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Dallas Morning News, Inc. v. Hall

Court of Appeals of Texas, Second District, Fort Worth

May 25, 2017



          PANEL: WALKER, MEIER, and GABRIEL, JJ. WALKER and GABRIEL, JJ., concur without opinion.



         I. Introduction

         A private individual who sues a media defendant for defamation over statements of public concern bears the burden to prove that the statements are false, or not substantially true. Philadelphia Newspapers, Inc. v. Hepps, 475 U.S. 767, 776-77, 106 S.Ct. 1558, 1564 (1986); KBMT Operating Co. v. Toledo, 492 S.W.3d 710, 711, 713‒15 (Tex. 2016). In this interlocutory appeal from the denial of a motion to dismiss under the Texas Citizens' Participation Act (TCPA), we must determine whether Appellees Lewis Hall and Richard Hall, individually and on behalf of RXpress Pharmacies and Xpress Compounding, established by clear and specific evidence a prima facie case that Appellants The Dallas Morning News, Inc. and Kevin Krause published false statements about Appellees and their pharmaceutical compounding business. See Tex. Civ. Prac. & Rem. Code Ann. §§ 27.003(a), .005(c) (West 2015), § 51.014(a)(12) (West Supp. 2016). Because we conclude and hold that Appellees met their burden, and because Appellants' other issue is unpersuasive, we will affirm.

         II. Background

         A. Appellees

         Lewis has been a state-licensed pharmacist for forty-three years. His son, Richard, has worked in the pharmacy business for most of his adult life and has operated Lewis's pharmaceutical business "over the years."

         In 2013, Lewis and Richard formed a "partnership/joint venture" with Scott Schuster and Dustin Rall. Lewis handles the pharmaceutical responsibilities, and Richard, Schuster, and Rall manage the operations, sales, and marketing aspects of the venture. The business entails several entities, including RXpress Pharmacies and Xpress Compounding (collectively RXpress).

         B. Compounding Pharmacies

         RXpress is a compounding pharmacy. According to the U.S. Food and Drug Administration, compounding "is a practice in which a licensed pharmacist . . . combines, mixes, or alters ingredients of a drug to create a medication tailored to the needs of an individual patient."[1] Recent years saw a surge in the popularity of compounded medications and correlating growth in the compounding pharmacy industry-including the revenues that it generated. RXpress was no exception; after its formation, the business "thrived and made substantial profits."

         The success enjoyed by the compounding industry, however, has not been immune from controversy, or consequences. Allegations of abusive marketing and exorbitant prices have circulated, pharmacy benefit managers have responded to sharply increased spending on compounded medications by discontinuing coverage for compounding ingredients, and the federal government has investigated and prosecuted compounding pharmacies for violating federal anti-kickback laws and defrauding Tricare-the health-insurance program for active and retired military personnel and their families. One such high-profile prosecution involved two North Texas men who were accused of engaging in a complex, conspiratorial kickback scheme that bilked Tricare out of $65 million.[2]

         C. Prior Litigation

         Appellees have been involved in a number of recent lawsuits that are relevant to the primary issue in this appeal. In September 2015, RXpress sued Ruth E. Haynes, its former accountant, for falsely representing that she was a certified public accountant and for advising RXpress in such a way as to cause it to incur over $12 million in unnecessary federal income taxes.

         Appellees sued Schuster and Rall, their business partners, in January 2016 for fraud, theft, breach of fiduciary duty, and other torts, alleging, among other things, that their partners had misled them regarding the purchase of an instate pharmacy and had wrongfully diverted millions of dollars of partnership property to themselves.

         The same month, Xpress Compounding sued Prime Therapeutics, LLC, a pharmacy benefit manager, for a declaration that Prime was not entitled to terminate Xpress Compounding from Prime's pharmacy network.

          In February 2016, Ancillary Medical Services Management, LLC sued Appellees for breach of fiduciary duty and other torts involving Ancillary's investment in RXpress.

         D. The Dallas Morning News Articles

         In February and March 2016, Krause authored, and The Dallas Morning News published, a series of articles that largely centered around the potentially illegal business practice in which compounding pharmacies financially incentivize physicians to write prescriptions for their products and services. The first article, published on The Dallas Morning News's website on February 5, 2016, stated that federal authorities were investigating RXpress, which had been "accused of paying illegal kickbacks to physicians for writing prescriptions"; explained that federal authorities were investigating other compounding pharmacies for alleged violations of federal law; and referenced the Haynes and Schuster/Rall litigation. The article was republished in the print edition of The Dallas Morning News the following day.

         On February 9, 2016, The Dallas Morning News published an article online that reported on Texas's apparent effort to crack down on illegal relationships between compounding pharmacies and physicians (in the form of a then-new state law that allows regulators to inspect a pharmacy's financial records). The article stated that "RXpress Pharmacy, of Fort Worth, is currently being investigated for possible violations of the anti-kickback law by the Department of Defense due to its use of Tricare money." Slightly revised articles were published online on February 10, 2016, and in print on February 11, 2016. Both articles contained a substantially similar statement about RXpress.

         On February 24, 2016, The Dallas Morning News published an article online that reported on the arrest of the two North Texas men who had been indicted for defrauding Tricare out of $65 million. Referring to RXpress, the article stated that "The Dallas Morning News recently reported that a Fort Worth compounding pharmacy is under investigation in connection with similar allegations."

