Case 3:21-cv-05502-EMC Document 20 Filed 09/10/21 Page 1 of 35
`
`DENNIS J. HERRERA, State Bar #139669
`City Attorney
`WAYNE K. SNODGRASS, State Bar #148137
`JEREMY M. GOLDMAN, State Bar #218888
`Deputy City Attorneys
`City Hall, Room 234
`1 Dr. Carlton B. Goodlett Place
`San Francisco, California 94102-4682
`Telephone:
`(415) 554-6762
`Facsimile:
`(415) 554-4699
`E-Mail:
`jeremy.goldman@sfcityatty.org
`
`Attorneys for Defendant
`CITY AND COUNTY OF SAN FRANCISCO
`
`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
`
`DOORDASH, INC. and GRUBHUB INC.,
`Plaintiffs,
`vs.
`CITY AND COUNTY OF SAN FRANCISCO,
`Defendant.
`
`Case No. 3:21-cv-05502 EMC
`DEFENDANT CITY AND COUNTY OF
`SAN FRANCISCO’S NOTICE AND
`MOTION TO DISMISS; MEMORANDUM
`OF POINTS AND AUTHORITIES
`Hearing Date:
`November 4, 2021
`Time:
`1:30 p.m.
`Place:
`Courtroom 5
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`Case 3:21-cv-05502-EMC Document 20 Filed 09/10/21 Page 2 of 35
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`TABLE OF CONTENTS
`
`TABLE OF AUTHORITIES ......................................................................................................... iii
`
`NOTICE AND MOTION ................................................................................................................1
`
`MEMORANDUM OF POINTS AND AUTHORITIES .................................................................1
`
`ISSUES TO BE DECIDED .............................................................................................................1
`
`INTRODUCTION ...........................................................................................................................1
`
`STATEMENT OF FACTS ..............................................................................................................2
`
`A.
`
`B.
`
`The Ordinance ..............................................................................................2
`
`Plaintiffs’ Business Practices .......................................................................3
`
`LEGAL STANDARD FOR MOTION TO DISMISS .....................................................................4
`
`ARGUMENT ...................................................................................................................................4
`
`I.
`
`THE COMPLAINT FAILS TO STATE A CLAIM FOR VIOLATION OF THE
`CONTRACT CLAUSE OF THE FEDERAL AND STATE CONSTITUTIONS ..4
`
`A.
`
`B.
`
`There Is No Substantial Impairment of a Contractual Relationship ............5
`
`The Ordinance Is an Appropriate and Reasonable Way to Advance a
`Significant and Legitimate Public Purpose ..................................................7
`
`II.
`
`THE COMPLAINT FAILS TO STATE A CLAIM FOR AN
`UNCONSTITUTIONAL TAKING UNDER THE FIFTH AMENDMENT OR
`FOR INVERSE CONDEMNATION UNDER THE CALIFORNIA
`CONSTITUTION ....................................................................................................9
`
`A.
`
`B.
`
`Plaintiffs’ Contracts Do Not Give Rise to a Claim Under the Taking
`Clause ...........................................................................................................9
`
`Even If Plaintiffs’ Contracts Are Property for the Purposes of the Taking
`Clause, the Complaint Fails to Establish a Regulatory Taking .................10
`
`III.
`
`IV.
`
`V.
`
`THE COMPLAINT FAILS TO STATE A CLAIM FOR VIOLATION OF
`ARTICLE XI, SECTION 7 OF THE CALIFORNIA CONSTITUTION .............12
`
`THE COMPLAINT FAILS TO STATE A CLAIM FOR VIOLATION OF DUE
`PROCESS ..............................................................................................................13
`
`THE COMPLAINT FAILS TO STATE A CLAIM FOR VIOLATION OF
`EQUAL PROTECTION ........................................................................................15
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`VI.
`
`THE COMPLAINT FAILS TO STATE A CLAIM FOR FIRST
`AMENDMENT RETALIATION ..........................................................................18
`
`A.
`
`B.
`
`The Complaint Does Not Satisfy Any Element as to Grubhub .................18
`
`The Complaint Does Not Plausibly Allege Facts to Establish the Second
`and Third Elements as to DoorDash ..........................................................19
`
`VII.
