Palmer v. Kleargear.com

John Palmer and Jennifer Kulas v. Kleargear.com and Fidelity Information Corp.
United States District Court for the District of Utah
Full case name John Palmer and Jennifer Kulas v. Kleargear.com and Fidelity Information Corp.
Date decided June 25, 2014
Citations no. 13-cv-00175 (D. Utah, filed Dec. 18, 2013)
Judge sitting Dee Benson
Case holding
Default judgment; $306,750 in compensatory and punitive damages; Reporting customer to debt collection for publishing a negative review violates the Fair Credit Reporting Act
Keywords
Fair Credit Reporting Act

Palmer v. Kleargear.com, no. 13-cv-00175 (D. Utah, filed Dec. 18, 2013), is a 2013 federal lawsuit in which an internet retailer was sued by two of its customers after it billed the customers for $3,500 following a negative review. The retailer, Kleargear.com, specializes in nerd apparel, geek toys, gadgets and office toys; it is owned by Paris-based Descoteaux Boutiques.[1] The plaintiffs charged the company with violating the Fair Credit Reporting Act, defamation and intentional infliction of emotional distress. In March 2014, the district court entered a default judgment for the plaintiffs, and in June 2014 awarded damages of $306,750. As of 2015, the Palmers continue to attempt to collect the judgment.

The internet retailer's charge to the consumer was based on an anti-disparagement clause of their site's terms and conditions.

The case led to a California statute prohibiting the enforcement of such clauses, and the introduction of the Consumer Review Freedom Act of 2015, a proposed bill that, if passed, would enact a similar prohibition at the federal level.

History

The plaintiffs, John and Jen Palmer, attempted to purchase a desk ornament and keychain from the company at a price under $20. Kleargear.com never delivered. PayPal automatically canceled the order in December 2008. Soon after, Jen left a negative review at Ripoff Report.[2][3] In May 2012,[4] the company sent a bill to Jen Palmer of Layton, Utah for $3,500[5] based on an anti-disparagement clause of their site's terms and conditions unless they agreed to take down the review.[6][7] Ripoff Report has a policy of not removing reviews; statements of fact could only be removed if a $2,000 arbitration fee was paid and the arbitrator determined that those statements were false.[2] When Palmer and her husband John refused to pay, Kleargear reported the fine for collection, which dragged down their credit rating.[8]

One issue in the dispute was whether the disparagement clause had been present when the plaintiffs had made their order in 2008. In 2013, after examining archives of Kleargear's Terms of Service at the Internet Archive, KUTV and TechDirt stated that the clause had not been present and had been added to the site in June 2012.[9][10] In 2014, Kleargear stated that the clause had been present in 2008.[11]

Following an internet backlash, Kleargear closed its Facebook page and protected its Twitter account.[12] Businessweek called the public backlash an example of the Streisand effect.[13] Both the Better Business Bureau and TRUSTe have issued statements that Kleargear used their logos without permission and have begun investigations. Experian has also begun an investigation on the credit report.[14]

On November 25, 2013, Public Citizen, representing the Palmers, sent an open letter demanding that Kleargear pay the Palmers $75,000, remove the taint on their credit rating, and cease and desist from using the non-disparagement clause in the future.[15][16] Kleargear ignored a December 16, 2013, deadline to respond to the offer, and Public Citizen sued the company in federal court for Fair Credit Reporting Act violations, defamation, and other torts.[17][18] According to attorney Scott Michelman, numerous attempts to get in touch with Kleargear before the suit were unsuccessful.[4] In March 2014, United States District Court judge Dee Benson entered a default judgment in favor of the Palmers.[19][20][21] Kleargear stated to the press that the default judgment was not valid because notice should have been served to its parent company in France.[11] Judge Benson awarded the Palmers $306,750 in compensatory and punitive damages on June 25, 2014.[1][22] On July 24, the Palmers filed a motion for $47,596.86 in attorneys’ fees and expenses.[23] On August 28, the court awarded fees and expenses in the amount requested.[24]

On February 15, 2015, Judge Benson approved assignment of the judgment to the Law Offices of Ronald P. Slates, a Los Angeles law firm specializing in judgment collection, and closed the Utah case.[25]

In April 2015, the Palmers and the Slates firm filed suit in the U.S. District Court for the Central District of California to enforce the judgment by garnishment of Kleargear assets, including levies with credit card companies Discover Bank, American Express Centurion Bank, MasterCard International, and Visa Inc., as well as Paypal, Inc. against accounts held by Kleargear with those companies.[26] As of October 2015, the case is assigned to U.S. District Court Judge George H. King.[26]

Further implications

Inspired by the Palmers' experience with KlearGear, the California legislature passed a bill in 2014 to ban the use of non-disparagement clauses in consumer contracts, and Governor Jerry Brown signed it into law on September 9, 2014.[27]

In September 2015, the Consumer Review Freedom Act of 2015 (S. 2044) was introduced in the U.S. Congress, to make such clauses void and unenforceable at the federal level.[28] U.S. Senator Jerry Moran cited the Kleargear case as one basis for the bill.[29]

The U.S. Senate Committee on Commerce, Science, and Transportation has scheduled hearings on the bill for November 4, 2015.[30] Among those scheduled to testify are Jen Palmer, a plaintiff in Palmer v. KlearGear; Adam Medros, vice-president of TripAdvisor; Daniel Castro, vice-president of the Information Technology and Innovation Foundation; Eric Goldman, a law professor at the Santa Clara University School of Law; and Ira Rheingold, executive director of the National Association of Consumer Advocates.[30]

