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Michael Lewis Didn't Defame Wing Chau in 'The Big Short': 2nd Cir.

By Mark Wilson, Esq. on November 19, 2014 | Last updated on March 21, 2019

Michael Lewis' nonfiction book The Big Short, published in 2011, chronicled the 2008 financial crisis as seen through the eyes of some of the people involved in it, including the hedge fund managers who "shorted" (bet against) the market.

In one chapter of the book, Steven Eisman, one of Lewis' sources, meets Wing Chau, the owner of an investment firm that managed collateralized debt obligations (CDOs). CDOs were investments comprised of portions of thousands of subprime mortgages; they were a key vector for the financial collapse.

The 2nd Circuit Defamation Primer

Chau sued for defamation based on 26 discrete statements in Lewis' book. The statements range from Eisman's opinion that Chau was a "sucker" for buying CDOs, to statements that Chau was knowingly selling junk investments, to representations that he was making huge sums of money betting against the market.

The Second Circuit here affirmed the district court's grant of summary judgment in favor of Lewis on every claim of defamation. The statements weren't defamatory for a variety of reasons. Some of them were "not reasonably susceptible to a defamatory connotation." Statements like Chau saying, "I've sold everything out" and telling Eisman he "passed all the risk" don't necessarily cast Chau in a negative light.

Other statements were opinions. Defamatory statements have to be false, but opinions are neither true nor false. Where an opinion is based on a fact, the statement isn't actionable unless the factual premise is false. But in all nine cases, characterizations of Chau as a "sucker" or "fool" were statements of opinion not capable of being false.

Several statements weren't "of and concerning" Chau. Defamatory statements have to refer to the plaintiff by name, or in a way that he can be easily identified. These five statements, about CDO managers in general, constituted a large group and didn't refer specifically to Chau.

Basically, Chau is upset that he was portrayed in a negative light in the book. But the statements in the book, while unflattering, "are not the stuff of defamation."

Dissent: The Tone Points to Libel

Judge Ralph Winter Jr. dissented, saying that the statements were defamatory because "a jury could easily find [Chau] to have breached his obligations to investors in the fund that employed him and to have constituted civil or criminal fraud."

Winter looked to the overall tone and context of the book to point out that Chau was presented in a negative light throughout, coupled with statements about the ways in which CDOs and CDO managers facilitated the mortgage crisis and subsequent recession. Winter faulted the majority for taking the statements out of their context in the work as a whole.

The majority argued that Winter erred by placing too much stock in "the implication, perceived tone, and innuendo of Defendants' writing," when in fact the evaluation of innuendo comes only after the court determines whether a statement is "reasonably susceptible of a defamatory connotation." As a matter of law, the statements weren't defamatory to begin with, and "innuendo cannot make it libelous."

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