This article discusses Business Disparagement under Texas law. This article does not discuss the tort of defamation or slander of title. Although similar to defamation or slander of title, the false assertion in a business disparagement case instead harms the economic interests of the business.[1] Texas law refers to this type of action as “business disparagement”[2] while the Restatement refers to it as “injurious falsehood.”[3]
The Elements of Business Disparagement in Texas
To prove an action for business disparagement under Texas law, the plaintiff must establish five elements: (1) that the defendant published disparaging words, (2) the words were false, (3) the defendant published the words with malice, (4) without privilege, and (5) the plaintiff must prove special damages.[4] These elements are more stringent than those of defamation because disparagement protects against pecuniary loss.[5]
Disparaging Words
A plaintiff must first prove that the defendant published disparaging words to a third party about the plaintiff’s economic interests.[6] The Restatement Second of Torts asserts that words are disparaging (1) if they cast doubt upon the quality or ownership of another’s land, chattels or intangible things, or upon the existence or extent of his property in them, and (2) that the defendant intended the words to cast doubt, or a third party reasonably understood the words to cast doubt.[7] Moreover, the Restatement rule notes that the disparagement may be by an expression of opinion or a statement of fact.[8]
Falsity
To prove an action for business disparagement, a plaintiff must plead and prove that the published words were false.[9] In a business disparagement case, there is no presumption of falsity; instead, the plaintiff has the burden of proving the falsity of the publication as part of its cause of action and, likewise, the defendant has no such burden to prove the publication is true.[10] However, a showing by the defendant of the substantial truth of a publication negates the essential element of falsity, and thus entitles the defendant to summary judgment.[11]
Malice
To prove an action for business disparagement, the plaintiff must prove that the defendant published the disparagement with actual malice. Proof of actual malice can be put forward in several different ways, but requires sufficient evidence to permit the conclusion that, at the time of publication, the defendant either: knew the statement was false, “acted with ill will or intended to interfere in the economic interest of the plaintiff,” entertained serious doubts as to the truth of the publication, or “acted with reckless disregard” for the truth.[12]
Actual malice, in this context, “is a term of art.” In the words of the Forbes court, it is not ill will, spite, or evil motive.[13] When the plaintiff in a business disparagement cause of action is a public official or figure, that plaintiff has the burden of proving by clear and convincing evidence that the disparaging words were published with knowledge that they were false or with reckless disregard as to whether or not they were true.[14]
A public figure, however, cannot satisfy the malice requirement merely by demonstrating the defendant’s ill will or intent to interfere with its economic interests.[15] In contrast, a private individual may demonstrate malice merely through the defendant’s “negligence.”[16] Note, however, that a media defendant’s poor choice of words or content, without evidence of deliberate falsity, does not amount to actual malice under Texas law.[17]
Privilege
In the context of business disparagement, privilege means that the defendant has some form of recognized legal immunity that protects them, even from the consequences of making a defamatory statement with malice.[18] In general, privilege may be absolute or conditional.[19] However, because conditional or qualified privilege would be defeated by a finding of malice, and malice is a necessary element of a business disparagement cause of action, such privileges are irrelevant in the context of business disparagement.[20] An absolute privilege, however, is applicable and may more properly be thought of as an immunity because it is based on the personal position or status of the actor.[21]
Special Damages
Texas law requires proof that the disparagement caused a direct pecuniary loss.[22] Proof of special damages is perhaps the most essential element in a business-disparagement claim—as without proof of special damages, there is no claim.[23] Special damages are pecuniary losses that the plaintiff has suffered that have been realized or liquidated (e.g., loss of specific sales).[24] Furthermore, the disparaging communication in question must play a substantial part in inducing others not to deal with the plaintiff with the result that special damage, in the form of the loss of trade or other dealings, is established.[25] Finally, Texas courts have held that the pecuniary loss must be greater than the attorney fees incurred to bring the business-disparagement claim.[26]
Remedies
A plaintiff in an action for business disparagement can recover actual damages representing commercial harm or pecuniary loss to the plaintiff’s economic interests.[27] Actual damages in a business-disparagement action are “special damages” and must be specifically pleaded.[28] Other remedies include expense of counteracting publication, exemplary damages, equitable relief, interest, court costs, but notably not attorney fees or damages for personal injury.[29] Plaintiffs can also recover damages for the loss of a specific sale, loss of credit, or even loss of business if its business was completely destroyed.[30] The measure of damages for the loss of business is the market value of the business on the date of the loss rather than the loss of expected profits.[31]
Defenses
Defenses against a business disparagement action include limitations, proportionate responsibility, immunity and privilege.
