Levitt v. Yelp: Business Claims of Yelp Extortion Rejected

Late last week, the Court of Appeals for the Ninth Circuit upheld the dismissal of a class action against Yelp by four local merchants who claimed that Yelp employees were themselves writing false and defamatory reviews, and removing positive reviews, to coerce the merchants into buying the advertising that provides Yelp with its main source of revenue.  Such claims are frequently reported in the mainstream media, but this is the first time the claim has been addressed at the federal appellate level.  

The Stakes
 
As consumers, we get tremendous value from review sites such as Yelp, or Trip Advisor, or Angie’s List, which allow us both to sound off about great restaurants, hotels and other businesses we patronize, and to complain about crappy ones; at the same time, when we have to choose a new business to patronize and don’t have friends or colleagues on whose experience we can draw, we can take advantage of the wisdom of the crowd to decide which business to patronize.  Given the value that such services provide to consumers, we at Public Citizen have tended to be sympathetic to such sites.

Many business owners who are subject to the published opinions of their customers take the prospect of criticism in stride, but some other business take to criticism less kindly.  There are business owners who simply cannot believe that any of their customers would be anything less than completely thrilled with their goods and services, and therefore assume that any online criticism must be fake.  Sometimes they blame the reviewers, claiming that they are competitors; and sometimes they blame the review site.   As consumer lawyers, indeed, we have advocated legal rules that facilitate the operation of such review sites, and that protect consumers on whose opinions the value of such sites rests, while at the same time trying to make sure that businesses whose reputations can be adversely affected by deliberately false reviews have a remedy to which they can turn.  For example, we have helped review sites argue that their acceptance of critical reviews and refusal to remove negative ones even after a business claims that the review is false does not undermine their statutory immunity under section 230 of the Communications Decency Act,, and we have helped both consumers and review sites resist subpoenas to identify anonymous reviewers unless a criticized business can show that it has sound claims against the reviewers.

When, as in the case of Yelp, the review site accepts advertising from the businesses that are the subject of reviews, it is easy to claim that the site would not have allowed a negative review if the business had bought advertising.  Indeed, in Yelp’s early days, its CEO touted the fact that “Yelp has been slow to add advertising, and there still isn’t that much of it.”  There is at least the potential for a conflict of interest when the review site accepts advertising, but there is just as much potential for a conflict of interest when a newspaper both runs restaurant reviews, or movie reviews, and yet also accepts display advertising from restaurants and cinemas (not to speak of film companies).  So long as the newspaper puts a solid wall between its advertising staff and its editorial staff, we as consumers are generally willing to accept the credibility of a newspaper’s review.  Yelp maintains that it, too, keeps a strict division between its operational and sales staff.  

Still, the argument persists that Yelp and other such review sites are extortion operations that post critical reviews about, and withhold favorable portrayals from, businesses that fail to advertise, while suppressing criticism from those who do advertise.   This complaint has been made both in litigation, with business owners seeking to hold review sites legally responsible for negative reviews notwithstanding the protections of section 230, and in the court of public opinion.   

I pay especially close attention when such accusations are made against Yelp, because I often use the site myself, both as a speaker about my own experiences with businesses, and to help me decide what businesses to patronize.  If I concluded that the charges against Yelp had substance, I would want to find a neutral site to try to find businesses to patronize; indeed, I would not want to provide content to help a shake down small, local businesses.  But just as important are professional considerations; we have represented Yelp on some cases opposing subpoenas to identify its users.  If we felt there were a sound basis for merchants' complaints about extortion to provide advertising, we would have to reconsider our willingness to provide Yelp with pro bono representation.  

For example, over the years we have offered support to arguments advanced by companies like Xcentric (the operator of Ripoff Report)  and Opinion Corp. (the operator of PissedConsumer), but the overt willingness of these companies to take rather large sums of money for programs to enhance the reputations of companies that are criticized on their web sites makes them ineligible for pro bono representation, in my book. If we concluded that Yelp was similarly sleazy, it would have to look elsewhere for representation even on issues where we thought it was right on the law.  In one case where I have been representing Yelp in opposition to a subpoena to identify some of its users, the business owner has made similar claims about Yelp; but my investigation of the specifics of the merchant’s claims led me to conclude that he was telling tall tales to the credulous press.

