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Butowsky v. Folkenflik

United States District Court, E.D. Texas, Sherman Division

August 7, 2019


          Craven, Magistrate Judge



         The above-entitled and numbered civil action was heretofore referred to United States Magistrate Judge Caroline M. Craven pursuant to 28 U.S.C. § 636. On April 17, 2019, the Magistrate Judge issued a Report and Recommendation, recommending Defendants' Motion to Dismiss Pursuant to Federal Rule of Civil Procedure 12(b)(6) for Failure to State a Claim (Dkt. # 25) be denied. National Public Radio, Inc. (“NPR”), David Folkenflik, Edith Chapin, Leslie Cook, and Pallavi Gogoi (collectively “Defendants”) filed objections to the Report and Recommendation. Plaintiff Ed Butowsky (“Plaintiff”) filed a response to the objections. The Court conducts a de novo review of the Magistrate Judge's findings and conclusions.


         This is an action for defamation, business disparagement, and civil conspiracy filed by Plaintiff, a Dallas investment advisor, against NPR, its senior media correspondent, David Folkenflik (“Folkenflik”), and certain former and current executive editors at NPR.[1] According to Plaintiff, Defendants published false and defamatory statements about Plaintiff online and via Twitter between August 2017 and March 2018 - statements Plaintiff alleges injured his business and reputation. Specifically, Plaintiff claims Folkenflik knowingly and intentionally conspired with Douglas H. Wigdor (“Wigdor”) to promote, publish, and republish a demonstrably false and defamatory narrative about Plaintiff. Joint Report of Attorney Conference (Dkt. # 52) at 2. Plaintiff alleges Folkenflik actively colluded with Wigdor, Folkenflik knew he was part of Wigdor's “press strategy” to extort money from Fox, and Folkenflik willingly assumed the role of “firecracker” in the scheme. Id. Plaintiff seeks money damages for alleged loss and injury to his business, insult, pain and mental suffering, humiliation, embarrassment, and injury to his reputation sustained as a result of Defendants' publication of allegedly false and defamatory statements. Id.


         In his original complaint, Plaintiff alleges four causes of action: (1) defamation per se (Dkt. # 1, ¶¶ 161-168); (2) business disparagement (id., ¶¶ 169-174); (3) civil conspiracy (id., ¶¶ 175-179); and (4) intentional infliction of emotional distress (id., ¶¶ 180-185).[2] Defendants contend Plaintiff filed suit against them for accurately reporting on a publicly filed lawsuit on a matter of public concern.[3] Defendants moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), asserting Plaintiff's complaint fails to state a plausible claim for relief for two primary reasons. First, Defendants argue both Texas law and the First Amendment to the United States Constitution protect Defendants' reporting on judicial proceedings and about matters of public concern. Defendants argue the statements in the NPR articles at issue in this case are subject to statutory and common law privileges and defenses that preclude civil liability - namely the fair report privilege, the fair comment privilege, and the “third-party allegation” rule. Second, Defendants argue many of the statements are not “of and concerning” Plaintiff, are not defamatory or capable of a defamatory meaning, or are protected expressions of opinion and should be dismissed for these reasons as well.

         On April 17, 2019, the Magistrate Judge entered a 98-page Report and Recommendation (“R&R”) regarding proposed findings of fact and recommendations that Defendants' motion to dismiss be denied. Dkt. # 58. The Magistrate Judge first found Defendants did not establish the common law and statutory privileges barred Plaintiff's claims. Id. at 49. Additionally, she found Plaintiff sufficiently alleged the publications at issue were not substantially true, and the third-party allegation rule did not bar Plaintiff's claims as a matter of law at this stage of the proceeding. Id. at 51. She next concluded Plaintiff adequately pleaded facts sufficient to allege a defamation claim. Specifically, she found, at this stage of the proceedings, accepting the allegations in Plaintiff's complaint as true, Plaintiff plausibly alleged the statements at issue were “of and concerning” Plaintiff. She also found the statements at issue were not expressions of opinion and were capable of a defamatory meaning. Id. at 74, 78. She then considered whether the Defamation Mitigation Act (“DMA”) barred Plaintiff's defamation claim. She concluded Plaintiff's failure to follow the DMA did not require dismissal of the action, and the issue of recovery of exemplary damages was more appropriate for consideration in the context of summary judgment. Id. at 95. Lastly, the Magistrate Judge found Plaintiff pleaded facts sufficient to state a claim for civil conspiracy. Id. at 97.


