No. 11-1957 GEORGE MCREYNOLDS, MAROC HOWARD, FRANKIE …merrillclassaction.com/pdfs/EEOC_Amicus_Brief_072611.pdf · GEORGE MCREYNOLDS, MAROC HOWARD, FRANKIE ROSS, ... Plaintiffs/Appellants,

No. 11-1957

IN THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT

GEORGE MCREYNOLDS, MAROC HOWARD, FRANKIE ROSS, ET AL.,

Plaintiffs/Appellants, v. MERRILL LYNCH & CO., INC.; MERRILL LYNCH, PIERCE, FENNER & SMITH; BANK OF AMERICA CORPORATION,

Defendants/Appellees.

On Appeal from the United States District Court for the Northern District of Illinois

The Honorable Robert W. Gettleman

BRIEF OF THE EQUAL EMPLOYMENT OPPORTUNITY COMMISSION AS AMICUS CURIAE

IN SUPPORT OF APPELLANTS AND REVERSAL P. DAVID LOPEZ General Counsel LORRAINE C. DAVIS Acting Associate General Counsel VINCENT J. BLACKWOOD Assistant General Counsel JULIE L. GANTZ Attorney

EQUAL EMPLOYMENT OPPORTUNITY COMMISSION Office of General Counsel 131 M St. N.E., 5th Floor Washington, D.C. 20507 (202) 663-4718 [email protected]

Case: 11-1957 Document: 10-1 Filed: 07/26/2011 Pages: 21

TABLE OF CONTENTS

TABLE OF AUTHORITIES............................................................................i

STATEMENT OF INTEREST .......................................................................1

STATEMENT OF THE ISSUE ......................................................................2

BACKGROUND .............................................................................................2

ARGUMENT

THE COMPLAINT STATES A TITLE VII CLAIM NOTWITH-STANDING § 703(H) BECAUSE THE COMPLAINT ALLEGES THAT THE DISPARITIES IN COMPENSATION BETWEEN BLACK AND WHITE FINANCIAL ADVISORS CAUSED BY THE DEFENDANTS’ COMPENSATION SYSTEM WERE THE RESULT OF INTENTIONAL DISCRIMINATION. ............................................6

CONCLUSION..............................................................................................14

CERTIFICATE OF COMPLIANCE ............................................................16

CERTIFICATE OF SERVICE


TABLE OF AUTHORITIES

CASES

Brownlee v. Gay & Taylor, Inc., 642 F. Supp. 347 (D. Kan. 1985) ...............9

Goodman v. Merrill Lynch & Co., 716 F. Supp. 2d 253 (S.D.N.Y.

2010) ...........................................................................................................4

Ledbetter v. Goodyear Tire, 550 U.S. 618 (2007).........................................12 McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, No. 05-6583,

2010 WL 3184179 (N.D. Ill. Aug. 9, 2010)...............................................5

Ryduchowski v. Port Authority of New York, 203 F.3d 135 (2d Cir. 2000) ...........................................................................................................9

Teamsters v. United States, 431 U.S. 324 (1977) ........................... 4, 9, 10-11

United Air Lines v. Evans, 431 U.S. 553 (1977) .................................... 10-11

FEDERAL RULES AND STATUTES

Title VII of the Civil Rights Act of 1964 42 U.S.C. § 2000e et seq ............................................................................1 42 U.S.C. § 2000e-2(h)......................................................................passim

42 U.S.C. § 2000e-5(e)(3)(A) ..................................................................13

Equal Pay Act 29 U.S.C. § 206(d)(1) .................................................................................7 42 U.S.C. § 1981..............................................................................................3 Fed. R. App. P. 29(a) .......................................................................................2

ii


iii

Fed. R. App. P. 32(a)(5) ................................................................................16

Fed. R. App. P. 32(a)(6) ................................................................................16

Fed. R. App. P. 32(a)(7)(B) ...........................................................................16


STATEMENT OF INTEREST

The Equal Employment Opportunity Commission is the agency charged by

Congress with the interpretation, administration, and enforcement of Title VII of

the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., and other federal laws

prohibiting discrimination. This appeal raises important questions regarding the

scope of § 703(h) of Title VII, which provides that an employer does not violate

Title VII by providing different levels of compensation pursuant to “a bona fide

seniority or merit system, or a system which measures earnings by quantity or

quality of production . . . provided such differences are not the result of an

intention to discriminate . . . .” Plaintiffs allege in this case that the defendants’

compensation system provides lower compensation, specifically lower retention

bonuses, to black financial advisors based on their race. The district court held that

the complaint fails to state a claim under Title VII because it fails to allege that the

compensation system was established or maintained for the purpose of

discriminating on the basis of race which, according to the court, is necessary to

satisfy § 703(h). We believe the district court overlooked the proviso in § 703(h)

for disparities that are “the result of an intention to discriminate.” Because the

complaint alleges that the challenged differences in compensation were caused by

intentional race discrimination in the assignment of accounts and other disparate

treatment of black financial advisors, it states a claim under Title VII


notwithstanding § 703(h). The district court’s failure to consider the allegations of

intentionally discriminatory input into the compensation system in deciding

whether it is immunized by § 703(h) would severely limit challenges to

discriminatory compensation programs if applied generally. Given our

enforcement interests in this issue, we offer our views to the Court pursuant to Fed.

