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PiNG Podcast Interview on Protecting Your Content

CaptureMy friend Rachel Parker of Resonance Content Marketing interviewed me for her PiNG Blog and podcast.  For bloggers and other online content creators, we cover some do’s and don’ts on when you can borrow and what to do when someone has borrowed a little too much from you.  You can listen here.

Mizzou: A Personal Note on Racism, Firings and a Free Press

I have been watching the events at my alma mater that led to the resignation of MU System President Tim Wolfe and Chancellor R. Bowen Loftin from afar. While I had heard inklings of discontent, I had no idea it was at this point until the football team got involved.

73741_1401374325373_749181_nOn many levels, I am trying my best to understand all the nuance involved, but am having difficulty. I haven’t been back to campus for five years to, of course, watch a football game.

Do I believe there is racism in Columbia, Missouri? Probably. Just like there probably is anywhere else in society. As a white male, I am probably not in a position to fully understand.

From the published reports, the protesters’ complaints appear to be isolated events that were handled poorly by the school administration or without enough concern. Part of the students’ concerns centered on how their protest at the Homecoming Parade was handled which you can watch here.  Things also did not go well when Wolfe was confronted in Kansas City a few weeks later.

Another complaint centers on racist taunts by unknown passersby to the African American young man who was elected student body president and homecoming king. Painting an entire school as racist, a school that elects a gay African American student to be president and homecoming king, is unfair. You can read about the events that led to the resignations here.

Should the administration have handled it better? Obviously. Letting it get to the point where the football team threatened not to play means it wasn’t handled the right way and probably left the school with few options.

Were the protestors’ demands unreasonable? Probably. Asking the system president to write a handwritten apology to the Concerned Student 1950 demonstrators and hold a press conference reading the letter while acknowledging his “white male privilege” and admitting to “gross negligence” takes away from the otherwise legitimate concerns raised. To throw in some law in the discussion, demanding racial quotas for the faculty and staff (“We demand that by the academic year 2017/2018, the University of Missouri increases the percentage of black faculty and staff campuswide to 10%) is probably unconstitutional.

One of the students then began a public hunger strike until the demands were met. Then, the football team got involved and refused to play until the hunger strike ended.  Head coach Gary Pinkel supported his players. Was this the right move? It certainly moved the needle, but I worry about whether a handful of players and then the team, as a whole, were leveraged. It is both encouraging, and somewhat alarming, to see young men take their position of prestige as SEC college football players and use it to get involved. Will this set a precedent and where is the line? Reading Tigerboard (admittedly not a place for cool-headed, well-reasoned analysis), the fan reaction was certainly mixed.

LoftinAbout 24 hours after the football team’s actions became public, the president resigned followed by the chancellor. Although the chancellor’s resignation becomes effective at the end of the year and may have had more to do with issues other than the handling the student protests. Ironically, the football team may be worse off with a new chancellor less supportive of the athletics department.

In response, Mizzou has promised to implement changes within the next 90 days which include:

  • The creation of a new position for a Chief Diversity, Inclusion and Equity Officer within the UM System which has already been filled on an interim basis
  • A review of UM System policies regarding staff and student conduct
  • Additional support for students, faculty and staff who have “experienced discrimination and disparate treatment”
  • Additional support for the hiring and retention of diverse faculty and staff
  • the creation of system-wide and campus-based diversity, inclusion and equity task forces
  • an education training program for holders of the university’s top leadership positions

Had the administration taken these steps prior to the football team’s involvement, would there have been two resignations? We may never know because we don’t know what would have happened with the hunger strike and what would the reaction have been had the administration gone 90% of the way but not conceded to all of the demands (which they could have never done). It may have gone a long way to assuage opinion of the public and maybe, more importantly, the football team.

Yes, this story does speak to better crisis communication techniques and the importance of getting in front of a controversy. The number one lesson for crisis communications is to be prepared and to have a plan. Once the controversy began, the school should have had a singular unified message.

If bombarded off campus (or even during the Homecoming Parade), the proper response would have been a polite refusal to engage at that time as it was not the appropriate time and place. There could have been a somewhat prepared “holding statement” such as “we take these issues seriously and are taking steps to ensure that every student is provided the best environment we can provide. This is not the time or place to get into the specifics, but we will be providing more details soon and invite continued discussions on the topic in the near future.” It would not have placated the protesters at the time, but it would not have added more fuel to the fire. A flagship state university is a much different animal than a private business, but the same basic tenets apply.

But, I justify this longer than usual and personal musing based on what happened next. Watch this:

As my wife gets tired of hearing, the University of Missouri is home of the best journalism school in the world. (I linked to something so it has to be true!) The student journalist handled this situation perfectly. The protestors — not so much.

Here are some basics about the First Amendment. The protesters have a right protest in the public parts of campus. And, yes, the very same First Amendment gives the journalists the right to cover the story from public property.

For the legal wonks, the Carnahan Quadrangle is very likely a limited or designated public forum being that it is on a university campus. Content-based speech restrictions are therefore subject to strict scrutiny. The school, however, can put reasonable time, place and manner restrictions as long as the restrictions serve an important governmental interest and the restrictions are narrowly tailored to serve that important governmental interest.

