Yelp 1-star Review

In this age social media justice, sooner or later you’re going to have an encounter with a negative online review, whether your a business owner, or simply a consumer. It seems like it’s becoming an accepted aspect of our lives. Increasingly, however, consumer reviews posted on various Internet sites are becoming the subject of litigation.

In 2012, a Northern Virginia contractor filed a $750,000 defamation lawsuit (PDF) against a Fairfax County homeowner who posted a “one-star” negative review about his business on the popular consumer site Yelp. The contractor, Christopher Dietz claimed the review was riddled with falsehoods, and unfairly killed his business. The homeowner, Jane Perez was steadfast in claiming Dietz damaged her home, billed for work that wasn’t done, and that jewelry went missing after she hired Dietz’s company to fix up her newly purchased home. Ultimately the case went all the way to trial. After five long days, the jury came back with a split decision—finding that both parties were at fault because they had defamed each other. Consequently, the jury awarded $0 in damages to either side.

Before you decide for yourself who made out better in the case, you should know that each side had to pay their own legal fees. Dietz claims to have spent many thousands on several attorneys, after already losing what he claimed was $500,000 in business because of Perez’s negative review. Perez was lucky, in that she was able to find an attorney to represent her pro bono (probably because he felt strongly about the importance of the underlying First Amendment implications). But even though she didn’t have to pay her attorney, the lawsuit still cost Perez dearly—in terms of time, emotional energy, and litigation costs (things like depositions and expert witnesses can be very expensive, and attorneys can’t possibly cover those costs when they’re not earning anything for the case).

To try to fight back against these kinds of negative online reviews, merchants & service providers have started including non-disparagement clauses in consumer contracts. Most famously, a novelty goods Internet retailer demanded $3,500 from a Utah couple who’d allegedly violated its website terms of service by posting a negative online review. After the consumers refused to pay, the merchant, Kleargear.com reported their unpaid “debt” to the credit reporting agencies, which then affected the couple’s ability to get credit. They sued Kleargear for violating the Fair Credit Reporting Act, and won over $300,000 in damages.

That situation in Utah inspired a new law in California, which bars merchants or service providers from compelling consumers to sign away their First Amendment rights via non-disparagement clauses. The new law, which was signed by the governor earlier this week, takes effect Jan. 1, 2015. Dubbed the Yelp Bill, it provides for civil penalties up to $2,500 for a first violation, and $5,000 for subsequent violations. If a violation was willful, intentional, or reckless, however, an additional fine of $10,000 could be levied!

Whether or not you live in California, it’s a good idea for consumers to review their homeowners’ and other insurance policies to see whether there is libel coverage. Many policies now include coverage for such occurrences, and for things like identity theft as well. If you have the coverage, you can sleep better at night knowing that you won’t have to come out of pocket for thousands of dollars in legal fees if someone hits you with a defamation suit. Unfortunately, even meritless, bogus lawsuits cost money to defend.

And if you’re a merchant, service provider, or website operator, it’s a good idea to stay abreast on these kinds of laws, to make sure you’re in compliance. As they say, an ounce of prevention is worth a pound of cure.