A state appeals court has ordered the dismissal of an Oakland bank's suit against a vociferous online critic and struck down a 95-year-old state law that makes it a crime to make false statements or spread false rumors about a bank's financial condition.
The 1917 law was one of the bases of Summit Bank's defamation suit against its former executive, Robert Rogers. In Tuesday's ruling, the First District Court of Appeal in San Francisco said the law violates freedom of speech and, by threatening criminal punishment, could discourage needed criticism of today's financial institutions.
Rogers, the bank's vice president and chief credit administrator from September 2007 to September 2008, posted his comments on Craigslist's "Rants and Raves" page in June and July 2009.
In sometimes-coarse language, he denounced the bank's chief executive, said she had given a job to a "worthless" relative, said the bank had left customers "high and dry" when it closed its Hayward branch, noted that federal and state regulators were looking at the bank, and urged customers to withdraw their money.
The appeals court said the law, like most libel laws enacted in past centuries, violates the First Amendment standard declared by the U.S. Supreme Court in 1964: Speech about public figures or institutions can be punished only when it is knowingly or recklessly false.
The California law, by contrast, would allow prosecution of someone who merely circulated a rumor that he or she believed to be true. The law was also so vaguely written that speakers would not know what they could say about a bank.
The bank's defamation suit was baseless because Rogers' comments were "free-flowing diatribes" that readers of the "Rants and Raves" page would consider statements of opinion.
The California Bankers Association had joined Summit Bank in defending the 1917 law. But the association's attorney, Leland Chan, said Wednesday the law has little current importance, since federal deposit insurance has minimized the potential impact of a panic-induced mass withdrawal from a bank.