ACTUAL MALICE IN ORANGE COUNTY

By David Arthur Walters

“I am ready to concede that the rule of adherence to

precedent, though it ought not to be abandoned,
ought to be in some degree relaxed. I think that
when a rule, after it has been duly tested by
experience, has been found to be inconsistent with
the sense of justice or with the social welfare, there
should be less hesitation in frank avowal and full
abandonment.” The Nature of the Judicial Process,
Benjamin N. Cardozo

THE COUNTY OF ORANGE V MCGRAW HILL

According to the much maligned credit rating

agencies who stand accused of grossly overrating
pools of subprime mortgages that were bound to go
stagnant and perhaps wind up being dumped on the
taxpayer as toxic waste, the U.S. District Court’s
Order in the case of County of Orange v. McGraw Hill
Companies, 245 B.R. 151 (1999), a suit originally
brought for breach of contract and professional
negligence, lends some credence to the notion that
credit rating agencies have a Constitutional right to
breach contracts and engage in professional
negligence with impunity providing that “actual
malice,” i.e. knowledge of falsity or reckless
disregard of the truth, is not somehow implied by the
Court. The Court’s Order appertained to McGraw
Hill’s motion for summary judgment in its favor
against Orange County. That is, McGraw Hill wanted
the judge to throw out the case on the basis that
there were no questions or genuine issues of
material fact that would lead a jury to decide against
it, meaning that the matter should not even be tried.

Orange County had hired McGraw Hill’s Standard and

Poor’s to rate its bonds, and in its suit alleged that
not only had S&P breached its contracts with the
County but had negligently performed its rating
services, overrating the bonds, knowingly and
recklessly ignoring the fact that the 1993 and 1994
bonds were unsound, giving rise to tort or non-
contractual wrong liability by virtue of the fact that
the high ratings permitted the County’s Treasurer,
Robert Citron, and his assistant, Matthew Raabe, to
misrepresent the safety of the County’s portfolio to
County auditors, which allowed them to make risky
and imprudent bets on interest rates. If only S&P had
disclosed the facts and risks it was well aware of,
claimed the County’s lawyers, the County would
have taken action to avoid the heavy losses that it
had suffered.

But S&P claimed it was protected under the ‘actual

malice’ standard set forth in the groundbreaking
defamation case, New York Times v. Sullivan, 376
U.S. 254 (1964), where a police commissioner
thought he was defamed by a paid editorial. Prior to
that decision, the Supreme Court gave little truck to
the perverse notion that defamation was protected in
any way by the First Amendment – exactly what
defamation of public officials has to do with flattering
a government agency’s Investment Pool with high
ratings we shall address later.
S&P contended that the County’s suit was an
“unprecedented assault on speech by the source of
the very information complained of,” and said the
suit was extraordinary because the Securities and
Exchange Commission “specifically found the County
made affirmative misrepresentations to rating
agencies,” noting that Mr. Citron had pleaded guilt to
“public deception” and that his assistant Mr. Raabe
had been “convicted of felonies.”

The culprits named had not personally enriched

themselves at County expense, but had participated
in an investment scheme allegedly promoted by
Merrill Lynch, involving interest rate bets that would
hopefully allow them to produce more than enough
interest income to meet the County’s budgetary
requirement for same – 12% of the County’s
revenues, in comparison to an average 3% for other
counties, was the norm for interest income for
Orange County. They employed funds from the
Orange County Investment Pool to invest in
derivatives and high-yield bonds, and they borrowed
funds and used the borrowings to borrow even more
money. The strategy included reverse purchase
agreements, the purchasing of securities with an
agreement to resell them at a high price at some
future date, a device that is in effect a loan of a
security for a specific rate of return. In sum, they
were borrowing billions of dollars, $2 for every $1 in
the Pool, to bet that interest rates would remain low
or go down, a strategy sophisticated traders call
“borrowing short to go long.” Starting with $7.6
billion in the Pool, they ran it up to $20.6 billion in
1994. At one point they had to hide $80 million in
interest in an inappropriate account because, if they
had paid it over to the government entities
participating in the Pool, the participants would know
they were gambling. Unfortunately for Orange
County, the Federal Reserve Bank was not in on the
scheme, and interest rates were raised. As the value
of County’s securities fell, the County could not meet
calls for more collateral, so it took a highly unusual
move for a county, and filed Chapter 9 bankruptcy on
December 6, 1994.

