The Most Defective Contract? The Most Unconscionable? You Decide.

It’s not really either, but if you’ve been searching for a human interest story about contract law that will genuinely enrich your summer vacation, look no further.

Apparently, the Union Street Guest House, an inn in Upstate New York, has until recently maintained a policy of prohibiting guests from posting any “negative review[s]” about the inn on Yelp. Slate has written two pieces about the policy, which the New York Post’s Page Six first covered on August 4.

Violation of this policy, now removed from the internet but retrieved here, is punishable by a fine of $500 (liquidated damages, I guess).

hotel california

Unlike the Hotel California, you’ll probably just never check in to the Union Street Guest House.

It gets worse.

The hotel owners appear to have had the good sense to realize that their policy would probably not be enforceable. Thus, rather than subject themselves to the risk and hassle of going to court to collect payment of the fine, the hotel’s policy was to simply confiscate the guests’ $500 deposit—but not the deposit of the guest who left the review, the deposit of the bride and groom who chose the hotel for their wedding! With a nod to the adage that possession is nine tenths of the law, the policy singles out the newlyweds rather than the person who posts a negative review, almost certainly because the hotel already has the newlyweds’ deposit.

But is this egregious policy truly unenforceable against the newlyweds? Eugene Volokh thinks it might be enforceable. I’m skeptical…

While, as Eugene notes, non-disparagement provisions are fairly common and can be enforced in the commercial context, they are pretty rare in consumer contracts, especially with a public accommodation provider like an inn. Legally, there are really two sets of issues here—contract formation and public policy—though they are related because in modern contract law the second raises the bar for the first.

In order for a court to find a non-disparagement agreement has been made, the inn will need to point to sufficiently specific and clear language in the contract that the newlyweds agreed to. However, it is not clear that this policy was ever part of any contract as opposed to something just posted on the website.

So first, the owners would have to show that the bride and groom actually agreed to this policy (and I doubt simply referencing the website in the contract is going to cut it). Second, if it’s in the contract, the inn will have to show the provision is highly visible. Merely grouping the ban together with 30 other boilerplate provisions is not going to be sufficient; it will need to be highlighted somehow, because it is both uncommon and onerous. (Recall that the purpose of this provision is to put the newlyweds on notice that they are responsible for policing the speech of their many guests, a duty that seems to extend in perpetuity.) Finally, the proscribed conduct will need to be specifically defined or it will be rejected as excessively vague. (“A court cannot decree [violation] of an agreement unless it can discern with reasonable certainty and particularity what the terms of the arrangement are.”  Brookhaven Hous. Coal. v. Solomon, 583 F.2d 584, 593 (2d Cir. 1978).) Here, the policy defines violation as a guest leaving a “negative review.” What does that mean? Fewer than 3 stars out of 5? Language in the written part of the review that an algorithm would interpret as “negative”? It seems so vague as to render the agreement illusory, because it gives the inn one-sided authority to interpret the meaning of “negative.”

Given these considerations, I don’t think the owners could demonstrate that a non-disparagement agreement existed in the first place. But let’s assume the prohibition on “negative reviews” appears prominently in the contract, and is more specifically defined there. I still do not think New York courts would enforce it, for what are basically public interest reasons.

There isn’t a First Amendment issue (it’s just two private citizens contracting not to speak, no state action) but this kind of prohibition is sufficiently novel and punitive in the consumer context that a court, particularly in NY, will probably deem it unconscionable. Moreover, the policy is clearly intended to prevent information-sharing, the primary purpose and effect of which is to improve the market. Again, it would not be unprecedented for a court to enforce a clause that impeded transparency. But I am not aware of a case in the consumer context where a contract party could be fined for speech of a third party over which it exercises no direct control, a conclusion the legal experts Slate talked to supports. And given that the goal of that roundabout provision is to gum up transparency, a mechanism critical to a functioning market, I think the court would scrutinize it more carefully.

I believe this result to be justified on economic as well as normative grounds. As you read this, the very visible hand of the market is delivering swift justice to the authors of this heinous policy: the average of Union Street Guest House’s Yelp reviews has dropped to 1.5 stars. So file this under dubious contract drafting, and even more dubious PR.

UPDATE: Yelp appears to have removed almost 1,000 reviews of the Union Street Guest House, many of them negative. I have written about the contract-law implications of this development here.


2 thoughts on “The Most Defective Contract? The Most Unconscionable? You Decide.

  1. Pingback: Yelp Removes Negative Reviews of Union Street Guest House; Petty Tyrants Rejoice | Just Shilling

  2. Pingback: The Typical in the Unusual: Non-Disparagement Clauses in the Cooley Law School Layoffs | Just Shilling

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