No one kept the protestors from doing their thing. Instead, the protestors tried to keep the media from doing theirs – covering the protest, which ironically is normally what protestors want.  It is true that journalists have no greater rights than non-journalists when it comes to accessing public property, but when you engage in a protest on public property, you can’t claim some of the public property as your own. The journalists had a right to be anywhere on the public grounds to cover the story.

The photographer handled the situation well making the Mizzou Mafia proud. You can read some perspectives of the journalists covering the story here and here.

More troubling, however, was the conduct of some of the Mizzou faculty who, in my opinion, mistreated the journalist and should have known better. For example, near the end of the video, a Mizzou professor of mass media (with the School of Communications and not the School of Journalism) tried to grab the camera and then yelled, “Who wants to help me get this reporter out of here? I need some muscle over here.” Ironically (a repeated theme to this story), this same professor had asked for media attention a few days prior. Unfortunately, this strange treatment of journalists is detracting from the protester’s efforts to further their true cause.

I don’t believe MU System President Tim Wolfe, or Chancellor R. Bowin Loftin, or Mizzou itself, is, in any way, racist. They could have handled the situation better and reacted quicker. Their downfall is a result of that failure. But, shouldn’t we hold the protesters, or at least the faculty that joins the protesters, to the same standard? The faculty member could have handled it better and, perhaps there should be some repercussions, on her end. The School of Journalism has already started distancing themselves from the faculty member and released this statement in support of the journalists. (Here’s another perspective from a law professor at Mizzou and more from one my former instructors at the J-SchoolStacey Woelfel).

The bad news is that it looks like two men who worked hard and wanted the best for the university lost their jobs. Another person who appeared to be a well-liked professor may lose hers, too. The whole thing is a circus.

The good news is the hunger strike is over, there may be some changes to redress the situation, and hopefully both the administration and the protesters can learn from this.

For the rest of us, life will go on and I will continue to support my alma mater from afar. After all, there is a football game to played on Saturday.

Update: The professor in the video has apologized and resigned from her “courtesy appointment” with the J-School.

Title III Crowdfunding is Coming – Is It Right For You?

SECOn Friday, the SEC approved equity crowdfunding for non-accredited investors in a 3-1 vote. This is the true equity crowdfunding from the JOBS Act of 2012 known as Title III. Given it has been more than three years to get the final rules approved, I wasn’t sure this would ever happen.

The new rules go into effect in 180 days, so there will be time to fully digest them, but here is a primer that may help you decide whether Title III equity crowdfunding is right for you.

The Basics

Before the SEC approved the rules, crowdfunding was allowed when targeted to accredited investors; or in certain states, like Texas, that approved intrastate crowdfunding; or when giving away rewards as opposed to equity in the company.  Now, companies can seek funds in exchange for equity from all investors regardless of whether they are accredited.

The Rules

To know whether it makes sense for you, take a look at the rules.

  • A company can raise up to $1 million  in a 12-month period;
  • Individuals can invest up to the greater of  $2,000 or the lesser of 5% of the individual’s annual income or net worth;
  • If the individual’s income or net worth exceed $100,000, then the investor can provide 10% of the lesser of their annual income or net worth;
  • No individual can invest more than $100,000 in crowdfunding platforms during a 12-month period.
  • Securities purchased in a crowdfunding transaction generally cannot be resold for one year.
  • All sales have to go through a broker-dealer or a funding portal.

The primary hurdle may be the disclosure requirements that companies will have to make. They include:

  • The price of the securities or the method for determining the price, the target offering amount, the deadline to reach the target offering amount, and whether the company will accept investments in excess of the target offering amount;
  • A discussion of the company’s financial condition.
  • Financial statements which, depending on the amount offered, may include information from the tax returns, reviewed by an independent public accountant, or audited by an independent auditor.
  • If a company is raising more than $500,000 but not more than $1 million, a company can provide reviewed rather than audited financial statements, unless financial statements of the company are available that have been audited by an independent auditor.
  • A description of the business and the use of proceeds from the offering.
  • Information about officers and directors as well as owners of 20 percent or more of the company.
  • Certain related-party transactions.
  • Annual reports.

To see what exactly these disclosure requirements mean, you have to review the full approved rules available here. Full Title III Crowdfunding Rules. Warning, the pdf is over 600 pages.

Is it right for me?

So, why would a company live with these rules to raise money? In most situations, if you can raise money the old-fashioned way (through accredited investors preferably) or even use debt rather than equity, then we generally recommend you go that route. But, if you are a consumer/retail business, crowdfunding may be the best avenue for expansion. With equity crowdfunding, your customers become vested stakeholders in your business.  They become brand ambassadors and referral sources. If you want hundreds of your customers to do that, then consider the crowdfunding route that will be available to you in six months.

Why You Care The E.U. Struck Down Safe Harbor Data Protection And What to Do About it [Updated]

Hungary 461Earlier this month the Court of Justice of the European Union struck down the EU-U.S. Safe Harbor Framework which previously provided U.S. companies comfort in that they could follow the framework and know they were not violating the more strenuous E.U. personal data privacy laws. The scrapping of the Safe Harbor is a result of recent Snowden revelations about the U.S. data collection efforts in the E.U.

