Texas Court Applies Amended Citizens Participation Act to a Lease Dispute

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Howard, et al. v. Matterhorn Energy, LLC, et al. [6th Dist.] May 4, 2021 considered the Texas Citizens Participation Act as amended, effective on September 1, 2019.

Background

The lessors leased their minerals in 1,100+ acres in Harrison County to Matterhorn. To induce the deal, Matterhorn several representations to the lessors and agreed to a continuous development program. The lease required lessors to give 60 days’ notice of a breach before filing suit. Before the primary term expired gas prices dropped and Matterhorn decided to sell the lease.

The lessors sued Matterhorn for damages and rescission based on several causes of action and filed a notice of lis pendens. Matterhorn alleged it had contracted with EnergyNet to market its interest in the lease and that when lessors became aware they filed suit and a notice of lis pendens.

Testimony showed that the lessors made false misrepresentations about Matterhorn and Cherry to third parties (including prospective purchasers) prior to filing suit. Matterhorn claimed these discussions led to the termination of its sales agreement with EnergyNet. Matterhorn counterclaimed for tortious interference and business disparagement.

Lessors moved to dismiss Matterhorn’s claims under the TCPA because they were based on their petition and lis pendens and invoked their exercise of the right to petition the courts for relief. Lessors further argued they established an affirmative defense entitling them to judgment as matter of law because the counterclaims were barred by the judicial proceedings privilege.

Matterhorn responded that the communications forming the basis of their claims were among private parties, not the public, and occurred prior to the filing of the litigation. There was testimony about how lessors’ third party discussion and filing of the lawsuit and lis pendens caused Matterhorn to lose its ability to sell the lease. Plaintiff Howard admitted in a deposition that he filed the lawsuit before expiration of the primary term and before penalties under the lease were due to “put . . . a drain on” Matterhorn and affect its ability to “flip” the lease. The trial court denied lessors’ TCPA motion to dismiss.

The TCPA process

Resolving a TCPA claim occurs in three steps:

  • The party moving for dismissal has the initial burden to establish that the legal action is based on or is in response to the party’s exercise of the right of free speech, the right to petition, or the right of association.
  • The burden then shifts to the non-movant to establish each essential element of the claim in question.
  • Even if the non-movant makes such a showing, the court will dismiss an action against the moving party if he establishes an affirmative defense as a matter of law.

Matterhorn’s pleadings revealed two sets of communications: (i) direct statements, including verbal accusations to prospective buyers, by Howard to third parties; and (ii) communications in or about the lawsuit and lis pendens.

The TCPA did not apply to direct statements to third parties

Because Howard’s direct communications to third parties were neither made in nor pertained to a judicial proceeding, and because the pre-suit communications were not under consideration or review by a judicial body, the lessors failed to show the counterclaims were in response to an exercise of the right to petition.

The TCPA did not apply to Matterhorn’s breach-of-contract counterclaim

The lessors contractually restricted their normally unrestricted constitutional right to petition when they executed a lease that included the 60-day notice, thereby waiving certain TCPA remedies. Therefore, lessors could not establish that MAtterhorn’s breach-of-contract counterclaim was factually predicated on the exercise of a right to petition.

The TCPA applied to communications in or about the lawsuit or lis pendens

Lessors met their burden to show that the portions of Matterhorn’s tortious interference and business disparagement counterclaims were based on lessors’ exercise of the right to petition.

The judicial proceedings privilege barred the remaining counterclaims

Communications in the due course of a judicial proceeding cannot be the basis of a civil action for libel or slander, regardless of the negligence or malice with which they are made. Courts apply this to torts such as business disparagement and tortious interference claims when predicated on a defamatory act.

Because the crux of Matterhorn’s remaining counterclaims was that their lawsuit and lis pendens were wrongful and caused Matterhorn to lose money it would have realized from the sale of property, the judicial proceedings privilege barred those counterclaims as a matter of law.

The result

The court reversed the portion of the trial court’s judgment that failed to dismiss Matterhorn’s tortious interference and business disparagement claims based on communications in lessors’ petition and lis pendens. The court affirmed the denial of lessors’ TCPA motion to dismiss Matterhorn’s claims based on communications directly made to third parties.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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