Lona’s Lil Eats, LLC v. DoorDash, Inc., No. 20-cv-06703-TSH, 2021 WL 151978 (N.D. Cal. Jan. 18, 2021) (magistrate)
This case addresses a topic that’s received broader media coverage
than most advertising issues. The magistrate finds that Lona’s sufficiently
alleged false advertising by DoorDash about its availability, diverting
potential consumers from Lona’s to restaurants that were DoorDash partners. (The
practices considered are why I always start with the restaurant’s own website
and order from that.)
This putative class action alleges violations of the
Lanham Act, the FAL, and the UCL, alleging that DoorDash “misrepresents to
consumers that it provides delivery and pick-up services for non-partner
restaurants and then misrepresents the restaurants are closed, do not offer
delivery services, or are unavailable for pick-up orders.” The complaint
alleges that, especially given the pandemic, “DoorDash’s market power is such
that restaurants are put in a difficult situation: they can become partner
restaurants and pay exorbitant fees and commissions to Defendant, or they
decline to do so and risk losing out on sales.”
Even worse,
DoorDash pressures non-partner
restaurants by setting up “landing pages” for them, which in some instances
still are available on its website and on its mobile app. … DoorDash’s
marketing power is such that the landing pages are often prioritized on
internet search engines and displayed even before the restaurants’ own
websites. These landing pages are complete with DoorDash branding and usually
show a restaurant’s full menu, even if the restaurant has no affiliation with
DoorDash and has not authorized the use of its information. This façade of a
connection signals to consumers that the landing page for the non-partner
restaurant is legitimate and can be relied upon.
On these landing pages, DoorDash
publishes false and misleading information about restaurants that are not its
partners, including restaurants being “closed” when they were in fact open;
being “unavailable” as “too far away” for delivery; and being “unavailable” for
pick-up orders when the restaurant is in fact accepting pick-up orders. Each of
these false and misleading statements steers would-be customers of non-partner
restaurants’ to DoorDash’s partner restaurants.
Lona’s alleged that a search for “Lona’s Lil Eats delivery” in June 2020, “as a result of DoorDash’s market power and internet marketing strategies,” would display a link for Lona’s on a DoorDash website as one of the first results. "Clicking through the link for Lona’s would bring a consumer to a page with DoorDash branding and Lona’s’ complete menu, as if it were possible to place an order through the site:"
“DoorDash’s site would let the customer go through the process of placing an order, including the opportunity to customize the order, adding credibility to the idea that Lona’s had partnered with DoorDash and that placing an order was possible:” (not cool, DoorDash)
“The order, however, could not be completed, and no matter what the user’s proximity to Lona’s—even as close as only 200 feet away—the site would say that ordering from Lona’s was ‘unavailable’ on account of being ‘out of the delivery area’ and ‘too far.’”
Likewise, DoorDash’s mobile app allegedly (as of Nov. 2020) misrepresents that Lona’s is not available for delivery and also not accepting pick-up orders:
If the consumer clicked on the information button immediately next to “Unavailable too far away,” then the app displayed options of “Switch to Pickup” or “See other stores.” But if a consumer chose “Switch to Pickup,” DoorDash would then misrepresent that pickup wasn’t an option, even though Lona’s does offer pickup:
At that point, the only other option, “See other stores,” switched
consumers to DoorDash’s partner restaurants.
Lona’s alleged that several customers were, in fact, misled
by DoorDash’s misrepresentation that Lona’s was closed. Some allegedly reached
out to Lona’s to ask if they were actually open. Although the false “closed”
designation was removed, Lona’s allegedly lost business because of DoorDash’s
misrepresentation, and nothing stopped DoorDash from doing it again.
Applying Rule 9(b), the court found that Lona’s pled the
existence of a “false statement” with particularity; sufficiently pled that the
statement was in a “commercial advertisement”; sufficiently pled actual
deception/tendency to deceive; and adequately pled injury.
Two literal falsehoods were pled: that Lona’s was closed and
that pickup from it was unavailable. And one misleading statement: that pickup
was unavailable because the customer was “too far away.”
The judge understandably rejected DoorDash’s argument that
Lona’s needed to allege who at DoorDash made the statements: “DoorDash points
to no legal authority suggesting that an individual employee must be named in
the complaint, and it’s hard to see how Lona’s could get that information at this
point or who even at DoorDash would be considered the maker of the statement in
lieu of the company itself.” Nor did any authority suggest that Lona’s must identify
specific deceived customers at the pleading stage. “In this case, where the
plaintiff has alleged that a statement was made to the purchasing public and
that at least some of the public communicated that they were misled by those
statements, that is enough specificity at the pleading stage.”
Commercial advertisement: The judge clearly explained how
the Gordon & Breach test, which was adopted by the Ninth Circuit, has
been modified by Lexmark, making the “by a competitor” element of the
test no longer good law.
Accordingly, for representations to
constitute “commercial advertising or promotion” post-Lexmark, they must
be: (1) commercial speech; (2) for the purpose of influencing consumers to buy
defendant’s goods or services; and (3) disseminated sufficiently to the
relevant purchasing public to constitute “advertising” or “promotion” within
that industry.
DoorDash argued that pages on its website or app where customers
complete orders aren’t “commercial speech.” But it waived that argument through
failure to do more than gesture at it (and anyway they obviously are; Lona’s
even alleged the economic motive: increasing its commissions and strong-arming
Lona’s into partnership). Even if you accepted that the statements were not in “advertising
format” (which in my opinion they clearly are, given how internet advertising
works), that’s not dispositive.