R. App. P. 29(a).

STATEMENT OF THE ISSUE

Whether the defendants’ compensation system, which allegedly pays black

financial advisors less than white financial advisors, is protected by § 703(h) of

Title VII unless it was designed to discriminate against black employees,

notwithstanding plaintiffs’ allegation that the disparities in compensation between

black and white employees were the result of defendants’ intentional race

discrimination in the assignment of accounts.

BACKGROUND

George McReynolds and the eight other plaintiffs are current or former

black Financial Advisors (“FAs”) for Merrill Lynch & Co., Inc., a nationwide

financial services holding company that provides financial and investment

services. Appendix (“A.”) 14 (First Amended Complaint (“FAC”) ¶ 3). FAs are

ranked in five “quintiles” based on the “production credits” their accounts

generate. A.15 (FAC ¶ 8). The complaint alleges that black FAs are assigned less

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valuable accounts to manage than white FAs because of their race. A.19 (FAC

¶ 16). According to the complaint, Merrill Lynch “steers accounts, productive

assets, and other income-generating opportunities to white brokers, and away from

black brokers.” Id. An FA’s quintile ranking affects his or her annual

compensation and was used to calculate the retention bonuses offered to FAs after

Bank of America (“BOA”) acquired Merrill Lynch in January 2009,1 through a

program known as the Advisor Transition Program (“ATP”). A.15-16 (FAC ¶¶ 7-

9); A.3 (Memorandum Opinion and Order (“Mem.”) at 2). The plaintiffs allege

that because black FAs were underrepresented in the top quintiles of production

credits, they were disproportionately excluded from receiving retention awards or

received lower awards than they would have absent discrimination. A.21 (FAC

¶ 20). The plaintiffs brought suit under 42 U.S.C. § 1981 and Title VII. A.24-25

(FAC ¶¶ 34-41). The defendants moved to dismiss the complaint under Rule

12(b)(6).

The district court granted the defendants’ motion to dismiss, holding that

“the complaint merely alleges discriminatory conduct but has not ‘shown’ that

plaintiffs are entitled to relief.” A.6 (Mem. at 5). According to the court, § 703(h)

of Title VII, 42 U.S.C. § 2000e-2(h), insulates from challenge “an employer’s bona

1 Merrill Lynch now operates as a wholly-owned subsidiary of BOA. A.14 (FAC ¶ 5).

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fide merit, seniority or production-based compensation system, even where the

system has a discriminatory impact.” Id. In the court’s view, “[s]o 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.” A.6-7 (Mem. at 5-6) (citing

Teamsters v. United States, 431 U.S. 324, 348 (1977)).

The court held that the company’s method for computing retention awards

qualifies as a “production-based compensation system” within the meaning of

§ 703(h) because “it used a gender- and race-neutral formula that was measured

solely based on each individual FA’s annualized production credit through

September 2008.” A.7 (Mem. at 6). The court agreed with the district court in

Goodman v. Merrill Lynch & Co., 716 F. Supp. 2d 253, 261 (S.D.N.Y. 2010),

which held the same ATP system was protected from challenge by a class of

women under § 703(h), and reasoned that “‘account distributions and partnership

formations may have affected the plaintiffs’ overall production credits, thereby

skewing the input into the ATP,’” but that “‘the ATP itself remains a protectable

production based compensation system under section 703(h).’” Id. (quoting

Goodman). The court held that the plaintiffs’ complaint challenging the ATP

retention awards would state a claim if it contained “sufficient factual allegations

to make it plausible that the system was adopted with the intent to discriminate

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against African-American FAs in favor of white FAs,” but that it failed to do so.

Id.

In the court’s view, the plaintiffs’ remedy lies in challenging the

discriminatory inputs into a bona fide merit, seniority, or production-based

compensation system directly, as was undertaken in an earlier suit filed by the

same plaintiffs. A.8 (Mem. at 7) (citing McReynolds v. Merrill Lynch, Pierce,

Fenner & Smith, No. 05-cv-06583, 2010 WL 3184179 (N.D. Ill. 2010)

(“McReynolds I”)).2 The court concluded that, “even if plaintiffs’ factual

allegations with respect to the inputs (which are the subject of McReynolds I) were

sufficient to allow the court to infer more than the mere possibility that Merrill

Lynch designed the ATP with discriminatory intent (and they clearly are not),

those same allegations in no way suggest that BOA acted with any discriminatory

intent.” A.9 (Mem. at 8). “There are simply no facts in the complaint to suggest

even the possibility that BOA ever discriminated against African-Americans.” Id.

2 The district court denied class certification in that case on August 9, 2010. No. 05-6582, 2010 WL 3184179, at *6 (N.D. Ill. Aug. 9, 2010). The individual claims of the named plaintiffs in McReynolds I remain pending in the district court.

