Cats and Dogs Animal Hospital, Inc. v. Yelp! Inc.

Filing 28

JOINT REPORT Rule 26(f) Discovery Plan (Joint Rule 26(f) Conference Report) ; estimated length of trial 10 - 14 days, filed by Defendant Yelp! Inc... (Brown, Matthew)

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THE WESTON FIRM GREGORY S. WESTON (239944) ([e-mail]) JACK FITZGERALD (257370) ([e-mail]) 888 Turquoise Street San Diego, CA 92109 Telephone: [phone] Facsimile: [phone]

BECK & LEE BUSINESS TRIAL LAWYERS JARED H. BECK (233743) ([e-mail]) ELIZABETH LEE BECK (233742) ([e-mail]) Courthouse Plaza Building 28 West Flagler Street, Suite 555 Miami, FL 33130 Telephone: [phone] Facsimile: [phone]

Attorneys for Plaintiffs CATS AND DOGS ANIMAL HOSPITAL, INC. et al. COOLEY GODWARD KRONISH LLP MICHAEL G. RHODES (116127) ([e-mail]) MATTHEW D. BROWN (196972) ([e-mail]) BENJAMIN H. KLEINE (257225) ([e-mail]) SARAH R. BOOT (253658) ([e-mail]) 101 California Street, 5th Floor San Francisco, CA 94111-5800 Telephone: [phone] Facsimile: [phone] Attorneys for Defendant YELP! INC. UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA WESTERN DIVISION CATS AND DOGS ANIMAL HOSPITAL, INC. et al., on behalf of itself and all others similarly situated, Plaintiffs, v. YELP! INC., Defendant. Case No. CV 10-01340 VBF(SSx) JOINT RULE 26(f) CONFERENCE REPORT Date: Time: Judge: April 26, 2010 8:30 a.m. Hon. Valerie Baker Fairbank

JOINT RULE 26(f) CONFERENCE REPORT CASE NO. CV 10-01340 BF(SSX)

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For the Scheduling Conference set for April 26, 2010, plaintiffs Cats and Dogs Animal Hospital, Inc., et al. ("Plaintiffs") and defendant Yelp! Inc. ("Yelp" and collectively with Plaintiffs, the "Parties") hereby submit this Joint Rule 26(f) Conference Report pursuant to Federal Rule of Civil Procedure 26(f), Local Rule 26-1, and this Court's Standing Order dated February 26, 2010. Pursuant to Federal Rule of Civil Procedure 26(f), the Parties held a telephonic meeting of counsel on Thursday, April 8, 2010. Gregory S. Weston, Jared H. Beck, and Elizabeth Lee Beck participated for Plaintiffs. Michael G. Rhodes, Matthew D. Brown, and Benjamin H. Kleine participated for Yelp. I. CASE SUMMARY A. Statement of Claims and Defenses 1. Plaintiffs' Position

