Corporate Accountability and WorkPlace

Utah Couple Awarded $300,000 After Online Retailer Trashed Their Credit For Years For A Negative Review

A catalog of predatory practices from geek gadget retailer KlearGear.com.

Photo Credit: KlearGear.com

A Utah couple whose credit was trashed by an internet retailer after they posted a critical review—after not receiving two Christmas gifts bought in 2008—has won in $306,750 damages in federal court. But their nightmare is not over, their attorney said, because the online retailer, KlearGear.com, has moved overseas and is unlikely to pay up.

“I don’t think so,” said Lester Perry, a Salt Lake City attorney, who, with Public Citizen, sued KlearGear, when asked if the $300,000 in damages was collectable. “They claim to be owned by a French company. Beyond that, we know they had $47 million in revenue in 2012… But they dropped off the radar.”

The five-plus year saga for John and Jennifer Palmer of Layton, Utah, is a showcase of predatory online business practices that Perry said have become more common. They include fine-print clauses that impose big fines on buyers who write negative reviews; reporting that “fine” as debt to credit bureaus if unpaid; and the near-impossibility of consumers to get credit bureaus to correct those errors.

“It’s not necessarily retribution,” Perry said, when asked about KlearGear’s tactics. “It’s [a strategy] to force payment of a debt that isn’t owed. It happens all the time.” 

The Palmers’ troubles began innocently enough. In December 2008, John Palmer placed an online order with KlearGear.com for a toy desk and a keychain worth $20 and paid via his PayPal account. The Christmas gifts never arrived and Jennifer tried to find out why. At first, she e-mailed the company and was told, court records said, that the order had not been paid and was cancelled. When she couldn’t reach a customer service representative for more details, she posted a review in early 2009 at RipOffReport.com, saying, “There is absolutely no way to get in touch with a physical human being. No extensions work.”

Three years went by and nothing happened. But in May 2012, the couple received an e-mail from KlearGear.com’s legal department threatening they would be fined $3,500 if they did not remove the negative online review within 72 hours. KlearGear, which was then based in Grandview, Michigan, said that review violated the “non-disparagement clause,” which was included in its online sales and use terms. Buyers agree to those conditions by checking a box before completing a purchase.

Non-disparagement clauses are intended to prevent negative reviews. They are similar to arbitration clauses in online sales agreements, which pre-empt frustrated consumers from suing in court and instead push grievances before a private mediator.

“Most, if not all of Internet companies like these, have them,” Perry said, speaking of the non-disparagement clauses. “They’re a plague just like arbitration.”   

It turns out that KlearGear did not have the “non-disparagement clause” in its sales terms when John Palmer bought his Christmas gifts, the court records said. Palmer said that he explained this important omission via e-mail to KlearGear’s attorney, but the lawyer did not care. He replied that did not matter as business terms are “subject to change,” “this matter will remain open until the published content is removed,” and failure to act will result in his $3,500 “account” being sent to debt collectors and credit bureaus, the couple’s legal complaint said.

The Palmers refused to pay a penny. But later that summer, they saw that two of the three major credit bureaus, Experian and Equifax, cite KlearGear’s “fine” as uncollected debt and lowered their credit rating. As they challenged the downgrade, KlearGear increased its fine. By late 2012, the couple went to the media to complain, and were covered on local TV news and CNN.com. As 2013 began, the “fine” was turned over to Fidelity Information Corp., a California–based debt collector.

Meanwhile, as this was unfolding, the couple could not get a car loan, new credit cards, or use credit to replace a broken furnace in their home in late fall, their court papers said. They also were blocked from refinancing their home and making other improvements because of their trouble securing credit.

As 2013 ended, KlearGear continued to tell credit bureaus that the Palmers owed $3,500. In December of 2013, their Utah attorney, Perry, and the Public Citizen Litigation Group, sued KlearGear.com and Fidelity for five counts of violating the federal Fair Credit Reporting Act, including defamation, economic and emotional distress.

The Palmers demanded a jury trial—but KlearView never filed legal papers in response. The couple won a default judgement this spring. On Wednesday, U.S. District Court Judge Dee Benson awarded the Palmers $102,250 in compensatory damages and $204,500 in punitive damages against KlearGear.com.

“We are gratified by Judge Benson’s ruling,” Public Citizen Attorney Scott Michelman said in statement. “The Court sent a strong message that corporate bullying of consumers would not be tolerated. The Palmers are relieved that John’s credit has been restored and they feel vindicated by today’s award.”

But, as their Utah attorney said Thursday, collecting that penalty will not be easy.

“I think Public Citizen will use some of its contacts in France,” Perry said.