Federal appeals court reinstates union’s challenge of bank-libel law

Thursday, January 27, 2000

A culinary workers union in Nevada can proceed with its First Amendment challenge of a state law prohibiting derogatory remarks made about a bank's financial condition, a federal appeals court has ruled.

Members of the Culinary Workers Union Local 226 sued in federal court after Nevada State Attorney General Frankie Sue Del Papa sent the union a letter warning it to stop passing out a handbill that said “Commercial Bank Loses Money Again.”

The attorney general's letter quoted Nevada state law:

“Any person who willfully and maliciously makes, circulates or transmits to another or others any statement, rumor or suggestion, written, printed or by word of mouth, which is directly or by inference derogatory to the financial condition, or affects the solvency or financial standing of any bank, or who counsels, aids, procures or induces another to state, transmit or circulate any such statement or rumor is guilty of a gross misdemeanor, and upon conviction thereof shall be fined or imprisoned, or both, in the discretion of the court.”

After receiving the letter, the union stopped distributing the handbill and sued in federal court, asking the court to declare the law unconstitutional.

U.S. District Judge Lloyd George granted a temporary restraining order in 1996 “based on the irreparable injury to the first amendment rights of plaintiff if NRS 668.105 [the law] is enforced.” However, the judge later dismissed the lawsuit, finding that the “attorney general lack[s] specific authority to criminally prosecute plaintiff, and therefore, this action does not rise to the level” of an active case or controversy.

On appeal, the 9th U.S. Circuit Court of Appeals on Dec. 27 reinstated the lawsuit by a vote of 2-1. The three-judge panel found that there was a live case or controversy: “Here, there has clearly been a specific threat of prosecution; the attorney general's letter to the union is precise and exact — she will cause the statute to be enforced unless the union ceases distribution of the handbill.”

The attorney general contended that there was no “genuine threat” to the union's First Amendment rights. However, the 9th Circuit majority wrote in Culinary Workers v. Del Papa: “There is no dispute that the union stopped distributing the contested handbill as soon as it received the attorney general's letter. This is substantially more than a substantive chilling effect.”

The appeals panel refused to rule on the constitutionality of the law, saying that was a matter for the lower court. “We agree with the state that the proper resolution of this case may require a fuller development of the record,” the court wrote.

Calls placed to the attorneys for the union and the attorney general's office were not returned.