         Defendants filed objections to both the R&R's statement of facts and the conclusions of law, more specifically described below.

         Objections to the R&R's Statement of Facts

         Defendants argue the statement of facts in the R&R omits significant accusations against Plaintiff from the Wheeler lawsuit. Dkt. # 63 at 5. Defendants claim these missing allegations are relevant to Defendants' motion because this Court must compare the Reports and the Wheeler complaint to accurately assess whether privileges apply. Id.

         Objections to the R&R's Conclusions of Law

         Defendants also assert eight main objections to the R&R's conclusions of law. These objections and all sub-parts to any objection are set out below.

         In their first objection, Defendants argue the R&R errs by relying on overturned case law to conclude the third-party allegation rule did not bar Plaintiff's claims at this stage of the case and under the facts alleged in the complaint. Id. at 7-8. According to Defendants, the Texas Legislature and the Texas Supreme Court recognize the third-party allegation rule as an exception to the republication rule, allowing the media to truthfully and accurately report on allegations made by a third party regarding a matter of public concern. Id. Defendants state because the Reports at issue here were just a republication of the Wheeler complaint, the third-party allegation rule bars Plaintiff's defamation claim. Id.

         Defendants' second objection argues the R&R fails to correctly analyze whether common law and statutory privileges bar Plaintiff's defamation claim. Id. at 8-14. Defendants' second objection is broken into four sub-arguments: (1) the R&R erroneously relies on the Restatement (Second) of Torts as a guide for interpreting Texas privilege law; (2) the R&R uses comments to the Restatement in its analysis, even though there is ample reason to believe the Texas Supreme Court would reject the Restatement and its comments; (3) the R&R intermingles the different constitutional, common law, and statutory privileges in its analysis; and (4) the R&R uses the public-interest privilege standard to analyze whether the fair report and fair comment privileges apply. Id.

         In their third objection, Defendants argue the R&R wrongly concludes Plaintiff's allegations were sufficiently pleaded under Iqbal/Twombly. Id. at 14-15. Specifically, Defendants state Plaintiff's allegations regarding collusion and actual malice are conclusory and unsupported by any facts. Id.

         In their fourth objection, Defendants claim the R&R errs in relying on supplemental allegations found in Plaintiff's response to Defendants' motion to dismiss (Dkt. # 32) and Plaintiff's proposed amended complaint (Dkt. # 54). Id. at 15-17. Defendants argue the R&R uses facts not found in the operative pleading (the original complaint) and considers the un-pleaded cause of action, defamation per quod. Id.

         Defendants argue in their fifth objection the R&R improperly analyzes Plaintiff's defamation per se claim. Id. at 17-23. Defendants break the fifth objection into five discrete sub-arguments as follows: (1) the R&R incorrectly analyzes the falsity of the publications at issue; (2) the R&R incorrectly concludes the alleged defamatory statements were “of and concerning” Plaintiff; (3) the R&R wrongly finds the statements at issue were statements of fact and not opinion; (4) the R&R erroneously concludes the allegations did not support finding Plaintiff was a public figure; and (5) the R&R improperly finds Plaintiff's allegations plausibly alleged actual malice. Id. Sub-argument five is identical to Defendants' third objection.

         In their sixth objection, Defendants argue Plaintiff's failure to comply with the Texas DMA is a bar to litigation or at least a bar to exemplary damages, as opposed to the findings in the R&R that this issue should be raised and decided at summary judgment. Id. at 23-24.

         In their seventh objection, Defendants argue the R&R's business disparagement analysis is erroneous. Id. at 24. The R&R finds Plaintiff's business disparagement claim survives for the same reasons Plaintiff's defamation claims survive. Id. Defendants argue that because the R&R's defamation analysis is wrong, so is the R&R's conclusion that Plaintiff's business disparagement survives. Id.

         In their last objection, Defendants object to the R&R's civil conspiracy analysis. Id. While Defendants agree the R&R correctly identifies the applicable law, they argue Plaintiff failed to allege sufficient facts to give rise to a plausible claim for relief for a conspiracy. Id. This argument is also raised by Defendants in their third objection.

