A federal appeals court docket shot down Morgan Stanley’s try and attraction a decrease court docket’s resolution that its deferred compensation plans have been protected by federal legislation. The choice might impression quite a few arbitration proceedings filed towards the wirehouse by former staff.
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 court docket choose who filed the earlier opinion “strike its authorized conclusion that the deferred-compensation plans” fell below the Worker Retirement Revenue Safety Act.
It’s the newest growth in a years-long class motion filed by a number of former Morgan Stanley advisors, who collectively accused the wirehouse of denying them tens of millions in deferred compensation once they left for different corporations.
In an interview with WealthManagement.com, Motley Rice Lawyer Douglas Meedham (who helped carry the preliminary class motion criticism) mentioned the choice marked the tip of “fairly a saga of twists and turns,” and appeared 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 related positions once 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. Based on 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” below ERISA protections and requested the court docket to determine that Morgan Stanley’s rule violated federal legislation.
In 2023, New York Southern District Courtroom Choose Paul Gardehpe partially dominated for the wirehouse, deciding that advisors had agreed to argue claims in personal arbitration. Nonetheless, in the identical ruling, Gardehpe agreed with the reps that the compensation plans have been lined below 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 below 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 exterior of ERISA and its anti-forfeiture guidelines.”
The appeals court docket agreed that merely assuming the plans fell below ERISA might have been “a greater course” for the district court docket, however didn’t assume that warranted placing the language.
“Although arbitrators might think about the district court docket’s opinion, Morgan Stanley is free to argue to these arbitrators that the district court docket’s conclusion that the plans have been ruled by EIRSA was … legally incorrect,” the order learn. “Certainly, Morgan Stanley admits that it has already achieved so—efficiently—in a number of the intervening arbitrations.”
Based on Needham, Morgan Stanley had argued in a number of arbitration proceedings that panel judges shouldn’t think about the district court docket’s resolution, claiming the appellate judges might overturn it. The Second Circuit’s ruling “takes Morgan Stanley’s argument utterly off the desk,” he mentioned.
“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 mentioned. “However we expect that the New York Courtroom’s resolution … will present a terrific street map for the arbitration panels on how they need to determine the problem of whether or not ERISA applies.”
Based on a Morgan Stanley spokesperson, the appellate court docket decided that it lacked jurisdiction as a result of the district court docket 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 mentioned. “We stay assured that, as particular person arbitrators see all of the proof, they may attain precisely the identical outcome.”
Although it was unimaginable to find out precisely what number of former Morgan Stanley advisors have been in arbitration, Needham mentioned a “large quantity” have been pursuing claims (Needham mentioned his agency constantly had arbitration periods scheduled for the following year-and-a-half). Whereas the Second Circuit’s resolution was largely procedural, Needham hoped its deserves prolonged additional.
“I’m not essentially able to foretell how different corporations might or might not reply,” he mentioned. “However we do assume it’s an general vital situation within the common house of ERISA legislation and likewise monetary advisor compensation.”
