Andrews v. Prudential Securities, Inc.

Facts

The Securities Exchange Commission (SEC) filed suit against Prudential, a brokerage firm, for misconduct in connection with the sale of limited partnership interests, where Andrews, Meehan and Stout were brokers. A Uniform Notice of Termination for Securities Industry Registration (Form U-5) is required by NASD to be filed whenever a firm ends a broker’s employment with them. Firms are also required to file an amended Form U-5 once a broker leaves if it is knowledgeable about circumstances or facts that would require an affirmative answer to line 13 of the form. A settlement between Prudential and the SEC consummated in a claims resolution process during which many of Prudential’s customers filed claims listing Andrews, Meehan and Stout as brokers for the buying of the limited partnerships, even after no longer a Prudential employee. Every claim was being settled for various amounts in excess of $5000. Prudential filed amended U-5 forms for Andrews, Meehan, and Stout that detailed the settlement amounts, customer complaints, and out-of-pocket losses. Andrews, Meehan, and Stout, in response to the filing of the amended U-5 forms, filed a complaint against Prudential asserting, inter alia, defamation. Prudential’s motion for summary judgment is granted by the district court, finding that the U-5 forms were protected by a qualified privilege that could only fail upon demonstration of actual malice, and that there was no evidence offered by the plaintiffs as to actual malice. On the other hand, it was also held by the district court that because the U-5 forms included only true statements (and an absolute defense to defamation is truth), the defamation claims could not be maintained. The court of appeals granted review.