Demetriades v. Yelp, Inc.

• Decision Date: 24 July 2014
• Docket Number: B247151
• Citation: 228 Cal.App.4th 294,175 Cal.Rptr.3d 131
• Parties: James DEMETRIADES, Plaintiff and Appellant, v. YELP, INC., Defendant and Respondent.
• Court: California Court of Appeals Court of Appeals

228 Cal.App.4th 294

175 Cal.Rptr.3d 131

James DEMETRIADES, Plaintiff and Appellant,

v.YELP, INC., Defendant and Respondent.

B247151

Court of Appeal, Second District, Division 1, California.

Filed July 24, 2014

See 5 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 1026, 1027.

APPEAL from an order of the Superior Court of Los Angeles County, Yvette M. Palazuelos, Judge. Reversed. (Los Angeles County Super. Ct. No. BC484055)

Ervin Cohen & Jessup, Robert M. Waxman and David N. Tarlow for Plaintiff and Appellant.

Kendall Brill & Klieger, Laura W. Brill and Nicholas F. Daum for Defendant and Respondent.

JOHNSON, J.

Plaintiff James Demetriades, who operates restaurants in Mammoth Lakes, filed a complaint seeking an injunction under the Unfair Competition Law (Bus. & Prof.Code, § 17200 et seq. (UCL)) and False Advertising Law (Bus. & Prof.Code, § 17500 et seq. (FAL)) to prevent defendant Yelp, Inc. (Yelp), the operator of a popular online website that contains customer reviews of businesses, from making claims about the accuracy and efficacy of its “filter” of unreliable or biased customer reviews. The trial court granted Yelp's special motion to strike plaintiff's complaint under Code of Civil Procedure section 425.16,¹ finding that Yelp's statements about the filtering of reviews on a social media website were matters of public interest. The trial court further found that the public interest exemption of Code of Civil Procedure section 425.17, subdivision (b) did not apply because plaintiff asserted a personal financial stake in the case, and that the commercial speech exemption to the anti-SLAPP ² statute set forth in Code of Civil Procedure section 425.17, subdivision (c) did not apply because Yelp's statements about the filter were not statements of fact, but were “puffery” and opinion.

We conclude that the commercial speech exemption of section 425.17, subdivision (c) applies to Yelp's statements concerning the accuracy and efficacy of its review filter, and therefore find the trial court erred in granting Yelp's special motion to strike under section 425.16. We reverse.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY

1. Background Facts

Yelp operates a website that serves as a free social media website and search engine. Yelp is available to the public at no charge and has no registration requirement. Users who register may post reviews about local businesses, and can rate a business using a star rating of one to five stars, with five stars being the highest rating. Yelp's website draws tens of millions of people each month who search for and review the public ratings of businesses. As of September 2012, users had posted approximately 33 million reviews to Yelp's website, and according to Google analytics, Yelp had 84 million monthly unique visitors during the third quarter of 2012. Yelp sells advertising on its site to generate revenue, and in the first three quarters of 2012 Yelp generated $91 million in revenue from advertising.

Yelp constantly battles the problem of unreliable reviews, which generally are reviews written by friends, employees or relatives of the business being reviewed, paid reviews, and negative reviews written by business competitors. As a result, Yelp developed filtering software with the aim of identifying reviews likely to be unreliable. Yelp started using the filter in 2005, and has worked on improving it since then. The Yelp filter applies uniform rules to all reviews and does not favor advertisers over nonadvertisers; Yelp does not use filtered reviews in calculating a business's rating on Yelp; the filtered reviews do not appear on the main page, but are viewable on a special “filtered review page”; and business owners can freely post responses to reviews they receive on Yelp and can contact reviewers privately to engage in further dialogue. To promote the filter's integrity, Yelp businesses cannot delete, change, or reorder ratings or reviews. Yelp admits that its filter is not foolproof, and Yelp expressly tells users that “the filter sometimes affects perfectly legitimate reviews and misses some fake ones, too. After all, legitimate reviews sometimes look questionable, and questionable reviews sometimes look legitimate.” Plaintiff, when purchasing advertising on Yelp, acknowledged in the advertising contract that Yelp's filtering software sometimes made mistakes. According to Yelp, in addition to relying on the filter, a site user can judge how much weight to give to any particular review by viewing the reviewer's profile, reading the reviewer's reviews, and assessing statistics regarding such reviews.