Defendant operates an Internet small business review site that derives its revenue primarily from the sale of "business sponsorship" of its review pages. Plaintiffs assert that Defendant's large sponsorship sales force extorts business owners by claiming to consumers looking for reviews of local businesses that its site is an impartial repository of consumer reviews, while actually manipulating or offering to manipulate its pages to favor those who purchase costly subscriptions from Yelp, and disfavoring businesses that refuse to purchase subscriptions. 2. Defendant's Position Yelp is the registered owner and provider of the popular website www.yelp.com (the "Yelp Website"), which allows consumers to find local businesses, read and write reviews about them, and rate them on a scale of one to five stars. By reading other people's reviews, consumers find that they are able to make more informed decisions about local businesses and services. For example, users can read reviews of local doctors and dentists, shops and restaurants, plumbers and babysitters. The Yelp Website features information on and reviews
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of businesses throughout the United States and is visited by approximately 30 million people per month. Yelp earns revenue by, inter alia, selling advertisements to local businesses, which appear as "Sponsored Results" on the Yelp Website. Plaintiffs' First Amended Complaint wrongly accuses Yelp of engaging in extortion, unfair business practices, and intentional interference with the businesses that are reviewed on the Yelp Website. Plaintiffs accuse Yelp of engaging in fraud, misrepresentation, and purposeful manipulation of businesses' Yelp reviews and rankings--all in a purported attempt to coerce businesses into advertising on the Yelp Website. Yelp disagrees not only with the underlying factual assertions of the complaint, but also with the legal bases on which Plaintiffs bring their claims. Yelp's business dealings and its operation of the Yelp Website are and always have been completely legitimate. Because anyone can register with Yelp to write reviews of and rate businesses, Yelp has taken steps to guard against improper and disruptive reviews. For example, business owners are known to write the occasional fake review to either burnish their own image or tarnish that of their competitors, and disgruntled former employees sometimes write negative reviews about their former employers. This problem permeates most online review sites, artificially inflating or deflating a business's rating and misleading consumers. Yelp internally and informally refers to such reviews as "spam," in reference to the common term used to describe unwanted online communications, especially email. Yelp has developed a sophisticated and confidential review filter algorithm that attempts to identify and suppress spam reviews. The review filter runs on a nearly continual basis and, as circumstances change over time (e.g., the review filter gleans new information about a particular review or reviewer), a review may be designated and undesignated as spam. Business owners may not always understand the disappearance or reappearance of reviews and may leap to conclusions that such activity is connected to whether they purchase or decline to purchase advertising on
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Yelp when, in reality, it is the result of the review filter's automated screening process. As set forth in Yelp's motion to dismiss, even taking the First Amended Complaint's factual allegations as true, Plaintiffs have failed to state a claim. First, Plaintiffs improperly bring civil claims under the California Penal Code for extortion and attempted extortion. The Penal Code does not provide for a private right of action, and even if a claim for "civil extortion" (or "attempted civil extortion") were cognizable, Plaintiffs have failed to state such a claim. Second, Plaintiffs have failed to state a claim for intentional interference with prospective business advantage because Plaintiffs fail to allege their damage to business goodwill with particularity and Plaintiffs have not alleged any "independent wrongfulness" other than the interference itself. Third, the Non-Sponsor Plaintiffs (those who did not purchase Yelp advertising) have no standing to bring claims under California Business and Professions Code § 17200 since they did not suffer any "injury in fact" under California law. Fourth, Plaintiffs' claims should be dismissed because they are grounded in allegations of fraud and misrepresentation, which are not pleaded with sufficient particularity under Federal Rule of Civil Procedure 9(b). Yelp has not yet filed an Answer to the First Amended Complaint. Yelp reserves the right to assert any and all applicable defenses, in addition to the arguments regarding Plaintiffs' failure to state a claim included in Yelp's motion to dismiss. B. Complexity of the Case and Adoption of the Manual for Complex Litigation

Yelp believes that the case is reasonably complex because (a) Yelp is currently facing three related litigations in two district courts, (b) all three purport to be class actions with nearly identically defined classes of thousands of Yelp's
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customers, and (c) all three involve numerous, overlapping claims (and defenses). Yelp believes that the chapters in the MANUAL references. Plaintiffs agree that the MANUAL FOR COMPLEX LITIGATION may be a useful reference, but do not favor a formal order adopting its procedures. II. DISCOVERY A. 2010. B. Subjects on which Discovery May be Needed 1. Plaintiffs' Position Initial Disclosures The Parties agree that initial disclosures will be made on or before April 19,
FOR

COMPLEX LITIGATION on

Multiple Jurisdiction Litigation (Ch. 20) and Class Actions (Ch. 21) will be useful

