The Law Planet Blog

In another installment of the incompetent/malevolent broker/dealer guidebook, Barclays Capital partially prevailed on a Motion to Vacate Arbitration Award filed against one of its former employees. In Barclays Capital Inc. vs. Elizabeth Bing Shen, 2008 N.Y. Misc. LEXIS 2327, a NY Supreme Court judge (the lowest level trial court, interestingly enough) found that the ruling in Rosenberg v. MetLife barred recovery of punitive damages.

Rosenberg, as those who have been following this issue will recall, held that incorrect statements on a U-5 Termination Notice were absolutely privileged. In my opinion, regardless of whether you represent a firm or the broker, this is a wrong-headed decision that was decided by judges who ignored the impact on a broker's life a U-5 can have. There has been some discussion by commentators that there are ways "around" Rosenberg. Certainly, one of them is to avoid New York law in contracts. There are others as well, but if I shared them I'd have to shoot you.

Back to Ms. Shen. She was apparently owed a bonus and her U-5 was found to be erroneous by the arbitrators. By the description in the court's opinion, she does not qualify for "Employee of the Year" status by any means, but the arbitrators clearly felt that she didn't deserve the disclosure she received. They awarded her punitive damages.

The court found that the punitive damages could only have been for the U-5 defamation claim and, therefore, vacated that part of the award. We are currently representing brokers whose U-5s, we believe, are defamatory. We are not concerned about the New York choice of law provision because we feel that there are valid arguments against it when the the broker is in Florida. Nevertheless, this creates more stress and anxiety and creates a "free defamation zone" for broker-dealers, honorable and not.

That's the view from The Law Planet - Jupiter, Florida.

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Posted In: Labor & Employment , Securities Arbitration , Securities Industry , Stockbroker Issues

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The Eleventh Circuit Court of Appeals has ruled that, under the Fair Labor Standards Act ("FLSA") domestic service employees, such as "granny nannies," are exempt from overtime rules under certain conditions. In Buckner v. Fla. Habilitation Network, Inc. held that overtime is not due to an employee of a home health care service who worked more than 40 hours in a week. The key point in this decision was that the Plaintiff was not a direct employee of a family but was paid by an agency who employed her.

The decision is a blow to home health care workers employed directly by employment agencies throughout the state of Florida. Such employees now need to negotiate the terms and conditions of their employment more carefully or be required to work burdensome work weeks far in excess of 40 hours without the possibility of overtime pay.

That's the view from The Law Planet, Jupiter, Florida

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Posted In: Labor & Employment

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Some of you will recall the ill-conceived and ill-fated transaction where Merrill Lynch acquired the assets, including the human assets of Advest from Axa Financial.. It was a disaster for Merrill and unpleasant for the Advest brokers, a vast majority of whom left the firm.

We represented a few of those brokers, and talked with others, who did not feel that Merrill was a good fit and chose to move on. The problem was that these brokers all had transition contracts in place. In one case we handled, the NASD arbitration panel amortized the bonus money and ordered our client to pay back a lower amount than Merrill was seeking. In a more recent case, Brian Buckstein of our office represented a client whose contract contained language that voided the agreement in the event that Advest closed his office and did not open one within 50 miles.

Brian tried the case against Merrill for two days and Merrill tried to argue that a Merrill office would qualify as an Advest office for the purpose of the agreement. The arbitration panel apparently disagreed with Merrill's position and awarded Merrill nothing.

The lesson to be learned from this is to read any agreement carefully and, if you don't want to end up working for an entity you didn't choose, put language in the agreement that gives some protection.

That's the view from The Law Planet, Jupiter, Florida.

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Every day, a stockbroker is asked to sign an amendment to NASD Form U-4, the securities industry's Uniform Application for Securities Registration. A brokerage firm is required to amend the Form U-4 upon the occurrence of certain specified events as described in the form. In particular, customer complaints and arbitrations which allege damages over the dollar thresholds must be disclosed.

Unfortunately for the brokers, truthful allegations are given the same weight as untruthful ones. A customer can allege unauthorized trading, for example. The firm is required to repeat that allegation on the Form U-4. The firm is not permitted, however, to pass judgment on whether or not the allegations are truthful. For a broker with no particular experience with amendments to the form U-4, signing a form with such heinous allegations is especially distasteful. What's a broker to do in this situation?

Box 28 is the answer. A little-publicized fact is that the broker has the right to provide his/her rebuttal to the disclosure in Box 28. The instructions say that this rebuttal should be written "in the space provided." In many instances, Box 28, when printed, has no space at all. But there is space available for the asking.

