Merrill Lynch has lost its bid to overturn an arbitration panel’s $10 million award for two brokers who claimed the firm committed fraud by denying them deferred compensation.
Merrill had asked a Florida federal court to throw out the decision, claiming the chairwoman of the Financial Industry Regulatory Authority arbitration panel was biased. It further accused the three-member panel of misconduct and exceeding its powers.
Merrill Lynch spokesman Bill Halldin said the firm is reviewing the decision.
The case stems from the panel’s April ruling that Merrill fraudulently denied brokers Tamara Smolchek and Meri Ramazio deferred compensation, which they were owed after leaving the firm in the wake of its acquisition by Bank of America Corp. (BAC) in 2008.
The brokerage was ordered to pay Ms. Smolchek about $4.3 million and Ms. Ramazio $875,000 for unpaid wages, unpaid deferred compensation, lost wages, lost book, value of business and reputation. It also awarded punitive damages of $3.5 million to Ms. Smolchek and $1.5 million to Ms. Ramazio, based on Merrill’s “intentional misconduct.”
Arbitration rulings are notoriously difficult to get a court to overturn, and can only be done so under special circumstances. In its petition to vacate the award, Merrill contended that the chairwoman, Bonnie Pearce, failed to disclose that her husband, a securities lawyer, represented clients adverse to Merrill and also demonstrated overt hostility toward Merrill throughout the proceedings. As evidence, the firm had pointed to her husband’s comments in a 2005 newspaper article about a legal victory over Merrill.
But in his decision Monday, U.S. District Court Judge Kenneth A. Marra noted that after Merrill filed its petition, it later revealed evidence indicating “that it knew at least some of the information Mrs. Pearce is alleged to have withheld.” Merrill disclosed that its counsel had in its files eight pages printed from Mr. Pearce’s website, each dated before the arbitration hearing.
Judge Marra concluded that Merrill knew the relevant information and failed to raise the issue of Mrs. Pearce’s partiality before the hearing began.
“The hearing then proceeded for at least five days, with Merrill Lynch objecting only after Mrs. Pearce announced several decisions adverse to it,” the judge wrote.
He further noted that he reviewed the transcripts of the arbitration hearing and found that the panel had reasonable basis for the actions it took.
“While the panel’s decisions were in some cases detrimental to Merrill Lynch’s case, Merrill Lynch has not demonstrated that it was unfairly prejudiced to the point of being denied a fundamentally fair hearing,” he wrote.
Ms. Smolchek and Ms. Ramazio are among the estimated 3,000 brokers who left Merrill after its acquisition, many of whom are seeking compensation they say was improperly denied.
Last month, the brokerage presented a proposed class-action settlement that envisions paying about $40 million to some 1,500 of the company’s former brokers. The settlement, which still requires a judge’s approval, would pay the brokers between 40% and 60% of the value of their deferred plan accounts, depending on when they left Merrill and whether they made claims for their deferred compensation or initiated litigation or arbitration.
The settlement applies only to those brokers who generated about $500,000 or less in annual fees and commissions. Brokers in that category would be able to decide whether to be members of the class or to opt out and pursue their own individual claims in Finra’s arbitration forum.
Michael S. Taaffe, the lawyer who represented Ms. Smolchek and Ms. Ramazio, said Monday’s decision “clearly shows that Merrill Lynch has undervalued the cases in their recent offer for a class-action settlement.” Ms. Ramazio, who would have been eligible for the proposed settlement, would have received only about $9,000, he said.
Mr. Taaffe added that he has 1,000 additional arbitration cases in the works, with more than half of those brokers eligible to participate in the class action settlement. He said Monday’s decision shows that those brokers should opt out and arbitrate their claims.
The above article was written by Dow Jones Newswires.