throbber
Case 1:21-cv-07564-GHW Document 40 Filed 03/07/22 Page 1 of 32
`
`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
`-----------------------------------------------------------------------x
`DOORDASH, INC., GRUBHUB INC., and
`PORTIER, LLC,
`
`
`
`
`
`
`
`
`- against -
`
`CITY OF NEW YORK,
`
`Plaintiffs,
`
`
`
`
`21-cv-7564 (GHW)
`
`
`
`
`
`-------------------------------------------------------------------------X
`
`
`Defendant(s).
`
`DEFENDANT’S MEMORANDUM OF LAW IN SUPPORT OF ITS MOTION TO
`DISMISS THE FIRST AMENDED COMPLAINT
`
`
`HON. SYLVIA HINDS-RADIX
`Corporation Counsel of the
`City of New York
`Attorney for Defendant
`100 Church Street
`New York, New York 10007
`Tel: (212) 356-1662
`
`
`
`
`
`
`Michelle Goldberg-Cahn
`Darren Trotter
`Kevin Collins,
`
` of Counsel.
`
`Jessica Katzen,
`
`on the brief
`
`March 7, 2022
`
`

`

`Case 1:21-cv-07564-GHW Document 40 Filed 03/07/22 Page 2 of 32
`
`TABLE OF CONTENTS
`
`
`
`Page
`
`TABLE OF AUTHORITIES .......................................................................................................... ii
`
`PRELIMINARY STATEMENT .................................................................................................... 1
`
`ARGUMENT .................................................................................................................................. 2
`
`STANDARD OF REVIEW ............................................................................................................ 2
`
`A. THE FAC FAILS TO PLAUSIBLY ALLEGE A
`CONTRACTS CLAUSE VIOLATION .....................................................................3
`
`i. The Ordinance Does Not Substantially Impair Plaintiffs’
`Contracts ............................................................................................................4
`
`ii. The City Had a Significant and Legitimate Public
`Interest in Enacting the Ordnance ......................................................................6
`
`iii. The Ordinance is a Reasonable and Appropriate Means
`to Achieve the City’s Significant and Legitimate Public
`Interest................................................................................................................8
`
`B. PLAINTIFFS’ REGULATORY TAKINGS CLAIM FAILS ..................................12
`
`i. Plaintiffs’ Contracts Do Not Give Rise to a Claim Under
`the Takings Clause ...........................................................................................12
`
`ii. The FAC Fails to Establish a Regulatory Taking ............................................13
`
`C. THE ENACTMENT OF THE ORDINANCE DOES NOT
`EXCEED THE CITY’S POLICE POWER ..............................................................16
`
`D. THE FAC FAILS TO PLAUSIBLY ALLEGE A
`PROCEDURAL DUE PROCESS CLAIM ..............................................................18
`
`E. THE FAC FAILS TO PLAUSIBLY ALLEGE A EQUAL
`PROTECTION VIOLATION ...................................................................................19
`
`F. THE FAC FAILS TO PLAUSIBLY ALLEGE A DORMANT
`COMMERCE CLAUSE VIOLATION ....................................................................22
`
`CONCLUSION ............................................................................................................................. 26
`
`
`
`
`
`
`
`i
`
`

`

`Case 1:21-cv-07564-GHW Document 40 Filed 03/07/22 Page 3 of 32
`
`TABLE OF AUTHORITIES
`
`
`
`Page(s)
`
`Cases
`
`1256 Hertel Avenue Assocs., LLC v. Calloway,
`761 F.3d 252 (2d Cir. 2014) ................................................................................................................. 15
`
`Allied Structural Steel Co. v. Spannaus,
`438 U.S. 234 (1978) ............................................................................................................................... 6
`
`Ashcroft v. Iqbal,
`556 U.S. 662 (2009) ............................................................................................................................... 2
`
`Ass’n of Surrogates & Supreme Court Reporters v. New York,
`940 F.2d 766 (2d Cir. 1991) ................................................................................................................... 8
`
`Bell Atlantic v. Twombly,
`550 U.S. 544 (2007) ............................................................................................................................... 2
`
`Big Apple Food Vendors’ Ass’n v. City of New York,
`168 Misc. 2d 483 (Sup. Ct. N.Y. Cty. 1995), aff’d .............................................................................. 17
`
`Buffalo Teachers Fed’n v. Tobe,
`464 F.3d 362 (2d Cir. 2006) .......................................................................................................... passim
`
`Casciani v. Nesbitt,
`659 F. Supp. 2d 427 (W.D.N.Y. 2009) ................................................................................................. 17
`
`CCA Assocs. v. United States,
`667 F.3d 1239 (Fed. Cir. 2011) ............................................................................................................ 14
`
`Chambers v. Time Warner,
`282 F.3d 147 (2d Cir. 2002) ................................................................................................................... 3
`
`Concrete Pipe & Prods. of Cal. v. Constr. Laborers Pensions Trust for S. Cal.,
`508 U.S. 602 (1993) ............................................................................................................................. 14
`
`Connolly v. Pension Benefit Guaranty Corp.,
`475 U.S. 211 (1986) ....................................................................................................................... 12, 13
`
`Cortec Indus. v. Sum Holding L.P.,
`949 F.2d 42 (2d Cir. 1991) ..................................................................................................................... 3
`
`CTS Corp. v. Dynamics Corp. of America,
`481 U.S. 69 (1987) ............................................................................................................................... 25
`
`D’Amico v. Crosson,
`93 N.Y.2d 29 (1999) ............................................................................................................................. 20
`
`
`
`ii
`
`

