Is Donald Trump Crossing the Line with Non-Competes for Volunteers?

ddDonald Trump has been criticized for everything under the sun – from having small hands to being racist. However, the most recent critique surrounds Trump’s campaign volunteer agreements that contain strict non-compete, non-solicitation and non-disparagement clauses. Several media outlets have questioned whether such agreements would be enforceable in court.  

According to the Daily Dot, which claims to have obtained a copy of these six-page volunteer agreements, such documents  contain the following restraints:

No Disparagement.  During the term of your service and all times thereafter you hereby promise and agree not to demean or disparage publicly the Company, Mr. Trump, and Trump Company, any Family member, or any Family Member Company or any asset any of the foregoing own, or product or services any of the foregoing offer, in each case by or in any of the Restricted Means and Contexts and to prevent your employees from doing so.

No Competitive Services. Until the Non-Compete Cutoff Date you promise and agree not to assist or counsel, directly or indirectly, for compensation or as a volunteer, any person that is a candidate or exploring candidacy for President of the United States other than Mr. Trump and to prevent your employees from doing so.

No Competitive Solicitation.  Until the Non-Solicitation Cutoff Date you promise and agree not to hire or solicit or hiring, or assist any other person, entity or organization to have or solicit for hiring, any person that is an independent contractor of, employee of an independent contractor of, or employee of Company or any other Trump Person and who at any time provides services for the project or objective for which you or your employer, as applicable, are being hired.

So, could these restraints be enforceable? Without knowing which state’s law applies to the agreement, it’s impossible to say for sure.  However, under Texas law, these restraints could be enforceable.  You are probably wondering how is that even possible. Here’s how. 

First, under the Texas Covenants not to Compete Act, a non-compete clause must be ancillary to an “otherwise enforceable agreement.”  If Trump’s volunteer agreements contain a confidentiality clause and he shares confidential information with the campaign volunteers, then any non-compete and non-solicitation restraints are ancillary to the confidentiality agreement.  Thus – no different from a typical employer-employee agreement – if Trump’s volunteers get confidential information related to his campaign, he can demand that they may not compete with him.

Second, under Texas Covenants not to Compete Act, the non-compete restraints must have “reasonable” geographic area, time, and scope of activity limits. Since the presidential campaign spans the entire country, a nationwide non-compete area is arguably reasonable.  The time limit could be reasonable depending on what is the “Non-Compete Cutoff Date.” In this case, it would have to be tied to the current elections cycle.  Finally, the scope of activity restraint could be reasonable depending on what tasks a particular volunteer performed for Trump’s campaign.  If his tasks included bringing coffee and making copies, then a non-compete would that prohibits him from working in any capacity for another candidate would not  be enforceable.  However, if a particular volunteer organized rallies, participated in the campaign strategy or polling, or was engaged at a high-level within Trump’s campaign, then the non-compete’s scope could be upheld as “reasonable.”

Takeway: Many employees firmly believe that non-compete agreements are not enforceable. It doesn’t help that many internet sources use words like “right to work” or “right to compete” that mislead employees into believing that they have certain rights that their employment contracts cannot trump. That is not true.  Employers also often err in thinking that the broader their non-compete agreements are, the better off they’ll be when the time comes to enforce them.  This is also not true as this approach may backfire in those states like Texas where non-compete statutes have built-in mechanisms that punish employers for having overboard non-competes.  Thus, both employees and companies should have their non-compete agreements reviewed and/or drafted by lawyers familiar with non-compete law in their particular state before such agreements become a subject of a heated dispute.

Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

My Employer Defamed Me to the Government! Not So Fast, Says the Texas Supreme Court.

dojIn Texas, a person cannot be sued for defamation for statements made in judicial or legislative proceedings. However, the rule has not been so clear with respect to statements made before such proceedings begin, such as those made during an internal investigation of employee misconduct by employer. Last week, the Texas Supreme Court in Shell Oil Co., et al. v. Writt held that a company’s statements made during an internal investigation while a company itself is under investigation are absolutely privileged against defamation, i.e. what a company says about an employee in that situation cannot serve as grounds for defamation.

In this case, the Department of Justice (DOJ) approached Shell about their investigation of one of the company’s subcontractors for violation of the Foreign Corrupt Practices Act (FCPA).  The DOJ suspected that the subcontractor was paying bribes to local officials in violation of the FCPA.

