Court Opinion

ID: 9736418
Source: CourtListenerOpinion
Date Created: 2023-08-26 18:55:33.432671+00
Date Added: 2024-06-11T09:42:14.592189
License: Public Domain

Leben, J.,
concurring: I express no opinion regarding the debate that has been waged in courts of other states about whether absolute or qualified immunity applies when a securities broker fills out the U-5 form that the Financial Industry Regulatory Authority (FINRA) requires when an agent leaves the broker’s employment. Those courts were deciding a policy question that their legislature did not answer. But our legislature has answered the policy question, so we need only follow its directive.
K.S.A. 17-12a507 provides that a broker-dealer is not hable to an agent for defamation contained in a record required by a self-regulatory organization like the Financial Industry Regulatory Authority (FINRA) unless actual malice (knowledge of falsity or reckless disregard) is shown. That statute comes from section 507 of the Uniform Securities Act (2002), which Kansas adopted in 2004 and made effective July 1, 2005. L. 2004, ch. 154, sec. 36. The official comments to section 507 of the uniform act note that this section was based on a proposal from FINRA’s predecessor, the National Association of Securities Dealers, which sought specifically to provide for qualified immunity for its forms U-4 and U-5. See Uniform Securities Act (U.L.A.) (2000), § 507, Official Comments, pp. 156-57 (2006). Our case involves form U-5. Thus, the language of K.S.A. 17-12a507 clearly provides for only qualified immunity, and the history of section 507 of the Uniform Securities Act (2002) shows that this immunity provision applies to the very form at issue in our case.
The parties argued the immunity issue to the arbitrators, and the arbitrators heard the testimony that the parties wanted to present under both the employer’s claim of absolute immunity and the former agent’s claim of qualified immunity. The arbitrators are not required to explain their decision, and they could have concluded from the evidence that the employer here acted with actual malice. Under that finding, PSB would be liable even though it had qual*646ified immunity. Thus, we are unable to conclude that the arbitrators acted in manifest disregard toward the law, and we cannot set aside the arbitration award. On this basis, I concur with the majority on resolution of the main issue in this case.
As to the district court’s sanction award under K.S.A. 60-211, Perkins, Smart & Boyd’s counsel candidly admitted in oral argument that if the rules typically applied to arbitration awards were followed, this award could not be set aside unless absolute immunity applied to a party filling out the U-5 form. K.S.A. 17-12a507 clearly provides qualified, not absolute, immunity. So it would seem that there was no legal basis under which PSB’s attempt to vacate the arbitrators’ award was likely to succeed.
But K.S.A. 60-211 makes a legal position subject to sanction only when it is not warranted by some “nonfrivolous argument” for the modification or reversal of existing law. K.S.A. 60-211(b)(2). The district judge did not base his award on a violation of that standard. Instead, the only basis he gave for the award was that the judge did not “like the manner” in which a letter proposing settlement— sent from PSB’s lawyer to Moreland’s — was written. Based on that violation, the judge awarded “[significantly limited attorneys fees” of $750.
K.S.A. 60-211 does not authorize sanctions based upon the manner in which a letter proposing settlement is written: the statute applies to a “pleading, motion or other paper” called for under civil procedure rules. K.S.A. 60-211(a). While Moreland did suggest the imposition of fees based on his claim that the motion to vacate the arbitrator’s award itself was frivolous, the district court concluded only that the law was “pretty clear” despite perhaps “a litde bit of uncertainty.”
In my view, it’s a close question whether the sanction award might be upheld on the basis that the entire attempt to vacate the arbitrator’s award was frivolous. When the law truly is clear and a party opposes confirmation of an arbitrator’s award in bad faith, sanctions under federal Rule 11, the federal counterpart to K.S.A. 60-211, have been upheld. See Prospect Capital Corp. v. Enmon, 2010 WL 907956, at *7 (S.D.N.Y. 2010) (unpublished opinion) (citing cases).
*647In making that judgment in this case, however, we must consider the importance of the privilege that PSB sought to uphold. After all, much of the regulation of financial markets is done — under the authority of federal law — by FINRA, the entity to whom these forms were submitted. See 15 U.S.C. § 78o-3 (2006); Rosenberg v. MetLife, Inc., 8 N.Y.3d 359, 366-67, 866 N.E.2d 439, 834 N.Y.S.2d 873 (2007).
Assuming the arbitrators followed the law, they determined that Kansas grants a qualified privilege to brokers filling out U-5 forms but that PSB acted with actual malice in completing the form. While arbitrators generally do not have to explain their rulings, I do not believe it was frivolous to argue in the factual circumstance before us that arbitrators should at least be required to show that they have followed the state’s privilege law in their ruling. Given the importance of this privilege to the regulation of our financial markets and the importance of that task, I conclude that PSB’s arguments to enforce at least a qualified privilege for statements made on required FINRA forms were nonfrivolous under K.S.A. 60-211. On that basis, I agree with the majority that the district court’s sanction award should be vacated.