`

`Case 1:21-cv-07564-GHW Document 40 Filed 03/07/22 Page 4 of 32
`
`Dandridge v. Williams,
`390 U.S. 471 (1970) ............................................................................................................................. 22
`
`DJL Rest. Corp. v. City of New York,
`96 N.Y.2d 91 (2001) ....................................................................................................................... 16, 17
`
`Energy Reserves Grp., Inc. v. Kansas Power & Light Co.,
`459 U.S. 400 (1982) ...................................................................................................................... passim
`
`F.C.C. v. Beach Commc’ns, Inc.,
`508 U.S. 307 (1993) ............................................................................................................................. 20
`
`Fitzgerald v. Racing Ass’n of Cent. Iowa,
`539 U.S. 103 (2003) ............................................................................................................................. 21
`
`Freedom Holdings, Inc. v. Spitzer,
`357 F.3d 205 (2d Cir. 2004) ................................................................................................................. 22
`
`GMC v. Tracy,
`519 U.S. 278 (1997) ....................................................................................................................... 22, 23
`
`Grand River Enters. Six Nations, Ltd. v. Pryor,
`425 F.3d 158 (2d Cir. 2005) ................................................................................................................. 25
`
`Healy v. Beer Inst.,
`491 U.S. 324 (1989) ............................................................................................................................. 23
`
`Heidel v. Hochul,
`2021 U.S. Dist. LEXIS 203572 (S.D.N.Y. Oct. 21, 2021) ................................................................... 12
`
`Heller v. Doe,
`509 U.S. 312 (1993) ............................................................................................................................. 20
`
`Hernandez v. United States,
`939 F.3d 191 (2d Cir. 2019) ................................................................................................................. 18
`
`Joglo Realties, Inc. v. Seggos,
`229 F. Supp. 3d 146 (E.D.N.Y. 2017) .................................................................................................... 3
`
`Jones v. Schneiderman,
`974 F. Supp. 2d 322 (S.D.N.Y. 2013) .................................................................................................. 23
`
`Lefrancois v. Rhode Island,
`669 F. Supp 1204 (D.R.I. 1987) ......................................................................................................... 4, 5
`
`Martin v. Town of Simsbury,
`505 F. Supp. 3d 116 (2d Cir. 2020) ...................................................................................................... 15
`
`Matusovsky v. Merrill Lynch,
`186 F. Supp. 2d 397 (S.D.N.Y. 2002) .................................................................................................... 3
`
`
`
`iii
`
`

