actual malice in orange county v. mcgraw hill

8/14/2019 Actual Malice in Orange County v. Mcgraw Hill

1/23

ACTUAL MALICE IN ORANGE COUNTYBy David Arthur Walters

I am ready to concede that the rule of adherence toprecedent, though it ought not to be abandoned,ought to be in some degree relaxed. I think thatwhen a rule, after it has been duly tested byexperience, has been found to be inconsistent withthe sense of justice or with the social welfare, thereshould be less hesitation in frank avowal and fullabandonment. The Nature of the Judicial Process,

Benjamin N. Cardozo

THE COUNTY OF ORANGE V MCGRAW HILL

According to the much maligned credit ratingagencies who stand accused of grossly overratingpools of subprime mortgages that were bound to go

stagnant and perhaps wind up being dumped on thetaxpayer as toxic waste, the U.S. District CourtsOrder in the case of County of Orange v. McGraw HillCompanies, 245 B.R. 151 (1999), a suit originallybrought for breach of contract and professionalnegligence, lends some credence to the notion thatcredit rating agencies have a Constitutional right tobreach contracts and engage in professional

negligence with impunity providing that actualmalice, i.e. knowledge of falsity or recklessdisregard of the truth, is not somehow implied by theCourt. The Courts Order appertained to McGrawHills motion for summary judgment in its favoragainst Orange County. That is, McGraw Hill wanted


2/23

the judge to throw out the case on the basis thatthere were no questions or genuine issues ofmaterial fact that would lead a jury to decide againstit, meaning that the matter should not even be tried.

Orange County had hired McGraw Hills Standard andPoors to rate its bonds, and in its suit alleged thatnot only had S&P breached its contracts with theCounty but had negligently performed its ratingservices, overrating the bonds, knowingly andrecklessly ignoring the fact that the 1993 and 1994bonds were unsound, giving rise to tort or non-

contractual wrong liability by virtue of the fact thatthe high ratings permitted the Countys Treasurer,Robert Citron, and his assistant, Matthew Raabe, tomisrepresent the safety of the Countys portfolio toCounty auditors, which allowed them to make riskyand imprudent bets on interest rates. If only S&P haddisclosed the facts and risks it was well aware of,claimed the Countys lawyers, the County would

have taken action to avoid the heavy losses that ithad suffered.

But S&P claimed it was protected under the actualmalice standard set forth in the groundbreakingdefamation case, New York Times v. Sullivan, 376U.S. 254 (1964), where a police commissionerthought he was defamed by a paid editorial. Prior to

that decision, the Supreme Court gave little truck tothe perverse notion that defamation was protected inany way by the First Amendment exactly whatdefamation of public officials has to do with flatteringa government agencys Investment Pool with highratings we shall address later.


3/23

S&P contended that the Countys suit was anunprecedented assault on speech by the source ofthe very information complained of, and said the

suit was extraordinary because the Securities andExchange Commission specifically found the Countymade affirmative misrepresentations to ratingagencies, noting that Mr. Citron had pleaded guilt topublic deception and that his assistant Mr. Raabehad been convicted of felonies.

The culprits named had not personally enriched

themselves at County expense, but had participatedin an investment scheme allegedly promoted byMerrill Lynch, involving interest rate bets that wouldhopefully allow them to produce more than enoughinterest income to meet the Countys budgetaryrequirement for same 12% of the Countysrevenues, in comparison to an average 3% for othercounties, was the norm for interest income for

Orange County. They employed funds from theOrange County Investment Pool to invest inderivatives and high-yield bonds, and they borrowedfunds and used the borrowings to borrow even moremoney. The strategy included reverse purchaseagreements, the purchasing of securities with anagreement to resell them at a high price at somefuture date, a device that is in effect a loan of a

security for a specific rate of return. In sum, theywere borrowing billions of dollars, $2 for every $1 inthe Pool, to bet that interest rates would remain lowor go down, a strategy sophisticated traders callborrowing short to go long. Starting with $7.6billion in the Pool, they ran it up to $20.6 billion in


4/23

1994. At one point they had to hide $80 million ininterest in an inappropriate account because, if theyhad paid it over to the government entitiesparticipating in the Pool, the participants would know

they were gambling. Unfortunately for OrangeCounty, the Federal Reserve Bank was not in on thescheme, and interest rates were raised. As the valueof Countys securities fell, the County could not meetcalls for more collateral, so it took a highly unusualmove for a county, and filed Chapter 9 bankruptcy onDecember 6, 1994.

