Using a Temporary Injunction to Stop Business Disparagement

The word on the street is that your competitor is contacting your customers or your industry relations and is telling them information that could potentially or is already hurting your business in Texas. What can you do? One of the solutions is to seek a temporary injunction from a court ordering the competitor to stop the harmful communication. The Dallas Court of Appeals has recently explained the hurdles that a business owner has to overcome to obtain such an injunction.

In Dibon Solutions v. Nanda, et al., the owner of Dibon found out that Nanda was sending communications to Dibon’s customers and its bank, accusing it of being subject to: (1) an IRS investigation; (2) an ICE and FBI investigation for money laundering, visa fraud, human trafficking, and harboring illegal aliens; (3) a DOL investigation for unpaid back wages; (4) multiple lawsuits; (5) making bankruptcy threats; (6) diversion of assets; (6) multiple liens; (7) non-performance on bank loans; and (8) forging documents.

Dibon sued Nanda for defamation, business disparagement, breach of fiduciary duty, and tortuous interference with existing contract, and sought a temporary injunction barring Nanda from contacting Dibon’s customers “for the purpose of communicating disparaging information regarding [Dibon] to such customers.”

The trial court issued a temporary restraining order (valid for a short period), but denied Dibon’s application for a temporary injunction that would extend the bar on Nanda’s communications until the lawsuit has been resolved. Dibon appealed and the Court of Appeals sided with the trial court finding that the issuance of a temporary injunction would violate Nanda’s First Amendment rights.

A party applying for a temporary injunction in Texas, must plead and prove: (1) a cause of action the opposing party; (2) a probable right on final trial to the relief sought; and (3) a probable, imminent, and irreparable injury in the interim. Additionally, when applying for an injunction that will curb somebody’s speech, the applicant must establish that the speech it is trying to stop is not protected by the First Amendment.

The United States and Texas Constitution prohibit prior restraint on free speech – i.e. judicial orders forbidding certain communication before such communication occurs.  A misleading commercial speech, however, is not protected by either Constitution and, therefore can be prohibited by a court.

Unfortunately for the plaintiff in Dibon, he failed to provide evidence showing that Nanda’s statements to Dibon’s customers were false or misleading.  In fact, both Dibon’s president and a vice president admitted during the temporary injunction hearing, that at least some of Nanda’s statements were true. Moreover, the plaintiff failed to introduce any witnesses that could refute the truthfulness of Nanda’s statements or any documents that demonstrated their falsity.  Because the plaintiff was unable to show that Nanda’s statements were false, they were protected by the First Amendment, and the court could not forbid Nanda from making them.

Dibon also argued that Nanda’s commercial speech was not protected by the First Amendment because it constituted tortuous interference.  However, the Court of Appeals rejected this argument as well, because the plaintiff failed to establish at the hearing an important element of tortuous interference – that Nanda’s statements actually persuaded Dibon’s customers to breach their contracts with Dibon.

BOTTOM LINE:   As a business owner, you can always file a lawsuit and attempt to recover monetary damages caused by your competitor’s disparaging statements.  However, if you want to prevent the competitor from making such statements while the lawsuit is pending, you will need evidence establishing that the statements are false or that they have caused your customers to breach their contracts with you.  Without such ammunition, the competitor’s statements are likely to be protected by the First Amendment.

For more information about obtaining a temporary injunction in a business dispute in Texas, contact Leiza Dolghih.

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