Understanding that Shell could face similar charges if its employees knew about the subcontractor’s violations, Shell cooperated with the DOJ and conducted an 18-month long internal investigation into its employees. As a result, it provided the DOJ with a report that stated that one employee was aware of “several red flags” concerning the subcontractor’s activities. In addition to providing the report to the DOJ, Shell terminated the employee, stating in the termination letter that the employee’s conduct was a “significant, substantial and unacceptable” violation of the company’s General Business Principles and Code of Conduct.

The employee sued Shell for defamation and wrongful termination based on the statements in the company’s report provided to the DOJ, claiming that the company falsely accused him of approving bribery payments and participating in illegal conduct. Shell sought a summary judgment on the grounds of absolute privilege, and while the motion was pending, the DOJ charged Shell with violations of the FCPA. It then entered into a deferred prosecution agreement because of the company’s cooperation in the investigation. The trial court granted Shell’s summary judgment motion, but was reversed by the court of appeals, to be later reversed by the Texas Supreme Court.

As the Supreme Court explained – in Texas, any statements made during judicial or legislative proceedings are protected from a claim of defamation. Additionally, statements that are made preliminary to a proposed judicial proceeding or as part of a judicial proceeding in which a person is testifying, are also immune from defamation claims if they have some relation to the proceeding.

Thus, statements made before a judicial proceeding has been initiated will still be privileged from defamation as long as: (1) the statements relate to the contemplated proceeding and (2) the party making the statements in good faith believes that it will be a party to the proceeding once it is initiated.

In this case, because the DOJ told Shell that it was investigating its employee and Shell, Shell’s report was given to the DOJ as part of the ongoing DOJ investigation, Shell compiled and provided the report under serious and good faith contemplation of a judicial proceeding – the statements in the report were privileged from defamation, and the employee’s claim against the company arising out of such statements failed.  The result would have been different if Shell had provided the report voluntarily, without the threat of prosecution from the DOJ.

TAKEAWAYS:  Under Shell Coruling, if a company’s internal investigation is conducted under a threat of being involved in litigation, any statements about third parties that are related to such potential litigation and are made during the investigation are likely to be protected from defamation claims. However, a company that voluntarily provides information to a government agency without a threat of prosecution might not have that protection.

This case is a great example of how complicated defamation law can be in Texas. Contrary to the media’s portrayal of defamation lawsuits, very few of those cases are straightforward, as that area of law is full of nuances, privileges, and defenses. When in doubt, an employer should consult with an attorney before making any statements about a former (or current) employee to third parties, including government agencies.

Leiza Dolghih practices business and employment litigation and often advises employers on how to prevent or minimize the risk of litigation before it occurs.  For more information, contact Ms. Dolghih for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

Providing Reference for a Former Employee – What Can an Employer Say in Texas?

SteveCarellOffice.BMost employers at some point get a call asking for a reference for one of their former employees. For good employees such call is not a problem, but for those who were fired or let go due to performance issues, violations of a company policy, or commission of a crime – the employer often faces a choice of not saying anything so as to avoid a defamation claim by the former employee or warning the potential employer of the former employee’s prior history. So, how much exactly can a former employer disclose to a potential employer without facing a defamation lawsuit from the employee?

From a legal stand point, in Texas, truth is an absolute defense to defamation.  Thus, if what you are telling the new employer is true, then it cannot be defamation. From a practical standpoint, however, you should consider how easily could you prove that what you were saying about the employee was true. For example, if you decide to tell the new employer that you fired John Doe because he stole company property – if John Doe filed a suit against you, could you prove it in court that he did so?  The answer is rarely a resounding “yes.” More likely, if push came to shove, it would be the former employer’s word against the employee’s. Thus, even telling the truth about a former employee, may result in a lawsuit (and thousands in attorney’s fees) unless the employer has some proof that its statements were true.

Texas also recognizes that statements by a former employer to a prospective employer are “privileged” (or protected from a defamation claim), unless an employer made such statements with “actual malice.”  Actual malice has nothing to do with bad motive or ill will, but requires proof that the former employer made the statement either knowing that it was false or with reckless disregard of the truth of falsity of the statement. Some courts have labeled it as “calculated falsehood.”  Failure to investigate facts before speaking is not proof of actual malice.  However, making a statement  while entertaining “serious doubt” as to its truth could constitute actual malice.