The charges brought against the malefactors wererelated to the inappropriate transfers of fundsbetween government entities and filing of falsereports. Mr. Citron, a Democrat whom voters bothDemocrat and Republican had kept in office for 24years because they were more than pleased with hisfiscal performance, entered into a plea agreement.He was fined $100,000, and sentenced to 5 years

probation and 1,000 hours of community service heserved in a prison commissary for 9 months whileunder house arrest. During the plea bargaining, hislawyer said Mr. Citron had been suffering fromdementia for years. Mr. Citrons testimony indicatedhe did not know a derivative from a hole in theground. He blamed his assistant, Mr. Raabe, andMerrill Lynch for the fiasco, claiming that Merrill

Lynch had told him the investments were perfectlysafe. Mr. Raabe was convicted of five felony countsby a jury, paid a fine of $10,000 and was sentencedto 3 years in prison by Judge Everett Dickey, whosaid he wanted to send a message to public officials,that they will go to prison for misconduct. Mr. Raabe


5/23

was the only one who served time in prison. Heserved 41 days before he was released pending hisappeal. The conviction was overturned on appeal;the district attorney dropped the charges and

refunded the $10,000 fine. Mr. Raabe passed thebuck along and claimed that former county budgetdirector Ronald S. Rubino had masterminded thescheme. Mr. Rubino was convicted of one charge offalsifying documents in a plea deal that followed atrial where the jury was deadlocked 9:3 in favor ofhis acquittal. The charge was reduced to amisdemeanor and he was sentenced to 100 hours of

community service and 2 years unsupervisedprobation.

Now the Court in our Orange County case believedthat all this damning personal information, althoughit might be considered by a jury, did not obviate thepossibility that there might be a genuine issue ofmaterial fact at stake; to wit, a reasonable jury might

conclude from circumstantial evidence that S&Pknew of the falsity of its ratings for the 1994 debt;however, the same could not be said of the 1993debt, so the Court granted summary judgment infavor of S&P on 1993 debt but refused to grant it onthe 1994 debt:

The County contends S&P learned, during the

analysis of the Countys proposed 1993 and 1994offerings, that County Treasurer Robert Citron wasengaged in a harrowing investment strategy, usingmassive amounts of leverage and exotic derivativesecurities to bet the public funds under his control oninherently unpredictable interest rates. The County


6/23

states S&P was, by its own admission, uncomfortablewith the Treasurers investment strategy. TheCounty points out S&Ps chief economist waspredicting in March 1994 that interest rates would

rise, thus the County contends S&P knew theCountys investment strategy, which dependedheavily on interest rates remaining low, was introuble. Further, The County presents evidence, inthe form of depositions and declarations, that S&Pwas aware Mr. Citrons investment practices becameincreasingly risky in 1994. Moreover, The Countysubmits handwritten notes taken by S&P personnel

during a May 9, 1994 conference showing that callsfor collateral were rising along with losses, and thatdisclosure of the situation would lead to disaster.As for the 1993 offerings, the Court held that areasonable jury could not conclude by the necessarystandard that S&P knew of a high degree of probablyfalsity when it rated the Countys 1993 debt. (T)heevidence shows the Countys track record for

repaying its debt had been good to that point.Citrons strategy, however reckless in hindsight, wasearning high yields. Interest rates had not yet risento the point where assigning a top ratingrose to alevel of high degree of awareness ofprobablefalsity.

McGraw Hill wound up settling the case in 1999 for a

measly $140,000 other defendants, includingbrokerage, accounting and law firms, in the OrangeCounty bankruptcy fiasco would up paying $860.7million. The Merrill Lynch, of course, admitted nowrongdoing and said it merely wanted to defray legalexpenses when it agreed to pay a settlement of $400


7/23

million. As for the paltry $140,000, perhaps thepresence of the actual malice standard, a conceptnormally applied in defamation cases brought bypublic figures, where success is usually rewarded

with paltry sums such as $1, had diminished theCountys chances of a substantial award in this caseof flattery.

