A federal judge has blocked a proposed nationwide settlement between food delivery service Grubhub and restaurants frustrated about their inclusion on Grubhub’s platform without their consent.

Although Grubhub reached an agreement last year with attorneys for Denver-based Freshcraft that would give restaurants greater control over whether and how they are listed on Grubhub, U.S. District Court Judge Regina M. Rodriguez ordered the parties last month to keep talking.

On July 28, Rodriguez issued an order allowing two other restaurants — who are also suing Grubhub in federal court in Illinois — to intervene in the Colorado lawsuit. Although she noted Freshcraft’s case came first, the proposed settlement expands the number of restaurants that would be included beyond Freshcraft’s original lawsuit to now encompass the plaintiffs in the Illinois case. Although the claims in the two lawsuits are largely similar, the Freshcraft settlement would not force Grubhub to distribute its profits to injured restaurants — something the Illinois lawsuit is seeking.

“Therefore, the proposed settlement agreement does not warrant preliminary approval until the parties have addressed this issue,” Rodriguez wrote.

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Freshcraft and Grubhub accused the intervening restaurants of misunderstanding the settlement, and of seeking to disrupt the case by waiting until the last minute to get involved. Meanwhile, the plaintiffs in the Illinois lawsuit — Lynn Scott, LLC of Durham, N.C. and The Farmer’s Wife restaurant in Sebastopol, Calif. — claimed Freshcraft’s negotiations did not go far enough for the now-hundreds of thousands of restaurants covered under the potential settlement.

“Here, most restaurants would receive nothing under the settlement: no money, no notice, no ability to exclude themselves from the settlement, and no right to ever sue to stop Grubhub’s ongoing use of their trademark,” the intervening restaurants wrote to the court.

The common thread between both sets of litigation is the desire of restaurant owners to maintain control over their image and their customer experience, something they surrender when Grubhub unilaterally lists businesses on its delivery platform. The lawsuits also allege Grubhub provides deceptive information to customers about menus and whether restaurants are even taking orders.

Beyond that, the objectives begin to diverge.

Freshcraft filed a proposed class action lawsuit in May 2020, accusing Grubhub of using the COVID-19 pandemic to capitalize on an increase in food delivery orders while creating “landing pages” for restaurants that never consented to having Grubhub carry out their deliveries. In particular, Freshcraft was concerned that its landing page on Grubhub said the restaurant was “closed” or “not taking online orders,” which was untrue.

Freshcraft sued for false advertising under the federal Lanham Act on behalf of all restaurants whose landing pages on Grubhub contained false information. The restaurant argued Grubhub’s deceptive advertising made it less likely customers would order from restaurants wrongly identified as being closed.

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Five months later, Lynn Scott, LLC and The Farmer’s Wife filed suit in the Northern District of Illinois, where Grubhub is headquartered. They also alleged a violation of the Lanham Act, but under the provision governing trademark infringement. Restaurants have many legitimate reasons for avoiding delivery orders placed through Grubhub, the plaintiffs argued, including the desire to disassociate themselves from any problems Grubhub itself causes.

Customers “continue to believe Grubhub is working cooperatively with the restaurants on its platform to provide accurate, reliable, and timely service,” the lawsuit alleged. But the “poor service that Grubhub provides while using restaurants’ names and logos hurts the restaurants’ reputations.”

In contrast with Freshcraft, the Illinois plaintiffs sought to bar Grubhub from including restaurants on its delivery platform unless there was an agreement, and for Grubhub to “disgorge all profits” it earned through the unauthorized use of restaurant names and logos.

By early 2021, several developments had occurred in both cases. In Colorado, Freshcraft and Grubhub had engaged a mediator to work toward a settlement and reached an agreement. The class of affected businesses no longer included just those with false information on their landing pages, but all restaurants and food service businesses listed on Grubhub.

According to the agreement, Grubhub would create a process for businesses to request updates to their menus and hours or to remove themselves from Grubhub altogether. Grubhub would also refrain from saying restaurants were “not accepting online orders,” and would provide answers on its website about how businesses can make requests to the company.

Around the same time, the judge handling the Illinois case temporarily paused the proceedings at Grubhub’s request, based on developments in Colorado.

“Although we cannot conclude that the two actions are duplicative of one another, there is sufficient overlap,” noted U.S. District Court Senior Judge Marvin E. Aspen in March 2021.

Lynn Scott, LLC and The Farmer’s Wife then moved to intervene in Freshcraft’s case after learning the settlement now would cover them and an estimated 150,000 restaurants they represented through their Illinois lawsuit. Lawyers for the intervening plaintiffs called the proposed settlement a “sham” with terms “highly favorable to Grubhub.” They submitted statements from more than two dozen restaurant owners objecting to the terms of the agreement. 

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“I understand that the settlement in this case would allow Grubhub to continue to list restaurants on its platform without consent unless the restaurant claims ownership of that listing and requests to be removed,” wrote Danny Curry of White Pine Pizza 2 in Tennessee. “I am trying to run a business and have too many irons in the fire to have to police Grubhub, especially during a pandemic.”

Freshcraft shot back that the Illinois plaintiffs’ real problem with the settlement was that their lawyers are “not the party responsible for achieving the result.” Grubhub also criticized the restaurants’ intervention, arguing that nothing would stop any company from suing Grubhub for money. Instead, the settlement reportedly would do what the Illinois plaintiffs requested: require Grubhub to stop listing some restaurants while allowing those who desire to remain connected to the platform to keep their listings.

But Rodriguez did not interpret the Freshcraft settlement as giving the Illinois plaintiffs what they wanted. She believed the agreement would “likely” prohibit the plaintiffs and the other 150,000 restaurants they purported to represent from staking any claim to Grubhub’s profits. Consequently, Rodriguez declined to give her tentative approval to the settlement until the parties addressed that issue.

Steven M. Tindall, a California-based attorney representing Lynn Scott, LLC and The Farmer’s Wife, said that aside from excluding his clients’ monetary claims against Grubhub, the settlement would permit Grubhub to continue using restaurants’ names and logos impermissibly until the companies opted out. Even then, he added, the settlement did not guarantee Grubhub would remove restaurants from its platform.

“You shouldn’t settle claims that you have not investigated,” Tindall said. “It’s suspicious when, immediately after we filed our case or shortly after that, without any formal discovery, (Freshcraft and Grubhub) immediately announce that they settled it.”

Since Rodriguez’s order, the Illinois plaintiffs have sought to resume proceedings in that case, a request that Grubhub opposes. If there is tentative court approval of the Freshcraft settlement, the next step is a “fairness hearing” in which members of the plaintiff class may object. A judge will subsequently determine whether the settlement is reasonable.

Attorneys for Freshcraft and Grubhub did not immediately respond to a request for comment.

The case is CO Craft, LLC v. Grubhub, Inc.