The Decision in Levitt v. Yelp

Unlike their success in getting media coverage for such charges from reporters who wouldn’t pay the slightest attention to claims that the local newspaper or TV station punishes businesses who won’t advertise, businesses that bring these claims to court have been singularly unsuccessful in proving their claims or even getting past motions to dismiss or for summary judgment. Last week, the first of these cases was decided in the court of appeals – indeed, so far as my research reveals, it is the first time a court of appeals has decided any case about Yelp outside the patent context.  It is, therefore, worth considering the court’s ruling.  To aid my analysis, I downloaded the Excerpt of Record from the Ninth Circuit’s web site, asked questions of counsel on both sides, and checked the ECF site for the district court litigation as well.

The case was brought on behalf of four businesses, alleging that Yelp was publishing invented reviews which, in fact, they claimed Yelp employees themselves had posted when the businesses had either refused to buy advertising or, after buying advertising, had refused to buy more advertising.  The merchants further alleged that the employees had explicitly drawn a link between Yelp reviews and the level of advertising, indicating that the purchase of advertising would lead to the removal or obscuring of negative reviews, while the refusal to purchase advertising would lead to more negative reviews.  Plaintiffs alleged that these threats were extortionate, and hence were actionable either under the federal Hobbs Act or under California’s unfair competition law, and that, in any
event, Yelp’s practices were unfair and hence actionable under California law.  Yelp moved to dismiss on several grounds, arguing both that it was being sued for content provided by its users and hence was protected by section 230 immunity, and, in any event, that the conduct alleged was not extortionate as that term is used by the Hobbs Act or California law.  

More adventurously, Yelp argued that plaintiffs lacked Article III standing because the negative content of which they complained was not, in fact, authored by Yelp staff, and because those positive reviews that had been removed had been improperly placed on Yelp not by genuine consumers but by the merchants themselves.  Hence, Yelp said, there was an insufficient link between the injury and the complained-of conduct.  Of course, standing goes to subject matter jurisdiction, and hence Yelp could go outside the four corners of the complaint; Yelp submitted an affidavit showing that its sales staff not only are forbidden from manipulating reviews or writing reviews, but lack access to the parts of the Yelp web site where reviews can be filtered or removed.  Yelp’s theory was that the injury to its reputation that plaintiffs alleged in the complaint could not be attributed to Yelp because it did not post the content, hence plaintiffs lacked standing to sue Yelp over that content. Yelp described an investigation that cast some doubt on the proposition that any of the negative reviews in question had been posted from the accounts of any of its sales force.  More damningly, its affiant attached exhibits showing that positive reviews of the four plaintiffs had been posted by the plaintiffs or their families, not by actual customers, and that the plaintiffs had been using intimidation and, in one case, a non-disparagement clause in the fine print of an invoice, to deter critical reviews by actual customers.

District Judge Edward Chen dismissed the complaint, based on both section 230 immunity for Yelp as the provider of a site for user-generated content, and on failure to allege sufficiently content-creation by Yelp that took the case outside section 230 immunity.  The Ninth Circuit affirmed, in a unanimous opinion by Marsha Berzon.  Although most decisions in this area have relied largely on section 230 immunity, the Ninth Circuit panel put that issue aside and held that plaintiffs had not stated a cause of action for extortion or for otherwise unfair business practices.   On the extortion point, it may well be sleazy for a review site to condition favorable reviews on the purchase of advertising, but it is not criminal extortion; after all, there is a good deal of hard bargaining that could be characterized as “extortionate” but hard bargaining is, after all, what happens in the marketplace.  Consequently, “extortion is an exceedingly narrow concept as applied to fundamentally economic behavior.” Unless the defendant takes away a benefit to which the plaintiff has a pre-existing right, the defendant cannot be convicted of (or sued for) extortion, and merchants have no freestanding entitlement to be praised on Yelp, or to be free from criticism there.  Moreover, the court deemed plaintiffs’ allegations about alleged authoring of reviews by Yelp to be too vague and conclusory, because even if the plaintiffs were justified in concluding that certain reviews could not have come from an actual customer, that would not justify the conclusion that it was Yelp, as opposed to some other individual or entity, that was responsible for the published criticism.

