Dall. Morning News, Inc. v. Hall

• Decision Date: 10 May 2019
• Docket Number: No. 17-0637,17-0637
• Citation: 579 S.W.3d 370
• Parties: The DALLAS MORNING NEWS, INC. and Kevin Krause, Petitioners v. Lewis HALL and Richard Hall, Individually and on Behalf of Rxpress Pharmacies and Xpress Compounding, Respondents
• Court: Texas Supreme Court

579 S.W.3d 370

The DALLAS MORNING NEWS, INC. and Kevin Krause, Petitioners

v.Lewis HALL and Richard Hall, Individually and on Behalf of Rxpress Pharmacies and Xpress Compounding, Respondents

No. 17-0637

Supreme Court of Texas.

Argued December 6, 2018

OPINION DELIVERED: May 10, 2019

Jeffrey V. Brown, Justice

Lewis and Richard Hall sued The Dallas Morning News and Kevin Krause for defaming them and their compounding-pharmacy business venture. The News moved to dismiss under the Texas Citizens Participation Act. As explained below, we hold that the respondents have not carried their burden to survive dismissal under the Act. We also determine that the News's coverage of third-party judicial allegations is statutorily protected. Accordingly, we reverse the court of appeals and render judgment that the action be dismissed. The cause will be remanded to the trial court for entry of a judgment of dismissal and a determination of the costs and fees to be awarded to the petitioners.

I

A

This case arises from a series of articles written by Kevin Krause and published by The Dallas Morning News (collectively "the News") covering the Halls and their pharmaceutical business—Rxpress Pharmacies and Xpress Compounding (collectively "Rxpress"). Rxpress is a compounding pharmacy, which means it mixes and alters medications to create its own drugs. The compounding-pharmacy industry has grown rapidly and become very lucrative, especially through the sales of high-priced designer drugs. But as the industry has grown, it has suffered from increased scrutiny and controversy. In 2013, Congress passed legislation to improve oversight of compounding operations. Compounding Quality Act, 21 U.S.C. § 353b (2013). And in 2015, in response to concerns about compounding pharmacies' marketing tactics, Texas enacted legislation allowing state regulators to obtain pharmacy financial records. Act of May 22, 2015, 84th Leg., R.S., ch. 599, § 3, 2015 Tex. Gen. Laws 2012 (codified at TEX. OCC. CODE § 556.051 ).

The national media took notice when Tricare, a military pharmacy-benefits provider, blamed compounding pharmacies for a significant rise in their outpatient-drug costs. The pharmacies were accused of shady practices such as cold calling military retirees, suggestively inquiring into their need for pain care, and then selling them compounded drugs. Instances of falsified Tricare billing, as well as compounding pharmacies paying kickbacks to marketers and doctors in exchange for prescriptions, have resulted in increased legislative and judicial scrutiny.¹

Rxpress did not escape the controversy. In September 2015, it sued Ruth Haynes, its former bookkeeper, for falsely representing that she was a certified public accountant and for causing Rxpress to incur over $ 12 million in unnecessary federal income taxes. In her responsive pleadings, Haynes alleged Rxpress paid kickbacks to physicians, schemed with other physicians to circumvent anti-kickback laws, and committed tax evasion and stock fraud.

In January 2016, the Halls sued their estranged business partners, Scott Schuster and Dustin Rall, for fraud, theft, breach of fiduciary duty, and other torts. The allegations included charges that Schuster and Rall wrongly diverted millions of dollars of partnership property to themselves. In their filings, the Halls admitted that early in the venture's history—around 2013—they discovered that Rxpress had been illegally charging commissions for prescription sales, but they had since then taken steps to correct their actions.

Also in January 2016, Xpress Compounding sued Prime Therapeutics, a pharmacy-benefit manager, to prevent Prime from removing Xpress from Prime's pharmacy network. Prime responded that it terminated its contract with Xpress due to internal auditing results. According to Prime, Xpress had a ninety-one percent error rate for audited prescriptions, suffered invoice shortages and billing inconsistencies, refilled unauthorized prescriptions, and manipulated billing to avoid clinical-review requirements. And in February 2016, Ancillary Medical Services Management sued the Halls for embezzlement, breach of fiduciary duty, fraud, and other torts involving Ancillary's investment in Rxpress.

