Doordash, Inc. v. City and County of San Francisco

Background

DoorDash and Grubhub sued the City and County of San Francisco over an ordinance capping at 15% the commissions that certain third-party food-delivery platforms may charge restaurants. The ordinance was first adopted during the COVID-19 emergency and later made permanent by removing its sunset provision. The City said the cap was intended to protect restaurants and San Francisco’s commercial districts from high fees charged by concentrated delivery platforms. DoorDash separately alleged that the permanent cap was retaliation for its public support of Proposition 22.

The City moved to dismiss the First Amended Complaint under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint alleges enough facts to make a claim legally plausible. At this stage, the court generally accepts well-pleaded factual allegations as true and does not resolve factual disputes.

Judicial notice

The court granted judicial notice of a Board resolution, the plaintiffs’ Securities and Exchange Commission filings for purposes of showing their awareness of possible regulation, newspaper and website publications for purposes of showing what information was publicly available, and public campaign-contribution records. It denied judicial notice of a proposed New York State Liquor Authority advisory because the City had not shown that it was relevant.

Contract Clause claims

The plaintiffs alleged that the cap substantially impaired existing restaurant contracts with commission rates above 15%, violating the federal and California Contract Clauses. The court concluded that the plaintiffs plausibly alleged substantial impairment and that factual questions prevented deciding that issue at the pleading stage. But the court held that the ordinance served a legitimate public purpose—protecting the restaurant industry—and was reasonably related to that purpose. Applying deferential review, the court held that the plaintiffs had not plausibly shown that the ordinance was unreasonable. It granted the City’s motion to dismiss the federal and state Contract Clause claims without leave to amend.

Takings claims

The plaintiffs alleged that the ordinance took their contractual right to commissions above 15% without compensation. The court applied the three-part test for a regulatory taking, considering the regulation’s economic impact, interference with investment-backed expectations, and character of the government action. It held that the alleged reduction in commissions alone was insufficient, but that the plaintiffs’ allegations about renegotiating or ending contracts, reducing services, raising consumer prices, and losing revenue created factual questions. The court denied the motion to dismiss the federal and California takings claims.

California police-power claim

The plaintiffs alleged that the ordinance exceeded the City’s authority under Article XI, Section 7 of the California Constitution because it did not promote the general welfare. The court held that protecting the restaurant industry was a legitimate purpose and that the commission cap was reasonably designed to advance it. It granted the motion to dismiss this claim without leave to amend.

Due-process claims

The plaintiffs alleged that the cap was arbitrary and confiscatory. The court rejected their arguments based solely on possible harm to reputation and goodwill, but held that their allegations that the ordinance could prevent them from recovering their costs and losses plausibly raised the question whether the regulation was confiscatory. It therefore denied the motion to dismiss the federal and California due-process claims based on the alleged confiscatory effect. The court dismissed the other due-process theories without leave to amend.

Equal-protection claims

The plaintiffs argued that the ordinance irrationally treated food-delivery platforms differently from other vendors and applied only to platforms serving at least 20 restaurants. The court held that the City could rationally distinguish platforms because of its stated concerns about their commissions, market power, and network effects. It also rejected the allegation that the platforms were a politically unpopular group whose treatment reflected unconstitutional animus. The court granted the motion to dismiss the federal and California equal-protection claims without leave to amend.

First Amendment retaliation claim

DoorDash alleged that the City enacted the permanent cap in retaliation for DoorDash’s support of Proposition 22. The court accepted that this support was constitutionally protected and found that the permanent June 2021 measure could plausibly chill similar advocacy. But it held that DoorDash did not plausibly connect the permanent measure to retaliatory intent. The commission-cap concept originated before Proposition 22 passed, the ordinance affected some Proposition 22 supporters but not others, and the alleged statements by one supervisor did not establish the motivation of the legislative body as a whole. The court granted the motion to dismiss this retaliation claim without leave to amend.

Disposition

Judge Chen granted in part and denied in part the City’s motion to dismiss. The court denied dismissal of the takings claims and the due-process claims based on the alleged confiscatory effect, including their state-law counterparts. It granted dismissal of the Contract Clause, other due-process, police-power, equal-protection, and First Amendment retaliation claims, including their state-law counterparts, without leave to amend. The order disposed of the City’s motion.