Conclusion: Employers should be careful when they provide references to their former employees. While a former employer’s statements to a prospective employer are generally privileged (i.e. protected from defamation), if the former employer made false statements that caused an employee to lose his job or offer of a job, s/he might face some serious liability.

On the employee side, unless the employee has at least some proof that his or her former employer made false statements about the employee or had serious doubts about the truth of such statement, the employee bringing a defamation claim might have to pay the former employer’s attorney’s fees in defending against the lawsuit under the Texas Citizens Participation Act (TCPA), as I have previously explained here and here.

Leiza litigates non-compete and trade secrets lawsuits in a variety of industries in federal and state courts. For a consultation regarding a dispute involving a noncompete agreement or misappropriation of trade secrets, contact Leiza at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108 or fill out the form below.

The Fifth Circuit Addresses the Texas Anti-SLAPP Statute and the Commercial Speech Exemption for the First Time

Three years ago, Texas enacted its own anti-SLAPP statute, appropriately titled the Texas Citizens Participation Act (TCPA). Since then, many defendants have taken advantage of the TCPA‘s quick dismissal procedure when confronted with suits for defamation, business disparagement, or other claims arising out of the defendants’ exercise of their right of free speech, right to petition, and right to association. Because the statute is so new, however, many of the issues surrounding its application in Texas have not yet percolated through the appellate level, which makes the Fifth Circuit Court of Appeals‘ analysis of the “commercial speech” exemption under the TCPA last week in NCDR, L.L.C., et al. v. Mauze & Bagby, P.L.L.C. particularly important.[1]

Factual Background

NCDR, LLC d/b/a Kool Smiles is a national chain of dental clinics. Mauze & Bagby is a personal injury law firm in San Antonio, Texas. In 2012, the law firm began an advertising campaign seeking to represent former Kool Smiles patients in a lawsuit against the chain. As part of this campaign, M&B ran television, radio, and internet advertisements, and developed a website that strongly implied, or even accused, Kool Smiles of performing unnecessary and/or harmful dental work on children to obtain government reimbursements.

Kool Smiles sued M&B, asserting, among other claims, business disparagement, defamation, and injury to business reputation. The law firm moved to dismiss the suit under the TCPA arguing that its campaign was a protected expression of free speech. However, both the trial court and the Fifth Circuit Court of Appeals found that M&B was not entitled to the protection afforded by the TCPA because its advertisements were commercial speech.

The TCPA and the Commercial Speech Exemption

The purpose of the TCPA is to protect the right of people “to petition, speak freely, associate freely, and otherwise participate in government to the maximum extent permitted by law and, at the same time, protect the rights of a person to file meritorious lawsuits for demonstrable injury.” Tex. Civ. Prac. & Rem. Code Ann. § 27.002. To achieve this, the TCPA provides that if a legal action is based on, relates to, or is in response to a party’s exercise of the right of free speech, right to petition, or right of association, the defendant may file a motion to dismiss the lawsuit within sixty days of being served with the complaint. Id. § 27.003(a). Only very limited discovery is allowed until the court rules on the motion to dismiss. Id.

The TCPA requires the court to dismiss the lawsuit if the defendant shows by a preponderance of the evidence that the legal action is based on, relates to, or is in response to the party’s exercise of the right of free speech, right to petition, or right of association. Id. § 27.005(a)–(b). In order to avoid the dismissal, the plaintiff must establish by clear and specific evidence a prima facie case for each essential element of each claim. Id. § 27.005(c).

The “commercial speech” exemption to the TCPA disallows this quick dismissal procedure when:

. . . a legal action [was] brought against a person primarily engaged in the business of selling or leasing goods or services, [and] the statement or conduct arises out of the sale or lease of goods, services, or an insurance product or a commercial transaction in which the intended audience is an actual or potential buyer or customer. Tex. Civ. Prac. & Rem. Code Ann. § 27.010(b).

The Fifth Circuit’s Analysis

The Fifth Circuit looked at four cases decided by the Texas Courts of Appeals that addressed the commercial speech exemption. Two addressed whether a defendant’s action “arises out of the sale or lease of goods, services, or an insurance product.” The other two address whether the intended audience is “an actual or potential buyer or customer.” In all four cases, the courts of appeals found that the commercial speech exemption did not apply.

