In February 2016, the Dallas Morning News reported a federal healthcare fraud investigation into RXpress, a Fort Worth compounding pharmacy. Although the article was based on a federal search warrant and later proved to be true, the owners of RXpress – already embroiled in several lawsuits with business partners and a tax advisor – sued the News for defamation in Parker County the following month.
The father and son owners of RXpress, Lewis Hall and Richard Hall, claimed that the stories in the News ruined their business, relied on accusations taken out of context from the other unrelated civil litigation and that they were not under criminal investigation, despite what the court document said.
Last week, in oral arguments before the Texas Supreme Court, the News asked justices to reverse two lower courts that have refused to dismiss the suit as a SLAPP action under the Texas Citizen’s Participation Act. Under the TCPA the Halls were required to show that the News’ account was substantially untrue, and both the Parker County trial court and the Second Court of Appeals ruled they met that burden.
But the News asserts that the lower courts erred, both in their interpretation of the TCPA, and in their reliance on an affidavit by Richard Hall that claimed the company was not under investigation.
The Halls and RXpress said the News misinterpreted the search warrant, relying on selective quotes from various unrelated lawsuits to bolster a defamatory conclusion. The News said the Halls maintained that position, even as their offices were being raided by federal investigators.
Tom Leatherbury of Vinson & Elkins, arguing for the News, said the publication had no need to embellish on the substance of the search warrant, that the court document spoke for itself.
“If the Dallas Morning News had republished verbatim the search warrant, I submit to the court that the effect on the reasonable reader’s mind would have been the same,” Leatherbury said.
The 2016 article, the first in a series of articles that mentioned RXpress, was prompted by the execution of a search warrant on the home of Nathan Halsey, a pharmaceutical marketer. The top two pages of the warrant were shared by Halsey with News reporter Kevin Krause, who had been reporting on criminal investigations into similar drug compounding operations in Texas.
The search warrant specifically sought from Halsey communications and business records regarding RXpress, one of several compounding pharmacies that have attracted interest in federal healthcare fraud investigations.
Compounding pharmacies are custom aggregators of prescription drug compounds designed to tailor medications to individual needs. These specialized pharmaceutical enterprises have been extraordinarily profitable, particularly those serving large scale insurance providers like Tricare, a U.S. Defense Department healthcare program.
However, a number of these enterprises have come under federal scrutiny because of business practices that include gifts, commissions and outright payments to prescribers that amount to kickbacks. The Halls and RXpress had been accused of some of those practices in the course of their civil litigation. But they have blamed any violations on former partners and employees with whom they are now embroiled in civil suits.
When the News sought dismissal of the Hall defamation claim under the TCPA, the Halls opposed the motion, offering in rebuttal an affidavit by Richard Hall declaring that he and his father “have not seen any documentation that suggests that they are specifically under investigation for use of Tricare money.” With that, the Parker County trial judge refused to dismiss the case.
At an expedited hearing before the Second Court of Appeals, on Sept. 15, 2016, the Halls again opposed the motion, but asked for 10 days to explore “new evidence” that suggested a conspiracy between the News and federal authorities. Although they later abandoned the conspiracy theory, the Halls continued to claim that there had been no federal investigation. The appellate court denied the News motion to dismiss.
But unknown both to the News and to the courts, federal agents had raided the offices of RXpress on Sept. 15, the very day of a hearing over the issue in the Parker County court, seizing 148 boxes of communications and business records.
“They made several filings in the trial court. They never disclosed the raid. The record has never really been corrected to this day, even though it was false when it was filed,” Leatherbury told the court.
Several justices focused their questions on the meaning of the term “under investigation.” Justice Eva Guzman noted that the appeals court had conceded that the News’ interpretation of the search warrant was reasonable, but that the court had determined that it was only one of several inferences that could have been gleaned from the document.
“How do you weigh one inference against another?” Guzman asked.
“We submit that it was the wrong track to go down to even weigh inference,” replied Leatherbury. “When you have a reasonable inference, the Constitution gives breathing space to publishers who publish reasonable inferences from government documents.”
John J. Shaw of Fort Worth-based Myers Law represented RXpress. In his argument Shaw said the raid wasn’t relevant at the time the first article was published.
“It’s not substantially true to assume and to report that RXpress is under federal healthcare fraud based solely on general language in two pages of a search warrant,” said Shaw, urging the court, in effect, to narrow the time frame to that of the original article.
But he also rekindled the previously abandoned conspiracy theory.
“Possibly one interpretation would be that it’s a bit of a self-fulfilling prophecy. Whether or not RXpress was under investigation, it’s published over a period of 30 days in multiple articles in multiple mediums by the Dallas Morning News and then, approximately eight months later, federal agents show up and serve a search warrant,” Shaw told the court.
Chief Justice Nathan Hecht seemed to stop Shaw in his tracks with a question posed earlier by Justice Phil Johnson.
“Is there any way to read the evidence that’s attached to the motions – your motion and the other two motions to take judicial notice — is there any way to read that evidence without concluding that RXpress is not under investigation?” Hecht asked.
Shaw asked Hecht to rephrase the question, took a long and uncomfortable pause, then seemed to answer a different query.
He noted that within months after the stories appeared, prescriptions at RXpress fell off “from multiple hundreds a day to single digits.” By the time the search warrant was served months later, the business had shut down, Shaw said.
In rebuttal, Leatherbury focused on the Halls’ apparent lack of candor in their submissions to the lower courts.
“Mr. Hall’s affidavit was false when it was filed on Sept. 15. It was relied upon by the trial court. They filed multiple things in the trial court. I think we’ve made a sufficient showing to warrant this court policing that type of conduct and reliance on false testimony that was encouraged in the trial court and the court of appeals by the plaintiff.”
The case is The Dallas Morning News v. Lewis Hall and Richard Hall, Case No. 17-0637. View the oral arguments here.