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Ninth Circuit Upholds Yelp Reviews Against Fraud Claims

By William Vogeler, Esq. on November 29, 2017 | Last updated on March 21, 2019

Everybody knows that bad reviews can hurt business, but it's what you don't know that really hurts.

That's what happened to the plaintiffs in a case against Yelp, the online review site. After news broke about complaints against the company, the plaintiffs alleged their stock depreciated because of the complaints.

But in Curry v. Yelp, Inc., the U.S. Ninth Circuit Court of Appeals basically said the plaintiffs couldn't prove what they didn't know.

Review Manipulation

The case stemmed from a news story in the Wall Street Journal, which disclosed that businesses made more than 2,000 complaints about how Yelp handled reviews. Some complained that Yelp salespeople removed good reviews or promoted bad ones when businesses did not agree to advertise with them.

Yelp's stock dropped six percent after the report. Joseph Curry, suing for himself and others in the Miami Fire Fighters' and Police Officers' Retirement Trust, blamed Yelp for the loss.

A trial judge dismissed the case, saying the plaintiffs did not plead enough to prove their case. Among other claims, the plaintiffs alleged Yelp committed stock fraud by claiming to be an independent review site.

Based on the businesses' complaints alone, however, the plaintiffs didn't know that Yelp did anything wrong and their stock loss was based on speculation. On appeal, the Ninth Circuit affirmed.

Stock Manipulation

Citing Ambassador Hotel Co. v. Wei-Chuan Inv., the appeals court said a plaintiff has to show a casual connection "between the deceptive acts that form the basis for the claim of securities fraud and the injury suffered by the plaintiff" to prove loss causation.

The plaintiffs said Yelp artificially inflated its stock by manipulating reviews, but the appeals panel said that was insufficient to prove the market loss. The plaintiffs had cited only complaints about the reviews.

"We hold that in the circumstances of this case disclosure of customer complaints that refer to allegations of fraud, without more, are insufficient to allege loss causation," the judges said.

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