Restaurant Sues Grubhub Over Commissions Taken on ‘Sham’ Telephone Orders

Zay Toon Inc., the owner of a Las Vegas, Nevada eatery, filed a lawsuit against Grubhub Holdings Inc. accusing the online food ordering platform of charging restaurants a commission on any telephone call over 45 seconds regardless of whether or not a food order was placed. The complaint, filed in the Northern District of Illinois, seeks relief on behalf of more than 300,000 restaurants that Grubhub allegedly deprived of profits rightfully belonging to them.

The complaint explained that in 2011, the plaintiff contracted with Eat24, an online food ordering company that offered services to restaurants and diners similar to those offered by Grubhub, which acquired Eat24 in 2017. According to Zay Toon, Grubhub then assumed Eat24’s relationship with it and continued to charge the same commission rate on orders placed through the platform, subject to the “existing agreement with Eat24.” Upon information and belief, Zay Toon states that the Eat24 contract “did not permit the imposition of a commission or fee for telephone orders taken by and placed with the restaurant itself.”

As part of its business model, however, Grubhub does not take telephone orders. Instead, it creates a new telephone number for each restaurant advertised on its website that, when dialed, redirects the call to the restaurant itself and records the call for Grubhub. According to the complaint, Grubhub’s “standard form” contracts do not disclose this deceptive practice in violation of state law. The complaint also set forth Grubhub’s reported admission acknowledging that “restaurants ‘may have been incorrectly charged’ for these sham telephone orders.”

In further support of its argument, Zay Toon cited another lawsuit filed against Grubhub in December 2018 concerning the same alleged practice. In that case, the Third Circuit Court of Appeals denied the plaintiffs’ petition for a writ of mandamus, thereby upholding the trial court’s decision to compel arbitration in view of the clause operative in the parties’ contracts. Zay Toon pointed to evidence unearthed in that case suggesting that Grubhub indeed charges a commission for calls restaurants receive from customers for informational rather than order placing purposes. 

The complaint asserted claims against Grubhub for breach of contract, conversion, and violations of the Nevada Deceptive Trade Practices Act and the Illinois Consumer Fraud and Deceptive Business Practices Act. For the alleged harm and to prevent its future occurrence, Zay Toon seeks to recover, for itself and a proposed class of all others similarly situated, actual and statutory damages, injunctive relief, restitution, disgorgement, and its attorneys’ fees and litigation costs.

Zay Toon is represented by Blau & Malmfeldt, Chimicles Schwartz Kriner & Donaldson-Smith LLP, and Carey, Danis & Lowe.