`
`THE COMPLAINT FAILS TO STATE A CLAIM FOR VIOLATION OF THE
`DORMANT COMMERCE CLAUSE ...................................................................22
`
`VIII. LEAVE TO AMEND SHOULD BE DENIED .....................................................24
`
`CONCLUSION ..............................................................................................................................25
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`
`TABLE OF AUTHORITIES
`
`CASES
`Allied Properties v. Dep’t of Alcoholic Beverage Control
`53 Cal.2d 141 (1959) .................................................................................................................12
`
`Allied Structural Steel Co. v. Spannaus
`438 U.S. 234 (1978) .....................................................................................................................9
`
`Animal Legal Def. Fund v. Wasden
`878 F.3d 1184 (9th Cir. 2018) ...................................................................................................17
`
`Armour v. City of Indianapolis, Ind.
`566 U.S. 673 (2012) ...................................................................................................................15
`
`Ashcroft v. Iqbal
`556 U.S. 662 (2009) ...............................................................................................................4, 21
`
`Associated Home Builders etc., Inc. v. City of Livermore
`18 Cal.3d 582 (1976) .................................................................................................................13
`
`Bd. of Trustees of W. Conf. of Teamsters Pension Tr. Fund v. Thompson Bldg. Materials, Inc.
`749 F.2d 1396 (9th Cir. 1984) ...................................................................................................10
`
`Birkenfeld v. City of Berkeley
`17 Cal.3d 129 (1976) .................................................................................................................13
`
`Blair v. Bethel Sch. Dist.
`608 F.3d 540 (9th Cir. 2010) .....................................................................................................20
`
`Boardman v. Inslee
`978 F.3d 1092 (9th Cir. 2020) ...................................................................................................18
`
`Brown v. Hovatter
`561 F.3d 357 (4th Cir. 2009) .....................................................................................................14
`
`California Bldg. Indus. Assn. v. City of San Jose
`61 Cal.4th 435 (2015) ..................................................................................................................7
`
`California Grocers Ass’n v. City of Long Beach
`No. 221CV00524ODWASX, 2021 WL 3500960 (C.D. Cal. Aug. 9, 2021) ...............................5
`
`Campanelli v. Allstate Life Ins. Co.
`322 F.3d 1086 (9th Cir. 2003) .....................................................................................................5
`
`Capp v. Cty. of San Diego
`940 F.3d 1046 (9th Cir. 2019) ...................................................................................................18
`
`Chang v. United States
`859 F.2d 893 (Fed. Cir. 1988) .......................................................................................11, 12, 25
`
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`
`Chinatown Neighborhood Ass’n v. Harris
`794 F.3d 1136 (9th Cir. 2015) .............................................................................................24, 25
`
`City of Las Vegas v. Foley
`747 F.2d 1294 (9th Cir. 1984) ...................................................................................................20
`
`Classic Cab, Inc. v. D.C.
`288 F. Supp. 3d 218 (D.D.C. 2018) ...........................................................................................11
`
`Comm. for Reasonable Regul. of Lake Tahoe v. Tahoe Reg’l Plan. Agency
`311 F. Supp. 2d 972 (D. Nev. 2004) ..........................................................................................25
`
`Concrete Pipe & Prods. of Cal., Inc. v. Constr. Laborers Pension Trust for S. Cal.
`508 U.S. 602 (1993) ...................................................................................................................11
`
`Connolly v. Pension Benefit Guaranty Corp.
`475 U.S. 211 (1986) .........................................................................................................9, 10, 11
`
`CTS Corp. v. Dynamics Corp. of America
`481 U.S. 69 (1987) .....................................................................................................................23
`
`Cycle City, Ltd. v. Harley-Davidson Motor Co.
`81 F. Supp. 3d 993 (D. Haw. 2014) .............................................................................................8
`
`Desoto CAB Co., Inc. v. Picker
`228 F. Supp. 3d 950 (N.D. Cal. 2017) ...........................................................................16, 17, 24
`
`Duquesne Light Co. v. Barasch
`488 U.S. 299 (1989) ...................................................................................................................14
`
`Energy Rsrvs. Grp., Inc. v. Kansas Power & Light Co.