Yelp's filter is proprietary software developed by Yelp that is not distributed or sold to third parties because disclosure would expose Yelp to the risk of persons using the information to overcome Yelp's efforts to filter unreliable reviews. Yelp does not provide the source code or the algorithms to business owners or the general public.

In 2010, Yelp created a cartoon video to educate and contribute to the ongoing public dialog about the integrity of online reviews.

2. Plaintiff's Complaint; Yelp's Demurrer

On May 3, 2012, plaintiff filed this action, alleging causes of action for unfair competition and false advertising under the UCL and FAL.³ Plaintiff, through a business entity,⁴ owns the Mammoth Lakes restaurants Jimmy's Taverna, Rafters, and Red Lantern. Plaintiff instructed Jack Carter, the restaurant manager of Rafters, to obtain advertising on Yelp for Rafters. Commencing in June 2011 through January 2012, plaintiff purchased advertising for his restaurants on Yelp's website.

Plaintiff alleged that Yelp engaged in false advertising by claiming that each user review passed through a “filter” that gave consumers “the most trusted reviews.” According to plaintiff, Yelp advertised that:

1. “Yelp uses a filter to give consumers the most trusted reviews”; 2. “All reviews that live on people's profile pages go through a remarkable filtering process that takes the reviews that are the most trustworthy and from the most established sources and displays them on the business page. This keeps the less trustworthy reviews out so that when it comes time to make a decision you can make that [decision] using information and insights that are actually helpful”;

3. “Rest assured that our engineers are working to make sure that whatever is up there is the most unbiased and accurate information you will be able to find about local businesses”; and

4. “Yelp is always working to do as good a job as possible on a very complicated task—only showing the most trustworthy and useful content out there”; and

5. “Yelp has an automated filter that suppresses a small portion of reviews—it targets those suspicious ones you see on other sites.” (Boldface omitted.)

Plaintiff asserted these statements were misleading and untrue. Plaintiff asserted that Yelp did not use the filter to give consumers the most trusted reviews and the filter did not accurately separate the most trustworthy reviews from unreliable reviews, nor did the filter only post reviews from trusted sources. Instead, Yelp's automated filter suppressed more than only a small portion of reviews; allowed posts of the “most entertaining” reviews to be shown on the unfiltered portion of the website, regardless of the source; allowed posts of reviews to be shown on the unfiltered portion of a local business page regardless of whether the source was trustworthy or unbiased; and suppressed a substantial portion of reviews that were unbiased and trustworthy. Further, plaintiff asserted that Yelp's website contained reviews from persons who were “specifically and demonstrably biased against the businesses which they review.” Based on plaintiff's background in software, plaintiff did not believe Yelp's filter was capable of distinguishing between trustworthy and untrustworthy reviews.

In particular, plaintiff asserted that while Rafters received 102 reviews on Yelp, 50 of those reviews were filtered. In addition, a reviewer named “Travis I.” made false statements about plaintiff's restaurants, yet Yelp's filter did not catch those review. Plaintiff reported Travis I.'s reviews to Yelp, but Yelp did not take any action. In April 2012, plaintiff complained to Yelp about reviews of the Rafters and the Red Lantern, demanded changes in the display, threatened litigation aimed at public disclosure of Yelp's software, and sought the identity of the reviewer named Travis I. who had posted negative reviews.⁵ On the other hand, according to Yelp, the Yelp filter caught several positive reviews of the plaintiff's restaurants that Yelp alleges were placed by an IP address associated with the restaurants.

Plaintiff suffered injury from the acts of Yelp, including spending money to purchase advertising from Yelp based on Yelp's representations that user reviews were filtered. Plaintiff sought an injunction to stop Yelp from continuing to engage in untrue and misleading representations.

Yelp demurred to the complaint, arguing that the proper plaintiff was MEMP, the entity that directly owned the restaurants. Yelp also filed a motion to strike under section 425.16. On September 7, 2012, plaintiff, without changing his status as an individual plaintiff, filed a first amended complaint (FAC) alleging that, among other things, plaintiff did not seek monetary damages of any kind under the UCL or FAL. Plaintiff sought an order enjoining Yelp from making any statements concerning its filter which were untrue or misleading, filtering user reviews on the Yelp website while falsely advertising that the unfiltered reviews posted were fair, trustworthy, or unbiased.

3. Yelp's Motion to Strike

Yelp filed a second motion to strike, arguing that plaintiff's complaint targeted protected activity under section 425.16, subdivisions (e)(3) and (e)(4) and by his complaint, plaintiff sought to interfere with both Yelp's review publishing process and Yelp's ability to...