MCREYNOLDS v. LYNCH

• Court: U.S. District Court — Northern District of Illinois
• Writing for the Court: Robert W. Gettleman
• Decision Date: 29 March 2011
• Docket Number: No. 08 C 6105,08 C 6105
• Citation: McReynolds v. Merrill Lynch & Co., No. 08 C 6105 (N.D. Ill. Mar 29, 2011)
• Parties: GEORGE MCREYNOLDS, MAROC HOWARD, FRANKIE ROSS, MARVA YORK, LEROY BROWN, GLENN CAPEL, CARNELL MOORE, MARK JOHNSON and CATHY BENDER- JACKSON, on behalf of themselves and all others similarly situated, Plaintiffs, v. MERRILL LYNCH & CO., INC., MERRILL LYNCH, PIERCE, FENNER & SMITH, and BANK OF AMERICA CORPORATION, Defendants.

GEORGE MCREYNOLDS, MAROC HOWARD, FRANKIE ROSS, MARVA YORK, LEROY BROWN, GLENN CAPEL,CARNELL MOORE, MARK JOHNSON and CATHY BENDER- JACKSON, on behalf of themselves and all others similarly situated, Plaintiffs,

v.MERRILL LYNCH & CO., INC., MERRILL LYNCH, PIERCE, FENNER & SMITH, and BANK OF AMERICA CORPORATION, Defendants.

No. 08 C 6105

UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

Dated: March 29, 2011

Judge Robert W. Gettleman

MEMORANDUM OPINION AND ORDER

Plaintiffs George McReynolds, Maroc Howard, Frankie Ross, Marva York, Leroy Brown, Glenn Capel, Carnell Moore, Mark Johnson and Cathy Bender-Jackson, on behalf of themselves and all others similarly situated, have brought a two count first amended complaint against defendants Merrill Lynch & Co., Inc., Merrill Lynch, Pierce, Fenner & Smith and Bank of America alleging racial discrimination in violation of 42 U.S.C. § 1981 and Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. Defendants have moved to dismiss under Fed. R. Civ. P. 12(b)(6), for failure to state a claim upon which relief can be granted. For the reasons explained below, that motion is granted.

BACKGROUND

Defendant Merrill Lynch & Co. is a financial services holding company incorporated in Delaware and headquartered in New York. Its subsidiaries provide financial and investment services. Defendant Merrill Lynch, Pierce, Fenner & Smith, Inc. a full service securities firm engaged in the retail and institutional sale of securities, option contracts and various other financial products. As of the time of the filing of the instant complaint Merrill Lynch & Co. and Merrill Lynch, Pierce, Fenner & Smith (jointly as "Merrill Lynch") together employed more than 15,000 Financial Advisors or brokers ("FAs") who sold its products and services at branch offices located throughout the country.

Defendant Bank of America Corporation ("BOA") is a financial service company incorporated in Delaware and headquartered in North Carolina. BOA provides a wide variety of banking and investment services. On January 9, 2009, BOA acquired Merrill Lynch in a $50 billion all-stock merger transaction. Merrill Lynch now operates as a wholly owned subsidiary of BOA. As part of BOA's acquisition of Merrill Lynch, BOA and Merrill Lynch announced that they would pay retention awards under an Advisor Transition Program ("ATP") to Merrill Lynch's FAs. In a company-wide broadcast to all FAs, Merrill Lynch executives explained that the retention awards would be based on "projections of FAs' future contributions or 'production,' in essence, future commissions earned on client assets managed by the FA." Pursuant to a formula, Merrill Lynch based the retention awards on "annualized production" through September 2008.

Plaintiffs are African-American FAs who either are currently employed at Merrill Lynch or were employed at Merrill Lynch at the time of the merger. In addition to the instant case, plaintiffs are also named plaintiffs in a companion case against Merrill Lynch in which they allege class-wide racial discrimination throughout Merrill Lynch and all of its branch offices. See McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, 2010 WL 3184179 (N.D. Ill. 2010) ("McReynolds I").¹

In the instant action ("McReynolds II"), plaintiffs challenge the ATP and Merrill Lynch's decision to design the retention awards based on annualized production credits as being intentional racial discrimination. Plaintiffs allege that African-Americans were grossly under-represented in the top quintiles and over-represented in the lowest quintiles of production credits. As a result, plaintiffs allege that African-American FAs were disproportionately excluded from receiving retention awards and that the retention awards that were given to African-American FAs were lower than they would have been absent unlawful discrimination. Plaintiffs challenge their annual compensation and retention awards following the merger "as the product of discriminatory input to the retention award formula, as well as its intentionally discriminatory design."