The charges brought against the malefactors were

related to the inappropriate transfers of funds
between government entities and filing of false
reports. Mr. Citron, a Democrat whom voters both
Democrat and Republican had kept in office for 24
years because they were more than pleased with his
fiscal performance, entered into a plea agreement.
He was fined $100,000, and sentenced to 5 years
probation and 1,000 hours of community service – he
served in a prison commissary for 9 months while
under house arrest. During the plea bargaining, his
lawyer said Mr. Citron had been suffering from
dementia for years. Mr. Citron’s testimony indicated
he did not know a derivative from a hole in the
ground. He blamed his assistant, Mr. Raabe, and
Merrill Lynch for the fiasco, claiming that Merrill
Lynch had told him the investments were perfectly
safe. Mr. Raabe was convicted of five felony counts
by a jury, paid a fine of $10,000 and was sentenced
to 3 years in prison by Judge Everett Dickey, who
said he wanted to send a message to public officials,
that they will go to prison for misconduct. Mr. Raabe
was the only one who served time in prison. He
served 41 days before he was released pending his
appeal. The conviction was overturned on appeal;
the district attorney dropped the charges and
refunded the $10,000 fine. Mr. Raabe passed the
buck along and claimed that former county budget
director Ronald S. Rubino had masterminded the
scheme. Mr. Rubino was convicted of one charge of
falsifying documents in a plea deal that followed a
trial where the jury was deadlocked 9:3 in favor of
his acquittal. The charge was reduced to a
misdemeanor and he was sentenced to 100 hours of
community service and 2 years unsupervised
probation.

Now the Court in our Orange County case believed

that all this damning personal information, although
it might be considered by a jury, did not obviate the
possibility that there might be a genuine issue of
material fact at stake; to wit, a reasonable jury might
conclude from circumstantial evidence that S&P
knew of the falsity of its ratings for the 1994 debt;
however, the same could not be said of the 1993
debt, so the Court granted summary judgment in
favor of S&P on 1993 debt but refused to grant it on
the 1994 debt:

“The County contends S&P learned, during the

analysis of the County’s proposed 1993 and 1994
offerings, that County Treasurer Robert Citron was
‘engaged in a harrowing investment strategy, using
massive amounts of leverage and exotic derivative
securities to bet the public funds under his control on
inherently unpredictable interest rates.’ The County
states S&P was, by its own admission, uncomfortable
with the Treasurer’s investment strategy…. The
County points out S&P’s chief economist was
predicting in March 1994 that interest rates would
rise, thus the County contends S&P knew the
County’s investment strategy, which depended
heavily on interest rates remaining low, was in
trouble.” Further, “The County presents evidence, in
the form of depositions and declarations, that S&P
was aware Mr. Citron’s investment practices became
increasingly risky in 1994.” Moreover, “The County
submits handwritten notes taken by S&P personnel
during a May 9, 1994 conference” showing that calls
for collateral were rising along with losses, and that
disclosure of the situation would lead to “disaster.”
As for the 1993 offerings, the Court held that “a
reasonable jury could not conclude by the necessary
standard that S&P knew of a high degree of probably
falsity when it rated the County’s 1993 debt…. (T)he
evidence shows the County’s track record for
repaying its debt had been good to that point.
Citron’s strategy, however reckless in hindsight, was
earning high yields…. Interest rates had not yet risen
to the point where assigning a top rating…rose to a
level of ‘high degree of awareness of…probable
falsity.’”

