Attorney Blog, Human Resources

Defamation or Disparagement: Are all Fair in Sales?

Attorney Harrison Oldham

In late June 2002 the Texas Supreme Court reversed a $1.8 million judgment in favor of a concrete block maker who accused a rival of defamation, finding that the dispute was not about defamation, but rather business disparagement and that the award therefore could not stand.  In Innovative Block v. Valley Builders Supply, No. 18-1211 (Tex. June 26, 2020), the plaintiff sued a former business competitor, alleging that the competitor’s disparaging remarks about the plaintiff’s products contributed to its financial demise.

This case involved two building-supply companies, Valley Builders Supply, Inc., and Innovative Block of South Texas, Ltd.  Both companies manufacture and sell concrete blocks and pavers to the same customer base in the Rio Grande Valley of South Texas. The two entities directly compete for many of their customers.

According to Valley, Innovative bears much of the blame for Valley’s demise because of its false and disparaging remarks regarding the quality of Valley’s products.  Describing Innovative’s sales tactics as unfair and illegal, Valley sued for damages under theories of business disparagement and defamation.  The matter made it all the way to a jury trial.

Although Valley originally asserted claims for defamation, slander per se, and business disparagement, it elected to submit only the defamation claims to the jury. The jury returned a defamation verdict in the plaintiff’s favor, awarding damages to the plaintiff.

When the case made it to the Texas Supreme Court, the court reversed, finding that because the harm in this case relates solely to the plaintiff’s commercial interests and the falsehoods disparage only the quality of the plaintiff’s products and not the character of its business. In short, the Texas Supreme Court concluded that the it was not a case of defamation but rather of business disparagement—a cause of action not submitted to the jury.

According to Valley, Innovative bears much of the blame for Valley’s demise because of its false and disparaging remarks regarding the quality of Valley’s products, describing Innovative’s sales tactics as unfair and illegal.  Valley’s pleadings asserted that Innovative disparaged the quality of Valley’s concrete blocks by falsely accusing Valley of using “bad” aggregates in its manufacturing process (and aggregates are very important in cement blocks, if you didn’t know), along with several other comments regarding their products.

Valley’s pleadings listed claims for business disparagement, defamation, and slander per se under three counts. Under the business-disparagement count, Valley asserted that Innovative’s misrepresentations about the quality of its aggregate and its products caused Valley’s business failure. Valley alleged that Innovative intended to interfere with Valley’s economic interests, that Innovative’s disparagements were malicious because Innovative knew them to be false, and that Innovative’s actions caused it damages reflected in the steady decline of its sales and the specific loss of one customer’s business.

At trial, the jury returned a verdict for Valley, finding Innovative’s statements defamatory and awarding general damages of $1.8 million for Valley’s reputational injury and special damages of $93,528 for its lost profits.

Innovative appealed the matter, where Innovative argued that the communications at issue are not actionable as defamation because they do not defame Valley itself but rather only disparage Valley’s products.

On review, the Texas Supreme Court realized that the torts of defamation and business disparagement are alike in that “both involve harm from the publication of false information.” But there are important differences between the two, largely explained by the interests the respective torts seek to protect.

Defamation serves to protect one’s interest in character and reputation, whereas disparagement protects economic interests by providing a remedy for pecuniary losses from slurs affecting the marketability of goods and services.

More specifically, a defamatory statement is one that “tends [] to harm the reputation of another as to lower him in the estimation of the community or to deter third persons from associating or dealing with him.” In contrast, the tort of business disparagement encompasses falsehoods concerning the condition or quality of a business’s products or services that are intended to, and do in fact, cause financial harm.

Here, the statements about which Valley complains concern Valley’s product. In these communications, Innovative refers to Valley’s concrete blocks and aggregate as “inferior,” “bad,” and “low quality.”

The court concluded that these statements about Valley’s “bad” aggregate do not imply reprehensible conduct or a lack of integrity on Valley’s part. Although criticisms concerning the quality of a business’s goods or services may be actionable as commercial disparagement, they are not, without more, an indictment of the business’s integrity or character.

Accordingly, because the statements did not attack Valley’s character, the damages awarded under the requested theory of defamation could not stand.

About Harrison Oldham

Harrison grew up in Mansfield, Texas. He attended Texas A&M University for his bachelor’s degree, where he met his wonderful wife, Kelsey. After graduating magna cum laude from Texas A&M, he attended SMU Dedman School of Law, graduating with honors in 2012. Today, Harrison and his wife live in Dallas, Texas with their son, Teddy.

Since graduating from SMU Law, Harrison has worked exclusively in the field of business law. He has spent time in private practice and in-house, working with clients of every size; from single person startups to Fortune 250 companies. Today his practice focuses on serving the diverse needs of businesses and individuals throughout Texas. You can learn more about Harrison by visiting his website, at: http://lonestarbusinesslaw.com/.

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