Reversing a district court's denial of class certification to some 700 black brokers in a race discrimination case against Merrill Lynch the Seventh Circuit has shown the limited scope and application of the Supreme Court's Wal-Mart v. Dukes ruling by its recent decision in McReynolds v. Merrill Lynch, No 11-3639 (February 24, 2012).
The main plaintiffs' claim before the court was that two Merrill Lynch policies, the "teaming" and "account distribution" policies, had racially disparate impacts. The "teaming" policy allowed but did not require brokers in the same office to form teams that would share clients and accounts. The "account distribution" policy regarded the passing out of the accounts of a broker that left Merrill, a procedure that was driven principally by past performance and success.
The plaintiffs claimed team membership was advantageous and that the procedure for team selection and formation had a racially discriminatory impact. The Seventh Circuit, in an opinion authored by Judge Richard Posner, explained this dynamic as follows:
The teams, they say, are little fraternities (our term but their meaning), and as in fraternities the brokers choose as team members people who are like themselves. If they are white, they, or some of them anyway, are more comfortable teaming with other white brokers. Obviously they have their eyes on the bottom line; they will join a team only if they think it will result in their getting paid more, and they would doubtless ask a superstar broker to join their team regardless of his or her race. But there is bound to be uncertainty about who will be effective in brining and keeping shared clients; and when there is uncertainty people tend to base decisions on emotions and preconceptions, for want of objective criteria.
The "account distribution" policy could likewise have racially disparate impacts in fact perpetuating the discriminatory effects of the "teaming" policy, as the court described:
If as a result of racial preference at the team level black brokers employed by Merrill Lynch find it hard to join teams, or at least good teams, and as a result don’t generate as much revenue or attract and retain as many clients as white brokers do, then they will not do well in the competition for account distributions either; and a kind of vicious cycle will set in. A portion of a team’s pre-existing revenues are transferred within a team to a new recruit, who thus starts out with that much “new” revenue credited to him or her—an advantage, over anyone who is not on a team and thus must generate all of his own “new” revenue, that translates into a larger share of account distributions, which in turn helps the broker do well in the next round of such distributions. This spiral effect attributable to companywide policy and arguably disadvantageous to black brokers presents another question common to the class, along with the question whether, if the team-inflected account distribution system does have this disparate impact, it nevertheless is justified by business necessity.
Robert L. Abell
www.RobertAbellLaw.com