McGraw Hill wound up settling the case in 1999 for a

measly $140,000 – other defendants, including
brokerage, accounting and law firms, in the Orange
County bankruptcy fiasco would up paying $860.7
million. The Merrill Lynch, of course, admitted no
wrongdoing and said it merely wanted to defray legal
expenses when it agreed to pay a settlement of $400
million. As for the paltry $140,000, perhaps the
presence of the “actual malice” standard, a concept
normally applied in defamation cases brought by
public figures, where success is usually rewarded
with paltry sums such as $1, had diminished the
County’s chances of a substantial award in this case
of flattery.

PRESS PRIVILEGE

Of course we are not surprised that credit rating

agency 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 heightened
pleading standard of the First Amendment, to claims
against S&P, concluding that ‘Standard & Poor’s
ratings are [protected] speech.’ (‘Constitutional
Analysis of the Staff Outline Of Key Issues For A
Legislative Framework For The Oversight And
Regulation Of Credit Rating Agencies,’ Prepared by
Cahill Gordon & Reindel LLP on behalf of Standard &
Poor’s, a division of The McGraw-Hill Companies, Inc.)
Naturally the credit rating agencies would fain cite
select legal opinions that would provide them with a
“press shield” that would protect them from being
penalized for irresponsible behavior that could and
finally did lead to catastrophic consequences to the
general public. Whether such armor would protect
any wandering knight who cares to identify himself
as 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,
i.e. a press legally responsible for the maintenance of
certain standards in order to enjoy certain privileges
and immunities, would be tantamount to licensure
and censorship, no doubt contrary to the notion of a
free press.

The U.S. Supreme Court has not definitively

determined that the institutional press generally
enjoys any greater privileges than anyone else,
although the press was accorded special mention in
the Constitution inasmuch as the revolutionary press
was the chief disseminator of anti-British or
unpatriotic political speech at the time, much of it, by
the way, prejudicial, spurious and scurrilous. In any
case, an ethical First Amendment should not give a
publisher a right to break contracts and otherwise
trample on everyone else’s rights with impunity. The
U.S. Supreme Court said as much in Cohen v Cowles
Media Co., 501 U.S. 663, holding that “the publisher
of a newspaper has no special immunity from the
application of general laws. He has no special
privilege to invade the rights and liberties of others.”

That judicial opinion was cited by the District Court in

Orange County v. McGraw Hill in support of its
opinion that McGraw Hill could not claim a special
privilege to breach its contract or negligently perform
its rating service because it said it was a publisher
entitled to the application of the “actual malice”
doctrine. The Court noted well that the U.S. Supreme
Court had held that publishers are not automatically
entitled to First Amendment protection, for the First
Amendment was written to guarantee freedom of
expression by anyone who cares to express
themselves, hence publishers do not enjoy any
special immunity to use that freedom to invade the
rights and liberties of others. Wherefore the Court
had stated in a March 18, 1997 Order that “the
question is not whether the defendant is a publisher
but whether the cause of action impacts expression.”
That is, what impact would a decision in a case have
on the constitutional right to free speech?

We might well reason that speech is speech, and that

a publisher is anyone who publishes a statement.
The First Amendment does not seem to expressly
provide anyone with a right to publish defamatory
statements, that is, statements that are false and are
injurious to the reputation of their subject. However,
the highest court in the land, employing its inherent
Constitutional power to interpret the Constitution and
its Amendments as the majority of the Court sees fit,
created the 1964 doctrine of ‘actual malice’ which
generally grants publishers Constitutional immunity
for speaking freely about certain public persons even
if the statements are factually false and are injurious
to those persons, providing that the speech is not
knowingly or recklessly made by its publisher,
something the publisher would no doubt deny until
doomsday if so accused.

In the Orange County case, the Court followed suit

and said that, to give publishers some breathing
space so it is not unduly hampered, “the First
Amendment requires, in respect to statements about
public figures, that a publisher will not incur liability
for a false statement unless the statement was made
with ‘actual malice’, i.e. “with knowledge that the
statement was false or with reckless disregard for
whether or not it was true.”