`

`Case 1:21-cv-07564-GHW Document 40 Filed 03/07/22 Page 5 of 32
`
`Melendez v. City of New York,
`2021 U.S. App. LEXIS 32327 (2d Cir. 2021) ...................................................................... 5, 10, 11, 12
`
`MHC Fin. L.P. v. City of San Rafael,
`714 F.3d 1118 (9th Cir. 2013) .............................................................................................................. 14
`
`Norfolk Southern Corp. v. Oberly,
`822 F.2d 388 (3d Cir. 1987) ................................................................................................................. 25
`
`Or. Waste Sys. v. Dep’t of Envtl. Quality,
`511 U.S. 93 (1994) ............................................................................................................................... 24
`
`Penn Central Transp. Co. v. New York City,
`438 U.S. 104 (1978) ....................................................................................................................... 13, 16
`
`Pennell v. City of San Jose,
`485 U.S. 1 (1988) ................................................................................................................................. 18
`
`People v. DeJesus,
`54 N.Y.2d 465 (1981) ........................................................................................................................... 16
`
`People v. Lewis,
`295 N.Y. 42 (1945) ............................................................................................................................... 17
`
`Pike v. Bruce Church, Inc.
`397 U.S. 137 (1970) ............................................................................................................................. 25
`
`Ruckelshaus v. Monsanto Co.,
`467 U.S. 986 (1984) ............................................................................................................................. 15
`
`Sanitation and Recycling Indus., Inc. v. City of New York,
`107 F.3d 985 (2d Cir. 1997) ............................................................................................. 3, 4, 5, 6, 7, 15
`
`Sazerac Co. v. Falk,
`861 F. Supp. 253 (S.D.N.Y. 1994) ......................................................................................................... 3
`
`Sensational Smiles, LLC v. Mullen,
`793 F.3d 281 (2d Cir. 2015) ................................................................................................................. 20
`
`Shumway v. UPS,
`118 F.3d 60 (1997) ............................................................................................................................... 20
`
`Sullivan v. Nassau Cty. Interim Fin. Auth.,
`959 F.3d 54 (2d Cir. 2020) ............................................................................................................ passim
`
`Taylor v. United States,
`959 F.3d 1081 (Fed. Cir. 2020) ............................................................................................................ 15
`
`TCF Nat. Bank v. Bernanke,
`643 F.3d 1158 (8th Cir. 2001) .............................................................................................................. 19
`
`
`
`iv
`
`

`

`Case 1:21-cv-07564-GHW Document 40 Filed 03/07/22 Page 6 of 32
`
`Tinnerello & Sons, Inc. v. Stonington,
`141 F.3d 46 (2d Cir. 1998) ............................................................................................................... 3, 10
`
`Town of Southold v. Town of E. Hampton,
`477 F.3d 38 (2d Cir. 2007) ................................................................................................................... 24
`
`U.S. Tr. Co. v. New Jersey,
`431 U.S. 1 (1977) ............................................................................................................................... 3, 8
`
`United Haulers Ass’n v. Oneida-Herkimer Solid Waste Mgmt. Auth.,
`261 F.3d 245 (2d Cir. 2001) ................................................................................................................. 24
`
`Williams v. Citibank, N.A.,
`565 F. Supp. 2d 523 (S.D.N.Y. 2008) .................................................................................................... 3
`
`Winston v. City of Syracuse,
`887 F.3d 553 (2018) ............................................................................................................................. 19
`
`Wright v. Incline Vill. Gen. Improvement Dist.,
`665 F.3d 1128 (9th Cir. 2011) .............................................................................................................. 21
`
`Statutes
`
`General City Law §§ 20(13), 21 ....................................................................................................17
`
`Municipal Home Rule Law § 10(1)(ii)(a)(12) .........................................................................16, 17
`
`New York City Administrative Code §§ 20-563.3(a) and (b) .........................................................1
`
`Other Authorities
`
`Federal Rule of Civil Procedure 12(b)(6) ........................................................................................2
`
`U.S. Const. Art. I, § 10 ....................................................................................................................2
`
`
`
`
`v
`
`

