Company Trashes Customer's Credit Rating to Punish Him For Negative Online Review

In many ways online business and product reviews level the playing field. They can be a quick and easy way to find out if you're about to waste your money on a shoddy product or shoddy company.

But these companies and their lawyers almost always think these reviews are tremendously unfair. They liked it better when potential customers blindly sent money to companies they didn't know to buy products they hadn't touched or handled. They liked it better when you couldn't easily find or talk to anyone else who had bought that product or dealt with that company. These companies and their lawyers think any customer criticism, no matter how truthful and accurate it is, is improper "disparagement."

A recently-filed civil lawsuit in Utah alleges the following.

In December of 2008 John Palmer paid less than $20 (including shipping) to KlearGear.com for a desk toy and a key chain. The items never arrived. Palmer telephoned the number on the KlearGear web site several times but no one answered. Then Palmer's wife Jennifer emailed them. They denied receiving payments for the items and canceled the order. A few weeks later Jennifer posted a negative review of KlearGear's "customer service" operation on ripoffreport.com.

Three years later KlearGear's in-house lawyers sent the Palmers a threatening letter demanding they either take down Jennifer's negative review within 72 hours or pay KlearGear $3,500. The in-house lawyers said the review violated the "non-disparagement clause" in the online terms of use. That clause prohibited KlearGear customers from

"taking any action that negatively impacts KlearGear.com, its reputation, products, services, management or employees."

Think about that for a minute. "Any action that negatively impacts . . . " Notice how it doesn't say the review has to be false to violate the terms of use. Truth is generally an absolute defense in American defamation law. But this company and its lawyers think they can use non-negotiable boilerplate, in "terms of use" they know most people won't even read, to get Americans to mouse-click away their free speech rights.

But wait. It gets worse.

It turns out that this particular free-speech-gutting non-disparagement clause wasn't even in the terms of use when Palmer ordered his trinkets from KlearGear in December of 2008. KlearGear unilaterally added that language to the terms of use sometime in the spring of 2012, about three and a half years after Palmer tried to buy trinkets from KlearGear.

Palmer contacted KlearGear about this. He explained that the non-disparagement clause wasn't in the terms of use when he tried to buy his trinkets. He explained that he didn't write the review. And he explained that ripoffreport.com had its own policy prohibiting removal of reviews.

KlearGear was unfazed. Even worse, it claimed the $3,500 penalty for having had the audacity to publicly criticize KlearGear was an "account" which the Palmers now owed to KlearGeat. The Palmers monitored their credit and found that KlearGear had indeed reported them as not having paid this $3,500 "account." They contacted the credit reporting agencies to dispute the charge. When KlearGear learned the Palmers had had the audacity to dispute the charge, it billed them an additional $50.

When media organizations contacted it in November and December of 2013 to investigate this case, KlearGear insisted that the Palmers did indeed owe it $3,500. It doesn't appear that KlearGear has ever identified anything in Jennifer Palmer's review that it claims was false.

The Palmers allege in their lawsuit that having this unpaid $3500 "account" in their credit report delayed their purchase of a car in December of 2012, caused them to be denied an American Express card, and forced them to go without heat for three weeks in the fall of 2013 when their furnace broke down and they couldn't buy a new one on credit. They allege they've foregone other transactions because they know they won't be able to get credit for whatever it is.

Public Citizen is representing the Palmers in the Utah case with the help of local Utah attorneys. The complaint seeks a declaratory judgment that the Palmers don't owe and never did owe $3500, economic and emotional distress damages, their costs and attorneys' fees, and punitive damages.

Montana consumer-protection law offers several tools a Montana family could use to fight this kind of corporate over-reaching:


  • Montana law treats this kind of non-negotiated and non-negotiable boilerplate as a disfavored "contract of adhesion," and subjects it to heightened court scrutiny. The courts may refuse to enforce such language if it's outside the consumer's reasonable expectations or if it's unduly oppressive, unconscionable, or against public policy.

  • Free speech -- especially free true speech -- is an important federal and state public policy. Non-disparagement clauses like the one KlearGear has been trying to use against the Palmers purport to negate or evade this important public policy in exchange for the doubtful privilege of doing business with a company that can't tolerate criticism, even if the criticism is true and accurate.

  • Montana contract law provides that a "liquidated damages" clause that provides for a penalty like the $3,500 charge KlearGear is trying to collect from the Palmers is only valid when the circumstances of the case show it would be very, very hard to calculate and prove the actual damage caused by breach of the contract.


Here's a copy of the Palmers' complaint:

[gview file="http://www.paoli-law.com/wp-content/uploads/2013/12/Palmer-v-Kleargear-Complaint.pdf"]

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