Second Circuit skeptical of 'infinite’ arbitration clause for food delivery apps

MANHATTAN (CN) — Food delivery titans GrubHub, Postmates and Uber Eats joined forces Friday to argue that their active antitrust case should be pulled from federal court and instead be handled via arbitration.

Friday’s arguments in the Second Circuit stem from a 2020 class action brought by a group of diners against the trio of delivery apps.

“When a consumer orders a meal through one of defendants’ platforms, defendants collect revenue from both the consumer and the restaurant, including by charging the restaurant a hefty commission on the total amount paid by the consumer,” the plaintiffs claim in the suit.

But the diners say the GrubHub, Postmates and Uber Eats all require restaurants to enter into an illegal deal that bars them from selling meals cheaper directly to customers. They assert that this practice artificially inflates the price of food delivery outside of these three apps. The plaintiffs seek damages based only on those purchases — not purchases made within the apps themselves.

None of that matters, according to GrubHub lawyer Zachary Tripp, since the diners agreed to the apps’ terms and conditions that shield GrubHub, Postmates and Uber Eats from lawsuits just like this. Because of that, this matter must be handled via arbitration, not in court.

“Right below the ‘place order’ button, we say by placing your order, you agree to GrubHub’s terms of use with a hyperlink to the terms of use,” Tripp told the Second Circuit panel Friday. “The contract is very clear that arbitration applies to disputes that arise.”

A lower court disagreed, ruling that it would be “unconscionable” to enforce the apps’ seemingly “infinite” arbitration clauses for virtually every subject of dispute.  In appealing that ruling Friday, the apps hoped to reverse that decision. But one judge on the panel was skeptical to do so.

U.S. Circuit Judge Myrna Pérez, a Joe Biden appointee, took issue with the fact that the apps seemed to expect infinite shielding from any litigation because of their arbitration clause. She noted that emailing customers the terms and conditions isn’t necessarily enough to tell them what they’re signing up for, either.

“What is the point of sending the email if somebody couldn’t say, ‘Holy cow, I basically signed my life away, I want out?’” Pérez asked. “The email doesn’t actually have any operative fact of letting somebody rescind the agreement that they have with you.”

Tripp said customers agree to those broad terms every time they place an order. Pérez countered that, because of how broad the terms are, litigation like this is necessary to test the true limits of the apps’ arbitration agreements.

“Your client purposely picked language that was boundary testing,” Pérez said. “And now we’re testing to see how far that can go, and you’re disputing because you’re saying it’s not infinite, right?”

Tripp said that’s not necessarily accurate, and that his clients would still win without testing the limits of the arbitration clause. When Tripp yielded his time, Uber Eats attorney Adam Unikowsky took a slightly different approach.

“Uber’s appeal focuses narrowly on the district court’s failure to enforce the delegation clause in the party’s arbitration agreement,” Unikowsky said.

Unikowsky argued that, according to Uber Eats’ terms and conditions, the lower court had no jurisdiction to rule on the enforceability of its arbitration agreement at all. That’s for the arbitrator to decide, Unikowsky said.

But the plaintiffs shouldn’t be affected by any of this language, according to their lawyer Stephen Lagos. He argued that his clients are “wholly independent from their use of defendants’ platforms and from defendants’ terms of service.”

“Someone who has never used defendants’ platforms and who has never agreed to defendants terms of service could assert the same claims against defendants that appellees assert here,” Lagos said.

Lagos said the apps’ actions affect everybody, since it would drive up prices in the entire food delivery industry. That could complicate seeking damages though, noted the panel, which included Pérez alongside Donald Trump-appointed U.S. Circuit Judge Richard Sullivan and Bill Clinton-appointed U.S. Circuit Judge José Cabranes.

The three judges took the arguments under advisement and did not indicate when they would rule.

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