New York Court Finds Absolute Immunity Applies To Broker-Dealer U-5 Termination Statements

Author:Mr Jeffrey Zuckerman
Profession:Pillsbury Winthrop Shaw Pittman LLP

On March 29, the New York Court of Appeals held in Rosenberg v. MetLife, Inc. that statements made by a brokerage firm in a U-5 Termination Notice are subject to an absolute privilege in a suit for defamation. This ruling is a major victory for the broker-dealer community because it both encourages firms to accurately and fully disclose reportable events and protects them from defamation lawsuits brought by disgruntled former employees.

Although not subject to defamation suits for false or misleading disclosures in Form U-5s, employers must still comply with NASD regulations requiring accurate disclosure of the circumstances relating to an employee's termination. Accordingly, there remains every incentive for member firms to use appropriate care and good judgment when making U-5 filings.


The Rosenberg decision centers on the degree of protection given to employer statements in a Form U-5, the Uniform Termination Notice for a Securities Industry Registration. The NASD and the NYSE require that a member firm file this form within thirty days of a registered representative's departure. The form asks the employer to provide an explanation for an employee's involuntary termination. The contents of a Form U-5 may be reviewed by regulatory authorities and, in certain circumstances, other broker-dealers and members of the investing public. Upon receipt of a Form U-5, the NASD may, and routinely does, investigate involuntary terminations to determine whether any securities law violations have occurred.

Recognizing that securities regulations mandate that member firms file a Form U-5, many courts have given employers either qualified or absolute immunity for statements made in a Form U-5. With qualified immunity, a defamation claim may still succeed if a claimant can show that the speaker acted with malice. Whether malice was involved is typically a question of fact. It may therefore be difficult to dispose of a defamation claim on a motion to dismiss if the requisite facts establishing malice are alleged. Absolute immunity, by contrast, precludes an individual from pursuing any defamation action against the speaker. Thus, when absolute immunity applies, a defamation claim may be dismissed at the outset of the case.

Rosenberg v. MetLife, Inc.

The Rosenberg case began after the defendant, MetLife, Inc., terminated plaintiff Chakie Rosenberg's employment as a registered representative. As described in the Court's decision, MetLife had...

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