A reader recently tipped us off to a troubling ruling from a trial court in New Hampshire: The Mortgage Specialists, Inc. v. Implode-Explode Heavy Industries, Inc., No. 08-E-0572 (N.H. Super. Ct. Mar. 11, 2009).  In the decision, Justice McHugh of the Superior Court for Rockingham County ordered the publishers of the popular mortgage industry watchdog site, The Mortgage Lender Implode-O-Meter ("ML-Implode"), to turn over the identity of an anonymous source who provided ML-Implode with a copy of a financial document prepared by The Mortgage Specialists, Inc. for submission to the New Hampshire Banking Department.  The court also ordered ML-Implode to reveal the identity of an anonymous commenter who allegedly posted defamatory statements about the company and enjoined the website from re-posting the financial document or the allegedly defamatory comments.

Background

ML-Implode, founded by computer scientist and mathematician Aaron Krowne in 2007, tracks the financial health of mortgage lending companies.  Krowne and ML-Implode were way ahead of the curve in recognizing the then-impending-now-catastrophic crisis in the housing market and mortgage industry.  As Louise Story of the New York Times wrote in an article about the website last summer, these days "[t]he misery in the housing market is registering on the Implode-O-Meter."  Without question, the website provides original reporting on one of the most critical issues facing the country today:

With the economy struggling, more financial companies, even well-known ones, are finding themselves on [ML-Implode's] fated list. When parts of Bear Stearns’s residential mortgage unit were sold to private equity investors, for instance, the Implode-O-Meter recorded the sale. And E*Trade Financial could not remove the link on its site to its mortgage division or change the recording on its mortgage division’s 1-800 number without the site chiming in.

The tips usually come anonymously from employees at the troubled mortgage companies. Critics of the site say some of the tips have been more gossip than reality. But the Implode-O-Meter often posts the phone recordings and company e-mail to back up the bad news coming out of places like Merrill Lynch, which in March fired nearly everyone at First Franklin Financial, a business it purchased in 2006. (Source)

The Mortgage Specialists, Inc. ("MSI") is one of the companies on ML-Implode's "Ailing/Watch List."  In August 2008, ML-Implode reported that the New Hampshire and Massachusetts Banking Departments had issued temporary cease-and-desist orders against MSI in July.  As part of this article, ML-Implode posted a copy of something MSI calls the "2007 Loan Chart," a document showing the number and monetary value of the company's 2007 loan transactions.  ML-Implode says that the chart was "sent in by an informant and placed online by the Implode-O-Meter staff."

Additionally, in October 2008 a ML-Implode user going by the handle "Brianbattersby" posted comments on one of the site's forums, allegedly stating that the president of MSI "was caught for FRAUD in 2002 FOR SIGNING BORROWERS NAMES and bought his way out."  Days later, "Brianbattersby" posted another negative comment about the company.

Counsel for MSI then contacted ML-Implode requesting that ML-Implode take down the 2007 Loan Chart and forum comments, and that it identify its anonymous source for the Loan Chart and the identity of the commenter.  ML-Implode agreed to temporarily remove the Loan Chart and the forum comments, but refused to reveal its source or unmask "Brianbattersby."  MSI then filed a petition for injunctive relief in New Hampshire state court, seeking to compel ML-Implode to permanently remove the materials and to disclose the identifying information it previously requested.

In its court papers, MSI claimed that it submitted the 2007 Loan Chart to the New Hampshire and Massachusetts Banking Departments as part of official regulatory investigations, and it invoked a New Hampshire statute stating that materials submitted to the Banking Department "shall be confidential communications, shall not be subject to subpoena and shall not be made public unless, in the judgment of the commissioner, the ends of justice and the public advantage will be subserved by the publication thereof."  N.H. Rev. Stat. Ann. § 383:10-b (scroll down).  The company did not challenge the veracity of ML-Implode's August 2008 article or the truthfulness of the information in the chart, but contended that § 383:10-b and/or the common law of privacy entitled it to injunctive relief against ML-Implode.  MSI also contended that it "suffered irreparable harm" as a result of the allegedly defamatory "Brianbattersby" comments, entitling it to an injunction against re-publication as well as identifying information.

The Justice's Ruling

Justice McHugh's March ruling granted all of the requested relief.  He issued an order: (1) prohibiting ML-Implode and its agents from "displaying, posting, publishing, distributing, linking to, [or disseminating] copies and/or images of [the] 2007 Loan Chart and any information or data contained therein"; (2) requiring ML-Implode to "disclose the identity of the individual and/or entity that provided it with the 2007 Loan Chart"; (3) requiring ML-Implode to produce all other documents concerning MSI that ML-Implode received from the source of the 2007 Loan Chart; (4) prohibiting ML-Implode from re-posting the "Brianbattersby" statements; and (5) requiring ML-Implode to disclose the identity of "Brianbattersby." 

Justice McHugh's decision is troubling on so many levels that it is hard to even list them all, but I will start with its blasé attitude towards the whole matter.  The court issued no detailed findings of fact or conclusions of law before issuing the injunction, held no evidentiary hearing (apparently the parties agreed to this), and failed to even specify what cause of action supported its decision to enjoin publication of the 2007 Loan Chart.  This latter point is by no means clear, because N.H. Rev. Stat. Ann. § 383:10-b looks like it creates no private right of action against non-government parties like ML-Implode.  The court apparently regarded all this formality as unnecessary because MSI sought only injunctive relief not damages, but this is obviously incorrect.

