Levitt v. Yelp: Why Twombly/Iqbal Are Regrettable
I’m just at the start of my pleadings journey with my Civil Procedure II students, which has got me reading lots of terrific scholarship on the regrettable impact of Twombly and Iqbal. Federal district court Judge Chen’s recent dismissal of the third amended complaint in Levitt v. Yelp, 2011 WL 5079526, seems a perfect example of why Twombly and Iqbal’s insistence upon factual plausibility before discovery transforms FRCP 12(b)(6) motions into something far different from sussing out “fair notice” and more like summary judgment as Suja Thomas astutely suggests. (Scott Dodson and Adam Steinman also have insightful pieces on Twombly and Iqbal — New Pleading, New Discovery” and “The Pleading Problem,” respectively).
Let me first tell you a bit about the Levitt suit against Yelp. Plaintiffs, two subclasses of business owners, alleged that Yelp unlawfully manipulated its business review pages to induce them to pay for advertising in violation of California’s civil extortion statute. In a previous ruling, the court dismissed the complaint with leave to amend because it lacked factual allegations from which a threat might be plausibly inferred. The Third Amended Complaint (TAC) added allegations concerning Yelp’s dealing with plaintiff Wheel Techniques (WT) in late 2008 and early 2009. According to the TAC, soon after WT noticed negative reviews on its Yelp page that did not correspond with its actual customers, it received calls from Yelp representatives seeking advertisements. Plaintiffs alleged that Yelp created false reviews to induce WT to advertise with it and that “200 Yelp employees or individuals acting on their behalf have written reviews of businesses on Yelp.” Plaintiffs alleged that when Wheel Techniques contacted Yelp to ask why a competitor had a high rating on Yelp, the Yelp representative told him the competitor advertised and “we work with your reviews if you advertise with us.” Id. ¶ 78. On March 8, 2010, Wheel Techniques was again contacted to purchase advertising. Upon declining, Plaintiffs allege that a 1–star review was moved to the top of the business page “within minutes” as a threat to induce Wheel Techniques to advertise. Id. ¶¶ 79–81. Plaintiffs allege that Wheel Techniques owner John Mercurio was told several Yelp employees had been fired and computers had been frozen “as a result of scamming related to advertising.” Id. ¶ 82.
The district court ran through the Twombly-Iqbal standard, with a few tweaks. It explained that a complaint may be dismissed for failure to state a claim if it lacks a cognizable legal theory or sufficient facts alleged under a cognizable legal theory. Citing Twombly, the court noted that a motion to dismiss should be granted if a plaintiff fails to plead “enough facts to state a claim to relief that is plausible on its face.” “The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully.” The court stated that “allegations of material fact are taken as true and construed in the light most favorable to the non-moving party.” (The “construed in the light most favorable” to the non-movant language was absent in Iqbal). Citing Iqbal, the court said that: it “need not, however, accept as true pleadings that are no more than legal conclusions or the ‘formulaic recitation of the elements’ of a cause of action. Determining whether a complaint states a plausible claim for relief … [is] a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” The court dismissed the complaint for failure to state a claim. Here’s the court’s explanation:
The TAC, like the SAC, fails to allege facts sufficient to support a conclusion that Yelp created any content. Plaintiffs have added an allegation that “approximately 200 Yelp employees or individuals acting on behalf of Yelp have written reviews of businesses on Yelp,” TAC 37, and that “Yelp has paid users to write reviews,” id. ¶ 38. Despite these allegations, however, it remains “entirely speculative that Yelp manufactures its own negative reviews or deliberately manipulates reviews to the detriment of businesses who refuse to purchase advertising,” and “[t]he [TAC] provides no basis from which to infer that Yelp authored or manipulated the content of the negative reviews complained of by plaintiffs,” Order Dismissing SAC at 17. That Yelp employees have written reviews, even for pay, does not raise more than a mere possibility that Yelp has authored or manipulated content related to Plaintiffs in furtherance of an attempt to “extort” advertising revenues. See Iqbal, 129 S.Ct. at 1950 (“[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not ‘show[n]’-‘that the pleader is entitled to relief.’ ”) (quoting Fed.R.Civ.P. 8(a)(2)). Similarly, that Wheel Techniques noticed negative reviews of its business that did not match its customer records does not support the logical leap that Yelp created those reviews. See TAC ¶¶ 74–75. Nor does an allegation that Mr. Mercurio (Wheel Techniques’ owner) “was told” by an unnamed source “that a former Yelp employee stated that Yelp, upon information and belief, terminated a group of sales employees … as a result of scamming related to advertising” and that “the computers of sales employees were, at one point, frozen to prohibit employees from being able to change reviews” raise more than a speculative possibility that Yelp employees created or substantively manipulated the content of Plaintiffs’ reviews in this case. See TAC ¶ 82. “Scamming related to advertising” could have referred to a host of practices not involving manufacturing of false reviews.
Despite the court’s claim that it would draw all inferences in plaintiffs’ favor, it seemed to do the opposite. The plaintiffs provided a factually plausible account of extortion: that Yelp employees write reviews; that after WT notice negative reviews that did not accord with its customer records, a Yelp representative called seeking advertising; that a Yelp employee told WT that it works with customers that advertise with it; that as soon as WT refused Yelp’s advertising solicitation, a one-star rating appeared at the top of its Yelp page; and that WT’s owner learned that Yelp employees had been fired due to scamming related to advertising. Nonetheless, the court reads the allegations seemingly in the light most favorable to defendant movant, reasoning that scamming related to advertising could have referred to a host of practices not involving false reviews and that even if Yelp hired people to write reviews it does not raise more than a mere possibility that it manipulated content regarding WT to extort advertising revenues. The court seemingly ignores the allegations related to the solicitation calls and the subsequent negative review appearing on WT’s page after it declined Yelp’s second advertising solicitation. It’s difficult to imagine what more plaintiffs could have alleged at this stage in the game. Taking a cue from Scott Dodson’s article “New Pleading, New Discovery,” plaintiffs need discovery to figure out if Yelp employees did what the circumstances suggest–manipulate reviews to bully WT and other plaintiffs into buying advertising. In the end, Suja Thomas has it right. This whole endeavor sounds a lot more like a summary judgment motion than a motion to dismiss.