A federal appeals courtroom shot down Morgan Stanley’s try and enchantment a decrease courtroom’s choice that its deferred compensation plans have been protected by federal legislation. The choice might impression quite a few arbitration proceedings filed in opposition to the wirehouse by former workers.
The Second Circuit Court docket of Appeals issued its dismissal of Morgan Stanley’s enchantment, arguing it didn’t have correct jurisdiction, and denied Morgan Stanley’s request that the district courtroom decide who filed the earlier opinion “strike its authorized conclusion that the deferred-compensation plans” fell underneath the Worker Retirement Earnings Safety Act.
It’s the newest improvement in a years-long class motion filed by a number of former Morgan Stanley advisors, who collectively accused the wirehouse of denying them hundreds of thousands in deferred compensation after they left for different companies.
In an interview with WealthManagement.com, Motley Rice Lawyer Douglas Meedham (who helped deliver the preliminary class motion grievance) stated the choice marked the top of “fairly a saga of twists and turns,” and seemed ahead to helping shoppers to prevail in arbitration.
The unique class motion was filed in 2020 and led by Matthew Shafer, a Florida-based rep who left Morgan Stanley for Raymond James in 2018. He estimates he forfeited over $500,000 in deferred compensation. Shafer and the opposite plaintiffs introduced the category motion for all former advisors in comparable positions after they left the agency.
The plaintiffs claimed Morgan Stanley deemed a few of their compensation “deferred” and positioned it in plans to vest for a number of years. In response to the swimsuit, if the reps left earlier than the vesting dates, they’d forfeit that compensation. Shafer and the plaintiffs argued these plans have been “worker profit pension plans” underneath ERISA protections and requested the courtroom to resolve that Morgan Stanley’s rule violated federal legislation.
In 2023, New York Southern District Court docket Choose Paul Gardehpe partially dominated for the wirehouse, deciding that advisors had agreed to argue claims in non-public arbitration. Nevertheless, in the identical ruling, Gardehpe agreed with the reps that the compensation plans have been lined underneath ERISA, making it simpler for reps to make that argument in arbitration proceedings (Gardehpe reconfirmed the choice at Morgan Stanley’s request in 2024.)
In its enchantment, Morgan Stanley argued that Gardehpe wasn’t required to rule on whether or not the plans fell underneath ERISA protections, and that the findings “impaired Morgan Stanley’s proper to arbitrate” as a result of its defenses “activate the rivalry that the plans fell outdoors of ERISA and its anti-forfeiture guidelines.”
The appeals courtroom agreed that merely assuming the plans fell underneath ERISA might have been “a greater course” for the district courtroom, however didn’t assume that warranted putting the language.
“Although arbitrators might contemplate the district courtroom’s opinion, Morgan Stanley is free to argue to these arbitrators that the district courtroom’s conclusion that the plans have been ruled by EIRSA was … legally incorrect,” the order learn. “Certainly, Morgan Stanley admits that it has already completed so—efficiently—in a few of the intervening arbitrations.”
In response to Needham, Morgan Stanley had argued in a number of arbitration proceedings that panel judges shouldn’t contemplate the district courtroom’s choice, claiming the appellate judges might overturn it. The Second Circuit’s ruling “takes Morgan Stanley’s argument fully off the desk,” he stated.
“Morgan Stanley stays free to argue why it believes the choice wasn’t appropriate, and likewise, we’re going to argue why it’s appropriate,” he stated. “However we expect that the New York Court docket’s choice … will present an excellent street map for the arbitration panels on how they need to resolve the problem of whether or not ERISA applies.”
In response to a Morgan Stanley spokesperson, the appellate courtroom decided that it lacked jurisdiction as a result of the district courtroom didn’t bind the arbitration panels deciding the case.
“These awards will not be a pension, as a number of arbitration panels have now acknowledged,” the spokesperson stated. “We stay assured that, as particular person arbitrators see all of the proof, they are going to attain precisely the identical outcome.”
Although it was inconceivable to find out precisely what number of former Morgan Stanley advisors have been in arbitration, Needham stated a “great quantity” have been pursuing claims (Needham stated his agency constantly had arbitration classes scheduled for the following year-and-a-half). Whereas the Second Circuit’s choice was largely procedural, Needham hoped its deserves prolonged additional.
“I’m not essentially ready to foretell how different companies might or might not reply,” he stated. “However we do assume it’s an general necessary challenge within the normal house of ERISA legislation and likewise monetary advisor compensation.”
