McKim Capital, Inc. v Stewart

[*1] McKim Capital, Inc. v Stewart 2006 NY Slip Op 52462(U) [14 Misc 3d 1209(A)] Decided on September 27, 2006 Supreme Court, New York County Payne, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on September 27, 2006
Supreme Court, New York County

McKim Capital, Inc., Robert Taggart and James Cahill, Petitioners,

against

Joseph T.J. Stewart II, Respondent.



107244/06

Kibbie F. Payne, J.

Petitioners move, by order to show cause, for an order pursuant to CPLR article 75 staying National Association of Securities Dealers (NASD) arbitration on the ground that the arbitrators have no "jurisdiction" to decide a defamation claim arising from statements made in a Form U-5, a uniform termination notice for securities industry registration.[FN1] Petitioners reason [*2]that the Form U-5 is subject to an absolute immunity. They argue that arbitration of the defamation claim would therefore violate the public policy, favoring "free and open disclosure of . . . potential securities violations." In opposition, respondent contends that his Form U-5 defamation claim is proper for NASD arbitration because it concerns his employment. Respondent further contends that the Form U-5 is subject to a qualified privilege, which may be abrogated upon a showing of malice.

The parties focus their arguments on the level of immunity accorded to a Form U-5. However, the immunity accorded to a Form U-5, whether absolute or qualified, is a defense to a defamation claim arising from a Form U-5 that may be raised before the arbitral tribunal. It is not a ground to stay arbitration. In a CPLR article 75 proceeding, as this one, the dispositive issue is whether the subject claim is arbitrable (see CPLR 7503). Pursuant to CPLR 7503 (b), a party "may apply to stay arbitration on the ground that a valid agreement was not made or has not been complied with or that the claim sought to be arbitrated is barred by limitation under subdivision (b) of section 7502." A party may also invoke public policy to preclude arbitration. This "very narrow" exception to arbitrability, however, applies "only where strong and well-defined policy considerations embodied in constitutional, statutory or common law prohibit a particular matter from being decided or certain relief from being granted by an arbitrator'" (Matter of City of New York v Uniformed Fire Officers Assn., 95 NY2d 273, 286 [2000] [citation omitted]).

Here, petitioners conclusory petition cites no case law to support their argument that the public policy exception to arbitration is applicable. The issue of defamation is generally not interlaced with public policy considerations that require it be determined only by the courts. Petitioners' reliance on the public policy underlying the defense of immunity for statements made in a Form U-5 is misplaced. An arbitrator, like a court, may determine that the defense applies and reach the proper resolution of a defamation claim arising in this context. This is not a circumstance where "there is no possibility that the arbitrator could fashion any relief consistent with public policy," mandating the "extreme remedy" of staying arbitration (Matter of City of New York, 95 NY2d at 286). Indeed, both state and federal courts have compelled NASD arbitration of a claim for defamation arising out of statements made in a Form U-5 where the subject arbitration agreement encompassed any employment related dispute (see Kozlowski v New York Life Ins. Co., Inc., 13 AD3d 1227, 1228 [Fourth Dept 2004]; see also Fleck v E.F. Hutton Group, Inc., 891 F2d 1047, 1053 [2nd Cir 1989]).

No reason exists to hold this motion, as respondent proposes, in abeyance pending the resolution of Rosenberg v Melife, Inc. ( NY3d , 2006 NY Slip Op 6316 [Aug. 29, 2006]). There, the Court of Appeals accepted certification, by the United States Court of Appeals for the Second Circuit, of the question: "Are statements made by an employer on a NASD employee termination notice ( Form U-5') subject to an absolute or a qualified privilege in a suit for defamation?" (Rosenberg v Metlife, Inc., 453 F3d 122, 128-129 [2006]; see also Rosenberg 2006 NY Slip Op 6316). The issue presented in Rosenberg arises in the context of a summary judgment motion in litigation. Rosenberg does not purport to address the arbitrability of defamation claims arising from statements in a Form U-5. Accordingly, it is [*3]

ORDERED that this motion for an order pursuant to CPLR article 75 to stay arbitration is denied and the proceeding is dismissed; it is further

ORDERED that the parties are directed to proceed to arbitration; and it is further

ORDERED that a copy of this order with notice of entry be served upon the arbitral tribunal within 20 days of entry.

The foregoing decision constitutes the judgment of the court.

DATED:Hon. Kibbie F. Payne, J.S.C. Footnotes

Footnote 1: The NASD "requires that, whenever a registered employee is terminated, a member firm must fill out and submit" a Form U-5 to the NASD; the association retains the form, which asks the reason for the employee's termination, and makes it "available to any member firm upon request" (Rosenberg v Metlife, Inc., 453 F3d 122, 123 [2006]).