Created in 2000, the Framework allowed for the lawful transfer of European citizens’ personal data to the U.S.  Without it, the E.U. prohibits the transfer of personal data to non-European Union countries that do not meet the European Union “adequacy” standard for privacy protection as directed in the European Union Directive on Data Protection of 1995.   The U.S. is not on that list. For a good description of the ruling, go here.

I’m not Facebook or a cloud storage company, so why do I care?

Data transfers have not come to an immediate hault. Likewise, trans-Atlantic trade has not stopped. But, you may not realize you transfer the personal data of E.U. citizens and need to be prepared. Certainly, if you previously relied upon the safe harbor, you need to make some changes.

Do you take orders from E.U. customers?  Do you have subsidiaries in the E.U., but process the H.R. functions here? Do you host the company email here that includes email accounts of E.U. citizens?  Do you store information from E.U. citizens? You can see how easily you can become susceptible to possible data transfers of personal information of E.U. citizens.

So what do I do?

Because the ruling is so new, a lot of people are still trying to figure out what exactly this means.  Some suggested actions include:

1. Update the Privacy Policy

Many privacy policies provide that the company follows the Safe Harbor guidelines. This should be updated and the policy should go into greater detail about what “adequate protections” you use to protect data.

2. Get consent for transfers of data outside the E.U.

Under the E.U. Directive, you can legally transfer personal data with the subject’s consent.  This is based on one of the derogations to the EU Data Protection Directive. This may help with the occasional customer, but when it comes to your employees in the E.U., many of the authorities have found that you cannot get real consent from employees because of the lack of leverage for the employee to say no.

If you are dealing with consumers, you would need to document and obtain actual consent.  Having a statement in a privacy policy hidden on your website is not sufficient.  You must make the E.U. citizen actually consents through a click-wrap agreement and document their consent.  It may not be enough to simply have them agree that you may transfer their data to other countries with less rigorous data protection laws, but you may have to notify them that their data may be transferred to a jurisdiction where their data may be subject disclosure pursuant to a court order or other governmental action.

3. Use one of the alternative mechanisms

The options other than Safe Harbor that were available before the ruling are still possibilities. These include the Binding Corporate Rules and Standard Contractual Clauses.

The Standard Contractual Clauses can provide an efficient short-term fix.  They can be used to transfer data within one company (the H.R. or email server issues) or between a company and a vendor. The magic involved here is in describing what and how data is collected, stored and protected in the appendices of the SCCs.

The Binding Corporate Rules may be an alternative, but it may take time to get them approved because they require approval from the data protection authorities in each country of the E.U. from where you would transfer data. This process can also be expensive to implement. Some jurisdictions are tougher than others. The U.K. is less restrictive than Germany, for example. Therefore, it may depend on in which jurisdictions you have operations.

4. Segregate E.U. Data

To the extent you store data, you can segregate it and keep from transferring the data on E.U. citizens out of the E.U. This may not be practical for most people, but if it is an option, it may be the better one than trying to navigate through this morass.

5. Stay Classy San Diego

ron-burgundy-2 (1)While you can no longer rely upon on Safe Harbor to avoid problems, you should maintain those safeguards in place because you promised to do it. Showing that you are taking best practice precautions may save you from any harsh penalties if anyone ever complains.

The likely outcome is that E.U. and U.S. officials will create a new framework that addresses some of the concerns set out in the order to allow for transfer of data. The good news is some European officials have already stated they plan on proposing new guidelines and do not plan to aggressively enforce any data transfers in the near term that satisfied the Safe Harbor.

In the meantime, stay calm and consider the options. Watch to see if the European authorities issue guidelines you can live with. Check in here for guidelines that may be forthcoming. Individual countries may also provide their own guidelines.

No, the world is not ending, but a change will have to be made. We will monitor the situation and provide updates as available.

UPDATE: 10-15-15

This morning, I participated in a conference call with our international partners in our First Law Institute Data Protection/Retention Group.  The general consensus was that SCCs are the way to go in the interim, but they are not foolproof for all situations and entering into the agreements does not really address the policy concerns raised in the court’s ruling.

During the esoteric part of the conversation, some of the European partners conceded that other countries engage in surveillance and if you applied the policy behind the ruling, there should be no data transfers outside of the E.U. to almost any other country that engages in any form of cyber surveillance. No matter what measures a company puts in place, the ruling focused on the government surveillance rules which would trump whatever the contractual arrangements are in the SCCs.

The good news is that our European partners believe new guidelines, or a Safe Harbor 2.0, will emerge soon.



Fair Use and the DMCA – Yes, you need to think about it before sending the takedown

Yesterday, the Ninth Circuit ruled copyright owners must consider the fair use doctrine before sending a takedown notice under the Digital Millennium Copyright Act in Lenz v. Universal Music Group. Read the case here: Lenz v. UMG – 9th Circuit

The case centered on this video.

As a father of two kids, the scene is very familiar. After the innocuous video was posted, Universal Music Group, the holder of the rights to Prince’s “Let’s Go Crazy” sent a takedown notice under the DMCA.