         Plaintiff's Response to Defendants' Objections

         Plaintiff argues the Magistrate Judge adequately reviewed Plaintiff's factual allegations, correctly finding the allegations sufficient to state a claim for relief. Dkt. # 64. Plaintiff asserts the R&R does not rely heavily on one decision but considers the entire body of Texas law applicable to all claims. Id. at 2. Additionally, Plaintiff responds the R&R relies only on the well-plead complaint in its analysis, and it only references other pleadings in the docket. Id. at 8. According to Plaintiff, any reference to other pleadings does not change the overall analysis of the R&R. Id. Plaintiff also argues the R&R was right to find Plaintiff's allegations were not conclusory, and each finding in the R&R is supported by facts alleged in Plaintiff's complaint. Id. Specifically, Plaintiff argues the R&R correctly concludes:

• Plaintiff adequately alleged the statements at issue were defamatory per se.
• The fair report privilege did not apply because of the exception found in the Restatement (Second) Torts.
• Plaintiff alleges facts showing Defendants acted with actual malice.
• Plaintiff sufficiently alleged facts that Defendants' reports were not fair, true, or impartial.
• Plaintiff sufficiently alleged material falsity.
• The statements at issue are capable of a defamatory meaning.
• The statements are “of and concerning” Plaintiff.
• The statements are statements of fact, not opinion.
• The DMA does not bar Plaintiff's claims.
• Plaintiff sufficiently alleged a claim for business disparagement.
• Plaintiff pleaded sufficient facts to show conspiracy between Folkenflik and Wigdor.

Id. at 2-8. Plaintiff urges this Court to adopt the R&R in its entirety.


         Under Federal Rule of Civil Procedure 8(a)(2), a pleading must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). Each claim must include enough factual allegations “to raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

         Under Federal Rule of Civil Procedure 12(b)(6), the Court utilizes a “two-pronged approach” in considering a motion to dismiss. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). First, the Court identifies and excludes legal conclusions that “are not entitled to the assumption of truth.” Id. Second, the Court considers the remaining “well-pleaded factual allegations.” Id. All allegations must be accepted as true and viewed in the light most favorable to a plaintiff. In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007). A plaintiff's complaint survives a defendant's Rule 12(b)(6) motion to dismiss if it includes facts sufficient “to raise a right to relief above the speculative level.” Id. (quotations and citations omitted).

         The ultimate inquiry must consider whether a plaintiff has pleaded “enough facts to state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570. “‘[D]etailed factual allegations'” are not required. Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555). However, a complaint must allege “sufficient factual matter, accepted as true, to ‘state a claim that is plausible on its face.'” Id. (quoting Twombly, 550 U.S. at 570). “A claim has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). This determination is a “context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. at 679. The Court may consider “the complaint, any documents attached to the complaint, and any documents attached to the motion to dismiss that are central to the claim and referenced by the complaint.” Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 387 (5th Cir. 2010).


         Discussion of Defendants' Objection to the R&R's Findings of Fact

         Defendants agree the majority of the factual background identified in the R&R is correct, but they argue the R&R fails to consider certain sections of the Wheeler complaint in its analysis.

         The Magistrate Judge specifically states she considered the Wheeler complaint in the analysis. Dkt. # 58 at 4, n. 5. The R&R examines the Wheeler complaint as a whole in analyzing Defendants' motion to dismiss. After reviewing the Wheeler complaint and comparing it to the alleged defamatory allegations pleaded by Plaintiff, the R&R concludes significant differences exist between the two. The Court agrees and finds Defendants' objection to the R&R's findings of fact without merit. The comparison of the Wheeler complaint and the Reports in the R&R is discussed in further detail below in response to Defendants' first and fifth objections.

         Discussion of Defendants' Objections to the R&R's Conclusions of Law

         Discussion of the first main objection

         Defendants first argue the R&R utilizes reversed precedent and misapplies the third-party allegation rule. Dkt. # 63 at 7-8. Defendants maintain the R&R “relies heavily” on the Fort Worth Court of Appeals holding in Dallas Morning News, Inc. v. Hall, 524 S.W.3d 369 (Tex. App. - Fort Worth 2017), which was recently reversed by the Texas Supreme Court.[4] Dallas Morning News, Inc. v. Hall, No. 17-0637, --- S.W.3d ---, 2019 WL 2063576, at *5 (Tex. May 10, 2019) (unpublished). The R&R uses Hall I to find the third-party allegation rule does not apply, according to Defendants. Defendants state the Texas Supreme Court holding in Hall II supports application of the third-party allegation rule in this case because Defendants merely republished the allegations contained in the Wheeler complaint.