With all due respect to the Court, the First

Amendment says no such thing; it states: “Congress
shall make no law respecting an establishment of
religion, or prohibiting the free exercise thereof; or
abridging the freedom of speech, or of the press; or
the right of the people peaceably to assemble, and to
petition the Government for a redress of grievances.”

The constitutional clause does not state that

“Congress shall make no law…abridging the freedom
of speech, or of the press…but since it would be
unconscionable in this context for that freedom to
expressly include slander and libel, judges shall
make a preferential law that allows for the
defamation of the character of public figures,
whether or not they are public officials and including
sizeable commercial organizations, provided that the
slandered or libeled party cannot prove that the
defamatory statements were made with knowledge
of their untruth or with a reckless disregard of the
truth, in which case such statements would be
treated as if they were actually maliciously conceived
even if malice aforethought is impossible to prove,
and furthermore, when the cause of action is not the
defamation of a public figure but rather an injury to
someone due to the flattery of a public figure, the
same privilege shall be accorded to untruths in order
to provide truth with some erroneous breathing
space, figuratively speaking, et cetera.”

ACTUAL MALICE
If only the credit rating agencies were registered
investment advisors they would be subject to
stringent securities regulations over expert advisors
and might be held liable for negligent and misleading
advice couched as mere opinion. All three of the
major credit rating agencies are registered with the
Securities and Exchange Commission under the
Investment Advisers Act of 1940, which prohibits
fraud, imposes fiduciary duties on advisers, requires
that advisers maintain certain books and records,
and allows the SEC to examine all registered advisers
to assure compliance with the Act. But the officially
designated raters believe their status as “nationally
recognized statistical rating organizations” exempts
them from such regulations. Indeed, the legal
application of the Investment Advisers Act to the
credit rating agencies is doubtful. To be designated
as NRSROs, the agencies agree to voluntarily
register, yet they argue they are not covered by the
Act, and claim that any information they provide to
the SEC is only provided on a voluntary basis, and
not pursuant to the requirements of the Act. That
Act, in defining investment advisers, contains an
exception 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 of
general and regular circulation” from coverage of the
Act. The credit rating agencies are at least arguably
entitled to that particular exception to the
Investment Advisers Act, and the courts seem to be
buying their argument in respect to the Act. Such an
exception from liability provides an incentive to
negligence and deception for those whose main
concern is with making a profit by any legal means. If
the exception holds true, could the so-called bona
fide publisher be held accountable notwithstanding
the Investment Advisers Act? When confronted by
lawsuits, they contend their ratings are mere
opinions protected by the First Amendment, and
invoke the “actual malice” standard.

“Actual malice” is a term ordinarily applied to

defamation cases when public figures are impugned.
Orange County did not sue McGraw Hill for
defamation, which would be understandable if the
McGraw Hill’s rating agency had underrated and thus
disparaged the County’s creditworthiness. Rather,
the County’s creditworthiness had been gross
overrated. We are not aware of a case where an
individual has sued a publisher for flattery. Of course,
flattery can sometimes do a great deal of public
harm, and has even brought down kingdoms.
“Although these issues traditionally arise in libel or
defamation actions, the actual malice standard
applies to other causes of action when the plaintiff
seeks compensatory damages from allegedly false
statements,” the Court declared.

“Actual malice” is chiefly applied in defamation cases

brought by public figures where there may have
been no malicious intent in the mind of the speaker
yet his statements may still be treated as if he
intended ill provided that he knew they were false or
had recklessly disregarded the truth. Since that
might be almost as difficult to prove as malicious
intent, critics say it gives “breathing room to lies,”
“refuge to falsifying scoundrels” “scoop-minded
incompetents” and “lazy reporters and editors.” The
Supreme Court in New York Times v. Sullivan had
considered precedents and concluded that there
must be ample room for error in order for truth to
flourish hence it came up with the actual malice
standard.