`

`Case 1:21-cv-07564-GHW Document 40 Filed 03/07/22 Page 7 of 32
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`PRELIMINARY STATEMENT
`
`This case stems from plaintiffs’ challenge to New York City Administrative Code
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`(“Admin. Code”) §§ 20-563.3(a) and (b) (“Ordinance”), which deems it unlawful for a third-party
`
`food delivery platform (“TPP”) to: (1) charge a restaurant a fee in excess of fifteen percent of each
`
`online order; and (2) charge a “food service establishment any fee or fees, other than a delivery
`
`fee and a transaction fee, for the use of their service that totals more than five percent of the
`
`purchase price of each online order.”1 The New York City Council (“City Council”) passed the
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`Ordinance to address the threats posed to City restaurants by the exponential increase in the use of
`
`TPPs to place online orders. Between 2013 and 2017, online restaurant orders grew twenty-three
`
`percent annually. Despite these increases in online orders, restaurants’ profit margins continued to
`
`diminish as each online order placed through plaintiffs’ platforms—which as of July of 2021 were
`
`collectively responsible for ninety-nine percent of online food orders in the City—is accompanied
`
`by an excessively high commission. During the COVID-19 pandemic, the impact of excessively
`
`high commissions became even more severe. In passing the Ordinance, the City Council did not
`
`act hastily. Rather, the Ordinance was preceded by temporary commission caps, which were in
`
`place for over a year at the time of the Ordinance’s passage. Under the temporary caps, TPP profits
`
`actually increased. With knowledge that fee caps would not have a detrimental effect on TPPs, it
`
`was reasonable for the City Council to modify and permanently implement the same commission
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`caps to ensure the survival of restaurants, which are crucial to the economic and social vitality of
`
`the City as cornerstones of communities and employers of over 300,000 New Yorkers.
`
`
`1 The First Amended Complaint purports to challenge the permanent imposition of a commission cap for services
`rendered by TPPs set forth in Administrative Code §§ 20-563.3(a) and (b) as well as prior temporary commission
`caps, which exempted from the commission caps TPPs serving 20 or fewer restaurants. On January 24, 2022, the
`permanent commission caps went into effect, superseding any prior iterations. The permanent commission caps are
`applicable to all TPPs irrespective of their size.
`
`
`
`1
`
`

`

`Case 1:21-cv-07564-GHW Document 40 Filed 03/07/22 Page 8 of 32
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`In this action, plaintiffs assert six causes of action. Each claim fails. Plaintiffs’ Contracts
`
`Clause claim fails as the First Amended Complaint (“FAC”) fails to plausibly allege substantial
`
`impairment of existing contracts and because the Ordinance is appropriately drawn to advance a
`
`significant public purpose. Plaintiffs’ takings claim fails as: (1) plaintiffs’ contracts do not give
`
`rise to a takings claim; and (2) mere diminution in value is insufficient to constitute a regulatory
`
`taking. Plaintiffs’ third claim fails as the Ordinance is an appropriate exercise of the City’s police
`
`power as the protection of restaurants advances the general welfare of City residents. Plaintiffs’
`
`due process claim fails as the FAC fails to plausibly allege that the Ordinance is arbitrary or
`
`discriminatory. Plaintiffs’ equal protection claim fails as the FAC fails to plausibly allege that
`
`plaintiffs are similarly situated to other industries with which the restaurant industry transacts and
`
`as any purported distinction was rational. Finally, plaintiffs’ Commerce Clause claim fails as the
`
`Ordinance does not discriminate against interstate commerce in favor of intrastate commerce.
`
`ARGUMENT
`
`STANDARD OF REVIEW
`
`To survive a Rule 12(b)(6) motion to dismiss, a pleading must contain sufficient factual
`
`
`
`matter, accepted as true, so as to make a claim plausible on its face. Ashcroft v. Iqbal, 556 U.S.
`
`662, 678 (2009); Bell Atlantic v. Twombly, 550 U.S. 544, 570 (2007). To meet the “facial
`
`plausibility” standard, a pleading must set forth “factual content that allows the court to draw the
`
`reasonable inference that the defendant is liable for the misconduct alleged.” Id. This requires a
`
`court to reject “threadbare recitals” of the elements of a claim “supported by mere conclusory
`
`statements,” and requires “more than a sheer possibility that a defendant has acted unlawfully.” Id.
`
`
`
`In assessing a motion to dismiss under Rule 12(b)(6), a court may look to the facts alleged
`
`in the Complaint, documents attached thereto or incorporated by reference, documents that are
`
`
`
`2
`
`

