Many states have laws on the books prohibiting anyone from making disparaging comments about a particular bank’s financial condition. This sort of talk is thought to be outside free speech because just the slightest rumor can trigger a bank run. Of course, not much of a line needs to develop at the teller window for bankers to get nervous, because they don’t keep much cash around to satisfy withdrawals. Depositor money is lent out or invested, or in the case of J.P. Morgan, used for speculating in London.
In California, there’s been an anti-bank run law on the books since 1917 prohibiting a person from spreading false information about a bank’s condition. In this age of deposit insurance and the FDIC, the law hasn’t been tested much. But along comes Robert Rogers, who as an ex-employee of Summit Bank posted a rant and rave on Craigslist, saying, “I would suggest that anyone that banks at Summit Bank leave before they close.”
Rogers, who served as the bank’s chief credit administrator and vice president, also took the opportunity to post what American Banker describes as “vulgar comments about the bank’s chief executive officer and her son.”
The bank sued Mr. Rogers for libel, to which the ex credit administrator countered that his speech was protected by the First Amendment. So, the lawyers for Summit pulled out a copy of the 1917 law and claimed his statements should not be considered free speech.
But the appeals court in a 30-page opinion said, “We find section 1327 cannot be reconciled with modern constitutional requirements.” The court went on to say, “When analyzed under modern constitutional jurisprudence, the broad provisions of Financial Code section 1327, on their face, impermissibly sweep within their proscriptions speech that cannot be criminally punished.”
The justices said the law is too vague and has too broad a reach, “and said the law lacks a requirement — included in other statutory restrictions on speech — that a speaker’s statement be proven to be malicious,” reports AB.
“It is a criminal libel statute without a malice requirement, which is designed to prohibit speech based on its content,” the court said. “It fails to give persons of ordinary intelligence fair notice of what is forbidden. It sets no discernible limits on what types of speech can be criminalized, and, allowing such free range, it lends itself to arbitrary enforcement.”
Of course bankers and their attorneys are troubled by the decision.
“While the First Amendment certainly provides broad protection to analyze and comment on banking matters, and even provide sharp and critical commentary, the U.S. Supreme Court has consistently held that the First Amendment does not give a person a constitutionally protected right to falsely cry ‘fire’ in a crowded movie theatre,” V. Gerard Comizio, a partner at Paul Hastings said. “The real question here is whether attempting to trigger a bank run arguably has a similar impact.”
“This case has profound implications about the scope of the First Amendment and the use of social media to provide critical commentary on the safety and soundness of particular banks,” said Comizio.
Murray Rothbard explained that there is no such thing as freedom of speech, but instead property rights. Even in the case of falsely yelling “fire” in a crowded theater, Rothbard explains,
For, logically, the shouter is either a patron or the theater owner. If he is the theater owner, he is violating the property rights of the patrons in quiet enjoyment of the performance, for which he took their money in the first place. If he is another patron, then he is violating both the property right of the patrons to watching the performance and the property right of the owner, for he is violating the terms of his being there. For those terms surely include not violating the owner’s property by disrupting the performance he is putting on. In either case, he may be prosecuted as a violator of property rights; therefore, when we concentrate on the property rights involved, we see that the Holmes case implies no need for the law to weaken the absolute nature of rights.
In this case Mr. Rogers doesn’t have “freedom of the press” to post on Craigslist, but instead, as Rothbard writes,
what he does have is the right to write or publish a pamphlet, and to sell that pamphlet to those who are willing to buy it (or to give it away to those who are willing to accept it). Thus, what he has in each of these cases is property rights, including the right of free contract and transfer which form a part of such rights of ownership. There is no extra “right of free speech” or free press beyond the property rights that a person may have in any given case.
Bankers are sensitive, and for good reason as Rothbard makes clear,
But in what sense is a bank “sound” when one whisper of doom, one faltering of public confidence, should quickly bring the bank down? In what other industry does a mere rumor or hint of doubt swiftly bring down a mighty and seemingly solid firm? What is there about banking that public confidence should play such a decisive and overwhelmingly important role?