Matt laughed as he filmed the encounter, and could be heard saying "Oh no! What's happening?"
Mitch then turned the bag around to reveal an even more savage insult which read: "Washed up celebrity".
Last night wasn't the first time Karen's Diner has caused a stir among the MAFS cast.
In May, Domenica Calarco publicly hit back at her former co-stars Olivia Frazer and Daniel Holmes over a joke the restaurant made at her expense.
WATCH: MAFS' Olivia and Domenica get into a heated argument
Olivia shared a photo of herself at a restaurant with a paper bag over her head that read: "Subscribe to MY OnlyFans (I need the followers)" in an apparent dig at Domenica.
As fans will remember, the pair butted heads during filming after Olivia discovered Domenica's OnlyFans account and showed it to their castmates.
Daniel was in attendance at the restaurant and also shared the photo to his Instagram.
Hours later, Daniel addressed angry viewers who slammed him and Olivia for their ill-received joke.
"To all the crazies messaging me about this. We went to a restaurant called @karensdinerofficial where the theme is rude service jokes etc.," he explained.
"One of those jokes the staff did was to come up and put this over @oliviafrazer's head. It was a funny thing that none of us had any part in, chill out.
"Not like we had a party dedicated to bullying another or anything," he concluded, referencing Domenica's MAFS finale gettogether.
Can we please petition for next year's MAFS dinner parties to be held at Karen's Diner?!
This article originally appeared on our sister site, Now To Love.