(CN) - Author Michael Lewis did not defame a money manager in the bestseller "The Big Short: Inside the Doomsday Machine" by portraying him as the one who piloted financial markets into the 2008 financial meltdown, a divided 2nd Circuit panel ruled.
In his federal complaint, Wing Chau said Lewis and his publisher, W.W. Norton, portrayed him as creating a "ship of doom" through investments in risky mortgage-backed securities, and he was directly responsible for bringing down the world's economy through greed, avarice and sheer incompetence.
Chau claimed that the defamatory statements in the book, which spent six weeks at No. 1 on The New York Times' bestsellers list, severely diminished his ability to work in his profession.
Lewis describes Chau as "short with a Wall Street belly - not the bleacher bum's boiler but the discreet, necessary pouch of a squirrel just before winter."
The author wrote that Chau "controlled roughly $15 billion, invested in nothing but CDOs [collateralized debt obligations] backed by the triple-B tranche of a mortgage bond or, as [hedge fund manager Steven] Eisman put it, 'the equivalent of three levels of dog shit lower than the original bonds.'"
Eisman was also named as a defendant in the suit, for communicating to Lewis 26 allegedly defamatory statements at the heart of Chau's suit.
Chau ran a financial firm that created CDOs backed by subprime loans, managed to win high ratings for his CDOs from rating agencies, and then sold these securities to institutional investors.
"This ship of doom," - leading into the 2008 financial crisis - "was piloted by Wing Chau and people like him," the book says.
Lewis also writes that Eisman decided specifically to bet millions of dollars against Wing Chau's CDOs, because he believed Chau's financial products were so worthless.
The 2nd Circuit affirmed a lower court's dismissal of Chau's claims Friday, finding that a number of the challenged statements are not defamatory at all, and the others are purely opinion.
"While someone may not appreciate being called a fool, it is an expression of one's view of another, and moreover might not reflect reality: history has shown many 'fools' to have indeed been visionaries. Time may prove the insult misguided, but the insult is not itself a fact - but rather, is one's perception of facts - at the time it is uttered," Judge Richard Wesley wrote for the court's 2-1 majority.
To be considered defamatory under New York law, a statement must not only be discomforting to the individual in question, but be generally recognized to encourage public hatred and shame.
"Chapter 6 of 'The Big Short' portrays Chau as starting out from a series of simple finance-related jobs to becoming the founder and principal of a financial firm managing CDOs, which provided him with what many Americans hope for - great wealth," Wesley wrote in the 29-page opinion. "The market events of 2008 and 2009 may undoubtedly influence one's perception as to whether going long on CDOs meant Chau was a fool, or Chau was a rube, or his motivations were avarice; but hindsight cannot give such opinions a defamatory meaning."
Judge Ralph Winter dissented, writing that the statements Lewis attributes to Chau could easily be considered evidence of fraud, and a breach of his duties to investors.
"Were the statements attributed to appellant described above introduced in a civil or criminal fraud trial in which he was the defendant, they would not be excluded on relevance grounds. And if the claims made by the book were proven in such a trial, we would unanimously affirm by summary order admission of the statements and a resultant judgment against appellant," Winter wrote.
Winter went on to note in his 12-page dissent that Lewis admitted that he doesn't use a fact checker, and "much of what the book says about Chau is known even now as false."
The dissent continued: "My colleagues inconsistently find these passages to be either not defamatory because the average reader would know undisputed facts that render the statements insignificant or opinions protected because the facts cannot be disproven."
Winter wryly added in a footnote that "perhaps the book's 28-week presence on the New York Times bestseller list was due to sales to below-average readers."
Read the Top 8
Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.