Dr. Jesse Smith, M.D. v. Crestview NuV, LLC, on Its Own Behalf and Derivatively on Behalf of NuVivo Bioscience Solutions, LLC.

In the
Court of Appeals
Second Appellate District of Texas
at Fort Worth
___________________________
No. 02-18-00220-CV
___________________________
DR. JESSE SMITH, M.D., Appellant
V.
CRESTVIEW NUV, LLC, ON ITS OWN BEHALF AND DERIVATIVELY ON
BEHALF OF NUVIVO BIOSCIENCE SOLUTIONS, LLC, Appellee
On Appeal from the 48th District Court
Tarrant County, Texas
Trial Court No. 048-294454-17
Before Sudderth, C.J.; Meier and Gabriel, JJ.
Opinion by Justice Gabriel
OPINION
Appellant Dr. Jesse Smith, M.D. challenges the denial of his motion to dismiss
appellee Crestview NuV, LLC’s claim against him for “aider” liability under the Texas
Securities Act (the TSA). Tex. Rev. Civ. Stat. Ann. art. 581-33.F(2) (West 2010); see id.
art. 581-1 (West 2010). Smith argues that because Crestview’s claim was based on the
exercise of his rights to freely associate and to speak freely on a matter of public
concern, the trial court was required to dismiss Crestview’s claim against him. Even
though this case involves the frequently invoked and repeatedly interpreted
procedural device found in the Texas anti-SLAPP1 statute, we now are asked,
apparently for the first time, to apply it in the context of a claim for violations of the
TSA. Because we conclude Crestview’s pleaded claim against Smith did not allege a
communication as that term is defined in the TCPA, we affirm the trial court’s denial.
I. BACKGROUND
A. CRESTVIEW’S INVESTMENT
In 2016, Mary Armstrong approached Alan Meeker, Crestview’s managing
member, and proposed that Crestview invest in her company, NuVivo Bioscience
Solutions, LLC (NBS). Armstrong established NBS to develop a vaginal-rejuvenation
product derived from human amniotic cells. Armstrong represented to Meeker that
she had manufactured prototypes of the product, that she had hired doctors at
1
SLAPP is an acronym for strategic lawsuits against public participation.
2
Stanford University to study its safety and efficacy, that she had a sales force in place,
that several surgeons had “verbally committed” to using the product, and that the
product would be ready to be sold in less than 120 days. Because the product was a
human-cellular or tissue-based product, Armstrong told Meeker that it would not be
subject to federal drug regulations regarding testing, approval, and labeling.
Armstrong further represented to Meeker that she had been injected with the
product and that it had worked as expected. Armstrong stated that Smith, a plastic
surgeon in Fort Worth, had contractually agreed to be a provider of the product, and
Meeker noted that Smith’s name was included as a provider of the product on
Armstrong’s proposed website design for NBS. Crestview invested $500,000 in NBS
in February 2017, wiring the money to a bank account set up for NBS.
After Armstrong stopped communicating with Crestview, Crestview demanded
access to NBS’s bank statements in July 2017 and discovered that Armstrong had
spent almost half of Crestview’s investment, much of which appeared to have been
spent on Armstrong’s personal expenses such as rent, “childcare” payments to her ex-
husband, and payments to her mother. Armstrong also transferred significant sums
from NBS’s account to her and her mother’s personal bank accounts. Some of
Armstrong’s declared business expenses were for a June 2017 trip to Las Vegas where
she met Smith at a “Vegas Aesthetic Meeting.” Many of the expenses from the trip
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were listed as entertainment and meals with “clients” or “employee.”2 Crestview also
discovered from a review of NBS’s records that NBS had made no sales of the
product.
B. CLAIMS AGAINST ARMSTRONG AND SMITH
On September 1, 2017, Crestview, on its own behalf and derivatively on behalf
of NBS, filed a verified petition against Armstrong and raised claims for fraud, fraud
by nondisclosure, theft, breach of fiduciary duty, money had and received, conversion,
fraudulent transfer, and violations of the TSA. Crestview also sought exemplary
damages, a constructive trust on Armstrong’s property and accounts traceable to
Crestview’s investment, a temporary injunction, and a permanent injunction.
During expedited discovery on Crestview’s injunctive-relief requests,
Armstrong stated at her deposition that Smith had twice injected her with the product
at his medical office as a test of the product but that she did not believe Smith made
any records of the procedures. Further, Armstrong stated that no other members of
Smith’s staff were in the procedure room at the time Smith administered the product
and that she could not remember if any staff members were in the office at all.