We observe here that New York Times v. Sullivan had

nothing to do with the flattery of a government
agency by overstating its creditworthiness, but
rather involved a suit for libeling a government
official. Mr. L. B. Sullivan brought a civil libel action
against the four individual petitioners, who were
Negroes and Alabama clergymen, and against
petitioner the New York Times Company. Mr.
Sullivan, who was one of the three elected
Commissioners of the City of Montgomery, Alabama,
testified that he was Commissioner of Public Affairs,
and that his duties were supervision of the Police
Department, Fire Department, Department of
Cemetery and Department of Scales. He claimed,
recounted the Court, that he had been “libeled by an
advertisement in corporate petitioner's newspaper,
the text of which appeared over the names of the
four individual petitioners and many others. The
advertisement included statements, some of which
were false, about police action allegedly directed
against students who participated in a civil rights
demonstration and against a leader of the civil rights
movement; respondent claimed the statements
referred to him because his duties included
supervision of the police department.” The trial judge
instructed the jury that such statements were
libelous per se:
“The trial judge instructed the jury that such
statements were libelous per se, legal injury being
implied without proof of actual damages, and that,
for the purpose of compensatory damages, malice
was presumed, so that such damages could be
awarded against petitioners if the statements were
found to have been published by them and to have
related to respondent. As to punitive damages, the
judge instructed that mere negligence was not
evidence of actual malice, and would not justify an
award of punitive damages; he refused to instruct
that actual intent to harm or recklessness had to be
found before punitive damages could be awarded, or
that a verdict for respondent should differentiate
between compensatory and punitive damages. The
jury found for respondent, and the State Supreme
Court affirmed.”

However, the Supreme Court disagreed with the

“state action below” i.e. the state court’s ruling, in
regards to the presumption of malicious intention to
obtain compensatory damages. “The present
advertisement, as an expression of grievance and
protest on one of the major public issues of our time,
would seem clearly to qualify for the constitutional
protection. The question is whether it forfeits that
protection by the falsity of some of its factual
statements and by its alleged defamation of
respondent.” The Court held that The New York
Times was protected by the First Amendment when it
published the editorial advertisement. “HELD: A
State cannot, under the First and Fourteenth
Amendments, award damages to a public official for
defamatory falsehood relating to his official conduct
unless he proves "actual malice" -- that the
statement was made with knowledge of its falsity or
with reckless disregard of whether it was true or
false.”

The presence of actual malice is a question of law

rather than fact. "The question whether the evidence
in the record in a defamation case is sufficient to
support a finding of actual malice is a question of
law." 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 to
the Connaughton case, we find: “A showing of ‘highly
unreasonable conduct constituting an extreme
departure from the standards of investigation and
reporting ordinarily adhered to by responsible
publishers’ cannot alone support a verdict in favor of
a public figure plaintiff in a libel action. Rather, such
a plaintiff must prove by clear and convincing
evidence that the defendant published the false and
defamatory material with actual malice, i.e., with
knowledge of falsity or with a reckless disregard for
the truth…. A reviewing court in a public figure libel
case must "exercise independent judgment and
determine whether the record establishes actual
malice with convincing clarity" to ensure that the
verdict 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 the

court in the Orange County case stated: “The Court
has ruled on multiple occasions that the actual
malice standard applies to any professional
negligence claim concerning S&P’s protected
speech.” “This Court has previously held the First
Amendment protects S&P’s preparation and
publication of its ratings.” “Actual malice is a
subjective standard…. A ‘reckless disregard’ for the
truth…requires more than a departure from
reasonably prudent conduct…. Failure to investigate
before publishing, even when a reasonably prudent
person would have done so, does not establish
reckless disregard.”

