Injunctions Against Allegedly Libelous Commercial Advertising Under Texas Law

From Judge George Hanks Jr.'s decision two weeks ago in Easyknock, Inc. v. Feldman & Feldman, P.C. (S.D. Tex.):

Easy Knock operates an alleged "sale-leaseback" business whereby Texas homeowners deed their homesteads over to Easy Knock in exchange for payment of a percentage of the appraised value of their home, the entry of an agreement to lease back the homestead property, and an option to buy back the entire deed to their homes. Defendant Feldman & Feldman P.C., a law firm, posted eight statements on its website discussing Easy Knock's business practices of alleged predatory pricing. Easy Knock has now sued Defendants Feldman & Feldman P.C. and certain of its attorneys (collectively "Feldman & Feldman") under Texas law for defamation and tortious interference…. Prior to an adjudication that the statements are in fact defamatory or otherwise unlawful, Easy Knock has applied to the Court for injunctive relief in the form of a temporary restraining order against Feldman & Feldman….

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

{In comparison, after an adjudication that the statements are defamatory such injunctive relief is available and does not violate the Texas Constitution. This is true because at this stage of the litigation the speech is no longer protected. As Texas courts have explained: "If a plaintiff prevails in a defamation claim based on statements the defendant posted on the internet, the court can order the defendant to delete the defamatory matter and ask third-party republishers to do the same. This remedy is available because it constitutes the erasure of past speech that has already been found to be unprotected in the context in which it was made."}

Prior to adjudication, defamatory statements may be enjoined when the statements amount to a written or verbal threat. Judicial orders for injunctive relief regarding such statements do not violate the Texas Constitution's guarantee of freedom of speech. When oral or written statements assume that character, "they amount to conduct, or threatened conduct, and for that reason may properly be restrained." … Publications which merely cause adverse business or social effects do not rise to the level of intimidation or coercion necessary to overcome the protection….

Under very limited circumstances, defamatory statements may also be enjoined when they are intertwined with alleged business torts and involve "commercial speech." Commercial speech is an "expression related solely to the economic interests of the speaker and its audience." {The parties dispute whether the alleged defamatory website statements constitute commercial speech i.e. are "expression[s] related solely to the economic interests of the speaker and its audience." Feldman & Feldman argues that the alleged statements are not commercial speech because they address issues of public concern: violations of the consumer protection statutes. The Court disagrees. … "[W]hether speech is commercial or noncommercial in nature is a 'commonsense' determination. Specifically, lawyer advertising is commercial speech." … Accordingly for purposes of its analysis, the Court will assume that the statements constitute commercial speech.}

While commercial speech is clearly protected by the Texas Constitution's guarantee of freedom of speech, some forms of commercial speech regulation are permissible. But … "misrepresentations in commercial speech can only be restrained if … the applicant first establishes that commercial speech that was false and misleading has actually been uttered." Here, even assuming that the statements at issue constitute commercial speech, an order granting injunctive relief would violate Feldman & Feldman's constitutional right to free speech.

First the Court must determine whether Easy Knock has established that false or misleading statements of fact have been made that justify a restraint on commercial speech. If Easy Knock cannot do so, it is not entitled to injunctive relief. Easy Knock identifies eight statements on Feldman & Feldman's website concerning its business practices that it alleges are "false" and/or "defamatory." Easy Knock asserts that these statements are false primarily because they state as "facts" that Easy Knock is a "mortgage lender," engaged in "lending" or making home loans, or that it is subject to the laws governing entities that are engaged in lending or making home loans. Easy Knock contends that none of these "facts" are true.

The Court finds that the alleged false statements at issue, when read in the context of the entire website passage, are more statements of legal opinions than statements of facts. Such statements of opinion cannot serve as the basis for a restraint on commercial speech. Furthermore, while Easy Knock alleges that there are publicly available documents regarding its business practices and establishing that it is not a lender or subject to the laws governing lenders, none of the statements at issue can be readily discounted as false or misleading.

In fact, one federal judge in this district has published an opinion that is in substantial agreement with Feldman & Feldman's legal opinions regarding Easy Knock's status as a lender and being subject to the laws governing lenders. And given the fact that there are at least eight other cases currently on file where this issue is likely to be adjudicated, this number may grow. Accordingly the Court finds that (1) Easy Knock has not established that the website statements at issue are false or misleading and (2) an order granting injunctive relief would violate Feldman & Feldman's free speech protections guaranteed by the Texas Constitution.