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Encore Enterprises, Inc. v. Shetty

Court of Appeals of Texas, Fifth District, Dallas

April 29, 2019

ENCORE ENTERPRISES, INC., Appellant
v.
MAHESH SHETTY, Appellee

          On Appeal from the 134th Judicial District Court Dallas County, Texas Trial Court Cause No. DC-17-17200

          Before Justices Myers, Osborne, and Nowell

          MEMORANDUM OPINION

          ERIN A. NOWELL JUSTICE

         This is an appeal from the denial of a motion to dismiss under the Texas Citizens Participation Act (TCPA). Mahesh Shetty sued Encore Enterprises, Inc. for wrongful discharge under the Sabine Pilot[1] exception to the employment at-will doctrine. Shetty alleged he told Encore that a transaction did not qualify for claimed tax benefits and that the failure to disclose certain information on its financial statements was a material misrepresentation to financial institutions, including HUD, which could result in criminal liability for tax and bank fraud. Shetty refused to participate in such activities and alleged he was fired from his position as CFO as a result. In a related lawsuit filed by Encore, Shetty stated in an objection to injunctive relief that "[i]n business dealings, honest representations are a matter of public concern." Afterwards, Encore filed a motion to dismiss Shetty's wrongful termination suit arguing Shetty admitted that his statements to Encore, which formed the basis of his lawsuit, were matters of public concern. The trial court denied the motion. We conclude that Encore failed to meet its burden to show by a preponderance of the evidence that Shetty's legal action is based on, relates to, or is in response to Encore's exercise of one of the rights defined in the TCPA. See Tex. Civ. Prac. & Rem. Code Ann. § 27.005(b). We affirm the trial court's order.

         Background

         Shetty was the CFO for Encore. He reported directly to Encore's Chairman, Bharat Sangani, and its CEO, Patrick J. Barber. After he was terminated, Shetty filed this lawsuit against Encore for wrongful termination under the Sabine Pilot exception to the employment at-will doctrine. Shetty claimed he was terminated because he refused to participate in allegedly criminal activity.

         In his original petition, Shetty alleged that Encore sought to obtain tax benefits under I.R.C. § 1031 for the sale and purchase of certain real property. However, upon review of the financial information regarding those transactions, Shetty "expressed grave concerns to [Encore's] Chairman and CEO that the requirements of Section 1031 of the Code were not met" and could subject Encore, Shetty, and others associated with Encore to criminal prosecution. Shetty informed Encore's Chairman "that he would not be part of any attempt by Defendant, Defendant's Chairman and Defendant's CEO to make what he believed to be material and fraudulent misrepresentations to the IRS," and requested the misrepresentations be corrected.

         Shetty alleged that Encore retaliated against him and terminated his employment "soon after he protested to Defendant's Chairman about the illegality of the Internal Revenue Code Section 1031 transactions and the material misrepresentations to the financial institutions, including HUD, that would subject him and others associated with Defendant to criminal prosecution."

         Shortly after Shetty filed his suit, Encore filed suit against Shetty in Collin County seeking to enjoin him from disclosing Encore's confidential information. In an objection to the injunction filed in the Collin County case, Shetty stated "[i]n business dealings, honest representations are a matter of public concern." Afterwards, Encore filed the TCPA motion to dismiss in this case, attaching the objection filed in the Collin County lawsuit[2] and a declaration signed by Barber.

         Encore stated in its motion that Shetty's wrongful termination claim was based on the allegation that Shetty "made certain statements about Defendant's financial and economic dealings, and was fired because of them." Encore argued that "Plaintiff's alleged communications fall directly within the TCPA and he cannot show proof for a prima facie case; thus, his lawsuit should be dismissed." Relying on the objection filed in the Collin County lawsuit, Encore stated that Shetty admitted "his speech and lawsuit are a matter of 'public concern.'" Alternatively, Encore asserted that Shetty's communications are covered by the TCPA under the right to petition and the right of association definitions in the statute.

         In response, Shetty argued that Encore failed to show that his lawsuit was based on Encore's exercise of any right protected by the TCPA. The trial court denied the motion to dismiss and Encore filed this interlocutory appeal. See Tex. Civ. Prac. & Rem. Code Ann. § 51.014(a)(12).

         Standard of Review

         The TCPA "protects citizens who petition or speak on matters of public concern from retaliatory lawsuits that seek to intimidate or silence them." In re Lipsky, 460 S.W.3d 579, 584 (Tex. 2015) (orig. proceeding). That protection comes in the form of a motion to dismiss for "any suit that appears to stifle the defendant's" exercise of those rights. Id. Reviewing a TCPA motion to dismiss requires a three-step analysis. Youngkin v. Hines, 546 S.W.3d 675, 679-80 (Tex. 2018). Initially the moving party must show by a preponderance of the evidence that the TCPA applies to the legal action against it, meaning, the legal action is based on the defendant's exercise of the rights as defined in the TCPA. See Tex. Civ. Prac. & Rem. Code Ann. § 27.005(b). If the movant meets its burden, the nonmoving party must establish by clear and specific evidence a prima facie case for each essential element of its claim. Id. § 27.005(c). If the nonmoving party satisfies that requirement, the burden shifts back to the movant to prove each essential element of any valid defenses by a preponderance of the evidence. Id. § 27.005(d).

         We review de novo the trial court's determinations that the parties met or failed to meet their burdens of proof under section 27.005. Campbell v. Clark, 471 S.W.3d 615, 623 (Tex. App.-Dallas 2015, no pet.). We also review de novo questions of statutory ...


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