The story is covered in great detail Stateside on the excellent AALS Contracts blog.

Andrew



A flavour below:

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I’m not so sure about the penalty issue.  $500 might actually underestimate the damage that a bad review can cause.  A hundred of these hostile Yelp reviews total only $50,000.  This business might go under, with a loss far exceeding that amount.  Even if the media hadn’t caught this and publicized it, three or four bad reviews on TripAdvisor (forget Yelp) can lose a substantial amount of business --- not just one future wedding but several.  Each wedding is a big ticket to the inn, which is renting a block of rooms to the wedding party.  A court could reason that, given the high emotional importance to engaged couples of having the perfect wedding, they’ll do thorough research before committing themselves and be influenced by those few bad reviews.  It’s conceivable that a court could find $500 to be a little too high for an estimate of loss (would $400 be better?), but if we were standing at a race track’s betting window with even odds, I’d easily bet on enforceability to win.

 

This business might deserve to go under.  We can’t know that without learning something about the owners and what led them to do this (maybe they had lost a lot of business from unfairly bad reviews, and maybe they had done some careful math about what they thought the reviews cost them).  But if anything, this is a good example for students of how law doesn’t do a competitive job of remedying a business’s bad behavior.  Law takes a long time to get there and imposes big costs in attorney’s fees.  But a market can be fast and ferocious.  In my experience, business people don’t fear law as much as they fear markets.

 

--- Richard

 

Richard K. Neumann Jr

Professor of Law

Maurice A. Deane School of Law

121 Hofstra University

Hempstead NY  11549

(516) 463-5881

richard.k.neumann@hofstra.edu

 

From: aalscontracts [mailto:AALSCONTRACTS@LISTS.UMN.EDU] On Behalf Of DeLong, Sidney
Sent: Tuesday, August 05, 2014 9:11 AM
To: AALSCONTRACTS@LISTS.UMN.EDU
Subject: Re: [AALS-KS] When the Customer is Always Wrong

 

Great post as usual Miriam. I agree that the fine in this case is an unenforceable penalty, but I think adhesive anti-disparagement contract terms are a real problem in slightly different contexts in which they are enforced not by a damages claim but by forfeiture of a benefit the adhering party had paid for or by a termination of service. In related contexts, our colleagues who specialize in employment law or family law can address the efficacy of “no disparagement” clauses in termination agreements, only some of which are negotiated and agreed to. I have also heard of IP licenses that prohibit bench tests or product disparagement. Are these “enforceable”?

 

Sid

 

From: aalscontracts [mailto:AALSCONTRACTS@LISTS.UMN.EDU] On Behalf Of Miriam Cherry
Sent: Monday, August 04, 2014 9:25 PM
To: AALSCONTRACTS@LISTS.UMN.EDU
Subject: [AALS-KS] When the Customer is Always Wrong

 

Via Prof. Jennifer Taub, I came across this story - a hotel fining guests/family/friends $500 for leaving a negative review on Yelp.  http://www.businessinsider.com/hotel-fines-brides-for-negative-yelp-reviews-2014-8

I'd argue unenforceable, either based on the U, it being a penalty (rather than liquidated damages).

Other interesting points... Since this went viral, there are over 700 people posting negative Yelp reviews (some of which are hysterical or truly over the top; text of one is below).  http://www.yelp.com/biz/union-street-guest-house-hudson

The hotel is now down to 1 star on Yelp, so the over-reaching "contract" came back to bite it (less colloquially termed the Streisand effect,   http://en.wikipedia.org/wiki/Streisand_effect)

 

***

Attention Union Street Guest House, its employees, affiliates, neighbors, bacteria residing in aforementioned individuals' salivary glands, pizza delivery drivers, and astronauts flying overhead in the ISS within an 8,000 mile radius-

By reading this negative review, you hereby agree to immediately pay a fine of $12,000 dollars for each individual word read up to the point where you decide that you do not like this review. Failure to pay will result in retroactive interest to the amount of 7,829% per each hour not paid. If you fail to agree to this clause, I will be left with no choice but to say too bad, you should have thought your own ridiculous policy over with a more level headed approach before making such a knee jerk reaction and attempting to enforce it.



--

**********************************

Miriam A. Cherry

Professor of Law

Saint Louis University Law School

100 N. Tucker Blvd.
St. Louis, MO 63101-1930

mcherry3@slu.edu

Bio:  http://www.slu.edu/colleges/law/slulaw/faculty/mcherry3

Phone: (314) 977-4537 / Fax: (314) 977-3332

Papers: http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=375811

 

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A remarkable story in today's Daily Telegraph, which reports that a US hotel charges guests a $500 "fine" for every negative review posted online by them, or anyone in their party, about the hotel. The hotel's website warns prospective guests as follows:

"If you have booked the Inn for a wedding or other type of event anywhere in the region and given us a deposit of any kind for guests to stay at USGH there will be a $500 fine that will be deducted from your deposit for every negative review of USGH placed on any Internet site by anyone in your party and/or attending your wedding or event."

This isn't a classic penalty clause, as it's not a sum stipulated to be paid upon breach of contract, but it's certainly something that would put most contractors "in terrorem", to use the Dunlop Tyres case language, I should have thought.

Assuming that the posted warning becomes a term of the contract, it would surely - were this to be a case subject to UK law - be struck down by the Unfair Terms in Consumer Contracts Regulations 1999. Can anyone enlighten me on what the position in the US would be? 

I think I can safely say that I shan't be staying at this hotel any time soon on a visit to the US!

Martin

The story us reported here:
http://www.telegraph.co.uk/news/worldnews/northamerica/usa/11011671/The-hotel-that-charges-guests-500-for-every-negative-online-review.html