Jottings By An Employer's Lawyer

Sunday, April 01, 2007

Security Industry (Finally) Catches A Break - U5's Absolutely Privileged


The securities industry has not always been a happy camper when it came to employment claims in the last few years, but Thursday was almost as good a day as bonus day on Wall Street. Well maybe, not quite that good, but there had to be smiles at least in the management offices in most brokerages knowing that New York's highest state court had responded, "Absolutely" to the following question:

Are statements made by an employer on an NASD employee termination notice ('Form U-5') subject to an absolute or a qualified privilege in a suit for defamation?

Rosenberg v. Metlife, Inc. (NY App 3/29/07) [pdf]. More importantly, the Court was responding to a certified question from the Second Circuit that it issued on June 28, 2006.

Since brokerages are required to complete a U-5 within 30 days of registered brokers termination, and forced to disclose circumstances which if not true could certainly be viewed as defamatory, the granting of an absolute as opposed to a qualified privilege is a major victory for the NASD.

Obviously, the 2nd Circuit had thought it was a close question, citing conflicting decisions on the issue among the lower appellate courts, and quoting a justice who had earlier voted for an absolute privilege who now felt that the issue had been wrongly decided, because:

The cloak of absolute privilege has generated substantial abuses by way of distorted and false filings for tactical, competitive business reasons, without any realistic recourse available to those injured.
and the 4-2 vote in New York's highest court would indicate that it was no slam dunk that it would turn out this way.

How many employees does it potentially impact? According to the opinion, 660,000 brokers are currently covered by the NASD.

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