The DMCA is a powerful weapon, but this is the first time a court has warned that copyright holders need to use it with some care. Generally, the DMCA works like this: a copyright owner sends a takedown notice to YouTube or wherever the infringing material is being hosted or displayed. To avoid any liability for the infringement, sites like YouTube immediately take it down and send a notice to the person who originally posted it. That person can challenge the takedown notice by going to court which is what happened in this case where the Electronic Frontier Foundation helped the mother.

The mother won at trial and recovered her attorneys’ fees under a rarely enforced section 512(f) process that allows for counter-challenges to prevail if the takedown was done in bad faith.

According to the Ninth Circuit, before sending the notice, a copyright holder is supposed to consider whether the allegedly infringing material is a fair use and only send a takedown if there is a good faith conclusion that the targeted upload is not a protected fair use of the copyrighted work.

While that sounds good, fair use is not easy for laypeople to understand because judges and lawyers have a hard time with it. Fair use is a factually-specific inquiry and there is no bright line test. Courts consider these four factors:

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

(2) the nature of the copyrighted work;

(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

(4) the effect of the use upon the potential market for or value of the copyrighted work.

There are a lot of close calls when it comes to fair use – the “dancing baby” was not one of them. I certainly would not re-play that racket to avoid having to pay to download “Let’s Go Crazy.”

The court recognized, on the other hand, that with rampant and easy infringement on the internet, a rights holder does not have to do an exhaustive fair use analysis, as long as there is some.  The court wrote it was “mindful of pressing crush of voluminous infringing content that copyright holders face in a digital age” and that the analysis “need not be searching or intensive.”

Application Today

There is little doubt that the DMCA is subject to abuse. For example, disgruntled politicians use it to remove content that is otherwise clearly a fair use. Ahsley Madison used it to remove the posting of its data online. With this new case, people may think twice before quickly sending the takedown notice.

Texas Anti-SLAPP Law: The Expanding Scope of the Texas Citizen’s Participation Act – Part 5 (the conclusion)

Go to Part 4 – A decision in Schlumberger

Go to Part 3 – The Schlumberger case and employment disputes

Go to Part 2 – In Practice

Go to Part 1 – The basics of the Texas Anti-SLAPP law

To conclude the series, we look at one more opinion — Serafine v. Blunt, No. 03-12-00726-CV, 2015 WL 2061922 (Tex. App.—Austin May 1, 2015).  This case dealt with a property dispute, but the real interest comes from the lengthy concurring opinion that is worth your read if you are studying the broad applicability of the Anti-SLAPP law.

In this property dispute amongst neighbors, Serafine asserted claims for trespass to try title, trespass, nuisance, negligence, and fraud by nondisclosure, and sought declaratory and injunctive relief, in addition to damages and attorneys’ fees. The Blunts answered Serafine’s suit and also filed counterclaims, asserting that Serafine tortiously interfered with their contract with the drainage and foundation company and that Serafine violated Chapter 12 of the Texas Civil Practice and Remedies Code by fraudulently filing a lis pendens in the Travis County Real Property Records.  Serafine moved to dismiss the Blunts’ counterclaims under the TCPA which the trial court denied.

Serafine contends that she established that the Blunts filed their counterclaims in response to her exercise of her right to petition, i.e., in response to her filing suit against them, because the two counterclaims on their face complained of her filing of the lawsuit and her filing of the lis pendens notice based on her claims related to the property boundary. The Blunts argued that their tortious-interference counterclaim was not based solely on Serafine’s filing of the lawsuit, but also on her harassing and threatening conduct before and after the lawsuit. They further argued that Serafine incorrectly argued that a lis pendens cannot serve as the basis for a fraudulent-lien claim.

The appellate court held the TCPA applied in part because the Blunts’ tortious interference counterclaim was, in part based on, related to, or in response to Serafine’s filing of the suit and that their fraudulent-lien counterclaim is based on, related to, or in response to Serafine’s filing of the lis pendens, both of which filings are exercises of Serafine’s “right to petition.”  However, to the extent that the Blunts’ tortious-interference counterclaim was based, in part, on Serafine’s alleged threats made outside the context of the lawsuit, then the TCPA did not apply.  The appellate court therefore dismissed the majority of the tortious interference and false lien claims and remanded the claim back to the trial court for consideration of the attorneys’ fee awards and the remaining claim related to threats as opposed to the filing of the suit.

The lengthy concurring opinion found the TCPA should apply in this case, but raised concerns that the TCPA was being used too broadly.  The Houston Court of Appeals may agree.  In Jardin v. Marklund, 431 S.W.3d 765 (Tex. App.-Houston [14th Dist.] 2014, no pet.), the court attacked at length the notion that the TCPA’s protections for the “exercise of the right to petition” can be invoked “simply by filing a petition in a lawsuit between private parties.” It found the TCPA incorporates, and must be construed in light of the purpose of the act and its First Amendment underpinnings.  The Jardin majority reasoned courts should draw lines between “public” versus “private” issues, such that merely filing a lawsuit would not invoke the constitutional right to petition (and, in turn, the TCPA) unless the suit’s subject matter independently concerned government or “the public interest.”

