This Trade Secret Suit Doesn’t Infringe on Free Speech

4 minute read | July.24.2020

Can defendants use anti-SLAPP statutes to dismiss meritorious trade secrets misappropriation lawsuits?  A recent decision by the Fifth District Court of Appeals in Dallas suggests not.

Numerous states have passed some form of anti-SLAPP legislation to prevent parties from using litigation as a tool to silence individuals from exercising their First Amendment rights.  Texas, in particular, enacted the Texas Citizens Participation Act (“TCPA”) back in 2011 to “protect citizens from retaliatory lawsuits that seek to silence or intimidate them for exercising their rights in connection with matters of public concern.”  The TCPA provides an avenue for individuals to summarily dispose of such lawsuits designed to chill their First Amendment rights.

However, the TCPA, like other anti-SLAPP statutes, has its limits.  Indeed, the Court of Appeals held that a medical billing company’s lawsuit for trade secret misappropriation against its former employee and his new employer did not infringe on their rights to free speech or association under the TCPA.[1]

The alleged facts in the dispute are familiar.  Dhruva Chopra was a client service manager of medical billing company Zotec Partners, LLC and its subsidiary EmPhysis Medical Management, LLC.  They provided billing services for clients, including Texas Radiology Associates, LLP (“TRA”).  Some of the principals of TRA formed another company, Collaborative Imaging, LLC, to provide similar services for TRA and other radiology groups.  Chopra left her employment with Zotec and EmPhysis and joined Collaborative Imaging as its chief executive officer.  Several months after Chopra joined Collaborative Imaging, TRA raised certain billing issues with Zotec and prematurely terminated its billing services agreement with Zotec.  Subsequently, Zotec and EmPhysis filed suit against Chopra and Collaborative Imaging alleging, among other claims, that Chopra and Collaborative Imaging misappropriated their proprietary business information to gain an unfair advantage in the marketplace.

In July 2019, Chopra and Collaborative Imaging moved to dismiss Zotec and EmPhysis’s claims on grounds that the lawsuit infringed upon their rights to free speech and association under the TCPA.  In October 2019, the trial court denied their motion to dismiss.  Chopra and Collaborative Imaging appealed.  On June 12, 2020, the Court of Appeals affirmed the trial court’s decision, holding that Chopra and Collaborative Imaging failed to meet their burden to show that the lawsuit was “based on, related to, or in response to their exercise of their rights to free speech and association.”

Right to Free Speech

The Court first explained that in order to establish that the lawsuit was related to the exercise of their right to free speech under the TCPA, Chopra and Collaborative Imaging needed to show that their communication was made in connection with a “matter of public concern,” including, inter alia, issues relating to health or safety, community well-being, or the government.  Chopra and Collaborative Imaging argued that the lawsuit was, in fact, based on their communications concerning inaccurate billing and coding of charges to government medical programs and commercial health insurers, and that their purported communications were intended to “identify deficiencies and improprieties in the provision of healthcare services[.]”  While recognizing that there was “potential for speech related to government actions or programs,” the Court determined that the communications did not concern “the gravamen of the dispute” and that it was “clear the dispute [was] one of commercial competition by which a former employer alleges a former employee disclosed proprietary information to a new employer and used that purloined information to inflict competitive harm on it.”

Right to Association

The Court also recognized that the TCPA broadly defines the “exercise of the right to association” as a “communication between individuals who join together to collectively express, promote, pursue, or defend common interests.”  Chopra and Collaborative Imaging argued that they joined together to promote the common interests of ensuring that billing service providers like Zotec accurately report data and submit claims.  However, the Court rejected this argument and explained that “applying the right of association to private communications related to an alleged conspiracy to misappropriate confidential business information would be ‘illogical’ and lead to an absurd result that would not further the purpose of the TCPA to curb strategic lawsuits against public participation.”

As such, the Court held that Chopra and Collaborative Imaging failed to meet their burden under the TCPA and allowed Zotec and EmPhysis to move forward with their trade secret misappropriation lawsuit.

[1]  The Texas Legislature amended the TCPA effective September 1, 2019.  Because this lawsuit was filed before September 1, 2019, the Court of Appeals applied the law in effect prior to the September 1, 2019 amendment.