Morgan Stanley Seeks to Send Brokers’ Deferred Comp Lawsuit to Arbitration

Posted on July 18th, 2022 at 3:33 PM

Morgan Stanley has asked a federal court to stay a proposed class action lawsuit related to its deferred compensation plan and compel 12 of its former brokers who filed the suit to arbitrate their claims.

Lawyers for Morgan Stanley argue that the brokers each signed arbitration pacts as part of employment agreements and that any controversy about the “arbitrability” of their claims should be settled by an arbitrator, according to a brief filed in late June. Firms typically prefer arbitration where filings are private and they have more control over selecting panelists. 

The brokers objected in a separate filing arguing that the claims are not covered under arbitration agreements because they do not “arise from or relate to their employment” since “they do not involve facts particular to them.” Moreover, they argue the arbitration agreements are “unenforceable” since clauses within them violate their rights under federal law protection pensions—the Employment Retirement Income Security Act, ERISA.

U.S. District Judge Paul D. Gardephe, who presides over the case in a Manhattan federal court, had earlier this year denied Morgan Stanley’s motion to move the case to arbitration, although he issued the denial “without prejudice,” leaving the door open for the wirehouse to ask again.

Matthew T. Shafer, who is now at Raymond James & Associates in Boca Raton, Florida, first filed his complaint against Morgan Stanley in December 2020. He sought class action status for claims based on allegations that Morgan Stanley violates federal laws governing vesting and anti-forfeiture rules for pension and retirement packages by withholding deferred pay when brokers move to the competition.

In response, Morgan Stanley has argued that the deferred compensation program is a bonus plan, which is generally not covered by ERISA.

Meanwhile, another group of former Morgan Stanley brokers have been pursuing separate claims in arbitration with the Financial Industry Regulatory Authority partly in anticipation that the firm will win its push to arbitrate in the court case. 

Jim Eccleston, a lawyer in Chicago who represents them, has grouped his clients’ complaints filed with Finra based on their state residency. He has filed a complaint for 10 ex-Morgan Stanley brokers who reside in New York, six in Texas, six in Pennsylvania, four in Massachusetts and two in New Jersey. He filed the first claims early this year and has since been expanding with additional states. 

 In the Texas case, the named brokers according to a draft of the complaint, confirmed by Eccleston, include the following:

  • Robert Pearson, a 26-year industry veteran who worked for Morgan Stanley for nine years until 2019, when he left for Raymond James in Frisco, according to his BrokerCheck record.
  • Jeff M. Davis, a 30-year industry veteran who worked for Morgan Stanley for 10 years until 2020, when he left for Ameriprise Financial Services in Plano, according to his record.
  • Robert Silvestri, a 32-year industry veteran who worked for Morgan Stanley in Allen for eight years until 2018, when he left for Level Four, a Dallas-based dual registered firm, according to his record.
  • Thomas Chretien, a 25-year industry veteran who worked for Morgan Stanley for eight years until 2019, when he left for Sunbelt Securities in Houston, according to his record.
  • William Swisher, a 39-year veteran, who worked for Morgan Stanley for nine years until 2021, when he left for Ameriprise in Dallas, according to his record.
  • Michael Witt, a 21-year veteran who worked for Morgan Stanley for 11 years until 2021, when the firm terminated him and he joined Ameriprise in Plano, according to his record. (Witt was discharged in January 2021 amid Morgan Stanley’s probe of inherited account coding issues.) 

By filing their complaints with Finra, instead of joining the proposed class action in federal court, the brokers who Eccleston represents are hoping for procedural advantages without having to obtain class certification–and a speedier result given the clogged docket in the Manhattan federal court, the plaintiff lawyer has said. The first Finra case he filed for the brokers in Pennsylvania is set for an arbitration hearing in February 2023, he said.

Shafer’s proposed class action lawsuit, now pending for two years, has been closely watched, as it was filed after Wells Fargo Advisors former brokers reached a $79 million settlement with the wirehouse to end a similar class action lawsuit. The plaintiffs in that case, who were represented by the same law firms as Shafer, sought $265 million.

 Prior to settling, Wells Fargo had argued that its deferred compensation plan qualified for an exemption from ERISA laws as a “top hat” plan available only to a “select group of management or highly compensated employees.”

Link to the original article can be found here.

Related Attorneys: James J. Eccleston

Tags: eccleston, eccleston law, morgan stanley

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