What should go in Box 28? A broker should write a brief, truthful, factual rebuttal to the allegations that the firm has disclosed. For instance, in the case of unauthorized trading, if the broker is 100% certain that all trades were discussed with the client prior to entry, a broker could write this fact. In the case of a client who makes allegations of losses in a portfolio, a broker could write that the client's account was profitable for the period the broker handled the account. Again, the Box 28 text must be truthful and, I suggest, should not be opinion, only fact.

In the case of a manager named for "Failure to Supervise," the manager could write in Box 28, if truthful, that the manager was not the manager during the time of the allegations.

Why fill in Box 28? When a customer or prospective employer requests a full CRD printout, Box 28 language will print out along with the customer's allegations. CRD reports are sometimes introduced into evidence at arbitration hearings. Having Box 28 completed with factual, objective, rebuttal language will take some, but not all, of the sting out of disclosing the complaint in the first place.

A lawyer is not required to complete the language for box 28. However, an experienced securities attorney can assist the broker in crafting the rebuttal in a light most favorable to the broker. This entire process, barring any unforeseen glitches, shouldn't take very long and will give the broker some peace of mind and feeling of involvement in the process.

That's the view from The Law Planet, Jupiter, Florida.

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Dobin & Jenks, LLP, the sponsor of The Law Planet Blog, represented Nicholas C. Hodges, CPA, CFP in an NASD Securities Arbitration in Jackson, MS. The dispute involved issues of defamation, copyright ownership, breach of fiduciary duty, diversion of corporate opportunities. After almost 8 days of arbtration hearings, Mr. Hodges was awarded $75,000 in damages, ownership of the copyright to his book, The Lazy CPA’s Guide for Adding Financial Services to Your Tax Practice, and attorneys' fees of more than $86,000.

The arbitration award can be found here.

Perhaps the best part of this case was our two clients, Nick Hodges and Toni Nurnberger. They were two of the nicest people we have ever represented and the award represented the culmination of nearly two years of litigation and hard work. Nick, "The Lazy CPA" is anything but lazy. Toni, his associate for several years, keeps everything from boiling over. When my kids ask me what I do for a living, I tell them that I help people and think of people like Nick and Toni.

Nick has made a movie. Thankfully, he doesn't sing or dance and he keeps his clothes on.

A big thanks to Nick and Toni and to all our clients who have helped us keep the doors open since 1999.

That's the view from The Law Planet, Jupiter, Florida.

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Posted In: Labor & Employment , Securities Arbitration , Securities Industry , Stockbroker Issues

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Under Florida law, the courts have upheld a qualified privilige on disclosures made on NASD form U-5, the Uniform Termination Notice for Securities Registration. Eaton Vance Distributors, Inc. et al. v. Ulrich, 692 So. 2d 915 (Fla. App. 2nd DCA 1997). However, there are a number of brokerage firms that use a New York "choice of law" provision in their employment contracts. A recent decision was initially thought to be the death knell for defamation actions.

In Rosenberg v. Metropolitan Life Insurance Company et al., 2007 NY Slip Op 2627, the New York Court of Appeal, the state's highest court, ruled that statements made on a Form U-5 are protected by an absolute privilege. The ruling, at first blush, appeared unequivocally devastating to registered representatives wishing to assert U-5 defamation claims employed in New York and/or governed by enforceable New York choice-of-law provisions. Fortunately, however, the Second Circuit Court of Appeals, after it received the Rosenberg case back from the New York Court, identified a very legitimate and glaring hole in the Court of Appeals’ analysis. Op. issued June 14, 2007 at n. 1.

The Court of Appeals recognized that statements in a Form U-5 that are not “material and pertinent to the issues to be resolved” are probably not protected. Specifically, the court recognized that not all statements placed on a broker’s Form U-5 may be absolutely protected:

Consequently, we need not decide if there are circumstances in which statements on a Form U-5 are not absolutely privileged under Rosenberg II. We note, however, that in the context of judicial or quasi-judicial proceedings, statements made by parties, attorneys, and witnesses are absolutely privileged only ‘so long as they are material and pertinent to the issue to be resolved in the proceeding.'

While initially devastating to broker U-5 defamation claims under New York law, the Second Circuit’s latest per curiam decision holds out hope that brokers are not completely without recourse when false language is contained within a Form U-5. Moreover, because U-5 defamation analysis is governed by state law, states such as Florida that reject an absolute privilege in U-5 defamation cases remain unaffected by Rosenberg.

Here at The Law Planet, we continue to receive inquiries from recently-terminated stockbrokers about getting help with the language on a form U-5. Most brokerage firms are savvy enough to realize that getting the broker's input on the language is a major step towards avoiding defamation litigation. Our role as counsel is to make sure that the brokerage firm discharges its regulatory obligation while minimizing the impact on our client's career.

That's the view from The Law Planet, Jupiter, Florida.

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Posted In: Labor & Employment , Securities Arbitration

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