(Reuters) - A federal appeals court rejected a racial bias lawsuit against Bank of America Corp by black financial advisers at the former Merrill Lynch & Co, but said they could try to recover losses over bonus payouts in a separate case.
Tuesday’s decision by the 7th U.S. Circuit Court of Appeals in Chicago upheld a lower court’s dismissal of a challenge to a retention bonus program that Merrill had adopted to keep brokers from defecting after the companies merged on January 1, 2009.
The appeals court found that payouts were based on “race-neutral” assessments of prior performance, and said the evidence did not show that Merrill paid black brokers lower bonuses than white brokers with an intent to discriminate.
“It is not enough to allege, as the complaint does, that the bonuses incorporated the past discriminatory effects of Merrill Lynch’s underlying employment practices,” Circuit Judge Diane Sykes wrote for a unanimous three-judge appeals court panel.
But the 7th Circuit said black brokers may nonetheless be eligible for “complete relief” in a related case pending in the federal district court in Chicago, and also brought on behalf of black brokers from Merrill.
In that case, first brought in 2005, brokers alleged systematic bias at Merrill in hiring, pay and promotions, including the alleged steering of blacks into clerical positions and diversion of lucrative accounts to white brokers.
The 7th Circuit had in February granted class-action status to brokers in that case, reversing a lower-court ruling, and on Tuesday said losses tied to inadequate retention bonuses, if proven, could be part of any damages award there.
Bank of America in July appealed the class certification grant to the U.S. Supreme Court, which may decide later this month whether to hear the appeal.
Both lawsuits name George McReynolds, a longtime Merrill broker in Nashville, as lead plaintiff.
Tuesday’s decision upheld a March 2011 dismissal by U.S. District Judge Robert Gettleman in Chicago of a challenge to the bonus program. Bank of America spokesman Bill Halldin said the bank is pleased with the decision.
Merrill had more than 15,000 brokers before Charlotte, North Carolina-based Bank of America bought the company.
Retention bonuses are often awarded to brokers who work at companies being acquired to keep them from defecting, and can reach seven figures for top producers.
“(Tuesday‘s) decision, coupled with the reinstatement of the class-action, makes clear that the plaintiffs will have a full remedy,” Linda Friedman, a partner at Stowell & Friedman Ltd in Chicago representing the brokers, said in an interview.
The granting of class-action status came eight months after the Supreme Court, in a case involving Wal-Mart Stores Inc, made it significantly harder to pursue such cases.
Circuit Judge Richard Posner had said common issues made it more efficient to handle the Merrill brokers’ cases as a group.
“There is no indication that the corporate level of Merrill Lynch (or its parent, Bank of America) wants to discriminate against black brokers. Probably it just wants to maximize profits,” Posner wrote. “But in a disparate impact case the presence or absence of discriminatory intent is irrelevant.”
The case is McReynolds et al v. Merrill Lynch & Co et al, 7th U.S. Circuit Court of Appeals, No. 11-1957.
Reporting By Jonathan Stempel in New York; Editing by Gary Hill