The biggest reason is because it's extremely difficult to find cost effective labor in SF and LA, due to (a) higher than average cost of living, (b) difficult geographic structure [e.g. most people who do deliveries in SF live 1+hr away, and SF and LA are impossible to get around in), and (c) too many companies competing for the same labor.

I'd also argue that since most co's start in SF, there is very little brand loyalty (95% of my friends use the ridesharing service that's currently not surging) so it's hard to make your mark anymore.

As someone who previously ran ops at a similar on demand company, they're probably testing a cross section of markets. E.g. does this work in a big city with difficult traffic (NY), a smaller city that has tech savvy millennials but isn't a tech haven (Indianapolis), somewhere in between (Chicago). I'm sure their fulfillment center locations also played a role in the location choices.

I don't think they're avoiding CA due to lawsuits. Labor laws are very similar in other states (except for MA, which is oddly one of the few states that has ruled pro-contractor recently). The class actions are happening here since the co's have the largest presence, started here, and labor laws are definitely pro-employee. Even the DOL at a federal level released a paper basically saying "if there is any element of control, they are an employee".

[Edit: added last paragraph about laws.]