NY High Court to Decide Privilege of NASD Term Form

July 6, 2006 (PLANSPONSOR.com) - The 2nd US Circuit Court of Appeals has ordered the New York State Supreme Court to decide if statements employers make on a National Association of Securities Dealers (NASD) termination form are subject to an absolute or qualified privilege.

The New York Law Journal reports that, in Rosenberg v. MetLife, a Southern District of New York Judge held that the statement on the Form U-5 was absolutely privileged, barring legal action against MetLife. Chaskie Rosenberg sued MetLife for employment discrimination, libel, fraudulent misrepresentation and breach of contract.

The suit claimed Rosenberg was investigated and fired because he was a Hasidic Jew. According to the New York Law Journal, Rosenberg’s Form U-5 stated, “An internal review disclosed Mr. Rosenberg appeared to have violated company policies and procedures involving speculative insurance sales and possible accessory to money laundering violations.”

Chief Judge John Walker Jr. said the same statement was on the Form U-5 of five other Hasidic Jews fired by the company.

New York courts have not been consistent with rulings on similar cases, Walker found. In 1991, the Appellate Division, 1st Department, ruled statements on the form to be absolutely privileged in Herzfeld & Stern, Inc. v. Beck. However, two justices of the 1st Department, Betty Weinberg Ellerin and Milton Williams, recently dissented in the case of Cicconi v. McGinn, Smith & Co., which followed Herzfeld’s rationale.

Ellerin was in the majority in Herzfeld, but has changed her mind. According to Ellerin, the “cloak of absolute privilege has generated substantial abuses by way of distorted filings for tactical, competitive business reasons.” Ellerin said she believed a qualified privilege would protect investors and the interests of the employee.

In his decision, Walker said an absolute privilege would “provide for candid disclosure of brokers’ conduct but leave former employees without a remedy in tort for even the most egregious and abusive statements made by former employers.” A qualified privilege would “provide for a limited remedy in tort but potentially subject employers to extensive litigation, both meritorious and frivolous.”

Walker said the state’s Supreme Court is the proper place to settle the matter and select the policy that is best for the people of New York.