A Company Is Sued Over Its 'No Bad Reviews' Clause

E-commerce company KlearGear came down with a serious case of the Streisand Effect earlier this year, when its attempts to intimidate a customer who had posted a negative review sparked widespread outrage. After being pummeled in the court of public opinion, the company may have to show up in an actual courtroom: An advocacy group filed a lawsuit against the company on Wednesday in a federal district court in Utah.

Public Citizen, a consumer advocacy group, is suing the company on behalf of customers John Palmer and Jennifer Kulas, a married couple living in Utah, claiming that KlearGear violated the Fair Credit Reporting Act. Public Citizen is asking for compensation and punitive damages.

For those unfamiliar with the tale, here’s what happened, according to the lawsuit: In December 2008, John Palmer ordered a desk toy and key chain from KlearGear, which sells office trinkets. The goods never showed up, the order was canceled, and John’s wife posted a description of the interaction on RipoffReport. Kulas wasn’t complimentary.

Over three years later, KlearGear contacted the couple to say that they would be fined $3,500 unless the critical comments were removed. The company pointed to a non-disparagement clause in its terms of service, disallowing such reviews. When Palmer and Kulas showed that the clause had been added years after they posted the review (thanks, Internet Archive), company representative Stephen Gutman wrote to say that “business agreements are organic and subject to change” and threatened to report the unpaid debt to credit agencies. KlearGear soon followed through on the threat.

Because of the damage to their credit score, Palmer and Kulas say they have been unable to get credit to buy a car or open a new credit-card account, and they had to spend three weeks without heat in their house because they couldn’t finance the repairs to a furnace. The couple wants to move, but they say they can’t because of difficulties getting a loan. The whole story compellingly illustrates how thoroughly someone’s life can be messed up by manipulation of the credit system.

KlearGear has not responded to multiple requests for comment, and an e-mail address and phone number listed for the company do not function.

The lawsuit was filed after Palmer and Kulas asked KlearGear to contact credit agencies and report the debt as an error and then to pay them $75,000 in damages. In addition to arguing that the company broke the law by lying to credit agencies, the lawsuit also claims that KlearGear defamed the Palmers by saying they hadn’t paid a debt.

The suit also argues that terms of service are no place for people to sign away constitutional rights because clicking a box on a website shouldn’t be seen as a voluntary agreement. From the suit:

The “non-disparagement clause” is unenforceable under the First Amendment because the appearance of such a term in a contract of adhesion is not a voluntary, knowing and intelligent waiver of a constitutional right, and any attempt to enforce such a term in court would invoke the power of the state so as to constitute state action.

There’s evidence that this argument will have a decent chance in court. Eric Goldman, a professor at Santa Clara University School of Law who follows legal issues related to online reviews, says that legal attempts to muzzle critics generally don’t hold water. So it does seem as if there’s a limit to what companies can cram into those agreements. Still, it’s a lot of work to challenge companies willing to go to the mat.

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