Monday, November 2, 2009

CONSUMER INFO & WEB LIBEL: Negative Product Review Survives Defamation and Biz Disparagement Suit


First Court of Appeals rules for publisher of critical review of company's product on the Internet, finding that the defamation and business disparagement claims could not succeed under the "substantial truth" defense.


David Rafes, Inc. v. Michael Huml and Slowboy Racing, Inc.
(Tex.App.- Houston, 10/29/09)

To maintain a cause of action for defamation, a plaintiff must establish that the defendant (1) published a statement about the plaintiff; (2) that was defamatory; (3) while acting with either actual malice, if the plaintiff was a public official or public figure, or negligence, if the plaintiff was a private individual, regarding the truth of the statement. WFAA-TV v. McLemore, 978 S.W.2d 568, 571 (Tex. 1998); Henriquez v. Cemex Management, Inc., 177 S.W.3d 241, 251 (Tex. App.--Houston [1st Dist.] 2005, pet. denied); Grotti v. Belo Corp., 188 S.W.3d 768, 774 (Tex. App.--Fort Worth 2006, pet. denied). "The truth of the statement in the publication on which an action for libel is based is a defense to the action." Tex. Civ. Prac. & Rem. Code Ann. § 73.005 (Vernon 2005).

A defendant may also defeat a libel claim by establishing the substantial truth of the statement. Grotti, 188 S.W.3d at 774 (citing McIlvain v. Jacobs, 794 S.W.2d 14, 15-16 (Tex. 1990)). To determine if a publication is substantially true, "we consider whether the alleged defamatory statement was more damaging to the plaintiff's reputation, in the mind of the average person, than a truthful statement would have been," and "[w]e look at the 'gist' of the publication "to determine whether it is substantially true." Id. (citations omitted). The defense of truth does not require proof that the alleged defamatory statement is literally true in every detail; substantial truth is sufficient. Gustafson v. City of Austin, 110 S.W.3d 652, 656 (Tex. App.--Austin 2003, pet. denied); Howell v. Hecht, 821 S.W.2d 627, 631-32 (Tex. App.--Dallas 1991, writ denied).

Here, the trial court heard sufficient evidence to support an implied finding that the turbocharger was defective, or, as the trial court bluntly summarized, a "bad product." The trial court also heard sufficient evidence to support an implied finding that the statements made in the internet article were true, or, even if not literally true in every detail, substantially true. For example, Johnston, Huml and Slowboy's expert, who was an independent consultant for turbocharger engineering issues and patent consulting, (4) testified that he reviewed the internet article and Rafes's turbocharger and that the "main concerns" expressed by Huml regarding Rafes's turbocharger in the internet article "were all valid." Johnston further explained that he also had "serious concerns" about "every part" of the turbocharger about which Huml had raised concerns and most of his concerns were "for the same reasons" generally expressed by Huml in the article. Johnston further stated that he had additional "serious concerns" about other design and manufacturing problems associated with Rafes's turbocharger that Huml had not identified in the article. After Johnston had explained his concerns about these additional problems with the turbocharger, the trial court initially stated that it wanted to focus on statements contained in the article, but then stated that it agreed that evidence of these additional problems was relevant to the issue of damages.

Regarding the specific statements made in the internet article, Johnston agreed that the turbocharger had been reproduced with a part number from a competing Mistsubishi turbocharger product and that "using the exact same part number would be intended to cause confusion in the marketplace and was a slippery slope from a legal standpoint." Johnston stated that Rafes should have not have reproduced the exact same part number on its turbocharger because it left the impression that Rafes was "intentionally trying to cause confusion." Johnston also stated, consistent with Huml's remarks in the article, that there were strong reasons to be concerned about the quality of materials used by the parties that had produced Rafes's turbocharger in Taiwan.

