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FINRA Arbitration Panel Awards $1.167 Million To Two Former Merrill Brokers For Breach Of Employment Contracts

  • By: David Rich
  • Published: November 10, 2010

On October 12, 2010, after a four-day hearing, an arbitration panel of the FinancialIndustry Regulatory Authority, Inc. (“FINRA”), sitting in Florida, awarded compensatory damages of $1,167,000 to two brokers for deferred compensation benefits which, under the brokers’ employment agreements, should have immediately vested and been paid in cash to the brokers when they left respondent Merrill Lynch, Pierce, Fenner & Smith, Inc. (“Merrill Lynch,” “Merrill,” the brokerage firm,” or “the firm”) after Bank of America took over Merrill in September 2008. Rumley v. Merrill Lynch, Pierce, Fenner & Smith, Inc., FINRA Arbitration No. 09-02428 (Oct. 12, 2010).

According to the claimant brokers’ counsel’s press release, the Rumley award is the first arbitration award in the country in an arbitration proceeding seeking immediate vesting and payment of deferred compensation benefits as a result of Bank of America’s takeover of Merrill Lynch.

Consequently, Rumley may further arbitration awards against Merrill and in favor other brokers who have left the brokerage firm since Bank of America took it over in September 2008. An estimated 2,000 to 3,000 brokers have left Merrill since that time.

In Rumley, Merrill Lynch’s various deferred compensation plans provided that if a broker resigned for “Good Reason,” Merrill was required immediately to vest the deferred compensation benefits and to pay the benefits in cash to the exiting broker. The brokerage firm’s deferred compensation plans included, in their definitions of “Good Reason,” a change in control resulting in detriment to the departing broker’s compensation, benefits or position.

The two claimant brokers in Rumley suffered detriment to their compensation, benefits or position after the 2008 change in control and, as a result, quit their employment with Merrill Lynch. Nonetheless, Merrill refused to vest the Rumley claimants’ deferred compensation benefits or to pay those benefits in cash to the claimants. The claimants maintained that Merrill so refused in order to save money.

Specifically, the claimant brokers’ benefits would have vested at about $37 per share. By contrast, at the time of the Bank of America merger, Merrill stock was trading at about $11 per share.

The Rumley arbitration panel held that Merrill Lynch’s failure immediately to vest the deferred compensation benefits and to pay to the benefits to the claimant brokers in cash constituted a breach of those brokers’ contracts of employment. The Rumley panel awarded compensatory damages of $587,126 to one broker, and $580,220 to the other.

The Rumley award denied the claimant brokers’ requests for punitive damages and counsel fees. (Indeed, punitive damages generally are not recoverable on breach of contract claims.) Thus, in a sense, Merrill Lynch’s “no pay” stance was a success. That is, the Rumley award left the brokerage firm scantly worse off than the firm would have been had it voluntarily paid to the brokers, in cash, their deferred compensation benefits.

The Rumley claimants’ counsel maintains that the worth of Merrill deferred compensation benefits that the brokerage firm was required to, but unlawfully did not, immediately vest and pay in cash to brokers who left the firm for “Good Reason” after the 2008 change in control is between $100 million and $300 million.

If you are a securities industry professional who is considering bringing an employment-related arbitration against the brokerage firm which employed or employs you, and you reside in the Manhattan, NYC area, call Attorney David S. Rich at (347) 603-1143.

David Rich, Esq.

David Rich David S. Rich is the founding member of the Law Offices of David S. Rich, LLC,
a Manhattan Employment and Business Litigation Law Firm, in New
York City and in Englewood Cliffs, New Jersey...View Profile