As we have seen, the “actual malice” standard

applies only to public figures, at least for now. If it
were applied to everyone, as if the First Amendment
gave people an absolute right to free speech, the
Great Slanderer might preside over the land. In Dun
& Bradstreet vs. Greenmoss Builders, 472 U.S. 749,
the Supreme Court had held that an individual’s
credit report was not a matter of public concern
because it was made available to only five
subscribers. Orange County, on the other hand, is a
public figure, figuratively speaking, and the Orange
County debt was a matter of public concern – the
County alleged that S&P’s actions contributed to the
largest bankruptcy, until that time, in history. Hence
the “actual malice” standard would apply to the
publisher S&P in the Orange County case unless
some special circumstance applied; e.g., if S&P had
waived its First Amendment protection in the
contracts. The County claimed that S&P’s contractual
commitment to perform services in a competent and
reasonable manner was a special circumstance that
in effect waived a First Amendment protection, but
the court, relying on precedent, held that a waiver of
a constitutional right cannot be implied, it must be
voluntary, knowing and intelligent. S&P claimed that
“it did not assume a duty to render an accurate
rating. Rather, S&P stated that the only service it
contracted to provide was the rating for potential
publications, which is protected expression, so the
County’s contract claim is subject to the actual
malice standard.” The Court agreed, after stating
that “there is no claim or showing S&P undertook a
separate duty to provide a competent rating, the
only element of the County’s breach of contract
claim is the providing of the rating itself.” And it held
that the actual malice standard applied to the
County’s tort claim of S&P’s professional negligence.

That left the question of whether or not S&P’s ratings

were statements made with knowledge that they
were false or with reckless disregard for whether or
not they were true. And as we have seen, the Court
held that a jury in possession of the facts might have
thought so in respect to the 1994 debt.

CONCLUSION

Orange County’s recovery from bankruptcy in a mere

18 months was remarkable considering the
complexity of its plight and the depth of its debt.
Controls have been instituted since then to protect it
from the like misadventure, but still pundits posed
the perennial question, Could such a thing happen
again? Of course it could, and it did happen a mere
fifteen years later, on a colossal scale. Lightning may
not strike in precisely the same place again, but Wall
Street’s continued reckless behavior and a general
philosophy of getting something from nothing by
overcharging everyone for everything induced it to
strike several of the greatest financial houses and
nearly bring the entire country if not the world to
ruin.

The Reign of Greed, symbolized in old by the Golden

Bull, now turned black to conceal its dark deeds, runs
rampant between brief periods of doing small
penance for trampling on the rights and liberties of
everyone who gets underfoot, and its paths, no
matter how perverse, get an automatic AAA rating by
the government’s official raters as long as faith in the
stampeding sacred Bull perseveres, until the masses
wind up getting gored in yet another bloody,
irrational run, and realize that the religion was
bullshit 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 root
of the evil done, anyway, and even imagined they
were doing good deeds – when wrong is done long
enough, wrong seems right. The worst offenders of
all, the deviant masterminds whose high crimes and
misdemeanors are legalized by routine bribery, go
scot-free, and business-as-usual perseveres.

Yes, examples are perfunctorily made, and

scapegoats are sacrificed at the public altar, but all
for nothing. Yes, laws have been forged to protect
people, but they are seldom enforced by the
executive, so why bother with legislative reform, why
need more laws be made? Let business-as-usual
continue, let the plunder pile up unto the high
heavens until immortality itself might be purchased.
As for ethics, the malefactors’ lawyers say that
whatever is legal is ethical, and if someone does not
like the rules, let them change the rules, that is, if
they have enough money to outbid the vested
interests and power elite who have the greatest to
gain by conserving the status quo and the most to
lose by any radical reform or revolution.

The people turn to their regulators to rein in greed,

to better organized it for everyone’s benefit, only to
discover that the regulators empowered by their
legislators to curb misconduct are not really their
regulators, nor are the legislators theirs, but the
legislature 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 the
political cabinet of big business, and the executive its
political C.E.O. Whether or not the presiding officer is
white or black or both, or Democrat or Republican or
Independent, or male or female or hermaphroditic,
does not really matter as long as campaign promises
and ideological principles are comprises, as long as
the oath of office itself perpetuates hypocrisy. Now
the securities regulator answers to the legislature
and the official credit rating agencies answer to the
securities regulator. There has been a big uproar in
the legislature about the collusion of the credit rating
agencies in rating financial trash as investment
grade securities, and the executive has promised
CHANGE, but the uproar and promises are merely
rhetoric, as we can see in the changes proposed thus
far.