Limitations
The limitations period for an action for business disparagement is two years.[32] But when the sole basis of a business-disparagement claim is a defamatory injury to reputation and there is no evidence of special damages, the one-year statute of limitations for defamation applies.[33]
Proportionate Responsibility
The defendant can assert the defense that the plaintiff’s own acts or omissions caused or contributed to the plaintiff’s injury.[34]
Immunity & Privilege
Privilege as a defense to a business-disparagement claim, is supported by the Restatement which states that “the defendant has the burden of proving … the publication was absolutely or conditionally privileged.”[35] A defendant in a business-disparagement action can assert any absolute privileges that would be available in a defamation action.When the privilege is absolute, the actor’s motivation is irrelevant.[36] Such immunity, however, attaches only to a limited and select number of situations which involve the administration of the functions of the branches of government, and thus is only applicable in the business-disparagement claim when the defendant is a public official or figure.[37] The absolute privileges in defamation and business disparagement are “in all respects the same.”[38] This is not the case, however, for conditional or qualified privilege. Because conditional or qualified privilege would be defeated by a finding of malice, and malice is a necessary element of a business disparagement cause of action, a defendant cannot assert the defense of a common-law qualified privilege.[39]
Need assistance in managing the business tax audit process? Freeman Law’s representations include disputes involving a variety of claims, such as breaches of fiduciary duty, business torts and other commercial disputes, partnership disputes, misrepresentation, deceptive trade practices act (“DTPA”) violations, tortious interference, extortion, Texas Theft Statute violations, civil conspiracy, and cyber and computer violations. We offer value-driven services and provide practical solutions to complex tax issues. Schedule a consultation or call (214) 984-300 to discuss our business litigation services.
[1] Hurlbut v. Gulf Atl. Life Ins., 749 S.W.2d 762, 766 (Tex.1987); Waste Mgmt. of Tex., Inc. v. Tex. Disposal Sys. Landfill, Inc., 434 S.W.3d 142, 152 (Tex. 2014) (defining pecuniary and non-pecuniary harm).
[2] Id.
[3] Restatement (Second) of Torts § 623A, comment a (1977).
[4] Hurlbut, 749 S.W.2d at 766; Innovative Block v. Valley Builders Sup., 603 S.W.3d 409, 417 (Tex.2020); San Angelo Cmty. Med. Ctr., LLC v. Leon, 03-19-00229-CV, 2021 WL 1680194, at *8 (Tex. App.—Austin Apr. 29, 2021, no pet. h.).
[5] Hurlbut, 749 S.W.2d at 766.
[6] Id.
[7] Restatement (Second) of Torts § 629 (1977).
[8] Restatement (Second) of Torts § 629, comment a (1977); but see First Amendment of the United States Constitution and Art. I, § 8 of the Texas Constitution (note that statements of opinion are not actionable under the Lanham Act because opinions are protected.)
[9] Hurlbut, 749 S.W.2d at 766.
[10] Astoria Indus. of Iowa, Inc. v. SNF, Inc., 223 S.W.3d 616, 625 (Tex. App.—Fort Worth 2007, pet. denied), abrogated by Dallas Symphony Ass’n, Inc. v. Reyes, 571 S.W.3d 753 (Tex. 2019).
[11] See Granada Biosciences, Inc. v. Forbes, Inc., 49 S.W.3d 610 (Tex. App. Houston 14th Dist. 2001), order withdrawn, (Sept. 26, 2002) and judgment rev’d on other grounds, 124 S.W.3d 167 (Tex. 2003).
[12] Granada, 49 S.W.3d at 617; Bentley v. Bunton, 94 S.W.3d 561, 591 (Tex.2002).
[13] Forbes Inc. v. Granada Biosciences, Inc., 124 S.W.3d 167, 171 (Tex. 2003) (internal citations omitted).
[14] Forbes, 124 S.W.3d at 170.
[15] Id.
[16] Id.
[17] Bose Corp. v. Consumers Union of U.S., Inc., 466 U.S. 485, 490, 104 S. Ct. 1949, 1954, 80 L. Ed. 2d 502 (1984).
[18] Hurlbut, 749 S.W.2d at 768.
[19] Id.
[20] Granada, 49 S.W.3d at 619.
[21] Id.
[22] Johnson v. Hosp. Corp. of Am., 95 F.3d 383, 391 (5th Cir. 1996) (citing Hurlbut, 749 S.W.2d at 767).
[23] Waste Mgmt., 434 S.W.3d at 155; Hurlbut, 749 S.W.2d at 767.
[24] Hurlbut, 749 S.W.2d at 767.
[25] Id.
[26] C.P. Interests, Inc. v. California Pools, Inc., 238 F.3d 690, 696 (5th Cir.2001).
[27] Hurlbut, 749 S.W.2d at 767.
[28]Id.
[29] Hurlbut, 749 S.W.2d at 767; Dallas Symphony, 571 S.W.3d at 753; Dwyer v. Sabine Mining Co., 890 S.W.2d 140, 143 (Tex.App.—Texarkana 1994, writ denied) (damages for mental distress and injury to reputation are not recoverable in action for business disparagement).
[30] Hurlbut, 749 S.W.2d at 767.
[31] Id.
[32] Glassdoor, Inc. v. Andra Grp., 575 S.W.3d 523, 527 (Tex.2019).
[33] Nath v. Texas Children’s Hosp., 446 S.W.3d 355, 370 (Tex.2014).
[34] Tex. Civ. Prac. & Rem. Code Ann. § 33.000-4.
[35] Restatement Second, Torts § 651(2).
[36] Hurlbut, 749 S.W.2d at 768.
[37] Id.
[38] Restatement Second, Torts § 635, comment a.
[39] Granada 49 S.W.3d at 619, citing Hurlbut, 749 S.W.2d at 768.
