Defining Legal Disparagement
Legal disparagement is a narrow tort that addresses improper statements made about a party’s legal rights or the legal title to their property. Typically arising when a landowner is sued for making "false statements about the quality of title of the land which was the subject of dispute in prior litigation," it is a cause of action that seldom arises except under very specific circumstances. To establish such a claim, the plaintiff must allege both successful resolution of a prior lawsuit and that the defendant knew of that prior outcome. In addition to being successful, the prior proceeding must also affect the defendant’s legal rights, such as title or an easement in the land .
The elements of legal disparagement vary by jurisdiction. In some jurisdictions, for example, the plaintiff must allege malice on the part of the defendant. Some jurisdictions also require an additional element of negligence, which requires that the defendant either have broken a recognized standard or the duty of care owed to the plaintiff. In some jurisdictions, a legal proceeding may not give rise to a cause of action due to a more general anti-SLAPP statute, which shortens discovery to limit the costs to the defendant when a public issue is involved.
Legal disparagement also has some elements in common with some of the closely associated tort causes of action of defamation, malicious prosecution, and abuse of process.
Legal Disparagement Scenarios
As a relatively narrow cause of action, legal disparagement lends itself to a limited set of examples. In 2014, the Pennsylvania Superior Court held that statements made to a local police department by a person desiring to pursue criminal charges against another constituted actionable legal disparagement. These statements extended to a third party’s knowledge that the alleged crimes had occurred and the description of the crimes. The plaintiff was able to prove damages in the form of lost business, and the defendant was found liable for tortious interference with contractual relations and for defamation per se. In 1990, the Eastern Division of the New York Southern District of United States District Court granted a motion to dismiss the Complaint of a patent infringement defendant alleging tortious interference with prospective business relations and legal disparagement because a counsel’s letter, which contained false statements concerning the defendant’s practices and ability to manufacture the disputed patented items, was found not to be the proximate cause of the alleged tort because they were letters sent to the United States Patent and Trademark Office. In 2005, the Western Division of the Pennsylvania Middle District of United States District Court found that a complaint containing allegations that a patent infringement defendant had authored a forged development agreement by which it additionally sought to challenge the plaintiff’s patent, thereby perpetuating a fraudulent settlement, described the tort of legal disparagement.
Essential Elements to a Legal Disparagement Claim
A legal claim for disparagement is a claim that a false statement of fact about financial condition has caused an economic loss to the claimant. To establish a legal claim for disparagement, a plaintiff must prove (1) the defendant published a false statement of fact about the plaintiff’s business; (2) the statement was of or concerning plaintiff’s business or property; (3) the statement was published to a third party; (4) the statement caused special economic damages to the plaintiff; and (5) the statement was made by the defendant with the requisite level of culpability.
Publication means that the false statement reached someone other than the claimant. The third party does not need to know the claim is false, but the claim may be defended if the third party knew or should have known the statement was untrue.
Exemplary statements that have been held to be of or concerning a claimant’s business are:
· Statements that the claimant could not afford to pay his debts, which could cause his creditors not to extend him credit in the future. Branham v. K. Mart Corp., 766 S.W.2d 669, 677 (Tex. App.—El Paso 1989, no writ).
· Statements made to third parties that tend to destroy the claimant’s credit. Daniels Agencies, Inc. v. Jones, 13 S.W.3d 396, 402 (Tex. App.—Austin 2000, pet. denied).
· Statements by a corporation’s own directors that it was financially unsound, which destroyed the corporation’s ability to obtain financing and resulted in bankruptcy. Cypress Creek Utility Services, L.P. v. Muller, 960 S.W.2d 57 (Tex. 1997).
Special damages consisted of the actual pecuniary loss suffered by the plaintiff that flow from the denial of his property rights, including, (1) proof of general damages is not required; (2) it is sufficient that actual loss be proved even if damage is not susceptible to being measured by ascertainable pecuniary standards; and (3) proof of special damages is not required even though the plaintiff alleges to have suffered general damages. Sterling v. Briggs, 685 S.W.2d 748, 750 (Tex. App.—Amarillo 1985, no writ). A plaintiff must at the least, however, show an actual economic injury. Id.
The plaintiff must prove the statement was false, and not mere opinion. Examples of statement that courts have held below the threshold of falsity include:
(a) Statements made by a former employee and manager of the plaintiff which used improper accounting principles and were found to be opinion and not fact. Weiser-Brown Operating Co., Inc. v. Gregg, 169 S.W.3d 874 (Tex. 2005); and
(b) Statements that director of a nonprofit association, acting as such, mismanaged funds and caused plaintiff to make unnecessary payments to obtain an insurance policy, without naming a specific claimant to whom the money was paid. Meyer v. Cathey, 167 S.W.3d 793 (Tex. App.—Dallas 2005, pet. denied).
