SmileDirectClub Sues NBC For $2.85 Billion, Claims Factual Statements And Quotes From Customers Are Defamatory

from the litigating-market-cap-losses-as-a-service dept

SmileDirectClub -- maker of in-home dental appliances -- is back in the lawsuit business. A couple of years ago, the company sued Lifehacker over an article originally titled "You Could Fuck Up Your Mouth With SmileDirectClub." The company claimed any criticism of its products and techniques was defamatory. Despite the original inflammatory headline, the Lifehacker piece was even-handed, warning potential customers that semi-DIY dental work has some downsides. SmileDirect voluntarily dismissed the lawsuit a week later, perhaps sensing a judge -- even one in bogus lawsuit-friendly Tennessee -- might not agree that critical opinions, however harsh, were libelous.

Apparently hoping to undermine the "defamation" market, SmileDirectClub began tying refunds to gag orders, refusing to give unhappy customers back their money unless they signed a non-disparagement agreement. Now, SmileDirect is headed back to court to take on NBC for its critical news report. This time, SmileDirect has to talk its way past a revamped state anti-SLAPP law to get the $2.85 billion it's seeking in this lawsuit. (h/t Daniel Horwitz)

The lawsuit [PDF] appears to have been filed by lawyers being paid by the word. It's over 200 pages long and comes with a comprehensive table of contents. Longer does not mean better-developed. And it also doesn't mean the legal arguments are stronger than those found in more sensibly-sized filings.

SmileDirect says NBC's report did an incredible amount of damage to its business.

SDC’s stock price, which had been trending upward prior to the Reports, plummeted 15% the day after the Reports were published. Prospective patients cancelled their treatment. SDC’s revenue fell. And, SDC’s market capitalization dropped by over $950 million.

The company believes NBC's report (which was sensibly titled "SmileDirectClub Promises Easy Teeth Straightening. Some Patients Report Problems.") did all of this and more. The lawsuit accuses NBC of deliberately deploying lies because the reporters chose to ignore the documents and interviews SmileDirect offered when it found out this report was going to be aired. "For the clicks" is the argument SDC makes.

SDC’s employees and officers across the country, as well as SDC-affiliated doctors, witnessed their hard work being undermined by a news organization and reporter who cared more about ratings and making a splash than the truth.

However, the arguments made by the company while establishing jurisdiction seem to undercut SDC's narrative about NBC reporters deliberately avoiding contact with the company.

[N]BC knowingly and intentionally contacted SDC in Davidson County in connection with the Reports. NBC initiated, received, and responded to, communications (electronic and telephonic) with SDC employees located in Davidson County. And, NBC repeatedly solicited information from SDC employees located in Davidson County over the course of three months prior to the publication of the Reports.

[...]

NBC knowingly and intentionally traveled to Davidson County in connection with the Reports where it, among other things, interviewed an SDC officer. NBC requested an interview with an SDC officer. NBC voluntarily decided to travel to Davidson County to conduct the interview.

Here's as concise a summary of SDC's allegations as can be found in the sprawling lawsuit:

As discussed below, NBC’s online report was defamatory and disparaging because it: (a) falsely stated that treatment using SDC’s platform caused health and physical problems; (b) falsely stated that treatment using SDC’s platform can cause permanent injuries and omitted material facts to falsely imply that treatment using SDC’s platform can cause permanent injuries; (c) omitted material facts about the thoroughness and extensiveness of treatment received by patients from SDC-affiliated doctors using SDC’s platform; (d) falsely stated that treatment using SDC’s platform injured Female Patient; (e) falsely stated that treatment using SDC’s platform injured Male Patient; (f) falsely stated that patients must be protected from treatment using SDC’s platform; (g) omitted material facts to falsely imply that treatment using SDC’s platform violates government regulations; (h) falsely stated that treatment using SDC’s platform is “do it yourself” dentistry and omitted material facts to falsely imply that treatment using SDC’s platform is “do it yourself” dentistry; (i) falsely stated that SDC-affiliated doctors are not involved in treating patients and omitted material facts to falsely imply that SDC-affiliated doctors are not involved in treating patients; (j) falsely implied that treatment using SDC’s platform is not safe; (k) falsely implied that treatment using SDC’s platform is “do it yourself” dentistry; (l) falsely implied that treatment using SDC’s platform is not effective for patients; and (m) falsely implied that SDC is a dishonest company.

But SDC's allegations all seem to lead to statements that appear to be factual. The company complains about statements like "nine Congressmen also asked the FDA and FTC to investigate [Smile Direct]..." (which is factual) and "More than 1,800 complaints have been filed with the Better Business Bureau…" (also factual).

The other commentary SDC complains about comes from patients who discussed their experiences with the company's products. The lawsuit lists direct quotes from unhappy customers as defamatory statements made by NBC, conveniently ignoring the source of those quotes in favor of trying to hit a bigger target.

