Banking Defamation Statute Ruled Unconstitutional, Case Ruled a SLAPP
Very interesting decision by California’s First Appellate District in a case called Summit Bank v. Rogers this week regarding a 100-year old criminal defamation statute, Financial Code section 1327, which makes it a misdemeanor for any person to make any untrue statement or circulate any untrue rumor that is “derogatory to the financial condition or affects the solvency or financial standing of any bank.” The statute, which has apparently been only very rarely enforced, was enacted with the purpose of preventing the types of runs on banks that caused financial panics before the creation of the FDIC.
This statute came into play in Rogers in the context of an anti-SLAPP motion and the subsequent appeal of the decision on the motion. Most commentators writing about the decision this week have remarked on the case’s invalidation of the banking statute under the First Amendment (see the First Amendment Center’s piece here and JD Supra’s piece here), so I will only address that part of the opinion briefly, but the case is also quite interesting for its anti-SLAPP and defamation law analysis. It is especially interesting how the anti-SLAPP law provided the procedural context for the court to decide the constitutionality of this strange old defamation law.
Rogers was a former employee of Summit Bank who posted a series of poorly spelled, hyperbolic statements regarding the bank’s financial condition and management on Craigslist’s “Rants and Raves” section. The bank then sued for defamation, and after subpoenaing Craigslist and the internet service provider for the IP address of the poster, determined that Rogers was behind the posts. In response, Rogers filed an anti-SLAPP motion, arguing that his statements were made in a public forum (Craigslist) regarding issues of public interest (the management and financial condition of a major bank), and that the bank could not show a probability of prevailing because all of his statements were either true, substantially true or constituted non-actionable opinion rather than statements of fact.
The bank then made a move that was a bit too clever for its own good. Citing Flatley v. Mauro, the bank attempted to argue that the anti-SLAPP statute did not apply because Rogers’ statements were “illegal as a matter of law” under the banking defamation statute, Financial Code section 1327. (Flatley created an exception to the anti-SLAPP statute for statements or conduct that are indisputably illegal, and therefore not a valid exercise of First Amendment rights.) Since, in the Bank’s view, the evidence conclusively established that Rogers’ statements were criminally defamatory under section 1327, Rogers was not entitled to anti-SLAPP protection and the anti-SLAPP motion should have been denied.
The bank was apparently unprepared, however, for the court of appeals’ reaction to this argument. The court, looking at the archaic strictures of a criminal defamation statute written in 1907, ordered additional briefing from the parties on the issue of Financial Code section 1327′s constitutionality under modern First Amendment jurisprudence. The bank solicited amici curiae briefs from various banks and banking associations attempting to show the constitutionality of the law and pleading with the court to decide the case on grounds other than constitutionality. The bank also made a gallant effort to backtrack from its Flatley argument. Despite these efforts, however, the court struck down the law as facially invalid under the First Amendment. “Illegal as a matter of law” Rogers’ statements may have been, but the court was not about to apply this principle where the statute underpinning the illegality was itself unconstitutional.
The reasons the court did so should not be surprising to anyone familiar with First Amendment jurisprudence, or constitutional law more generally. The statute did not contain a malice requirement, as required for laws that regulate speech on issues of public interest; the statute was unconstitutionally vague; the statute was overbroad; and, the statute failed to overcome the presumptive invalidity imposed on content-based regulations of speech.
Finding that the anti-SLAPP statute applied, the court then proceeded to analyze whether the bank had shown a probability of prevailing on its defamation claims (those not based on the unconstitutional banking defamation statute). The court concluded that it had not, and its bases for so concluding are very interesting from an internet defamation perspective. First, some of the statements were true, or substantially true, including statements about the bank having been under investigation from regulators and being in perilous financial condition.
The remaining statements, the court found, were opinion. Under defamation law, opinions that do not imply false assertions of fact are protected, and cannot provide a basis for liability. In determining whether a statement constitutes opinion, courts look to the context of the statement, including the forum in which it was made. Analyzing the context of Craigslist’s “Rants and Raves,” the court came to the same conclusion that anyone else who reads internet message boards has come: such boards are not to be read as sources of reliable information (i.e., factual statements), and are generally understood as such by those who read them. The court summed it up by quoting from Prof. Lyrissa Barnett Lidsky’s law review article, “Silencing John Doe: Defamation & Discourse in Cyberspace“: “[A]ny reader familiar with the culture of …  most electronic bulletin boards  … would know that board culture encourages discussion participants to play fast and loose with facts. … Indeed, the very fact that most of the posters remain anonymous, or pseudonymous, is a cue to discount their statements accordingly.”
The court concluded that this context, in combination with the language Rogers used, clearly identified them as opinion: “Looking at the actual language used in Rogers’s posts, it is obvious Rogers’s messages are intended to be free-flowing diatribes (or ‘rants’) in which he does not use proper spelling or grammar, and which strongly suggest that these colloquial epithets are his own unsophisticated, florid opinions about the Bank and its key personnel. This context further undermines the reader’s expectation that the posts are to be understood as assertions of fact. ‘To put it mildly, these postings … lack the formality and polish typically found in documents in which a reader would expect to find facts.’ (Cite.)”
Since the bank had failed to show the statements were defamatory, it had failed to demonstrate a probability of prevailing, and the suit was dismissed under the anti-SLAPP law. Overall, a very interesting and important case, not only for its invalidation of a 100-year old statute as unconstitutional, but also for its acknowledgment that casual online speech must be considered in the context of the roiling and chaotic environment of the internet.