June 22, 2012 / 7:09 PM / 5 years ago

Exclusive: Merrill replaces law firm in broker pay cases

5 Min Read

NEW YORK (Reuters) - Merrill Lynch has replaced the law firm leading its battles against deferred-pay claims from more than a thousand former brokers.

The change could mark a fresh start for Merrill after a disclosure by one of the previous lawyers likely damaged one of the brokerage's cases as it faces a growing pile of claims and more than $1 billion in estimated potential damages from pending cases and hundreds more that could be filed.

Bringing in new faces could ease the way towards resolution of a mountain of deferred-pay claims, after a lawyer for Reed Smith LLP apparently undermined Merrill's arguments in its biggest case so far. Merrill is trying to overturn an April 3 FINRA arbitration ruling that awarded $10.2 million to two brokers in that case.

The brokerage earlier this month notified plaintiffs' lawyers that it had retained Morgan, Lewis & Bockius LLP to replace Reed Smith as its lead attorneys in more than 150 deferred-compensation disputes that have filed for FINRA arbitration, people familiar with the situation told Reuters.

Reed Smith continues to represent Merrill in other matters.

Merrill spokesman William Halldin confirmed the bank hired Morgan Lewis to represent it in the deferred-pay cases. He also reaffirmed the company's view that its takeover by Bank of America (BAC.N) does not, by itself, provide grounds for these claims.

"We believe these claims are without merit and we're continuing to defend against them," he said.

Reed Smith's outside spokeswoman, Jamie Lisa Moss, did not respond to phone calls while a Morgan Lewis spokeswoman declined to comment, citing the firm's policy.

Replacing Reed Smith comes after an embarrassing discovery last month by one of its attorneys in the case of former Merrill brokers Tamara Smolchek and Meri Ramazio, whose $10.2 million award included deferred pay, compensation for lost income and punitive damages.

Merrill asked a federal judge to void the ruling, arguing that one of the arbitrators on the three-person panel was biased against the firm. Merrill said the arbitrator didn't properly disclose that she was married to a Florida lawyer who had sued Merrill in the past.

But six weeks later, Merrill's lead attorney in the hearings, Reed Smith's Douglas Spaulding, discovered that he had possessed documents with information about the arbitrator's spouse that Merrill claimed it didn't know until hearings were in progress.

Spaulding did not return calls seeking comment.

Reed Smith's presence in the deferred-pay cases stretches to the very beginning, when its attorneys advised a "good reason" committee set up by Merrill to review claims from brokers seeking immediate vesting for deferred pay. Brokers who left the firm would not be eligible for the deferred compensation - unless they presented a "good reason" for leaving.

Former brokers contend Merrill's September 2008 merger agreement with Bank of America, plus the impact it had on their compensation and business, was good reason. Merrill disagrees.

But according to the Smolchek arbitration ruling, the good reason committee was a "sham" that denied every claim but could not provide arbitrators with documentation for its decisions.

Reed Smith then counseled Merrill in defending these denials during arbitration hearings. While the firm will not handle the deferred pay cases going forward, Reed Smith will continue representing Merrill in cases already in progress, including Merrill's motion to vacate the Smolchek award and a deferred-pay lawsuit filed in 2008 by two Alabama brokers. That suit is awaiting class-action certification from a Manhattan federal court judge.

Fresh Eyes

Some lawyers speculate a new legal team could take a fresh look at the cases.

Morgan Lewis "does not have the issue of having given advice to Bank of America during the underlying committee's work and then having to defend that advice through the litigation of these cases," said Michael Taaffe, a Sarasota, Florida, lawyer representing Smolchek and about 1,000 other ex-Merrill brokers.

Other lawyers say the dismissal of Reed Smith could increase the odds of a global settlement.

"Oftentimes when a case goes wrong, there's bad blood between lawyers and no progress is being made. With new counsel, there could be a new series of discussions potentially ending this matter," said Thomas Lewis of Stark & Stark, a New Jersey lawyer specializing in broker employment cases.

Merrill declined to comment on the topic of a settlement.

Morgan Lewis is one of the largest law firms in the United States, according to the American Lawyer, and advises a client list that includes half of the 100 largest U.S. companies.

"They're highly regarded and well known for their defenses of the financial services industry, especially brokerages," said Matthew Farley, a Drinker, Biddle & Reath LLP attorney who has represented brokerages for 40 years.

Reporting By Joseph A. Giannone; Editing by Jennifer Merritt, Gary Hill

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