Boracchia v. Fister
Posted on Categories Court Decisions, Securities Customers

By Paul J. Dubow

The submission of a private complaint to an investment firm seeking compensation based on a broker’s misrepresentations is not equivalent to filing a report with an official agency to prompt an official investigation into that broker’s misconduct and thus is not an act that is protected by California’s anti-SLAPP statute.

Boracchia vs. Fister, No. A156321 (Cal. App., 1Dist., 4/15/20).

Plaintiffs were financial advisors at Northwestern Mutual. In 2015, they sold a cash value life insurance plan to defendants. One year later, defendants filed a complaint with Northwestern, alleging that plaintiffs failed to tell them that the policy would be illiquid during its first few years and that plaintiffs’ commissions came from the funds that defendants used to pay for the policy. They demanded that Northwestern cancel the policy and return their premiums. Plaintiffs denied the allegations and averred that defendants were suffering from buyers’ remorse.

Nevertheless, Northwestern rescinded the policy and reimbursed defendants. Northwestern also terminated plaintiffs and filed a U-5 setting forth the basis of plaintiffs’ termination. That action caused plaintiffs to sue defendants, alleging defamation. Defendants filed a motion to strike the complaint, pursuant to Code of Civil Procedure Section 425.16, California’s anti-SLAPP statute, asserting that their allegations were truthful and that their complaint to Northwestern arose from acts in furtherance of their right of petition or free speech in connection with a public issue.

Protected activity that is covered by Section 425.16 includes “any...statement...made before… any…. official proceeding authorized by law.” Because FINRA is an official body for purposes of Section 425.16, defendants contended that their statements about plaintiffs were made before an “official proceeding.” The trial court denied defendants’ motion and they appeal.

The Court of Appeal affirms. Defendants argue that their communications with Northwestern were protected petitioning activity, because it resulted in plaintiffs’ termination and the filing of a Form U-5 with FINRA. But defendants did not file the U-5, nor did they urge Northwestern to do so. Their complaint made no reference to FINRA or disciplinary proceedings against plaintiffs and thus was not made in anticipation of an official proceeding and hence does not deserve protection under the anti-SLAPP statute.

It is true that protected communications are not limited to communications made during an actual official proceeding. But the communication must be designed to prompt some type of official action. Here, there is no evidence that defendants’ communications with Northwestern were designed to prompt some type of official action or investigation. Defendants’ only demand of Northwestern was a full refund of their contributions and cancellation of the policy. Defendants argue that, because Northwestern’s duty to report their allegations was “automatic,” they did not need to submit a complaint directly to FINRA in order to trigger disciplinary action.

The Court counters that defendants ignore that their complaint was not designed to prompt an agency investigation or official action and that the U-5 was filed with FINRA only because of Northwestern’s own decision to terminate plaintiffs. In short, submitting a private complaint to an investment firm seeking a refund of insurance premiums based on a broker’s misrepresentations is not equivalent to filing a report with an official agency to prompt an official investigation into that broker’s misconduct.

(P. Dubow: The trial court found that plaintiffs’ lawsuit had at least a “minimal” chance of success, a prerequisite to a successful defense against an anti-SLAPP motion. Does this decision thus mean that clients who file complaints against their brokers will now be subject to lawsuits filed by their brokers, so long as those lawsuits have at least a minimal chance of success? Defendants’ complaint to Northwestern may have required it to file a U5, even if it rejected the complaint, and therefore Northwestern’s obligation to file the U5 may indeed have been “automatic.” Defendants raised this point in their argument, but the Court rejected it.)

(SOLA Ref. No. 2020-17-05)

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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