Monday, October 19, 2020

robust TX anti-SLAPP law protects critic despite arguments that she was partly competing

ADB Interest, LLC v. Wallace, 606 S.W.3d 413 (Tex. Ct. App. 2020)

This is an anti-SLAPP case about statements by a disgruntled customer/alleged competitor.

Black, the managing member of ADB, invented the FasciaBlaster, which is marketed by ADB. The user is supposed to roll the product vigorously over his or her body. ADB claimed benefits for pain reduction, flexibility, joint function, circulation, muscle definition and performance, nerve activity, posture, and enhanced beauty, “including the virtual elimination of cellulite.” The product allegedly works by “opening the fascia,” which is a layer of tissue that encloses muscles and organs.

Blac published a book that is “an instructional guide to ‘FasciaBlasting’ ” that identifies numerous risks associated with using the FasciaBlaster, including to people with any history of deep vein thrombosis or a blood clot (“the consequences could be deadly”), or people with a “severe connective tissue problem such as fibromyalgia, Ehlers-Danlos Syndrome, or any issues that makes skin sensitive.” The book lists other symptoms including "changes in menstrual cycles, spotting, swelling, strange-colored bruises, hot skin, flu-like symptoms, and in some extreme cases, vomiting.... This is not an all-inclusive list, and to be honest, the product is fairly new and every day someone experiences something new.... Please check with your doctor for any issues that set off alarm bells." The FasciaBlaster website also had similar (and some additional) warnings.

The FasciaBlaster has fans and detractors, including in private FB groups; defendant Wallace “is only one of many people claiming on social media that the FasciaBlaster causes serious, adverse side effects.”

Wallace “owns a spa in Corpus Christi, Texas that provides a variety of skin care services to its clients, including massages.” She bought several FasciaBlasters for personal use also used the FasciaBlaster on one or more of her clients as part of her rendition of skin care services. She initially recommended the FasciaBlaster to her friends, family, and clients, but changed her mind, as announced on FB:

After my own experience and after seeing results from doctors and specialist[s] [and] [c]ompleting tests and extensive blood work, the tests are showing that extended use of these products can cause a chain reaction in the body that starts with inflammation. That inflammation leads to raised cortisol levels in the body. That raised cortisol causes eventual thyroid dysfunction, hormone imbalance, increased estrogen, extreme detox, and cellular shutdown in your body. [etc.]

… So any endorsements I gave this product in the past I sincerely apologize for without knowing the long term or adverse effects it may be causing people. As it has caused these adverse effects in myself by using it long term[,] I HAVE to warn anyone who is using it [o]r anyone who might be thinking of using it for esthetic reasons to use EXTREME caution.

She became a frequent critical poster on FasciaBlaster-related websites and Facebook groups. She attributed her fibromyalgia diagnosis, other problems, and two miscarriages on her use of the FasciaBlaster (the last because of high cortisol levels).

In response, ADB/Black’s social media/cybersecurity firm publicly named Wallace as one of the “professional trollers” who had written “bad reviews” on Black’s page and were making “false claims and [using] fake profiles.” Its employee also urged these Facebook pages to block the named individuals. Black also left a voicemail for a critic stating, inter alia, “I will prosecute you if this continues.” Two months before Wallace posted her allegedly defamatory and disparaging statements on FB, their attorney contacted another critic, stating that “while the company recognizes that consumers have First Amendment rights and other consumer rights provided by the Federal Trade Commission (FTC), those rights are limited by the company’s rights to not be defamed through slander or libelous actions that include actual malice or negligence regarding the truth of the statement.” The company also posted on its FB group that “While we welcome the opportunity to hear from people who feel they have experienced negative effects from using the FasciaBlaster device, we also need our audience to be aware that knowingly making false or fraudulent injury or defect claims is illegal and may subject you to criminal and civil liability.”

Black and ADB then sued Wallace for business disparagement, defamation and defamation per se, invasion of privacy, intentional infliction of emotional distress, and violations of the Lanham Act. Within days of filing suit, the company sent messages to other participants in the FB groups pointing to the lawsuit.

