by Paul Alan Levy
A state District Court in Dallas (Judge Jim Jordan of the 160th District) has struck down a lawsuit over a non-disparagement clause in a form consumer agreement, holding that it could not be enforced against a consumer who expressed dissatisfaction about the service provided by a local business. Although we have won default judgments in Utah against Kleargear and in New York against Accessory Outlet, this case represents the first time a company defended its non-disparagement clause with a brief, and thus the first time we have had a judge’s ruling refusing to enforce such a clause.
Background of the Ruling
The order arose because Michelle Duchouquette, a consumer in Plano, Texas, expressed her dissatisfaction on Yelp about some of the policies of Prestigious Pets. While she and her husband were away on vacation, she noticed from security cameras in their home that the bowl containing their pet fish had become cloudy, a sign of overfeeding. She felt that, had Prestigious Pets provided a way for her to get directly in touch with the assigned pet sitter, such problems might be avoided. Prestigious Pets then brought suit in a small claims court, seeking a few thousand dollars in damages as well as an injunction. The company claimed both defamation and breach of the non-disparagement clause which, unbeknownst to Michelle Duchouquette and her husband Robert, had been inserted into the fine print of the pet-sitting contract. The Duchouquettes retained counsel and filed a motion to dismiss under the Texas anti-SLAPP statute.
After Cristin Severance, the consumer reporter for the Dallas CBS affiliate, ran a story on the case, the story went viral, because the fact that a pet-sitting company would not only have a non-disparagement clause but would go so far as to sue its customers for mild criticism touched a nerve. Criticism rained down on the company for its lawsuit, and, according to the company's affidavits, its new business fell off sharply. But rather than simply defending its right to enforce a non-disparagement clause, or cutting its losses and accepting the judgment of the market that suing a customer is not a good way to get new business, Prestigious Pets doubled down and hired Dallas lawyer Bill Richmond who, in turn, filed a lawsuit seeking up to a million dollars in damages on the ground that the loss of business occasioned by the news reports about its lawsuit was the Duchouquettes’ fault.
The new lawsuit only made matters worse. The huge price tag, no doubt intended to intimidate the Duchouquettes, brought even more negative coverage, more lost business, and, now, exposure to a six-figure claim for a attorney fees as well as sanctions which Texas’s anti-SLAPP statute requires to deter similar litigation. I expect that we will argue that the level of damages that Prestigious Pets sought to achieve a chilling effect against the Duchouquettes provides a fair measure of the sanctions that are needed to deter further such lawsuits by the company.
Prestigious Pets' Claim for Defamation
The new lawsuit, as well as Richmond’s brief in opposition to our anti-SLAPP motion, also explained the basis for Prestigious Pets’ defamation claims. It claimed that when its pet sitter, in the course of visiting the Duchouquettes, had promised to feed their fish as well as walking their dogs, she was just operating on her own as an independent contractor. Thus, the company’s theory was that Michelle Duchouquette has unfairly and falsely blamed the company for the apparent overfeeding of her pet fish, because Michelle Duchouquette had to have known that the company never took responsibility for the fish; rather, any overfeeding was the fault of the individual pet sitter. The company relied entirely on the fact that the written contract never mentioned the fish. And the company went so far as to hire an expert witness to explain that murky water in a Betta fish’s bowl would not necessarily harm the fish, and that no true expert could think otherwise (as if a consumer has to consult experts before posting on a site like Yelp!).
The company’s claim that feeding the fish, and hence its overfeeding, was solely the responsibility of an independent contractor was torpedoed when the Duchouquettes submitted their reply brief showing images of an additional sitter, besides the one who made the promise to feed the fish, not only putting food in the fish bowl but leaving bunches of pellets sitting on top of the water in the tank. So not only did Prestigious Pets make itself look unreliable, by suggesting that it takes no responsibility for oral promises made by its sitters, but it appeared deceptive as well. It is thus not surprising that Judge Jordan rejected the libel claims in toto.
Non-disparagement clause decision
More important that the dismissal of the libel claims is the fact that Judge Jordan dismissed the company’s claims under the non-disparagement clause. In opposition to our anti-SLAPP motion, Prestigious Pets submitted an affidavit claiming that its pet sitter had specifically mentioned the non-disparagement clause to Robert Duchouquette, contradicting his affidavit and setting up a disputed fact on the issue of whether there was a knowing waiver of free speech rights; the company argued that the existence of a fact dispute barred granting the anti-SLAPP motion on the waiver issue. Because the court did not issue an opinion detailing its reasoning, we cannot be sure whether the court found that Robert Duchouquette did not waive his First Amendment rights because Prestigious Pets had not provided enough information about the clause, or specified in the clause itself the rights being surrendered (as Texas law requires before procedural rights under the Uniform Commercial Code are deemed waived), or because this clause was so extremely one-sided as to be invalid under Texas’ common law principles of unconscionability.
What the decision does make clear is that non-disparagement clauses in form consumer contracts are susceptible to attack in court and that businesses in states with anti-SLAPP statutes should act with care before suing to enforce them. Companies should also consider the Streisand effect on their own business prospects. At the same time, the case stands as a reminder to consumers to read the whole contract before signing it.
At the same time, the ruling does not establish that non-disparagement clauses in form consumer contracts can never be valid. The House of Representatives is still considering whether to adopt the Senate-passed Consumer Review Freedom Act, which would make non-disparagement clauses in form consumer contracts unlawful and hence unenforceable. Judge Jordan’s ruling offers consumers some hope, but only once this law passes can consumers feel confident that they are free to post their opinions and truthful statements about businesses without legal restraint.
An expression of thanks
I explained in my previous blog post about the case that, to avoid forcing the Duchouquettes to pay by the hour for representation by Texas counsel, the firm of Thompson and Knight agreed to enter the case on a contingent basis, looking to a possible award of attorney fees under the Texas anti-SLAPP law for its compensation. My special thanks to Chris Dachniwsky for the many uncompensated hours he poured into the litigation. And, of course, wins like this one are only possible when consumers like Robert and Michelle Duchouquette are willing to stand up against intimidation and the chilling effect of being sued for a million dollars by insisting on their free speech rights. They are the real heroes of this case.