Plaintiffs anticipate seeking discovery on preliminary issues such as Yelp's internal organization and document retention policies; Yelp's sales practices and policies; Yelp's training supervision of sales employees; Yelp's "review filter"; financial information relating to the size of the class and incentives for manipulating its business listing page; complaints it has received regarding its sales practices and its policies on these issues; its policies relating to "Scouts" and the "Yelp Elite Squad;" payments to Yelp "Scouts"; and Yelp's communications to business owners. 2. Defendant's Position Yelp's investigation and analysis of Plaintiffs' claims are ongoing. Presently, Yelp anticipates that it will seek discovery on subjects including but not limited to the following: Plaintiffs' communications with Yelp; Yelp's alleged manipulation or removal of reviews from Plaintiffs' Yelp.com listing pages; Plaintiffs' Yelp accounts; Plaintiffs' purchase of any online advertising services (Yelp or otherwise); Plaintiffs' account information and reviews from any other
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online business review websites; complaints made by Plaintiffs' customers about Plaintiffs' businesses; decreased sales or revenue or patronage allegedly resulting from reviews appearing on the Yelp Website. C. Whether Discovery Should be Conducted in Phases 1. Plaintiffs' Position

Plaintiffs' position is that discovery relating to the amount of Plaintiffs' damages should proceed only after a determination of liability, but disagree with Defendant that discovery before class certification should stayed except for "class certification issues." In this action, Plaintiffs allege ongoing harm to each of their businesses and thousands of others, and the delay that would accompany the bifurcation of discovery into "class certification" issues and "merits" issue would cause them substantial prejudice. Further, Plaintiffs anticipate that an order bifurcating discovery would burden the Court with needless task of resolving disputes over what requests pertain to "class certification issues" and what requests are related to "merits issues." Plaintiffs agree with Defendant that the MANUAL FOR COMPLEX LITIGATION §21.14 is instructive on this point. It notes, first, that "Arbitrary insistence on the merits/class discovery distinction sometimes thwarts the informed judicial assessment that current class certification practice emphasizes." It also provides a useful test that, applied here, would counsel against a stay of merits discovery, that "merits discovery during the precertification period is generally more appropriate for cases that are large and likely to continue even if not certified" while "cases that are unlikely to continue if not certified" such discovery may later be to no end. While Plaintiffs would obviously not have filed this action as a class action if they believed class certification would not be granted, in the event that it is not, they would still continue seeking their primary goal of an injunction barring the

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sales practices described in the complaint, as well as damages and restitution for the named Plaintiffs. 2. Defendant's Position Yelp proposes that discovery should be bifurcated, or "phased," with Phase I focusing on discovery related to class certification issues, and Phase II focusing on discovery targeting the merits of Plaintiffs' claims and Yelp's defenses. Phased discovery of this sort (precertification discovery first, followed later by merits discovery) is contemplated by the MANUAL
FOR

COMPLEX LITIGATION (see, e.g.,

§§ 21.11, 21.14), which states that allowing merits discovery before the decision on certification "can create unnecessary and extraordinary expense and burden" (id. § 21.14). Yelp submits that organizing discovery into two phases is the most judicious and efficient approach here. D. Protective Order / Privilege Issues The Parties agree that a protective order should be entered, governing the production of confidential documents and information, and that such protective order should include a "clawback" agreement for privileged materials. The Parties will meet and confer to submit a protective order for the Court's consideration. E. Changes to the F.R.C.P. and Local Rule Limits on Discovery Particularly in light of the number of named plaintiffs in this case (10), Yelp proposes that the limit of 10 depositions set forth in Federal Rule of Civil Procedure 30 be modified for this case. Yelp submits that the Parties should be permitted to take 20 depositions per side (excluding experts, which would be in addition to this limit of 20), without prejudice to the Parties mutually agreeing to further modify the number of depositions, and without prejudice to either party seeking leave of the Court to take additional depositions if they believe it is necessary to do so. Plaintiffs respectfully disagree with Defendant and submit to the court that any modification of the 10-depositions rule is premature at this juncture; the Parties
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may enter into a stipulation, or move for an appropriate court order at a later time, upon good cause and as the facts in the case develop. F. Case Management Schedule Yelp believes that the case management schedule should allow for orderly and efficient development of the case, taking into account several aspects of the case's current posture: (1) the pendency of Yelp's motion to dismiss the First Amended Complaint for failure to state a claim (currently set for hearing on May 3, 2010); (2) the pendency of Yelp's motion for transfer of venue to the Northern District of California, where a related class action is pending (set for hearing on May 10, 2010); (3) Plaintiffs' forthcoming motion for class certification (unless modified by the Court in its case management order (see this section, below), the current deadline is May 26, 2010); and (4) the Parties' intentions to conduct discovery on class certification issues. Before filing their motion for class certification, Plaintiffs anticipate serving written discovery and taking depositions of Yelp management and sales employees directed to class certification issues. Before filing its opposition to the motion for class certification, Yelp also anticipates serving written discovery on Plaintiffs directed toward class certification issues, as well as taking the depositions of the named Plaintiffs (there are 10 named Plaintiffs in this Cats and Dogs action and one additional named Plaintiff in the related LaPausky action also pending before this Court). Plaintiffs do not anticipate but reserve their right to designate an expert on class certification issues. If such an expert were designated, Yelp anticipates taking the expert's deposition. Yelp also reserves the right to designate an expert; Plaintiffs anticipate taking Yelp's expert's deposition as well. As noted above, Plaintiffs believe that a uniform discovery schedule is most appropriate for this case, as opposed to a bifurcated, or "phased" discovery plan.