`459 U.S. 400 (1983) .................................................................................................................5, 8
`
`Exxon Corp. v. Eagerton
`462 U.S. 176 (1983) .....................................................................................................................9
`
`Exxon Corp. v. Governor of Maryland
`437 U.S. 117 (1978) .............................................................................................................22, 23
`
`F.C.C. v. Beach Commc’ns, Inc.
`508 U.S. 307 (1993) ...................................................................................................................15
`
`Fayer v. Vaughn
`649 F.3d 1061 (9th Cir. 2011) .....................................................................................................4
`
`Fed. Power Comm’n v. Hope Natural Gas Co.
`320 U.S. 591 (1944) .............................................................................................................14, 15
`
`Fed. Power Comm’n v. Nat. Gas Pipeline Co. of Am.
`315 U.S. 575 (1942) ...................................................................................................................14
`
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`
`Fitzgerald v. Racing Ass’n of Cent. Iowa
`539 U.S. 103 (2003) ...................................................................................................................16
`
`Fortune Players Grp., Inc. v. Quint
`No. 16-CV-04557-TEH, 2016 WL 7102735 (N.D. Cal. Dec. 6, 2016) .....................................19
`
`Fraternal Ord. of Police Hobart Lodge No. 121, Inc. v. City of Hobart
`864 F.2d 551 (7th Cir. 1988) .....................................................................................................20
`
`Gallinger v. Becerra
`898 F.3d 1012 (9th Cir. 2018) .......................................................................................15, 18, 24
`
`General Motors Corp. v. Romein
`503 U.S. 181 (1992) .....................................................................................................................5
`
`Guggenheim v. City of Goleta
`638 F.3d 1111 (9th Cir. 2010) ...................................................................................................17
`
`Hell’s Angels Motorcycle Corp. v. Cty. of Monterey
`89 F. Supp. 2d 1144 (N.D. Cal. 2000) .........................................................................................1
`
`Hernandez v. City of Hanford
`41 Cal.4th 279 (2007) ............................................................................................................7, 16
`
`Hettinga v. United States
`677 F.3d 471 (D.C. Cir. 2012) ...................................................................................................14
`
`Hotel & Motel Ass’n of Oakland v. City of Oakland
`344 F.3d 959 (9th Cir. 2003) .....................................................................................................16
`
`Humanitarian L. Project v. U.S. Treasury Dep’t
`578 F.3d 1133 (9th Cir. 2009) ...................................................................................................18
`
`Huskey v. City of San Jose
`204 F.3d 893 (9th Cir. 2000) .....................................................................................................19
`
`In re Seltzer
`104 F.3d 234 (9th Cir. 1996) ...................................................................................................4, 5
`
`Inman v. Hatton
`No. 17-CV-06612-SI, 2018 WL 1100959 (N.D. Cal. Mar. 1, 2018) .........................................19
`
`Int’l Fur Trade Fed’n v. City & Cty. of San Francisco
`472 F. Supp. 3d 696 (N.D. Cal. 2020) .......................................................................................24
`
`Kavanau v. Santa Monica Rent Control Bd.
`16 Cal.4th 761 (1997) ................................................................................................................14
`
`Kawaoka v. City of Arroyo Grande
`17 F.3d 1227 (9th Cir. 1994) .....................................................................................................20
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`
`Keith Fulton & Sons, Inc. v. New England Teamsters & Trucking Indus. Pension Fund
`762 F.2d 1124 (1st Cir. 1984) ....................................................................................................10
`
`Keystone Bituminous Coal Ass’n v. DeBenedictis
`480 U.S. 470 (1987) ...............................................................................................................7, 10
`
`Laurel Park Cmty., LLC v. City of Tumwater
`698 F.3d 1180 (9th Cir. 2012) ...................................................................................................11
`
`Lefrancois v. State of R.I.
`669 F. Supp. 1204 (D.R.I. 1987) .................................................................................................6
`
`Litmon v. Harris
`768 F.3d 1237 (9th Cir. 2014) ...................................................................................................16
`
`Lynch v. United States
`292 U.S. 571 (1934) .....................................................................................................................9
`
`MHC Fin. Ltd. P'ship v. City of San Rafael
`714 F.3d 1118 (9th Cir. 2013) ...................................................................................................11
`
`Mountain Water Co. v. Montana Dep’t of Pub. Serv. Regul.
