Consumer Law & Policy Blog

On the scope of California's non-disparagement clause ban: a reply to Professor Volokh

As we have discussed, last week California passed a law barring the use of non-disparagement clauses and providing a private cause of action for seeking or threatening to enforce one, or for "otherwise penaliz[ing] a consumer for making any statement protected under this section" (that is, a statement "regarding the seller or lessor or its employees or agents, or concerning the goods or services" the consumer purchased or leased).

In the Washington Post on Friday, Prof. Eugene Volokh of UCLA worried about the breadth of the law and posed the question, "Did California make it illegal for businesses to stop dealing with customers who insult them?"

In a word, no.

Prof. Volokh considers a hypothetical in which a company refuses to do business with a consumer who insults company employees virulently (for instance, using a racial epithet) and asks whether the company's refusal to do business would "otherwise penalize" the consumer for his speech and thereby violate the law. But the context and legislative history of the bill makes clear that it is not aimed at the "penalty" of refusing to do business with a consumer (if that is even a penalty at all -- presumably where a consumer has criticized a particular business strongly enough that the business doesn't want her back, the feeling is mutual). The law was enacted in response to our KlearGear lawsuit, which concerned both a non-disparagement clause and subsequent retaliation by the business in the form of reporting a phony consumer debt to the credit reporting agencies. (The story is specifically recounted in the Bill Analysis.) Retaliation using a false credit report is a far cry from refusing to do business with a consumer who insults your employees, and I think common sense and the bill's legislative history will make that difference clear to courts that will be interpreting what it means to "otherwise penalize" a consumer within the meaning of the California law.

Prof. Volokh additionally worries that California's ban disables businesses from bringing defamation suits against consumers for false and defamatory speech, under the theory that such a suit, too, would "otherwise penalize" a consumer for his speech. This concern is put to rest by the savings clause -- subsection (e) -- of the new law, which provides (among other things) that it "does not affect any other relief or remedy provided by law."

As Ted Mermin has suggested on this blog, other legislatures around the country should consider adopting California's law as an important protection for consumer speech. They should not be deterred by Prof. Volokh's hypotheticals.

Read a newspaper story on regional vehicle recalls

For years now, the National Highway Traffic Safety Administration (NHTSA) has authorized auto manufacturers to recall defective vehicles on a regional (rather than a national) basis. The idea, NHTSA maintains, is that some vehicle defects only matter regionally -- say, in places that are cold or hot, for defects that supposedly are related to cold-weather or hot-weather events. Auto safety advocates say that's a bad idea for a host of reasons, including that (1) cars are mobile and move from hot to cold regions and vice versa and (2) the agency's policy sometimes has been administered irrationally. (For instance, one hot-weather-related recall did not include the county where Death Valley is located, which is the hottest county in the U.S. Go figure!)

Journalist Chris Jensen has just written this New York Times' piece on the issue. Here's an excerpt:

In July 2013, an angry and worried Connecticut owner of a 2007 Chevrolet Equinox wrote federal regulators to complain about a gasoline leak that a dealer refused to repair under a recall. The reason, General Motors argued, was that Connecticut did not get hot enough. The Equinox owner differed. “Several heat waves in Connecticut causing crack in fuel pump module,” the owner wrote the National Highway Traffic Safety Administration. “Not on recall list per G.M. However, should be for any safety issue such as this. Afraid to drive. Huge cost to fix.” Without any objection from federal safety regulators, G.M. had recalled only about 41,000 vehicles sold or registered in some states that have hot weather. That included the Equinox in Arizona, California, Nevada and Texas, where, the automaker said, a “state-by-state analysis” of warranty claims showed cracks in the fuel pump module were most likely to occur. For roughly three decades, regional recalls have frustrated automobile owners who have found it difficult to navigate the patchwork approach to fixing safety problems. ... The recalls have also been a focus of consumer advocacy groups, which complain that they save automakers millions of dollars while running the risk that, in a mobile society, some dangerous vehicles will not be fixed.

 

Lauren Willis Paper: Performance-Based Consumer Law

Lauren E. Willis of Loyola Los Angeles has written Performance-Based Consumer Law.  Here is the abstract:

When firm and consumer interests are not well-aligned, the resulting transactions are often lousy, whether one uses consumer autonomy or consumer welfare as the metric.  With modern experimental and data analysis techniques, firms can run circles around the law’s current disclosure and design rules, yet regulators today are tied to slow, circumscribed responses.  What should be added is a regulatory instrument that does three things.  First, it should unite the interests of firms with the goals of regulators through performance standards for consumer comprehension and/or suitable consumer product use, thereby redirecting the creative potential of the private sector much as emissions standards do for pollution reduction.  Second, the instrument should ground the law on actual consumer knowledge and behavior, rather than hypothesized conceptions of the “reasonable” consumer.  Third, it should institutionalize a monitoring system that provides feedback used to improve both the marketplace and regulation in a virtuous cycle.  

