BORIS Y. LEVITT, on behalf of himself and all others similarly situated, DBA Renaissance Restoration; CATS AND DOGS ANIMAL HOSPITAL, INC.; TRACY CHAN, DBA Marina Dental Care; JOHN MERCURIO, DBA Wheel Techniques, Plaintiffs-Appellants,
YELP! INC., Defendant-Appellee
Argued and Submitted July 11, 2013, San Francisco, California
[Copyrighted Material Omitted]
Appeal from the United States District Court for the Northern District of California. D.C. Nos. 3:10-cv-01321-EMC, 3:10-cv-02351-EMC. Edward M. Chen, District Judge, Presiding.
California Unfair Competition Law / Civil Extortion
The panel affirmed the district court's dismissal of an action by small business owners alleging that Yelp! Inc. extorted or attempted to extort advertising payments from them by manipulating user reviews and penning negative reviews of their businesses in violation of California state law.
The panel held that the business owners failed to state a claim for extortionate, and therefore unlawful, business practices in violation of California's Unfair Competition Law because, under the Hobbs Act and California law, unless a person has a pre-existing right to be free of the threatened economic harm, threatening economic harm to induce a person to pay for a legitimate service is not extortion. The panel held that, given these stringent requirements, the business owners failed sufficiently to allege that Yelp wrongfully threatened economic loss by manipulating user reviews. In addition, the business owners did not allege sufficient facts to support their claim that Yelp authored negative user reviews of their businesses.
The panel held that the business owners also failed to state a claim for unfair business practices in violation of the UCL.
In addition, the business owners failed to state a claim for civil extortion or attempted civil extortion under California law.
Lawrence Dale Murray (argued), John Henning III, and Robert C. Strickland, Murray & Associates, San Francisco, California, for Plaintiffs-Appellants.
S. Ashlie Beringer (argued) and Molly Cutler, Gibson Dunn & Crutcher, Palo Alto, California; Gail Ellen Lees, Gibson Dunn & Crutcher, Los Angeles, California; and Aaron Schur, Yelp Inc., San Francisco, California, for Defendant-Appellee.
Before: Richard A. Paez, Marsha S. Berzon, and Richard C. Tallman, Circuit Judges.
BERZON, Circuit Judge.
Today, individuals can share their opinions with the entire world courtesy of a few taps on the keyboard. The appellee in this case, Yelp! Inc. (" Yelp" ), provides an online forum on which its users express opinions as to services ranging from dog walkers to taco trucks.
The appellees, Boris Levitt, Cats and Dogs Animal Hospital, Inc. (" Cats and Dogs" ), John Mercurio, and Dr. Tracy Chan, are small business owners (collectively, " the business owners" ) who allege that Yelp extorted or attempted to extort advertising payments from them by manipulating user reviews and penning negative reviews of their businesses. The business owners filed a class-action lawsuit against Yelp for violations of California's Unfair Competition Law (" UCL" ), California Business & Professions Code § 17200 et seq., civil extortion, and attempted civil extortion.
The district court dismissed the lawsuit for failure to state a claim. We review the dismissal de novo, see Wilson v. Hewlett-Packard Co., 668 F.3d 1136, 1140 (9th Cir. 2012), and, holding that the facts and legal theories alleged in the business owners' complaint are insufficient to make out a prima facie case of unlawful or unfair business practices against Yelp, affirm.
A. Yelp's Service
Yelp provides an online directory that allows registered users to post reviews and rank businesses on a scale of one to five stars. Based on these user rankings, Yelp then assigns businesses an overall " star" rating. Businesses cannot opt out of being listed on Yelp.
Not all user reviews submitted appear on a business's Yelp page or remain there after initially appearing. Reviews can be removed by the reviewer, removed by Yelp for violating Yelp's " Review Guidelines" or " Terms of Service," or removed by an automated filtering software maintained by Yelp. According to Yelp's website, its filtering system operates as follows:
Th[e] system decides how established a particular reviewer is and whether a review will be shown based on the reviewer's involvement on Yelp. While this may seem unfair . . . this system is designed to protect both consumers and businesses alike from fake reviews (i.e., a malicious review from a competitor or a planted review from an employee). The process is entirely automated to avoid human bias, and it affects both positive and negative reviews. It's important to note that these reviews are not deleted (they are always shown on the reviewer's public profile) and may reappear on your business page in the future.
Yelp also offers businesses advertising opportunities on its website for $300 to $1200 per month. Purchasing advertising allows a business to: appear in advertisements displayed above Yelp search results and on related business pages; prevent competitors' advertisements from appearing on its Yelp page listing; enhance its
page listing with photos; and promote a favorite review to the top of its page.
B. The Allegations Against Yelp
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. They also allege separate causes of action for civil extortion and attempted civil extortion.
The business owners seek to represent two subclasses of businesses: those that declined to advertise with Yelp (" nonsponsors" ), and those that have, at some point, purchased advertising (" sponsors" ). They support their claims by alleging that " approximately 200 Yelp employees or individuals acting on behalf of Yelp have written reviews of businesses on Yelp" and that Yelp's Chief Executive Officer admitted to a New York Times reporter that Yelp has paid users to write reviews, although it does not do so directly anymore.
The Third Amended Complaint contains the following plaintiff-specific allegations:
a. Boris Levitt
Levitt, the owner of a furniture restoration business, alleged that several positive reviews disappeared from his business's Yelp page, causing the overall star rating of his business to decline. Levitt contacted Yelp to ask why a certain positive review had disappeared from his business's page and was told by a Yelp agent that she could not assist him.
Two months later, a Yelp sales representative contacted Levitt to invite him to advertise with Yelp. Levitt declined, stating that he already had a " high volume of users reviewing his business page" and " an overall rating of 4.5 stars."
According to Levitt, two days after he declined to purchase advertising, several five-star reviews disappeared from his page, leaving his business with an overall star rating of three-and-a-half stars. Levitt asserted that " Yelp manipulated the reviews of [his] business because he did not purchase advertising," and did so " as a threat" made to induce him to purchase advertising. As a result of the lower overall rating, Levitt alleged, his business reputation and revenues declined.
b. Cats and Dogs Animal Hospital
Cats and Dogs is an animal hospital in Santa Barbara. Its allegations center on reviews from two negative users.
Cats and Dogs contacted Yelp to request removal of the first negative review, posted by Yelp user " Chris R.," because the review referred to a visit that occurred outside of Yelp's twelve-month policy. That review was subsequently removed, but another negative review from a different user, " Kay ...