Dean Witter has agreed to pay $1.8 million to settle a class-action lawsuit brought by former brokers who complained the firm had no right to demand repayment of training costs.
The firm will reimburse brokers the full amount each had been required to pay under the terms of the training agreement. Dean Witter also agreed to set up a fund for brokers who stayed with the firm, but might have left were it not for the repayment obligation.
But the victory carries a high price tag. The attorneys who represented Michael Silk, the California broker who brought the action, get $1.2 million of the settlement. Silk, whose case dragged on for 10 years in both arbitration and court, agreed to have his attorneys pay him $50,000 out of their settlement money. That represents not quite double the amount Dean Witter had required him to repay.
Silk left Dean Witter for Bear Stearns in 1986, less than two years after signing Dean Witter's training agreement. Dean Witter filed an arbitration claim against Silk for repayment of training costs. Silk refused to submit to arbitration, filing a class-action suit in 1987 in U.S. District Court. The suit alleged the training agreement violated federal and California antitrust laws and California's unfair competition law.
The settlement is limited to those who signed Dean Witter's training agreements dated 1982 and 1984--a total of 36 individuals. A $540,812 fund will ensure these brokers get full reimbursement, even if firms that hired them picked up the repayment costs. Brokers who believe they were deterred from leaving Dean Witter due to the repayment costs can apply to a separate $50,000 fund. The amount each broker receives will be split by the number of brokers applying.
The settlement opens the door to further class-action claims, says an attorney close to the Silk case. Dean Witter revised its 1984 training agreement in 1991, but made no substantive changes in the repayment clause. The current settlement doesn't cover those who signed the 1991 revision.
Dean Witter gave no real defense for the fairness of its repayment clause, says Jonathan Biddle, a Los Angeles attorney who represented Silk. "The only defense Dean Witter made was 'everyone else is doing it, so we're doing it,'" he says. "It was startling. They even had an SEC attorney come in and all he said was 'yes, everyone is doing it.'"
Dean Witter did not return phone calls seeking comment.