## Facts

- Ahmad Baravati worked as a securities broker for Josephthal, Lyon & Ross, Inc. (JLR) in Chicago and was terminated.
- As an NASD member, JLR filed a required termination notice (Form U-5) stating Baravati was “under investigation” for fraudulently taking firm property worth $7,650.25.
- Baravati claimed the statement was false and defamatory and alleged he was fired in retaliation for reporting misconduct to the SEC.
- Baravati’s employment agreement required arbitration of disputes arising under the contract, including tort claims, under NASD arbitration procedures.
- In NASD arbitration, the panel found defamation and awarded $60,000 in compensatory damages and $120,000 in punitive damages.
- Baravati sought confirmation of the award in federal district court; the court confirmed it.
- JLR appealed, challenging punitive damages authority and arguing the U-5 statement was absolutely privileged.

## Issues

1. Whether the arbitrators exceeded their powers under the Federal Arbitration Act by awarding punitive damages in an NASD employment arbitration.
2. Whether the Form U-5 statement was absolutely privileged, barring defamation liability and damages.
3. Whether the court could revisit the arbitrators’ merits determinations under the narrow standards for vacatur.

## Decision

- The Seventh Circuit affirmed confirmation of the arbitration award.
- The arbitrators did not exceed their powers by awarding punitive damages because the arbitration agreement was broad and did not exclude punitive relief, and the NASD framework did not bar it.
- The Form U-5 statement was not absolutely privileged; at most it carried a qualified privilege that can be lost when the statement is made knowingly false or with reckless disregard for truth.
- The court declined to reweigh evidence or reconsider the merits, emphasizing the limited judicial role in reviewing arbitration awards.

## Legal Principles

- Judicial review of arbitration awards under the Federal Arbitration Act is exceptionally limited; courts do not provide appellate-style review of the merits.
- A broadly worded arbitration clause authorizing arbitration of contractual and tort disputes generally permits arbitrators to award the full range of remedies, including punitive damages, absent an express contractual limitation.
- Federal arbitration policy prevents use of state-law hostility to restrict remedies available in arbitration when the parties’ agreement does not impose such limits.
- Regulatory termination filings (Form U-5) are not part of a judicial or quasi-judicial proceeding for purposes of absolute privilege; they may be protected only by a qualified privilege.
- A qualified privilege for regulatory/employment-related communications is defeated by proof the statement was made with malice or reckless disregard for its truth.

## Conclusion

The court upheld the NASD arbitration award, holding that punitive damages were authorized by the parties’ broad arbitration agreement and that Form U-5 statements are not absolutely privileged, leaving defamation liability and damages to stand under the deferential arbitration-review standard.


Baravati v. Josephthal, Lyon & Ross, Inc., 28 F.3d 704 (7th Cir. 1994)