Page 40 - Mar2019_BarJournal

BarJournal FEATuRE

JULY/AUGUST 2015
ExTra ALLEgEd dEFAmATion ARising

FRom FoRm U-5s

does ohIo Law ProvIde an aBsoLUTe or

QUaLIfIed PrIvILege To The eMPLoyer?

BY DOuGLAS M. EPPLER

W hen an purported courts) necessarily apply substantive state law are (1) absolutely privileged communications
employer
The two classes of privileged communications
governing defamation. To establish defamation
discharges an employee
for
and (2) qualified or conditionally privileged
under Ohio law, the claimant must show that (1) a
it
misconduct,
communications, with the difference being that
is
false statement of fact was made; (2) the statement
possible, perhaps even
likely, that the two sides will have very different was defamatory; (3) the statement was published; “complete protection is afforded by absolute
privilege, whereas a qualified or conditional
(4) the claimant suffered injury as a proximate
perspectives about what really went wrong. As a result of the publication; and (5) the defendant privilege affords protection only in the absence
matter of policy, and to protect themselves from acted with the requisite degree of fault. See Am. of ill motive or malice in fact.” Id. at ¶ 9. In other
liability for defamation, many employers refuse to Chem. Soc. v. Leadscope, Inc., 133 Ohio St.3d 366, words, an absolute privilege, if it applies, provides
disclose to third parties any explanations of why 2012-Ohio-4193, ¶ 77. The elements that seem the respondent complete immunity for a false
former employees were discharged. However, most likely to be disputed in a U-5 defamation and defamatory statement, whereas the qualified
this option is not available to broker-dealers, case are the truth or falsity of the statement and privilege allows for potential liability but requires
investment advisers or issuers of securities, the former employer’s degree of fault. the claimant to establish bad faith or actual
because these entities malice. In the context
must complete of a defamation
and file the Form case, actual malice is
U-5, the Uniform Therefore, a threshold legal issue in defined “as acting with
Termination Notice knowledge that the
for Securities Industry FINRA arbitrations applying Ohio statements are false or
Registration (U-5). acting with reckless
When individuals law to u-5 defamation claims is disregard as to their
are discharged, or truth or falsity.” Jacobs
permitted to resign, whether the former employer’s v. Frank, 60 Ohio St.3d
the U-5 requires these 111, 116, 573 N.E.2d
regulated entities to 609 (1991).
provide an explanation. privilege is absolute or qualified.
It is not surprising, Is the Privilege in
then, that U-5s are a U-5 Defamation
common sources of Case Absolute or
defamation claims in Qualified?
the United States. According to one report, from Absolute and Qualified Privileges in Former employers completing a U-5 almost
the beginning of 2016 through the first quarter Defamation Cases certainly enjoy at least a qualified privilege
of 2018, there were at least 82 Financial Industry In addition to the elements of the claim, in FINRA arbitrations applying Ohio law. A
Regulatory Authority (FINRA) arbitrations another potentially significant issue is qualified privilege arises “where circumstances
in which brokers claimed that their former the application of the “privilege” defense exist, or are reasonably believed by the defendant
employers had inaccurately reported the reasons for the former employer. A “privileged to exist, which cast on him the duty of making
that they were dismissed. Weinberg, Neil. “What communication is one which, except for the a communication to a certain other person to
Happens When Banks Smear Their Exiting occasion on which or the circumstances under whom he makes such communication in the
Brokers.” https://www.bloomberg.com/news/ which it is made, would be defamatory, and performance of such duty, or where the person
articles/2018-10-23/morgan-stanley-battle- actionable.” Buck v. Village of Reminderville, is so situated that it becomes right in the interests
exposes-how-firms-smear-departing-brokers. 9th Dist. Summit No. 27002, 2014-Ohio- of society that he should tell third persons certain
While claims of U-5 defamation often occur in 1389, ¶ 8 (citing Costanzo v. Gaul, 62 Ohio facts, which he in good faith proceeds to do.”
FINRA arbitrations, arbitration panels (or federal St.2d 106, 108, 403 N.E.2d 979 (1980)). Jacobs, supra, 60 Ohio St.3d at 113.
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