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Yelp, however, believes that phased discovery (first precertification discovery, then followed later by merits discovery) is most appropriate. Yelp also suggests that in order for the parties to have reasonable discovery on class certification issues, and for the parties and the Court to have the benefit of a full and fair hearing on class certification, the current schedule should be modified. Absent modification in the Court's case management order, currently Plaintiffs' motion for class certification is due by May 26, and the default rules for the briefing schedule would apply, meaning Yelp could have very little time to prepare its opposition. Yelp respectfully proposes the following briefing schedule: Plaintiffs' motion for class certification: June 23, 2010 Yelp's opposition: July 28, 2010 Plaintiffs' reply: August 11, 2010 Hearing on class certification: August 23, 2010 Yelp also believes this schedule has the benefit of allowing the Court to hear and decide Yelp's motion to dismiss for failure to state a claim, or Yelp's motion for transfer of venue, or both, before receiving briefing and oral argument on class certification. (See Sections V(D) and V(E) below.) Plaintiffs agree with Defendant that a modification of the default rules for class certification briefing would appropriate here to provide the parties with reasonable discovery on class certification issues, and respectfully request that the Court should relieve them of the deadline imposed by L.R. 23-3, which requires the motion for class certification be filed within 90 days of the service of the complaint, but see no reason why the hearing on the motion should be scheduled so far in advance as Defendant submits, or why modification of the default rules for noticed motions is necessary.

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If the Court wishes to set a schedule for the remainder of the case at this time, the Parties propose the following schedule (aside from the class certification schedule, which is discussed immediately above): Hearings & Deadlines Already on Calendar Initial disclosures Initial CMC Hearing on Yelp's motion to dismiss Hearing on Yelp's motion for transfer of venue Hearing on Yelp's motion for consolidation Proposed Case Management Schedule & Discovery Plan Discovery and Various Procedural Matters Deadline to join additional parties Deadline for motion for leave to amend pleadings Fact document discovery deadline Fact deposition deadline Disclosure and report of Plaintiffs' and Yelp's expert(s) Disclosure and report of Plaintiffs' and Yelp's rebuttal expert(s) Expert deposition deadline Summary Judgment Motions for summary judgment Oppositions to motions for summary judgment Hearing on motions for summary judgment Trial Pre-trial conference Trial Date April 19, 2010 April 26, 2010 May 3, 2010 May 10, 2010 May 10, 2010 Date

July 19, 2010 July 19, 2010 February 28, 2011 March 21, 2011 April 4, 2011 April 25, 2011 May 16, 2011 June 20, 2011 July 18, 2011 August 8, 2011 October 24, 2011 November 7, 2011 or as soon thereafter as Court's schedule permits

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III.

