Continued Issues with Nondisparagement Clauses in Form Consumer Contracts

by Paul Alan Levy

Despite the passage of the Consumer Review Fairness Act in December 2016, businesses continue to use non-disclosure and non-disparagement clauses in form contracts to suppress criticism of their products and services. This blog post summarizes several situations in which we have been involved recently.

Premier Pools and Spas in Dallas

The most blatant and current of the situations involves the Dallas, Texas area franchise of a national pool construction business, Premier Pools and Spas. When Kasey and Michael Corcoran signed a contract for construction of a pool in their home, the form contract that they were given to sign included the following language buried in the tiny print of an arbitration clause (see paragraph 12):

“Therefore, buyers posting any comment on the internet that PPAS deems as disparaging before completing the arbitration process hereby agrees to pay PPAS a $3500.00 fee and remove the post with 48 hours of posting. Failure to remove any posting with PPAS with 48 hours and to pay this fee will result in PPAS notifying all three credit bureaus. . ..”

After the Corcorans signed the contract in April 2017, the contractor procrastinated in showing up to install the pool, and then, when construction errors resulted in the pool being unuseable, the contractors failed to come make the needed repairs; as a result, the Corcorans were unable to use the pool over the summer. Hoping to warn other consumers about this company, and perhaps as well hoping to pressure the contractor into meeting its responsibilities, Kasey Corcoran posted a Google review about the company, and complained to the Better Business Bureau. There is no better evidence of the importance of protecting consumers’ right to post truthful reviews than the fact that Kasey Corcoran’s strategy worked. The company promptly responded to make needed repairs.

But then the company asked the review be removed, eventually pointing to the clause in the contract to enforce its demand. When Corcoran declined to do that, Premier Pools, shades of Kleargear and the singing dentist, Stacy Makhnevich, sent the Corcorans an invoice for $3500. When the Corcorans expressed their outrage, PPAS’s lawyer, a Dallas lawyer named Van Shaw called and wrote to them demanding payment and demanding as well the name of their lawyer. Meanwhile, the Premier Pools has refused to do warranty work repairing the Corcoran’s pool, taking the position that because the Corcorans criticized the company online, they breached the contract and relieved the company of its responsibilities under the warranty.

Luckily for her, Kasey Corcoran works for a law firm, and one of the principals of the firm wrote to Shaw on her behalf, pointing to the Consumer Review Fairness Act, to the Texas Citizens Participation Act (the TCPA, that state’s anti-SLAPP law), and to the decision of a Dallas trial judge dismissing a complaint by the Prestigious Pets dogwalking company based on a similar nondisparagement clause as reasons why the company would be unwise to try to enforce the contract clause. In a show of cooperation, Kasey Corcoran took down her Google review, although she left her Better Business Bureau complaint online. When Shaw persisted in sending demands for compliance, the Corcorans reached out to me for help.

I tried to reach Van Shaw by telephone to try to reason with him, but he would not call back. Consequently, I emailed him to let him know of our interest in the case, as well as asking him some questions about his position. I also suggested that he contact Bill Richmond, the lawyer for Prestigious Pets, to find out about how Richmond’s litigation strategy for his client had come close to ruining his client’s business. Under Richmond’s guidance, that company’s efforts to enforce its nondisparagement clause had both driven business away from his client as the public reacted to news that Prestigious Pets was suing customers for up to a million dollars in damages, and run his clients’ legal fees up so high that they are, Richmond has claimed, at serious risk of bankruptcy as a result of the fee and sanctions award they are now facing under the TCPA.

Shaw’s response was to write to the Corcorans’ original lawyer, describing my email as “strange” without responding to it. When I kept asking questions, he responded with increasingly bizarre one-liner emails that were, I suppose, intended to imply that he intended to sue, but that still involved no litigation: “NO GRACIAS,” then “U have no idea what u are doing,” and finally “ITS GO TIME.” But Shaw did not file suit, or initiate an arbitration claim under the nondisparagement clause, or take any other action.  Although the Corcorans braced for a possible attack on their credit, the company has not gone to the credit bureaus either.

In the end, it seemed to me that the best remedy for the Corcorans, and the best way to protect the consuming public in Dallas, was to shine the light of publicity on Premier Pools and Spas. The company is still refusing to do their warranty work, but the arbitration clause in the contract, coupled with its attorney fee provision, could make a potential lawsuit prohibitively expensive. Cristin Severance, the CBS consumer reporter in Dallas who originally broke the Prestigious Pets story, ran a story on the situation last night.  Her investigation revealed that despite explicit warnings that its nondisparagement clause is illegal, Premier Pools Dallas continues to impose the clause on consumers.