PRESS PRIVILEGE

Of course we are not surprised that credit ratingagency lawyers enjoy citing the upholding of the

actual malice standard in the Orange County case.For instance, the court in County of Orange v.McGraw Hill Cos., Inc., 245 B.R. 151, 156 n.4 (C.D.Cal. 1999), applied actual malice, the heightenedpleading standard of the First Amendment, to claimsagainst S&P, concluding that Standard & Poorsratings are [protected] speech. (ConstitutionalAnalysis of the Staff Outline Of Key Issues For A

Legislative Framework For The Oversight AndRegulation Of Credit Rating Agencies, Prepared byCahill Gordon & Reindel LLP on behalf of Standard &Poors, a division of The McGraw-Hill Companies, Inc.)Naturally the credit rating agencies would fain citeselect legal opinions that would provide them with apress shield that would protect them from beingpenalized for irresponsible behavior that could and

finally did lead to catastrophic consequences to thegeneral public. Whether such armor would protectany wandering knight who cares to identify himselfas a member of the press is a good question,especially with the advent of Internet blog-

journalism. Any attempt to define a bona fide press,


8/23

i.e. a press legally responsible for the maintenance ofcertain standards in order to enjoy certain privilegesand immunities, would be tantamount to licensureand censorship, no doubt contrary to the notion of a

free press.

The U.S. Supreme Court has not definitivelydetermined that the institutional press generallyenjoys any greater privileges than anyone else,although the press was accorded special mention inthe Constitution inasmuch as the revolutionary presswas the chief disseminator of anti-British or

unpatriotic political speech at the time, much of it, bythe way, prejudicial, spurious and scurrilous. In anycase, an ethical First Amendment should not give apublisher a right to break contracts and otherwisetrample on everyone elses rights with impunity. TheU.S. Supreme Court said as much in Cohen v CowlesMedia Co., 501 U.S. 663, holding that the publisherof a newspaper has no special immunity from the

application of general laws. He has no specialprivilege to invade the rights and liberties of others.

That judicial opinion was cited by the District Court inOrange County v. McGraw Hill in support of itsopinion that McGraw Hill could not claim a specialprivilege to breach its contract or negligently performits rating service because it said it was a publisher

entitled to the application of the actual malicedoctrine. The Court noted well that the U.S. SupremeCourt had held that publishers are not automaticallyentitled to First Amendment protection, for the FirstAmendment was written to guarantee freedom ofexpression by anyone who cares to express


9/23

themselves, hence publishers do not enjoy anyspecial immunity to use that freedom to invade therights and liberties of others. Wherefore the Courthad stated in a March 18, 1997 Order that the

question is not whether the defendant is a publisherbut whether the cause of action impacts expression.

That is, what impact would a decision in a case haveon the constitutional right to free speech?

We might well reason that speech is speech, and thata publisher is anyone who publishes a statement.

The First Amendment does not seem to expressly

provide anyone with a right to publish defamatorystatements, that is, statements that are false and areinjurious to the reputation of their subject. However,the highest court in the land, employing its inherentConstitutional power to interpret the Constitution andits Amendments as the majority of the Court sees fit,created the 1964 doctrine of actual malice whichgenerally grants publishers Constitutional immunity

for speaking freely about certain public persons evenif the statements are factually false and are injuriousto those persons, providing that the speech is notknowingly or recklessly made by its publisher,something the publisher would no doubt deny untildoomsday if so accused.

In the Orange County case, the Court followed suit

and said that, to give publishers some breathingspace so it is not unduly hampered, the FirstAmendment requires, in respect to statements aboutpublic figures, that a publisher will not incur liabilityfor a false statement unless the statement was madewith actual malice, i.e. with knowledge that the


10/23

statement was false or with reckless disregard forwhether or not it was true.