This would appear to be more in line with the ExxonMobil v. Coleman decision in Part 2.  The Dallas court considered the purpose of the TCPA and concluded that “to constitute an exercise of the right of association under the Act, the nature of the ‘communication between individuals who join together’ must involve public or citizen’s participation.” Id. at 12.  The court continued that reading the definition of the right “right of association” in isolation “would lead to absurd results” and would apply the TCPA to “to virtually any private communication between two people about a shared interest.” Id. at 10.

Erica Badu – music management and Anti-SLAPP

Another case to watch is Levatino v. Apple Tree Café Touring, Inc., No. 05-15-00614-CV in the Dallas Court of Appeals. In that case, the defendant had claimed he was the manager for Erica Badu.  He and his counsel sent Rule 408 demand letters to Badu and her company.  Badu and the company filed a declaratory judgment action.  The defendant, Levatino, then filed a TCPA motion to dismiss claiming his pre-suit demand were both the exercise of the right to petition and the right to associate.  The trial court, before the more recent Supreme Court of Texas decisions, denied the motion.

A final note on “clear and specific evidence”

In In Re Lipsky, __S.W.3d__, No. 13-0928, 2015 WL 1870073 (Tex. Apr. 24, 2015, orig. proceeding), Lipsky moved to dismiss a multimillion-dollar defamation suit the plaintiff, Range, filed against him after he criticized the company’s hydraulic fracturing activities near his home. Lipsky argued Range failed to prove that he said anything defamatory and has only offered a “conclusory” affidavit alleging the company suffered $3 million in damages, which is insufficient to meet the TCPA’s evidentiary standard.

The Supreme Court of Texas ruled the defendant is allowed to rely upon circumstantial evidence to satisfy its burdens under the TCPA writing:

 In a defamation case that implicates the TCPA, pleadings and evidence that establishes 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.

 Though the TCPA initially demands more information about the underlying claim, the Act does not impose an elevated evidentiary standard or categorically reject circumstantial evidence.   In short, it does not impose a higher burden of proof than that required of the plaintiff at trial.

The point of this series is that the Anti-SLAPP provisions aren’t just for us defamation lawyers anymore.  All litigators should have a basic understanding of how this works and ask of the opposing side’s claims have anything to do with: (1) the right of free speech; (2) the right to petition; or (3) the right of association.petitioning the government as those are broadly defined.

Texas Anti-SLAPP Law: The Expanding Scope of the Texas Citizen’s Participation Act – Part 4 – A decision in Schlumberger, sort of

Go to Part 3 – The Schlumberger case and employment disputes

Go to Part 2 – In Practice

Go to Part 1 – The basics of the Texas Anti-SLAPP law

tjb-seal-144Since we published Part 3 that discussed the details of an interesting case here in Houston, Schlumberger v. Rutherford, the First Court of Appeals issued its opinion on Tuesday. The best description of the decision is a punt.  The court found it does not have jurisdiction to consider a partial granting of a motion to dismiss under the Anti-SLAPP provisions or TCPA and summarily affirmed the denial of the part of the motion related to the breach of contract claim. You can read the opinion here: Schlumberger v. Rutherford

While disappointing for Schlumberger and practitioners like us, it may be the right decision.  The Anti-SLAPP statute allows for an appeal of order that “denies a motion to dismiss filed under Section 27.003.” TEX. CIV. PRAC. & REM. CODE § 51.014(a)(12). As pointed out by the court, “[b]y contrast, no statute expressly provides for interlocutory appeal of an order that grants such a motion.”

Because the court only dismissed some of the claims and the case is still proceeding, it is considered an “interlocutory order” which is not subject to an appeal under these circumstances.  For Schlumberger to appeal, it has to proceed to trial on the parts of the case that remain, such as breach of contract, and then decide whether or not to appeal after a final trial or other resolution of the entire case.

What about the breach of contract claim?

As you may recall, the trial court denied Rutherford’s Anti-SLAPP motion to dismiss as it related to her breach of contract claim.  Because that was a denial of the motion to dismiss, the court of appeals determined it could consider only that part of the decision.

The court stated that standard that the party moving to dismiss, in this case Rutherford, had to establish that she was engaged in one of the three protected activities: (1) the right of free speech; (2) the right to petition; or (3) the right of association.  If the moving party does this, then the party trying to defeat the motion to dismiss, Sclumberger, has to establish “by clear and specific evidence a prima facie case for each essential element of the claim in question” — in this case, breach of contract.

Unfortunately, the court of appeals glossed over the important first issue – does the TCPA even apply in this case and went straight to a consideration of whether Schlumberger could provide clear and specific evidence of each element of its breach of contract claim. There was no discussion from the court as to whether Rutherford was engaged in: (1) the right of free speech; (2) the right to petition; or (3) the right of association.  Can we assume that the court of appeals found she did engage in one of those activities in light of the fact that they glossed over it and went straight to the second step of the analysis? Maybe, that’s what lawyers are likely to argue if they want a broad application of the act.

