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Posts Tagged ‘merrill lynch’

Last Friday, the Seventh Circuit Court of Appeals issued a significant employment class action decision that may challenge conventional wisdom about the impact of the Supreme Court’s 2011 decision in Wal-Mart Stores, Inc. v. Dukes.   The opinion, authored by respected Judge Richard Posner, is McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc., No. 11-3639 (7th Cir., Feb. 24, 2012).

The procedural history of McReynolds is interesting, because the plaintiffs had actually moved for reconsideration of an earlier denial of class certification after the decidedly pro-employer decision in Dukes was announced.  Although the trial court judge was unconvinced to change his earlier decision, he did agree that Dukes presented a good basis for reconsideration of the class action issue, and expressly stated in his decision that he believed the case was a good candidate for an interlocutory appeal under Rule 23(f).

The Seventh Circuit accepted the appeal, and reversed the denial of class certification.  The Seventh Circuit panel recognized that individualized issues would prevent certification of any claims for back pay or damages, but held that certification of the issue of whether the defendant’s challenged employment policies had an adverse impact on members of a protected class would still be appropriate under Rule 23(b)(2), which allows a class to be certified for the purpose of awarding injunctive relief, and Rule 23(c)(4), which allows certification of particular issues.  Essentially, the case would be certified for the purpose of deciding whether the defendant’s challenged policies created a disparate impact to members of a protected class and for the purpose of ruling on plaintiffs’ request to enjoin the practices.  Any claims for back pay, compensatory or punitive damages would then have to be brought as separate proceedings. 

In reaching its conclusion, the court drew a key factual distinction between the practices being challenged in the case before it and the practices that had been challenged in Dukes.  In McReynolds, the practice being challenged was the company-wide policy of “permitting brokers to form their own teams and prescribing criteria for account distributions that favor the already successfulthose who may owe heir success to having been invited to join a successful or promising team.”  The court distinguished this policy, which it characterized as a firm-wide policy of Merrill Lynch, from the allegations in Dukes, which were that the lack of a uniform corporate policy on discrimination created too much discretion in local managers to create locally discriminatory policies.

I’ll be posting more on this decision within the coming week, so stay tuned…

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Daniel Wise of the New York Law Journal has an interesting article out today on a recent New York state court decision involving a complex dispute over assets of former Philippines dictator, Ferdinand Marcos, being held by Merrill Lynch in New York.  The court ordered that the funds be paid to satisfy part of a $2 billion judgment awarded to class members in a successful class action filed in federal court in Hawaii under the Alien Tort Claims Act, on behalf of individuals injured by human rights abuses committed by the Marcos regime.  The current government of the Philippines claims entitlement of the funds, claiming that it has a sovereign interest. 

The same funds were the subject of a federal interpleader action filed by the brokerage to resolve issues over various competing claims to the funds.  The United States Supreme Court dismissed that action in 2007 after concluding that the Philippine government and a Philippine commission, who had sovereign immunity from having to participate in the interpleader proceeding, were indispensible parties.  The state court faced a similar issue, but interpreting the state joinder rule, it found that the two entities were necessary, but not indispensible parties, which meant that the case could go forward without them.

The cases reflect an intriguing and complicated interplay between a variety of private and governmental interests.  The individual class members claim entitlement to a personal remedy for injuries caused by human rights violations of the former Philippine government.  The current Philippine government has a sovereign interest in being free from having its rights determined by foreign courts, and it wants to use the assets to fund public programs.  The State of New York has an interest in making decisions about disputed funds held within its borders, but one of its courts disagrees with the analysis of the nation’s highest court about the importance of the sovereign interests of a foreign nation over those same funds.  In the middle of it all is a bank who probably just doesn’t want to get sued again for giving the money to the wrong party.

Something tells me that there will be much more to this story…

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In an article today entitled “Unscrewing Shareholders,” Daniel Fisher of Forbes reviews a decision by U.S. District Judge for the Southern District of New York Jed Rakoff rejecting a settlement between the Securities and Exchange Commission and Bank of America.  The case involves allegations that Bank of America committed securities fraud by paying bonuses to Merrill Lynch executives in acquiring the company last year, without telling its policyholders.

Judge Rakoff was troubled by, among other things, the fact that the settlement called for a $33M payment to the government, a cost that would be born by the same shareholders who were supposedly victimized by the settlement, stating, “[t]o have the victims of the violation pay an additional penalty for their own victimization was enough to give the Court pause.”  Although the opinion comes in a regulatory enforcement case and not a class action, Fisher observes that this same phenomenon occurs in many securities class actions:

The ironic part is this is exactly what happens in most securities fraud cases. A company’s stock price falls, the class-action lawyers file a complaint, and after months of expensive pretrial jousting, the parties settle with the company’s shareholders picking up the tab. The fact that insurance is often the source of the money doesn’t change things: Insurance companies aren’t charities–they collect those payouts by increasing rates.

This criticism about the social utility of class actions as a means of remedying corporate misconduct is not limited to the context of securities fraud class actions.  Much like the cost of a securities class action settlement is borne by the company’s shareholders, the cost of settling a class action against an insurance company may be borne by the company’s policyholders in the form of higher premiums, while much of the cost of a consumer fraud class action against a provider of goods and services will be borne by consumers themselves in the form of higher prices for those products.  One can argue that class actions offer a deterrent effect against future corporate wrongdoing, but in many cases, it is often difficult to argue that they result in meaningful net compensation for the true victims of past misconduct.

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