An essential element of a legal claim for business disparagement is malice. Malice can be shown by establishing that the defendant made the allegedly false statements either knowingly, or with "gross negligence". Meinhold v. Pilot Navigator Serv., Ltd., 907 S.W.2d 830 (Tex. App.—Tyler 1995, no writ). This standard is lower than "malicious intent." Id. It is enough for the plaintiff to show that the defendant acted with a reckless disregard for the truth or falsity of the statements. Id.
In the case of legal professionals, such as county lawyers and other attorneys, the elements of a legal claim for disparagement may be more or less stringent, depending on the circumstances.
Consequences of Legal Disparagement
The legal ramifications that follow a disparagement differ based on the factual circumstances and the subject matter at issue. In most cases of commercial disparagement, a defendant is liable for economic losses suffered by the plaintiff. A plaintiff may recover from actual, special or consequential damages, which may include proven losses of sales or other income. It is also possible for the defendant to be held liable for general damages when he or she publishes the statement with ill will or malicious intent. If the motivating intent behind the statement is to harm the plaintiff’s reputation, then he or she may recover punitive damages. In addition to damages, a plaintiff who prevails in an action for defamation may obtain a permanent injunction to prohibiting the defendant from engaging in further defamatory conduct.
If a defamatory statement qualifies as "per se" defamation, damages are presumed. Such statements allege a crime, make an accusation of a contagious disease or harm to a person’s reputation in their occupation or profession. A statement may also be actionable per se if it otherwise makes allegations that suggest moral turpitude. A statement that is false and disparages the target’s business or profession without making specific allegations of criminal activity or a contagious disease may not be actionable per se. Such statements may lead to liability for compensatory damages, but not presumed damages.
A person who publishes a falsehood knowing it to be false, or who makes a defamatory statement recklessly as to whether it is false, does so with actual malice. A person has ill will or reckless disregard for the truth when he or she has knowledge or suspicion of the truth and does not investigate or consider the possibility that the statement is true. Plaintiffs may recover punitive damages in an action for libel per se or per quod only if they prove the statement was made with such actual malice.
Arguments and Defenses for Legal Disparagement Cases
In defending a lawsuit alleging legal malpractice where the underlying claim is legal disparagement, there are several common and potentially viable defenses. As noted above, in spite of the name, legal disparagement claims are not generally considered within the tort of disparagement that denotes claims such as commercial disparagement or trade libel. In light of this de facto distinction, legal disparagement claims have a corresponding and separate body of analysis.
A common defense is to assert that the alleged acts and/or omissions did not amount to disparagement, but rather that the allegations made were truthfully correct. Because a legal disparagement claim requires some affirmative statement outside of defamation, there is an element of verification as to the truth of the statements being alleged when defending a claim. A party may also attempt to defend by asserting that even if the matter was not factually correct, that a potential defense is available to rebut the claim, known as the truth defense. The primary benefit of this defense is that as mentioned above, the truth of the statement is not the gravamen of a legal disparagement claim defense, and therefore creating a factual issue would be to plaintiff’s advantage in this analog of a defamation claim.
Another common defense to legal disparagement claims is privilege. This defense can be asserted in several different contexts , such as within administrative or quasi-judicial proceedings. Privilege can also be asserted in the context of a claim where there is an affirmative duty (such as clear bias that must be disclosed) that places a person in the position of having to disclose information that could otherwise lead to a legal disparagement claim. The difference between privilege and the truth defense is that for a statement to be fully protected by privilege, the statement must be both relevant and neutral. In other words, a privileged communication should not be overbroad in scope or contain unnecessary extraneous matters. In other words, a statement that is not germane to the matter at hand is not protected by privilege.
The final common argument in a legal disparagement claim defense is that a statement is opinion, not fact. An opinion that is wholly subjective cannot be proven false and therefore is not actionable as a legal disparagement claim. For example, saying that someone lacks the ability to perform a function would not be defamatory as it is solely opinion. Many times asserting a legal malpractice claim with a legal disparagement claim is viewed to be a redressed defamation claim that relies on the same facts with an ultimate conclusion that provides no added benefit to what has already been pled.
