Consumer gag clauses: Totally not awesome under CRFA
Moon Unit Zappa’s 1982 song “Valley Girl” popularized the phrase “gag me with a spoon.” We doubt the lyric “gag me with a form contract clause” would have been a hit, but it’s among the tactics expressly outlawed by the Consumer Review Fairness Act. As two proposed settlements demonstrate, the FTC thinks gag clauses and similar non-disparagement provisions that violate the CRFA are – to quote Ms. Zappa – grody to the max.
People using a popular site to find a rental in Rosemary Beach, Florida, may have come across properties managed by Shore to Please Vacations. According to the complaint, the company mandated in its contract that any vacationer who posted a review giving the property less than a “5 star or absolute best rating” immediately owed the company at least $25,000. Here’s an excerpt from a “disclaimers” paragraph in Shore to Please Vacations’ form contract:
By signing below, you agree not to defame or leave negative reviews (includes any review or comment deemed to be negative by a Shore to Please Vacations LLC officer or member, as well as any review less than a “5 star” or “absolute best” rating) about this property and/or business in any print form or on any website . . . . Due to the difficulty in ascertaining an actual amount of damages in situations like this, breaching this clause . . . will immediately result in minimum liquidated damages of $25,000 paid by you to Shore to Please Vacations LLC.
That was no idle threat. In fact, the owner of the business meant business, and followed through by filing lawsuits against renters who posted reviews he deemed to be negative. He claimed in demand letters that by breaching that provision in the contract, the renters each owed him $25,000 plus attorney’s fees.
The FTC also announced an action against Baltimore-based Staffordshire Property Management. When a prospective tenant filed an application, Staffordshire presented the consumer with a form contract stating that he or she “specifically agrees not to disparage Staffordshire Property Management, and any of its employees, managers, or agents in any way, and also agrees not to communicate, publish, characterize, publicize or disseminate, in any manner, any terms, conditions, opinions and communications related to Staffordshire Property Management, this application, or the application process.” The contract further provided that “[a]ny breach of such confidentiality will support a cause of action and will entitle Staffordshire Property Management to recover any and all damages from such a breach.” Staffordshire also insisted that the contract terms were in full force regardless of whether the applicant was “approved or not approved.”
The FTC alleges that both companies’ contracts violate the Consumer Review Fairness Act. In effect since 2017, the CRFA bans provisions in form contracts that restrict a consumer’s ability to communicate reviews or performance assessments about a seller’s goods, services, or conduct. The law also makes it illegal to impose a penalty or fee against a consumer who engages in communications protected by the CRFA.
The proposed settlements include provisions to ensure CRFA compliance. In addition, the Staffordshire Property Management respondents must post a web notice for two years explaining consumers’ right to post honest reviews and must send the same message via email or letter to customers who signed contracts with a non-disparagement provision at the outset of the transaction. The Shore to Please respondents will send a similar letter or email to affected consumers. In addition, they must dismiss with prejudice a lawsuit count filed in state court alleging that a renter breached its non-disparagement provision by posting a negative review.
Once the proposed settlements appear in the Federal Register, you’ll have 30 days to file a public comment.
The FTC announced three other proposed CRFA settlements just a few weeks ago. The takeaway tip for businesses should be clear: Review your form contracts. Keep them totally tubular by deleting any clauses that attempt to stop consumers from sharing their honest opinions about your products, service, or conduct. The FTC’s Consumer Review Fairness Act: What Businesses Need to Know explains the basics.