Finally, Department of Defense agents, under a search warrant issued by a federal magistrate in the Northern District of Texas, raided the home of Nathan Halsey, a pharmaceutical marketer, on February 5, 2016. The warrant authorized the agents to search for and seize "all communications" between "Nathan Halsey, Britt Hawrylack, Matthew Hawrylack, Dustin Rall, Scott Schuster, Richard Hall, Lewis Hall, Jr., and any other associate of Rxpress Pharmacy, Rxpress Laboratories, Tactical Health Care Partners, and Tiger Racing Team that" related to, among other things, "the submission of claims for reimbursement for any health care service, prescription drug, or testing, or the facilitation of payment to recruiters, marketers, doctors, beneficiaries or others for referral to Rxpress Pharmacy, Rxpress Laboratories, Tactical Health Care Partners, and Tiger Racing Team." The search warrant also directed agents to communications that "show or demonstrate connections or relationships such as ownership, control, responsibility, direction, or authorization within Rxpress Pharmacy, Tactical Health Care Partners, and Tiger Racing Team."

B

In February and March 2016, Krause wrote, and the News published, a series of articles about the compounding industry, including several that featured Rxpress. The first, "North Texas Pharmacy in Federal Probe is Accused of Paying Kickbacks to Doctors," ran on February 5 and focused on Rxpress. Noting that "[f]ederal authorities are investigating" Rxpress, it drew largely from the Haynes and Schuster/Rall lawsuits as well as the Halsey search warrant.

The next article, "Texas Pharmacy Regulators Have New Law to Scrutinize Financial Ties to Doctors," appeared on February 9. In it, the News described the new Texas law and concerns in Texas and across the nation that physicians were receiving inappropriate financial incentives for prescribing compounded medications. It further stated that Rxpress was "being investigated for possible violations of the anti-kickback law by the Department of Defense due to its use of Tricare money" and noted that the investigation could focus on either of two federal anti-kickback laws.

Another article, appearing on February 24, detailed the indictment of another Metroplex-area compounding pharmacy. It noted that this case was the "first federal indictment in North Texas in connection with the government's large-scale criminal investigation into compounding pharmacies." It added that Rxpress was "under investigation in connection with similar allegations."

In a final article, "North Texas Compounding Pharmacy Under Federal Scrutiny was Booted from Private Network over Fraud Concerns," the News reported on Rxpress's suit against Prime and quoted Prime's filings alleging it terminated its contract with Rxpress due to audit findings "consistent with ... fraud, or at a minimum, inaccurate record keeping." The article referred to the Haynes lawsuit, highlighting accusations that Rxpress paid illegal kickbacks to physicians, and to the Ancillary lawsuit, noting allegations that the Halls had used their "ill-gotten gains" to pay for luxuries like two jets, exotic vacations, and real estate. All in all, the articles portray Rxpress as a deeply troubled business venture under pressure from both civil lawsuits and a federal investigation.

C

Rxpress sued the News for defamation for publishing statements that "[f]ederal authorities are investigating [Rxpress]." Rxpress further charged that, by including the claim that Rxpress was under investigation in its separate coverage of other pharmacies' wrongdoing, the News had implied that Rxpress was guilty of misconduct.

The News moved to dismiss the claims under the Texas Citizens Participation Act. It argued that the Halsey search warrant conclusively established Rxpress was indeed under investigation. The News added that Rxpress could not meet its burden to show that the articles were not substantially true and that the articles' reporting of third party allegations in civil lawsuits and other official proceedings was both true and privileged.

In response, Rxpress insisted that it was not under federal investigation. As support, it submitted a declaration by Richard Hall in which he denied knowledge of any investigation involving Rxpress and Tricare. He knew Rxpress was not under investigation, he testified, because when he asked enforcement officers whether it was, they told him it was not. Hall further relied on an expert report by Michael Heiskell, a criminal-defense attorney. Heiskell opined that the search warrant did not support any conclusion that Rxpress was under or the subject of a federal investigation into healthcare fraud or any other criminal violation. The trial court denied the motion to dismiss. The News then filed an interlocutory appeal.

D

The court of appeals held that the articles have at least two gists. 524 S.W.3d 369 (Tex. App.—Fort Worth 2017).² First, "a person of ordinary intelligence could conclude that one gist of the publications was that Rxpress was under federal investigation for violating criminal laws aimed at prohibiting fraud in the healthcare context, including Tricare." Id. at 376. Second, "federal investigators were cracking down on fraud in the compounding pharmacy industry, including in North Texas, not only by making arrests but also by continuing to investigate compounding pharmacies, including RXpress." Id.

The News primarily argued to the court of appeals that the search warrant establishes its substantial-truth defense under section 27.005(d) of the Act. TEX. CIV. PRAC. & REM. CODE § 27.005(d) ("[T]he court shall dismiss a legal action against the moving party if the moving party establishes by a preponderance of the evidence each essential...