July/August 2021 Legal Update

Pooja S. Nair, a partner at Ervin Cohen & Jessup LLP compiles recent legal news affecting the restaurant, food and beverage and hospitality industries for Modern Restaurant Management (MRM) magazine.

Legislation

Restaurant Revitalization Fund Replenishment Attempts Falter: While Congress has expressed bipartisan support for replenishing the depleted Restaurant Revitalization Fund (“RRF”), it has not been able to take action to do so. There are currently two bills pending to replenish the funds, and on August 7, 2021, a group of Senators attempted to add $48 billion to the RRF through a unanimous consent, which failed. The uncertain status of the RRF leaves hundreds of thousands of restaurants in limbo. This is particularly true of the approximately 3,000 priority applicants, who were approved for RRF grants and later notified that the SBA could not issue them the grants due to lawsuits challenging the constitutionality of the prioritization program. 

New York Extends Outdoor Dining for One Year: On July 7, 2021, Governor Cuomo signed legislation to extend a previous executive order  allowing restaurants to utilize municipal spaces like sidewalks and streets for outdoor dining.  The law allows restaurants to continue using these public spaces for another year as they recover from the COVID-19 pandemic.  Prior to the state law going into effect, New York City had a separate permanent “Open Streets” program.

Food Label Modernization Act of 2021: On August 4, 2021, Democratic Senators Richard Blumenthal, Sheldon Whitehouse and Ed Markey; and Democratic Representatives Frank Pallone, Jr. and Rosa DeLauro introduced the Food Labeling Modernization Act in both houses of Congress. Versions of this bill were introduced in 2015 and 2018, but were unsuccessful.  The press release announcing the new legislation touted it as “an effort to help consumers select healthy products.” The legislation would direct the Secretary of Health and Human Services (“HHS”) to establish a single, standard front-of-package nutrition labeling system in a timely manner for all food products required to bear nutrition labeling.

SF Mandates Proof of Vaccine for In-Person Dining: On August 20, 2021, San Francisco’s vaccine requirements went into effect.  This measure was announced on August 12, 2021.  The San Francisco order requires “businesses in certain high-contact indoor sectors, such as those that serve food or drink like bars, restaurants, clubs, theaters and entertainment venues, as well as indoor gyms and other fitness establishments, to obtain proof of vaccination from their patrons and employees in order for them to go inside those facilities.”

NYC Moves to Extend 15-Percent Delivery Fee Cap to 2022: On August 29, 2021, the New York City Council passed four pieces of legislation relating to third-party delivery service for restaurants.  This includes a bill to cap third-party delivery fees at 15 percent per order until Feb. 17, 2022, and will also cap all other fees at five percent per order. Additionally, the council passed a bill to prohibit third-party delivery services from listing restaurants without a written agreement authorizing such inclusion, and penalizing those services for unauthorized listings. The legislation is awaiting signature from Mayor Bill de Blasio.

Administrative Developments

FTC Finalizes Made in USA Rule: On July 1, 2021, the Federal Trade Commission issued its final rule related to “Made in USA” and other unqualified U.S.-origin claims on product labels. The effective date of the rule is August 13, 2021.  The rule was finalized approximately one year after the FTC issued its Notice of Proposed Rulemaking seeking public comments on the rule on July 16, 2020.

SBA Shuts Down RRF Portal: On July 14, 2021, the Small Business Administration (“SBA”) officially closed its RRF portal. This move raises questions about whether the RRF funds will be replenished, despite pending congressional action.  The SBA stopped processing fund applications on May 24, 2021, after a huge influx of applications, seeking nearly double the funds available.  As of June 30, 2021, the SBA reported that the RRF program received more than 278,000 submitted eligible applications representing over $72.2 billion in requested funds, and approximately 101,000 applicants have been approved to restaurants, bars and other restaurant-type businesses. Underserved populations received approximately $18 billion in grant awards. Only $28.5 billion was available to be distributed, which funded less than half of the applications received. The SBA reported that the average grant size was $283,000.