`

`Case 1:21-cv-07564-GHW Document 40 Filed 03/07/22 Page 9 of 32
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`“integral” to a plaintiff’s claims, even if not expressly incorporated by reference, as well as matters
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`of public record, documents in plaintiff’s possession, or documents that the plaintiff knew of or
`
`relied upon in bringing suit. Chambers v. Time Warner, 282 F.3d 147, 152–53 (2d Cir. 2002);
`
`Cortec Indus. v. Sum Holding L.P., 949 F.2d 42, 46–48 (2d Cir. 1991); Joglo Realties, Inc. v.
`
`Seggos, 229 F. Supp. 3d 146, 148 n.3 (E.D.N.Y. 2017). Moreover, “if the allegations of a
`
`complaint are contradicted by documents made a part thereof, the document controls and the court
`
`need not accept as true the allegations of the complaint.” Sazerac Co. v. Falk, 861 F. Supp. 253,
`
`257 (S.D.N.Y. 1994). Such contradicted allegations are “insufficient to defeat a motion to
`
`dismiss.” Matusovsky v. Merrill Lynch, 186 F. Supp. 2d 397, 400 (S.D.N.Y. 2002); Williams v.
`
`Citibank, N.A., 565 F. Supp. 2d 523, 527 (S.D.N.Y. 2008). Here, relying solely on the facts
`
`presented in the FAC and documents referred to or incorporated by reference therein, all claims
`
`against defendant must be dismissed.
`
`A.
`
`
`The FAC Fails to Plausibly Allege a Contracts Clause Violation
`
`The Contract Clause provides that “[n]o State shall pass any . . . Law . . . impairing the
`
`Obligation of Contracts.” While “phrased in absolute terms, the Supreme Court has not interpreted
`
`the Clause absolutely to prohibit the impairment of either private or government contracts.”
`
`Tinnerello & Sons, Inc. v. Stonington, 141 F.3d 46, 52 (2d Cir. 1998) (citing U.S. Tr. Co. v. New
`
`Jersey, 431 U.S. 1, 21 (1977)); Sanitation and Recycling Indus., Inc. v. City of New York, 107
`
`F.3d 985, 993 (2d Cir. 1997) (“Sanitation”). Rather, legislatures retain “broad power” to adopt
`
`generally applicable laws “without being concerned that private contracts will be impaired, or even
`
`destroyed, as a result.” U.S. Tr. Co., 431 U.S. at 22. The extent to which States may exercise
`
`police powers to the detriment of contracts is determined by applying the three-part test in Energy
`
`Reserves Grp., Inc. v. Kansas Power & Light Co., 459 U.S. 400 (1982) (“Energy Reserves”). See
`
`
`
`3
`
`

`

`Case 1:21-cv-07564-GHW Document 40 Filed 03/07/22 Page 10 of 32
`
`Sullivan v. Nassau Cty. Interim Fin. Auth., 959 F.3d 54, 64 (2d Cir. 2020); Buffalo Teachers Fed’n
`
`v. Tobe, 464 F.3d 362, 368 (2d Cir. 2006) (“Buffalo Teachers”).
`
`i.
`
`The Ordinance Does Not Substantially Impair Plaintiffs’ Contracts
`
`The first—and threshold—inquiry is whether the law “has, in fact, operated as a substantial
`
`impairment of a contractual relationship.” Energy Reserves, 459 U.S. at 411. Whether a law
`
`operates as a substantial impairment “depends upon ‘the extent to which reasonable expectations
`
`under the contract have been disrupted.’” Sullivan, 959 F.3d at 64 (quoting Sanitation, 107 F.3d at
`
`993). Such reasonableness depends on a number of factors, such as: (i) “the extent to which the
`
`challenged provision provides for ‘gradual applicability or grace periods,’” id. (quoting Allied
`
`Structural Steel Co. v. Spannaus, 438 U.S. 234, 245 (1978)); and (ii) “the extent to which the law
`
`. . . prevents the party from safeguarding or reinstating his rights,” Elmsford Apartment Assocs.,
`
`LLC, 2020 U.S. Dist. LEXIS 115354 at *37.
`
`Plaintiffs fail to plausibly allege that the Ordinance results in substantial impairment. First,
`
`there can be no substantial impairment where contracts are terminable at-will as these contracts do
`
`not provide a guaranteed revenue stream or protection from future regulation. See Lefrancois v.
`
`Rhode Island, 669 F. Supp 1204, 1215 (D.R.I. 1987) (assuming a substantial impairment “in the
`
`interest of expedient resolution of this controversy,” but nonetheless finding “much force to
`
`defendant’s contention” that the state law prohibiting a landfill from accepting out-of-state waste
`
`resulted in no substantial impairment as plaintiff’s contract was terminable at-will). Here, despite
`
`plaintiffs’ contentions that the Ordinance has impaired their “reasonably expected revenue
`
`streams,” FAC ¶ 128, restaurants may terminate their contracts at-will. This militates against a
`
`finding of substantial impairment because “the extent to which [plaintiffs’] reasonable
`
`expectations under the contract have been disrupted,” is necessarily lower than contracts where
`
`
`
`4
`
`