`919 F.2d 593 (9th Cir. 1990) .....................................................................................................17
`
`Nat’l Ass’n of Optometrists & Opticians LensCrafters, Inc. v. Brown
`567 F.3d 521 (9th Cir. 2009) .....................................................................................................22
`
`Nat’l Ass’n of Optometrists & Opticians v. Harris
`682 F.3d 1144 (9th Cir. 2012) ...................................................................................................24
`
`Nat’l Pork Producers Council v. Ross
`456 F. Supp. 3d 1201 (S.D. Cal. 2020) ......................................................................................24
`
`Navarro v. Block
`250 F.3d 729 (9th Cir. 2001) .......................................................................................................4
`
`Nebbia v. People of New York
`291 U.S. 502 (1934) ...................................................................................................................13
`
`Nordlinger v. Hahn
`505 U.S. 1 (1992) .......................................................................................................................15
`
`Norman v. Baltimore & Ohio R. Co.
`294 U.S. 240 (1935) ...................................................................................................................10
`
`Nw. Grocery Ass’n v. City of Seattle
`No. C21-0142-JCC, 2021 WL 1055994 (W.D. Wash. Mar. 18, 2021) ...................................7, 8
`
`Olson v. California
`No. CV1910956DMGRAOX, 2020 WL 6439166 (C.D. Cal. Sept. 18, 2020) .................5, 8, 18
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`Olson v. California
`No. CV1910956DMGRAOX, 2020 WL 905572 (C.D. Cal. Feb. 10, 2020) ............................17
`
`Park Pet Ship, Inc. v. City of Chicago
`872 F.3d 495 (7th Cir. 2017) .....................................................................................................22
`
`Peick v. Pension Ben. Guar. Corp.
`724 F.2d 1247 (7th Cir. 1983) ...................................................................................................10
`
`Penn Central Transportation Co. v. New York City
`438 U.S. 104 (1978) ...................................................................................................................10
`
`Pennell v. City of San Jose
`485 U.S. 1 (1988) .......................................................................................................................13
`
`Permian Basin Area Rate Cases
`390 U.S. 747 (1968) ...................................................................................................................13
`
`Pike v. Bruce Church, Inc.
`397 U.S. 137 (1970) ...................................................................................................................23
`
`Pro-Eco, Inc. v. Bd. of Comm’rs of Jay Cty., Ind.
`57 F.3d 505 (7th Cir. 1995) .................................................................................................10, 11
`
`Reddy v. Litton Indus., Inc.
`912 F.2d 291 (9th Cir. 1990) .....................................................................................................24
`
`Rocky Mountain Farmers Union v. Corey
`730 F.3d 1070 (9th Cir. 2013) .............................................................................................22, 23
`
`Rosenblatt v. City of Santa Monica
`940 F.3d 439 (9th Cir. 2019) ...............................................................................................22, 23
`
`Ruckelshaus v. Monsanto Co.
`467 U.S. 986 (1984) .....................................................................................................................9
`
`Safeway Inc. v. City & Cnty. of San Francisco
`797 F. Supp. 2d 964 (N.D. Cal. 2011) .......................................................................................15
`
`San Francisco Apartment Ass’n v. City & Cty. of San Francisco
`142 F. Supp. 3d 910 (N.D. Cal. 2015) .......................................................................................16
`
`San Francisco Taxi Coal. v. City & Cty. of San Francisco
`979 F.3d 1220 (9th Cir. 2020) ...............................................................................................7, 16
`
`San Remo Hotel L.P. v. City And Cty. of San Francisco
`364 F.3d 1088 (9th Cir. 2004) .....................................................................................................9
`
`Siegel v. Bradstreet
`No. CV 08-2480 CAS (SSX), 2008 WL 4195949 (C.D. Cal. Sept. 8, 2008) ..............................8
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`Sierra Med. Servs. All. v. Kent
`883 F.3d 1216 (9th Cir. 2018) ...................................................................................................12
`
`Smith v. Pelican Bay State Prison
`No. 15-CV-04875-EMC, 2016 WL 285062 (N.D. Cal. Jan. 25, 2016) .....................................24
`
`Snake River Valley Elec. Ass’n v. PacifiCorp
`357 F.3d 1042 (9th Cir. 2004) .....................................................................................................7
`
`Somers Realty Corp. v. Harding
`886 F. Supp. 386 (S.D.N.Y. 1995) ............................................................................................22
`
`Sprewell v. Golden State Warriors
`266 F.3d 979 (9th Cir. 2001) .......................................................................................................4
`
`Support Working Animals, Inc. v. DeSantis
`457 F. Supp. 3d 1193 (N.D. Fla. 2020) .......................................................................................8
`
`Sveen v. Melin
`138 S. Ct. 1815 (2018) .................................................................................................................4
`
`TCF Nat. Bank v. Bernanke
`643 F.3d 1158 (8th Cir. 2011) ...................................................................................................14
`
`Thinket Ink Info. Res., Inc. v. Sun Microsystems, Inc.