SBA Drops Loan Necessity Questionnaire for PPP Loans: On July 29, 2021, the Small Business Administration (“SBA”) updated its guidance on the Paycheck Protection Program (“PPP”) and announced that it was discontinuing use of the Loan Necessity Questionnaire (SBA Form 3509 or 3510). The Questionnaire sought additional information for borrowers seeking loans of $2 million or more, including a liquidity assessment and business activity assessment.

OSHA Issues New Workplace Guidance: On August 13, 2021, the U.S. Department of Labor’s Occupational Safety Health Administration (“OSHA”) issued updated guidance providing recommendations for employers to prevent COVID-19 exposure and transmission in the workplace. 

Litigation

Ninth Circuit Affirms California’s Proposition 12 Pork Ban: On November 6, 2018, California voters passed Proposition 12. The law is set to go into effect on January 1, 2022. Among other things, the law “prohibits a business owner or operator from knowingly engaging in the sale within the state of shell eggs, liquid eggs, whole pork meat or whole veal meat, as defined, from animals housed in a cruel manner.”  The National Pork Producers Council and the American Farm Bureau Federation filed a district court action seeking declaratory and injunctive relief on the ground that California’s Proposition 12 ban on the sale of whole pork meat (no matter where produced) from animals confined in a manner inconsistent with California standards was a violation of the dormant Commerce Clause.  On July 28, 2021, a panel of three Ninth Circuit judges affirmed the district court’s dismissal of the claim, finding that Proposition 12 withstood the constitutional challenges raised by the plaintiff. 

Eighth Circuit Revives Challenge to “Ag Gag” Rule: On August 9, 2021, a panel of three judges for the Eight Circuit Court of Appeals ruled that animal welfare plaintiffs had Article III standing to challenge an Arkansas “ag gag” rule.  The Arkansas law prohibits a person who knowingly gains access to a nonpublic area of a commercial property from engaging in acts that   exceed that person's authority. The plaintiffs sought an order that would prevent the defendants from bringing a civil suit against them under the Arkansas statue.  The panel held that the complaint alleged plaintiffs would create and disseminate information that   qualified as First Amendment speech, that the proposed conduct would   violate the Arkansas statute and that they faced a credible threat of   enforcement.

Third Circuit Dismisses Challenge to Pennsylvania Emergency Measures: On August 11, 2021, a panel of judges for the Third Circuit Court of Appeals dismissed a lawsuit challenging COVID-19-related emergency orders issued by Pennsylvania Governor Tom Wolf in early 2020.  The challenged actions included three types of orders: stay-at-home orders, business closure orders, and orders setting capacity limits at certain events.  The orders had already expired, and the state legislature had restricted the Governor’s emergency declaration power.  Therefore, the panel held that the case was moot and dismissed a lower court ruling finding that the emergency orders were unlawful. 

Second Circuit Affirms Dismissal of Starbucks False Advertising Class Action: On August 27, 2021, the Court of Appeals for the Second Circuit affirmed the dismissal of a false advertising class action lawsuit against Starbucks Corp. The plaintiff in that case alleged that Starbucks’ marketing materials promoting premium coffee and food, such as “Best Coffee” and “Taste of Inspiration” were deceptive because Starbucks allegedly uses a pest control product with toxic ingredients.  The court agreed with the district court that “almost all of Starbucks’s statements referenced in the complaint constituted “puffery,” which it defined as an “exaggeration or overstatement expressed in broad, vague, and commendatory language.”  The court agreed with the district court that these claims were too vague to support a false advertising claim.

Chicago Sues DoorDash and Grubhub for Unfair Business Practices: On August 27, 2021, the City of Chicago filed two separate lawsuits alleging that the delivery companies were engaged in deceptive practices to prey on its affiliated restaurants and deceive customers into thinking they would be paying lower fees compared to what they would ultimately be charged.  The DoorDash lawsuit further alleged that the company used “consumer tips to pay itself rather than its drivers.”