As a result, we may now have to wait to see if the case goes to trial and is then subsequently appealed to determine whether the trial court got it wrong or right. Until then, the case goes back to the trial court and the large sanction penalty related to the granting of the motion to dismiss on the misappropriation of trade secrets, conversion, breach of fiduciary duty, and violation of the Texas Theft Liability Act claims stays in tact.

Texas Anti-SLAPP Law: The Expanding Scope of the Texas Citizen’s Participation Act – Part 3

Go to Part 2 – In Practice

Go to Part 1 – The basics of the Texas Anti-SLAPP law

In part three we are going to deep dive into a specific case that has garnered a lot of attention-Schlumberger v. Rutherford which is currently on appeal to the Houston Court of Appeals (case number 01-14-00776-CV).

Schlumberger sued Rutherford, its former in-house counsel, for allegedly misappropriating intellectual property before leaving for a job with Acacia Research Group.  Schlumberger alleged it had forensic data proving that Rutherford copied filed onto a USB hard driver before removing it from her company laptop.  Rutherford denied it.

In the middle of the case, Schlumberger amended its petition to claim that Rutherford was the source of information for Acacia’s ongoing infringement suit against Schlumberger in federal court.  Schlumberger alleged Rutherford told Acacia to acquire patents she knew Schlumberger was allegedly violating.  In response, Rutherford argued Schlumberger was using the trade secret case as improper discovery tool and leverage in the separate patent infringement case.

Rutherford moved to dismiss Schlumberger’s claims under the TCPA.  She argued she was targeted by Schlumberger because she had exercised her right to association with Acacia, she spoke with Acacia about litigation strategies and for signing off on patent litigation.  Thus, Rutherford argued, Schlumberger’s claim against her was “based on, relates to, or is in response to [her] exercise of the right . . . to petition, or right of association.”

The TCPA defines “exercise of the right of association” to mean “a communication between individuals who join together to collectively express, promote, pursue, or defend common interests.” Tex. Civ. Prac. & Rem Code § 27.001(2).  The “exercise of the right to petition” is defined with reference to a specified list of communications that have a nexus to participation in government. Id. at § 27.001(2)-(4).

The trial court agreed finding Rutherford properly invoked the TCPA and therefore shifted the burden to Schlumberger to come up with clear and specific prima facie evidence of its trade secret claims.  The trial court found that Schlumberger failed to do so and dismissed the misappropriation, conversion, breach of fiduciary duty and violations of the Texas Theft Liability Act claims leaving only the breach of contract claim.  As a result, the court ordered Schlumberger to pay $350,000 in fees and $250,000 in sanctions.  Schlumberger appealed and Rutherford cross-appealed trying to get the breach of contract claim dismissed on the same TCPA grounds.

On appeal, Schlumberger is arguing the TCPA does not apply to this private commercial dispute citing the purpose of the act is “to encourage and safeguard the constitutional rights of persons to petition, speak freely, associate freely, and otherwise participate in government to the maximum extent permitted by law.” Tex. Civ. Prac. & Rem. Code § 27.002. In the brief Schlumberger argued:

As this Court has recognized however, untethering the TCPA’s “right to petition” and “right of association” provisions from its “larger public purpose” and the “generally recognized parameters of First Amendment protections” leads to an unreasonable and absurd expansion of the statute’s applicability. Cheniere Energy, 2014 WL 5011132, at *6 (noting that if the statute is not read in light of these considerations, “any communication that is part of the decision-making process in an employment dispute—to name just one example—could be used to draw within the TCPA’s summary dismissal procedures private suits implicating only private issues”).

Brief at 43.  Essentially, Schlumberger is arguing that if this ruling is allowed to stand that any communications made in the context of a lawsuit or any tortious interference claim would be subject to the TCPA.  Given the broad definition of the “exercise of the right of association,” it could be argued the TCPA applies to any cause of action that is “based on, relates to, or is in response to a party’s” joining another entity’s employment.

The particular facts of this case may make it the exception and not the new rule.  Schlumberger secured an ex parte temporary restraining order against Rutherford.  After deposing the people who signed the affidavits used by Schlumberger to obtain the restraining order, Rutherford argued the affidavits were misleading. Rutherford also argued that the state trade secret case was a ruse to obtain discovery and retaliate for the patent infringement cases in federal court.  Given the difficult in proving something is a trade secret, however, we may see this tactic more often requiring trade secret claimants to provide clear and specific prima facie evidence of the existence of a trade secret.

The case was argued on May 5, 2015, and it will provide another chance for the courts of appeal to determine the scope of the applicability of the TCPA.

Texas Anti-SLAPP Law: The Expanding Scope of the Texas Citizen’s Participation Act – Part 2

Part 2 – In Practice

Go to Part 1 – The basics of the Texas Anti-SLAPP law.

The exercise of the right to free speech on matters of public concern

             It is easy to see how this applies to your straightforward defamation case assuming the defendant engaged in the “exercise of the right of free speech” which means “a communication made in connection with a matter of public concern.” A “matter of public concern” is an issue related to:

  • health or safety;
  • environmental, economic, or community well-being;
  • the government;
  • a public official or public figure; or
  • a good, product, or service in the marketplace.

