WealthManagement Magazine

Federal Judge Sends Merrill Discrimination Case to Court

When Federal District Judge Nancy Gertner ruled that forcing discrimination claims into arbitration at the NYSE was inherently unfair because of "the extent to which the NYSE arbitration system is dominated by ... the employment side of the dispute," she also commended former Merrill Lynch financial consultant Susan Rosenberg and her legal team for their "detailed, concrete, and voluminous critique

When Federal District Judge Nancy Gertner ruled that forcing discrimination claims into arbitration at the NYSE was inherently unfair because of "the extent to which the NYSE arbitration system is dominated by ... the employment side of the dispute," she also commended former Merrill Lynch financial consultant Susan Rosenberg and her legal team for their "detailed, concrete, and voluminous critique of the NYSE system." They had, she said, "risen to the Supreme Court's challenge."

Gertner noted that when the Supreme Court issued its precedent-setting 1991 decision in Gilmer vs. Interstate/Johnson Lane, which upheld the mandatory arbitration of an age discrimination claim via a rep's signing of the U-4 and agreeing to abide by industry rules--it also "left open the possibility of evaluating the adequacy of the arbitral forum in specific cases."

The difference between Gilmer and Rosenberg, she said, was that "Gilmer had confined his argument to an abstract critique of the impartiality, competence, and legal powers of arbitrators in general," but Rosenberg offered "depositions of securities industry personnel, official securities arbitration manuals, arbitration records, and reports of government investigations," which Gertner said demonstrated a "structural bias" at the NYSE that she found "deeply troubling."

Gertner's 56-page finding, issued Jan. 26 in Boston, was significant because it was "the first time any court has really examined the actual operation of the [securities industry's] arbitration system," says Cliff Palefsky, an attorney with the National Employment Lawyers Association (NELA) of San Francisco. The Rosenberg decision, which will allow the plaintiff to proceed in court, is not binding on any other district court, but "I think it will have a huge impact both in the courts and in a regulatory context" as a persuasive force, he says.

Gertner also engaged in a long analysis of the 1991 Civil Rights Act, noting that its purpose was to "create a new constitutionally-based right to a jury trial for Title VII plaintiffs," while also granting a "dramatic expansion of the remedies available under Title VII, including full compensatory damages as well as equitable relief." The whole sense of the 1991 act was that Congress wanted Title VII plaintiffs to be able to have their claims heard in a "public forum" as a "public deterrent," the judge noted.

Included in that 1991 act is one amendment "that spoke directly to the use of alternative dispute resolution," and the text and legislative history of that one amendment "unambiguously reject mandatory arbitration agreements," the judge noted, adding that the Gilmer decision was rendered after that language had been drafted, but before the Civil Rights Act was passed.

Nevertheless, the securities industry has been successful in using Gilmer to get the courts to remand discrimination and harassment complaints into arbitration.

Rosenberg's claims are for both age and sex discrimination, and also sexual harassment. She was 45 years old when she was hired as a trainee in January 1992 in the firm's Wellesley, Mass., office, and was terminated two years later for "inadequate performance, i.e., lack of production," the judge wrote.

"According to Rosenberg, she was the only consultant in the Wellesley office who was over forty, among the consultants with a comparable length of service ("LOS") (two years). She claims she outperformed at least four male consultants in her two-year LOS group," but was the only one to be terminated in that time frame, the judge continued.

Additionally, Rosenberg is claiming sexual harassment based on an episode in which her manager "handed her a phallus-shaped vibrator when she came into his office looking for a document," the judge said.

Prior to Merrill, Rosenberg was a "financial executive at a couple of high tech companies," says her attorney, Marc Redlich of Boston. Rosenberg is still unemployed, he says.

Merrill is "reviewing the decision, but we haven't made a decision as to whether we'll appeal," says spokesperson Bill Halldin, noting that the ruling was strictly about mandatory arbitration and not on the merits of Rosenberg's case.

Meanwhile, Merrill also has said it plans on going forward with a new system of dispute resolution that will include "a full range of options" for its registered personnel. (Merrill has no employment contracts that bind non-registered personnel to arbitration, Halldin notes.) The proposed system arose from the firm's efforts to settle a prospective class action that was filed in Chicago by a group of eight women in 1996.

The final details of Merrill's program haven't been released yet, but press reports speculated that the system would include the right to a one-day optional mediation session. Beyond that, registered personnel would have the right to choose among arbitration at an SRO, arbitration at an independent third party, or filing a lawsuit.

The firm has said it will go forward with that scheme even if it does not arrive at a settlement of the threatened class action. The proposed class-action case has been in mediation since fall, but as of late January, it had not been settled.

Merrill confirms press reports that the main issue holding up a settlement is the issue of plaintiffs' attorneys' fees for the proposed mediation sessions. Merrill says that it "has always been prepared to fully fund the cost of the dispute resolution process. The only issue in dispute is the amount of the plaintiffs' lawyers' fees."

The Smith Barney settlement of a similar case, negotiated by the same attorneys, Mary Stowell and Linda Friedman of Stowell Friedman & Vernon in Chicago, includes a plaintiff's attorney's fee of up to $5,000, to be paid by Smith Barney.

The judge in the Chicago case has ordered both sides "to appear, or be available by telephone" on Feb. 25 to report on whether further negotiations have produced a settlement plan.

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