I spoke to the franchisor for this chain, who assured me that this language is not recommended to its franchisees, although I never heard back from his company’s counsel who, he suggested, would be looking into the matter. But the head of the Dallas franchise said on camera that it was not his contract.  It may take discovery by an enforcement agency to reveal who created this contract provision and how widespread it is among Premier Pools franchisees.  The Consumer Review Fairness Act gives enforcement authority both to the Texas Attorney General’s Office and to the Federal Trade Commission; it may be up to those authorities to protect the Corcorans as well as other potential victims of this pool-building company.

Ashley Black and Her Supposed Cellulite Buster

A nondisparagement clause claim was also at the heart of a pair of lawsuits filed by ADB Interests, the corporate form for a former model named Ashley Black, in defense of her “FasciaBlaster” business. It sounds like the medical device version of snake oil medicine: take a plastic stick, with one side lined by prongs; rub the prongs on thighs bearing the accumulations of fat and cellulite fat that tend to accumulate with age; and miraculously the cellulite breaks down, restoring the youthful appearance for which many women yearn. The easy way to look younger, without all that hassle of dieting and exercise,

Does this seem to be too good to be true? Perhaps. Although "Ashley Black Guru," as the former model whose brainchild this is calls herself, has been featured on Good Morning America promoting her device, and although she claims to have sold more than a million units of the device, a number of unhappy customers have rained on her parade. She arranged to have a study of the device conducted by the “Applied Science and Performance Institute” in Tampa, Florida. Some of the participants in that study suffered some very serious side-effects, including considerable pain as well as vomiting, but when they participated in a Facebook group devoted to Black’s product and articulated their concerns as well as complaining about other aspects of the study, Black’s company sued them both for defamation and for breach of certain provisions of the form participation agreement that the subjects of the study were required to sign and which the company contended amounted to nondisclosure and non-disparagement commitments. Although both defendants lived in Florida, and the study was conducted in Florida, Black’s company filed suit in state court in Texas.

We agreed to represent the two consumers, intending to seek both dismissal of the complaint and an award of attorney fees and sanctions under the TCPA. The allegedly defamatory statements largely mirrored side effects against which the company itself had warned, and even if the contract had the meaning on which the company was basing its contract claim, these clauses were contrary to Texas law for all the reasons that we had articulated in the Prestigious Pets case, as well as the Consumer Review Fairness Act. I explained all this in a letter to Black’s counsel

The CRFA had been enacted before the contracts were signed, but its effective date was a month later; all of the speech on which the lawsuit was based took place after the effective date, and of course the lawsuit was filed after the effective date. So, although our invocation of the statute could have raised some issues about retroactivity, I felt we on solid ground. And from a Public Citizen perspective, I was concerned about an additional issue – the ethical considerations raised by the imposition of a non-disclosure agreement on the participants in the medical study. It is not uncommon for personnel who conduct such studies to be subjected to such restrictions, but we identified an expert who was ready to talk about why an institutional review board was unlikely to approve a consent form including such a clause.

In response, Black’s counsel agreed to an extension of time for us to move to dismiss the lawsuit, and eventually he dismissed the action before we filed our TCPA motion to dismiss. I am all but certain that the reason why Black was willing to dismiss was the experience she had with a defamation suit that she was pursuing at the same time against another woman who had said nasty things about the FasciaBlaster (but not subject to a contract clause).

That defendant, Karen Wallace, ran a beauty business and had been using the Fascia Blaster for a period of time, until she became dissatisfied with the product. Wallace reported her concerns publicly and was sued for defamation. Being in business, she could afford to pay private counsel, who filed a powerfully-argued TCPA motion. And when Black’s counsel, recognizing the seriousness of the anti-SLAPP defense, tried to settle the case by dropping her claims, Wallace’s counsel Ryan Higgins reminded Black’s counsel that, once an anti-SLAPP motion has been filed, under Texas law the defendant is entitled to get a ruling on that motion even if the plaintiff dismisses the lawsuit. Consequently, Wallace demanded payment of at least some of her attorney fees.

Black did not want to get trapped defending against an anti-SLAPP motion in our case as well, and dismissed his lawsuits against our clients before we could file our TCPA motion In the Wallace case itself, Wallace has won her motion to dismiss and substantial amounts of attorney fees and sanctions have been awarded. Black recently filed a notice of appeal, so that case will continue.

