Injunctions against allegedly defamatory commercial advertising under Texas law

From Judge George Hanks Jr.’s decision two weeks ago to Easyknock, Inc. c. Feldman & Feldman, CP (SD text):

Easy Knock operates a so-called “sale-leaseback” business in which Texas homeowners give up their properties to Easy Knock in exchange for paying a percentage of the appraised value of their home, entering into a rental agreement family property and the possibility of buying back the entire deed of ownership of their dwelling. Defendant Feldman & Feldman PC, a law firm, posted eight statements on its website regarding Easy Knock’s alleged predatory pricing business practices. Easy Knock has now sued defendants Feldman & Feldman PC and certain of its attorneys (collectively “Feldman & Feldman”) under Texas law for defamation and tortious interference…. Prior to a ruling that the statements are in fact defamatory or otherwise unlawful, Easy Knock has applied to the Court for an injunction in the form of a temporary restraining order against Feldman & Feldman….

A court order prohibiting future statements before they occur constitutes a prior restriction on speech, and Texas courts have long held that such orders are deemed to violate the Texas Constitution. Likewise, prior to a determination that statements are defamatory or otherwise unlawful, a court order requiring the retraction or removal of statements from a website is also presumed to violate the Constitution of Texas.

{In comparison, after a determination that the statements are defamatory, such an injunction is available and does not violate the Texas Constitution. Indeed, at this stage of the dispute, speech is no longer protected. As the Texas courts have explained: “If a plaintiff is successful in a defamation action based on statements posted by the defendant on the Internet, the court may order the defendant to remove the defamatory statement and require third-party republishers to do the same. This remedy is available because it constitutes the erasure of past speech which has already been found to be unprotected in the context in which it was delivered.”}

Prior to judgment, defamatory statements may be prohibited where the statements amount to a written or verbal threat. Court orders for an injunction regarding such statements do not violate the Texas Constitution’s guarantee of free speech. When oral or written statements are of this nature, “they constitute conduct or a threat of conduct and, for this reason, may properly be restricted”. …Posts that simply cause negative commercial or social effects do not achieve the level of intimidation or coercion necessary to circumvent the protection….

In very limited circumstances, defamatory statements may also be prohibited when they relate to alleged commercial crimes and involve “commercial speech”. Commercial speech is “expression related solely to the economic interests of the speaker and his audience”. {The parties dispute whether the alleged defamatory statements on the website constitute commercial speech, i.e. “expression[s] linked solely to the economic interests of the speaker and his audience. “Feldman & Feldman argues that the alleged statements are not commercial speech because they deal with matters of public interest: violations of consumer protection laws. The Court disagrees. …”[W]Whether the speech is commercial or non-commercial in nature is a “common sense” decision. More specifically, a lawyer’s advertisement is commercial speech.” … Therefore, for the purposes of its analysis, the Court will presume that the statements constitute commercial speech.}

Although commercial speech is clearly protected by the Texas Constitution’s free speech guarantee, some forms of regulation of commercial speech are permitted. But…”false statements in commercial speech can only be suppressed if…the plaintiff first establishes that commercial speech which was false and misleading was actually made.” Here, even assuming that the statements at issue constitute commercial speech, an order granting an injunction would violate Feldman & Feldman’s constitutional right to free speech.

The Court must first determine whether Easy Knock has established that false or misleading statements of fact were made that warrant a restriction on commercial speech. If Easy Knock cannot do this, it is not entitled to an injunction. Easy Knock identifies eight statements on Feldman & Feldman’s website regarding its business practices that it claims are “false” and/or “defamatory”. Easy Knock asserts that these statements are false primarily because they establish as “facts” that Easy Knock is a “mortgage lender”, engaged in “lending” or making home loans, or is subject the laws governing entities that are engaged in lending or making real estate loans. Easy Knock argues that none of these “facts” are true.

The Court finds that the alleged misrepresentations at issue, when read in the context of the entire passage of the website, are more statements of legal opinion than statements of fact. Such statements of opinion cannot be used as a basis for restricting commercial speech. Further, although Easy Knock alleges that there are publicly available documents relating to its business practices and establishing that it is not a lender or subject to laws governing lenders, none of the statements at issue can be readily considered false or misleading.

In fact, a federal judge in this district has issued an opinion that is in substantial agreement with the legal opinions of Feldman & Feldman regarding Easy Knock’s status as a lender and the subjection to laws governing lenders. And given that there are at least eight other cases currently on file where this issue is likely to be decided, that number could increase. Accordingly, the Court finds that (1) Easy Knock has failed to establish that the website statements at issue are false or misleading and (2) an order granting injunctive relief would violate Feldman & Feldman guaranteed by the Texas Constitution.

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