Texas Supreme Court says corporations may recover damages for injury to reputation

Posted
by John Chapman

Defamation is the word used to describe any intentionally false communication, written or spoken, that harms another’s reputation, i.e. that decreases respect or regard or induces hostile or negative opinions. It is generally agreed that corporations may sue for defamation when false statements are made about their businesses or reputations. Of course, truth is always an absolute defense to a claim of for defamation. Thus, a corporation could not sue just because unflattering but true statements were made about the corporation which caused damage to its reputation. Corporations must show defamatory statements resulted in damages to their businesses or reputations. For example, false statements might cause a corporation to lose customers.

Back in 1995, Waste Management of Texas, Inc. (WMT) and Texas Disposal Systems Landfill, Inc. (TDS) competed for waste-disposal and landfill-services contracts with the cities of Austin and San Antonio. Apparently concerned that it was losing the bidding competition, WMT anonymously published a community “Action Alert” claiming that TDS’s landfills were less environmentally sensitive than they actually were.

The Action Alert claimed that TDS’s landfill in Travis County, Texas had received an exception to federal environmental rules, was operating without a fully synthetic liner, and did not have a leachate collection system to prevent water that had come into contact with waste from contaminating groundwater. The Action Alert urged readers to contact San Antonio city officials, Travis County officials, and the San Antonio Express News with any concerns.

TDS sued WMT for defamation. Following a trial, appeal and second trial, a jury returned a verdict in favor of TDS. The jury awarded TDS $450,592.03 for reasonable and necessary expenses incurred to respond to the defamatory publication, $0 for lost profits, $5 million for injury to reputation, and $20 million as exemplary damages based on the jury’s finding that WMT published the defamatory statements with malice. Texas law limits the amount of punitive damages that can be awarded in relation to a recovery of non-economic damages. Treating the $5 million award for injury to reputation as non-economic damages, the trial court applied the statutory cap to the jury’s award of exemplary damages and reduced the award of punitive damages to $1.5 million.

WMT appealed the trial court’s judgment, and the court of appeals affirmed. Both parties petitioned the Texas Supreme Court to review the case. The Texas Supreme Court held that a corporation can suffer reputation damages.

Waste Management of Texas, Inc. v. Texas Disposal Systems Landfill, Inc., No. 12–0522 (Tex. May 09, 2014). It further determined that those damages are “non-economic” damages for purposes of the statutory cap on exemplary damages. Thus, the trial court was correct to apply the cap to the award of punitive damages. However, the court also found that the evidence in the case was not sufficient to support the award of any reputation damages. As a result, the case was sent back to the trial court to recalculate punitive damages without considering the $5 million in reputation damages that had been found by the jury.

To support its claim for general damages (damage to its reputation), TDS pointed to numerous invoices for consulting and attorney expenses, carrying costs and depreciation expenses on equipment, “estimated profits,” value of time spent, supplies, mileage expenses, and the like. However, the Texas Supreme Court characterized these documents as evidence of “lost profits … and additional expenses caused by the Action Alert” rather than “evidence quantifying TDS’s injury to its reputation.” In other words, the court considered the evidence offered to support the jury’s award to be potentially relevant to a claim for special damages but not to “the sort of general damages that necessarily flow from such a defamatory publication.” The court explained that TDS had attempted to recover those special damages in the form of its claim for lost profits and certain expenses. However, the jury found that no damages for lost profits that might correspond to actual loss of reputation going forward. “Without any supporting evidence of actual damages for injury to its reputation, TDS is entitled only to nominal damages in accordance with our decisions on presumed damages in defamation per se cases.” Id.

The court did affirm the award of damages as to TDS’s “remediation” costs. TDS’s evidence of damages consisted of invoices, expenses, time spent on curative work, supplies, mileage, etc. TDS’s witnesses testified that TDS’s staff devoted more than $700,000–worth of time and $450,592.03 in out-of-pocket expenses to remedy the Alert’s effects. The court noted that “this type of evidence does not support the award for reputation damages … but it does provide some evidence of the remediation costs TDS incurred as a result of the Alert.”

Commercial Litigation at Heygood, Orr & Pearson

At Heygood, Orr & Pearson, our attorneys have handled hundreds of commercial litigation cases ranging in value from tens of thousands of dollars to tens of millions. We have successfully represented businesses of all sizes, from small “mom and pop” businesses to some of the largest corporations in the world.

Whether we are representing a huge, multi-national corporation or a small local business, we understand that clients want their legal representation to be not only excellent but cost-effective and efficient. For that reason, we will often offer our clients flexible fee structures such as contingent fees, flat fees, reduced hourly fees with a bonus payment contingent on success and reverse contingent fees.

At Heygood, Orr & Pearson, our success stems from the fact that our attorneys are trial attorneys in the truest sense and have tried hundreds of cases to verdict. Among our team are numerous attorneys who are board certified* and who have been voted by their peers as Super Lawyers in the state of Texas for several years in a row.** Our firm is AV-rated, the highest legal and ethical rating available from the leading law firm rating service.

As a result of their experience, expertise and trial ability, our attorneys have obtained dozens of significant commercial verdicts and settlements for our commercial clients. Among the more notable are the following:

  • Obtained an $18 million verdict in favor of a European entrepreneur in a lawsuit against a subsidiary of a Fortune 500 company involving the sale and distribution of computer products in Europe.
  • Successfully defended an international businessman in a $200 million fraud and breach of contract case arising out of the discovery of the world’s largest nickel deposit in Labrador.
  • Obtained a $16 million settlement on behalf of a Fortune 500 company involved in a construction dispute relating to a parking garage.

Regardless of the type of claim, the size of the client or the complexity of the dispute, Heygood, Orr & Pearson has the legal ability, financial wherewithal and level of commitment necessary to successfully represent the interests of any commercial client. If you or your company is in need of representation in a commercial dispute, contact us for a free consultation by calling toll-free at 1-877-446-9001, or by following the link to our free case evaluation form located on this page.

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Michael Heygood, James Craig Orr, Jr. and Eric Pearson are all Board Certified in Personal Injury Trial Law — Texas Board of Legal Specialization.

** Michael Heygood, James Craig Orr, Jr. and Eric Pearson were selected to the Super Lawyers List, a Thomson Reuters publication, for the years 2003 through 2014.