On December 17, 2024, the Federal Trade Commission (FTC) and Illinois Attorney General (AG) Kwame Raoul settled their lawsuit against Grubhub for $140 million (Grubhub will only have to pay $25 million, with the balance suspended due to Grubhub’s inability to pay).

The settlement announcement was preceded by an 11-count lawsuit that brought claims under Section 5(a) of the FCT Act, the Impersonation of Government and Business Rule, the Illinois Consumer Fraud and Deceptive Business Practices Act, and the Uniform Deceptive Trade Practices Act in connection with the sale of food ordering and delivery services. The lawsuit stems from the FTC’s war against alleged “junk fees.”

The FTC and Illinois contended that Grubhub’s practices were knowingly unethical and aimed at increasing profitability at the expense of consumers, restaurants, and drivers. In 2021, the FTC placed Grubhub on notice that it perceived these actions as unfair and deceptive. Specifically, regulators allege that Grubhub engaged in the following prohibited practices:

Consumers:

1. Pricing Shell Games: Displaying a low-cost (or no cost) delivery charge initially, then presenting a much higher delivery cost, including undisclosed or “hidden” fees, at checkout.
2. Deceptive Subscriptions: Locking diners into “Grubhub+” subscriptions with “$0” delivery promises while still subjecting diners to many other undisclosed fees and making it significantly more difficult to cancel the subscription than to sign up.
3. Account and Gift Card Issues: Blocking accounts with high gift card balances, preventing diners from using their gift card balances or other credits, thereby taking consumer money without any corresponding good or service.

Unauthorized Listing of Restaurants: Listing restaurants on its platform without their knowledge or consent, leading to canceled, incorrect, or untimely orders, which Grubhub then blamed on the restaurants. As many as 320,000 (or half) of the restaurants listed on Grubhub’s site were unaffiliated. Grubhub would only remove these listings if threatened with legal action.

Misleading Earnings Claims for Drivers: Advertising potential earnings of up to $40 per hour, while the median earnings were $11 per hour, with only the top 2% earning the advertised amount.

Grubhub agreed to pay at least $25 million as a fine/penalty, which was reduced from $140 million due to the company’s alleged inability to pay. This balance will become due immediately if regulators discover that Grubhub misrepresented its assets during settlement negotiations. Additionally, Grubhub will undertake the following actions:

• Clearly and conspicuously disclose all service or other fees to consumers/diners.
• Clearly disclose and obtain consent for any negative option transactions.
• Notify consumers immediately if their accounts are locked out and provide a mechanism to quickly unlock the account.
• Refrain from offering for sale any food or goods from unaffiliated vendors.
• Avoid representing that delivery workers will earn a set hourly rate or even provide estimates for the rate of pay.
• Ensure that any representations regarding earnings, whether express or implied, are supported by competent and reliable substantiation evidence at the time the statement is made.
• Provide a simple cancellation mechanism for the negative option feature.
• Present the settlement agreement to all owners, members, managers, principals, officers, directors, etc., of Grubhub for the next 15 years.

Why It Matters

This settlement demonstrates a joint effort by the FTC and the Illinois AG (where the company is headquartered). Increasingly, state and federal regulators are joining forces to bring resources and expertise to enforcement and litigation matters. The resolution serves at least two key purposes for regulators: (1) halt perceived unfair and deceptive business practices; (2) make changes that will be popular with the Illinois AG’s constituents.

Additionally, some of the conduct that these regulators found to be allegedly egregious was the company’s allegedly knowing perpetuation of business practices it had reason to know harmed diners, businesses, and drivers. To mitigate regulatory risk, companies must contemplate how business practices impact the broader community and try to understand whether such conduct could pique the interest of regulators.

Troutman Pepper Locke 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.
	Stephen Piepgrass 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.
	Michael Yaghi 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.
	Chuck Slemp Chuck advises clients on a wide range of complex issues that frequently involve government actions, including investigations, inquiries, regulatory matters, and litigation. With a distinguished background in the law and public service, he served as chief deputy attorney general of Virginia before joining the firm. In addition to overseeing the Department of Law and Division of Debt Collection, Chuck managed a team of attorneys who handle complex litigation and investigations. He also directed the attorney general’s legislative affairs and represented the attorney general in various capacities.
	Tim Bado 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.
	Jessica Birdsong Jessica is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement Practice Group. She received her J.D. from the University of Richmond School of Law, magna cum laude, where she served as associate articles editor of the Journal of Law & Technology.
	Chris Carlson 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.
	Blake R. Christopher Blake collaborates with clients on matters related to government contracting, investigations, and disputes. His senior-level government experience generates valuable insights and strategies for clients across a variety of industries.
	Nick Gouverneur Nick Gouverneur is an associate with Troutman Pepper Locke.
	Natalia Jacobo 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 Kang 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 Lafleur 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 Nikdel 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.
	Lane Page Lane specializes in federal and state regulatory investigations and complex civil litigation. He focuses on representing financial institutions and other businesses, with a particular emphasis on consumer protection and fair lending issues.
	Trey Smith 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 Waltz 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.
	Cole White Cole is a member of the firm’s Regulatory Investigations, Strategy and Enforcement (RISE) group. He has a decade of experience working in the attorney general community, having joined the firm from the Wyoming Office of the Attorney General, where he was assistant attorney general.
	Stephanie Kozol Stephanie is Troutman Pepper Locke’s senior government relations manager in the state attorneys general department.