Dallas Morning News, et al. v. Hall ex rel. RXPress Pharmacies and XPress Compounding, No. 02-16-00371-CV (Tex. App. 2nd Dist.) May 25, 2017

Blogger’s Note:  The opinion announced here serves as something of a cautionary tale to reporters and editors to take care to separate the wheat from the chaff in reporting on the existence of federal investigations.  Most significantly, the opinion suggests that selecting particular statements from one proceedings as evidence of other matters requires caution lest any resulting distortion give rise to liability.

The Dallas Morning News appealed denial of its motion to dismiss related pharmaceutical entities’ defamation claims following publication of articles suggesting that RXPress and XPress Compounding engaged in unlawful kickbacks, engaged in health care fraud and were the subjects of federal investigations.

Pharmaceutical compounding provides tailor-made medications, generating not only substantial public interest but also controversy concerning marketing, pricing, and benefit providers’ manipulation of coverage of compound component ingredients.  High profile federal investigations and prosecutions have ensued.

In early 2016, the Dallas Morning News published articles indicating that RXPress was under federal investigation for violations of anti-kickback laws and that RXPress had been thrown out of a private health insurance network because of suspected fraud.   RXPress Pharmacies and XPress Compounding commenced suit immediately.

Concerning the falsity that a defamation plaintiff must establish, the Texas Court of Appeals observed that courts overlook minor matters and look to the substance — the gist — of published statements in the context of all surrounding circumstances what an ordinary person would perceive.  If publication of a statement is more damaging that a true publication would be, then it is not substantially true and is actionable.

Dallas Morning News’ specifically mentioned RXPress in connection with federal fraud investigations of compounding pharmacies.  Its reporting on severance of the relationship between RXPress and a benefit provider alluded to the fraud investigations into compounding pharmacies.   The mention of RXPress in the context of other investigations might fairly lead a person of ordinary intelligence to believe that RXPress was the subject of investigation, the court found.

The appellate court dismissed Dallas Morning News‘ argument that its publication that RXPress was under federal investigation was not false because a search warrant mentioning RXPress and its principals issued to an individual who did not obtain employment with RXPress, as this alone would not establish that RXPress was under investigation.

The appellate court also rejected the Dallas Morning News‘ assertion that RXPress’s founder could not testify to whether the company aw under investigation as he was without personal knowledge of whether that was true.  He was by necessity aware of company goings-on and was amply qualified to testify to the financial consequences RXPress suffered following the Dallas Morning News stories.

Neither could the News avail itself of any reporting privilege that attaches to true, fair and impartial coverage of judicial proceedings or to accurate publication of third-party allegations.  The court noted in passing its doubt concerning the applicability of privilege to court pleadings.  The court found that RXPress had met its burden of showing by clear and specific evidence that the allegedly privileged matters were not substantially true, thereby negating any claimed privilege.

The Morning News’ account indicated that RXPress paid kickbacks to doctors, that investigations questioned the ethics of relationships between pharmacies and doctors, and that the kickback information had its origin in litigation between RXPress and its former accountant.  Reading the statement s in the contact of statements about federal fraud investigation, a reasonable reader would concluded that, like companies accused of federal fraud, RXPress had violated federal anti-healthcare fraud laws.

The Morning News published statements allegedly made by benefit provider Prime Therapeutics and drawn from “court records,” claiming massive errors in RXPress reimbursement claims.  The article’s headline asserted that RXPress was under federal investigation and that relations with a benefit provider were severed because of suspected fraud.  This also would prompt an ordinary person to conclude that RXPress had been accused of wrongdoing by the federal government.

RXPress met its burden of establishing the absence of substantial truth in the third-party accounts as well.  The court found that the Morning News selected from statements from the RXPress litigation with its accountants and presented them in the context of alleged health care frauds, which created the impression that matters were worse than the singular original sources would suggest.

As the Dallas Morning News had failed to provide evidence sufficient to permit early dismissal under the state’s public participation statute, the appellate court concluded that the pharmaceutical companies case could proceed.

Dall. Morning News, Inc. v. Hall ex rel. Pharmacies (Tex. App., 2017)