Court Declares Bank Trash Talk Statute Facially Unconstitutional

In my October 2010 post “Don’t Talk Trash About A California Bank“, I discussed Financial Code Section 756 (subsequently reenacted verbatim as Section 1327).  That statute generally criminalizes spreading false rumors about a bank.  In my post, I speculated on whether the statute was constitutional:

Moreover, it seems that prosecution would invite a claim that the statute violates the First Amendment of the U.S. Constitution and Article I, § 2(a) of the California Constitution.  That is what happened with a similar Nevada statute, NRS 668.10.  [citing Culinary Workers Union Local 226 v. Frankie Sue Del Pappa, 200 F.3d 614 (1999)].

Earlier this week, the First District Court of Appeal concluded that Section 1327 is facially unconstitutional because it:

  • does not include a malice element;
  • is vague;
  • is overbroad; and
  • is a content-based regulation on speech.

Summit Bank v. Rogers, 2012 Cal. App. LEXIS 633 (May 29, 2012).

The decision arose from a lawsuit by a community bank against a former employee who posted allegedly defamatory messages on a section of the Craigslist.org Internet Website.  The employee moved to strike under California’s “anti-SLAPP” statute, Cal. Code Civ. Proc. § 425.6, on the grounds that the bank’s suit was for the purpose of chilling the employee’s right to speak freely about the bank.  The bank responded by arguing that the employee was precluded from using the anti-SLAPP statute because his posts were illegal under Financial Code Section 1327.  Because the court found the statute unconstitutional, the employee’s conduct, even if it violated the statute, was not illegal as a matter of law.

For additional posts regarding the application of California’s anti-SLAPP statute in corporate and securities law cases, see “Court Holds Vote To Remove Director Is Not An Exercise Of Free Speech“, “Court of Appeal Decides Buy-Out Questions Under Re-RULPA“, and “Court Slaps Down Section 25400 Market Manipulation Claim Against Convicted Felon“.