Some Lessons for the Future

Because the Court of Appeals considered the complaint on a Rule 12(b)(6) standard, its opinion was open to careless media coverage that assumed the veracity of the complaint’s allegations and characterized the ruling as allowing Yelp to get away with extortion.  As I noted above, Yelp submitted affidavits contesting plaintiffs’ allegations about threats from its sales staff and, to boot, attributing deceptive and intimidating communications to the plaintiffs themselves.  Plaintiffs’ counsel told me that they submitted affidavits to the district court contradicting Yelp’s evidence about their clients; however, they did not send me the promised affidavits and I did not see any in the record.  The brief in opposition to Yelp’s motion to dismiss did not cite any counter affidavits on these points, and did not ask for leave to take the affiant's deposition; instead, it submitted a rather pissy and unconvincing set of “Evidentiary Objections” asserting that Yelp’s affiant had no basis for authenticating the communications from plaintiffs that Yelp cited.  As best as I can see, the record supports Yelp’s characterization of plaintiffs as having submitted phony positive reviews, purporting to be from customers, that Yelp properly took down, and as having threatened customers with legal action if they posted critical reviews.

To be sure, it is understandable that at the early stage of the litigation, plaintiffs would have had no articulable basis for alleging that Yelp employees were themselves the authors of false and defamatory reviews.  In that regard, the elevated pleading requirements of Iqbal and Twombly (or "Twiqbal") run the risk of foreclosing possibly valid claims that might have been established by discovery in the days of notice pleading, just as these precedents are unfairly cutting off claims by other individuals and small enterprises against public officials and big companies. I certainly join Danielle Citron in bemoaning that tendency.

But from the plaintiffs’ perspective, this problem was avoidable, had plaintiffs wanted to pursue Yelp on alternate theories.  The complaint alleges that Yelp published false negative reviews which  cost the plaintiffs customers.  If these claims were accurate, they could have been the basis for sound claims for defamation.  And had plaintiffs sued the unknown authors of the statements as Doe defendants, the complaint would not likely to have faced a motion to dismiss, and if it did that motion could have been withstood without any need to allege Yelp’s responsibility for the reviews.  Plaintiffs could then have used subpoenas to Yelp to identify the authors of the hypothetically defamatory reviews, making the showing required in California courts by Krinsky v. Doe No. 6.  And if, as plaintiffs insist, the authors were not actual customers, but rather were Yelp employees, discovery obtained by these means would have led to that information.

We are left to wonder why plaintiffs did not follow this course  Perhaps, despite plaintiffs’ contentions, plaintiffs understood that they criticisms were accurate, and recognized as well that customers might well have backed up these criticisms.  Or, per
haps, plaintiffs would have been interested in suing for defamation but their counsel were only willing to take up more general clainms that could be pursued on a class action basis.  I posed this question to plaintiffs' counsel; they did not respond.

On the other hand, even if Yelp’s court filings dealt effectively with the assertion that it manipulates reviews to favor businesses that advertise and disfavor businesses that don’t, left unaddressed in the record are the complaint’s allegations that members of Yelp’s sales force tell  businesses about their incentives to advertise.  You could imagine a sales person claiming the power to help those who buy from him, and hurt those who don't, even if the staffer lacks the power to do that, because it could produce better sales and hence make the staffer’s sales record look better.

So, I am wondering whether Yelp has concluded that the allegations about what the business people were told in sales pitches was simply made up, or alternately what Yelp has been doing about the sales people alleged to have made these statements to potential advertisers?  In response to my inquiries about this case, Yelp told me that securing advertising by misrepresenting the impact on reviews would be unproductive, because once the advertiser learned that Yelp reviews are divorced from advertising, it would pull its ads and the sales representative's commission would be subject to clawback; misrepresentations of this sort would also be a basis for termination of employment. Yelp has stated in that past that it has systems to monitor its sales staff to make sure that they do not write reviews or encourage the writing of reviews, and that sales staff are subject to prompt termination for crossing that line.  Yelp also apparently creates financial disincentives for sales people when the advertisers they recruit say that they believe that advertising will help their reviews. 

It would surely be interesting to learn what Yelp concluded internally about the allegations about its sales representatives’ statements to the four businesses in question, and what action, if any, was taken vis-a-vis the sales staff in question.