This Article suggests a fresh approach to consumer law, one that has been tried piecemeal in consumer regulation, but until now without a fulsome intellectual foundation.  Its aims are both modest – to bring consumer transactions in line with consumer expectations – and ambitious – to make the law as agile as firms.  Performance-based consumer law has the potential to incentivize firms to educate rather than obfuscate, develop product designs that align with rather than defy consumer expectations, and channel consumers to products that are suitable for the consumers’ circumstances.  Moreover, even if performance-based regulation does not directly lead to dramatic gains in consumer comprehension or marked declines in unsuitable uses of consumer products, the process of establishing and implementing such regulation promises dividends for improving traditional forms of regulation.  

The article is particularly timely in at least three respects.  First, it answers the question implicitly asked by recent critiques of mandated disclosure: what should we do instead?  Second, it plots a course for the young Consumer Financial Protection Bureau that has great potential to improve the consumer marketplace and is plainly authorized by the Dodd-Frank Act.  Third, the policy structure it proposes would be helpful in a host of areas where policymakers are currently at a loss for what to do, including personal data privacy, payday lending, overdraft, and consumer drug marketing.  Performance-based consumer law is more than a technocratic exercise.  It is based on and in operation would re-inscribe a normative vision of consumer law that places consumers at the center.

Can Pseudonyms Make Better Online Citizens?

...asks this Harvard Magazine review of The Social Machine: Designs for Living Online, by Judith Donath. The review explains:

One of [Donath's] goals is to help readers recognize possibilities between real names and online anonymity. She believes pseudonyms could provide more information, not less. “We can simultaneously have a rich impression of others and privacy,” Donath says. “They’re not [mutually] exclusive.

California's new Consumer Free Speech Act: Coming to a State Near You?

by Ted Mermin (Executive Director, Public Good Law Center), guest blogger

As Scott Michelman's earlier post explained, the new California law barring nondisparagement clauses in consumer contracts promises to restrain a pernicious practice before it spreads widely.  That in itself is a significant victory well worth celebrating.  But here's hoping (and suggesting) that the new law also serve as a model for other states.  

The law should be replicable in other jurisdictions.  It faced no official opposition and ultimately passed both houses by wide bipartisan margins.  After all, who wants to vote against a law that would keep people from being sued for expressing their opinions about something they bought or warning other consumers about potential product safety problems?   

We're excited about the law's passage in California.  And we're willing to share some of that excitement. Why not bring a little bit of free speech for consumers to a state near you?

John Oliver on student loans and the abuses of for-profit colleges

Watch here, laugh and enjoy. (And learn.)

(Note to sensitive readers: in addition to some profanity, there's a rather detailed -- but hilarious -- digression regarding President Lyndon Johnson's difficulty fitting his private parts into his pants.)

(Note to history buffs: this is worth watching for the LBJ bit alone.)

"Plus the firearms and the narcotics and the payday loans"

by Jeff Sovern

I am partial to Lee Child's Jack Reacher novels. I buy the audio books and listen to them while driving, doing mindless chores, etc.  In the latest, Personal, Reacher and a companion are discussing the activities of a British gang of criminals, and the sentence quoted above appears.  Interesting to see that the sale of firearms and narcotics is equated with the provision of payday loans.

Consumer law is everywhere.

Texas Supreme Court Addresses Free Speech Issues Raised by Corporate Defamation Claims

by Paul Alan Levy

In two rulings in late August, the Texas Supreme Court addressed significant issues of free speech arising in defamation cases brought by companies against their critics – the availability of injunctive remedies, and the proper procedure for discovery to identify potential defamation defendants who spoke anonymously.  The court staked out somewhat unusual positions that were more protective of the relevant speech interests than some other courts.

Inside the practice of collecting money from dead people

...is the title of this expose (from personal experience), in Vox. A telling passage:

In most cases like this [i.e. attempting to collect a deceased's debt from his family], the family is not liable for the debts, something we informed them of — that is, if they asked. But if a family without an estate or attorney called in to pay a debt voluntarily, it wasn't my job to clear up the confusion.

The article also notes the important role of federal regulators, including the CFPB and FTC, in reining in abuses.

According to one longtime worker in the industry, practices have changed. ... Why? In large part, it's thanks to the CFPB, he says[.]

Taubman Sucks Might Have Been Great for Doug Sprinkle’s Business, but How Did His Client Feel About It?

by Paul Alan Levy

A dozen years ago, when I had just made the transition from doing union democracy law to cyberlaw, I took on the representation of an IT professional named Hank Mishkoff who modeled his work by creating a web site praising a shopping mall that was being built near his home, using the mall’s title, Shops at Willow Bend, as his domain name.  After a law firm representing the mall’s owner sued him for trademark infringement, he created a second web site to complain about the lawsuit brought by the shopping mall’s owner to shut down the first web site. The second web site, entitled Taubman Sucks!, recounts with a wry sense of humor Mishkoff’s pro se resistance to the lawsuit, and later my own efforts on his behalf.  It also sets forth every letter and every court filing in the case, along with extensive comments on each.

I was drawn into the case after Taubman’s lawyers, emboldened by their success in getting a preliminary injunction against the first site, overplayed their hand by making the truly ridiculous argument that Internet users might be confused about whether a web site located at taubmansucks.com, and replete with criticism of Taubman and its attorneys, was sponsored by Taubman; and by gum they actually got a federal judge to enjoin that one too!  (After that, Mishkoff set up a third web site, using the name of the law firm as in GiffordKrassGrohSprinkleSucks.com; the lawyers at least had the good sense not to go after that one).