Davitashvili v. Grubhub Inc.

Background

The case is a proposed class action involving alleged agreements between restaurants and online meal-ordering platforms. The plaintiffs alleged that Grubhub, Uber, and Postmates used no-price-competition clauses to prevent restaurants from charging lower prices outside those platforms. They sought damages and an injunction under Section 1 of the Sherman Act and corresponding state laws. Their claims were based on purchases made directly from restaurants or through non-defendant platforms, not purchases made through the defendants’ platforms.

The defendants moved to compel arbitration based on arbitration clauses in their terms of use. The plaintiffs named in the motions were Mariam Davitashvili, Adam Bensimon, Philip Eliades, Jonathan Swaby, John Boisi, and Nathan Obey.

Whether the Plaintiffs Agreed to Arbitrate

The court applied the Federal Arbitration Act and ordinary state-law contract principles. A party seeking arbitration first must show that an arbitration agreement was made. If that showing is made, the other party must show that the agreement does not apply or is invalid.

Uber showed that Boisi, Davitashvili, Eliades, Obey, and Swaby accepted Uber’s December 2021 terms through a screen that required users to check a box agreeing to the terms and then click “Confirm.” Those terms included an arbitration clause, a class-action waiver, and a provision assigning threshold arbitration questions to an arbitrator. Because the terms defined “Uber” to include its subsidiaries, and Postmates had become Uber’s wholly owned subsidiary, the court found that Uber and Postmates met their initial burden as to those five plaintiffs.

Uber did not meet its initial burden as to Bensimon. The evidence showed that his most recent Uber use was on November 18, 2021, before the December 2021 terms took effect. Uber also did not provide enough evidence that any plaintiff had agreed to earlier Uber or Postmates arbitration clauses or had reasonable notice of those provisions.

Grubhub failed to meet its initial burden as to every plaintiff. Its checkout page did not require users to check a box or take another specific action showing agreement to the terms. The court held that placing an order after seeing fine print stating that the user agreed to Grubhub’s terms was not enough to establish a “clickwrap” agreement. Grubhub also did not provide sufficient evidence showing what its website or application looked like when the plaintiffs placed their orders. Finally, Grubhub did not show when its email about updated terms was sent or whether any plaintiff received or opened it.

Who Decides Whether the Claims Are Arbitrable

The court determined that it, rather than an arbitrator, should decide whether the claims were subject to Uber’s arbitration clause. Although Uber’s terms clearly assigned threshold arbitration questions to an arbitrator, the plaintiffs specifically challenged the validity of that delegation provision as unconscionable. A direct challenge to the delegation provision required the court to decide the issue. The court also noted that Grubhub’s terms expressly assigned questions about the arbitration clause’s scope, validity, and enforceability to a court.

Why the Arbitration Clauses Did Not Apply

The court described the clauses as unusually broad because, read literally, they could require arbitration of disputes having no connection to the terms of use. The court held that the plaintiffs’ antitrust claims were unrelated to their use of defendants’ platforms. The claims concerned allegedly inflated prices for purchases made directly from restaurants or through other platforms. The plaintiffs’ platform use was therefore coincidental to the claims.

Under contract-formation principles, the court concluded that a reasonable user would understand the arbitration clauses to cover disputes connected to the terms-of-use agreements, not every possible dispute with the companies or their affiliates. Alternatively, the court held that applying the clauses to unrelated claims would be unconscionable because it would produce grossly unreasonable results contrary to reasonable expectations. The court therefore held that the arbitration clauses did not apply to claims lacking a connection to the underlying terms-of-use agreements.

The court reached the same conclusion about the defendants’ class-action waivers. Those waivers did not apply to the plaintiffs’ claims to the extent the claims lacked a connection to the terms of use.

Disposition

Judge Lewis A. Kaplan denied Grubhub’s, Uber’s, and Postmates’ motions to compel arbitration in their entirety. The court also denied Uber’s motion to stay the case under 9 U.S.C. § 3 as moot.