Merrill Lynch $160 Million Race-Bias Accord Goes to Judge

Bank of America Corp. and financial advisers from its Merrill Lynch unit requested approval of their $160 million settlement of race bias litigation from a judge who has thrice rejected bids to recognize a claims class.

U.S. District Judge Robert Gettleman in Chicago, whose denial of the advisers’ group status request was overturned on appeal, told lawyers for both sides today that he was “prepared to preliminarily approve” their agreement with some caveats.

“I am not a rubber stamp,” he told plaintiffs’ lawyer Linda Friedman and bank attorney Jeffrey Klein at a hearing. He raised questions about fees for the plaintiffs’ attorneys and compensation for lead plaintiffs.

Still, Gettleman set aside those concerns for a final fairness hearing he scheduled for Dec. 6 after Friedman promised that minor revisions to the preliminary accord would be made and submitted to him today for signature tomorrow.

“Not to say you haven’t done a great job,” the judge told the lawyers for both sides.

Friedman, a partner at Chicago’s Stowell & Friedman Ltd., filed the suit in 2005 on behalf of George McReynolds, a broker in the Nashville, Tennessee, office of Merrill Lynch.

The case mushroomed to include 16 more name plaintiffs and a class of at least 1,000 of their black peers, alleging the brokerage wasn’t giving them the same business opportunities as the firm’s white financial advisers.

Third Biggest

In its current form, the accord would be the third biggest in U.S. race-bias litigation, according to data compiled by Bloomberg. In agreements that included non-cash consideration, Coca-Cola Co. agreed in 2001 to pay $192.5 million. Texaco Inc. paid $176 million in 1997.

Friedman, citing the “programmatic” changes agreed to by Merrill Lynch in the settlement, said in a phone interview that the value of the non-monetary relief afforded her clients could increase the value of their accord beyond the prior benchmarks.

“As with any settlement, the amount of the settlement reflects a compromise and is intended to recapture lost opportunity during the class period,” which extends back to 2001, she said.

Once agreed-upon changes are implemented, the value of that programmatic relief to the black advisers could at least equal the cash value of the accord, she said.

“We will be creating careers with lifetimes of earnings,” Friedman said.

‘Positive Resolution’

The bank didn’t admit any wrongdoing in the agreement.

“We are working toward a very positive resolution of a lawsuit filed in 2005 and enhancing opportunities for African-American financial advisers,” Bill Halldin, a spokesman for Bank of America, said last week in an e-mailed statement. He reiterated that stance outside the courtroom after today’s hearing.

McReynolds, 68, has worked in the Nashville office of Merrill Lynch for more than 30 years, he said after today’s hearing, which he attended with several fellow plaintiffs.

“I knew as long as we were alive that we would see this day,” McReynolds said.

Beyond the proposed cash payout, the parties are aiming for “organic change” in how the firm operates, Friedman had said in an Aug. 30 phone interview. “We’re going to have the lawyers back off and create a process by which the company can own the change from the get-go.”

Dissolving Unit

The second-biggest U.S. lender by assets, Bank of America acquired Merrill for $33 billion in 2009. The Charlotte, North Carolina-based bank plans to dissolve the unit as early as the fourth quarter while keeping the Merrill Lynch brand for its retail brokerage and investment bank, according to an Aug. 2 filing.

Merrill Lynch had about 14,000 financial advisers as of June 30, excluding those working at bank branches. Bank of America’s entire staff was 257,158.

Formation of adviser teams is one of Merrill’s most important business strategies, Suzanne Bish, another lawyer for the advisers, said by phone last week. Black advisers were segregated and excluded from the teams and the benefits and business resources they afforded, said Bish, a partner at Stowell & Friedman.

Wal-Mart Ruling

While Gettleman rejected requests for class status, the black advisers prevailed after the U.S. Supreme Court in 2011 refused to recognize a nationwide class of 1.5 million women suing Wal-Mart Stores Inc. for gender bias.

In the Wal-Mart case, the high court concluded the women failed to show the retailer had a nationwide policy leading to discrimination.

The advisers’ suit was based on claims that the discrimination was due to “very centralized control by Merrill Lynch,” Bish said.

After a February 2012 appeals court ruling in the employees’ favor, Gettleman certified a class of black financial advisers and financial adviser trainees in the U.S. retail brokerage unit of the firm’s global private client division.

Changes Merrill agreed to make under the accord include appointing two experts to review the firm’s teaming and pooling policies, Friedman said.

Visiting Offices

Those experts, one of whom will be selected by each side in the case, will spend a year visiting firm offices and interviewing people and will report on the company’s policies and practices.

Immediate changes will be made to financial adviser training, known as Practice Management Development, to stem black attrition rates, Friedman said. The firm agreed to appoint two coaches she described as “godfather rabbis” for black trainees.

The judge today asked Friedman to file separate papers detailing the lawyers’ rationale for payment from the settlement proceeds, which she said in an interview provides for receipt of 25 percent of the first $100 million and 15 percent of the balance, as well as a plan to pay some of the named plaintiffs $250,000 and others $75,000 depending on their level of involvement in the case.

Once Gettleman preliminarily approves the agreement, class members will be given formal notice of its terms, as well as time to review them and to lodge objections with the court or opt out of the group before the judge makes a final decision.

“If there is a grand theme to all of this, it’s organic,” Friedman said. “Lawyers go home.”

The cases are McReynolds v. Merrill Lynch, 11-01957, U.S. Court of Appeals for the Seventh Circuit (Chicago), and McReynolds v. Merrill Lynch Pierce Fenner & Smith Inc., 05-cv-06583, U.S. District Court, Northern District of Illinois (Chicago).

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