Can a standard clause in a settlement agreement be subject to the Consumer Review Fairness Act?

by Paul Alan Levy

After the Freehold Animal Hospital botched the neutering of a consumer’s dog, requiring the consumer to pay thousands of dollars for corrective surgery by a different hospital, the animal hospital agreed to refund the cost of its services as well as covering the expense of the corrective surgery, but only if the consumer agreed to a contract containing nondisclosure and nondisparagement clauses demanding that she keep the payment confidential, refrain from future criticism of the hospital, and remove all of her previous criticisms from social media. The clause was so broad that any action by the consumer that damaged the business (not coming back? not recommending the business to her friends?), could have been deemed a violation, subjecting the consumer to the possibility of litigation and an award of attorney fees.

The consumer was unwilling to do this, but the hospital insisted that this part of the deal was non-negotiable. Indeed, it told the consumer that such clauses are a standard part of its agreements to fix botched procedures, and confirmed that contention when contacted by Karin Price Mueller, consumer reporter for the Newark Star-Ledger. Mueller has the details in this article.   My own effort to reach the business for comment received no response.

Now, it strikes me as a sad commentary on this veterinary business that they apparently have so many problems with their professional work, leading to the need for financial settlements with its customers, that they need to have standard contract clauses for that situation. Be that as it may, my view is that there is a reasonable argument that the contract is subject to scrutiny under the Consumer Review Fairness Act, enacted by Congress late in 2016 and now fully in effect.

Although the paradigmatic situation to which the law was addresses is contracts entered at the beginning of a consumer/business relationship, the contract is still being used in connection with the sale of the hospital’s services, and it is apparent from the hospital’s admissions that the non-disparagement clause is a “standard” part of its agreements and that it was not subject to negotiation.

In its defense, the Freehold hospital told Mueller that the clause was not subject to the CRFA because a business always has the right to “settle” disputes with consumers. But although the statute has a number of exceptions, use in settlement of disputes is not once of them.

The applicability of statute to the clause is unlikely to be tested in the short run, because the consumer simply declined to take the risk of being subject to the contract, notwithstanding doubts about its validity. However, if the hospital persists in using the clause in future contracts it could face an enforcement action from the FTC or the Attorney General of New Jersey.

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