Armstrong also explained that she had hired Smith as NBS’s “medical consultant” for
“specifics of the product, of the treatment, of the technique and the science.”
One such “Meal” between Armstrong and Smith, which was for the stated
2
purpose of meeting about “[p]roduct development” and “strategy,” occurred at a well-
known strip club.
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Crestview deposed Smith, but he refused to answer any questions about the tests he
had performed on the product or on Armstrong, citing medical-privacy laws.3 Smith
did state that he had spent between twelve and twenty hours consulting with
Armstrong about the product, including the logistics of testing the product,
distribution of the product, and other “modalities of treatment.”
On October 11, 2017, the trial court signed an agreed temporary restraining
order, enjoining most financial activities for or on behalf of NBS absent an
accountant’s approval. The order further gave Armstrong until January 31, 2018, to
purchase Crestview’s interest in NBS for $600,000.
After the purchase did not occur, Crestview amended its petition on March 2,
2018, to add Smith as a named defendant to its claim for violations of the TSA.4
Crestview alleged that Smith violated the TSA as an aider to Armstrong:
Smith is liable as an aider under TSA article 581-33(F)(2) because he had
a general awareness of his role in Armstrong’s conduct in violation of
the TSA, rendered substantial assistance in furtherance of Armstrong’s
conduct in violation of the TSA, and either intended to deceive
Crestview or acted with reckless disregard for the truth of Armstrong’s
representations. Among other things, Smith provided assistance to
Armstrong by conducting clandestine “testing” of the product. Smith
clearly knew his purported “testing” of the product was improper.
Indeed, he failed to keep any medical records with respect to any
patients he injected with [NBS]’s product, which, in itself, is a violation
3
On appeal, Smith now asserts with no supporting evidence that he was not
involved in any testing of the product. Whether or not Smith actually tested the
product is not relevant to our analysis of the trial court’s ruling.
4
Its claims against Armstrong were largely unchanged.
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of the Texas Medical Board regulations. Smith also violated other Texas
Medical Board regulations in connection with his assistance of
Armstrong’s sale of [NBS] membership interests to Crestview.
C. SMITH’S MOTION TO DISMISS
Twenty-one days later, Smith filed a motion to dismiss Crestview’s claim
against him, contending that the claim was “designed to chill Dr. Smith’s First
Amendment rights of free speech and association.” See generally Tex. Civ. Prac. &
Rem. Code Ann. § 27.002 (West 2015) (stating purpose of anti-SLAPP statute is to
encourage and protect constitutional rights but also to protect litigant’s right to file
meritorious suit for injury), § 27.003(a) (West 2015) (permitting defending party to file
motion to dismiss if claim concerns party’s right to speak, petition, or associate). The
trial court held a nonevidentiary hearing on the motion on May 17, 2018, and took the
matter under advisement. When the trial court failed to rule on Smith’s motion by
June 16, 2018—thirty days after the date of the hearing—it was denied by operation
of law. See id. §§ 27.005(a), 27.008(a) (West 2015). Nevertheless, the trial court signed
an order denying Smith’s motion to dismiss on July 6, 2018.
D. SMITH’S APPEAL
Smith filed his notice of appeal from the denial that same day, staying all
proceedings in the trial court. See id. §§ 27.008, 51.014(a)(12), (b) (West Supp. 2018);
Tex. R. App. P. 26.1(b). In his first issue, Smith argues that the trial court erred by
denying his motion because he produced a preponderance of evidence that
Crestview’s claim for aider liability under the TSA involved his protected
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“communications . . . consulting about the safety of a medical product,” which is a
matter of public concern.5 See Tex. Civ. Prac. & Rem. Code Ann. § 27.005(b)(1). He
additionally argues that he was entitled to a dismissal because he produced a
preponderance of evidence that Crestview’s claim necessarily referred to his
communications with Armstrong and thus implicated his right to freely associate with
Armstrong—someone who shared a common interest to “promote and pursue” the
product.6 See id. § 27.005(b)(3).
In his second issue, Smith contends that after he established the applicability of
the anti-SLAPP statute to Crestview’s claim, Crestview failed to carry its burden to
produce clear and specific prima-facie evidence of each element of its aider-liability
claim. See id. § 27.005(c). We review the trial court’s denial de novo, considering the
pleadings and affidavits that state the facts upon which liability, or any pleaded
defense to liability, is based. See id. § 27.006(a); Lane v. Phares, 544 S.W.3d 881, 886
(Tex. App.—Fort Worth 2018, no pet.).
