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Getting the last laugh: Kool Smiles preserves its defamation case

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A San Antonio law firm got some lousy news Tuesday from the U.S. Court of Appeals for the Fifth Circuit when it allowed a national dental chain to pursue a defamation claim.

It remains to be seen whether the affected Texas clinics going by the business name of Kool Smiles will prevail, but their lawsuit gave the Texas Supreme Court some guidance on the state's anti-SLAPP law, which has barely been in existence three years.

The law was passed to protect citizens from frivolous lawsuits if they speak or write for public consumption on public policy issues that should be protected by the First Amendment.

The Mauze & Bagby law firm and its partners, George W. Mauze II and James T. Bagby III were sued in 2012 by several South Texas entities affiliated with Kool Smiles for their TV, radio and Internet advertisements. The firm has a website that implies and even accuses "Kool Smiles of performing unnecessary, and at times harmful, dental work on children to obtain government reimbursements," according to the words of Fifth Circuit Judge Edward C. Prado.

"Was your child strapped down to a papoose board?" That's a direct question straight from the Mauze & Bagby website, which is very specialized in that the only service the firm promotes is representation for claims against Kool Smiles.

The website links to several news links and chat boards, but it hasn't yet added a link to today's story from the Public Broadcast Service's program Frontline, which says that Small Smiles, under federal scrutiny for years, could be barred from the Medicaid program next month. The article goes on to state that Frontline exposed similar practices at Kool Smiles in 2012.

Both sides appealed the case in the Fifth Circuit. Kool Smiles appealed to dispute the Fifth Circuit's jurisdiction. They lost that argument, although Prado devoted over two-thirds of the 21-page opinion to jurisdiction issues.

Mauze & Bagby were in the New Orleans court to argue the district court got it wrong in finding the law firm was not protected by anti-SLAPP [that stands for Strategic Lawsuits Against Public Participation] because of a commercial speech exemption.

The law states that its protection doesn't apply to lawsuits against persons primarily engaged in the business of selling or leasing goods or services, "if the statement or conduct arises out of the sale or lease of goods, services, or an insurance product or a commercial transaction in which the intended audience is an actual or potential buyer."

Federal circuit courts would prefer to look first to the state supreme court for guidance on interpreting a state law, but that wasn't possible here since the Texas Supreme Court hasn't dealt with the "commercial speech" exemption.

Prado went instead to the Houston Court of Appeals, First District, and the 2013 case of Newspaper Holdings Inc. v. Crazy Hotel Assisted Living Ltd. This was a rumble over some articles that reported regulatory compliance problems and investigations into the Crazy Water Retirement Hotel.

Crazy Water claimed the newspaper was a corporation primarily engaged in the business of selling or leasing goods or services. This was commercial speech, therefore, the newspaper wasn't protected, Prado summarized.

The court of appeals said the newspaper was in the business of reporting community events. "The stories the hotel complained of did not arise out of the sale of the goods and services that the newspaper sells--newspapers. Thus, the exemption did not apply," Prado said.

Prado then offered this analogy: "Statements made while fixing a customer's roof would be exempted, but statements made while convincing a customer to hire the roofer to fix the roof would not."

That, Prado concluded, is where Mauze & Bagby have a problem.

"The language in M&B's ads and website arose directly from the solicitation of the services it provides," Prado said.

California has a similar anti-SLAPP law and that state's supreme court has looked at it. Mauze & Bagby countered with an argument that the California Supreme Court held that an attorney advertisement soliciting clients was not a representation of fact concerning a person's business operations, goods or services. Therefore, attorneys don't fall under the commercial speech exemption.

Prado noted, however, that the "representations of fact" clause doesn't exist in the Texas law.

The Fifth District upheld the district court.

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Copyright protected / All rights reserved / Adolfo Pesquera

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