As we lawyers know, nondisparagement clauses are often included in settlement agreements much like a confidentiality provision. And, just like confidentiality provisions, nondisparagement clauses are generally enforceable in settlement agreements and interpreted under basic contract law requiring offer, acceptance, and consideration.
A great example of the enforceability of settlement agreements that contain confidentiality agreements is the Gulliver Schools1 case out of Florida. There, Patrick Snay, the former headmaster of a private school, brought a claim for age discrimination. The case settled, and Snay was to be paid $80,000. However, the settlement agreement included a confidentiality agreement. Before he received his settlement proceeds, Snay breached the confidentiality clause of the settlement agreement by informing his daughter that he had settled with the school. And how do we know that? Well, Snay’s daughter was kind enough to post a snarky comment about the school on Facebook (which included a reference to Gulliver Schools paying for her trip to Europe and the parting shot: “Suck it.”) When the school learned of the Facebook posting, it refused to pay. Although the trial court had ruled in favor of Snay (who had brought a motion to enforce), the Florida Court of Appeals agreed with the school and reversed. The Florida appellate court found that the bottom line was that the confidentiality clause was clear and unambiguous, it was breached, and disgorgement was the articulated remedy.2 So goodbye $80,000.
So I guess Gulliver Schools did suck it, sucking back the nice sum of $80,000.
So what about confidentiality and nondisparagement clauses outside the world of settlement agreements? Well, the trend we’re seeing with nondisparagement clauses is that they’re moving from this sit down, lawyered up world of prenegotiated settlements to the world of nonnegotiated service contracts and even online purchases (containing often unread terms and conditions incorporating “no review” (i.e., no negative review) language.
So, what is a nondisparagement clause? It is language found in a contract (or on the terms and conditions of a website) that attempts to prevent the customer or receiver of the good or service from posting negative reviews about the service provider or vendor. Negative postings can be found on such sites as rip-off.com, yelp.com, tripadvisor.com, dine.com, or even amazon.com
Nondisparagement agreements in the online or service provider setting have arisen in response to a couple of realities: (a) first, the power of the public, or power of the court of public opinion (especially the power of those who write bad reviews3); (b) and second, the reality that the companies and websites that host the reviews are simply not providing an adequate means of addressing negative reviews that merchants deem unfair or inaccurate. So merchants and service providers are being proactive.
Although there hasn’t been a lot of litigation, I am seeing nondisparagement or “no review” clauses in service provider contracts, such as moving companies, locksmiths, dentists, and now even online providers of goods. But there are two recent cases involving nondisparagement agreements that have blown up and have made their way to court: Palmer v. Kleargear and Lee v. Makhnevich & Aster Dental.
The Palmer v. Kleargear lawsuit was filed in Utah federal court and is still pending. In that case, John Palmer ordered some trinkets through Kleargear, and, after there was a problem with the order (it sounds like John never received the shipment), John’s wife Jen tried to contact Kleargear. She then posted a review on ripoffreport.com stating in essence that she couldn’t reach anyone at Kleargear, that none of the extensions worked, and that the Palmers felt ripped off. That was in February 2009! Later, as in more than three years later, Kleargear sent a letter to the Palmers requiring that they take down the offending review and stating that they had violated the online nondisparagement clause contained in the Kleargear.com website’s terms and conditions. The letter also informed them that the penalty for the breach was $3,500. Amazingly, Kleargear had apparently not even inserted this clause into their terms and condition until after the Palmers had ordered their product. When the Palmers refused to pay, Kleargear sent the Palmers “account” to collections, which then reported the Palmers to the credit bureaus and damaged their credit standing. With the help of Public Citizen Law, the Palmers fought back and sued Kleargear (and the collection agency) in Utah federal court. But after talking tough, Kleargear was a no-show in the litigation. An order of default was entered against Kleargear for Kleargear simply failing to appear and answer the allegations of the complaint. Now a hearing to award damages to the Palmers will be held, and a judgment by default will soon be entered by Judge Dee Benson.
After Kleargear gets hit with a judgment, it’ll be interesting to see what happens next. Will Kleargear try to contest enforcement and jurisdiction in its homebase(s) of Texas or Michigan, or will they ignore the judgment or even file bankruptcy?4 We shall see!
In the second case, Robert Allen Lee v. Stacy Makhnevich and Aster Dental, which was filed in the United States District Court for the Southern District of New York,5 we find Dentist Makhnevich with a particularly ornery contractual provision that prevented disparagement of her practice under, at least in part, the Federal Copyright Act. She apparently utilized the Copyright Act in her contacts with patients because it afforded her more remedies and protection than state defamation laws (because Yelp and other online posting sites were protected by the safe harbor provisions of the DMCA6). After Mr. Lee gave his dentist a one star review, the dentist contacted the posting sites to have them remove the review and then threatened Mr. Lee with daily fines (under the Copyright Act).7 Mr. Lee took matters a step farther and sued the dentist and her practice to seek a declaration from the court invalidating this over-the-top nondisparagement clause so that he wouldn’t have to live in fear of his dentist root-canalling his future financial livelihood.
In response, the dentist and her practice tried to dismiss the case, arguing that the court didn’t have jurisdiction and that the case wasn’t ripe (i.e., she hadn’t actually “sued” her patient, so how could there be a case or controversy). The court disagreed and found that the dentists’ threats of fines from her lawyer were enough to make this a real case and dispute, and the court did have jurisdiction to adjudicate the plaintiff’s claims on all fronts.
Since then, amazingly, Stacy the dentist has apparently disappeared. So her (and Aster Dental’s) lawyer filed a motion to withdraw, which was eventually granted on September 9, 2013. Since then, it appears that there is no new activity in the case, though the case appears to still be open and active. Thus, it’s probably only a matter of time before a motion for summary judgment is filed and granted.
And so the battle continues, and with more businesses including these nondisparagement agreements (to try to protect their names, honor, and ratings) and more people writing (and relying on) reviews, we are likely to see this area of law develop.
But because lawsuits are so expensive (unless taken pro bono by such entities as Public Citizen Law), the road of least resistance and least economic inlay (when consumers are faced with a letter intimating fines and litigation if a posting is not removed) will likely be to concede and remove the offending postings. But if push comes to shove, and these cases end up in court, it will be very interesting to see how the courts treat these provisions because they are often not negotiated, not paid for (i.e. no independent consideration), form no material part of the contract for the consumer/purchase, and in some cases are not even known to exist!
Until then, well, we should all practice a little Latinus “caveat emptor/buyer beware” and some common sense—if your service provider requires that you sign a nondisparagement agreement at the time you enter into a services agreement, then don’t sign and don’t use that service provider. If they’re so worried about the negative review and won’t stand by their work, then you should be concerned about using them. Why not find a competitor who is willing to stand by its work and its products?
1. Patrick Snay v. Gulliver Schools, Inc. (Fl. Ct App. 3rd Dist.) www.3dca.flcourts.org/Opinions/3D13-1952.rh.pdf.
2. Of course, if disgorgement was not set forth as the remedy, there may have been quite a fight over what the actual damages to Gulliver Schools would have been and how much money that would be entitled to get back (if any). Because they hadn’t yet paid, it made the case streamlined and stands for some pretty strong precedent (at least on facts like these).
7. For other not-so-flattering reviews of this dentist, see http://www.yelp.com/biz/stacy-makhnevich-dds-new-york.