SETTLEMENT ISSUES Under Local Rule 16-16, the Parties agree to Settlement Procedure No. 3,

which will consist of non-judicial private mediation. The Parties believe that the best time for mediation would be within 45 days after the Court rules on Plaintiffs' motion for class certification. IV. OTHER PROCEDURAL ISSUES A. Jurisdiction Plaintiffs have alleged, and Yelp has not disputed, that this Court has subject matter jurisdiction under the Class Action Fairness Act, 28 U.S.C. § 1332(d)(2). B. Trial Estimate Yelp anticipates that, if a class is not certified, trial is likely to last 10-14 court days (5-7 days for each side's case-in-chief), and that if a class is certified, trial is likely to last 15-20 court days. Plaintiffs estimate that a trial would require approximately 5-7 days, and this estimate would not be affected by the Court's decision on class certification. C. D. Jury Trial Additional Parties Both Parties anticipate asking for a jury trial. Counsel for Plaintiffs have retained numerous other small business clients complaining of the same behavior described in the complaint, and have been contacted by over 200 other business owners and would seek to join many of them if the action cannot be maintained as a class action, but does not otherwise foresee the addition of other parties. V. ANTICIPATED PROCEDURAL OR EVIDENTIARY PROBLEMS In addition to the issues raised above (i.e., class certification, phased discovery), there are several procedural issues facing the Parties and the Court:

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A.

Whether this Action Should be Consolidated with LaPausky 1. Defendant's Statement of the Issue

The action entitled LaPausky v. Yelp!, Inc., Case No. 2:10-cv-01578-VBF (SSx) ("LaPausky") has been deemed related to this action, and both actions are now pending before this Court. Plaintiff in LaPausky, Plaintiffs here, and Yelp all agree in principle that the two cases should be consolidated. However, the three parties have not yet been able to reach a collective stipulation as to certain issues related to consolidation. Plaintiffs in this action and Yelp each filed an ex parte application addressing these consolidation issues but the Court ruled that the matters were not appropriate for ex parte applications, in contrast to noticed motions. On April 12, 2010, Yelp filed a noticed motion for consolidation, which is set for hearing on May 10, 2010. The MANUAL 2. Plaintiffs' Response
FOR

COMPLEX LITIGATION

§ 21.11 suggests that this is an appropriate topic for the initial conference. Plaintiffs have continuously been in contact with counsel of LaPausky and have tentatively agreed to retain and substitute in as counsel for Ms. LaPausky. In the event that such agreement cannot be reached, Plaintiffs believe the LaPausky action and any other subsequently filed tag-along actions should be consolidated. If Plaintiffs do reach such agreement, they will either agree to consolidation or dismissal of the later-filed related action. B. Whether this Action Should be Transferred to the Northern District of California 1. Defendant's Statement of the Issue

On April 9, 2010, Yelp filed a motion to transfer this action (and LaPausky) to the Northern District of California. Among other reasons favoring a transfer are that (a) Plaintiffs have agreed to forum selection clauses whereby they have consented to jurisdiction and venue in the Northern District, which is determinative
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of the issue of convenience to the parties, (b) a related action entitled Levitt v. Yelp! Inc., No. CV 10-1321 MHP ("Levitt") is pending in the Northern District before the Honorable Marilyn Hall Patel, (c) most of the relevant conduct occurred in or from the Northern District, and (d) the vast majority of Yelp witnesses are located in the Northern District. Additionally, Plaintiff's choice of forum is entitled to minimal or no weight in the circumstances here, as described in Yelp's motion. The motion hearing date is set for May 10, 2010. 2. Plaintiffs' Response Plaintiffs oppose Defendant's motion to transfer. C. Whether Yelp's Motion to Dismiss Should be Heard on the Same Date as Yelp's Motion to Transfer and Motion to Consolidate 1. Defendant's Statement of the Issue

On April 1, 2010, Yelp filed a motion to dismiss the First Amended Complaint. Yelp noticed the motion for the first available hearing date, May 3, 2010. On April 9, 2010, Yelp filed its motion to transfer. That hearing date was set for the earliest hearing date then available, May 10, 2010. On April 12, 2010, Yelp filed its motion to consolidate, and again set the hearing date for the earliest date then available, May 10, 2010. Yelp believes it would be more efficient for the Court and the parties to hold the hearings on all three motions on the same date. to dismiss from May 3 to May 10. to dismiss from May 3 to May 10. 2. Plaintiffs' Response Plaintiffs see no efficiency in moving the hearing on the motion to dismiss to May 10. Plaintiffs also view it as unfair that a later-filed copycat action filed in
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On May 8, 2010, Yelp Yelp

suggested to Plaintiffs that the parties stipulate to moving the hearing on the motion Plaintiffs did not agree to do so. respectfully requests that the Court consider continuing the hearing on the motion