But wait, it gets worse.  In its filings with the court, ML-Implode argued extensively that the requested relief constituted an unconstitutional prior restraint on speech, sought information protected by New Hampshire's qualified reporter's privilege, and impinged on its users' First Amendment rights to speak anonymously. The court brushed aside all of these arguments without anything I would characterize as legal analysis.  Justice McHugh did not even address whether the New Hampshire reporter's privilege, which was recognized by the New Hampshire Supreme Court in Opinion of the Justices, 373 A.2d 644 (N.H. 1977), applies to online journalism sites like ML-Implode, and, if so, whether MSI had made the showing needed to overcome the privilege. 

Likewise, Justice McHugh wrote his opinion as if anonymous speech cases like McIntyre v. Ohio Elections Commission, Talley v. California, Dendrite International v. Doe, Doe v. Cahill, and Independent Newspapers, Inc. v. Brodie didn't even exist.  It is one thing to disagree with or distinguish these decisions on a principled basis, but it is no longer sufficient to simply ignore them.

The court at least tried to address the prior restraint issue, but cited not a single case for its (implied) assertion that prohibiting the re-publication of the 2007 Loan Report was not a prior restraint on speech because MSI didn't seek to prospectively bar other speech activity on the part of ML-Implode or "Brianbattersby."  In fact, Justice McHugh's order is a prior restraint because it enjoins ML-Implode and its agents, servants, employees, and representatives from "displaying, posting, publishing, distributing, linking to and/or otherwise providing any information for the access or other dissemination of copies and/or images of [the] 2007 Loan Chart and any information or data contained therein."  This is a classic prior restraint because it "actually forbid[s] speech activities." Alexander v. United States, 509 U.S. 544, 550 (1993).  

Under established First Amendment law, prior restraints -- if constitutional at all -- are permissible only in the most extraordinary circumstances. Prior restraints represent "the most serious and the least tolerable infringement on First Amendment rights," Nebraska Press Ass'n v. Stuart, 427 U.S. 539, 559 (1976), and are presumptively unconstitutional, see Organization for a Better Austin v. Keefe, 402 U.S. 415, 419 (1971).  It makes no difference that the Loan Chart is confidential information wrongfully or even illegally disclosed by an anonymous source.  See, e.g., New York Times Co. v. United States ("Pentagon Papers Case"), 403 U.S. 713 (1971) (holding that injunction against publication of illegally leaked classified documents from Defense Department is an impermissible prior restraint).  As the Supreme Court warned in the well-known Pentagon Papers Case, the First Amendment prohibits prior restraints in nearly every circumstance, even where national security may be at risk and even when the source unlawfully obtained the documents. 403 U.S. at 713.  The privacy interest asserted by MSI simply does not meet the exceptionally high standard required for a prior restraint. See, e.g., Keefe, 402 U.S. at 419 ("Designating the conduct as an invasion of privacy" does not justify a prior restraint.); Matter of Providence Journal Co., 820 F.2d 1342, 1350 (1st Cir. 1986) (concluding that privacy, "although meriting great protection, is simply not of the same magnitude" as the interests that could justify a prior restraint).

With respect to the allegedly defamatory forum comments, Justice McHugh failed to make any specific findings of fact regarding actual malice, falsity, or reputational harm, so it is hard to accept his ruling as a "final adjudication on the merits" that would justify injunctive relief.  Moreover, the court failed to explain why MSI could circumvent the hoary principle that "equity will not enjoin a libel" simply by not asking for damages, and why section 230 of the Communications Decency Act did not block MSI's claims for injunctive relief with respect to user-submitted content (not an uncontroversial proposition). 

Justice McHugh's opinion is also oblivious to the U.S. Supreme Court's decision in Bartnicki v. Vopper, 532 U.S. 514 (2001), which casts serious doubt on the constitutionality of punishing the dissemination of truthful material relevant to a matter of public concern when the publisher (as opposed to the source) obtained the information in a lawful manner.  True, Bartnicki addressed the constitutionality of imposing money damages for the publication of truthful speech, but enjoining truthful speech seems equally inconsistent with protecting our "'profound national commitment to the principle that debate on public issues should be uninhibited, robust and wide-open.'"  532 U.S. at 534 (quoting New York Times v. Sullivan, 376 U.S. 254, 270 (1964)). 

Instead of tackling all these difficult legal issues, Justice McHugh's decision focuses its attention elsewhere.  Throughout, it appears motivated by a conviction that MSI is not asking for anything unreasonable and that ML-Implode is not being very nice:

Then when [ML-Implode] was asked to disclose the identity of persons or entities that had provided it with unauthorized information and potentially defamatory information [ML-Implode] refused outright.  One would have hoped that when a legitimate publisher of information was notified of the fact that certain unauthorized information was given to it which was then published, presumably in good faith, the publisher would, in order to maintain the integrity of its publication, willingly provide the wronged party with the information requested.  Instead, [ML-Implode] exhibited a knee-jerk reaction.

This is not a view shared by publishers (big, small, offline, online) or by the law.  Counsel for ML-Implode intends to appeal the judgment to the New Hampshire Supreme Court, and there is good reason to believe that the state's high court will reverse.  For now, the decision stands as an excellent example of why we need strong procedural safeguards for courts to follow when deciding whether or not to compel the identification of anonymous speakers, why shield laws that constrain judicial discretion are important, and why constitutional doctrine should limit judicial power to grant prior restraints to such a vanishingly small category of cases.

You can monitor developments in the case and access the underlying court documents in our database entry, The Mortgage Specialists, Inc. v. Implode-Explode Heavy Industries, Inc.