A judge in California has ruled that a popular Web site that maintains a list of “imploded” mortgage lenders must defend itself against a libel suit by a lender that was placed on the list and described as “gone” in a blog post heading.

The Loan Center of California Inc.

A judge in California has ruled that a popular Web site that maintains a list of “imploded” mortgage lenders must defend itself against a libel suit by a lender that was placed on the list and described as “gone” in a blog post heading.

The Loan Center of California Inc. sued Aaron Krowne, a computer scientist and digital librarian who operates “The Mortgage Lender Implode-O-Meter” Web site in his spare time, after Krowne published an anonymous e-mail in April from a person claiming to be a laid-off credit officer.

The e-mail alleged that the company had engaged in risky and fraudulent lending practices, that its owner was seeking bankruptcy protection, and that “only a skeleton crew remains to sweep up the mess.”

After the e-mail was published, attorneys for LCC Inc. allege, the company’s warehouse lenders withdrew $3.8 million in funding — or 75 percent of the company’s cash on hand — and took over ownership and servicing rights to many of LCC’s loans.

“These actions occurred as a direct result of the false information published on the Websites,” the company alleged in court documents. LCC claims it was also “shunned and avoided by numerous brokers, institutional lenders, and other borrowers who were afraid to enter into any new loan arrangements with LCC.”

Krowne does not dispute publishing the e-mail, or that he added LCC Inc. to a list of “imploded” lenders. But Krowne maintains that he’s protected from libel suits by the federal Communications Decency Act, and California’s “anti-SLAPP” laws, which are intended to protect free speech.

The Communications Decency Act limits the liability of Web sites, such as forums and blogs, that publish the unedited submissions of readers, from libel. Anti-SLAPP legislation in California and other states are intended to protect companies from squashing public debate of important issues by filing unfounded libel lawsuits (SLAPP is an acronym for “Strategic Lawsuit Against Public Participation”).

But the Solano County Superior Court Judge hearing the suit filed by LCC, has ruled that Krowne’s actions were not protected by the Communications Decency Act. Judge Franklin Taft also dismissed a motion by Krowne to have the lawsuit thrown out under California’s anti-SLAPP legislation.

Taft ruled that Krowne went beyond republication of a third-party e-mail, and that much of the allegedly libelous information he published was in his own words.

Krowne’s lawyer had denied that he described LCC as “croaked, kaput and imploded” because those words were already on the Web site before LCC was added to the list of “imploded” lenders. Although Krowne included a subject line “Loan Center of California — GONE” when he posted the anonymous e-mail on his blog, Autodogmatic, he did not play any “significant role in creating, developing or transforming the relevant information,” his lawyer argued.

Taft agreed with Krowne that “issues about the mortgage industry and lending practices” are “a public issue and matter of public interest.” But he said Krowne was not protected by California’s anti-SLAPP laws because LCC had presented enough evidence of libel to warrant a more exhaustive review of the evidence at a trial.

“The prima facie showing is that defendants falsely stated LCC had gone out of business, that LCC was and is in business, that LCC was damaged by Washington Mutual and Credit Suisse withdrawing at least 3.5 million dollars in funds from LCC’s accounts, and that Washington Mutual and Credit Suisse did this after viewing the false information published by defendants on defendants’ websites,” Taft wrote.

Krowne told Inman News that LCC’s claims that its problems with its warehouse lenders stemmed from his Web sites are “far fetched.”

“We still don’t know how much of LCC is around, other than their lawyer and their CEO,” Krowne said. “The market for what they are doing is basically gone, and I don’t know what they are up to these days. If they want to litigate this, they’ll have to prove they were in a condition other than ‘imploded.’ “

A disclaimer on the site notes that companies identified as “imploded” — 105 to date — “may still be operating in some capacity; check with them before making assumptions.” Companies can make the list if they file for bankruptcy, temporarily halt major operations, or are sold in “fire sale” acquisitions, the site says.

LCC Inc. did not respond to attempts to contact the company by phone and e-mail. But the company’s switchboard and Web site are still operating, claiming the company is “Newer, better and stronger!”

Krowne said he is still deciding whether to appeal the ruling that he’s not protected by California’s anti-SLAPP legislation, which he said could have “ominous” implications for other Web sites that serve as forums for discussion of finance issues, he said.

“If those laws don’t refer to this kind of site, what do they refer to?” he said.

“The Mortgage Lender Implode-O-Meter” serves as a collection point for “very specific, whistleblower e-mails” and general tips on the mortgage lending industry, which has made it “a kind of lightening rod,” Krowne said.

Information on dozens of companies is being evaluated at any given time, he said, with the goal of “get the information out there as soon as possible so it can be of use to people and to get feedback,” Krowne said.

When LCC first complained about the publication of the e-mail and the company’s inclusion on the “imploded” list, Krowne said he first published a notice that the company was disputing the report, and then offered to run a correction. When the company declined the offer, he removed the e-mail from his sites and took LCC off the list of “imploded” lenders. The e-mail is now part of court filings in the case.

Since being sued, “We’ve cut down the editorializing,” Krowne said. “Part of it is just lack of time, since all these companies are imploding, (but) it’s more difficult to accuse us of libel if we’re just quoting people.”

Lenders on the “imploded” list are no longer described as “kaput” and “croaked,” which Krowne said were “satirical” terms.

“Fortunately, most of the companies that make these threats (to sue for libel) end up going defunct for real,” Krowne said.

So far, Krowne said he’s racked up about $20,000 in legal bills, and expects the case will cost $50,000 to litigate if it goes to trial. His readers have pledged about $5,000 in assistance, he said. The site — which claims 4.6 million visitors this year — has a wide following, with frequent mentions in the blogosphere and by mainstream media.

Show Comments Hide Comments

Comments

Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
Success!
Thank you for subscribing to Morning Headlines.
Back to top