If the defendant who has been sued can show the allegedly defamatory speech was about a “matter of public concern,” then the burden shifts to the defendant to come up clear and convincing prima facie evidence of a valid defamation claim.  A lot of the litigation concerns whether the speech is a matter of public concern and whether the plaintiffs can provide the clear and convincing evidence to avoid dismissal.

What about the right to petition and the right to association? How broad are those?

            The Act also covers the right to petition and the right to association which greatly broadens its application as courts struggle with the definitions noting that only the “exercise of free speech” is limited to “matters of public concern.”  The TCPA defines “exercise of the right of association” to mean “a communication between individuals who join together to collectively express, promote, pursue, or defend common interests.” Tex. Civ. Prac. & Rem Code § 27.001(2).  The “exercise of the right to petition” is defined with reference to a specified list of communications that have a nexus to participation in government. Id. at § 27.001(2)-(4).

Are internal emails matters of public concern and do they have to be?

            Earlier this year, the Dallas Court of Appeals held that the law did not apply to internal communications within a company about an employee’s performance because that was not a matter of public concern despite the claim by the employer (ExxonMobil) that the issues touched on matters of public safety.  See ExxonMobil v. Coleman, 2015 WL2206466 (Tex.App.—Dallas May 12, 2015), rule 53.7(f) motion granted May 29, 2015.  Of more interest is that ExxonMobil also moved to dismiss the claim because it argued it was engaged in the right of association.

            ExxonMobil claimed that the plaintiff failed to “gauge” one of the storage tanks and after an investigation ExxonMobil terminated him.  The plaintiff denied all wrongdoing and sued ExxonMobil and the employees who participated in the investigation for publishing defamatory statements about him during the internal investigation bringing the TCPA into a typical employment dispute.

            Both the trial court and the court of appeals held the TCPA did not apply and refused to dismiss the suit.  Despite the defendants’ efforts to claim it was a matter of public safety, the court found the investigation focused on job performance and not the results that could happen if the storage tanks were not properly maintained.  Therefore, the statements “involve nothing more than an internal personnel matter at Exxon” and therefore “were not a matter of public concern.”

            With regard to the right to the association, Exxon argued the communications were made between Exxon employees regarding issues in which they shared a common interest, specifically Coleman’s job performance and his compliance with the safety guidelines.  In response, the Court of Appeals wrote:

Although these commuinications seem to fall within the plain language of the Act’s definition of the exercise of the right of association, we decline to read the statute so broadly, concluding it would lead to absurd results.

Id. at *4.  The court then spent numerous pages explaining that reading the definition of the right to association in a vacuum without considering the purpose of the act would encompass any private communications between two people about any shared interest.  The court, therefore, reasoned the “public participation” had to apply to the defendant’s engagement in the right to association and the right to petition as well.

Can the right of association govern every corporate email?

            The court relied in part on the First Court of Appeals decision in See Cheniere Energy, Inc. v. Lotfi, 449 S.W.3d 210, 216–17 (Tex.App.–Houston [1st Dist.] 2014, no pet.). In that case, the plaintiff sued her former employer for wrongful termination and sued two former coworkers for tortious interference.   449 S.W.3d at 211–12.   The coworkers moved to dismiss the claim against them under the Act, asserting the plaintiff’s lawsuit was brought in response to their exercise of the right of association.  Id. at 212.   The plaintiff filed a response, but neither side filed any affidavit evidence.   With only the pleadings to go on, the trial court denied the motion to dismiss.  Id.  The court of appeals upheld the trial court’s ruling, concluding the coworkers failed to meet their burden to show they were entitled to dismissal because the limited allegations in the plaintiff’s pleadings did not show the coworkers had a communication, acted in furtherance of a common interest, or that the claim against them is related to their exercise of the right of association.  Id. at 214–15.

            Referring to the title of the Act, the court noted that the terms “citizen” and “participation” contemplate a larger public purpose.  Id. at 216.   It further stated the plaintiff’s lawsuit did not implicate the legislature’s express declaration of the purpose behind the Act, which indicates that a nexus is required between the communication and the generally recognized parameters of First Amendment protection.  Id.  “Otherwise, any communication that is part of the decision-making process in an employment dispute—to name just one example—could be used to draw within the [Act’s] summary dismissal procedures private suits implicating only private issues.”   Cheniere Energy, 449 S.W.3d at 216–17.

            Two members of the three-judge panel concurred, writing separately to emphasize that the Act did not apply to the plaintiff’s tortious interference claim against her coworkers.  Id. at 217 (Jennings, J., concurring).   The concurrence stated that, standing alone, the Act’s definition of the “exercise of the right of association” in section 27.001(2) appears to include communications that are not constitutionally protected and do not concern citizen or public participation.  Id. at 219.   The concurrence stated that reading section 27.001(2) in isolation would lead to absurd results and would “actually thwart any meritorious lawsuit for demonstrable injury in which a plaintiff alleges that two or more persons engaged in a civil wrong involving a communication.”  Id.  At a minimum, such a reading would add unnecessary delay and expense to a plaintiff’s lawsuit.  Id.

But, the Texas Supreme Court says don’t amend the Act.

