Anti-SLAPP Ruling: Opinion by Standard & Poor’s Not Necessarily Protected Speech

With the wisdom of a penny-stock investor trying out day-trading for the first time, the brilliant financial minds at CalPERS (California Public Employees’ Retirement System) decided to dump more than a billion dollars into three “structured investment vehicles” or SIVs, backed by subprime mortgages. (That was a really long sentence but I think it’s grammatically correct.) After all, Standard & Poors had given these three SIVs AAA ratings, even though they were “stuffed full of toxic, subprime mortgages, home equity loans, and other types of structured-finance securities linked to subprime mortgages,” as CalPERS now alleges.

As most do when they make really bone-headed investment decisions, CalPERS looked for someone to blame, and settled on Standard & Poors for that AAA rating. It sued Standard & Poors for negligent misrepresentation, asserting that the ratings company should be held responsible for the losses suffered by CalPERS.

“But wait a cotton-picking minute,” said some fictional attorney representing Standard & Poors, “I read somewhere in law school that opinion is protected speech, and won’t support an action.” On that basis, Standard & Poor’s filed an anti-SLAPP motion, but a San Francisco judge denied the motion, finding that CalPERS had provided sufficient evidence to meet the second prong of the anti-SLAPP analysis. (Judge Richard Kramer to be precise, in case you happen to know the judges at the San Francisco Superior Court. Me, I never heard of the guy even though I have handled cases in that courthouse.)

Standard & Poors exercised its right to appeal that decision, but the Court of Appeal affirmed. As Justice Martin Jenkins (I don’t know him either) wrote:

We agree with CalPERS this evidence reflects that the Rating Agencies published the ratings from a position of superior knowledge, information and expertise regarding the SIVs’ composition, underlying structure and function that was not generally available in the market.  More specifically, we conclude this evidence reflects not only that the Agencies employed superior knowledge and special information and expertise to assign ratings to the SIVs, they employed their special knowledge, information and expertise to participate in, and exert control over, the very construction of the SIVs. As such, we agree with CalPERS a prima facie case has been made that the ratings are actionable as ‘professional opinions’ or ‘deliberate affirmations of fact’ regarding the nature and quality of the SIV product.

While pure opinion speech is of course protected, and would generally protect Standard & Poor’s from it predictions, “the same cannot be said of the ratings at issue here, which were allegedly issued for private use by the limited class of investors dealing in complex and esoteric nonregistered securities,” Jenkins said.

IBM Mag Card Typewriter

IBM Mag Card Typewriter

The case is California Public Employees’ Retirement System, Inc. v. Moody’s Investors Services, Inc., 14 S.O.S. 2584. I have provided below the actual file-stamped copy of the complaint (complete with Civil Case Cover Sheet!) and the opinion of the Court of Appeal.

I have also attached a copy of the Order on a demurrer in the action. It has nothing to do with what we are discussing, but I wanted you to see it so you don’t make the same mistake the attorneys at Berman DeValerio made. Well, it’s not so much a mistake, per se, ab initio, but they prepared the proposed order and entitled the document “[Proposed] Order blah, blah, blah.” So far so good. The judge then reviews and signs the Order, and crosses out the word “proposed” in the name of the document. But then thinking that the footer has to exactly match the name of the document, the attorneys at Berman DeValerio (I’m guessing it was Daniel Barenbaum because he has a pretty high bar number, whereas Joseph Tabacco stated practicing back when IBM Mag Card typewriters were on the bleeding edge of technology, and he would therefore be very frugal with keystrokes) then put that exact title in the footer of every page in the proposed order. Poor Judge Kramer then had to cross out the word “Proposed” on every single page. No wonder it takes so long to get a case to trial in San Francisco. I never put the word “proposed” in the footer, and so far no one has ever complained.

[google-drive-embed url=”https://docs.google.com/a/toplawfirm.com/file/d/0BxLJb92smfYDSkQ1c0FIUC1TQXc/edit?usp=drivesdk” title=”Complete Calpers Complaint.pdf” icon=”https://ssl.gstatic.com/docs/doclist/images/icon_10_pdf_list.png” newwindow=”yes” style=”normal”]

[google-drive-embed url=”https://docs.google.com/a/toplawfirm.com/file/d/0BxLJb92smfYDbWFPWFVFVk83RUk/edit?usp=drivesdk” title=”Opinion re CalPERS.PDF” icon=”https://ssl.gstatic.com/docs/doclist/images/icon_10_pdf_list.png” newwindow=”yes” style=”normal”]

[google-drive-embed url=”https://docs.google.com/a/toplawfirm.com/file/d/0BxLJb92smfYDSUFaVmUwTXZOX0E/edit?usp=drivesdk” title=”Order from demurrer.pdf” icon=”https://ssl.gstatic.com/docs/doclist/images/icon_10_pdf_list.png” newwindow=”yes” style=”normal”]

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Aaron Morris, Attorney
Aaron Morris
Morris & Stone, LLP

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