Curbing and Defending Against Legal Disparagement
Businesses can take proactive measures to prevent disparagement claims from arising in the first place. Companies who enter into contracts with clients, vendors, employees, and even independent contractors should include clear and explicit contractual provisions prohibiting parties from making disparaging statements about the company in exchange for the provision of goods and services. For example, consider the following: Employers should also resist the urge to respond to disparaging remarks with disparaging remarks of their own. Responding to a negative review with "you were a terrible customer," or "you shouldn’t have been working here anyway because [insert expletive-]" will only serve to increase the period that the negative remarks are posted on the internet. The response will also likely serve to incite the offending party to continue posting negative remarks until they feel they have "won" the dispute. If, despite following all of these preparations, a complaint of disparagement does arise, there are numerous remedies available should a business or an individual be accused of making or publishing disparaging remarks. First, if the disparaging remarks were made in the context of a lawsuit or other litigation, the applicability of the litigation privilege should be considered. Additionally, depending on the nature of the alleged remarks, defenses of truth, opinion, and implied consent may be asserted. Finally, if the remarks have caused economic harm to the business or individual plaintiff, you can file a Counterclaim against the plaintiff for business-tort claims such as trade libel and interference with contract. However, as with any other tort or breach of contract claim in California, successful challenges require timely action – usually within only one-year or less. When faced with claims of disparagement, contact a qualified business law attorney immediately to give yourself (and your business) the best chance of success.
Distinguishing Disparagement from Defamation
Disparagement and defamation are commonly confused terms. The general population has the tendency to use them interchangeably, as if they were one and the same. However, these are distinct causes of actions, with disparate elements and different scopes.
Disparagement is a business law suit, while defamation generally is not. Defamation is a tort action. Disparagement is close to fraud in that it is a commercial tort. Defamation arises out of issues of character, focused on personal reputation. Disparagement is a commercial tort focused on reputation, but within the confines of one’s business. Stated differently, disparagement damages business reputation only; whereas disqualifying damages for defamation can include damage to other areas, such as loss of employment, trauma, stress, feelings of inferiority, etc.
The key difference id that the core issue in defamation is the veracity of the statement. That is, whether the damaging assertion is true or false. Whereas, the issue in a disparagement lawsuit is not whether what was said is true or false, but simply that the statement actually damaged another’s business reputation causing losses.
Conversely, in a defamation suit, truth is an absolute defense – no matter how damaging the statement to a person’s character – so long as that statement is true, then there is no defamation.
On the other hand, since in a disparagement case it is not the truth of the statement that is at issue, but rather whether the statement damaged another’s business reputation, lies, half-truths, innuendos, and the like can all give rise to the filing of a disparagement business law suit.
The similarities between disparagement and defamation are: 1) both require that a false assertion have been published or made known to a third party; and 2) the actions that give rise to both actions are analogous to liability for fraud, in that the defendant must have acted intentionally to deceive the plaintiff (scienter).
Also, in order to prevail on a defamatory statement with respect to public figures, the plaintiff must show that the defendant acted "with knowing falsity or reckless disregard of the truth." In a false light case, the defendant must show that the publisher acted wilfully. Assume that the plaintiff asserts that a false assertion was made. If this assertion is false and "published" to the public (as opposed to a private statement), then the plaintiff could also have a claim under the theory of defamation.
Effects of Legal Disparagement on Different Industries
The tech industry has been one particularly affected by the rise of legal disparagement. With the prevalence of patents and lawsuits, the slightest hint of negative sentiment can be enough to put any startup out of business, even if the alleged disparaging comment was unintentional. Legal counsel is often called for to assist in patent protections and to monitor all disparaging comments as they arise.
For retail companies, industry-specific issues are of a particular concern. For instance, lawsuits have been filed against Jay Leno and the Los Angeles Times because of alleged comments that would hypothetically create confusion among the public between Taco Bell, which the companies allegedly referred to disparagingly as "Taco Hell" and "Taco Balls," and Chipotle, whom the plaintiffs were suing for trademark infringement supposedly arising out of the Taco Bell comments. Such hypotheticals would create a fear-based perception of a lack of quality in the product being reviewed , which could potentially be construed as disparagement. Retailers must be careful to avoid any language that may create confusion or that may suggest that the company’s products are subpar or inferior; whether intentional or not.
In the financial industry, comments are often scrutinized in ways that other industry comments are not. For instance, there is a growing trend of class action lawsuits against financial institutions for complaints that the institutions are untrustworthy, risk-seeking, nontransparent and money-hungry. The perception that is created through these types of comments is that the institutions are not being honest, which is a message that could put those institutions out of business. One bank executive was sued for legal disparagement by another institution based on a statement that was, in his words, "nationalistic" if not a "threat" based on the fact that it could negatively affect the perception and success of rival institutions.