Does DoorDash (NYSE: DASH) set up fake landing pages for restaurants in an effort to steer customers to preferred restaurants? That is the basis of a potential class action lawsuit filed by Lona’s Lil Eats, a St. Louis Asian fusion restaurant.
The suit, originally filed in September in the United States District Court for the Northern District of California, where DoorDash is based, alleges DoorDash posted a Lona’s landing page on its app, even though the restaurant had no existing relationship with the delivery service. Lona’s further alleges that when a customer clicked the landing page, the customer was able to see a complete menu and proceed as if an order could be placed. In the end, though, the customer was shown one of two messages: that Lona’s was closed or that it was “too far away” for delivery, even when the customer was standing within 200 feet of the location, the suit alleges.
Lona’s lawyers argue that DoorDash, which takes up to a 30% commission on each order, is impacting Lona’s business and other potential members of the class.
“Accordingly, DoorDash is publishing false and deceptive information about the ability to get food from Lona’s as a means of punishing it for not partnering with it, and/or pressuring it to partner with it and to redirect would-be Lona’s business to its partner restaurants,” the suit alleges. “Defendant’s conduct has an obvious, significant and unfair impact upon the competitive landscape within the restaurant industry and results in damage to plaintiff and members of the class.”
On Monday, U.S. Magistrate Judge Thomas Hixson for the San Francisco-based District Court denied DoorDash’s motion to dismiss, allowing the suit to move forward. The judge has ordered DoorDash to file its answer to the amended complaint within 14 days.
In the original complaint, Lona’s attorneys said that DoorDash engaged in “unfair, deceptive and anticompetitive practice regarding the manner in which it displays information about businesses with whom it does not have an agreement to provide service.” It further alleged that DoorDash “has engaged in a pattern of behavior whereby customers are deceptively steered away from restaurants with whom DoorDash does not have a relationship by DoorDash’s practice of affirmatively representing to consumers that those restaurants are closed, cannot deliver to them or are not accepting orders at the time.”
The attorneys – led by Francis J. Flynn Jr. of the Law Office of Francis J. Flynn Jr. – are asking for a jury trial with class action status for similarly impacted businesses, seeking damages and injunctive relief for false advertising in violation of the Lanham Act, of California’s False Advertising law (FAL) and of California’s unfair competition law (UCL).
“DoorDash takes advantage of the existing market demand for Lona’s and other restaurants to drive traffic to its site, at which time it will redirect customers to other partner restaurants by suggesting that Lona’s is not an option,” the suit alleges.
DoorDash argued that Lona’s lacked standing and failed to offer “specificity as required by Rule 9(b)” and that its Lanham Act claim is false.
The court rejected each of these arguments.
“We’re proud of the role DoorDash plays in helping restaurants connect with new customers and generate additional revenue, and remain committed to demonstrating the value of the DoorDash platform and the variety of options available to support the merchant community,” a DoorDash spokesperson said in an emailed statement to FreightWaves.
A request for comment from Flynn’s law office had not been returned as of publishing time.
In arguing that Lona’s did not have standing, DoorDash said that “to have standing under the FAL, [Lona’s] must allege that it suffered an injury due to its own actual and reasonable reliance on the purported misleading statements.”
The additional claims were similarly dismissed by the court. The court also acknowledged that while one part of Lona’s allegations have been remedied – the removal of the listing saying the restaurant was closed – the notice that the restaurant was out of delivery range persisted for more than a month after the original complaint was made.
The food delivery app went public in early December, raising $3.37 billion on the offering of 33 million shares at $102 per share. It spiked 78% in its first day of trading, closing at a market value of $68 billion. In midmorning trading Thursday, the stock was at $186.09.
In its IPO filing, DoorDash reported revenue of $1.92 billion for the first nine months of 2020, more than triple that of the same period a year earlier, and a profit of $23 million in the second quarter of 2020.