Yum Brands has filed a lawsuit against Grubhub, claiming the delivery giant breached the terms a five-year contract.
The lawsuit, filed Thursday in New York Supreme Court, alleges that Chicago-based Grubhub violated the terms of its delivery agreement with Louisville-based Yum Brands by implementing a new pricing structure for restaurants on Monday, June 8.
On Wednesday, Just Eat Takeway.com entered into deal to purchase Grubhub for $7.3 billion.
In February 2018, Yum Brands invested $200 million in Grubhub and entered into the five-year signed agreement, which required Grubhub to process orders for and deliver food from thousands of KFC and Taco Bell restaurants across the U.S. at preferred pricing and agreed service levels.
A Grubhub spokesperson "virgorously" denied the allegations.
"We're happy to work with Yum to resolve our contract dispute, but we intend to ensure that Grubhub and its stakeholders are protected against Yum’s breach of the exclusivity provisions of the agreement," the spokesperson said in a statement.
You can read the full complaint here.
Yum's lawsuit claims that Grubhub CEO Matt Maloney personally emailed a PDF document to Yum on Monday, June 2, called the "Grubhub Note," which stated the contract no longer applied.
In the note, provided as Exhibit A in the lawsuit, Grubhub claims that Yum breached its contract by engaging third-party delivery providers — UberEats and Postmates — in direct violation of the agreement's exclusivity agreement. According to Yum's lawsuit, the contract allowed its restaurants to use other third-party delivery services, so long as Yum adhered to other exclusivity agreements, such as only promoting Grubhub in nationwide advertising.
On Friday, June 5, Yum demanded that Grubhub revoke its improper termination and enter into good-faith negotiations, but Grubhub sent out a new pricing structure, effective Tuesday, June 9.
Yum attached the email allegedly sent from Grubhub to Taco Bell franchisees in Exhibit B, which states:
"Due to some ongoing discussions with Yum! Corporate, a few changes are coming to our relationship. However, we will still be your contacts here to support you in all ways through this partnership, and as before, all fees will be paid by the diner (service fee and delivery fee). The way in which order processing fee is charged will change slightly. This is the fee which covers credit card charges, fraud, ACH etc. You have been paying a lower order processing fee rate on the full order value. Starting 6/9/2020 you will be paying the Grubhub standard 3.05% + $0.30 rate but only on the F&B plus tax amount which is lower than the full order value."
Yum claims Grubhub's actions will cause harm to the consumer by increasing prices by nearly 40%, and hurt the company and its franchisees because of lost sales and reputational damage.
According to the lawsuit, the contract protected Yum by providing for a $50 million termination fee should Grubhub, an independent public company, come to be controlled by a third-party owning or operating a business that competes with Yum's business, which may be applicable given the news of Just Eat Takeway.com's acquisition.
This story first appeared in the Louisville Business First, a sister publication to American Inno