With all due respect to the Court, the First

Amendment says no such thing; it states: Congressshall make no law respecting an establishment ofreligion, or prohibiting the free exercise thereof; orabridging the freedom of speech, or of the press; orthe right of the people peaceably to assemble, and topetition the Government for a redress of grievances.

The constitutional clause does not state that

Congress shall make no lawabridging the freedomof speech, or of the pressbut since it would beunconscionable in this context for that freedom toexpressly include slander and libel, judges shallmake a preferential law that allows for thedefamation of the character of public figures,whether or not they are public officials and includingsizeable commercial organizations, provided that the

slandered or libeled party cannot prove that thedefamatory statements were made with knowledgeof their untruth or with a reckless disregard of thetruth, in which case such statements would betreated as if they were actually maliciously conceivedeven if malice aforethought is impossible to prove,and furthermore, when the cause of action is not thedefamation of a public figure but rather an injury to

someone due to the flattery of a public figure, thesame privilege shall be accorded to untruths in orderto provide truth with some erroneous breathingspace, figuratively speaking, et cetera.

ACTUAL MALICE


11/23

If only the credit rating agencies were registeredinvestment advisors they would be subject tostringent securities regulations over expert advisors

and might be held liable for negligent and misleadingadvice couched as mere opinion. All three of themajor credit rating agencies are registered with theSecurities and Exchange Commission under theInvestment Advisers Act of 1940, which prohibitsfraud, imposes fiduciary duties on advisers, requiresthat advisers maintain certain books and records,and allows the SEC to examine all registered advisers

to assure compliance with the Act. But the officiallydesignated raters believe their status as nationallyrecognized statistical rating organizations exemptsthem from such regulations. Indeed, the legalapplication of the Investment Advisers Act to thecredit rating agencies is doubtful. To be designatedas NRSROs, the agencies agree to voluntarilyregister, yet they argue they are not covered by the

Act, and claim that any information they provide tothe SEC is only provided on a voluntary basis, andnot pursuant to the requirements of the Act. ThatAct, in defining investment advisers, contains anexception for publishers [15 U.S.C. 80b-2(a)(11)(D)]exempting publishers of any bona fide newspaper,news magazine or business or financial publication ofgeneral and regular circulation from coverage of the

Act. The credit rating agencies are at least arguablyentitled to that particular exception to theInvestment Advisers Act, and the courts seem to bebuying their argument in respect to the Act. Such anexception from liability provides an incentive tonegligence and deception for those whose main


12/23

concern is with making a profit by any legal means. Ifthe exception holds true, could the so-called bonafide publisher be held accountable notwithstandingthe Investment Advisers Act? When confronted by

lawsuits, they contend their ratings are mereopinions protected by the First Amendment, andinvoke the actual malice standard.

Actual malice is a term ordinarily applied todefamation cases when public figures are impugned.Orange County did not sue McGraw Hill fordefamation, which would be understandable if the

McGraw Hills rating agency had underrated and thusdisparaged the Countys creditworthiness. Rather,the Countys creditworthiness had been grossoverrated. We are not aware of a case where anindividual has sued a publisher for flattery. Of course,flattery can sometimes do a great deal of publicharm, and has even brought down kingdoms.Although these issues traditionally arise in libel or

defamation actions, the actual malice standardapplies to other causes of action when the plaintiffseeks compensatory damages from allegedly falsestatements, the Court declared.

Actual malice is chiefly applied in defamation casesbrought by public figures where there may havebeen no malicious intent in the mind of the speaker

yet his statements may still be treated as if heintended ill provided that he knew they were false orhad recklessly disregarded the truth. Since thatmight be almost as difficult to prove as maliciousintent, critics say it gives breathing room to lies,refuge to falsifying scoundrels scoop-minded


13/23

incompetents and lazy reporters and editors. TheSupreme Court in New York Times v. Sullivan hadconsidered precedents and concluded that theremust be ample room for error in order for truth to

flourish hence it came up with the actual malicestandard.