  • In Newspaper Holdings, Inc. v. Crazy Hotel Assisted Living, Ltd., the First Court of Appeals held that the newspaper articles exposing compliance problems at Crazy Hotel and published by Newspaper Holdings did not “arise out of the sale of the goods and services” that the newspaper sold – newspapers. The commercial speech exemption, therefore, did not apply and the Court granted the newspaper’s motion to dismiss under the TCPA.
  • In Pena v. Parel, the Eighth Court of Appeals held that a letter to a parole board from a client’s attorney did not arise from “the sale of goods, services or insurance product.”

After analyzing the above-listed cases, the Fifth Circuit Court of Appeals ruled that this case was different and that M&B’s statements made in the advertising materials constituted commercial speech because they: (1) arose out of the sale of M&B’s legal services, and (2) were intended for M&B’s potential customers – people who had used Kool Smiles’ services and who wanted to file a lawsuit against them.

Takeaway

The Texas Citizens Participation Act is still very new and the case law interpreting the statute is still developing. However, the NCDR decision strongly suggests that any business advertisements directed at the current or potential clients are not protected by the TCPA.  Thus, a business whose advertisements contains negative statements about another business or individual should consider the possibility that it will not be able to use the TCPA to quickly dismiss a defamation or a business disparagement lawsuit arising out of such statements if one is filed.

For more information regarding defamation and business disparagement claims in Texas, contact Leiza Dolghih.


[1] While the Fifth Circuit Court of Appeals‘ analysis of the TCPA is not binding on the Texas state courts per se, it is instructive since the Court must “interpret[] the state statute the way the state supreme court would, based on prior precedent, legislation, and relevant commentary.” Since the Texas Supreme Court has not yet interpreted the TCPA, the Fifth Circuit‘s analysis of the “commercial speech” exemption is the next best thing.

Defamatory Statements Made In Another State: Can You Sue In Texas?

These days, virtually anybody can write something online and have it go viral in a matter of hours. A person’s or a business’s reputation can be ruined in a matter of days by somebody’s thoughtless or malicious remarks. So, what is a person to do? Sometime, a lawsuit for defamation might be an answer. However, when a defamatory and damaging statement is made online, one question arises with frequency – where can the defamed party file the lawsuit? Obviously, it is more convenient to file it in the state where the defamed party lives or conducts business, but is that always possible?

The Fifth Circuit Court of Appeals recently considered whether Louisiana plaintiffs could file a lawsuit in their home state against California defendants who made allegedly defamatory statements about the plaintiffs online. Because the Louisiana long-arm statute is coextensive with the Due Process Clause limits, just like the Texas long-arm statute, the Court of Appeals’s analysis, applies to Texas as well.

In Herman v. Cataphora, the plaintiffs’ steering committee in In Re: Chinese-Manufactured Drywall Products Liability Litigation in the Eastern District of Louisiana hired Cataphora for litigation support. When their relationship soured, Cataphora filed and won a breach of contract lawsuit against the steering committee in the Northern District of California. Afterwards, a technology counsel for Cataphora gave an interview to Above the Law about the lawsuit and stated (presumably referring to the plaintiffs’ steering committee) that “[t]hese guys are the worst of hypocrites you can possibly find. They claim to be trying to help the little guy, but what they are doing is trying to put more money in their own pockets.” The interview took place in California and was quoted on the Above the Law website, which is published by Breaking Media, Inc., headquartered in new York.

Two of the steering committee members sued Cataphora and the technology counsel in the Eastern District of Louisiana for defamation and interference with prospective advantage. The defendants moved to dismiss for lack of personal jurisdiction or to transfer to a proper venue. Without holding an evidentiary hearing, the district court dismissed the case due to lack of personal jurisdiction and ordered a transfer under 28 U.S.C. § 1406(a) to the Northern District of California. The plaintiffs appealed the dismissal order.