Side note: the FDA investigated ADB and the FasciaBlaster after it became aware of “over 70 [Medical Device Reporting (MDR) ] reportable complaints and 04 consumer complaints, filed in the last 12 months (June 2016-June 2017), alleging injury due to your Class I medical device, FasciaBlaster.” The FDA’s report revealed failures to create procedures for reviewing and evaluating complaints, despite several specific complaints of serious bodily injury allegedly caused by the device. Although ADB’s attorney initially told the FDA inspector that it had evidence of internal investigations—supposedly represented by pdf attachments to a spreadsheet ADB provided to the FDA—when the inspector asked for a sample of the attachments, “[i]t was later determined that these files (investigation results) did not exist.” The court doesn't explicitly connect this to the legal analysis, but it seems relevant.

Wallace moved to dismiss the claims based on the Texas anti-SLAPP law (the Texas Citizens Participation Act); the trial court granted the motion and awarded Wallace attorney’s fees and imposed sanctions against ADB and Black. Under the TCPA, if the trial court grants a motion to dismiss, it must award costs, reasonable attorney’s fees, and other expenses of defending against the action “as justice and equity may require.” The trial court must sanction the plaintiff in an amount “sufficient to deter the party who brought the legal action from bringing similar actions.”

First, ADB/Black argued that the commercial speech exemption applied to their claims. Not so. The TCPA does not apply:

to a legal action brought against a person primarily engaged in the business of selling or leasing goods or services, if the statement or conduct arises out of the sale or lease of goods, services, or an insurance product, insurance services, or a commercial transaction in which the intended audience is an actual or potential buyer or customer.

The Texas Supreme Court explained that “[c]onstruing the TCPA liberally means construing its exemptions narrowly,” in part because of “the legislature’s clear instruction to construe the TCPA liberally to protect citizens’ rights to participate in government.” It was plaintiffs’ burden to show that the exemption applied. It does when:

(1) the defendant was primarily engaged in the business of selling or leasing goods [or services], (2) the defendant made the statement or engaged in the conduct on which the claim is based in the defendant’s capacity as a seller or lessor of those goods or services, (3) the statement or conduct at issue arose out of a commercial transaction involving the kind of goods or services the defendant provides, and (4) the intended audience of the statement or conduct were actual or potential customers of the defendant for the kind of goods or services the defendant provides.

The exemption does not apply when a defendant “speaks of other goods or services in the marketplace,” i.e., goods or services that the speaker does not sell or lease.

The record showed that Wallace’s statements were primarily aimed at two overlapping but nonidentical audiences: ADB’s and Wallace’s actual or potential customers—Wallace didn’t provide services outside of a limited geographic area, but posted to reach everyone. To the extent that her statements were directed at her clients, they could be subject to exemption from the TCPA if the other requirements were met. But they weren’t. Under the circumstances, her statements about ADB’s product “cannot reasonably be considered statements about the services that Wallace provides.” Even though she directed readers to her business FB page to read her statements about the FasciaBlaster and mentioned that she provides skincare services in some of her posts, “it is not reasonable to infer from the record that Wallace was intending to promote her services or enhance her business by making the allegedly defamatory and disparaging statements about FasciaBlaster.”  There was “no evidence of a commercial purpose or motive behind Wallace’s posts.”

Given this, ADB/Black had to show, by “clear and specific evidence,” a prima facie case on their causes of action. The TCPA doesn’t “require direct evidence of each essential element of the underlying claim to avoid dismissal.” For example, pleadings and evidence that establish “the facts of when, where, and what was said, the defamatory nature of the statements, and how they damaged the plaintiff should be sufficient to resist a TCPA motion to dismiss.”

Defamation: Note that in Texas, corporations can bring defamation claims, since “corporations, like people, have reputations and may recover for harm inflicted on them.” Plaintiffs conceded that they were limited-purpose public figures here.

Actual malice requires knowledge of falsity or reckless disregard for truth. The Texas Supreme Court has held: “A failure to investigate fully is not evidence of actual malice; a purposeful avoidance of the truth is.” Also: “[A]ctual malice in defamation is a term of art that does not include ill will, evil motive, or spite”; none of that is enough because “the constitutional focus is on the defendant’s attitude toward the truth, not his attitude toward the plaintiff.”

ADB/Black argued that they submitted the only medical evidence in the record, allegedly establishing that there is no biological mechanism by which the FasciaBlaster could have caused Wallace’s medical issues, and thus the only rational inference from this evidence is that no medical professional would have told Wallace that the FasciaBlaster caused her to have two miscarriages and led to the onset of lupus and fibromyalgia. Therefore, they continued, one could rationally infer that Wallace knew that her statements were false. This wasn’t enough to infer that Wallace knew of the falsity or acted with reckless disregard for the truth. There was no “established body of scientific or medical evidence” about the FasciaBlaster for Wallace to ignore or proceed in reckless disregard of. ADB’s proof was an affidavit not available until after the litigation began; it, and the research it recorded, had not yet occurred when Wallace spoke.

