Court Finds Absolute Privilege for Defamatory Statements on Form U-5
The New York Court of Appeals determined that a broker who has been fired may not sue his former brokerage firm for defamation based on the reasons provided by the firm on the Form U-5 for terminating the broker.
The U.S. Second Circuit Court of Appeal asked New York’s highest court whether statements made by an employer on a NASD employee termination notice (Form U-5) are subject to an absolute or a qualified privilege in a defamation lawsuit. In Rosenberg v. MetLife, Inc., 2007 NY Slip Op 02627 (N.Y., March 29, 2007), http://www.courts.state.ny.us/reporter/3dseries/2007/2007_02627.htm, the New York Court of Appeals responded by finding that there was an absolute privilege. This decision, if followed by other courts, would effectively barr terminated brokers from suing their former employers for defamation based on statements on a Form U-5.
Rosenberg, a financial service representative in MetLife’s Brooklyn office, was terminated by MetLife after an audit. As required by NASD rules, MetLife completed a Form U-5 explaining the reasons for the termination.
The form stated: “An internal review disclosed [the broker] appeared to have violated company policies and procedures involving speculative insurance sales and possible accessory to money laundering violations.”
Rosenberg commenced a federal court lawsuit claiming, among other things, libel by MetLife based on the allegedly defamatory Form U-5. The District Court dismissed the libel claim, reasoning that under New York law, Form U-5 statements are absolutely privileged.
On appeal, the Second Circuit determined that New York law on the issue was unsettled, and certified the question to the New York Court of Appeals. The New York Court subsequently found that such statements are absolutely privileged, based in large part on the significant role that the Form U-5 plays in the NASD’s self-regulatory process.
