The Washington PostDemocracy Dies in Darkness

Did California make it illegal for businesses to stop dealing with customers who insult them?

Did California also make it illegal for businesses to sue customers for libel, even when the customers’ claims are false? The new statute is billed as an attempt to block enforcement of “no-criticism” contracts, but it seems to go a good deal further.

Here’s the bill, signed earlier this week (emphasis added):

(a) (1) A contract or proposed contract for the sale or lease of consumer goods or services may not include a provision waiving the consumer’s right to make any statement regarding the seller or lessor or its employees or agents, or concerning the goods or services.
(2) It shall be unlawful to threaten or to seek to enforce a provision made unlawful under this section, or to otherwise penalize a consumer for making any statement protected under this section.
(b) Any waiver of the provisions of this section is contrary to public policy, and is void and unenforceable.
(c) Any person who violates this section shall be subject to a civil penalty not to exceed two thousand five hundred dollars ($2,500) for the first violation, and five thousand dollars ($5,000) for the second and for each subsequent violation, to be assessed and collected in a civil action brought by the consumer, by the Attorney General, or by the district attorney or city attorney of the county or city in which the violation occurred. When collected, the civil penalty shall be payable, as appropriate, to the consumer or to the general fund of whichever governmental entity brought the action to assess the civil penalty.
(d) In addition, for a willful, intentional, or reckless violation of this section, a consumer or public prosecutor may recover a civil penalty not to exceed ten thousand dollars ($10,000).
(e) The penalty provided by this section is not an exclusive remedy, and does not affect any other relief or remedy provided by law. This section shall not be construed to prohibit or limit a person or business that hosts online consumer reviews or comments from removing a statement that is otherwise lawful to remove.

The prohibition on enforcing (or threatening to enforce) a no-criticism/no-commentary contractual provision is relatively clear. (One could, I suppose, argue that a no-criticism provision isn’t “a provision waiving the consumer’s right to make any statement regarding the seller or lessor or its employees or agents, or concerning the goods or services,” since it only waives the right to make critical statements. But I suspect this will be read as covering provisions related to any statements in the sense of provisions that limit speech about the business or its goods or services to any degree.)

But what’s with the further provisions barring “otherwise penaliz[ing] a consumer”? Is it limited to, for instance, falsely reporting the consumer to a credit agency as someone who breached a contract (which would in any event likely be false and defamatory)? Or does it include refusing to do business with a consumer? Say your customer posts online something that insults you or your employees — even very seriously insults them, e.g., “I can’t stand dealing with this employer’s n—– receptionist” — and you decide to stop letting him come to your establishment. Are you “otherwise penaliz[ing] a consumer” “for making any statement” “regarding the seller or lessor or its employees or agents, or concerning the goods or services”? Would the consumer be able to get $2,500 from you for refusing to deal with him, and then $5,000 for each subsequent incident?

Or say that your customer has outright libeled you — said something that was factually false and defamatory, and perhaps even knew that his statement was false. (In many situations, negligent falsehood is enough under libel law as well.) You sue him for libel. Are you barred from doing so because you are “otherwise penaliz[ing the] consumer” for his statement? If suing him for a breach of contract is “penalizing” him, would suing him for a tort (even if the lawsuit is entirely justified under tort law) likewise be “penalizing” him? Note that the statute covers “any statement regarding the seller or lessor or its employees or agents, or concerning the goods or services,” not just true statements or statements of opinion.

To be sure, the legislature could impose laws banning discrimination against customers based on their past speech, and the legislature could create an absolute privilege for public comments about a business that would preclude any tort lawsuits. (There are similar absolute privileges for, for example, witnesses in judicial proceedings.) But I think these would be excessive limitations on the freedom to choose whom to do business with — a freedom that, to be sure, is already limited in other ways, but that remains valuable to the extent that it remains — and on the freedom to bring meritorious libel lawsuits. I doubt the legislature intended to do this here.

Still, the legislature clearly did intend some prohibition beyond just on the enforcement or threatened enforcement of the law — it expressly banned “otherwise penaliz[ing] a consumer for making any statement protected under this section.” Whatever exactly it intended, this is what it actually did. And while “otherwise penalize” isn’t expressly defined, the phrase is potentially quite broad. I sure hope there is a way of interpreting the statute narrowly, to avoid the results I describe; though I wish that the legislature were more careful in having crafted the law in the first place.

Many thanks to Prof. Mila Sohoni (University of San Diego Law School) for calling my attention to this aspect of the statute.