Suit to Unmask Nasty Yelp! Reviewer Nixed by IL Court On First Amendment Grounds

With social media use apparently proliferating at breakneck speed, Brompton Building v. Yelp! Inc. (2013 IL App (1st) 120547-U)) is naturally post-worthy for its examination of whether hostile on-line reviews are actionable by the business recipients of the negative reviews.

A former tenant, “Diana Z.”, spewed some invective about an apartment management company where she questioned the management company’s business competence, integrity and people skills; especially as they related to billing and handling tenant rent payments.

The building owner (not the management company; by this time there was new management) sued Yelp!, the online review site, to unearth the reviewer’s identity through a Rule 224 petition for discovery so that it could later sue the reviewer for defamation and tortious interference with prospective economic advantage.  The court found the on-line review consisted of protected expressions of opinion and denied the petition for discovery. The plaintiff building owner appealed.

Result: Affirmed.

Rules/Reasoning:

Rule 224 allows a party to engage in discovery for the singular purpose of ascertaining the identity of one who may be responsible in damages.  The case law applying Rule 224 provides significant protection for anonymous individuals so that there private affairs aren’t intruded on.  The Rule’s mechanics: (1) the petition must be verified, (2) it must say why discovery is necessary, (3) it must be limited to determining the identity of someone who may be responsible in damages to the petitioner; and (4) there must be a court hearing to determine that the unidentified person is in fact possibly liable in damages to the petitioner.   ¶ 13.

The Rule 224 petition must set forth factual allegations sufficient to survive a Section 2-615 motion to dismiss (that is, does the proposed complaint state a cause of action?) in order to successfully seek pre-suit discovery.

In Illinois, defamation suits are defeated by the First Amendment to the US Constitution where the challenged statement isn’t factual (it’s an opinion, for instance) and the action is brought by (1) a public official, (2) a public figure, and (3) actions involving media defendants by private individuals.

There is no defamation for “loose, figurative language” that no person could reasonably believe states a fact. Whether something is sufficiently fact-based to underlie a defamation claim involves looking at (1) whether the statement has a readily understood and precise meaning, (2) whether the statement can be verified, and (3) whether its social or literary context signals that it is factual.  ¶ 20.

Illinois courts also espouse a policy of protecting site defendants like Yelp! from a potential torrent of lawsuits by recipients of negative postings.  In addition, the Federal Communications Decency Act (47 U.S.C. § 230) usually insulates a website like Yelp! from liability for publishing third party comments.

Here, the plaintiff failed to allege actionable defamation against Yelp!  While the court conceded that Diana Z.’s statement that the property manager was a liar and illegally charging tenants were factual on their face, when considered in context – the plaintiff couched her rant in hyperbolic speech – the statements were (protected) expressions of opinion. ¶¶ 29-30.

Since the plaintiff couldn’t make out an actual defamation claim against the anonymous Yelp! reviewer, its petition for discovery was properly denied.

Take-aways:

This is but one of many lawsuits involving vitriolic on-line criticism of businesses. In Illinois, the law is clear that to get a court to order a website operator to unveil an anonymous reviewer’s identity, the plaintiff must make a prima facie showing that the review is defamatory or had a tendency to cause third parties to dissociate from it and take their business elsewhere. Failing that, the court will deny a petition for discovery and the plaintiff will be left without a defendant or a remedy.

Defective Lis Pendens In Wisc. Suit Doesn’t Warrant Contempt Sanctions Against NY Lawyer – Seventh Circuit Says

imageThe Seventh Circuit recently considered the scope of civil contempt of court and the range of permissible sanctions for an out-of-state attorney who misfiles a document that potentially impedes the sale of real estate.

In Trade Well International v. United Central Bank, (http://caselaw.findlaw.com/us-7th-circuit/1691932.html) a New York attorney admitted temporarily in Wisconsin to pursue a Federal case there mistakenly filed a construction lien when he meant to file a lis pendens in a replevin suit seeking the return of furnishings his client provided to a Wisconsin hotel.  The lien clouded the hotel’s title and put a wrench in the defendant’s efforts to sell it to a third party.

As a sanction for the faulty filing, the district judge revoked the lawyer’s pro hac vice status (this allows a lawyer from state to practice temporarily in another), held him in contempt and fined him $500.  The lawyer appealed.

Held: Reversed. The sanction was too harsh.

Q: Why?

A: Under Wisconsin law, a lis pendens must be filed whenever legal relief is sought affecting real property that could confirm or change interests in that property.  The lis pendens must be filed in the register of deeds for the county where the real estate is located.  Fixtures are classified as real property by Wisconsin statute.

When a lis pendens is filed, a subsequent purchaser or lender on the property is bound by the proceedings in the same manner as a party to the lawsuit.

A lis pendens prepared by a member of the Wisconsin Bar doesn’t have to be authenticated. But where a non-member of the Wisconsin Bar prepares it, the lis pendens must be authenticated (sworn to under oath by a public officer of the State).

The purpose of the lis pendens is to give constructive notice to third parties that there is a pending judicial proceeding involving real estate.  A  lis pendens differs from a construction lien in that (unlike the construction lien) it doesn’t create a lien on real property.

