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Palmer v. KlearGear.com

Nondisparagement Clauses – In 2008, John Palmer ordered Christmas gifts online from a web merchant called KlearGear.com. The gifts never arrived, and John’s attempts to contact KlearGear.com were unsuccessful. His wife then posted a negative review on RipoffReport.com. In 2012, the Palmers received a demand from KlearGear.com for $3500. According to KlearGear.com, through his wife’s post, John violated a “non-disparagement clause” in the site’s Terms of Use that prohibits users from taking any action that negatively impacts KlearGear.com or its reputation, on pain of a $3500 fine.

When the Palmers refused to pay – in part because the Term was not on the website at the time of his purchases.com – KlearGear.com reported the supposed “debt” to the credit reporting agencies. When the Palmers disputed the debt with the credit reporting agencies, KlearGear.com confirmed the supposed “debt” to the credit reporting agencies. More than a year later – after the Palmers have been turned down for credit, and had their car loan delayed and paid a higher interest rate on it – this “debt” still mars John Palmer’s credit.

On December 18, 2013, Public Citizen filed suit against KlearGear.com and its debt collector in federal court on behalf of the Palmers. The suit seeks a declaration that John does not owe any “debt” for violating the “non-disparagement clause,” and it seeks compensatory and punitive damages from KlearGear.com for violations of the Fair Credit Reporting Act, defamation, interference with prospective economic relations, and infliction of emotional distress.

Because KlearGear.com never appeared to defend, on May 15, 2014, the district court granted the Palmers a default judgment declaring that “John Palmer does not now, and never did, owe KlearGear.com or any other party any money based on KlearGear.com’s ‘non-disparagement clause’”; holding KlearGear.com liable for violating the Fair Credit Reporting Act and common law; and setting a hearing to determine damages. On June 25, 2014, the district court held a damages hearing, heard testimony from the Palmers, and awarded them $102,250 in compensatory damages and $204,500 in punitive damages for a total award of $306,750 (in addition to costs and attorneys’ fees).

Responding to the Palmers’ experience with KlearGear, California enacted a law in 2014 banning the use of non-disparagement clauses in consumer contracts. Similar bans were introduced in both houses of Congress in 2015, and Jen Palmer testified live before the U.S. Senate Committee on Commerce, Science, and Transportation in November 2015. Public Citizen submitted written testimony to the Committee as well. With Public Citizen’s support, the Consumer Review Freedom Act passed the Senate in December 2015.