On appeal, Crestview does not dispute that a matter of public concern was
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involved.
6
Crestview does not assert on appeal that Smith and Armstrong did not have a
joint, common interest.
7
II. DISCUSSION
A. BURDEN-SHIFTING FRAMEWORK
The Texas anti-SLAPP statute, which “may be cited as the Citizens
Participation Act”7 (the TCPA), is to be construed liberally to effect its dual purposes
of protecting constitutional, First Amendment rights “to the maximum extent
permitted by law” and of protecting the right to file meritorious lawsuits for
demonstrable injury. Tex. Civ. Prac. & Rem. Code Ann. §§ 27.002, 27.011(b) (West
2015). Once a defendant files a motion to dismiss under the TCPA, a burden-shifting
framework applies. First, the movant must produce a preponderance of evidence that
the legal action against him is based on, relates to, or is in response to his exercise of
his rights to free speech, to petition, or to associate. Id. § 27.005(b). If the movant
does so, the burden shifts to the nonmovant to produce clear and specific prima-facie
evidence for each element of its claim. Id. § 27.005(c). But if the nonmovant fails to
carry this burden, the trial court must grant the motion to dismiss.8 Id. § 27.005(b)–
(c).
Act of May 21, 2011, 82nd Leg., R.S., ch. 341, § 1, 2011 Tex. Sess. Law Serv.
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960, 960 (West).
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If the nonmovant produces clear and specific evidence supporting its claim
and if the movant relies on a defense to liability, the burden shifts back to the movant
to establish each essential element of that defense by a preponderance of the
evidence. Id. § 27.005(d). Smith raised no affirmative defense in the trial court; thus,
the burden shift to the nonmovant is the end of the inquiry here.
8
Accordingly, we first ask whether Smith established by a preponderance of the
evidence that Crestview’s TSA claim against him involved the exercise of his free-
speech or associational rights, invoking the protections of the TCPA. A
preponderance of the evidence is that quantum of evidence allowing a determination
that it is more likely true than not that Crestview’s claim involves these protected
rights. See In re Lipsky, 460 S.W.3d 579, 589 (Tex. 2015) (orig. proceeding). We must
refer to any submitted affidavits in our de novo review, but we are to look to
Crestview’s pleadings as “the best and all-sufficient evidence” of the nature of its
claim against Smith. Hersch v. Tatum, 526 S.W.3d 462, 467 (Tex. 2017); see Tex. Civ.
Prac. & Rem. Code Ann. § 27.006(a) (requiring court to consider pleadings and
submitted affidavits).
B. TCPA’S APPLICABILITY BY A PREPONDERANCE OF THE EVIDENCE
Crestview asserted in response to Smith’s motion to dismiss that the TCPA did
not apply because its TSA claim was factually based on Smith’s conduct, not his
communications.9 The TCPA protects communications that are in furtherance of
free-speech or associational rights. See Tex. Civ. Prac. & Rem. Code Ann.
§ 27.001(2)–(3) (West 2015). A communication is broadly defined in the TCPA as
9
Crestview did not argue in the trial court or in this court that its claim against
Smith was exempt from the TCPA’s application as a commercial transaction. See Tex.
Civ. Prac. Rem. Code Ann. § 27.010(b) (West 2015). See generally Kirkstall Rd. Enters.,
Inc. v. Jones, 523 S.W.3d 251, 253 (Tex. App.—Dallas 2017, no pet.) (recognizing
nonmovant carries burden to show applicability of exemption).
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“includ[ing] the making or submitting of a statement or document in any form or
medium, including oral, visual, written, audiovisual, or electronic.” Id. § 27.001(1).
The plain language of this definition extends the application of the TCPA to “[a]lmost
every imaginable form of communication, in any medium.” Adams v. Starside Custom
Builders, LLC, 547 S.W.3d 890, 894 (Tex. 2018). But again, the TCPA’s protections
extend to all forms of communication.
In this case, Crestview specifically and narrowly alleged that Smith’s actions
aided Armstrong in her violations of the TSA, not his communications. None of the
allegations leveled against Smith referred to communications with Armstrong. Rather,
Crestview focused on Smith’s actions and inactions—Smith “rendered substantial
assistance in furtherance of Armstrong’s conduct,” “conduct[ed] clandestine ‘testing,’”
“failed to keep any medical records,” and “violated . . . Texas Medical Board
regulations in connection with his assistance of Armstrong’s sale.”