ADB/Black argued that it was reckless disregard for the truth for Wallace to make statements about the source of her symptoms “based on self-administered tests she is not qualified to perform,” and that it was obviously dubious to blame “a simple massage tool.” Again, this wasn’t a case involving “a wealth of scientific literature that is widely available to the medical community, much less the general public.” Indeed, when Wallace made her allegedly defamatory statements, “there were no scientific studies addressing whether there was a link between FasciaBlasting and any of Wallace’s illnesses or symptoms.” It hadn’t been reviewed or tested by any physician [and one thus has to wonder about whether those disease claims are ok with the FDA], and based on the statements in ADB’s terms and conditions, they “had no intention at that time to subject their product to meaningful scientific or medical review.” An understandable misinterpretation of ambiguous facts does not show actual malice, even if Wallace was mad at Black.

Nor are Wallace’s claims  “inherently improbable” “considering the fact that ADB acknowledges that the FasciaBlaster’s effects are more than skin deep.” ADB’s own warnings reinforced that impression; indeed, “Wallace did what Black advised her book readers to do if they experienced any alarming symptoms while using the FasciaBlaster—consult a physician.” No actual malice, no defamation.

Business disparagement: Although the Restatement isn’t sure this is constitutional, malice in Texas business disparagement differs from defamation malice because it can be proved by demonstrating “ill will, evil motive, gross indifference, or reckless disregard, of the rights of others.” Here the key problem was special damages. ADB argued that in at least two instances in the record, women stated that they were going to return their products in response to Wallace’s posts (e.g., “I watched your videos and heard your story and it convinced me to send mine back and not let this thing ever touch my body because of what you are going through.”), along with other instances in which women promised to quit using the products they’d already purchased. Black also averred that this all the coincided with a decline in ADB’s sales.

However, neither the video that attracted these comments nor a transcript was in the record, so we don’t know what specific statements Wallace made, much less if any of these statements were defamatory or disparaging. Nor was there any other record showing of economic damage from returned or lost sales. Likewise, there was no specicfic evidence that the avowed no-longer-users would otherwise have purchased related specialty massage creams and ointments from ADB. As for the general sales decline, it was clear that Wallace’s statements “were not made in a vacuum,” and no specific evidence supported the inference that her posts were solely, or even principally, responsible for decreased sales.

Lanham Act: Not commercial advertising or promotion, given the mismatch between ADB’s business and Wallace’s.

The court also upheld the award of attorneys’ fees and $125,000 in sanctions under the TCPA. “Although the award of sanctions is mandatory, the trial court has broad discretion with respect to the amount of sanctions awarded.” Relevant factors include: (1) the plaintiff’s annual net profits; (2) the amount of attorney’s fees incurred; (3) the plaintiff’s history of filing similar suits; and (4) any aggravating misconduct, among other factors.

Wallace argued for a large sanctions award “because both parties were self-described millionaires who have taken aggressive responses to quiet their online critics,” including advertising the lawsuit against Wallace.  Along with the measures described above, ADB subsequently sued at least two other critics who posted negative comments about the FasciaBlaster on the same Facebook group that Wallace used. ADB sought between $2,000,000 and $5,000,000, plus injunctive relief requiring both women to “remove disparaging and defamatory comments,” though it ultimately dismissed those suits.

ADB/Black argued that no deterrence was necessary because Black was not party to either of these suits, Wallace didn’t prove that ADB’s other lawsuits were unsound; and it non-suited its claims anyway, making sanctions unnecessary. It also argued that, unlike Wallace, the other two “voluntarily participated in ADB-sponsored studies, signed contracts that included non-disclosure agreements, and then breached those agreements by publicly complaining about ADB’s products.” [Query: were these contract provisions federally illegal under the Consumer Review Fairness Act?]

But even disregarding those lawsuits, the other evidence of “a deliberate plan to discredit and quiet their detractors, prevent or remove negative reviews of ADB’s products, and threaten those who made negative comments” sufficed to avoid any abuse of discretion.

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