Introduction. In this case, Valley Builders Supply, Inc., a manufacturer of concrete blocks, sued its competitor, Innovative Block of South Texas, Ltd, for defamation and business disparagement. At the conclusion of the trial, Valley Builders chose only to submit questions to the jury for defamation. Based upon the jury’s verdict, the trial court entered judgment in favor of Valley Builders for $1,803,528 in compensatory damages and $937,056 in punitive damages. The parties later entered into a partial settlement of the punitive damages award. Innovative Block appealed the compensatory damages award and it was upheld by the court of appeals. Innovative Block subsequently filed a petition for review with the Texas Supreme Court which rendered a take nothing judgment against Valley Builders. Innovative Block of S. Tex., Ltd. v. Valley Builders Supply, Inc., 603 S.W.3d 409 (Tex. 2020).
Background. Both Valley Builders and Innovative Block manufactured and sold concrete blocks and pavers in the Rio Grande Valley. Valley Builders started its business in 1940 and Innovative Block began its business in 2006. Valley apparently went out of business in 2010. It blamed its failure upon false and disparaging statements allegedly made by Innovative Block regarding Valley’s products.
Valley filed suit against Innovative for business disparagement and defamation. In general, the four statements made by Innovative that Valley complained about were: 1) “That is what their block looked like[,] and they’re making an inferior block.” 2) “Valley was producing bad product[,] and they used bad materials.” 3) “Valley Block uses low[-] quality aggregates to manufacture pavers.” 4)“Valley Block received a load of bad aggregate.” Innovative Block of S. Tex., Ltd. v. Valley Builders Supply, Inc., supra, *415. These statements were allegedly made by Innovative to Valley’s customers and one of its suppliers.
Valley presented expert testimony at trial that it sustained $93,528 in lost profits resulting from the statement about the load of bad aggregate. Valley also presented expert testimony that it sustained damages between $1.5 and $1.66 million, in general to its reputation, because of Innovative’s alleged defamatory statements.
Valley elected to only submit its defamation claim to the jury. It did not submit the business disparagement claim. The jury awarded Valley $1.8 million in compensatory damages for reputational injury and $93,528 for lost profits. The jury also awarded $10 million in punitive damages which were reduced because of statutory caps. The resulting judgment entered by the trial court judge was for $1,803,528 in compensatory damages and $937,056 in punitive damages.
The parties settled the punitive damages portion of the judgment, and Innovative appealed the compensatory damages award. The court of appeals upheld the trial court verdict, finding that there was sufficient evidence to support the defamation findings and damages awarded. Innovative filed a petition for review with the Texas Supreme Court (SCOTX).
The primary issue before SCOTX was whether the evidence supported an action for defamation or business disparagement. In that regard, SCOTX stated:
To state a defamation claim, a plaintiff must show (1) the publication of a false statement of fact to a third party, (2) that was defamatory concerning the plaintiff, (3) with the requisite degree of fault, at least amounting to negligence, and (4) damages, in some cases. Id. at 593. 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.” Restatement (Second) of Torts § 559 (Am. L. Inst. 1977); see also Hancock v. Variyam, 400 S.W.3d 59, 63 (Tex. 2013) (defining defamation “as the invasion of a person’s interest in her reputation and good name”).
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. See Restatement (Second) of Torts § 629. Its elements are more stringent than those of defamation because business disparagement protects against pecuniary loss. Hurlbut v. Gulf Atl. Life Ins., 749 S.W.2d 762, 766 (Tex. 1987). The publication of a disparaging statement concerning the product of another is actionable when (1) the statement is false, (2) published with malice, (3) with the intent that the publication cause pecuniary loss or the reasonable recognition that it will, and (4) pecuniary loss does in fact result.
Innovative Block of S. Tex., Ltd. v. Valley Builders Supply, Inc., supra, *417.
The court then turned to the expert testimony regarding damages because in order for Valley to be entitled to recover on its defamation cause of action it had to show injury to its reputation. Here, the jury awarded “$1.8 million for the harm to Valley’s reputation caused by Innovative’s remarks about [Valley’s] products.” Innovative Block of S. Tex., Ltd. v. Valley Builders Supply, Inc., supra, *420. The only evidence submitted by Valley in support of this harm was expert testimony. Unfortunately for Valley, SCOTX found that this testimony was not based upon reliable data and should have been excluded.
That left only the expert testimony that Valley sustained $93,528 in lost profits “caused by Innovative’s false statement about “a load of bad aggregate.” Innovative Block of S. Tex., Ltd. v. Valley Builders Supply, Inc., supra, *425. Innovative’s position was that these lost profits were not recoverable special damages for defamation. Although, they might have been recoverable under a business disparagement cause of action, this was not submitted to the jury. Therefore, Valley was not entitled to recover any compensatory damages.
In this regard, the Court stated:
But as we have already determined, disparaging a plaintiff’s goods or services is not defamatory per se because commercial disparagements do not necessarily impugn character or reputation. This distinction has long been observed: “[I]f the statement impugns the integrity or credit of a business, there is an action for defamation, but if merely the quality of a business’ goods or services are criticized, only disparagement will lie.”
Innovative Block of S. Tex., Ltd. v. Valley Builders Supply, Inc., supra, *425.
Here, the statement allegedly causing the pecuniary loss is that Valley received a load of bad aggregate. The receipt of bad aggregate does 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.
Innovative Block of S. Tex., Ltd. v. Valley Builders Supply, Inc., supra, *426.
Conclusion. SCOTX went on to hold that there was no evidence to support an award of general damages based upon defamation or harm to Valley’s reputation. That left the issue of whether the statement about the receipt of bad aggregate was defamatory. Although, this statement might have supported an award for business disparagement it did not support an award for defamation. Since no questions based upon business disparagement were submitted to the jury, SCOTX reversed the court of appeals and rendered that Valley take nothing.
Lessons learned. Defamation and business disparagement are complicated and confusing areas of the law. Further, SCOTX has a fairly long history of closely scrutinizing the evidence submitted at trial, including expert witness testimony, upon which the underlying judgment is based. That is why it is important to always retain experienced litigation counsel, retain highly competent experts, and carefully research the law supporting the jury charge well in advance of trial. This is also why litigation tends to be so costly.