References

  1. 1 2 Farivar, Cyrus (2014-06-25). "KlearGear must pay $306,750 to couple that left negative review". Ars Technica. Retrieved 2014-06-29.
  2. 1 2 Gephardt, Matt. "Fined For Posting a Negative Review Online". KUTV. Retrieved 13 July 2014.
  3. ↑ Nelson, Steven (December 18, 2013). "Retailer That Fined Couple $3,500 for Negative Review Hit With Lawsuit - US News". U.S. News & World Report. Retrieved 13 July 2014.
  4. 1 2 Piper, Matthew (2013-12-18). "Layton couple sue KlearGear for $3,500 negative-review charge". The Salt Lake Tribune. Retrieved 2014-06-30.
  5. ↑ "BBC News - A case for reading the small print". BBC News Magazine Monitor. 2013-11-18. Retrieved 2013-11-26.
  6. ↑ Kim, Nancy S., Exploitation by Wrap Contracts -- Click 'Agree' (June 2, 2014). California Bar IP Journal, New Matter, Vol. 39, no. 2, pp. 10-17 (2014).
  7. ↑ Frauenfelder, Mark (2013-11-15). "Kleargear bills woman". BoingBoing. Retrieved 2013-11-27.
  8. ↑ McNally, Victoria (2013-11-19). "Company Tries to Fine Customer $3,500 for Leaving Negative Review Online". Mashable. Retrieved 2013-11-26.
  9. ↑ Cushing, Tim (2013-11-14). "Online Retailer Says If You Give It A Negative Review It Can Fine You $3,500". Techdirt. Retrieved 2013-11-26.
  10. ↑ Davis, Noah C. (May 2014). "The Yelper and the Negative Review: the Developing Battle Over Nondisparagement Clauses" (PDF). GPSolo (American Bar Association). Retrieved 13 July 2014.
  11. 1 2 Farivar, Cyrus (2014-05-20). "Embattled retailer KlearGear fights back against online review defeat". Ars Technica. Retrieved 2014-06-30.
  12. ↑ Biggs, John (2013-11-18). "KlearGear Goes Into Social Media Lockdown After It Charges Customers For Posting Bad Reviews". TechCrunch. Retrieved 2013-11-26.
  13. ↑ Brustein, Joshua (2013-12-18). "A Company Is Sued Over Its 'No Bad Reviews' Clause". Business Week. Retrieved 2013-12-25.
  14. ↑ Gephardt, Matt (2013-11-21). "Follow Up: Action on Behalf of Woman Fined for Penning Negative Online Review". KUTV. Retrieved 2013-11-27.
  15. ↑ Kim, Susanna (2013-11-26). "Utah Couple Fined $3,500 by Online Merchant KlearGear Retains Lawyer, Turns Tables". ABC News. Retrieved 2013-11-28.
  16. ↑ "Public Citizen Suing On Behalf Of Customers Whose Credit Was Ruined By KlearGear's $3,500 'Bad Review' Fee". Techdirt. 2013-11-26. Retrieved 2013-11-27.
  17. ↑ Nelson, Steven (2013-12-18). "Retailer That Fined Couple $3,500 for Negative Review Hit With Lawsuit". U.S. News & World Report. Retrieved 2013-12-21.
  18. ↑ "Public Citizen Sues Online Retailer That Damaged Utah Customer’s Credit in Retaliation for Critical Online Review". Public Citizen. 2013-12-18. Retrieved 2013-12-25.
  19. ↑ Gephardt, Matt (2014-03-21). "Defiance May Soon Pay Off for Couple Fined Over Negative Comments". KUTV.
  20. ↑ Van Geer, Rachel (2014-03-17). "Utah couple wins suit against KlearGear.com". WOOD-TV. Retrieved 2014-06-30.
  21. ↑ Manson, Pamela (May 20, 2014). "Retailer that charged $3,500 for bad review to fight Utah couple’s lawsuit". Salt Lake Tribune. Retrieved July 10, 2014.
  22. ↑ "Bad review couple win compensation". BBC News. 2014-06-26. Retrieved 2014-06-29.
  23. ↑ Palmer & Kulas v. Kleargear.com, no. 13-00175, D. Utah, Motion For Attorneys' Fees (July 24, 2014), retrieved from PACER, August 25, 2014
  24. ↑ Palmer & Kulas v. Kleargear.com, no. 13-00175, D. Utah, Docket entry 22 (Aug. 28, 2014), retrieved from PACER, August 28, 2014
  25. ↑ Palmer & Kulas v. Kleargear.com, no. 13-00175, D. Utah, Docket entry 25 (Feb. 15, 2015), retrieved from PACER, October 30, 2015
  26. 1 2 Palmer, et al. v. Kleargear.com, no. 15-03656, C.D. Cal. (filed Apr. 30, 2015), retrieved from PACER, October 30, 2015
  27. ↑ Chokshi, Niraj (Sep 10, 2014). "California protects the right to Yelp without penalty". Washington Post. Retrieved 10 September 2014.
  28. ↑ 2015 Congressional Record, Vol. 161, Page S6699 (September 16, 2015)
  29. ↑ "Sen. Moran Introduces Legislation to Protect Consumers from Fines for Negative Online Reviews". U.S. Senate. September 18, 2015. Retrieved October 30, 2015.
  30. 1 2 "How “Gagging” Honest Reviews Affects Consumers and the Economy". U.S. Senate. October 30, 2015. Retrieved October 30, 2015.

External links

Legal documents, Palmer v. Kleargear, no. 13-cv-00175 (D. Utah)

Kleargear.com statements

Other

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