The Volokh Conspiracy
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From Paul Alan Levy (Public Citizen), who represented the customer and her husband; here's an excerpt (some paragraph breaks added):
A state District Court in Dallas (Judge Jim Jordan of the 160th District) has struck down a lawsuit over a non-disparagement clause in a form consumer agreement, holding that it could not be enforced against a consumer who expressed dissatisfaction about the service provided by a local business. Although we have won default judgments in Utah against Kleargear and in New York against Accessory Outlet, this case represents the first time a company defended its non-disparagement clause with a brief, and thus the first time we have had a judge's ruling refusing to enforce such a clause….
The order arose because Michelle Duchouquette, a consumer in Plano, Texas, expressed her dissatisfaction on Yelp about some of the policies of Prestigious Pets. While she and her husband were away on vacation, she noticed from security cameras in their home that the bowl containing their pet fish had become cloudy, a sign of overfeeding. She felt that, had Prestigious Pets provided a way for her to get directly in touch with the assigned pet sitter, such problems might be avoided.
Prestigious Pets then brought suit in a small claims court, seeking a few thousand dollars in damages as well as an injunction. The company claimed both defamation and breach of the non-disparagement clause which, unbeknownst to Michelle Duchouquette and her husband Robert, had been inserted into the fine print of the pet-sitting contract. The Duchouquettes retained counsel and filed a motion to dismiss under the Texas anti-SLAPP statute.
After Cristin Severance, the consumer reporter for the Dallas CBS affiliate, ran a story on the case, the story went viral, because the fact that a pet-sitting company would not only have a non-disparagement clause but would go so far as to sue its customers for mild criticism touched a nerve. Criticism rained down on the company for its lawsuit, and, according to the company's affidavits, its new business fell off sharply.
But rather than simply defending its right to enforce a non-disparagement clause, or cutting its losses and accepting the judgment of the market that suing a customer is not a good way to get new business, Prestigious Pets doubled down and hired Dallas lawyer Bill Richmond who, in turn, filed a lawsuit seeking up to a million dollars in damages on the ground that the loss of business occasioned by the news reports about its lawsuit was the Duchouquettes' fault.
The new lawsuit only made matters worse. The huge price tag, no doubt intended to intimidate the Duchouquettes, brought even more negative coverage, more lost business, and, now, exposure to a six-figure claim for a attorney fees as well as sanctions which Texas's anti-SLAPP statute requires to deter similar litigation. I expect that we will argue that the level of damages that Prestigious Pets sought to achieve a chilling effect against the Duchouquettes provides a fair measure of the sanctions that are needed to deter further such lawsuits by the company….
Because the court did not issue an opinion detailing its reasoning, we cannot be sure whether the court found that Robert Duchouquette did not waive his First Amendment rights because Prestigious Pets had not provided enough information about the clause, or specified in the clause itself the rights being surrendered (as Texas law requires before procedural rights under the Uniform Commercial Code are deemed waived), or because this clause was so extremely one-sided as to be invalid under Texas' common law principles of unconscionability.
What the decision does make clear is that non-disparagement clauses in form consumer contracts are susceptible to attack in court and that businesses in states with anti-SLAPP statutes should act with care before suing to enforce them. Companies should also consider the Streisand effect on their own business prospects. At the same time, the case stands as a reminder to consumers to read the whole contract before signing it.
At the same time, the ruling does not establish that non-disparagement clauses in form consumer contracts can never be valid….
Check out Levy's post for more, including on Prestigious Pets' libel claim, which was also rejected.