Brokerage Firms Beware: Defamation Claims May Follow Form U-5 Statements
New York's highest court has been asked to clarify just how much protection employer statements about terminated employees on NASD termination forms are entitled to. The NASD requires member firms to fill out a termination form ("Form U-5") whenever a registered employee is let go, explaining the reason for the termination. These forms are then available to any member firm upon request. Currently, New York law is unclear as to whether statements made in a Form U-5 deserve a qualified or an absolute privilege. If these forms are protected by an absolute privilege, then employers are immune from lawsuits based on claims by employees that statements in the form were defamatory. If, however, these forms are only entitled to a qualified privilege, if an employee can demonstrate that the defamatory statements were made with malice, the protection an employer had against suit dissolves.
This question of privilege is the current focus of the Second Circuit U.S. Court of Appeals case, Rosenberg v. MetLife Inc. This case reached the second circuit, after a district court threw out Chaskie Rosenberg's claim of libel against his previous employer, MetLife. Rosenberg's claim of libel was based on statements made by his employer in a Form U-5 that he claimed were defamatory and made with a malicious intent. Specifically, the Form U-5 stated that "[a]n internal review disclosed Mr. Rosenberg appeared to have violated company policies and procedures involving speculative insurance sales and possible accessory to money laundering violations." Rosenberg asserts that the real reason he was fired was because he is a Hasidic Jew. The district court dismissed this claim after interpreting New York law to provide the Form U-5 an absolute privilege. The second circuit does not see New York law as being so clear and has requested New York's highest state court to clarify whether statements made on a Form U-5 are entitled to a qualified or an absolute privilege.
In its request for clarification, the second circuit notes that competing policy concerns support both outcomes. An absolute privilege supports candid disclosure of brokers' conduct for member firms as well as for the public, but leaves former employees without a remedy in tort for even the most egregious and abusive statements made by former employers. On the other hand, a qualified privilege provides aggrieved employees a limited remedy in tort but also potentially subjects employers to extensive litigation, both meritorious and frivolous.
