The Merchant of Menace: Utah Couple Fined $3,500 by Online Merchant Turns Tables

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Utah Couple Fined $3,500 by Online Merchant KlearGear Retains Lawyer, Turns Tables

Nov. 26, 2013

After an online merchant fined a Utah couple $3,500 for writing a negative review and caused a financial nightmare for more than a year, a public service lawyer has agreed to take the case and fight back with demands for $75,000 in compensation.

When Jen Palmer of Salt Lake City didn't receive a Christmas gift that her husband ordered for her online, she wrote a negative review of KlearGear.com and moved on with her life. But the company fined the Palmers $3,500, citing bizarre fine print on its website.

"No one would have expected this from doing perfectly normal, everyday and perfectly legal things," Scott Michelman, staff attorney with Public Citizen who is representing the Palmers, told ABCNews.com.

KlearGear.com didn't deliver Palmer's online order of a desk ornament that was less than $20, so it cancelled the transaction in Dec. 2008. Jen Palmer, now 40, wrote a negative review on private business review site RipoffReport.com, saying KlearGear.com had "horrible customer service practices."

"It's been five years," Palmer, an executive assistant, told ABCNews.com. "Once we put the review up we pretty much forgot about it. It was no different than writing a review, good or bad, about any company. We just figured we'll share our story and hopefully it warns anybody else."

Then last summer, her husband, John, a senior network engineer, received an email from KlearGear.com demanding $3,500 pursuant to a non-disparagement clause that it claimed was in its "Terms of Use" on its website.

"We were blown away," Jen Palmer said, recalling that her husband asked her who KlearGear.com was when he received the email. "We were floored. We couldn't believe that somebody would even attempt to do this. The threat of doing it was scary enough, but the extent to which they did it blew my mind."

The Palmers say they asked RipOffReport to take down the negative review, but the site has an arbitration process that requires the involvement of the business. The couple say they shared this information with KlearGear.com to no avail.

"There is an option to post updates to the report at no charge to anyone," Ed Magedson, founder of RipOffReport told ABCNews.com. "For example, if Kleargear.com reconsiders its decisions, Jen Palmer could post an update to tell other consumers how the situation was resolved."

When the Palmers refused to pay the amount, KlearGear.com reported their "debt" to one or more credit reporting agencies. When the Palmers disputed the debt with several credit reporting agencies, KlearGear.com continued to maintain that the debt was owed and then demanded a $50 "dispute fee" because they attempted to dispute the debt, the couple says.

KlearGear.com did not respond to a request for comment.

Unable to afford an attorney to dispute the debt, the Palmers said the mark on their credit history affects their ability to obtain loans, most recently for a financing plan for a new furnace. As a result, last month the couple and their 3-year-old son were without heat for three weeks until they saved the $1,900 to buy a furnace.

"Utah in October gets very cold pretty quickly," Jen Palmer said.

Besides the debt to KlearGear.com, Palmer said she and her husband have maintained a good credit history.

"We really try to live within our means. We don't live on credit," she said.

After the Palmers took their story to a local television station, the nonprofit advocacy group Public Citizen volunteered to represent the couple, sending a letter on Monday to KlearGear.com, threatening to file a lawsuit against the e-commerce site unless it fixes the situation with a deadline of Dec. 16.

In Michelman's letter, he writes that the Palmers asked KlearGear.com to inform the three major credit reporting agencies that their debt was in error, to compensate the Palmers $75,000 and not to include its "non-disparagement clause" going forward.

Michelman said the $75,000 compensation amount is in the high range of a typical award for acts in violation of the Fair Credit Reporting Act.

"There's no excuse for what KlearGear did," Michelman said. "We want to prevent consumers from being taken advantage of with regard to their credit."

The harm imposed on the Palmers wasn't just theoretical, Michelman points out in the letter, detailing the numerous times the denial of credit affected their lives. In addition to the inability to obtain financing for a new furnace, the Palmers experienced a delay of a car loan, denial of a credit card, and the inability to sell their home and purchase a new one. The Palmers also say the negative credit report has deterred them from seeking to refinance their home or secure a home equity loan for roof and window repairs.

"Obviously we would like this resolved sooner than later," Jen Palmer said. "It has gone on long enough. It never should have happened in the first place. I don't want to conjecture their thought process. We want this resolved as quickly and peacefully as possible."

Michelman said it's not the first time he has seen a business try to muzzle its critics through the use of non-disparagement clauses or legal devices to stop customers from writing negative reviews. One method he has seen is a company assigning over to itself copyright of a customer review. Earlier this year, Public Citizen represented a customer in Greenville, S.C., who was sued by an eBay seller after she gave the seller a low-star rating.

Read More: Lawsuit Dispute Over Negative EBay Review

Michelman said these companies' terms are so "unconscionable" that a court will likely not enforce them, which often happens when a term is imposed on a party that has no choice but to agree to it.

"So these contracts are 'take it or leave it.' They are not negotiated between parties of equal bargaining power," he said. "A consumer going to a website to buy a product may not see or read through the terms of service by clicking 'I agree.'"

Michelman also said that the "non-disparagement" clause was not even on the website when John Palmer placed his order in 2008.

"That's another reason KlearGear's conduct in this situation is unsupported and incredibly unfair to the Palmers," Michelman said.