Court Opinion

ID: 5695046
Source: CourtListenerOpinion
Date Created: 2022-01-12 15:32:38.496207+00
Date Added: 2024-06-11T08:39:42.049991
License: Public Domain

Ellerin, J. (dissenting).
I dissent and would reverse.
Continued adherence to Herzfeld & Stern v Beck (175 AD2d 689 [1991], lv dismissed 79 NY2d 914 [1992], 82 NY2d 789 [1993], 89 NY2d 1064 [1997]) and absolute privilege frustrates rather than furthers the salutary purpose for which 15 USC § 78f was enacted. Thus, while I joined in the opinion in Herzfeld & Stern, I now believe that that case was wrongly decided. As noted in the writings cited by the majority itself in the instant case, 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. If the purpose of section 78f is to protect investors and the public, it is difficult to see how that purpose is furthered by inaccurate or false information. A qualified privilege, as is the case in many other jurisdictions, would serve the industry purpose of protecting investors and the public from problem representatives, while protecting the interests of the employee.
The United States Court of Appeals for the Second Circuit, for example, nearly contemporaneously with this Court’s decision in Herzfeld & Stern, upheld an arbitration award of defamation based on a qualified privilege for Form U-5 statements and evidence of the employer’s “flagrantly spiteful conduct, demonstrating its intent simply to injure [the employee’s] reputation” (Fahnestock & Co., Inc. v Waltman, 935 F2d 512, 516 [1991]). More recently, the United States District Court for the Southern District of New York reviewed the conflicting federal and state precedents and observed that “[g]iven the general controversy and weight of conflicting case law, there is ample evidence to suggest that New York’s highest court may some day reach a different conclusion on Form U-5 immunity” (Acciardo v Millennium Sec. Corp., 83 F Supp 2d 413, 420 [2000] [upholding arbitration award based on qualified immunity standard]).
The United States Court of Appeals for the Seventh Circuit has accorded a qualified privilege to statements on a Form U-5, finding that “wiser policy leads to the conclusion that a quali*65fied privilege adequately protects the interests of all parties concerned” (see Dawson v New York Life Ins. Co., 135 F3d 1158, 1164 [1998]; see also Glennon v Dean Witter Reynolds, Inc., 83 F3d 132 [6th Cir 1996]). The United States District Court for the Eastern District of Michigan, Southern Division, rejected the argument that the contents of a Form U-5 are absolutely privileged, and applied Michigan rather than New York law “in light of Michigan’s interest in protecting the reputations of its citizens from defamatory statements” (Andrews v Prudential Sec., Inc., 1997 US Dist LEXIS 23694, *12 [ED Mich 1997], affd 160 F3d 304 [6th Cir 1998]; see also Prudential Sec., Inc. v Dalton, 929 F Supp 1411 [ND Okla 1996]; Eaton Vance Distribs., Inc. v Ulrich, 692 So 2d 915 [Fla Dist Ct App 1997], review denied 705 So 2d 8 [Fla 1997]).
“Given the possibility of [reporting] abuses and the very serious damage that improper Form U-5 reporting can do to individuals’ business reputations and employment prospects, immunizing broker-dealers from all liability for defamatory Form U-5 statements would afford insufficient protection to the reputational interest of individuals employed in the securities industry. Any response to Form U-5 defamation concerns must balance these reputational interests, securities regulators’ need for accurate and complete information about the movements of problem representatives, and broker-dealers’ desire for protection against civil liability for good-faith errors in Form U-5 reporting. To achieve such a balance, Form U-5 statements should enjoy only qualified protection from defamation liability” (Wright, Form U-5 Defamation, 52 Wash & Lee L Rev 1299, 1330-1331 [1995]).
Buckley, P.J., and Marlow, J., concur with Saxe, J.; Ellerin and Williams, JJ., dissent in a separate opinion by Ellerin, J.
Order, Supreme Court, New York County, entered on or about June 10, 2004, affirmed, without costs.