A federal appeals court docket shot down Morgan Stanley’s try and attraction a decrease court docket’s choice that its deferred compensation plans had been protected by federal regulation. The choice might impression quite a few arbitration proceedings filed in opposition to the wirehouse by former workers.
The Second Circuit Court docket 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 decide who filed the earlier opinion “strike its authorized conclusion that the deferred-compensation plans” fell beneath the Worker Retirement Revenue Safety Act.
It’s the newest improvement in a years-long class motion filed by a number of former Morgan Stanley advisors, who collectively accused the wirehouse of denying them thousands and thousands in deferred compensation after they left for different companies.
In an interview with WealthManagement.com, Motley Rice Legal professional Douglas Meedham (who helped deliver the preliminary class motion grievance) mentioned the choice marked the top of “fairly a saga of twists and turns,” and appeared ahead to aiding purchasers 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 comparable positions after 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. In line with the go well with, if the reps left earlier than the vesting dates, they’d forfeit that compensation. Shafer and the plaintiffs argued these plans had been “worker profit pension plans” beneath ERISA protections and requested the court docket to determine that Morgan Stanley’s rule violated federal regulation.
In 2023, New York Southern District Court docket Decide 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 had been lined beneath 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 beneath 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 beneath ERISA might have been “a greater course” for the district court docket, however didn’t suppose that warranted placing the language.
“Although arbitrators could contemplate 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 had been ruled by EIRSA was … legally incorrect,” the order learn. “Certainly, Morgan Stanley admits that it has already completed so—efficiently—in a number of the intervening arbitrations.”
In line with Needham, Morgan Stanley had argued in a number of arbitration proceedings that panel judges shouldn’t contemplate the district court docket’s choice, claiming the appellate judges might overturn it. The Second Circuit’s ruling “takes Morgan Stanley’s argument fully off the desk,” he mentioned.
“Morgan Stanley stays free to argue why it believes the choice wasn’t right, and likewise, we’re going to argue why it’s right,” he mentioned. “However we predict that the New York Court docket’s choice … will present an amazing street map for the arbitration panels on how they need to determine the difficulty of whether or not ERISA applies.”
In line with 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 are usually not 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 are going to attain precisely the identical end result.”
Although it was inconceivable to find out precisely what number of former Morgan Stanley advisors had been in arbitration, Needham mentioned a “super quantity” had been pursuing claims (Needham mentioned his agency constantly had arbitration classes scheduled for the following year-and-a-half). Whereas the Second Circuit’s choice was largely procedural, Needham hoped its deserves prolonged additional.
“I’m not essentially able to foretell how different companies could or could not reply,” he mentioned. “However we do suppose it’s an general vital problem within the common house of ERISA regulation and likewise monetary advisor compensation.”
