One of the dangers of arbitration is that the avenues for judicial review of an Award that goes disastrously against you are limited, a lesson UBS Financial Services Inc. recently learned the hard way. Another lesson it learned is that it could face serious damages for “defamatory” Form U5s.
UBS fired Mark Munizzi, a supervisory officer, and filed a Form U5 alleging that Mr. Munizzi: “failed to adequately supervise employees in association with the risks of an uncovered options strategy in employee and employee related accounts and … gave varied responses during the review.” Mr. Munizzi filed an arbitration claim and the resulting Award, Munizzi v. UBS Financial Services Inc., FINRA ID No. 18-02179 (Chicago, IL, Dec. 11, 2019), recommended expungement: “based on the defamatory nature of the information” and awarded more than $11 million in compensatory and punitive damages, attorney fees and costs.
No Public Ground to Attack Non-Labor Awards
The Cook County Circuit Court confirmed the award and rejected UBS’ petition to vacate. UBS appealed to the First District Court of Appeals, which affirms in Munizzi v. UBS Financial Services Inc., No. 19 CH 14398, 2021 IL App (1st) 201237 (Ill. App. Ct, 1st Dist., Nov. 19, 2021). UBS had argued that: 1) the arbitration award contravenes a public policy in favor of protecting the investing public through U5 disclosures; 2) the arbitrators’ findings contradicted the undisputed facts of the case; and 3) the award of punitive damages was excessive and against public policy. The Illinois Arbitration Act, the Court finds, only permits vacating an arbitration award for violating a public policy in collective bargaining contexts, which doesn’t apply here.
And There’s Insufficient Proof, Anyway
Moreover, even if the public policy exception did apply, the Court explains: “The arbitration panel recommended the expungement of the reason for termination and termination explanation on the form U5 ‘based on the defamatory nature of the information.’… Thus, the arbitration award reflects that the arbitration panel found that UBS made false statements about Mr. Munizzi. Therefore, the disclosures on the form U5 were neither ‘frank’ nor ‘accurate.’ There is no public policy favoring false or defamatory disclosures by employers.” In response to the other two arguments, the Court states: “UBS has forfeited any argument that the arbitrators’ factual findings were not supported by the record because UBS failed to supply this court with a complete record of the arbitration hearing…. The arbitrators’ statement in this case that the punitive damages were awarded pursuant to Republic Tobacco Co. v. N. Alt. Trading Co.,
381 F.3d 717 (7th Cir. 2004), reflects the arbitrators’ understanding that punitive damages are available when there is proof of actual malice and defeats UBS’s argument that the arbitrators failed to find such proof in the case before them.”
(ed: *The phrase “based on the defamatory nature of the information” is a “boiler plate” phrase that appears in many U5 reformation awards because using this language authorizes FINRA to execute the reformation without the need for a court order. It’s not necessarily intended to be a finding that the reformation is the result of intentional falsity, although the word “defamatory” can be so interpreted. **We can provide the aforementioned documents to interested subscribers upon request. Email us at Help@SecArbAlert.com. *** This Squib was prepared by Harry A. Jacobowitz, President of HAJ Research and Writing LLC. Mr. Jacobowitz, a member of the Pennsylvania bar, and his firm perform legal research and writing for attorneys and handle substantive searches of SAC’s Award database. He can be contacted at harryjacobowitz@optimum.net. ****We will continue to track this case, and if the Illinois Supreme Court renders an opinion, we will report it to you.)
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