The Fifth Circuit held that Louisiana lacked personal jurisdiction over the defendants and explained that when it comes to defamatory statements, the main question is whether the statements are directed at the forum state. Even when a plaintiff feels the harm from the defamatory statements in his home state, it is not enough to gain personal jurisdiction over the defendants in another state, if the statements focus on activities and events outside the forum state.  Thus, even if the plaintiffs in Herman made a prima facie showing that the harm caused by the defendants’ statements would be felt in Louisiana where they practiced law, this was not enough, and “[w]ithout a showing that the statements’ focal point was Louisiana . . . the district court lacked personal jurisdiction over the defendants.” Specifically, the following factors were lacking to establish specific personal jurisdiction over the defendants in Louisiana:

  • Louisiana was not the “focal point” of both the article itself and the harm suffered
  • There was nothing in the comments that explicitly or implicitly connected the parties’ dispute to Louisiana
  • There was no evidence that the statements or the article itself were directed at Louisiana residents
  • There was no evidence that Above the Law had a disproportionately high Louisiana readership

Due to these factors, the Court of Appeals proceeded to remand the case back to the trial court and order it to transfer the controversy to the Northern District of California.

BOTTOM LINE: Unless a defendant who makes defamatory statements about a business or person located in Texas also happens to have “continuous and systematic contacts” with Texas, i.e., general personal jurisdiction, a plaintiff in this state will have to show that the defamatory remarks were directed at Texas, or Texas activities were the “focal point” of such remarks, in order to be able to sue the defendant in Texas.  Plaintiffs, of course, always have an option of suing defendants in their home states.

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice.  His practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.

Defamation in Texas: Being Called a “Liar” Will Not Get You Presumed Damages

Texas law recognizes two types of defamation: defamation and defamation per se. While a plaintiff has to prove actual damages in a defamation claim, such damages are presumed in a defamation per se lawsuit, making it a much easier claim for the plaintiff to prove. Whether a particular statement constitutes a defamation or a defamation per se depends on the nature of the statement. Texas law presumes that the following statements are defamatory per se: (1) statements that unambiguously charge a crime, dishonesty, fraud, rascality, or general depravity or (2) statements that are falsehoods that injure one in his office, business, profession, or occupation. See Main v. Royall, 348 S.W.3d 318, 390 (Tex. App.—Dallas 2011, no pet.).

Recently, in the case of Hancock v. Variyam, the Texas Supreme Court found that the statements that a doctor “lacked veracity” and “dealt in half truths” and circulated to his colleagues were not defamatory per se because they did not injure him in his profession as a physician. The Supreme Court proceeded to reverse $181,000 award of damages ($90,000 in actual damages and $85,000 in exemplary damages) because the doctor had failed to provide any proof of them at trial.

The Supreme Court explained that “because the [defamatory] statements did not ascribe the lack of a necessary skill that is peculiar or unique to the profession of being a physician” they were not defamatory per se. Furthermore, because “the specific trait of truthfulness is not peculiar or unique to being a physician,” but is a trait that is necessary in every profession, the defendant’s statement that the plaintiff “lacked veracity” was not defamatory per se. Thus, the plaintiff had to provide evidence of actual damages he had suffered due to the plaintiff’s statements – either evidence that he had lost patients or suffered mental anguish – in order to recover under this claim.

The Supreme Court rejected the Court of Appeals’ reasoning that accusing somebody of being a liar is so obviously hurtful to the person that the damages should be presumed. It also rejected the plaintiff’s argument that the statements by the defendant that the plaintiff “lacked veracity” would so clearly impact his patient care, teaching, research, and publication, that the damages had to be presumed.

Providing an example of what statements would be considered defamatory per se, the Supreme Court relied on the Restatement (Second) of Torts § 573, explaining that statements that a physician is a drunkard or a quack or that he is incompetent or negligent in the practice of his profession or that he is dishonest in his fees, would constitute defamation per se, and the damages would be presumed.

THE PRACTICAL EFFECT: Defamation is a great tool for protecting one’s professional reputation or reputation as a business owner. However, before diving into a defamation lawsuit, it is important to assess what evidence a party will need to prove a claim of defamation and what evidence it has. If the purported defamatory statements fall under the defamation per se category, then the damages will be presumed. However, if the statements are of general nature and do not specifically relate to the party’s profession or occupation, the injured party will have to put on evidence of actual damages incurred as the result of such statements.

According to Hancock, unless being truthful is a specific trait of a profession or a business, being called or labeled a “liar” is not enough to allow a presumption of actual damages.

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice.  His practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.

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.

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice.  His practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.

