Old Calif. bank-defamation law struck down

Friday, June 1, 2012

A California state appeals court has invalidated a 1917 state law that criminalized the making of false statements or the spreading of false rumors about a bank and its financial condition.

The court’s decision is significant for at least two reasons. First, it shows a court carefully applying First Amendment scrutiny and principles to an overbroad and vague law. Second, it shows the efficacy of the state’s anti-SLAPP law — designed to allow defendants to escape from a Strategic Lawsuit Against Public Participation.

Summit Bank sued Robert Rogers, its former vice president and chief credit administrator in 2007-2008, after learning that it was he who had posted a series of anonymous statements on Craigslist about the bank in the “Rant and Rave” section. Initially, Summit Bank filed a complaint in August 2009 against unknown Doe defendants, as the bank did not know the identity of the poster. After a trial court granted the bank’s request to serve a subpoena on Craigslist, the bank learned that it was Rogers.

His posts included:

“Being a stockholder of this screwed up Bank, this year there was no dividend paid. The bitch CEO that runs this Bank thinks that the Bank is her personel [sic] Bank to do with it as she pleases. Time to replace her and her worthless son.”

“Move your accounts now before its [sic] too late.”

After learning his identity, the bank filed a complaint against Rogers, alleging that he had defamed the bank.  Rogers filed an anti-SLAPP motion seeking to strike the lawsuit. California’s anti-SLAPP law, passed in 1992, provides:

“A cause of action against a person arising from any act of that person in furtherance of the person’s right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim.”

Rogers claimed that the anti-SLAPP statute protected him because his posts were protected free speech on matters of public importance. The bank countered that Rogers could not avail himself of the anti-SLAPP law because he had engaged in unprotected speech under the 1917 banking law prohibiting false statements or rumors about banks.

The California Court of Appeals determined in its May 29, 2012, decision in Summit Bank v. Rogers that Rogers engaged in protected speech within the meaning of the anti-SLAPP suit, because it found that the banking law violated many First Amendment principles.

The court cited numerous “constitutional deficiencies” with the law. First, it noted that it was akin to a criminal-libel statute in that it imposed criminal liability on those who made the allegedly false statements. However, the statute did not require that the statements be made with “actual malice” — with knowing falsity or with reckless disregard as to whether the statements were true or false. Since the law was passed in 1917, the U.S. Supreme Court has fundamentally changed libel laws with decisions such as New York Times Co. v. Sullivan (1964) and Garrison v. Louisiana (1964), requiring that public-official plaintiffs show that allegedly defamatory statements were made with actual malice. Many banks would qualify under the public-official designation.

The California court wrote that the financial statute “is unconstitutional on its face for the same reason similar statutes have been found to be unconstitutional — it does not contain a clear requirement of actual malice or any statutory language limiting its reach to those banks which are not considered public figures.”

The appeals also found that the banking law was too vague and too broad. “When is a statement ‘by inference derogatory to the financial condition’ of a bank?” the appeals court questioned.

Summit Bank argued that because of the growing number of insolvent banks, banks need extra protection from derogatory and false comments. The court thought otherwise: “It is precisely because of the current financial climate that we believe the public should be given broad latitude to express a wide range of viewpoints on matters relating to the operation and solvency of our financial institutions.”

The court said the law was too broad because it was not constructed “to punish only deliberate false statements of fact.”

Because the law was unconstitutional, the appeals court noted that Rogers had met the first requirement of the anti-SLAPP law — that he engaged in protected free speech. He also met the other requirements of the statute, including whether his comments addressed a “public issue.”

The appeals court said talking about the bank’s financial condition certainly qualified as a public issue.

The decision shows the importance of both nuanced First Amendment analysis and anti-SLAPP statutes that can protect individuals from retaliatory defamation lawsuits.

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