DISCUSSION

Defendants have moved to dismiss the complaint under Fed. R. Civ. P. 12(b)(6) for failure to state a claim. As an initial matter, plaintiffs argue that the motion should be denied on procedural grounds, without even reaching its merits. First, plaintiffs argue that Seventh Circuit precedent dictates that "courts should rule on class certification prior to ruling on the merits of the case." That is true as a general matter, because Fed. R. Civ. P. 23(c) provides that the court must decide class certification early in the litigation, and Bertrand v. Maram, 495 F.3d 452 (7th Cir. 2007), suggests the decision should be before any final decision on the merits. But a motion to dismiss for failure to state a claim under Fed. R. Civ. P. 12(b)(6) tests the sufficiency of the complaint, not the merits of the case. Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). Plaintiffs have presented, and this court is aware of no case that holds that the court must rule on class certification prior to determining whether the complaint is sufficient, particularly where, as in the instant case, no motion for class certification has been filed.

Next, plaintiffs argue that the court should strike the instant motion because Judge Kennelly, to whom the case was originally assigned, had denied a motion on similar grounds. Judge Kennelly's order, however, as defendants point out, was issued prior to the Supreme Court's decision in Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009), which clarified the new pleading standards first announced in Bell Atlantic v. Twombly, 550 U.S. 544, 570 (2007). The order also addressed the allegations in the original complaint. Plaintiffs have filed an amended complaint and defendants are entitled to and have challenged by motion the sufficiency of that complaint.

To survive such a motion, the complaint must meet the plausibility standard. Although detailed factual allegations are not required, the Rule does call for sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." Bell Atlantic Corp., 550 U.S. at 555, 570. A claim is facially plausible when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id. at 556. "Where a complaint pleads facts that are 'merely consistent with' a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief." Iqbal, 129 S.Ct. at 1949 (quoting Twombly, 550 U.S. at 557).

In Iqbal, the Court indicated that two working principles underlie its decision in Twombly. First, the tenet that the court must accept as true all of the allegations in the complaint is inapplicable to legal conclusions. "Threadbare recitals of the elements of the cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 129 S.Ct. at 1949. Second, only those complaints that state a plausible claim for relief survive a motion to dismiss, and the determination of whether a complaint states a plausible claim is a "context-specific task that requires the reviewing court to draw on its judicial experience and common sense. But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not "show[n]' - 'that the pleader is entitled to relief.'" Id.

Applying these principles to the instant case reveals that the complaint merely alleges discriminatory conduct but has not "shown" that plaintiffs are entitled to relief. As defendants argue, §703(h) of Title VII, 42 U.S.C. § 2000e-2(h), protects an employer's bona fide merit, seniority or production-based compensation system, even where the system has a discriminatory impact. The section provides in pertinent part:

Notwithstanding any other provision of this subchapter, it shall not be an unlawful employment practice for an employer to apply different standards of compensation . . . pursuant to a bona fide seniority or merit system, or a system which measures earnings by quantity or quality of production: provided that such differences are not the result of an intention to discriminate because of race, color, religion, sex or national origin.

Thus, under § 703(h), a disparate impact alone is insufficient to invalidate an otherwise bona fide merit, seniority or production-based compensation system. Actual intent to discriminate must be alleged and proved. American Tobacco Co. v. Patterson, 456 U.S. 63, 65 (1982). Such a system is bona fide if it applies equally to all employees the same way. So long as the system itself was adopted without a discriminatory intent it is bona fide and immunized under § 703(h), even if it perpetuates the effects of other acts of discrimination that clearly violate Title VII. Id. at 705; see Teamsters v. United States , 431 U.S. 324, 348 (1977).

In the instant case, as described in plaintiffs' complaint, the method used to compute the retention awards qualifies as a production-based compensation system under § 703(h). It used a gender- and race-neutral formula that was measured solely based on each individual FA's annualized production credit through September 2008. As noted by Judge Scheindlin in Goodman v. Merrill Lynch & Co., Inc., 716 F. Supp.2d 253, 261 (S.D. N.Y. 2010), a case in which the same ATP system was upheld under § 703(h) from a challenge that it discriminated based on gender, "[a]lthough other discrimination by Merrill Lynch regarding account distributions and partnership formations may have affected the plaintiffs' overall production credits, thereby skewing the input into the ATP, the ATP itself remains a protectable production based compensation system under section 703(h)."²

Therefore, plaintiffs' complaint challenging the ATP retention...