         First the Court would note Hall II was decided after the R&R was entered. Secondly, the Court is not convinced the R&R, by relying on Hall I, incorrectly interprets Texas law regarding privileges and defenses afforded to media defendants. Although Hall I is cited in the R&R (see Dkt. # 58 at 24-25), the R&R thoroughly reviews all relevant Texas case law and accurately identifies the law on the third-party allegation rule.

         Additionally, this case is distinguishable from Hall II. The Hall II plaintiffs sued the Dallas Morning News (the “News”) and Kevin Krause for allegedly defaming them and their pharmaceutical business. 2019 WL 2063576, at *1. According to the plaintiffs, the News published numerous articles on the pharmacy compounding industry, including specifically the plaintiff's compounding pharmacy, Rxpress. Id. at *1-*2. The articles mentioned accusations against Rxpress, including that it was under federal investigation for possible violations of the anti-kickback law. Id. at *2-*3. The News moved to dismiss these claims under the Texas Citizens Participation Act, arguing, among other things, Rxpress could not meet its burden to show the articles were not substantially true and that the articles' reporting of the third party allegations in the civil lawsuits and other official proceedings was both true and privileged. Id. at *3.

         The trial court denied the motion, and the News filed an interlocutory appeal. Id. The court of appeals upheld the trial court, holding first the News had not established its substantial-truth defense. The court of appeals then held Rxpress had met its burden to state a prima facie case that the gists of the articles were not substantially true. Id. at *4. The News appealed Hall I to the Texas Supreme Court, which granted the News's petition for review. Id.

         The Texas Supreme Court first set forth the applicable law in a case brought pursuant to the Texas Citizens Participation Act (the “Act”), which specifically provides that a defendant in a case that “is based on, relates to, or is in response to a party's exercise of the right of free speech” may move for dismissal under the Act. Id. (quoting Tex. Civ. Prac. & Rem. Code § 27.003(a)). According to the court in Hall II, dismissal under the Act requires two steps. First, the party moving for dismissal must show, by a preponderance of the evidence, that the “legal action is based on, relates to, or is in response to a [movant]'s exercise of the right of free speech.” Id. (internal punctuation omitted). The burden then shifts to the plaintiff to establish “by clear and specific evidence a prima facie case for each essential element of the claim in question.” Hall II, 2019 WL 2063576, at *4 (quoting § Tex. Civ. Prac. & Rem. Code § 27.005(c)). Additionally, subsection (d) requires a court to dismiss the legal action if “the moving party establishes by a preponderance of the evidence each essential element of a valid defense to the nonmovant's claim.” Hall II, 2019 WL 2063576, at *4 (quoting Tex. Civ. Prac. & Rem. Code § 27.005(d)). If the plaintiff fails to carry its burden-or if the movant establishes the essential elements of a valid defense under § 27.005(d) -the trial court must dismiss the suit. Hall II, 2019 WL 2063576, at *5. In deciding if dismissal is warranted, the court considers all the “pleadings and supporting and opposing affidavits stating the facts on which the liability or defense is based.” Id. (quoting Tex. Civ. Prac. & Rem. Code § 27.006(a). The Texas Supreme Court reviewed de novo the court of appeals' determinations that the parties met or failed to meet their burdens of proof under § 27.005. Hall II, 2019 WL 2063576, at *5 (generally citing Tex. Civ. Prac. & Rem. Code § 27.005).

         The court first considered whether, under the Act, Rxpress had satisfied its burden to establish-by clear and specific evidence-a prima facie case for every essential element of the defamation claim, including falsity. Hall II, 2019 WL 2063576, at *5 (citing Tex. Civ. Prac. & Rem. Code § 27.005(c); Neely v. Wilson, 418 S.W.3d 52, 62 (Tex. 2013)).[5] At issue in Hall II were two allegedly defamatory meanings - that Rxpress was “under investigation” (which was plainly and expressly set out in the articles) and that Rxpress actually violated healthcare laws (which was implied). 2019 WL 2063576, at *5.

         Regarding the first alleged defamatory meaning, the court held Rxpress failed to carry its burden under the Act because it had not established a prima facie case that the News falsely reported that Rxpress was “under investigation.” Hall II, 2019 WL 2063576, at *7 (citing Tex. Civ. Prac. & Rem. Code § 27.005(c)). Because the court held Rxpress failed to carry its burden to survive dismissal under § 27.005(c), the court did not need to ...

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