We observe here that New York Times v. Sullivan hadnothing to do with the flattery of a governmentagency by overstating its creditworthiness, butrather involved a suit for libeling a governmentofficial. Mr. L. B. Sullivan brought a civil libel action

against the four individual petitioners, who wereNegroes and Alabama clergymen, and againstpetitioner the New York Times Company. Mr.Sullivan, who was one of the three electedCommissioners of the City of Montgomery, Alabama,testified that he was Commissioner of Public Affairs,and that his duties were supervision of the PoliceDepartment, Fire Department, Department of

Cemetery and Department of Scales. He claimed,recounted the Court, that he had been libeled by anadvertisement in corporate petitioner's newspaper,the text of which appeared over the names of thefour individual petitioners and many others. Theadvertisement included statements, some of whichwere false, about police action allegedly directedagainst students who participated in a civil rights

demonstration and against a leader of the civil rightsmovement; respondent claimed the statementsreferred to him because his duties includedsupervision of the police department. The trial judgeinstructed the jury that such statements werelibelous per se:


14/23

The trial judge instructed the jury that suchstatements were libelous per se, legal injury beingimplied without proof of actual damages, and that,

for the purpose of compensatory damages, malicewas presumed, so that such damages could beawarded against petitioners if the statements werefound to have been published by them and to haverelated to respondent. As to punitive damages, the

judge instructed that mere negligence was notevidence of actual malice, and would not justify anaward of punitive damages; he refused to instruct

that actual intent to harm or recklessness had to befound before punitive damages could be awarded, orthat a verdict for respondent should differentiatebetween compensatory and punitive damages. The

jury found for respondent, and the State SupremeCourt affirmed.

However, the Supreme Court disagreed with the

state action below i.e. the state courts ruling, inregards to the presumption of malicious intention toobtain compensatory damages. The presentadvertisement, as an expression of grievance andprotest on one of the major public issues of our time,would seem clearly to qualify for the constitutionalprotection. The question is whether it forfeits thatprotection by the falsity of some of its factual

statements and by its alleged defamation ofrespondent. The Court held that The New YorkTimes was protected by the First Amendment when itpublished the editorial advertisement. HELD: AState cannot, under the First and FourteenthAmendments, award damages to a public official for


15/23

defamatory falsehood relating to his official conductunless he proves "actual malice" -- that thestatement was made with knowledge of its falsity orwith reckless disregard of whether it was true or

false.

The presence of actual malice is a question of lawrather than fact. "The question whether the evidencein the record in a defamation case is sufficient tosupport a finding of actual malice is a question oflaw." Milkovich v. Lorain Journal Co., 497 U.S. 1, 17(1990) (quoting Harte-Hanks Communications, Inc. v.

Connaughton, 491 U.S. 657, 685 (1989) Turning tothe Connaughton case, we find: A showing of highlyunreasonable conduct constituting an extremedeparture from the standards of investigation andreporting ordinarily adhered to by responsiblepublishers cannot alone support a verdict in favor ofa public figure plaintiff in a libel action. Rather, sucha plaintiff must prove by clear and convincing

evidence that the defendant published the false anddefamatory material with actual malice, i.e., withknowledge of falsity or with a reckless disregard forthe truth. A reviewing court in a public figure libelcase must "exercise independent judgment anddetermine whether the record establishes actualmalice with convincing clarity" to ensure that theverdict is consistent with the constitutional standard

set out in New York Times Co. v. Sullivan, 376 U. S.254, and subsequent decisions.

So it was with ample precedents in mind that thecourt in the Orange County case stated: The Courthas ruled on multiple occasions that the actual


16/23

malice standard applies to any professionalnegligence claim concerning S&Ps protectedspeech. This Court has previously held the FirstAmendment protects S&Ps preparation and

publication of its ratings. Actual malice is asubjective standard. A reckless disregard for thetruthrequires more than a departure fromreasonably prudent conduct. Failure to investigatebefore publishing, even when a reasonably prudentperson would have done so, does not establishreckless disregard.