            This decision followed the Supreme Court of Texas’s opinion in Lippincott v. Whisenhunt, __ S.W.3d __, No. 13-0926, 2015 WL1967025 (Tex. April 24, 2015).  In that case, the defendants allegedly made disparaging comments about the plaintiff, who was a certified registered nurse anesthetist contracted to provide anesthesiology services, in emails internally to the company.  The allegedly defamatory emails included allegations that the plaintiff represented himself to be a doctor, endangered patients for his own financial gain, and sexually harassed employees.

            The plaintiff sued for defamation, tortious interference with existing and prospective business relations, and conspiracy to interfere in business relations.  The defendants moved to dismiss all of the claims based on the TCPA.  The trial court dismissed all of the claims except for defamation because the plaintiff was able to provide prima facie evidence of the defamation claim, but not the others.

            The court of appeals reversed and remanded holding the act does not apply to “private” communications such as internal emails thereby reviving all of the plaintiff’s claims.  The Supreme Court ruled there is no requirement that the communications themselves have to be public.  Instead, the statute only requires that the communication be made in connection with a matter of public concern.

            With regard to whether the communications involved matters of public concern, the court wrote:

The allegations include claims that Whisenhunt “failed to provide adequate coverage for pediatric cases,” administered a “different narcotic than was ordered prior to pre-op or patient consent being completed,” falsified a scrub tech record on multiple occasions, and violated the company’s sterile protocol policy. We have previously acknowledged that the provision of medical services by a health care professional constitutes a matter of public concern. See Neely v. Wilson, 418 S.W.3d 52, 70 n.12 & 26 (Tex. 2013) (determining that the public had a right to know about a doctor’s alleged inability to practice medicine due to a mental or physical condition); see also TEX. CIV. PRAC. & REM. CODE § 27.001(7) (defining “matter of public concern” to include issues related to health or safety, community well-being, and the provision of services in the marketplace, among other things). Thus, we conclude these communications were made in connection with a matter of public concern.

Id. at *2. The court concluded that because the defendant had demonstrated the applicability of the act, the court of appeals had to consider whether the plaintiffs had met his prima facie burden of proof.

            In the decision the Supreme Court of Texas said that courts should not “judicially amend” the act by adding words that are not there.  Id. at *1.  The Dallas Court of Appeals considered the instruction from the higher court, but wrote:  “Although we are aware that in Lippincott, the supreme court cautioned against “judicially amending” the Act by adding words that are not there, we agree that the legislature could not have intended for section 27.001(2) to be read in isolation.  We conclude that, to constitute an exercise of the right of association under the Act, the nature of the “communication between individuals who join together” must involve public or citizen’s participation.”  ExxonMobil, 2015 WL 2206466 at *6.

Part 3 will look at the impending Schlumberger decision.

Texas Anti-SLAPP Law: The Expanding Scope of the Texas Citizen’s Participation Act – Part 1

Part 1 – The Basics of the TCPA and how it works

The Texas Anti-SLAPP law is known as the Texas Citizens Participation Act (the “TCPA” found at Tex. Civ. Prac. & Rem. Code at § 27.001, et seq.).

“If a legal action is based on, relates to, or is in response to a party’s exercise of the right of free speech, right to petition, or right of association, that party may file a motion to dismiss the legal action.”  Id. at 27.003(a).   A defendant invoking the TCPA must therefore show three elements by a preponderance of the evidence: (1) there is a legal action; (2) “based on, relates to, or is in response to”; and (3) one of the protected activities.

“[A] court shall dismiss a legal action against the moving party if the moving party shows by a preponderance of the evidence that the legal action is based on, relates to, or is in response to the party’s exercise of: (1) the right of free speech; (2) the right to petition; or (3) the right of association.”  Id. at 27.005(b).

The defendant has 60 days from the date of service of the pleading with the defamation claim to seek a dismissal.  Once filed, all discovery is stayed.  If properly invoked, to overcome a motion to dismiss, the claimant must “establish[] by clear and specific evidence a prima facie case for each essential element of the claim in question.”  Id. at 27.005(c).

Although “clear and specific evidence” is not defined, it certainly means a defamation plaintiff should be prepared to provide some evidence and a solid legal basis immediately after filing his claim because discovery will be very limited.  The Anti-SLAPP law in Texas allows for a defendant to appeal a decision immediately if the trial court does not dismiss the suit.  We’ll discuss more on the evidentiary standard later in the series.

If a defendant prevails on a motion to dismiss, Texas courts are required to award the defendant “(1) court costs, reasonable attorney’s fees, and other expenses incurred in defending against the legal action as justice and equity may require; and (2) sanctions against the party who brought the legal action as the court determines sufficient to deter the party who brought the legal action from bringing similar actions described in this chapter.”  Id. at 27.009(a).

As we will discuss in the next series, the Texas Anti-SLAPP law covers more than just your straightforward defamation suit, but the Texas Legislature has expressly said it “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.” This means it may not cover false advertising or business disparagement claims between businesses.

Section 27.010 also exempts “legal actions” seeking recovery for “bodily injury” from the Act, along with “statements made regarding that legal action.”

Despite these exemptions, we will see in the next part how the Anti-SLAPP law is being applied to more typical business commercial cases.