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state court and removed by Defendant be used as a pretext to delay the resolution of their pleading, even if by a week. D. Whether the Court Should Decide Yelp's Motion to Dismiss Before Entertaining any Motion for Class Certification 1. Defendant's Statement of the Issue COMPLEX

As discussed above, on April 1, 2010, Yelp moved to dismiss the First Amended Complaint for failure to state a claim. The MANUAL
FOR

LITIGATION § 21.11 states that an issue for the Initial Case Management Conference is "[w]hether to hear and determine threshold dispositive motions, particularly motions that do not require extensive discovery, before hearing and determining class certification motions." Yelp's view is that the motion to dismiss should be decided by the Court prior to any motion for class certification (see above, Section II(F), for Yelp's proposed schedule on class certification). The ruling on the motion to dismiss may either dispose of the case or seriously affect the scope of claims going forward. Furthermore, since a number of Yelp's arguments for dismissal are that Plaintiffs have failed to plead with the required particularity, Yelp believes that having a ruling on the motion to dismiss and any allowed Second Amended Complaint will inform the Parties' depositions and briefing on class certification. 2. Plaintiffs' Response Defendants' position appears to be calculated to delay class certification in the event the Court requires more than the usual time to issue an order on the pending motion to dismiss. Plaintiffs see no need for the Court to address this issue in its case management order.

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E.

Whether the Court Should Decide Yelp's Motion to Transfer Before Any Class Certification Motion 1. Defendant's Statement of the Issue

Yelp's position is that the motion for transfer should be decided prior to the Court entertaining any motion for class certification (see above, Section II(F), for Yelp's proposed schedule on class certification). A strong factor favoring transfer of the case to the Northern District of California is so that the case can be consolidated with the Levitt action and, thus, avoid duplicative litigation. If a motion for class certification were made in this case prior to a decision on the motion for transfer, Yelp could be faced with two separate motions for class certification where otherwise it may only be faced with one such motion. 2. Plaintiffs' Response Similar to Plaintiffs' positions above, Plaintiffs do not believe class certification should be delayed should the Court require more than the usual time to issue its order on Defendant's motion to transfer, and further that it would be unfair for a later-filed copycat be used as pretext to delay the resolution of the first-filed action. Defendant's appropriate remedy to avoid duplicative costs involved in the Levitt action is to file in the Levitt action a motion to stay or dismiss the action pursuant to the first-to-file rule.1

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See Peak v. Green Tree Fin. Svc. Corp., 2000 WL 973685 (N.D. Cal. July 7, 2000) (dismissing copycat class action under first-to-file rule); Meints v. Regis Corp, 2010 U.S. Dist. LEXIS 14120 (S.D. Cal. Feb. 16, 2010) (staying copycat action under first-to file rule); see also Pacesetter Sys., Inc. v. Medtronic, Inc., 678 F.2d 93, 94-5 (9th Cir. 1982) (describing the first-to-file rule generally outside of the class action context).
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Dated:

April 12, 2010

COOLEY GODWARD KRONISH LLP MICHAEL G. RHODES (116127) MATTHEW D. BROWN (196972) BENJAMIN H. KLEINE (257225) SARAH R. BOOT (253658) / s / Matthew D. Brown Matthew D. Brown (196972) Attorneys for Defendant YELP! INC.

Dated: April 12, 2010

THE WESTON FIRM GREGORY S. WESTON (239944) JACK FITZGERALD (257370) / s / Gregory S. Weston Gregory S. Weston (239944) BECK & LEE BUSINESS TRIAL LAWYERS JARED H. BECK (233743) ELIZABETH LEE BECK (233742) Attorneys for Plaintiffs CATS AND DOGS ANIMAL HOSPITAL, INC. et al.

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