A class action lawsuit has been filed against Yelp for extorting payments from companies to remove or hide negative reviews.  Yelp, which was started by 2 former Paypal employees in 2004, has user reviews for local businesses in over 40 states and recently started in the UK.

The plaintiff in the suit, a veterinary hospital in Long Beach, CA, is said to have requested that Yelp remove a negative review from the website, which was allegedly refused by the San Francisco startup, after which its s representatives repeatedly contacted the hospital demanding payments of roughly $300 per month in exchange for hiding or deleting the review.

This is not the first time Yelp has been accused of this behavior.  About a year ago, Kathleen Richards, a reporter for East Bay Express, wrote an article about Yelp with similar facts from a restaurant owner, as well as several other business owners who came forward with the same Yelp experiences.

The lawsuit essentially alleges that Yelp runs an “extortion scheme” and has “unscrupulous s practices” in place to generate revenue, in which the company’s employees call businesses demanding monthly payments in the guise of advertising contracts, in exchange for removing or modifying negative reviews.

The case, which is named Cats and Dogs Animal Hospital Inc. v. Yelp Inc., was filed on February 23, 2010, and is pending in the U.S. District Court for the Central District of California.

The class action lawsuit comes mere weeks after Yelp took a large investment from Elevation Partners, and only months after the company walked away from a $550 million Google acquisition deal.  Oops! [Tech Crunch]