In a case arising from a business relationship between friends gone to pot, the Houston [1st] Court of Appeals has substantially upheld a trial court order denying a motion to dismiss under the Texas Citizens Participation Act (Ch. 27, CPRC).
The facts in Constellation Brands, Inc. and Frederick H. Schrader v. Robert M. Roach (01-21-00155-CV; issued December 29, 2022) are too tedious to relate in any detail, but the upshot is that Schrader and Roach formed a limited liability company to make cabernet sauvignon in California under a particular brand name. Schrader, a California resident, attended several “wine dinners” hosted by Roach in Houston, where he promoted and solicited orders for the cab. For whatever reason, the LLC failed to file several years of franchise tax returns in California. Upon receiving notice from the California Franchise Tax Board that the LLC’s certificate to file the returns or else, Schrader sent an email to Roach about dissolving the LLC and, when Roach did not respond, filed the termination with the California Secretary of State. A few years later, Schrader sold his winery to Constellation Brands in a deal that included the rights to the Schrader-Roach cab. Shortly thereafter, Roach sued Schrader and later added Constellation to the lawsuit. Schrader filed a special appearance, which after appeal to the 1st Court resulted in the dismissal of all of Roach’s claims against Schrader save a fraud claim, which could be tied to Schrader’s numerous visits to Texas to market and sell the cab. Everything else happened in California, defeating Roach’s various equitable claims.
While the jurisdictional fight was ongoing, Roach filed an amended petition asserting additional facts and causes of action against Schrader and Constellation. Schrader renewed his special appearance, and Schrader and Constellation moved to dismiss the amended petition under the TCPA. The trial court denied Schrader’s special appearance and the TCPA motion without explanation, but did state that the motion was not frivolous and did not justify sanctions. Schrader and Constellation appealed.
As a preliminary matter, the court of appeals once again reversed the trial court’s denial of Schrader’s special appearance because the focus of the trial would involve Schrader’s conduct in California, not Texas. The TCPA issue had two parts: was the motion timely filed and, if so, which claims did it apply to? As to timeliness, Chapter 27 requires a party to file a TCPA motion to dismiss within 60 days of being served with a legal action. Schrader’s argued that Roach’s amended petition contained additional facts and new causes of action that restarted the TCPA’s deadline. The court’s analysis relied on SCOTX’s opinion in Montelongo v. Abrea, 622 S.W.3d 290 (Tex. 2021), which held that “an amended or supplemental pleading that asserts the same legal claims or theories by and against the same parties and based on the same essential facts alleged in a prior pleading asserts the same ‘legal action’” for purposes of the 60-day period. Here the court of appeals found that Roach’s amended petition did not reveal new essential facts or assert new legal claims against Schrader. Schrader’s 60-day window expired in 2018, whereas his TCPA motion was not made until January, 2021.
With regard to Constellation, however, Roach’s amended petition asserted eight new causes of action, including knowing participation in breach of fiduciary duty, fraud, equitable accounting, declaratory judgment, concert of action, and joint venture liability. Constellation thus filed a timely motion for TCPA dismissal as to these claims. The second question, the TCPA’s application to these claims, was more difficult. Constellation alleged that Roach’s amended petition violated the TCPA “because it is based on or is in response to four distinct exercises of the right to petition: (1) trademark application to the United States Patent and Trademark Office; (2) a letter written by Jeffrey LaBarge, Constellation’s General Counsel, regarding the pending judicial proceeding against Schrader in the underlying case; (3) Schrader Cellars’ intent to file a lawsuit against Roach in California; and (4) an attorney ethics grievance filed by Schrader against Roach.” Constellation also made free association claims based on these communications.
Can you spot the obvious problem with Constellation’s argument? The court of appeals did. Three of the four communications upon which it based the motion to dismiss were made on behalf of Schrader, not Constellation. Thus they had nothing to do with Constellation’s rights to petition or association, only Schrader’s. Additionally, Schrader’s threat to sue did not invoke the TCPA as to Constellation for the additional reason that—you guessed it—it hadn’t filed. In order to invoke the TCPA the legal action has to be pending, not speculative. The only communication made on behalf of Constellation that the court found both invoked the TCPA and satisfied the “based on or in response to” standard was its general counsel’s letter responding to Roach’s attorney’s allegations of fraud against Constellation. The burden then shifted to Roach to show by clear and specific evidence of the essential elements of his fraud claim. Roach failed to do this, producing only the allegations in his pleadings as evidence of Constellation’s fraud. More has to be offered “to support a rational inference that an allegation is true.” The court of appeals reversed the trial court’s denial of Constellation’s TCPA motion with respect to the fraud claim and remanded the whole shebang back to the trial court.
There are a couple of oddities about this case. First, Roach failed to raise the common law fraud exemption to defeat the TCPA motion to dismiss from the get-go. The court of appeals noted this and made it a point to state that the 2019 TCPA amendments, which included the exemption, applied to this case. This omission resulted in Roach losing his fraud claim against Constellation altogether. Second, Constellation pushed an argument with zero statutory support—that it could bootstrap itself into the TCPA based on communications made by somebody else on somebody else’s behalf. The court of appeals patiently walked through the argument before rejecting it, but one cannot read the opinion without feeling something of a rebuke. In any event, having to deal with the case a second time probably didn’t make anyone happy, and the fact that the court had to write a 54-page opinion largely dedicated to that rebuke was the cherry on top. God forbid that this case ends up back in the 1st Court for a third go-round.
