So far,
Bank of America Merrill Lynch's settlement of a class action brought against it by former brokers has been characterized as a prudent move by the company. Specifically, the agreement was aimed at cutting the brokerage's losses and putting an end to mounting lawsuits and arbitration claims from representatives who left the company after it was acquired by
Bank of America in early 2009.
In reality, the agreement could backfire on Merrill and “stir the pot” by giving brokers a bottom line from which to start negotiating settlements.
While exact details have not been released, Merrill reported the settlement agreement in a public filing Aug. 14. According to the filing, an agreement was reached on principle Aug. 10 to settle the class action filed in October 2009.
“We have agreed to a resolution to avoid the cost and distraction of what would likely be continued, lengthy litigation,” said Bill Halldin, a spokesman for Merrill Lynch.
Details of the settlement have not yet been presented to the court, and “it would be premature to comment on the detail until then,” he said.
Those specifics will emerge Friday when the agreement is unveiled in U.S. District Court in Manhattan. But lawyers and analysts have estimated the potential liability to Merrill could be in the $100 million range as brokers who left after the BofA acquisition claim rights to stock grants that had not been fully vested.
Estimates of how many brokers were affected, and of those are involved in the various lawsuits, range from 1,500 to more than 3,000.
David Gehn, who represents a handful of former Merrill brokers as a partner at the law firm of Gusrae Kaplan, Bruno & Nusbaum PLLC, warned that Merrill could incite even more lawsuits if its settlement offer isn't attractive enough to “a very sophisticated class of advisers.”
“The issue now is whether the settlement will be deemed sufficient to the brokers, and my advice will be to review the terms of the proposed settlement relative to the claim,” he said. “If Merrill thinks it's going to be able to resolve this issue with a lowball settlement, it could lead to even more lawsuits and the settlement will be used as a floor.”
Former Merrill brokers participating in the class action will be given the option of objecting to the terms — ordering lawyers to go back to the table — or opting out of the class.
While Mr. Gehn said he doesn't yet know the details of the settlement agreement, he is familiar, as are other lawyers representing former Merrill brokers, with the April arbitration ruling ordering Merrill to pay representatives $10.2 million in the dispute over deferred compensation.
In that case, a three-person
Financial Industry Regulatory Authority Inc. panel awarded two former Merrill brokers, Tamara Smolchek and Meri Ramazio, $4.3 million and $875,000, respectively, in compensatory damages, plus another $5 million in total punitive damages and $100,000 for discovery abuse.
Michael Taaffe, who represented the two brokers as a partner with Shumaker Loop & Kendrick LLP, described the Merrill agreement as “an acknowledgement by the company that they have a liability and this is an effort to limit that liability.”
Mr. Gehn cites the Finra award both as a benchmark and motivation for Merrill brokers who left following the BofA acquisition without benefiting from fully vested stock grants.
“There is no surprise that Merrill wants to settle, because it's difficult to imagine their potential liability,” he said. “But if you look at the Smolchek award after the arbitration, it demonstrates the validity of the claims.”
