ContractsProf Blog

Editor: Jeremy Telman
Oklahoma City University
School of Law

Monday, May 8, 2023

Food Delivery Giants Cannot Compel Arbitration of Antitrust Claims Based on Terms of Service on Their Apps

SDNYDavitashvili v. Grubhub is a putative class action brought by customers against Uber Eats, Grubhub and Postmates,  They allege that the three food delivery services entered into agreements with restaurants that restricted them through a "no price competition clause" (NPCC) from charging lower prices either when selling directly to customers or when using an alternative food delivery service, like Doordash.  Plaintiffs seek damages and injunctive relief under Section 1 of the Sherman Act in connection with direct purchases from restaurants and purchases through platforms other than defendants.  Defendants filed a motion with Judge Lewis Kaplan in the U.S. District Court for the Southern District of New York to compel arbitration based on arbitration clauses included in the terms of service on defendants' platforms.  

With respect to Uber and Postmates, which was acquired by Uber in December 2020, the terms of service did not put users on constructive notice of an agreement to arbitrate prior to the December 2021 terms of service.  The court thus concluded that Uber had failed to meet its burden of "demonstrating that an agreement to arbitrate was made" between itself or Postmates and the plaintiffs who sued the platform, except with respect to the December 2021 terms of service.  Because Grubhub's checkout page does not require users to click on or otherwise indicate assent to an arbitration agreement, and because Grubhub supplied no other evidence that plaintiffs were on notice, the court found that Grubhub could not demonstrate that an agreement to arbitrate was made between it and plaintiffs.  

Although Uber's terms of service provided that all threshold issues of arbitrability were to be decided by the arbitrator, plaintiffs raised fundamental challenges to arbitration clause itself.  In such cases, it is for a court to decide whether the dispute is arbitrable.  Grubhub's terms of service provided that decisions as to arbitrability were for a court to decide.  

Judge KaplanCiting David Horton's Infinite Arbitration Clauses and Judge Posner's decision in Smith v. Steinkamp, Judge Kaplan (right) noted the defendants' ambitious aspirations for the reach of their arbitration clause. 

If enforced according to their terms, they would require arbitration of any claims between defendants and the Platform Plaintiffs, including claims without any nexus to the agreements containing the clauses — i.e., defendants' terms of use.

Judge Kaplan found no nexus in this case between the arbitration clauses at issue and the allegations of the complaint, and so he refused to enforce them against any plaintiffs.  In the alternative, Judge Kaplan ruled that it would be unconscionable to enforce the arbitration provisions "with respect to claims untethered to defendants' respective terms of use."  Finally, Judge Kaplan ruled that defendants' expansive class action waivers were no more enforceable against these plaintiffs with respect to these claims than were their infinite arbitration clauses.   

Defendants' motion to compel arbitration were denied.  Uber's motion to stay the action was denied as moot.

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