Plaintiffs’ attorneys hoping to find a way around the holding in Rosenberg v. MetLife, Inc., 8 N.Y.3d 359, 834 N.Y.S.2d 494 (2007), which gave employers an absolute privilege against defamation claims for the content of Form U5 filings, were recently dealt a blow by the New York State Supreme Court’s decision in Barclays Capital Inc. v. Shen, 857 N.Y.S.2d 873 (Sup. Ct. N.Y. County 2008). The court, relying on Rosenberg, vacated an NASD arbitration award granting a former employee punitive damages based on her claim that the language in her Form U5 was defamatory. Barclays reported on Elizabeth Shen’s Form U5 that she had been terminated for “gross misconduct—non-securities related,” which Barclays argued was entitled to an absolute privilege under Rosenberg.
Invoking a “doctrine of last resort,” the court held that the arbitration panel acted “in manifest disregard of the law” when it awarded Shen $95,000 in punitive damages in her defamation action. The court found that the arbitration panel was “aware of the applicable law and attendant public policy considerations” articulated in Rosenberg and that Rosenberg was “explicit and directly applicable to this case” in prohibiting the award of monetary damages for defamation claims based on Form U5 language. The court found that the panel nonetheless “chose to ignore” Rosenberg. Accordingly, the court held that the standard for demonstrating a manifest disregard of the law was satisfied and vacated the panel’s award.
The Shen case is good news for securities industry employers because it protects their right under Rosenberg to candidly report the reason for a registered representative’s termination in accordance with their regulatory obligations, without fear of liability for defamation. Shen should also further deter plaintiffs from trying to circumvent Rosenberg’s holding by seeking prohibited relief in arbitration.