Minnesota Law Review

Note, Credit Rating Agencies and the First Amendment: Applying Constitutional Journalistic Protections to Subprime Mortgage Litigation

The First Amendment should not protect credit rating agencies for their grossly inaccurate ratings of residential mortgage-backed securities. The rating agencies played a significant role in the subprime mortgage crash and resulting financial market crisis. In past litigation, rating agencies have been successful in defending lawsuits involving claims of inaccurate ratings using a First Amendment shield. Courts have typically used the actual malice standard described in New York Times v. Sullivan, which is difficult for plaintiffs to overcome. However, three major characteristics of the agencies distinguish them from the traditional press and render the First Amendment inapplicable to cases involving their ratings. The agencies receive compensation from the issuers, are actively involved in the structuring of transactions, and their ratings are more akin to certifications than opinions.

Courts should refuse to afford rating agencies automatic First Amendment protection in future litigation related to the inaccurate rating of residential mortgage-backed securities. Instead, courts should use a three-factor test to determine if an agency actually qualifies for constitutional protection. The first two factors comprise the In re Fitch standard, rating agent compensation and role in structuring the transaction at issue, and the third factor addresses whether a rating is a “certification” or “benchmark” versus merely an opinion. The judicial system must hold rating agencies accountable for their role in the subprime mortgage crisis. Moody’s, S&P, and Fitch should not escape liability for the irreparable damage they caused millions of investors and the global financial market.

:: View PDF

De Novo

  • Case Comment: Bhogaita v. Altamonte

    EVERY DOG CAN HAVE HIS DAY IN COURT: THE USE OF ANIMALS AS DEMONSTRATIVE EXHIBITS Kyle R. Kroll, Volume 100, Online Managing Editor In Bhogaita v. Altamonte, the Eleventh Circuit recently decided whether to allow a dog in the courtroom as a demonstrative exhibit.[1] Although the case presented many serious [...]

  • Revisiting Water Bankruptcy

    REVISITING WATER BANKRUPTCY IN CALIFORNIA’S FOURTH YEAR OF DROUGHT Olivia Moe, Volume 100, Managing Editor This spring, as “extreme” to “exceptional” drought stretched across most of California—indicating that a four-year streak of drought was not about to resolve itself[1]—Governor Jerry Brown issued an unprecedented order to reduce potable urban water [...]

  • Defying Auer Deference

    DEFYING AUER DEFERENCE: SKIDMORE AS A SOLUTION TO CONSERVATIVE CONCERNS IN PEREZ v. MORTGAGE BANKERS ASSOCIATION Nicholas R. Bednar, Volume 100, Lead Articles Editor* On March 9, 2015, the Supreme Court of the United States handed down its decision in Perez v. Mortgage Bankers Association.[1]F The Court overturned the D.C. [...]