On January 12, Massachusetts Attorney General (AG) Andrea Joy Campbell announced a settlement with Grubhub Holdings Inc. and Grubhub, Inc., (Grubhub) for allegedly repeatedly violating a statutory limit on the fees that third-party delivery companies could charge during the COVID-19 state of emergency.
On January 14, 2021, in response to the ongoing COVID-19 pandemic and related restrictions on indoor dining in Massachusetts, the Commonwealth enacted temporary legislation that prohibited third-party delivery service platforms from charging restaurants with less than 25 locations in the state, more than 15% of the restaurant menu price of an order in fees. This fee cap remained in place until June 15, 2021, when Massachusetts lifted the COVID-19 state of emergency.
In response to the statute, Grubhub reduced its commission to 15% of the order price. However, the AG alleged that Grubhub continued to charge a credit card processing fee of approximately 3% on top of the 15% commission. In a lawsuit against Grubhub that was filed in July 2021, the AG contended that the delivery platform engaged in repeated violations of the statute because the cost of the processing fee brought their total fees charged to 18% or more, resulting in financial harm to restaurants through increased operating costs — sometimes by thousands of dollars. The complaint asserted that Grubhub’s conduct was a knowing violation of the fee cap statute, as well as a violation of Massachusetts’ Consumer Protection Law. Grubhub argued that the processing charge was a pass-through fee outside of the statutory limit, and also asserted constitutional challenges to the statute itself. However, in March 2023, the Suffolk Superior Court rejected Grubhub’s arguments, ruling in favor of the state and granting summary judgment on liability. Under the terms of the settlement, Grubhub will be required to pay a combined total of more than $3.5 million in restitution to affected restaurants, as well as $125,000 to the Commonwealth.
Why It Matters
This settlement is the latest in a series of regulatory activity focused on price gouging and “junk fees” at both the state and federal levels. State AGs have targeted “junk fees” and price gouging for quite some time now by bringing enforcement actions under their respective unfair and deceptive trade practices statutes. This area is also now under the scrutiny of federal regulators. The FTC announced a proposed rule on junk and hidden fees last October, and to avoid scrutiny from state or federal regulators, companies should be mindful of activity that triggers price gouging statutes in the states in which they operate. They should also review their fee and pricing practices now to prepare for the likely expansion of FTC authority to bring enforcement actions in this space and ongoing regulatory attention from state AGs.
Troutman Pepper State Attorneys General Team
|Ashley Taylor – Co-leader and Firm Vice Chair
Ashley is co-leader of the firm’s nationally ranked State Attorneys General practice, vice chair of the firm, and a partner in its Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group. He helps his clients navigate the complexities involved with multistate attorneys general investigations and enforcement actions, federal agency actions, and accompanying litigation.
|Clay Friedman – Co-leader
Clayton is a partner in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group and co-leader of the State Attorneys General practice, multidisciplinary teams with decades of experience crafting effective strategies to help deter or mitigate the risk of enforcement actions and litigation.
Judy is a partner in the firm’s Regulatory Investigations, Strategy and Enforcement (RISE) practice, based in the Richmond office. She brings experience serving as chair and commissioner of the Virginia State Corporate Commission (VSCC) from 2006 through 2022, which includes regulating the utilities, insurance, banking, and securities industries. She also served as Virginia’s attorney general from 2005-2006.
Stephen leads the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group. He focuses his practice on enforcement actions, investigations, and litigation. Stephen primarily represents clients engaging with, or being investigated by, state attorneys general and other state or local governmental enforcement bodies, including the CFPB and FTC, as well as clients involved with litigation, with a particular focus on heavily regulated industries.
A former deputy attorney general of New York, Avi applies his experience in bet-the-company matters, representing clients in criminal and civil investigations and enforcement actions before state and federal regulators, prosecutors and enforcement agencies.
Michael is a partner in the firm’s State Attorneys General and Regulatory Investigations, Strategy + Enforcement (RISE) Practice Groups, nationwide teams that advise clients on consumer protection enforcement matters and other regulatory issues.
|Samuel E. “Gene” Fishel
Gene is a member of the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) practice, based in the Richmond office. He brings extensive regulatory experience, having most recently served as senior assistant attorney general and chief of the Computer Crime Section in the Office of the Attorney General of Virginia, and as special assistant U.S. attorney in the Eastern District of Virginia for 20 years.
Tim is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group, where he represents corporations and individuals facing potential civil and criminal exposure. Tim’s experience in government investigations, enforcement actions, and white-collar litigation spans a number of industries, including financial services, pharmaceutical, health care, and government contracting, among others.
Chris Carlson represents clients in regulatory, civil and criminal investigations and litigation. In his practice, Chris regularly employs his prior regulatory experience to benefit clients who are interacting with and being investigated by state attorneys general.
Natalia is an associate in the firm’s Regulatory Investigations, Strategy and Enforcement (RISE) practice. She focuses her practice on two primary areas: government contracting and state attorney general work.
Namrata (Nam) is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group, based in the Washington, D.C. office. She routinely advises clients on a wide variety of state and federal regulatory matters, with a particular emphasis on state consumer protection laws relating to consumer financial services and marketing and advertising.
Michael is an associate in the firm’s Regulatory Investigations, Strategy, and Enforcement Practice Group. Based out of the firm’s Boston office, Mike has deep experience in litigation, investigations, and other regulatory matters involving state-level regulators and state attorneys general.
Susan is an associate in the firm’s Consumer Financial Services Practice Group, and focuses her practice on consumer financial services matters. She has defended several of the nation’s largest and most influential financial institutions in individual and class action litigation involving the Telephone Consumer Protection Act (TCPA), Fair Credit Reporting Act (FCRA), Fair Debt Collection Practices Act (FDCPA), and other consumer privacy statutes.
John is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group. He focuses his practice on a wide range of general and complex litigation matters, including shareholder disputes, fraud, products liability, breach of contract, and Biometric Information Privacy Act claims.
Whitney is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group. She represents clients facing state and federal regulatory investigations and enforcement actions, as well as related civil litigation.
Trey is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement Practice. He focuses his practice on helping financial institutions and consumer facing companies navigate regulatory investigations and resulting litigation.
Daniel is a member of the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group and State Attorneys General team. He counsels clients in connection with navigating complex government investigations, regulatory compliance, and transactions, involving state and federal government contracting obligations. Drawing on his broad experience as a former assistant attorney general for the state of Illinois, Daniel is a problem solver both inside and outside the courtroom.
Stephanie is Troutman Pepper’s senior government relations manager in the state attorneys general department.