Galarneau v. Merrill Lynch, No. 06-2410. The plaintiff was fairly sophisticated stock broker at Merrill that handled accounts of the moderately wealthy, and developed somewhat (though not extremely) sophisticated tax strategies for them. They vetted the strategies with Merrill’s in-house counsel who seemed to approve. Her strategies were initially successful, but a client complained and sued and settled. Merrill thought she was “churning,” (see, lawyers are not the only ones that do it) Merrill fired her and told the NASD that she had engaged in “inappropriate bond trading.”
There were a number of communications between counsel for the plaintiff and defendant that were excluded under FRE 403, but the First basically says that this wasn’t an abuse of discretion.
Merrill had conducted an internal and external investigation. It also notified the Maine Securities division and NASD via a form U-5.
The First notes that under Maine law, a statement in a U-5 is conditionally privileged under Maine law, and “While a conditional (or qualified) privilege does not change the actionable quality of words published, it rebuts the inference of malice that is imputed in the absence of the privilege...[and] A conditional privilege may be abused if the defamatory statement is made with reckless disregard as to its falsity.
Buy low, sell high and keep reading.
A jury found that this was defamatory (a number of other claims were rejected). Damages came to$850,000 in compensatory damages (of which $775,000 were for lost wages) and $2,100,000 in punitive damages. Even though the jury found that Merrill acted with Malice, the First says that “Malice” for libel purposes is different than malice for punitive damages purposes, because, among other things, the burden is “clear and convincing” and “There was no evidence that Merrill Lynch made the statement in the U-5 with the intent to deprive Galarneau of a job.” But, on the other hand, no finding of causation in defamation cases is needed to obtain “special damages” therefore, she could recover her lost wages without showing how they were related to the damning U-5.
The First traces the current state of defamation law and the First amendment, but then notes that Merrill is arguing a First amendment issue for the First time on appeal. Then the First traces the evidence (which the jury accepted) and concludes that the jury reasonably credited an expert on trading, and concluded that, in fact, she did not improperly trade. Moreover, the First seems to conclude (as it appears that the jury did) that the outside investigation didn’t actually tell Merrill anything, since they were already defending against a suit from the client. And, to top it all off, the First says that the plaintiff overcame the conditional privilege, because “ Evidence that Merrill Lynch approved the trading as it was taking place and defended the trading after it came under attack supports the jury's conclusion that the firm either knew the statement was false, or recklessly disregarded its falsity.”
The facts of the case are somewhat interesting as they describe a good chunk of upper-middle class financial behavior.
Even though this victory for the plaintiff is limited, I think they did a good job in a difficult area. So, a tip of the hat to some people that I have never met:
Rufus E. Brown, with whom Brown & Burke, Michael A. Nelson, and Jensen Baird Gardner & Henry, were on brief, for appellee.
Merrill was represented by some guy named Volkh on brief.
HA points to a newspaper story from the original verdict. It is funny how Merrill was able to spin it as “confusing” but the First seems to lay it out in a rather straight-forward manner.
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