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Seller’s Statements in Disclosure Notice Not Protected Speech Under TCPA

The Court of Appeals for the First District of Texas was recently presented with a novel claim:  that a Seller’s representations contained in a Seller’s Disclosure Notice is protected speech under the Texas Citizens Participation Act (“TCPA”).  This case is significant in that the Court recognized that the TCPA is inapplicable because the Seller’s representations contained in the Notice were not made in connection the Seller’s exercise of rights to free speech or association.  The full opinion is available HERE.

THE DISPUTE – ALLEGATIONS OF REAL ESTATE FRAUD AND NON-DISCLOSURE

The dispute started much the way most non-disclosure cases do:

  • The Sellers placed their residence for sale with a real estate agent who listed it;
  • The Seller completed a Seller’s Disclosure Notice as required by the Texas Property Code;
  • The Buyers purchased the Property;
  • The Buyers subsequently moved into the property and discovered  defects and conditions that were not disclosed in the Seller’s Disclosure Notice;
  • The Buyers filed suit against the Sellers (and their real estate agent for fraud conspiracy, alleging that the Sellers falsely represented the condition of the property in the listing and in the Notice as part of a conspiracy to fraudulently induce them into purchasing the property.

SELLER’s MOTION TO DISMISS UNDER THE TCPA

The Sellers responded to the lawsuit with a Motion to Dismiss under the TCPA. In their Motion, the Sellers asserted that the Buyers’ claims were based on, related to, or in response to the Sellers’ exercise of the right of free speech and right of association.

The TCPA provides a mechanism for early dismissal of suits based on a party’s exercise of certain statutorily defined rights, namely, the right of free speech, the right to petition, and the right of association. TEX. CIV. PRAC. & REM. CODE §§ 27.001(2)-(4), 27.003. Under the TCPA, if a legal action is “based on, relates to, or is in response” to a defendant’s exercise of these rights, the defendant may file a motion to dismiss the legal action. Id. § 27.003(a).

BURDEN OF PROOF ON MOTION TO DISMISS UNDER TCPA

Under the TCPA, the defendant (in this case the Sellers) has the initial burden to show by a “preponderance of the evidence” that the plaintiff’s legal action is “based on, relates to, or is in response to” the defendant’s exercise of (1) the right of free speech, (2) the right to petition, or (3) the right of association. TEX. CIV. PRAC. & REM. CODE § 27.005(b).

If the defendant meets its initial burden, the burden shifts to the plaintiff to either (1) establish that the legal action is exempt from the Act, see id. § 27.010 (listing exempted legal actions), or (2) establish by “clear and specific evidence a prima facie case for each essential element of the claim in question[,]” id. § 27.005(c). However, if the plaintiff establishes the essential elements of its claim, the defendant can still prevail by establishing by “a preponderance of the evidence each essential element of a valid defense to the [plaintiff]’s claim.” Id. at§ 27.005(d).

The trial court denied the Motion to Dismiss. The Seller appealed, alleging that the trial court erred by denying the Motion to Dismiss.

COURT OF APPEALS ANALYSIS

The appeals court analyzed the Seller’s claims that the allegedly fraudulent representations forming the basis of the Buyers’ claims were made in connection with a matter of public concern.  Under the TCPA a “matter of public concern” is in turn defined to include “an issue related to: (A) health or safety; (B) environmental, economic, or community well-being; (C) the government; (D) a public official or public figure; or (E) a good, product, or service in the marketplace.” Id. § 27.001(7).

The communication must have “public relevance beyond the pecuniary interests of the private parties involved.” Creative Oil & Gas, LLC v. Lona Hills Ranch, LLC, 591 S.W.3d 127, 137 (Tex. 2019). That is, the communication must refer “to matters `of political, social, or other concern to the community,’ as opposed to purely private matters.” Id. at 135.  To be protected, the communication must address a “a subject of legitimate news interest; that is, a subject of general interest and of value and concern to the public.” Snyder v. Phelps, 562 U.S. 443, 453 (2011)).

A.  NO SHOWING THAT THE BUYERS’ CLAIMS ARE BASED ON SELLERS’ EXERCISE OF THE RIGHT OF FREE SPEECH

Taking in turn each off their arguments, the appeals court determined that the Seller’s representations contained in the Seller’s Disclosure Notice did not relate to: (1) health or safety, (2) environmental, economic, or community well-being, or (3) a good, product, or service in the marketplace.

With respect to each of these components, the Court determined as follows:

  • the allegedly fraudulent representations forming the basis of the Buyers’ claims do not relate to “health or safety” because they are “purely private matters[,]” relevant only to the parties involved in the sale of the Property;
  • the allegedly fraudulent representations forming the basis of the Buyers’ claims do not relate to “environmental, economic, or community well-being” because the Buyers  do not allege that the representations in the Listing and Notice impacted, adversely or otherwise, the community at large. Rather, the Buyers merely alleged that the representations impacted their personal well-being. Conversely, the terms “environmental, economic, or community well-being” connote issues with a broader impact.
  • the allegedly fraudulent representations forming the basis of the Buyers’ claims do not relate to “a good, product, or service in the marketplace” because the representations concern only the condition of the property. Moreover, the representations were only made after the parties had entered into the purchase contract, and they were only made to a limited audience – the Buyers. Representations, with a limited business audience concerning a private transaction, have no relevance to “a public audience of potential buyers or sellers.”Creative Oil & Gas, 591 S.W.3d at 135.

B.  NO SHOWING THAT THE BUYERS’ CLAIMS ARE BASED ON SELLERS’ EXERCISE OF THE RIGHT OF ASSOCIATION

Under the TCPA, the “exercise of the right of association” is defined as “a communication between individuals who join together to collectively express, promote, pursue, or defend common interests.” TEX. CIV. PRAC. & REM. CODE § 27.001(2). “Common interests,”  are interests “relating to [the] community at large.” Gaskamp v. WSP USA, Inc., No. 01-18-00079-CV, 2020 WL 826729, at *13 (Tex. App.-Houston [1st Dist.] Feb. 20, 2020, no pet. h.). Thus, to constitute an exercise of the right of association under the TCPA, the nature of the communication must involve “public or community interests.” Id.; see alsoExxonMobil Pipeline Co. v. Coleman, 464 S.W.3d 841, 848 (Tex. App.-Dallas 2015). Communications made in pursuit of purely private interests are not protected. See Gaskamp, 2020 WL 826729, at *13; Coleman, 464 S.W.3d at 848.

Utilizing this framework, the court of appeals determined that the Sellers’ and the listing agent’s  shared interest in selling the Property cannot be fairly characterized as an interest of the community or public at large. Thus, the communications between them, made in pursuit of their common goal of selling the Property, do not constitute the exercise of the right of association.

THE TAKEAWAY

The TCPA has proven to be an effective tool in dismissing lawsuits with seemingly little relationship to exercise of free speech rights.

Had the Court held that statements made in a Seller’s Disclosure Notice are protected speech under the TCPA, Buyers victimized by real estate fraud and non-disclosure would largely be deprived of recourse. They did not, and this was the right decision.