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.

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.