The other stuff listed falls into the category of protected opinion. NBC's assertion that "some" patients experienced problems is not only accurate, but it's the sort of conclusion anyone would have reached by speaking to unhappy customers or reading its BBB page. SmileDirect claims its Better Business Bureau rating makes NBC's conclusions and assertions maliciously false, but it's the sort of conclusion only a company filing a 200-page complaint could reach.

SDC’s overall score by the Better Business Bureau (“BBB”) is A+, the highest available rating. At the time of the Reports, the number of issues raised with the BBB by patients treated using SDC’s platform, including non-clinical issues, was less than 0.2%. The number of issues raised with the BBB—by patients or non-patients (i.e., people pretending to be patients)—regarding clinical issues was a small percentage of that infinitesimally small percentage, less than 0.001%.

Be that as it may, there are still more than 2,000 complaints listed on the BBB site and the site has noted the company is trying to get people to speak to a customer service rep before filing a complaint. Also, as was reported earlier this year, the company has been tying people to restrictive non-disparagement agreements before issuing refunds.

Making the lawsuit longer doesn't make it any better. The same points are rehashed repeatedly in an apparent effort to bludgeon the presiding judge into arriving at the conclusion that something this lengthy must contain viable legal arguments. But it doesn't. What's called defamation in this lawsuit is a collection of factual statements, supported opinions, and direct quotes from unhappy customers.

Tennessee's anti-SLAPP law may keep SDC from bleeding NBC for too long, but there's a good chance that law will never be tested. SDC may have wanted to keep this case at home, but suing a New York-based company for $2.85 billion means the lawsuit will have to be handled in a federal court. Tying in some state claims about alleged violations of Tennessee's Consumer Protection Act won't be enough to keep it local. Unfortunately, that may work out better for SmileDirect, which will be able to force NBC to defend itself from this lawsuit. Federal courts have been very hesitant to apply state anti-SLAPP laws to federal lawsuits, highlighting (once again) the need for a federal anti-SLAPP law.

Filed Under: criticism, defamation, gag order, slapp, slapps
Companies: nbc, smiledirectclub


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  • identicon
    Anonymous Coward, 28 May 2020 @ 4:36pm

    The SDC lawyers clearly are taking the company for all its worth

    I wonder what percentage of their yearly expenses are going to this legal fiasco. The end result will be proving that SDC is not a club you or your children should ever belong to.

    reply to this | link to this | view in chronology ]

  • icon
    That Anonymous Coward (profile), 28 May 2020 @ 5:03pm

    The added bonus for SDC is that anyone who is unhappy will think 3 times about saying anything to anyone.

    The fact that they have that many BBB complaints and still an A+ rating does raise the question about how much the rating is based on factual things and how much is based on fees.

    This is a hail mary pass that they hope they will get some sort of payday but no one can really put a price on the benefit they get from keeping critics silent.

    reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 29 May 2020 @ 9:26am

      Re:

      The fact that they have that many BBB complaints and still an A+ rating does raise the question about how much the rating is based on factual things and how much is based on fees

      From my experience in dealing with the BBB at a former employer, the rating is based on the company's response to complaints. It's entirely possible to have every BBB report be negative and still have an A+ rating.

      reply to this | link to this | view in chronology ]

      • identicon
        Anonymous Coward, 30 May 2020 @ 2:22pm

        It's entirely possible to have every BBB report be negative and still have an A+ rating.

        ...but I presume that the company would have to punctually renew its BBB membership every year, just in case?

        reply to this | link to this | view in chronology ]

  • icon
    That One Guy (profile), 28 May 2020 @ 6:02pm

    Ah to be that self-entitled...

    Thing is even if the NBC reporting did tank the company's earnings, causing a severe drop, that's still not illegal, and it certainly isn't defamation.

    If accurately reporting on people's experiences and complaints counted as defamation should doing so 'cost' the seller money then negative reviews or investigations into something would be illegal, which would not only make reviews completely and utterly useless it would also be beyond absurd and a gross violation of free speech.

    Negative but accurate reviews or reporting can certainly be a problem for a bad company, but defamation it is not, and as far as I know 'felony obstruction of a business model' has not quite made it from wishful thinking into the actual law just yet.

    reply to this | link to this | view in chronology ]

    • icon
      Thad (profile), 29 May 2020 @ 9:50am

      Re: Ah to be that self-entitled...

      The other night I had a few beers and decided to see if M Night Shyamalan's The Last Airbender was really as bad as everybody said.

      I have some pretty defamatory things to say about that movie.

      reply to this | link to this | view in chronology ]

  • icon
    Tanner Andrews (profile), 3 Jun 2020 @ 12:48am

    but suing a New York-based company for $2.85 billion means the lawsuit will have to be handled in a federal court

    Not necessarily. If the defendant does not act to remove the suit to Federal, then the suit stays in state court.

    Removal to Federal may be available, if the defendant so chooses. Generally this requires either a federal question or diversity. The jurisdictional amount for diversity would appear to be met, but I do not know where the parties have their offices. If both are in the same state, then diversity fails. The issue of diversity is litigated fairly often.

    reply to this | link to this | view in chronology ]


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