Resolving an issue of significance to employers in the financial services industry that has long divided New York state and federal courts, the New York State Court of Appeals definitively held that “[s]tatements made by an employer on a NASD employee termination notice [(Form U-5)] are subject to an absolute privilege in a suit for defamation.” In a 4-2 decision in Rosenberg v. Metlife Inc., the Court of Appeals agreed with Metlife that an absolute, and not qualified, privilege applies to Form U-5 statements because (1) the filing of a Form U-5 with the NASD is a preliminary step in a quasi-judicial process, and (2) an absolute privilege best serves the public interest in encouraging full and truthful disclosure.
In 1999 and again in 2000, Metlife internal audits revealed that its all-boro agency accepted third-party checks for the payment of premiums for life insurance policies – payments that can be indicative of speculative insurance practices and possible money-laundering activities. As a result of its findings, Metlife closed the agency and relocated its employees, including Rosenberg, to another office. Following another internal audit in 2003, Metlife fired Rosenberg. The Form U-5 Metlife filed with the NASD stated that the reason for Rosenberg’s termination was that Rosenberg “appeared to have violated company policies and procedures involving speculative insurance sales and possible accessory to money laundering violations.” Rosenberg filed suit in the Southern District of New York seeking damages for, among other claims, libel against Metlife.
Rosenberg asserted that the statements made on his Form U-5 were defamatory and made with malicious intent. At the time the district court considered Rosenberg’s motion, New York case law was sharply divided. While a number of New York courts had applied absolute immunity to statements on Form U-5 and wholly immunized communicants from liability in a defamation action, other courts held that statements made on Form U-5 were protected only by qualified immunity and thus actionable if made with malice. The district court granted Metlife’s motion to dismiss Rosenberg’s libel claims, siding with the cases applying an absolute privilege to statements made on a Form U-5. On appeal, the Second Circuit Court of Appeals concluded that Rosenberg presented an unsettled issue of New York law and certified the question to the New York Court of Appeals.
The Rosenberg decision conclusively holds that absolute privilege applies to statements made on Form U-5. The Rosenberg court primarily relied on two arguments. First, the court noted that Form U-5 “plays a significant role in the NASD’s self-regulatory process” and its compulsory filing should be “viewed as a preliminary or first step in the NASD’s quasi-judicial process.” Second, the court found that “significant” public interests are served by the filing of accurate and forthright Forms U-5, which enable the NASD to investigate, sanction, and deter misconduct by its registered representatives and protect the investing public. The Rosenberg court concluded that its finding of absolute immunity did not leave “registered employees who are maliciously defamed on a Form U-5 . . . wholly without remedy.” Those employees “may commence an arbitration proceeding or court action to expunge any alleged defamatory language” made on a Form U-5.