`368 F.3d 1053 (9th Cir. 2004) ...................................................................................................24
`
`Thornton v. City of St. Helens
`425 F.3d 1158 (9th Cir. 2005) ...................................................................................................16
`
`Tsosie v. Califano
`630 F.2d 1328 (9th Cir. 1980) .....................................................................................................8
`
`U.S. Tr. Co. of New York v. New Jersey
`431 U.S. 1 (1977) .........................................................................................................................7
`
`United States Trust Co. v. New Jersey
`431 U.S. 1 (1977) .........................................................................................................................5
`
`United States v. O’Brien
`391 U.S. 367 (1968) ...................................................................................................................20
`
`United States v. Padilla-Diaz
`862 F.3d 856 (9th Cir. 2017) .....................................................................................................15
`
`United States v. Wilde
`74 F. Supp. 3d 1092 (N.D. Cal. 2014) .......................................................................................17
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`Valley Bank of Nevada v. Plus Sys., Inc.
`914 F.2d 1186 (9th Cir. 1990) ...................................................................................................22
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`Vance v. Bradley
`440 U.S. 93 (1979) .......................................................................................................................8
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`Wright v. Incline Vill. Gen. Improvement Dist.
`665 F.3d 1128 (9th Cir. 2011) ...................................................................................................17
`
`Young Am.’s Found. v. Napolitano
`No. 17-CV-02255-MMC, 2018 WL 1947766 (N.D. Cal. Apr. 25, 2018) ...........................21, 25
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`CONSTITUTIONAL PROVISIONS
`California Constitution
`Article I, Section 9 .......................................................................................................................5
`Article I, Section 19 .....................................................................................................................9
`Article XI, Section 7 ..................................................................................................................12
`
`U.S. Constitution
`Article I, Section 10 .....................................................................................................................4
`
`SAN FRANCISCO CODES AND REGULATIONS
`S.F. Police Code
`§ 5300 ........................................................................................................................2, 3, 7, 8, 17
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`NOTICE AND MOTION
`PLEASE TAKE NOTICE THAT on November 4, 2021, at 1:30 p.m., or as soon thereafter as
`the matter may be heard, in the United States District Court, Northern District of California,
`Courtroom 5, before the Honorable Edward Chen, Defendant City and County of San Francisco (“the
`City”) will and hereby does move the Court for an order dismissing the Complaint under Rule 12(b)(6)
`of the Federal Rules of Civil Procedure. The motion is based on this Notice and Motion, the
`accompanying Memorandum of Points and Authorities, the other documents filed in connection with
`this motion, the papers and records on file in this action, and such other written and oral argument as
`may be presented to the Court.
`
`MEMORANDUM OF POINTS AND AUTHORITIES
`ISSUES TO BE DECIDED
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`Whether the Complaint fails to state a claim for (1) violation of the Contracts Clause of the
`federal and state constitutions; (2) an unconstitutional taking under the federal and state constitutions;
`(3) exceeding the scope of the police power under the state constitution; (4) violation of due process
`under the federal and state constitutions; (5) violation of equal protection under the federal and state
`constitutions; (6) First Amendment retaliation; and (7) violation of the Dormant Commerce Clause.
