for public injunctive relief concerning false advertising remains in court, but litigation of that request is stayed while arbitration proceeds on all substantive claims, including liability under the false-advertising law, and on the request for private injunctive relief. The court left to the arbitrator the question whether Stout has standing to seek private injunctive relief because he no longer subscribes to Grubhub+.