Federal district court grants default judgment against KlearGear

As we've discussed before on the blog (see, for instance, here and here), in 2012 an online retailer called KlearGear tried to extort $3500 from its customer John Palmer because his wife Jen criticized the company online; when John refused to pay, KlearGear reported the supposed “debt” to the credit agencies, ruining John’s credit for more than a year. The claimed basis for the “debt” was entirely bogus: it was based on a “non-disparagement clause” that the company tried to impose on John years after it did business with him and which would be unenforceable anyway.

In December, Public Citizen sued KlearGear on behalf of the Palmers. In February of this year, KlearGear's own debt collector agreed the supposed "debt" was void. Meanwhile, KlearGear never showed up in court to defend the lawsuit, and so we moved for a default judgment in March.

Today, the district court granted that judgment, which:

-Declares that “John Palmer does not now, and never did, owe KlearGear.com or any other party any money based on KlearGear.com's ‘non-disparagement clause’”;

-Holds KlearGear liable on all of the Palmers' claims, which were for violation of the Fair Credit Reporting Act, for defamation, for interference with prospective economic relations, and for intentional infliction of emotional distress; and

-Sets a hearing to determine damages, at which the judge will hear from the plaintiffs about the harms they have suffered.

This step does not end the case entirely, because the judge must still determine the amount of KlearGear's liability. But today's order does resolve most of the disputes in the case.

You can read the two-page judgment here. (An oddity about the dates on the document: although the dates printed or written on the order suggest that it was signed or filed before today, it was released through the electronic case filing just today. Also note that we will be asking for the hearing to be rescheduled because of a scheduling conflict.)

Astonishingly, KlearGear has put its non-disparagement clause — which threatens users of its website with a $3500 penalty for speaking ill of the company — back in its terms of use. This development lends additional urgency to the legislative efforts to protect consumers' right to speak freely: as Law360 reports (subscription required), the California Assembly and the U.S. House of Representatives are considering bills to protect consumers from non-disparagement clauses.

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