`

`Case 1:21-cv-07564-GHW Document 40 Filed 03/07/22 Page 11 of 32
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`terms are fixed. Id.; cf. Melendez v. City of New York, 2021 U.S. App. LEXIS 32327 *1, *77–
`
`*84 (2d Cir. 2021) (law rendering personal guaranties of rent permanently unenforceable resulted
`
`in substantial impairment).
`
`Second, there is no substantial impairment where the challenged law was “foreseeable as
`
`the type of law that would alter contract obligations.” Energy Reserves, 459 U.S. at 416. While
`
`foreseeability arises “at the time of the execution of the contracts,” id. at 415, and plaintiffs were
`
`not previously bound by the Ordinance, plaintiffs cannot reasonably maintain such regulation was
`
`entirely unforeseen. Significantly, plaintiffs admit that the TPP industry “is dynamic, competitive,
`
`and constantly evolving,” FAC ¶ 33. Plaintiffs were also aware that future regulation was likely.
`
`Indeed, representatives from plaintiffs’ companies attended a June 27, 2019 City Council
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`Oversight Hearing entitled, “The Changing Market for Food Delivery,” where commission caps
`
`were discussed. See Trotter Decl. Ex. A at 53–62 (Uber Eats), 62–137 (Grubhub). Moreover,
`
`plaintiffs have recognized that they operate in an evolving industry where regulation of
`
`commission rates is unsettled and developing.2 Accordingly, contrary to plaintiffs’ contentions,
`
`the Ordinance was not “wholly unexpected,” further undermining any claims of substantial
`
`impairment. Sanitation, 107 F.3d at 993.
`
`The City Had a Significant and Legitimate Public Interest in Enacting the
`Ordinance
`
`ii.
`
`
`
`
`2 For example, in its April 7, 2014 IPO prospectus, Grubhub noted that it was subject to “evolving” laws governing
`the Internet and e-commerce, including those that “may cover . . . pricing” as well as other issues. Id. Ex. B at 22
`[26/183]. Similarly, in a draft registration statement that DoorDash submitted to the SEC on February 13, 2020,
`DoorDash stated that “[r]egulatory and administrative bodies may enact new laws or promulgate new regulations that
`are adverse to our business . . . including . . . by attempting to regulate the commissions businesses like ours agree to
`with merchants.” Id. Ex. C at 36 [40/266]. In its December 2020 IPO prospectus, DoorDash further noted that “[o]ur
`business is subject to a variety of U.S. and international laws and regulations, including those related to . . . pricing
`and commissions, many of which are unsettled and still developing,” and acknowledged that commission caps could
`be “retained after the COVID-19 pandemic subsides.” Id. Ex. D at 58–59 [72–73/282]. In its 2020 Annual SEC report,
`Uber Eats noted that “we may be subject to pricing regulations, as well as related litigation or regulatory inquires.”
`Id. Ex. E at 42 [84/277]. These documents may appropriately be considered as they are publicly filed documents.
`
`
`
`5
`
`

`

`Case 1:21-cv-07564-GHW Document 40 Filed 03/07/22 Page 12 of 32
`
`
`
`Since Plaintiffs failed to plausibly allege that there is no substantial impairment, this
`
`Court’s inquiry should end without the need to address the remaining prongs. See Allied Structural
`
`Steel Co., 438 U.S. at 245. However, if this Court were to find that plaintiffs plausibly alleged a
`
`substantial impairment, the second prong requires consideration of whether the government had a
`
`“significant and legitimate public purpose behind the regulation . . . such as the remedying of a
`
`broad and general social or economic problem.” Energy Reserves, 459 U.S. at 411–12. “A
`
`legitimate public purpose is one ‘aimed at remedying an important general social or economic
`
`problem rather than providing a benefit to special interests.’” Buffalo Teachers, 464 F.3d at 368
`
`(quoting Sanitation, 107 F.3d at 993). As restaurants are critical to the economic and social vitality
`
`of the City, the Ordinance clearly meets this standard.
`
`
`
`It is undisputed that the “restaurant industry is [] a vital source of employment and key
`
`contributor” to the City’s economy as well as an “essential component of the City’s identity, to
`
`New Yorkers and visitors alike.” See Trotter Decl. Ex. G, at 4–5. It is also undisputed that between
`
`2015 and 2016, prior to the COVID-19 pandemic, the number of independent restaurants in the
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`City fell at a rate greater than the national average. Id. at 9. As evidenced by the measures
`
`purportedly taken by plaintiffs to assist restaurants, FAC ¶¶ 57–61, the onset of the pandemic
`
`exacerbated the economic hurdles faced by restaurants struggling to remain in business. Id.
`
`(committee report noting that as of July of 2021 five thousand City eateries had closed).
`
`Moreover, the pre and post-pandemic onset decline in the restaurant industry coincided
`
`with an unbridled growth in use of TPPs to place online orders at local restaurants. Id. at 5
`
`(committee report noting that online restaurant orders grew twenty three percent annually from
`
`2013 to 2017). As noted by the City Council, the exclusive use of TPPs during the COVID-19
`
`pandemic only highlighted the challenges faced by restaurants as TPPs become increasingly more
`
`
`
`6
`
`

