California “Extortion” Class Action Against Yelp Dismissed

Yelp has been repeatedly sued under various theories for allegedly manipulating reviews to gain ad revenue from business owners. However, in the most recent such case (Levitt v. Yelp), the U.S. Ninth Circuit Court of Appeals upheld a lower court dismissal of a class action for lack of evidence.

The lower court’s dismissal of Levitt was largely based on a lack of factual evidence but also on specific legal standards that must be met under California law. The court found that plaintiffs had failed to offer more than inferences and circumstantial evidence. Among other things, plaintiffs had claimed that Yelp and its employees removed positive reviews, put negative reviews at the top of plaintiffs’ profiles and themselves wrote negative reviews.

The appellate court’s opinion contains a number of interesting statements about the facts and law in the case. Here are a few relevant verbatim excerpts:

The business owners maintain that Yelp created negative reviews of their businesses and manipulated review and ratings content to induce them to purchase advertising through Yelp. They urge that Yelp has thereby violated the UCL through acts of extortion and, when not successful in inducing payments to Yelp, attempted extortion.

As [plaintiff] Chan alleges no independent barrier to the ratings – manipulation of which she complains, and as there is no allegation that Yelp’s advertising services are, objectively, worthless . . . any implicit threat by Yelp to remove positive reviews absent payment for advertising was not wrongful within the meaning of the extortion statutes.

The other brand of extortionate ratings manipulation the business owners allege is the re-posting of negative reviews and the placement of negative reviews at the top of the business owners’ Yelp pages. Business owners Mercurio and Cats and Dogs bring these allegations. Here, too, however, Cats and Dogs and Mercurio have no claim that it is independently wrongful for Yelp to post and arrange actual user reviews on its website as it sees fit. The business owners may deem the posting or order of user reviews as a threat of economic harm, but it is not unlawful for Yelp to post and sequence the reviews.

We emphasize that we are not holding that no cause of action exists that would cover conduct such as that alleged, if adequately pled. But for all the reasons noted, extortion is an exceedingly narrow concept as applied to fundamentally economic behavior. The business owners have not alleged a legal theory or plausible facts to support the theories they do argue.

On its blog, Yelp says the case confirms that “Yelp does not extort.” That characterization is legally accurate. However, the court’s opinion is more technical and narrow.

As the excerpts above indicate the court found that the plaintiffs failed to plead sufficient facts to state a case under their legal theories. Interestingly the court seems to say it’s OK for Yelp to “manipulate” the presentation of reviews however it likes. It also appears to say that “within the meaning of the extortion statutes” it’s not wrongful for Yelp to imply that it will “remove positive reviews” for non-advertisers.

However the court adds that, if it had been factually proven, the alleged conduct might have been wrongful under a different legal theory. But those alternative legal theories were not presented in the complaint.

Despite the successful outcome for Yelp the case will probably do little to dispel the view that the company uses reviews as leverage in advertising discussions with business owners. To be clear this claim has never been successfully proven, yet it persists among many small businesses and even some professional marketers.

Below is the appellate court’s opinion.