Freedom of Speech v. Defamation: The Texas Citizens Participation Act

In 2011, the Texas legislature passed the Texas Citizens Participation Act (TCPA), meant to curtail the Strategic Lawsuits Against Public Participation (SLAPP) often filed by businesses or other moneyed interests in retaliation for negative comments or complaints made by regular citizens.  The goal of SLAPP lawsuits is not necessarily to win, but to force the defendants to withdraw their statements and to silence them under the threat of costly litigation.

The TCPA protects Texans’ right to free speech by allowing defendants sued for defamation, business disparagement, or other speech-related torts to quickly dismiss lawsuits before the costly discovery begins and automatically recover legal fees if they succeed. By passing the TCPA, Texas joined 27 other states that have similar statutes.

Last week, the First Court of Appeals applied the TCPA to dismiss a lawsuit brought by an assisted living facility against a newspaper that published a number of articles discussing regulatory compliance problems and government investigations into the facility.  Newspaper Holdings, Inc. et al.  v. Crazy Hotel Assisted Living, Ltd., et al.provides a great example of when and how the TCPA applies.  See also Better Business Bureau of Metropolitan Dallas, Inc. v. Ward and Better Business Bureau of Metropolitan Dallas, Inc. v. BH DFW, Inc. discussing how negative ratings of businesses are protected by the TCPA.

In this case, the defendant newspaper published a number of articles about problems encountered at Crazy Hotel assisted living facility and the ensuing government investigations of such problems. Crazy Hotel filed a lawsuit for defamation, business disparagement and tortious interference against the newspaper and its source.  The defendants filed a motion to dismiss the lawsuit, invoking their free speech rights under the TCPA.   The trial court denied the motion to dismiss, but the First Court of Appeals reversed and remanded the case for dismissal.

The Court of Appeals explained that the purpose of the TCPA is to “encourage and safeguard the constitutional rights of persons to petition, speak freely, associate freely, and otherwise participate in government to the maximum extent permitted by law and, at the same time, protect the rights of persons to file meritorious lawsuits for demonstrable injury” and the TCPA was to be construed liberally to effectuate its purpose and intent fully.  §§27.002, 011(b).

Motion to Dismiss Standard under the TCPA

In order to dismiss the lawsuit under the TCPA,  the court must find that (1) the defendant has established by preponderance of evidence that the legal action is based on, related to, or is in response to the defendant’s exercise of the right of free speech, the right to petition, or the right of association; AND (2) the plaintiff has failed to show by clear and specific evidence a prima facie case for each essential element of its cause of action(s).  TCPA §27.005(b), (c).

The TCPA defines “the exercise of the right of free speech” as “a communication made in connection with a matter of public concern,” which includes, among other things, issues related to “health and safety,” and “environmental, economic, or community well-being.” TCPA §27.001(7) (A), (B).  Here, because the newspaper articles that gave grounds to the lawsuit related directly to Crazy Hotel’s obligations to fulfill the licensing requirements and standards applicable to the assisted living facilities under the Texas Health & Safety Code, the Court of Appeals found that they related to a matter of public concern.

The Court of Appeals also found that Crazy Hotel failed to introduce clear and specific evidence that any of the statements made in the newspaper articles were false or that the newspaper was negligent in making such statements, thus failing to show prima facie evidence in support of its claims.

Commercial Speech Exemption from the TCPA

Crazy Hotel argued that the TCPA did not apply to the statement made by the newspaper because it was a commercial and not non-profit organization and because the statements constituted commercial speech not protected by the TCPA.  TCPA §27.001(b).  The Court of Appeals, however, found that because the articles did not “arise out of the sale of lease” of newspapers, the commercial speech exemption did not apply, and to interpret the statute otherwise would defeat the purpose of the TCPA.

PRACTICAL IMPLICATIONS:

If you are facing a defamation, business disparagement, or tortious interference lawsuit, or if you are considering filing one,  make sure  you consider how the TCPA will affect the claims.  As a general rule, any statements regarding matters of public concern are likely to be protected under the TCPA.  On the other hand, statements made in connection with the sale or lease of goods, services, or an insurance product or a commercial transaction intended for potential buyers or customers are not protected.  A claim that the TCPA applies will necessarily lead to compliance with strict procedural requirements set out by the statute.

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice.  His practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.