`

`Case 1:21-cv-07564-GHW Document 40 Filed 03/07/22 Page 13 of 32
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`popular—accounting for even larger percentages of restaurants’ business. Id. at 10. Significantly,
`
`despite increases in online orders, restaurants’ profit margins nevertheless continued to shrink as
`
`each online order placed through a TPP, as opposed to in-person dining, is accompanied by a
`
`commission. In March of 2021, “among restaurant owners in New York whose off-premises
`
`business increased compared to pre-COVID levels,” sixty-five percent “said higher off-premises
`
`sales made up less than 30 percent of their lost on-premises sales.” Id.
`
`
`
`Indeed, even before the pandemic, the effect of excessive commissions was apparent. See
`
`Trotter Decl. Ex. A at 153:10–18 (U.S. Small Business Administration (“SBA”) representative
`
`testifying that “fees charged by food delivery apps are akin to predatory lending more often than
`
`not” and that “these fees prey on small business owners seeking to expand their restaurant’s reach
`
`and add to the daily cost of doing business.”). Faced with these troubling statistics, the City Council
`
`reasonably concluded that the Ordinance was necessary to aid struggling restaurants serving a vital
`
`role in the City as cornerstones of communities and engines of local economies.3 As such, despite
`
`the fact that the Ordinance provides immediate benefits to restaurants, its primary purpose is to
`
`prevent the social and economic devastation communities would experience if employment
`
`opportunities in the restaurant industry decline as restaurants are forced to pay unreasonably high
`
`commissions on a rapidly increasing portion of their orders.4
`
`
`
`While not disputing the existence of an economic emergency for restaurants, FAC ¶¶ 57–
`
`61, plaintiffs argue that the Ordinance “engages in ill-conceived economic protectionism” for the
`
`benefit of restaurants alone. See, e.g., FAC ¶ 131. But, any implication that restaurants represent
`
`
`3 In 2019, the restaurant industry accounted for one in every twelve private sector employment positions, supporting
`approximately 317,800 jobs in total. Trotter Decl. Ex. G at 3–4.
`4 See Sanitation, 107 F.3d at 993 (public purpose inquiry “must be approached on a provision-by-provision basis”
`because “statutes aimed at solving broad societal problems may contain language whose only purpose is to benefit a
`small interest group.”).
`
`
`
`7
`
`

`

`Case 1:21-cv-07564-GHW Document 40 Filed 03/07/22 Page 14 of 32
`
`a special interest because they directly benefit from the Ordinance’s commission caps is misplaced.
`
`Almost every legislative enactment will benefit some at the expense of others. Whether or not a
`
`law transfers burdens is not the applicable test for determining a public purpose; rather, the test is
`
`whether the law seeks to remedy “an important general social or economic problem.” Buffalo
`
`Teachers, 464 F.3d at 368. That the Ordinance may provide immediate relief to restaurants does
`
`not detract from its primary purpose: preventing the social and economic problems that would
`
`follow if restaurants were forced to close, and, further, to promote the welfare of communities and
`
`local economies.
`
`iii.
`
`The Ordinance is a Reasonable and Appropriate Means to Achieve the
`City’s Significant and Legitimate Public Interest
`
`
`The final inquiry is “whether the adjustment of the rights and responsibilities of contracting
`
`
`
`parties is based upon reasonable conditions and is of a character appropriate to the public purpose
`
`justifying the legislation’s adoption.” Energy Reserves, 459 U.S. at 412 (quotes omitted); Sullivan,
`
`959 F.3d at 64 (interpreting inquiry as “whether the means chosen to accomplish th[e] purpose are
`
`reasonable and necessary”); see also Ass’n of Surrogates & Supreme Court Reporters v. New
`
`York, 940 F.2d 766, 771 (2d Cir. 1991). “As is customary in reviewing economic and social
`
`r

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