Where are “We the People” to turn when “We the

People” means the vested interests and power elite
who pretend to represent everyone else but are in
the main self-interested? May we find relief from the
favoritism of the legislative and the legislative
branches in the judiciary? Alexander Hamilton opined
that the courts “were designed to be an intermediate
body between the people and the legislature” but not
superior to the legislature, for “the power of the
people is superior to both.” (Federalist 78) As we
have seen in the Orange County case, the credit
rating agency lawyers have managed to persuade
courts that their ratings are newsworthy information,
that as publishers of ratings they can underrate and
overrate public figures at will and aid and abet in the
doing of enormous harm with impunity provided they
can conceal and manipulate enough facts to
convince a judge that whatever evidence they have
not managed to conceal should not go to a jury
because it does not meet the court’s subjective
standard of “actual malice,” that the rater knew the
rating was false or recklessly disregarded the truth
when preparing it. And, absurd as this might seem, a
court was persuaded that reckless disregard for the
truth…requires more than a departure from
reasonably prudent conduct, that a failure to
investigate before publishing, even when a
reasonably prudent person would have done so, does
not establish reckless disregard!
A cynical bystander might think that the judiciary is
in cahoots with the legislative and executive
branches, that the independence of the three
branches, together with the “press” said to be the
fourth branch, is in fact a spurious notion if not
merely rhetoric to justify politics as usual. If the
judiciary were truly independent instead of being
merely a government service, that is, if it were a
political entity with its own inherent powers under
the Constitution, then we might expect it to act as
Alexander Hamilton presumed it should, as an
impartial counterweight to the partiality of the
legislature and police power – we believe that
“impartiality,” in the “equitable” sense of justice, is
as “political” as any other faction concerned with the
distribution of power, which as an absolute is the
object of worship by several religions.

As every lawyer will discover if he does exhaustive

research or has his or her paralegals do it, the lower
courts have issued opinions in some cases that are
adverse to the credit rating agencies. No two cases
are identical, and many weaknesses can be found in
the favorable opinions. The U.S. Supreme Court has
not yet decided a case on point, and no doubt one or
more of the slew of cases now being argued in the
lower courts will be appealed to the highest court in
the land. Recent surveys indicate that the public is
divided on free speech issues, and the majority
believes that reckless or negligent speech should not
be protected by the First Amendment. The times
along with public opinion changes notwithstanding
the legal precedents, and judges are accordingly
moved to fashion a more fitting precedent, perhaps
using our great fulcrum for controversy, the
Constitution, as justification. In its infinite wisdom,
the Court might, for instance, somehow wiggle
around previous precedents if not write a new one,
and exclude credit rating agencies from First
Amendment Protection, at least as along as their
ratings are officially sanctioned by the government
and embedded in so many investment laws.
Moreover, it might re-examine and rewrite the
“actual malice” standard if not do away with it
altogether. In any case, we must, with the aid of our
truly independent lawyers, take back that portion of
government which has been stolen from the People,
lest the revolution within the American Revolution
fail altogether.

“On the subject of the liberty of the press,” indited

Alexander Hamilton, “as much has been said, I
cannot forbear adding a remark or two. In the first
place, I observe that there is not a syllable
concerning it in the constitution of this state, and in
the next, I contend that whatever has been said
about it in that of any other state, amounts to
nothing. What signifies a declaration that ‘the liberty
of the press shall be inviolably preserved’? What is
the liberty of the press? Who can give it any
definition which would not leave the utmost latitude
for evasion? I hold it to be impracticable; and from
this, I infer, that its scrutiny, whatever fine
declarations may be inserted in any constitution
respecting it, must altogether depend on public
opinion, and the general spirit of the people and of
the government. And here, after all, as intimated
upon another occasion, must we seek for the only
solid basis of all our rights.” (The Federalist No. 84)

Miami Beach
October 1, 2009