We recognize that artful pleading cannot be a detour around the TCPA. See
Garton v. Shiloh Vill. Partners, LLC, No. 12-16-00286-CV, 2017 WL 6884451, at *4–5
(Tex. App.—Tyler Aug. 23, 2017, no pet.) (mem. op.). But we cannot completely
ignore Crestview’s pleadings and conclude, as Smith urges, that the actual, yet
unpleaded, nature of Crestview’s claim was based on his “extensive[]”
communications with Armstrong. See Hersch, 526 S.W.3d at 467. Although Smith
testified at his deposition that he and Armstrong had discussions about the product,
these discussions are not the basis of Crestview’s narrow claim against him. The
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practical effect of Smith’s position—any action he took as an aider under the TSA
necessarily involved communications—would seem to extend the definition of
communication, and thus the reach of the TCPA, to noncommunications. Cf. Sullivan
v. Tex. Ethics Comm’n, 551 S.W.3d 848, 855–56 (Tex. App.—Austin 2018, pet. filed)
(rejecting “broad and isolated interpretation of the TCPA” that would “end-run the
specifically enacted scheme for enforcement of the lobbyist-registration statute”). This
would be contrary to the plain-language definitions in the TCPA. See Tex. Civ. Prac.
& Rem. Code Ann. § 27.001(1)–(4); Lippincott v. Whisenhunt, 462 S.W.3d 507, 509 (Tex.
2015).
In support of his argument that the TCPA applies, Smith points to analogous
theft-of-trade-secret claims that have been held to involve communications and,
therefore, to trigger application of the TCPA. See Craig v. Tejas Promotions, LLC,
550 S.W.3d 287, 294–96 (Tex. App.—Austin 2018, pet. filed); Elite Auto Body LLC v.
Autocraft Bodywerks, 520 S.W.3d 191, 196–99 (Tex. App.—Austin 2017, pet. dism’d).
But in those cases, the plaintiffs specifically alleged that the defendants improperly
disclosed protected information to others, leading to the conclusion that those
plaintiffs had alleged a communication as that term is defined in the TCPA. Craig,
550 S.W.3d at 295–96; Elite Auto, 520 S.W.3d at 194, 197–98. Crestview did not
include allegations against Smith that involved disclosure of information by statement
or document. And the court in Elite Auto recognized that a trade-secret claim not
involving the making or submitting of a statement or document would not be subject
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to dismissal under the TCPA because it would not be considered a communication.
Elite Auto, 520 S.W.3d at 198.
In sum, Crestview’s aider-liability claim against Smith does not allege a
communication. See Bumjin Park v. Suk Baldwin Props., LLC, No. 03-18-00025-CV,
2018 WL 4905717, at *3–4 (Tex. App.—Austin Oct. 10, 2018, no pet. h.) (mem. op.)
(holding alleged tortious-interference and breach-of-contract counterclaims were
based on conduct and were not within TCPA’s purview). Thus, Smith did not meet
his burden to show by a preponderance of the evidence that Crestview’s claims were
subject to the TCPA, ending our inquiry. We overrule issue one.10
III. CONCLUSION
We conclude that Smith failed to show by a preponderance of the evidence that
Crestview’s pleaded claim against him alleged a communication as that term is defined
in the TCPA, rendering the TCPA’s procedural protections inapplicable. Thus, the
trial court did not err by denying Smith’s motion to dismiss.
To be clear, we are not holding that an alleged violation of the TSA can never
be subject to a motion to dismiss under the TCPA. If a plaintiff pleaded that a
defendant violated the TSA by making or submitting a statement or document, that
claim as pleaded might very well be subject to the TCPA’s procedural scheme.
Neither are we commenting on the merits of Crestview’s claim against Smith. The
10
We need not address Smith’s second issue directed to Crestview’s burden
under the TCPA. See Tex. R. App. P. 47.1.
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merits are not at issue in the first step of a TCPA analysis. See Porter-Garcia v. Travis
Law Firm, P.C., Nos. 01-17-00203-CV, 01-17-00206-CV, 2018 WL 4027023, at *1
(Tex. App.—Houston [1st Dist.] Aug. 23, 2018, pet. filed). With these limiting
comments, we affirm the trial court’s denial. See Tex. R. App. P. 43.2(a).
/s/ Lee Gabriel
Lee Gabriel
Justice
Delivered: November 29, 2018
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