SAN FRANCISCO – Yelp has notched a legal victory after the Ninth Circuit Court of Appeals upheld a lower court’s ruling to dismiss a suit against Yelp Inc. over the authenticity its reviews.
The Ninth Circuit panel included circuit judges Ronald M. Gould and Paul J. Watford and District Judge W. Louis Sands, who was sitting by designation. Gould wrote the opinion of the court.
Among the plaintiffs were Joseph Curry and the Miami Fire Fighters; and Police Officers Retirement Trust.
In upholding the district court’s ruling, the Ninth Circuit ruled the plaintiffs failed to make their case alleging securities fraud. They alleged statements regarding the authenticity of Yelp reviews were false.
Some complaints alleged Yelp would remove positive reviews for businesses that didn’t advertise with them and it also would remove negative comments for businesses who did place advertisements.
“[The] Plaintiffs argue that the district court erred by holding that they did not adequately plead falsity, materiality, loss causation and scienter,” Gould wrote. “Plaintiffs further argue that the district court erred by dismissing their control person claim and by denying them leave to amend.”
The plaintiffs, in a class action, maintained Yelp knew the statements were false and news of the authenticity of the reviews would cause the publicly traded company’s stock to drop.
The court determined the simple disclosure of consumer complaints couldn’t serve as a basis for the case against Yelp.
The Ninth Circuit also rejected insider stock sales allegations leveled by the plaintiffs, noting that there was no evidence of trading data to support the claim.
“We affirm the district court’s dismissal of the complaint based on the elements of loss causation and scienter that were not sufficiently pleaded,” Gould wrote in the opinion.
The court found that given the number of reviews Yelp receives, complaints covering a very small portion of the company’s business don’t support a compelling inference of scienter.
Moreover, Gould noted the court also upheld the district court’s dismissal of the complaint with prejudice “because amendment of the complaint as to loss causation would be futile under current precedent.”