As we have seen, the actual malice standardapplies only to public figures, at least for now. If itwere applied to everyone, as if the First Amendmentgave people an absolute right to free speech, theGreat Slanderer might preside over the land. In Dun& Bradstreet vs. Greenmoss Builders, 472 U.S. 749,the Supreme Court had held that an individualscredit report was not a matter of public concern

because it was made available to only fivesubscribers. Orange County, on the other hand, is apublic figure, figuratively speaking, and the OrangeCounty debt was a matter of public concern theCounty alleged that S&Ps actions contributed to thelargest bankruptcy, until that time, in history. Hencethe actual malice standard would apply to thepublisher S&P in the Orange County case unless

some special circumstance applied; e.g., if S&P hadwaived its First Amendment protection in thecontracts. The County claimed that S&Ps contractualcommitment to perform services in a competent andreasonable manner was a special circumstance thatin effect waived a First Amendment protection, but


17/23

the court, relying on precedent, held that a waiver ofa constitutional right cannot be implied, it must bevoluntary, knowing and intelligent. S&P claimed thatit did not assume a duty to render an accurate

rating. Rather, S&P stated that the only service itcontracted to provide was the rating for potentialpublications, which is protected expression, so theCountys contract claim is subject to the actualmalice standard. The Court agreed, after statingthat there is no claim or showing S&P undertook aseparate duty to provide a competent rating, theonly element of the Countys breach of contract

claim is the providing of the rating itself. And it heldthat the actual malice standard applied to theCountys tort claim of S&Ps professional negligence.

That left the question of whether or not S&Ps ratingswere statements made with knowledge that theywere false or with reckless disregard for whether ornot they were true. And as we have seen, the Court

held that a jury in possession of the facts might havethought so in respect to the 1994 debt.

CONCLUSION

Orange Countys recovery from bankruptcy in a mere18 months was remarkable considering thecomplexity of its plight and the depth of its debt.

Controls have been instituted since then to protect itfrom the like misadventure, but still pundits posedthe perennial question, Could such a thing happenagain? Of course it could, and it did happen a merefifteen years later, on a colossal scale. Lightning maynot strike in precisely the same place again, but Wall


18/23

Streets continued reckless behavior and a generalphilosophy of getting something from nothing byovercharging everyone for everything induced it tostrike several of the greatest financial houses and

nearly bring the entire country if not the world toruin.

The Reign of Greed, symbolized in old by the GoldenBull, now turned black to conceal its dark deeds, runsrampant between brief periods of doing smallpenance for trampling on the rights and liberties ofeveryone who gets underfoot, and its paths, no

matter how perverse, get an automatic AAA rating bythe governments official raters as long as faith in thestampeding sacred Bull perseveres, until the masseswind up getting gored in yet another bloody,irrational run, and realize that the religion wasbullshit from the get-go.

A handful or two of lesser figures are prosecuted as a

matter of course. Few malfeasors do any hard time;the bit-playing transgressors were hardly at the rootof the evil done, anyway, and even imagined theywere doing good deeds when wrong is done longenough, wrong seems right. The worst offenders ofall, the deviant masterminds whose high crimes andmisdemeanors are legalized by routine bribery, goscot-free, and business-as-usual perseveres.

Yes, examples are perfunctorily made, andscapegoats are sacrificed at the public altar, but allfor nothing. Yes, laws have been forged to protectpeople, but they are seldom enforced by theexecutive, so why bother with legislative reform, why


19/23

need more laws be made? Let business-as-usualcontinue, let the plunder pile up unto the highheavens until immortality itself might be purchased.As for ethics, the malefactors lawyers say that

whatever is legal is ethical, and if someone does notlike the rules, let them change the rules, that is, ifthey have enough money to outbid the vestedinterests and power elite who have the greatest togain by conserving the status quo and the most tolose by any radical reform or revolution.

The people turn to their regulators to rein in greed,

to better organized it for everyones benefit, only todiscover that the regulators empowered by theirlegislators to curb misconduct are not really theirregulators, nor are the legislators theirs, but thelegislature as well as the regulatory bodies belong,lock, stock and barrel, to the greediest people of all.In fine, the legislator has become little more than thepolitical cabinet of big business, and the executive its

political C.E.O. Whether or not the presiding officer iswhite or black or both, or Democrat or Republican orIndependent, or male or female or hermaphroditic,does not really matter as long as campaign promisesand ideological principles are comprises, as long asthe oath of office itself perpetuates hypocrisy. Nowthe securities regulator answers to the legislatureand the official credit rating agencies answer to the

securities regulator. There has been a big uproar inthe legislature about the collusion of the credit ratingagencies in rating financial trash as investmentgrade securities, and the executive has promisedCHANGE, but the uproar and promises are merely


20/23

rhetoric, as we can see in the changes proposed thusfar.

