In April 2020, Tilkey v. Allstate Ins. Co. (Tilkey vs. Allstate Ins. Co., 56 Cal. App. 5th 521 [2020]) held for the first time that securities firms in California can face civil liability for Form U-5 disclosures for non-securities-related reasons for termination. (This article is not intended to state or suggest that securities-related reasons are absolutely immune from civil liability, however, the Finra rules are beyond the scope of this article.) Michael Tilkey (Mr. Tilkey) was an advisor with Allstate Insurance Company (Allstate) for 30 years when he was arrested for disorderly conduct and attached domestic violence charges. Mr. Tilkey allegedly pounded on an apartment door to be let in after being locked out by his girlfriend. Mr. Tilkey was not convicted of any charges, and an Allstate investigator reviewed the arrest report and concluded that the event was “not reportable” to Finra and did not violate Allstate’s policies. Allstate terminated Mr. Tilkey regardless and stated on his U-5 that the reason for termination was “…threatening behavior and/or acts of physical harm or violence to any person, regardless of whether he/she is employed by Allstate. Not securities related.”
Mr. Tilkey sued Allstate in San Diego County Superior Court for wrongful termination and defamation. The jury found that Allstate’s statements about Mr. Tilkey were false and returned a verdict in his favor for $1,702,915 for defamation, $960,222 for wrongful termination and $15,978,822 for punitive damages. Allstate appealed and argued, among other things, that it cannot be liable for defamation for Form U-5 disclosures because California recognizes an absolute privilege for Form U-5 disclosures. The California Court of Appeal disagreed and affirmed the full defamation award, but ultimately reversed the wrongful termination verdict and reduced punitive damages to $2,554,372.50. At the end of the day, Mr. Tilkey’s total award was $4,257,287.50.
Tilkey followed Fontani only for the limited proposition that the privilege applies to Form U-5 disclosures involving “improper securities conduct, theft, or allegations or charges of fraud or dishonesty…” but held that the privilege does not apply to “non-securities-related” disclosure information. Because Mr. Tilkey’s Form U-5 disclosure did not involve privileged activities, the court found that Allstate was not immunized from defamation liability for the Form U-5 disclosure. Once the jury determined that Allstate’s statements that Mr. Tilkey threatened another person were false, Allstate’s fate was sealed.
We think Tilkey was correctly decided and long overdue. Financial advisors deserve the right to reasonable workplace mobility that is free from unlawful retaliation, discrimination, and unethical business practices. The Tilkey decision is a step in the right direction to ensure important rights for all securities professionals, particularly for those falsely accused of non-work-related misconduct.
Brandon S. Reif is managing partner at Reif Law Group, P.C. As one of the leading attorneys in the securities and financial services industries,
Rebecca E. MacLaren is a partner at Reif Law Group, P.C. specializing in securities regulatory matters.