Tuesday, January 19, 2021

Dastardly DoorDash fails to get restaurant complaint dismissed, including under UCL/FAL

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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