Where are We the People to turn when We the

People means the vested interests and power elitewho pretend to represent everyone else but are inthe main self-interested? May we find relief from thefavoritism of the legislative and the legislativebranches in the judiciary? Alexander Hamilton opinedthat the courts were designed to be an intermediatebody between the people and the legislature but notsuperior to the legislature, for the power of the

people is superior to both. (Federalist 78) As wehave seen in the Orange County case, the creditrating agency lawyers have managed to persuadecourts that their ratings are newsworthy information,that as publishers of ratings they can underrate andoverrate public figures at will and aid and abet in thedoing of enormous harm with impunity provided theycan conceal and manipulate enough facts to

convince a judge that whatever evidence they havenot managed to conceal should not go to a jurybecause it does not meet the courts subjectivestandard of actual malice, that the rater knew therating was false or recklessly disregarded the truthwhen preparing it. And, absurd as this might seem, acourt was persuaded that reckless disregard for thetruthrequires more than a departure from

reasonably prudent conduct, that a failure toinvestigate before publishing, even when areasonably prudent person would have done so, doesnot establish reckless disregard!


21/23

A cynical bystander might think that the judiciary isin cahoots with the legislative and executivebranches, that the independence of the threebranches, together with the press said to be the

fourth branch, is in fact a spurious notion if notmerely rhetoric to justify politics as usual. If the

judiciary were truly independent instead of beingmerely a government service, that is, if it were apolitical entity with its own inherent powers underthe Constitution, then we might expect it to act asAlexander Hamilton presumed it should, as animpartial counterweight to the partiality of the

legislature and police power we believe thatimpartiality, in the equitable sense of justice, isas political as any other faction concerned with thedistribution of power, which as an absolute is theobject of worship by several religions.

As every lawyer will discover if he does exhaustiveresearch or has his or her paralegals do it, the lower

courts have issued opinions in some cases that areadverse to the credit rating agencies. No two casesare identical, and many weaknesses can be found inthe favorable opinions. The U.S. Supreme Court hasnot yet decided a case on point, and no doubt one ormore of the slew of cases now being argued in thelower courts will be appealed to the highest court inthe land. Recent surveys indicate that the public is

divided on free speech issues, and the majoritybelieves that reckless or negligent speech should notbe protected by the First Amendment. The timesalong with public opinion changes notwithstandingthe legal precedents, and judges are accordinglymoved to fashion a more fitting precedent, perhaps


22/23

using our great fulcrum for controversy, theConstitution, as justification. In its infinite wisdom,the Court might, for instance, somehow wigglearound previous precedents if not write a new one,

and exclude credit rating agencies from FirstAmendment Protection, at least as along as theirratings are officially sanctioned by the governmentand embedded in so many investment laws.Moreover, it might re-examine and rewrite theactual malice standard if not do away with italtogether. In any case, we must, with the aid of ourtruly independent lawyers, take back that portion of

government which has been stolen from the People,lest the revolution within the American Revolutionfail altogether.

On the subject of the liberty of the press, inditedAlexander Hamilton, as much has been said, Icannot forbear adding a remark or two. In the firstplace, I observe that there is not a syllable

concerning it in the constitution of this state, and inthe next, I contend that whatever has been saidabout it in that of any other state, amounts tonothing. What signifies a declaration that the libertyof the press shall be inviolably preserved? What isthe liberty of the press? Who can give it anydefinition which would not leave the utmost latitudefor evasion? I hold it to be impracticable; and from

this, I infer, that its scrutiny, whatever finedeclarations may be inserted in any constitutionrespecting it, must altogether depend on publicopinion, and the general spirit of the people and ofthe government. And here, after all, as intimated


23/23

upon another occasion, must we seek for the onlysolid basis of all our rights. (The Federalist No. 84)

Miami Beach

October 1, 2009

actual malice in orange county v. mcgraw hill

Documents