Herzfeld & Stern, Inc. v. Beck

• Decision Date: 01 August 1991
• Docket Number: No. 2,No. 1,1,2
• Citation: 572 N.Y.S.2d 683,175 A.D.2d 689
• Court: New York Supreme Court — Appellate Division
• Parties: , 60 USLW 2157 HERZFELD & STERN, INC., Plaintiff, v. Warren BECK, defendant. ActionWarren BECK, Plaintiff-Respondent, v. HERZFELD & STERN, INC., Defendant-Appellant. Action

Page 683

572 N.Y.S.2d 683

175 A.D.2d 689, 60 USLW 2157

HERZFELD & STERN, INC., Plaintiff, v. Warren BECK, defendant. Action No. 1

Warren BECK, Plaintiff-Respondent, v. HERZFELD & STERN, INC., Defendant-Appellant. Action No. 2

Supreme Court, Appellate Division,

First Department.

Aug. 1, 1991.

Before MURPHY, P.J., and MILONAS, ELLERIN, WALLACH and SMITH, JJ.

MEMORANDUM DECISION.

Order of the Supreme Court, New York County (Walter M. Schackman, J.), entered on July 5, 1990, which denied defendant's motion pursuant to CPLR 3212 for summary judgment dismissing the complaint and granted plaintiff's cross-motion to amend the complaint to add a demand for special damages, is unanimously reversed on the law, without costs or disbursements, defendant's motion for summary judgment dismissing the complaint granted and plaintiff's cross-motion denied. The clerk is directed to enter judgment in favor of defendant dismissing plaintiff's complaint in Action No. 2.

Until March 30, 1984, plaintiff Warren Beck was employed by defendant Herzfeld & Stern, a registered securities broker and dealer, as a research analyst and securities representative. Following his dismissal from the company, defendant, in compliance with regulatory requirements, filed a Uniform Termination Notice for Securities Industry Registration (U-5 notice), dated April 26, 1984, which advised, among others, the Securities and Exchange Commission and the New York Stock Exchange (NYSE) that plaintiff was no longer associated with Herzfeld & Stern. The reasons stated for Beck's termination included that he had (1) failed to obtain proper permission before entering orders to purchase securities for a customer who was a control person of the company whose securities were being acquired; (2) purchased without first seeking permission those securities through a margin account, thus exposing the firm's capital to undue risk; and (3) failed to know his customer. This U-5 notice superceded a prior one that did not contain the foregoing charges because, defendant claims, the facts were not fully known at the time.

Upon receipt of the second U-5 notice, the NYSE instituted an investigation into Beck's conduct. Accordingly, Charles A. Wills, Senior Enforcement Investigator of its Department of Enforcement, requested information from Herzfeld & Stern relating to the accusations against plaintiff. In response, defendant wrote two letters to Wills, dated June 3, 1984 and June 8, 1984. The complaint in the instant matter alleges four causes of action for libel and defamation, one each being founded upon the U-5 notice of April 26, 1984 and defendant's two communications to Wills and a fourth claim asserting prima facie tort. This appeal is from the denial by the Supreme Court of defendant's subsequent motion pursuant to CPLR 3212 for summary judgment dismissal. In that regard, there is merit to the contention by Herzfeld & Stern that since the writings in question were prepared in connection with a quasi-judicial proceeding, they are absolutely privileged.

According to the Court of Appeals in Toker v. Pollak, 44 N.Y.2d 211, 405 N.Y.S.2d 1, 376 N.E.2d 163, "[p]ublic policy mandates that certain communications, although defamatory, cannot serve as the basis for the imposition of liability in a defamation action" (at 218, 405 N.Y.S.2d 1, 376 N.E.2d 163). Thus, statements uttered in the course of a judicial or quasi-judicial proceeding are absolutely privileged so long as they are material and pertinent...