Here, the attorney’s lis pendens was facially deficient since it referenced Wisc’s construction lien statute and it wasn’t properly authenticated.

The court then discussed the applicable contempt of court nomenclature.  A contempt sanction is civil if it is “remedial” but criminal if “punitive.” Where a litigant or lawyer is punished for out-of-court conduct, the contempt is “indirect.” For criminal contempt, the court must give notice to the party that it is being charged (with criminal contempt) and must ask the government to prosecute the contempt.

Before holding someone in civil contempt, the court must specify what “unequivocal” court order or command was violated by the person being sanctioned.  An order of contempt is immediately appealable.

Reversing the district court’s contempt finding, the Seventh Circuit held it was unclear whether the contempt finding was criminal or civil since the trial judge didn’t specify in the order.

The record also showed that the attorney was at most negligent: he mistakenly recorded a lis pendens that referenced (but shouldn’t have) Wisconsin’s construction lien statute. The Seventh Circuit stressed that negligence or hasty drafting isn’t enough to support a finding of bad faith under the law.

Since the district court couldn’t articulate the basis for its contempt finding against the NY attorney and because there was no evidence of intentional conduct by him, the contempt sanctions were improper and the contempt order was vacated.

Take-aways:

1/ Out-of-state counsel must familiarize himself with applicable law in the jurisdiction he’s temporarily admitted to practice in and should probably retain local counsel to assist who is more versed in the specifics of the forum/foreign jurisdiction;

2/ A contempt order must specify whether it’s civil or criminal and must explicitly reference the court order that was violated;

3/ Criminal contempt has a due process component: the sanctioned party must be given notice and an opportunity to be heard and the government must prosecute the formal civil contempt proceeding.

Direct Damages, Loss of Use Damages and the Defective A/C System: A Florida Tale

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A prosaic fact pattern involving a busted home air conditioning system sets the stage for a Florida court’s nuanced discussion of the policy reasons that underlie compensatory damages and the differences between direct damages and loss of use (delay) damages.

In Gonzalez v. Barrenechea, 2015 Fla.App.LEXIS 647 (Fla.3d DCA Jan. 21, 2015), the plaintiff homeowner sued the defendant HVAC contractor for installing a defective home air conditioning system.  He sued for damages incurred in paying another contractor to install a new system (direct damages) and also sought loss of use damages for the 20 months it took for the new system to be installed and during which time the homeowner had only sporadic use of the home.

The trial court entered judgment for about $80K in direct damages and denied the plaintiff’s claim for loss of use damages.  Plaintiff appealed.

Held: Direct damages affirmed; trial court reversed on loss of use damages.

Plaintiff sought lost use damages of $15,500 per month – the reasonable rental value of a similar home according to plaintiff’s real estate appraiser expert.  The trial court disallowed the delay damages because the appraiser didn’t factor in plaintiff’s limited use of the home – including storing furniture there, parking cars in the garage, and allowing a family member to intermittently sleep in the home.

Under Florida law, a homeowner who loses the use of a structure because of delay in completion is entitled to damages for lost use.  The measure of damages for delay in completing construction are measured by the rental value of the building under construction during the delay.

Typically, a plaintiff trying to recover loss of use damages must offer expert testimony from a real estate appraiser (or someone similar) who testifies as to the reasonable rental value of the structure in question.  The damages testimony must be reliable. However, where the expert witness’s testimony is based on faulty comparables, the loss of use testimony is unreliable.

Reversing the trial court, the Florida appellate court held that none of the limited uses of the home was significant enough to negate the rental value assigned by plaintiff’s expert.  The court even pointed out that parking cars and storing furniture on the site may have even saved the plaintiff money.

Procedurally, the court held that since plaintiff made out a prima facie case for loss of use damages, the burden shifted to the defendant to establish a set-off to the claimed damages.  And since the defendant didn’t plead set-off in defense of the plaintiff’s complaint, it was barred from doing so on appeal.

There was also a policy reason for the appeals court’s reversal on the loss of use damages.  Acknowledging that failing to offset the delay damages by the limited uses during the 20-month delay period, the court noted that the law favors a “small windfall” for the plaintiff over a “large windfall” to defendants like the sued HVAC contractor.

The dissenting judge found that the trial court properly denied loss of use damages.  Since plaintiff’s expert based his rental value on flawed comparable data (a home that didn’t include the various limited uses made by the plaintiff), his damage evaluation of $15,500 per month was entirely lacking in evidentiary support.

Afterwords:

A troubling result from a defense standpoint and a boon to contract plaintiffs.  The court seems to have reversed the parties’ applicable burden of proof.  The plaintiff clearly failed to meet his burden of establishing the rental value of the home during the 20-month delay period by relying on a deficient “comp” (comparable property).  Because of this, the plaintiff’s delay damages should have been $0.

That aside, this case shows the importance of timely asserting affirmative defenses.  In hindsight, the defendant contractor probably should have asserted a set-off defense: that plaintiff’s loss of use damages should have been reduced by plaintiff’s periodic use of the property over the 20-month time span.  The defendant’s failure to allege a set-off made it impossible for the appeals court to reduce plaintiff’s claimed damages.