Tag: business

Bad Online Reviews Can Hurt Your Business – But Responding in Kind Can Too

Posted on by Louis Fine

If you own a small business or are a professional and have customers and clients, there is a good likelihood that someone has published an online review of your company and its goods or services. From Yelp to Angie’s List to TripAdvisor to any number of websites tailored to particular interests or industries, online reviews can have a profound impact on your business.  Even one negative review can be devastating.

You can find a lot of tips and do’s and don’ts online about how to handle such negative reviews from a strategic and business perspective. On more than one occasion I have had a panicked and apoplectic client ask me whether he can sue the author of a negative review for defamation.

The answer is, of course you can sue “IHateYourBusinesss123”” or whomever made the post. But the reality is that much of what is written in even the most scathing negative review will likely not qualify as actionable defamation. Furthermore, such lawsuits themselves can open up the business owner to further scorn, ridicule, and bad publicity in the fickle social media world.

As a preliminary matter, most online review sites and other platforms (Facebook, Yahoo, Google+, etc.) where comments may appear are immune from liability for defamatory comments in reviews as a matter of federal law. Section 230 of the Communications Decency Act shields such sites from claims based on comments posted by third parties.

What is Defamation in Illinois?

In Illinois, in order to prove defamation, including a claim based on an online review, a plaintiff has to prove:

  • the defendant made a false statement about the plaintiff;
  • there was an unprivileged publication to a third party;
  • fault by the defendant amounting to at least negligence; and
  • the publication damaged the plaintiff.

There is a special category of defamation that does not require a plaintiff to prove actual damages. Defamation per se, as it is called, involves specific statements that are deemed inherently damaging. These statements include ones which assert that the plaintiff:

  • is infected with a “loathsome communicable disease” (e.g. a sexually transmitted disease, HIV, hepatitis, etc.)
  • has a lack of ability to perform their professional duties, or otherwise harms the plaintiff in their professional reputation
  • lacks integrity in their professional duties
  • has committed fornication or adultery
  • has committed a criminal act

Provable Fact v. Opinion

The most common issue that distinguishes an actionable defamation claim based on online reviews from one likely to fail is the issue of whether or not a statement was false. Only false statements of fact can be the basis of a defamation claim, not opinions. A statement of fact has to be able to be objectively proved or disproved. Consider the two following hypothetical restaurant reviews:

“That was the most disgusting and flavorless meal I have ever had in my life.”

“The waiter spit in my food.”

The former is non-actionable opinion, as it cannot be objectively proven that the meal was the “the most disgusting and flavorless” one the reviewer ever had. Conversely, the latter is a statement of fact; it can be proven (perhaps not easily) whether or not the waiter spit in the diner’s food.

Additionally, Illinois courts emphasize the context in which an allegedly defamatory statement has been made in determining whether the statement can be the basis of a claim. Even if a single statement in a long rant is arguably a statement of provable fact, it may not constitute defamation if a reasonable reader would see it simply as invective.

Consider Brompton Building, LLC v. Yelp, Inc., a 2013 Illinois Appellate Court decision in which a building management company sued an anonymous former tenant who had posted a hyperbolic, scathingly negative, and extremely lengthy online review. Even though the rant contained a few objectively verifiable statements, the court found that it could not support a defamation claim because in context they would not be understood to be actual factual allegations. As the court noted, “The context of the defamatory statements is critical in determining its meaning. In determining the context of the defamatory statements, we must read the writing containing the defamatory statement ‘as a whole.'”

Careful How You Respond – Especially if You’re a Physician

The bottom line for business owners and professionals is that a lawsuit in response to outrageous internet reviews and comments that make their blood boil and their businesses suffer may not be the best course of action.  While certain false statements of fact in such comments can be the basis of a defamation claim, business owners and professionals should carefully consider how to proceed lest their response make a bad situation worse.