         And finally, on March 11, 2016 online and on March 13, 2016 in print, The Dallas Morning News published an article that reported on Prime's decision to terminate Xpress Compounding from its network. The articles, which referenced the Prime, Haynes, and Ancillary litigation, led with the following statement, "A North Texas drug compounding business that's the subject of a federal health care fraud investigation was recently thrown out of a private health insurance network over suspicions of fraud, court records show."

         E. This Lawsuit

         Four days after the final article was published, Appellees sued Appellants for libel. Appellees alleged that Appellants had defamed them by publishing statements that Appellees were "under investigation by authorities concerning violation of criminal statutes" and by publishing statements that accused Appellees of defrauding the federal government, insurance providers, or both. Appellants timely moved to dismiss Appellees' claims under the TCPA. Regarding Appellees' under-investigation claim, Appellants argued that Appellees could not meet their burden to establish that Appellants had falsely reported that Appellees were under federal investigation. Regarding Appellees' defrauding claim, Appellants argued that the articles had merely reported on third-party allegations that had been lodged against Appellees in the Haynes, Prime, Schuster/Rall, and Ancillary lawsuits and that Appellees could not meet their burden to establish that Appellants' coverage of those third-party allegations was false and not privileged. The trial court denied Appellants' motion to dismiss and objections to Appellees' evidence.

         III. The TCPA

         The TCPA protects citizens from retaliatory lawsuits that seek to intimidate or silence them on matters of public concern. In re Lipsky, 460 S.W.3d 579, 586 (Tex. 2015) (orig. proceeding). Its purpose is to identify and summarily dispose of lawsuits designed only to chill First Amendment rights, not to dismiss meritorious lawsuits. See Tex. Civ. Prac. & Rem. Code Ann. § 27.002 (West 2015).

         Under the TCPA's two-step dismissal process, the initial burden is on the defendant-movant to show by a preponderance of the evidence that the plaintiff's claim "is based on, relates to, or is in response to the [movant's] exercise of, " among other things, the right of free speech. Id. § 27.005(b). If the movant satisfies this burden, the second step shifts the burden to the plaintiff to establish "by clear and specific evidence a prima facie case for each essential element of the claim in question." Id. § 27.005(c). "[C]lear and specific evidence" requires a plaintiff to "provide enough detail to show the factual basis for its claim." Lipsky, 460 S.W.3d at 591. A "prima facie case" means "the 'minimum quantum of evidence necessary to support a rational inference that the allegation of fact is true.'" Id. at 590 (quoting In re E.I. Dupont de Nemours & Co., 136 S.W.3d 218, 223 (Tex. 2004) (orig. proceeding)).

         We review de novo a trial court's ruling on a motion to dismiss under the TCPA. United Food & Commercial Workers Int'l Union v. Wal-Mart Stores, Inc., 430 S.W.3d 508, 511 (Tex. App.-Fort Worth 2014, no pet.). We consider the pleadings and supporting and opposing affidavits stating the facts on which the liability or defense is based. Tex. Civ. Prac. & Rem. Code Ann. § 27.006(a) (West 2015).

         IV. Appellees' Burden to Establish Falsity Element

         There is no dispute that the TCPA applies to Appellees' libel claims. The only dispute is whether Appellees met their burden to establish the falsity element of their defamation claims. Specifically, in what we construe as their first of two issues, Appellants argue that Appellees failed to establish by clear and specific evidence a prima facie case (1) that Appellants falsely reported that Appellees were under federal investigation and (2) that Appellants falsely reported allegations that were made against Appellees in other civil lawsuits- that Appellees had defrauded the federal government, private insurers, or both.

         "The United States Supreme Court and [the Supreme Court of Texas] long ago shifted the burden of proving the truth defense to require the plaintiff to prove the defamatory statements were false when the statements were made by a media defendant over a public concern, " just like we have here. Neely v. Wilson, 418 S.W.3d 52, 62 (Tex. 2013). Thus, one element of Appellees' defamation claims-in fact, the only element that Appellants challenged in their motion to dismiss-is that Appellants published a false statement. See D Magazine Partners, L.P. v. Rosenthal, No. 15-0790, 2017 WL 1041234, at *3 (Tex. Mar. 17, 2017).

         In approaching the question of falsity, the common law of libel "overlooks minor inaccuracies and concentrates upon substantial truth." Masson v. New Yorker Magazine, Inc., 501 U.S. 496, 516, 111 S.Ct. 2419, 2432‒33 (1991). Therefore, as long as a statement is substantially true, it is not false.[3] Toledo, 492 S.W.3d at 714. Logically then, courts utilize the substantial-truth doctrine in determining the truth or falsity of a defamatory publication. Neely, 418 S.W.3d at 63. A publication's truth or falsity depends on whether the gist of the publication was more damaging to the plaintiff's reputation than a truthful or accurate publication would have been. D Magazine, 2017 WL 1041234, at *4; Neely, 418 S.W.3d at 63 ("[I]f a broadcast taken as a whole is more damaging to the plaintiff's reputation than a truthful broadcast would have been, the broadcast is not substantially true and is actionable."). We determine a publication's gist by construing the publication "as a whole in light of the surrounding circumstances based upon how a person of ordinary intelligence would perceive it." Turner v. KTRK Television, Inc., 38 S.W.3d 103, 114 (Tex. 2000); see D Magazine, 2017 WL 1041234, at *4.

         A.Appellees' ...

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