In Local Marketing, Inc. v. Bennett, the Texas Business Court addressed a common dispute involving employees who depart a business to form a competing venture. In these cases, both the business and the departing employees may sue one another. This case provides insights into when a departing employee’s defamation counterclaim becomes subject to Texas’ anti-SLAPP law — the Texas Citizens Participation Act (“TCPA”) — and the consequences that may follow if the departing employee’s counterclaims cannot satisfy the TCPA’s evidentiary requirements.
Link to Background Background
Local Marketing, Inc. (“Local”), a marketing company, sued several former executives and employees in Harris County District Court, alleging the defendants formed a competing marketing firm using its trade secrets and in breach of Local’s employment contracts. Local obtained a temporary restraining order with the court (a “TRO”) restraining the defendants from, among other things, soliciting Local employees and disclosing certain information.
Local wanted the TRO to further restrain defendants from soliciting its customers, but the TRO applied only to Local’s employees. Nevertheless, Local sent letters to its customers advising that the defendants were restrained from soliciting Local’s employees “as well as soliciting [Local’s] customers. This includes you and your business.” The quoted language was absent from the TRO.
After Local removed the case to the Texas Business Court, defendants Heidi Jo McIvor and McIvor Marketing, LLC (“McIvor”) asserted counterclaims for defamation and tortious interference with business relations based on the letters Local sent to its former, actual, and prospective customers. McIvor alleged these letters contained false statements that it was enjoined from soliciting Local’s customers.
Local responded by filing a motion to dismiss both claims under the TCPA. Under Texas law, a three-step process governs these motions. First, the party seeking dismissal must show there is a “legal action” that is “based on or is in response to” that party’s “exercise of the right of free speech, right to petition, or right of association[.]” Second, if that burden is met, the opposing party may avoid dismissal by establishing “by clear and specific evidence a prima facie case for each essential element of the claim in question.” Third, if the responding party meets this evidentiary burden, the party seeking dismissal may still achieve a dismissal if it establishes an affirmative defense or other grounds entitling it to judgment as a matter of law.
Link to The Court’s Analysis The Court’s Analysis
Link to Step 1. The TCPA Applies to the Counterclaims Step 1. The TCPA Applies to the Counterclaims
The court determined that McIvor’s counterclaims for defamation and tortious interference with business relations were subject to the TCPA. Applying the TCPA’s statutory text and definitions, the court found that McIvor’s counterclaims constituted a “legal action,” that Local’s letters invoked the “exercise of the right to petition,” and that McIvor filed its counterclaims “based on or in response to” those letters.
Link to Step 2. McIvor Failed to Establish a Prima Facie Case on Damages Step 2. McIvor Failed to Establish a Prima Facie Case on Damages
Having found that Local satisfied step one, the court considered whether McIvor met its prima facie burden to establish by clear and convincing evidence each element of its claim. The court concluded that McIvor did not satisfy that standard, which required McIvor to present evidence with “enough detail to show the factual basis for the claim.”
Damages are a required element of both counterclaims. The court found McIvor’s evidence that it “was damaged,” relying solely on McIvor’s conclusory declaration, was insufficient. The only specific assertion — that McIvor’s owner spent time explaining the litigation to rather than engaging in “revenue-producing activities” — did not constitute evidence of actual economic or noneconomic harm. There was no evidence of lost revenue, lost customers, reputational damage, or mental anguish.
The court further found that McIvor’s declaration failed to proffer sufficient evidence that the alleged false statements were so uniquely injurious to McIvor’s business reputation to support its defamation per se theory.
Based on the court’s conclusion that McIvor failed to satisfy its burden at step two, the court did not reach step three — whether Local established a relevant affirmative defense. The court granted Local’s TCPA motion to dismiss and, under the TCPA’s mandatory fee-shifting provision, awarded Local $18,010.00 in reasonable attorney’s fees — the full amount requested.
Link to Practical Takeaways for Texas Businesses Practical Takeaways for Texas Businesses
This opinion offers several lessons for businesses involved in departing-employee disputes or similar litigation:
- TCPA Fee-Shifting May Present Additional Litigation Risk. Departing employee disputes often move quickly, and the need for swift legal action is understandable. However, filing counterclaims without carefully evaluating whether they may be subject to a TCPA motion to dismiss can result in a fee award against the filing party.
- Damages Evidence Must Be Specific. Conclusory assertions of harm will not survive a TCPA challenge. Parties opposing TCPA motions must present clear, specific evidence linking the opposing party’s conduct to identifiable damages.