Standard & Poor's filed unusual suits this week in federal court in Tennessee and South Carolina. The complaints are almost identical, except that the credit rating agency's South Carolina suit names South Carolina Attorney General Alan Wilson as a defendant and the Tennessee filing names that state's AG, Robert Cooper. In both cases, S&P cites threatened actions by the state AGs and asks for a judicial determination that the states may not bring state-law consumer protection claims based on credit ratings because those ratings are opinions protected by the First Amendment.

That's a straw-man argument, and S&P knows it.

Time and again in the last few years, the First Amendment has saved credit rating agencies from liability to investors in the misbegotten securities they blessed. But the state AGs who are accompanying the Justice Department in its campaign against S&P aren't bringing claims based on the agency's woefully wrong ratings on mortgage-backed securities and collateralized debt obligations. Their cases assert instead that S&P lied to investors about the independence and objectivity of its ratings, in violation of state laws prohibiting deceptive trade practices. It might seem like a legalistic distinction - did S&P supposedly issue misleading ratings or did it issue misleading statements about its rating process? - but the twist makes a big difference to the rating agency's First Amendment defense.

Two state court judges, in fact, have already called out credit rating agencies for attempting to misapply the First Amendment in deceptive trade suits by AGs in Connecticut and Illinois, who brought their cases against S&P long before this week's blockbuster suit by the Justice Department. Connecticut Superior Court Judge William Bright was the first state judge to consider the question. In a thoughtful ruling last May in Connecticut's parallel case against Moody's, the judge firmly rejected rating agency arguments that First Amendment protection of opinions extends to statements about their business model. "While the actual opinions rendered by Moody's may enjoy First Amendment protection, that protection does not give the defendants license to misrepresent to consumers the manner in which they operate their business or arrive at their opinions," the judge wrote. Bright refused to dismiss the state's cases against both Moody's and S&P, refused again after reargument and set trial dates for 2014.

In the case against S&P by Illinois AG Lisa Madigan, Circuit Court Judge Mary Anne Mason said in a November 2012 opinion that the rating agency was trying to twist the case to suit its First Amendment defense. "It is only by re-casting the allegations of the complaint that defendants are able to advance this argument," she wrote. "Fairly read, the complaint challenges defendants' repeated statements of fact regarding S&P's independence and objectivity and its internal conflicts controls; it is not based upon S&P's rating opinions regarding various securities." (I have to offer a mea culpa on Mason's ruling. At the time, I predicted that it wouldn't result in a flood of similar suits by other AGs because of concerns that post-2007 claims would be pre-empted by federal regulation of the rating agencies. Pre-emption may still be a viable defense for S&P, notwithstanding rulings to the contrary by Bright and Mason. But I was obviously very, very wrong about whether other AGs would sue S&P!)

Even S&P's lead lawyer on First Amendment issues, Floyd Abrams of Cahill Gordon & Reindel, has conceded that the constitutional argument doesn't exactly fit in deceptive trade practices cases. At an oral argument in January 2012 in Connecticut's suit, Judge Bright pressed Abrams on whether statements about the objectivity of S&P's ratings are commercial speech and thus entitled to less-sweeping protection than opinions. Abrams insisted that such statements were "part of the rating as a whole and should not be sort of stripped out separately." But after a couple more exchanges with the judge, who was admirably engaged by the issue, Abrams admitted that while puffy statements about business integrity usually aren't considered an adequate basis for a suit, "I agree it's not truly for First Amendment reasons."

I don't know exactly why S&P filed those South Carolina and Tennessee First Amendment declaratory judgment suits. An S&P representative didn't respond to my email asking about the filings and Abrams didn't return a phone call requesting comment. Perhaps the rating agency believes that a federal court will be more receptive to constitutional defenses than state judges. And to be clear, the First Amendment isn't the only argument rating agency defendants have raised in the Connecticut and Illinois cases. In addition to federal pre-emption, they've also claimed (among other things) that statements about their business practices are too vague and imprecise to be actionable and that investors didn't actually rely on those statements, so they're not material.

So far, those defenses have been no more successful in the Connecticut and Illinois suits than S&P's constitutional argument, but you can expect to see them revived in other state cases.

(Reporting by Alison Frankel)

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