The Galland’s Paris Apartment

Yet another non-disparagement clause case in which we have been involved, which also recently came to an end, involved some reviews posted the web site of VRBO (Vacation Rentals by Owners) about apartments in an old building in Paris that are rented by Claude and Violaine Galland. After Judith Johnston and her husband James stayed there in the summer of 2013, the Johnstons felt that Claude Galland has been less than candid in describing the condition of the apartment that they had rented; in fact, they felt that Galland had misled them about which of the apartments in the building was available to them. After Judith Johnston posted on VRBO an unflattering review about their rental, the Gallands sued her and her husband, as well as another couple who had also posted unfavorable comments. The complaint alleged both defamation and breach of contract, citing a sentence hidden in the “forum clause” of the rental contract that stated, “The tenants agree not to use blogs or website for complaints, anonymously or not.” In response to a motion to dismiss, the trial court dismissed the defamation claims but retained the contract claim (Eric Goldman’s coverage of that decision is here).

The other couple, who had to hire a lawyer to defend themselves, apparently decided that it wasn’t worth the time and money; they settled the case for removal of their review. But the Johnstons could afford to stand up for their right to tell the truth about what they experienced because their daughter, a Portland, Oregon area lawyer, represented them pro bono. The case lingered for some time as the Galland’s resisted submitting to discovery; we entered the case to file a summary judgment motion arguing as a matter of law against enforcement of the non-disparagement clause. In addition to the sorts of arguments on which we had prevailed in such cases as Prestigious Pets and Kleargear, I felt that we had a reasonable argument that the clause did not forbid the posting of a review on the VRBO site itself. We also had in mind to invoke the CRFA, because even though both the contract and the speech had occurred before passage of the statute, the Gallands’ enforcement efforts were continuing past the effective date of the law. We summarized these arguments in a letter to the Court.

We were unable simply to file the motion for summary judgment that we had prepared because many district judges in New York require pre-motion letters describing a proposed motion; the trial judge and magistrate judge apparently decided to dispose of the case based on Claude Galland’s resistance to participation in discovery rather than reaching the merits thqat we had discussed in our letter. The Court had rejected claims by Claude Galland that alleged hearing problems prevented him from being deposed by telephone, and ordered him to submit to a telephone deposition. When he defied that order, the Court issued an order to show cause why the case should not be dismissed. The Gallands’ response revealed that they, after having insisted that the case be litigated in New York under the contract’s forum clause, had moved to Switzerland. They apparently decided that the case was not worth enough to them to return to New York to respond to the order to show cause. They case was dismissed for that reason.

The transcript of the judge's dismissal ruling refers to one of the least pleasant aspects of litigating this case – Galland’s pro se communications to the court were not only pompous but venomous. For example, he filed bar charges on Oregon against the Johnstons’ daughter, accusing her of perjury, and appealed the dismissal of those charges. Galland's case filings reflected such accusations. Once I entered the case, the name-calling was directed to me as well.

VRBO’s Disregard for Its Consumer Users

One final point on the Galland case – I was unimpressed with the response of “Home Away” company, the parent of VRBO, to what happened in this case. I would have assumed that VRBO would see the process of posting and hosting consumer views of the properties featured on its site to be integral to the success of their marketplace, in that the reviews both provide a useful quality check for the consumers, and the possibility of bad reviews of crappy properties benefits landlords whose vacation properties are excellent. But my communications with the staff at VRBO’s parent company made clear to me that they see the landlords who advertise their properties as their real customer base.  VRBO's revenues are derived entirely from charging landlords a fee for listing their properties, as well as taking a commission on rentals effected through the VRBO site. Perhaps it is for that reason that VRBO has no interest in discouraging their landlords from restricting the speech of renters or, indeed, from filing lawsuits against renters who leave bad reviews.   

But that attitude is shortsighted, because VRBO depends on consumer trust in the veracity of reviews of properties listed there.  And protecting the business at all costs is not the standard approach among companies that provide review platforms. Yelp, Angie’s List, Trip Advisor and other companies take a variety of actions to informs consumers when these platforms learn that businesses are using lawsuits and unfair contracts to suppress honest consumer reviews. These steps range from posting notices on the company’s page to alert consumers to the danger, such as this banner at the top of a Trip Advisor page and this cover page on a business page on Yelp, that the consumer has to click away before any reviews can be seen. Angie’s List has had a policy under which businesses that sue their customers get placed in a “penalty box” pursuant to which the business can be located if customers search for it by name, but the business will not come up in response to a search for types of businesses (I have not been able to determine whether this remains Angie’s List’s policy). Companies such as Yelp and Trip Advisor make their money from advertising by the businesses discussed on their platforms; Angie’s List runs such advertising but also allows consumers to pay for premium memberships. Yet each of them stands up for the rights of its consumer users

Consumers should bear in mind the reliability of reviews on these various platforms, in light of the extent to which the platforms respond to attacks on consumers’ rights, when they decide which platforms to patronize.

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