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Financial Advisor Fails to Make Federal Case by Faulting Form U-5 Filing: Kollar v. Allstate Insurance Co.
Posted on Categories Business & Employment, Court DecisionsTags , ,

By Paul J. Dubow

*In order to allege tortious interference arising out of the filing of a Form U-5, the plaintiff must allege specific opportunities and/or relationships with which the defendant has interfered. **A defendant is only liable for negligent misrepresentation to a person for whose guidance the information is supplied.

Kollar vs. Allstate Insurance Co. & Allstate Financial Services, LLC, No. 16-01927 (D. Conn., 7/28/17).

The Form U-5

Plaintiff operated an insurance agency for defendants (an insurance company and its broker-dealer affiliate) pursuant to a contract that allowed defendants to terminate the contract without cause on 90 days’ notice. Defendants used this clause to terminate their relationship with plaintiff and filed a Form U-5, in which they stated that plaintiff was terminated because of a failure to meet sales goals. Plaintiff alleged that the statement was false because defendants interfered with an attempt by plaintiff to purchase a life insurance policy for his wife that, if consummated, would have enabled him to meet his sales goals. Plaintiff filed suit against defendants, alleging various causes of action. Two arose out of the Form U-5: one for tortious interference with business expectancy because the language in the U-5 allegedly deprived plaintiff of premiums and/or commissions from the issuance of insurance or securities products, and the other alleging that the language in the U-5 constituted a negligent misrepresentation.

Tortious Interference

Defendants moves to dismiss the complaint and the motion is granted. The Court presumes that the expectation of premiums and commissions extended beyond plaintiff’s relationship with defendants to business that he expected to create in the future, even if he worked with another agency. Because firms use the Form U-5 information to help them make informed employment decisions, a misleading or false U-5 could have an impact on plaintiff’s reasonable expectation to continue working as a broker. Although the form is designed to provide both member firms and the public with information about brokers' conduct, it also can be used to smear and defame former employees.

Plaintiff, however, still must make specific allegations to meet the plausibility standard to which the Court must adhere. Courts have dismissed tortious interference with business expectancy claims when plaintiffs fail to allege specific opportunities or relationships that the defendants have interfered with. Here, plaintiff only asserts that defendant interfered with his expectation that he would continue to earn premiums and/or commissions from the issuance of insurance or securities products, as well as the maintenance and/or renewal of already existing insurance policies or securities products to customers. He does not allege a specific relationship or opportunity that defendants caused him to forgo. His allegations are therefore insufficient.

Negligent Misrepresentation

An action for negligent misrepresentation requires the plaintiff to establish (1) that the defendant made a misrepresentation of fact (2) that the defendant knew or should have known was false, and (3) that the plaintiff reasonably relied on the misrepresentation, and (4) suffered pecuniary harm as a result. A defendant is only liable for negligent misrepresentation to persons for whose guidance the information is supplied. In other words, the maker supplies the information for repetition to a certain group or class of persons, one of whom proves to be the plaintiff.

Here, Plaintiff does not allege that he relied upon the statements in the U-5, nor that he contracted with defendants to provide the information to FINRA, or changed his position in anticipation of a FINRA filing. Plaintiff has not alleged that defendants submitted the U-5 for repetition to a certain group or class of persons to which he belonged. He has not alleged that he relied on the alleged misrepresentations in the U-5, nor has he alleged that he contracted with defendant to provide the information. Thus, Plaintiff has failed to allege the elements of a negligent misrepresentation claim.

(P. Dubow)

(SLC Ref. No. 2017-35-02)

NOTICE: The court decision synopsis published above represents an abbreviated description of the actual decision and is re-printed here for its educational value. The author's effort is to report concisely the substance of the decision or a selected portion of the decision; commentary or analysis is generally reserved for the italicized section at the bottom of the summary. Subscribers to SAC's Online Litigation Alert (SOLA), from which this synopsis is excerpted, have immediate access to the full decision, in addition to the synopsis.

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