DoorDash argued that the complaint failed to allege that
“closed” or “unavailable” designations were made to convince customers to
purchase DoorDash’s products because DoorDash does not sell food. That was
irrelevant, given Lexmark and given that DoorDash “makes money in fees
and commissions whenever a consumer orders food from a partner restaurant ….
[B]y allegedly misleading consumers and re-directing them away from non-partner
restaurants to partner restaurants, DoorDash allegedly gains at non-partner
restaurants’ expense.” That was all that was required at the pleading stage.
DoorDash also argued that Lona’s didn’t allege sufficient
dissemination because Lona’s “does not identify, or even estimate, how many
potential customers saw” the statements. “[A]t best,” DoorDash argues, “only
those customers who attempted to place an order for food from [Lona’s] would
have come across such statements.” But that was sufficient, since “the primary
focus is the degree to which the representations in question explicitly target
relevant customers.” Lona’s alleged that DoorDash targeted all relevant
customers, and that, as a result of its market power and marketing strategies, it
was “one of the first results” that such customers would encounter.
Finally, DoorDash argued that the alleged misrepresentations
only occurred after multiple clicks, on a final checkout page. But so what? “The
reasonable takeaway is that by luring would-be Lona’s’ customers onto its
landing pages, taking them through a Lona’s’ menu, and then ‘redirect[ing]
[them] to [ ] Partner Restaurants by suggesting that Lona’s is not an option,’ DoorDash
was promoting its own services. Why else go through the trouble?” Bait and
switch, indeed.
Deception/tendency to deceive: Evidentiary proof of actual
or likely deception is not required at the pleading stage, and deception can be
presumed from literal falsity.
Injury: Lona’s sufficiently alleged both short-term and longer-term
harm: “[N]ot only do [putative class members] miss out on orders in the short
term, but they are less likely to attempt to order from them in the future,
since they are represented to be closed or not available.” General allegations
of resulting monetary damages and “other irreparable injury, including loss of
market position, loss of reputation, loss of goodwill, the ability to continue
as a going concern, and other damage for which there is no adequate remedy at
law” were sufficient. The fact that DoorDash wasn’t a direct competitor didn’t
matter after Lexmark. Although DoorDash argued that “alleged injuries
‘still require sufficiently detailed allegations,’ ” it didn’t offer suggestions
of what more Lona’s needed short of lost customer names. For purposes of the
pleadings it was sufficient that Lona’s alleged that “[s]everal customers were,
in fact, misled by DoorDash’s misrepresentation that Lona’s was closed, and
they did not know whether Lona’s was actually open,” and that “[s]ome of these
customers reached out to Lona’s to ask if they were actually open.”
FAL/UCL claims: While a number of California federal district
courts have held that Proposition 64 meant that plaintiffs have to allege their
own reliance on the defendant’s false claims, which obviously would exclude
Lona’s as a proper plaintiff, the magistrate rejected that line of cases.
In re Tobacco II Cases and Kwikset held that Proposition
64 narrowed the reach of fraud-based claims under the UCL and FAL. Now, a
plaintiff’s economic injury must “come ‘as a result of’ the unfair competition
or a violation of the false advertising law.” “The phrase ‘as a result of’ in
its plain and ordinary sense means ‘caused by’ and requires a showing of a
causal connection or reliance on the alleged misrepresentation.” Recognizing
that “ ‘reliance is the causal mechanism of fraud,’ ” the California Supreme Court
held that in consumer claims based on fraud under the UCL or FAL, a plaintiff “
‘must demonstrate actual reliance on the allegedly deceptive or misleading
statements.’ ” Courts have extended this to “unlawful” and “unfair” claims when
the claims are based on misrepresentation.
But Tobacco II “emphasize[d] that our discussion of
causation in this case is limited to such cases where, as here, a UCL is based
on a fraud theory involving false advertising and misrepresentations to
consumers,” and the court noted that “[t]here are doubtless many types of
unfair business practices in which the concept of reliance, as discussed here,
has no application.” And Kwikset elaborated that “as a result of” means “caused
by” and requires “a showing of a causal connection or reliance on the
alleged misrepresentation.” (emphasis added). The judge here reasoned that this
language “suggests strongly that there are situations where the element of
causation can be proved without showing actual reliance, so as long as there’s
sufficient causation.” If every plaintiff in every situation had to prove
reliance, “it would be hard to imagine when a competitor would be able to
assert a false advertising claim,” which would conflict with the California
Supreme Court’s clear statement in Kwikset that the purpose of the false
advertising laws “is to protect both consumers and competitors by promoting
fair competition in commercial markets for goods and services.”
In addition, Proposition 64 was passed to prevent abusive
UCL claims where plaintiffs had not been injured in fact. But unlike such
plaintiffs, competitor[ish] plaintiffs do suffer injury in fact as a result of
false advertising: lost market share and sales. “Proposition 64’s purpose of
preventing actions by plaintiffs who have not suffered an actual injury is not
served well by extending Kwikset to all cases, and a rule requiring all
plaintiffs to prove actual reliance would in fact defeat the UCL and FAL’s
purpose of protecting consumers and competitors alike.”
Finally, DoorDash argued that Lona’s lacked standing for injunctive relief, but this was rebutted by the complaint’s allegations. Lona’s alleged that it was realistically threatened by a repetition of the violation; it even alleged that the “out of range” misrepresentation persisted at least through a month after Lona’s sued. This wasn’t a case where the defendant’s purported reform was “irrefutably demonstrated [ ] and comprehensive.” “The fact that Lona’s had to wait over a month for DoorDash to remove the content adds plausibility to Lona’s’ allegation that ‘there is nothing to prevent [DoorDash] from reinstating such misrepresentations as to Plaintiff or any member of the putative class.’”
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