A federal appeals courtroom shot down Morgan Stanley’s try and attraction a decrease courtroom’s determination that its deferred compensation plans had been protected by federal regulation. The choice may affect quite a few arbitration proceedings filed in opposition to the wirehouse by former workers.
The Second Circuit Courtroom of Appeals issued its dismissal of Morgan Stanley’s attraction, arguing it didn’t have correct jurisdiction, and denied Morgan Stanley’s request that the district courtroom choose 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 most recent 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 carry the preliminary class motion grievance) stated the choice marked the tip of “fairly a saga of twists and turns,” and appeared ahead to aiding 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 related 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 accordance with the swimsuit, if the reps left earlier than the vesting dates, they’d forfeit that compensation. Shafer and the plaintiffs argued these plans had been “worker profit pension plans” underneath ERISA protections and requested the courtroom to determine that Morgan Stanley’s rule violated federal regulation.
In 2023, New York Southern District Courtroom Decide Paul Gardehpe partially dominated for the wirehouse, deciding that advisors had agreed to argue claims in non-public arbitration. Nonetheless, in the identical ruling, Gardehpe agreed with the reps that the compensation plans had 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 attraction, 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 competition that the plans fell outdoors of ERISA and its anti-forfeiture guidelines.”
The appeals courtroom agreed that merely assuming the plans fell underneath ERISA may have been “a greater course” for the district courtroom, however didn’t suppose that warranted putting the language.
“Although arbitrators could take into account the district courtroom’s opinion, Morgan Stanley is free to argue to these arbitrators that the district courtroom’s conclusion that the plans had been ruled by EIRSA was … legally incorrect,” the order learn. “Certainly, Morgan Stanley admits that it has already finished so—efficiently—in among the intervening arbitrations.”
In accordance with Needham, Morgan Stanley had argued in a number of arbitration proceedings that panel judges shouldn’t take into account the district courtroom’s determination, claiming the appellate judges may 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 right, and likewise, we’re going to argue why it’s right,” he stated. “However we predict that the New York Courtroom’s determination … will present an incredible highway map for the arbitration panels on how they need to determine the problem of whether or not ERISA applies.”
In accordance with 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 should not 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’ll attain precisely the identical outcome.”
Although it was unattainable to find out precisely what number of former Morgan Stanley advisors had been in arbitration, Needham stated a “great quantity” had been pursuing claims (Needham stated his agency persistently had arbitration periods scheduled for the subsequent year-and-a-half). Whereas the Second Circuit’s determination was largely procedural, Needham hoped its deserves prolonged additional.
“I’m not essentially able to foretell how different companies could or could not reply,” he stated. “However we do suppose it’s an general necessary subject within the basic area of ERISA regulation and in addition monetary advisor compensation.”