Does the Consumer Review Fairness Act of 2016 apply to HOA corporations?

By Deborah Goonan, Independent American Communities

Federal Trade Commission Seal

The question of whether or not the Consumer Review Fairness Act (CRFA) applies to corporations of association-governed communities was addressed on a discussion group recently.

A number of participants in the discussion group relayed stories of their homeowners or condo associations suing them or taking other punitive actions in response to negative comments made about the association on social media or by email.

Even if the opinions and commentary shared by these owners could not be classified as libelous, in the eyes of the corporate board of the association (or the manager or attorney acting as agent), publication of negative comments or video content made the association look bad. So the association threatened to sue or fine homeowners unless they agreed to remove or retract the offending content from public or semi-public view.

The situation bears a close resemblance to a slew of other cagey businesses and professional service providers that used similar tactics to intimidate consumers who posted negative reviews of products or services. Several attempted to punish their customers with steep fines for publishing bad reviews, and cited provisions in the sales contract, professional services contract, or lease that allowed them to do so.

Over the course of several years, following several high-profile consumer complaints against businesses and lawsuits filed by consumers, a number of states enacted laws to prevent businesses from bullying their customers over negative reviews. Consumer groups working with Congressional leaders ultimately enacted a federal law, H.R.5111 – Consumer Review Fairness Act of 2016, which was signed by President Obama in December.

In summary, CRFA voids any consumer contract provision that puts a “gag order” on negative reviews or comments, including visual communication such as photos or videos. You can read the entire text of the law here:

https://www.congress.gov/bill/114th-congress/house-bill/5111/text

To learn more about how the bill became a new Federal Law, see this article published by the Consumerist: Speak Freely America: New Federal Law Outlaws Gag Clauses That Punish You For Negative Reviews

 

So…Does CRFA apply to HOA corporate contracts?

That is a very good question – One without a clear answer.

I am not aware of any formal complaints filed with the Federal Trade Commission (FTC), citing that an HOA has violated the terms of the CRFA. I would not be surprised if some owners of association-governed property file such complaints.

As a non-attorney , here are my observations and thoughts.

The law begins with the following preamble:

To prohibit the use of certain clauses in form contracts that restrict the ability of a consumer to communicate regarding the goods or services offered in interstate commerce that were the subject of the contract, and for other purposes.

Are the governing documents of a mandatory association, particularly the Declarations, or Covenants, Conditions, and Restrictions (CC&Rs) a “form contract?”

It seems likely, looking at the legal definition of a form contract:

(3) Form contract.– (A) In general.–Except as provided in subparagraph (B), the term “form contract” means a contract with standardized terms– (i) used by a person in the course of selling or leasing the person’s goods or services; and (ii) imposed on an individual without a meaningful opportunity for such individual to negotiate the standardized terms. (B) Exception.–The term “form contract” does not include an employer-employee or independent contractor contract.

 

I imagine it would be easy to argue that the HOA offers services.

There is no doubt that the Declarations are conveyed with the sale of property governed by the corporate association. And the individual purchasing the property must accept the terms of those Declarations “as is,” without any opportunity to negotiate the terms. Rules and regulations validly enacted by the board are merely an extension of the contract.

Based on the definition of “form contract,” it appears CRFA might indeed apply in favor of housing consumers, provided there are no further exceptions. (see below)

A contract with a direct-hire employee of the association is not a form contract, and therefore could include restrictions on the employee’s right to post opinions about her employer.

A business contract between the Association and a management company, attorney, or other vendor is usually negotiable, and therefore, by definition, not a form contract. CRFA would not apply. For all practical purposes, I cannot see why an Association board would agree to a “non-disparagement” clause or any sort of gag order provision suggested by the vendor. The Association is not selling goods or services to the vendor, so they would be free to stipulate in the contract that the vendor must not publicly disparage the Association or any of its board members.

Here’s the crux of the law:

(b) Invalidity of Contracts That Impede Consumer Reviews.– (1) In general.–Except as provided in paragraphs (2) and (3), a provision of a form contract is void from the inception of such contract if such provision– (A) prohibits or restricts the ability of an individual who is a party to the form contract to engage in a covered communication; [[Page 130 STAT. 1356]] (B) imposes a penalty or fee against an individual who is a party to the form contract for engaging in a covered communication; or (C) transfers or requires an individual who is a party to the form contract to transfer to any person any intellectual property rights in review or feedback content, with the exception of a non-exclusive license to use the content, that the individual may have in any otherwise lawful covered communication about such person or the goods or services provided by such person.

 

Basically, this says that the contract – which might include HOA Declarations – cannot restrict or impede “customer reviews” that may be negative or objectionable to the business corporation – which might apply to a corporate body governing a common interest community association.

Will HOA industry attorneys – working on behalf of home builder and community association trade groups – attempt to argue that homeowners (association members) are not customers? I think that would be a stretch, considering the industry’s insistence that corporate associations are businesses where members are subject to the terms of the contract to which they “agreed.”

 

And what is a “covered communication?”

(2) Covered communication.–The term “covered communication” means a written, oral, or pictorial review, performance assessment of, or other similar analysis of, including by electronic means, the goods, services, or conduct of a person by an individual who is party to a form contract with respect to which such person is also a party.

That’s quite broad. All association members, including the board, are parties to the same contract. It would seem that any member on the receiving end of services has the right to express an opinion or share his horror story, provided his statements are true and not libelous or malicious.

 

However, every law contains caveats and exceptions.

(3) Exceptions.–Paragraph (1) shall not apply to the extent that a provision of a form contract prohibits disclosure or submission of, or reserves the right of a person or business that hosts online consumer reviews or comments to remove– (A) trade secrets or commercial or financial information obtained from a person and considered privileged or confidential;

Now this portion of the law seems to provide a GOTCHA for homeowners. An attorney working for the HOA might argue that information such as its online newsletter, video of a board meeting, or a tally of the ballots and proxies for an annual election is “privileged or confidential” information. Therefore the Association might argue that it can prohibit its members from sharing those types of sensitive communication.

 

I would love to hear from the attorneys who follow my blog: Do you think a homeowner would have a valid FTC complaint against her HOA, if the Association attempts to enforce a contract provision prohibiting negative reviews or complaints about the HOA corporation or its board members? And what about non-owner residents, including tenants? Would they have any rights under CRFA, considering that they are not direct parties to the contract?

 

 

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3 Replies to “Does the Consumer Review Fairness Act of 2016 apply to HOA corporations?”

  1. I’m so glad you wrote this analysis! I was wondering how attorneys might interpret it and I think you are dead on. I was thinking they would argue that the CC&Rs are not a “form contract” and so it would not apply–but clearly we can not “negotiate” the terms.

    You wrote. “In summary, CRFA voids any consumer contract provision that puts a “gag order” on negative reviews or comments,” that summarizes this law beautifully. Thank you!

    Like

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