A good business reputation is vitally important as consumers often make decisions based on reputation alone. Recently, Phoneternet, LLC d/b/a Maestro (“Maestro”) asserted a business disparagement claim against LexisNexis Risk Solutions, Inc. (“Lexis”) for allegedly providing incorrect business credit reports to Maestro’s potential client. Phoneternet, LLC v. LexisNexis Risk Solutions, Inc., 2019 WL 4748271, (N.D. Tex. Sept. 30, 2019).
While Maestro’s business disparagement claim was ultimately dismissed, the case provides valuable insight to those asserting or defending against business disparagement claims.
Background of the dispute
In early 2017, the Lexus Division of the Toyota Motor Corporation (“Toyota”) allegedly approached Maestro seeking to incorporate the personal assistant service, ‘MyStar’ into its vehicles. According to Maestro, the consummation of any deal with Toyota was contingent on Maestro having a “clean business report.” Id.
Toyota allegedly obtained a business report from Experian Business Credit Services, as well as Lexis, and was unhappy with what both reports revealed about Maestro’s business credit rating. Id.
Maestro noticed that a number of errors and discrepancies in the reports caused it to have a lower business credit score. Id. Consequently, Maestro sued Lexis alleging that the incorrect reports caused it to lose the Toyota contract, and negatively impact its future business prospects. Id.
Elements of a business disparagement claim.
An action for business disparagement protects the economic interests of a business against pecuniary loss. Forbes Inc. v. Granada Biosciences, Inc., 124 S.W.3d 167, 170 (Tex. 2003). To prevail on a business disparagement claim, a plaintiff must establish that:
(1) the defendant published false and disparaging information about plaintiff,
(2) the false and disparaging information was published with malice,
(3) the false and disparaging information was published without privilege, and
(4) plaintiff sustained special damages as a result of the publication.
Lexis argued that Maestro’s business disparagement claim, based on publication of allegedly incorrect information to Toyota, failed because Maestro did not advise it of the alleged error until after publication of the allegedly inaccurate information, which negated the element of actual malice. Phoneternet, LLC v. LexisNexis Risk Solutions, Inc., 2019 WL 4748271, (N.D. Tex. Sept. 30, 2019).
In its opinion, the Court articulated that “actual malice … refers to the making of a statement by the defendant with knowledge that it is false, or with reckless disregard of whether it is true.” Id. Moreover, the Court recognized that “[r]eckless disregard is a subjective standard, focusing on the defendant’s state of mind…[and] is shown when the defendant in fact entertained serious doubts as to the truth of its publication or had a high degree of awareness of the probable falsity of the published information.” Id.
The Court dismissed Maestro’s business disparagement claim with prejudice after finding insufficient factual allegations to support a finding of actual malice, as there was no indication that Lexis was aware of any alleged inaccuracies prior providing Toyota the report. Id.
The publication of false information is not enough to sustain a business disparagement claim. The plaintiff must also establish that the defendant acted with malice. Whether you are asserting or defending against a business disparagement claim, consult with an experienced business litigation attorney to critically evaluate the facts of your case.