Morgan Stanley Pay Suit Dismissal Upheld by Appeals Court

The dismissal of a Morgan Stanley (MS) shareholder lawsuit brought in 2010 over $45 billion paid to the firm’s employees in three years was upheld by a New York appeals court.

Shareholders including the Security Police and Fire Professionals of America Retirement Fund sued Morgan Stanley, former chairman John Mack and other executives in February 2010, accusing the company of making improper compensation and bonus payments.

New York State Supreme Court Justice Shirley Werner Kornreich threw out the suit in December 2010, citing a requirement that shareholders first make a demand on a board before suing on behalf of a company or show that such a move would be futile.

An appeals court in Manhattan upheld the dismissal today, saying the complaint lacks specific allegations needed to determine whether work done by company employees was “of such limited value to the corporation that no reasonable person in the directors’ position” would have approved their pay.

“The complaint does not adequately plead waste,” Justice Peter Tom, of the state Appellate Division First Department, wrote. “It lacks the ‘specific allegations of unconscionable transactions and details regarding who was paid and for what reasons they were paid.’”

Mack ceded his chairman role at New York-based Morgan Stanley in January to Chief Executive Officer James Gorman, who took over as CEO for Mack at the end of 2009.

The case is Security Police and Fire Professionals of America Retirement Fund v. Mack, 600359-2010, New York State Supreme Court (Manhattan).

To contact the reporter on this story: Chris Dolmetsch in New York at cdolmetsch@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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