`INTRODUCTION
`
`Taking “a smorgaşbord approach to pleading,” Hell’s Angels Motorcycle Corp. v. Cty. of
`Monterey, 89 F. Supp. 2d 1144, 1147 (N.D. Cal. 2000), Plaintiffs DoorDash and Grubhub assert seven
`causes of action under a host of federal and state constitutional provisions, all seeking to have this
`Court invalidate the City’s decision to cap at fifteen percent the commissions that third-party delivery
`service platforms may charge local restaurants. The City took the action in an effort to address the
`decline of the restaurant industry—businesses that are critical to the economic and social vitality of
`San Francisco’s commercial corridors, and that have struggled with the high commissions that the
`largest third-party platforms have been able to impose through their market dominance.
`Plaintiffs’ numerous claims are variations on a handful of legally flawed ideas. Plaintiffs posit
`as the basis for several claims that a law is arbitrary or impermissibly discriminatory if it benefits some
`business entities at the expense of others, but that supposition is simply incorrect. They condemn the
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`City’s law as “confiscatory” and a regulatory taking while overlooking their own allegations that they
`are able to “offset” or “recoup” their losses from the commission cap—and their own prior disclosures
`to investors that they may face future laws regulating their commissions, and that could result in
`changes to their business model. And they seek invalidation of the law, regardless of whether it serves
`a legitimate purpose, by implausibly portraying themselves as victims of animus and retaliation
`because the Board of Supervisors previously opposed Proposition 22—a measure DoorDash
`supported—on the ground that it would strip gig workers of the panoply of workplace protections
`afforded employees. The argument is a nonsequitur, and the very statements on which Plaintiffs rely
`show that officials were concerned about the plight of San Francisco’s restaurants when enacting and
`extending the commission cap beyond the pandemic. Finally, Grubhub baselessly contends that the
`commission cap discriminates against interstate commerce, a charge undermined by its co-Plaintiff’s
`inability to join the claim because, like other platforms subject to the law, it is headquartered in San
`Francisco and the law regulates evenhandedly as to both of them. Because all of these claims are
`irredeemably flawed, the Court should dismiss the Complaint without leave to amend.
`STATEMENT OF FACTS
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`A.
`
`The Ordinance
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`Ordinance No. 234-20, which added Article 53 to the San Francisco Police Code, was enacted
`on November 20, 2020. ECF#1 ¶ 50 & Ex. D. While it contains several additional provisions that are
`not challenged in this litigation, at issue here is its imposition of a fifteen percent cap on the
`commissions that third-party delivery service companies may charge restaurants. Id. ¶ 52. The
`Ordinance followed by approximately seven months an emergency order by the Mayor likewise
`imposing fifteen percent cap. Id. ¶ 34. The findings of the Ordinance include the following:
`
`•
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`•
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`“Restaurants are vital to the character and community fabric of San Francisco (‘City’). They
`reflect and nurture the cultural diversity of the City, while offering access to food, an essential
`foundation of human health and basis for social connection. Restaurants are also important
`engines of the local economy, providing jobs and serving as commercial anchors in
`neighborhoods across the City.” ECF#1 Ex. D, S.F. Police Code § 5300(a).
`“Restaurants occupy a substantial percentage of ground floor retail space along the City’s
`commercial corridors,” but “in recent years the City’s restaurant industry has been in decline,”
`with the number of closures exceeding the number of openings for at least the past five years.
`Id. § 5300(b), (c).
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`• That decline has “coincide[d] with the rapid rise of third-party delivery services,” just four of
`which controlled “approximately 98% of the entire market” as of November 2019. Id. §
`5300(d).
`“The increasing market dominance of a small number of third-party food delivery service
`companies has resulted in increasingly difficult economic conditions for City restaurants,
`which must contract with these companies if they wish to access the growing share of
`customers who rely on delivery platforms to obtain meals.” Id. § 5300(e).
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`• These companies’ “market dominance” has given them “disproportionate leverage in contract
`negotiations with restaurants,” which they have used to extract high fees that “diminish
`restaurants’ already-narrow profit margins.” Id. § 5300(f).
`“Sample contracts … reflect that these companies commonly charge restaurants a 10% per-
`order fee for ‘delivery services,’” and impose additional fees “as much as 20% of the order cost
`for what are described as ‘marketing’ or ‘logistics’ services,” which are highly profitable. Id. §
`5300(g).
`“While money spent by consumers at local restaurants circulates within communities and
`bolsters the vitality of commercial corridors,