Chau v. Lewis

Court of Appeals for the Second Circuit
771 F.3d 118 (2014)

ELI5:

Rule of Law:

Under New York law, a statement is not actionable for libel if it is substantially true, constitutes a protected expression of opinion, is not reasonably susceptible to a defamatory meaning, or is not 'of and concerning' the specific plaintiff. Courts must evaluate allegedly defamatory statements within the context of the entire publication from the perspective of an ordinary reader.

Facts:

Michael Lewis authored the non-fiction book 'The Big Short' about the 2008 financial crisis, which was published by W.W. Norton and used hedge fund manager Steven Eisman as a source.
Wing F. Chau, through his company Harding Advisory LLC, was a prominent manager of Collateralized Debt Obligations (CDOs).
In January 2007, Chau and Eisman attended a dinner together at the American Securitization Forum in Las Vegas.
Chapter 6 of 'The Big Short' recounts Eisman's conversation with and negative impressions of Chau from that dinner.
The chapter portrays Chau and CDO managers in general as incompetent, indifferent to investor risk, and responsible for contributing to the financial crisis.
The book characterizes Chau with terms like 'sucker' and 'fool' and contains statements that misrepresent his career history and income.
The book claims Chau managed CDOs backed by 'nothing but' the riskiest mortgage bonds and quotes Chau making statements that he denies ever saying, such as 'I've sold everything out.'

Procedural Posture:

Wing F. Chau and Harding Advisory LLC sued Michael Lewis, Steven Eisman, and W.W. Norton for libel in the United States District Court for the Southern District of New York (a federal trial court).
The defendants filed a motion for summary judgment to dismiss the case.
The district court granted the defendants' motion for summary judgment, dismissing all of Chau's claims.
Plaintiffs-Appellants Chau and Harding Advisory LLC appealed the district court's judgment to the United States Court of Appeals for the Second Circuit.

Premium Content

Subscribe to Lexplug to view the complete brief

You're viewing a preview with Rule of Law, Facts, and Procedural Posture

Issue:

Do twenty-six statements about Wing F. Chau and Harding Advisory LLC in the book 'The Big Short' constitute actionable libel under New York law?

Opinions:

Majority - Wesley, Circuit Judge

No. The twenty-six statements at issue do not constitute actionable libel because they fail to meet the legal requirements for defamation under New York law. The court analyzed the statements and found that each was non-actionable for one or more reasons: some were not reasonably susceptible to a defamatory meaning, as they described common market practices; many were protected opinions, consisting of hyperbole and epithets like 'sucker,' 'fool,' and 'dog shit'; others were not 'of or concerning' Chau individually but rather described 'CDO managers' as a group; and several, while containing factual inaccuracies, were protected by the 'substantial truth' doctrine because the 'gist' of the statement was true and publishing the literal truth would not have produced a less damaging effect on the reader's mind.

Dissenting - Winter, Circuit Judge

Yes. A jury could reasonably find that the statements, viewed in their proper context, constitute actionable libel. The majority erred by evaluating the statements in 'hermetic isolation' instead of as part of a cohesive narrative that portrays Chau as the 'poster child' for professional misconduct and fraud. The book does not merely express opinions but accuses Chau of breaching his duties to investors, knowingly profiting from doomed investments, and deceptively shifting all risk to his clients. This portrayal could easily serve as the basis for a civil or criminal fraud case and is therefore clearly defamatory. The majority improperly dismisses factual falsehoods as insignificant when the book itself presents them as critically important.

Analysis:

This decision reinforces the significant hurdles plaintiffs face in libel cases involving matters of public concern, particularly against authors of non-fiction works. It illustrates the broad protections afforded by the 'opinion' and 'substantial truth' doctrines under New York law, allowing for rhetorical hyperbole, unflattering characterizations, and minor factual inaccuracies. The ruling establishes that even a highly negative portrayal that causes professional harm may not be legally defamatory if the statements can be framed as opinion or if their 'gist' is considered true. This precedent makes it more difficult for public figures to succeed in defamation suits, thereby protecting authors and journalists who cover controversial topics.

Gunnerbot

AI-powered case assistant

Loaded: Chau v. Lewis (2014)

Try: "What was the holding?" or "Explain the dissent"