Regarding the specifications of the turbocharger that Huml discussed and criticized in the internet article, Johnston stated that Huml's concerns about the blade's thickness and weight were all reasonable. Regarding the thickness of the blade used on Rafes's turbocharger compared to the thickness of the blade on the genuine Mitsubishi product, Johnston explained that this indicated a lack of "casting quality control" on Rafes's part and, given the fact that Rafes's blade was twice as thick, Rafes must have used "low cost methods of manufacturing it." When asked whether he agreed with the statement in the article that the material used in Rafes's turbocharger would not hold up to the heat and abuse of a typical user, Johnston explained that if the part had an air pocket it in it, which he considered as a potential explanation for the blade's weight difference from that used in the genuine Mitsubishi product, this could lead to immediate or long term failure of the turbocharger.

Johnston, like Huml, believed that parts of Rafes's turbocharger were inferior based upon coloration differences, and he stated that his conclusions regarding the inferiority of the parts were later confirmed. He also stated that it was reasonable, based upon common industry knowledge, for Huml to raise concerns about the quality of the turbocharger based upon these coloration observations.

During his testimony, Johnston agreed that there were some inaccuracies in the internet article. For example, when asked about the specific statement in the article that Rafes's turbocharger was made of some type of "powdered metal," Johnston remarked that Huml had likely intended to refer to a "powdery surface," but Johnston explained this distinction and the likely intent of Huml's statement. Johnston also admitted to other inaccuracies in the internet article, but based upon Johnston's testimony, the trial court would have been entitled to conclude that such inaccuracies were minor. The testimony reveals that Johnston considered these inaccuracies to be insignificant. Additionally, in concluding his testimony, Johnston opined that Huml's Conclusions and actions were reasonable when compared to the standard of a quality assurance inspector in the industry.

An abstract of Johnston's expert report was also introduced into evidence. In the abstract of this report, Johnston stated, after detailed explanation, that "Huml's essential comments and concerns were both technically correct, and reasonable." Johnston further explained that, in evaluating the turbocharger, Huml had used "common industry practice" by comparing the color of the turbocharger with a known standard part. Johnston also noted in the article that Huml simply identified possible critical noncomplying components, but stressed that Rafes had recommended further scientific analysis, and Rafes alerted users to use caution pending further analysis. We recognize that Rafes presented testimony to dispute Huml's and Johnston's testimony. Rafes also presented an expert who compared Rafes's turbochager against the internet article and disputed the accuracy of many of the statements made in the article. However, the competing experts in this case disagreed on several important points, and Johnston challenged the accuracy of Rafes's expert's opinions. Johnston specifically testified that Rafes's expert had made at least three mistakes in examining the turbocharger and preparing his findings. The trial court heard all of this evidence, including the evidence from the dueling experts regarding the accuracy of the statements in the internet article, and the trial court, as the sole judge of the credibility of the witnesses, was entitled to accept or reject all or any part of the witnesses' testimony. Rich, 274 S.W.3d at 884.

Moreover, from our review of the record, it is clear that the trial court could have disbelieved at least some of the testimony presented by Rafes and his expert. For example, although Rafes offered an explanation as to why it used as a product number on its turbocharger the product number used on the Mitsubishi product, the trial court was not required to believe this explanation. Moreover, the trial court could have determined that the testimony provided by Rafes and his employee about an internet advertisement for the turbocharger was
equivocal and lacked credibility. Huml and Slowboy also introduced other evidence, including consumer correspondence, that indicated that at least some consumers had been confused about the origin of Rafes's turbocharger and whether it was a genuine Mitsubishi product or a product designed and or manufactured, at least in part, by Rafes.

In sum, the trial court was presented with ample evidence substantiating the "gist" of the statements contained in the internet article regarding the production and manufacturing of the turbocharger. Accordingly, we hold that the evidence is legally and factually sufficient to support the trial court's implied finding that Rafes's claims against Huml and Slowboy were barred by the affirmative defense of substantial truth.

David Rafes, Inc. v. Huml (Tex.App.- Houston [1st Dist.] Oct. 29, 2009)(Jennings)
(defamation business disparagement loss of reputation and goodwill claim regarding product quality, tortious interference with prospective business relationships, substantial truth defense to defamation claim carries the day)
Justice Jennings
Before Justices Jennings, Higley and Sharp
01-08-00856-CV David Rafes, Inc. v. Michael Huml and Slowboy Racing, Inc.
Appeal from 11th District Court of Harris County
Trial Court Judge:
Hon. Mark Davidson

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