Class Action Lawsuit Exposes Angie's List As A High-Tech Protection Racket

Protection rackets have long been synonymous with organized crime syndicates that operate in major U.S. cities and other parts of the world. Traditionally, crime syndicates would divide up cities into exclusive territories over which particular crime families would operate. Businesses located within a crime family's territory would be compelled by threats of violence or economic harm to pay protection money to the crime family as a condition of doing business. While once common in U.S. cities, federal and state RICO laws were enacted to aid law enforcement in shutting down many once thriving organized crime families. They are, however, still quite prevalent in other parts of the world, including neighboring Mexico and Sicily where up to 80% of businesses pay protection money to the mob.

A few years ago, a former employee of Angie's List shared with me some rather startling stories about how the company conducts its membership-based consumer rating service and likened it to an extortion racket. The former employee said the ratings of service providers relied upon by the company's consumer members were largely bogus because good service ratings were driven more by advertising dollars paid by the service providers being rated than actual consumer reviews of the businesses by the company's paid members. The former employee even suggested that employees of Angie's List would write bogus positive ratings to service providers which advertised with the company, and write negative reviews of companies which did not advertise with the company. In the case of the latter, the former employee said the company would make the negative ratings go away if the service provider plopped down money and started advertising on Angie's List. What the employee described was, in effect, a high-tech form of the protection rackets crime families ran across major cities in this country for decades.

During public testimony concerning a proposal before the Indianapolis City-County Council to provide $18.5 million in public subsidies to Angie's List, which is in addition to the more than $14 million the company received from the state and city just a few years ago, Democratic mayoral candidate Larry Vaughn described Angie's List as a company that sells bumper stickers and syndicates on the side in a way that crushes many small business owners in this city and elsewhere. A new class action lawsuit filed this month in the federal district for the Eastern District of Pennsylvania lays out detailed allegations which confirm, for the most part, the damning claims related to me by the former employee and Vaughn's depiction of the company in urging council members to deny any additional public subsidies to the company, which has never turned a profit in its nearly two decades of existence, perhaps one of the view things differentiating it from the protection rackets run by organized crime syndicates.

According to the class action lawsuit, Angie's List does not provide the unfiltered, consumer-driven rating service it sells to its consumer members. Instead, Angie's List manipulates service providers' reviews, ratings and search result rankings based on advertising fees paid by the services providers, which can run into the tens of thousands of dollars. How does Angie's List manipulate its ratings? The lawsuit lays out three basic scenarios:

• A service provider shows up higher in search results on its search engine based on whether a service provider pays to advertise on its site, not based upon actual consumer reviews. The lawsuit says this has the practical effect of duping its members to choose a service provider listed higher on its search engine result
• Angie's List suppresses negative reviews of service providers who pay to advertise on the site by either not counting a company's negative reviews in its overall rating behind the interface its members see, or by making negative reviews of a service provider not readable by its members.
• Finally, Angie's List threatens to suppress positive reviews of service providers if the provider refuses to purchase advertising from the company. 

The lead plaintiff in the Pennsylvania lawsuit says her experience as an Angie's List member who relied upon the company's consumer ratings in choosing a home improvement contractor are emblematic of the experience of other members. Janell Moore relied on Angie's List to select a contractor to remodel her kitchen. At that time, Angie's List displayed no negative reviews for this contractor, which failed to do the job Moore hired the contractor to perform and refused to repay her the $4,000 she paid to the contractor. Moore submitted a negative review of the contractor after her experience and, lo and behold, she was able to see for the first time negative reviews other consumers had written about the same contractor before she had hired it to remodel her kitchen. One of the reviews complained about the exact same issue Moore had with the contractor. When Moore asked an Angie's List representative about the prior suppression of negative reviews, the employee did not blame the suppression of the negative reviews on a technological glitch or an oversight; rather, the representative attributed it to the fact that the service provider had paid advertising fees to the company. Moore later learned from another contractor she used that it paid Angie's List to appear at the top of their list. 

The class action lawsuit points to Angie's List increasing reliance on service provider advertising fees in support of its contentions, noting that it earned more than three times as much from service provider fees last year than it earned from membership fees paid by its members. In addition to breach of contract and covenant of good faith and fair dealing, the class action lawsuit charges the company with fraud, unjust enrichment and violation of Pennsylvania's unfair trade practices and consumer protection law. The lawsuit seeks to void Angie's Lists membership agreements, the payment of restitution to members, the disgorgement of its ill-gotten gains, and an injunction to bar the company from continuing to engage in the deceptive consumer practices, along with punitive and exemplary damages. 

Before the City-County Council agrees to write a check to Angie's List for $18.5 million, the company's executives should be required to answer questions about its business practices. We certainly wouldn't tolerate our City-County Council giving our taxpayer dollars to the Gambino crime family. Why should we tolerate public handouts to a company accused of running a high-tech protection racket for businesses which pay protection money to Angie's List to provide favorable search results for consumers who rely upon it to make consumer choices? 

Please click here to view the class action lawsuit in its entirety. Hat tip to fellow blogger Paul Ogden for bringing our attention to the filing of this class action lawsuit.