This is especially true if you are a physician. Doctors and other health care professionals are regularly reviewed online, and some of those reviews come from disgruntled patients who may publicly criticize the treatment they received. The problem is that in an effort to defend the care they provided, some doctors have revealed confidential patient information in comments they have posted in response to negative reviews. Such HIPPA violations, as with other online professionalism mistakes, have serious licensing and regulatory consequences. Any doctor wanting to post an online response to a patient complaint should think long and hard about how they do so – and whether they should respond at all.

You Need Structure: The Importance of Picking the Right Corporate Form for Your Business

Posted on by Louis Fine

Insulating Yourself from Personal Liability and Other Considerations

If you’re an entrepreneur or small business owner pouring your heart and soul into building and growing your enterprise, the dream is that all of that hard work and investment will be rewarded with success. The nightmare is that you expose your personal finances to significant risk and tax liability that can bring that dream crashing down. One of the ways to minimize those risks and protect yourself is to pick and form the right business entity.

For small businesses, this choice often comes down to two potential corporate structures: a limited liability company (LLC) or an S-corporation (often called an “S-corp”).

As alluded to above, perhaps the most fundamental reason business owners form LLCs or S-corps is to protect their personal assets from business creditors or other liabilities arising out of the operation of the business. Both of these entity types can accomplish this crucial goal, giving owners much needed peace of mind.

However, that protection can be lost if the business owners conduct their affairs in such a way as to render the company a mere “alter ego” of its owners or if they engage in fraudulent conduct. Additionally, both entities provide the benefit of treating your business income as your personal income for tax purposes.

How LLCs and S-Corps are Different

While both LLCs and S-corps provide the benefit of protecting personal assets, there are several key distinctions between LLCs and S-corps. A few of those differences include:

  • Both LLCs and S-corps are “pass-through” entities for tax purposes, which means business profits pass through the business entity and get taxed as the personal income of the owners. Here’s how it works:
    • Single Owner LLCs. If you run a single-owner LLC, you are taxed like a sole proprietorship, which means you can simply attach a Schedule C form to your personal tax return.
    • Multiple Owner LLCs. If your LLC has several owners, you can choose to be taxed as a corporation or a partnership.
    • S-Corps. In an S-corp, the corporation’s income is reported on the shareholders’ personal income taxes, based on their percentage of shares owned, regardless if they received distributions of the corporation’s income.
  • Allocation of Income. If you have others who will have an ownership share in the business, you will have to figure out how income will be allocated between you and your partners:
    • S-corps don’t give you much of a choice, as income must be distributed evenly among all owners regardless of how much labor or money each owner has contributed to the enterprise.
    • In an LLC, however, you can distribute income however you wish.
  • Corporate Formalities. One of the appealing things about an LLC is that, as a general rule, fewer corporate formalities are required than in S-corps and certainly fewer than in regular corporations. But being too casual can lead to serious problems:
    • As noted, failure to treat the LLC as a distinct entity by commingling funds, undercapitalizing the company, failing to hold meetings, etc. can result in the loss of that all-important personal liability protection.
    • While Illinois LLCs are not required to have written operating agreements, I strongly recommend that a written operating agreement be drafted and signed by all members to clarify the parties’ rights and obligations and avoid future conflicts as to its provisions.
  • Ownership Restrictions. An S-corp can have no more than 100 shareholders. By contrast, LLCs can have any number of owners and can even be owned by corporations and other LLCs.

There are numerous other nuances and distinctions regarding ownership, management, and operation of both LLCs and S-corps, and there are special types of LLCs called “Series LLCs” and “Low-profit LLCs” that may be best suited for your business. Additionally, there are other potential entities available, including general partnerships, limited partnerships, and specialized partnerships for the provision of professional services.

The Law Offices of Louis R. Fine

I understand that every business is different and that the goals and concerns of every business owner are unique. That’s why I work closely with my clients to evaluate their specific situation and determine which business structure will best set them up for success and growth. Please give me a call at 312-236-2433 or fill out my online form to arrange for your free initial consultation.