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ARGUMENT

THE COMPLAINT STATES A TITLE VII CLAIM NOTWITH-STANDING § 703(H) BECAUSE THE COMPLAINT ALLEGES THAT THE DISPARITIES IN COMPENSATION BETWEEN BLACK AND WHITE FINANCIAL ADVISORS CAUSED BY THE DEFENDANTS’ COMPENSATION SYSTEM WERE THE RESULT OF INTENTIONAL DISCRIMINATION. The complaint alleges that the defendants violated Title VII by

providing lower retention bonuses to black FAs than white FAs pursuant to

its ATP system. The district court held that this allegation fails to state a

claim under Title VII because the ATP was protected from challenge under

§ 703(h). Section 703(h) of Title VII provides:

[I]t shall not be an unlawful employment practice for an employer to apply different standards of compensation, or different terms, conditions, or privileges of employment 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 . . . .

42 U.S.C. § 2000e-2(h). To fall within this provision, the racial disparities in the

retention bonuses based on the ATP (1) must be “pursuant to a bona fide merit

system or system that measures earnings by quantity or quality of production;” and

(2) cannot be “the result of an intention to discriminate because of race.”

Accordingly, even if the ATP is a bona fide system that measures earnings by the

quantity of production, the racial disparities it produces are still illegal if they are

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the result of intentional discrimination.3 In dismissing the complaint, the district

court erred by overlooking this proviso in holding that § 703(h) protects the racial

disparities in bonuses simply because it believed the ATP itself is a bona fide

compensation system.

The complaint alleges that the defendants discriminated on the basis of race

in assigning accounts, and giving out leads, referrals, and other forms of assistance.

A.19 (FAC ¶ 16). Because black FAs were assigned less lucrative accounts than

white FAs, the complaint alleges, their accounts generated less income and they

were significantly more likely to wind up in lower quintiles than white employees.

A.21 (FAC ¶ 20). Under the ATP, the placement of black FAs in lower quintiles

allegedly caused the defendants to pay them less and, as relevant to this suit, to

offer them lower retention bonuses. Thus the complaint alleges that the racial

disparity in compensation under the ATP is a direct result of the earlier

discriminatory allocations of accounts, leads, and other benefits. This is sufficient

3 The plaintiffs argue on appeal that the term “merit system, or a system which measures earnings by quantity or quality of production,” which was borrowed by Congress from the Equal Pay Act, 29 U.S.C. § 206(d)(1), encompasses only piece work systems such as those used to compensate some employees in an assembly line manufacturing process, relying on the legislative history of the EPA. It is not necessary for the Court to decide whether the ATP is the type of system that may be excepted by § 703(h) because, even if the ATP is such a system, § 703(h) does not shield the disparities in the retention bonuses offered to black and white FAs pursuant to the ATP because the complaint adequately alleges that those disparities are the result of intentional race discrimination.

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to state a claim under Title VII notwithstanding § 703(h) because it amounts to an

allegation that the disparities in retention bonuses between black and white FAs

under the ATP are “the result of an intention to discriminate because of race.”

The district court’s ruling that the complaint fails to state a claim because it

does not allege that the ATP was created for the purpose of race discrimination,

i.e., that it was not “bona fide,” reads the proviso out of § 703(h). Under this

analysis, discrimination in compensation would be immune from challenge under

Title VII whenever it was accomplished by means of a facially neutral

compensation system that bases compensation on merit or production even if the

plaintiffs prove that the defendant intentionally caused the discriminatory result by

giving biased performance evaluations or, as alleged in this case, by giving black

employees less productive accounts. This would severely undermine Title VII’s

protection against compensation discrimination in a way that Congress clearly did

not intend and which courts have rejected.

Congress could not have more clearly expressed its view that intentional

discrimination of the sort alleged in this case could not be shielded by § 703(h)

merely by taking the form of input into a neutral compensation system. The

proviso to § 703(h) expressly forecloses the defendants’ argument that the racially

discriminatory retention bonuses generated by the ATP system are beyond the

reach of Title VII even if, as plaintiffs allege, they were caused by the defendants’

8


intentional discrimination in assigning accounts. While there are very few cases

analyzing the scope of § 703(h) in the context of compensation discrimination,

courts have in other contexts rejected the notion that compensation discrimination

is immune from challenge where it is perpetrated in the context of a neutral system.

Cf. Ryduchowski v. Port Auth. of New York, 203 F.3d 135, 144 (2d Cir. 2000)

(reinstating jury verdict on plaintiff’s Equal Pay Act claim because “the jury could

have reasonably concluded that Ryduchowski’s lower performance evaluation in

1995, which led to her lower merit increase, was not the result of differences in

performance, but rather differences in gender between her and [her male

colleague]”); Brownlee v. Gay & Taylor, Inc., 642 F. Supp. 347, 353 (D. Kan.

1985) (“[T]he mere presentation of a formal salary administration program will not

foreclose an Equal Pay Act or Title VII case when there is evidence that the salary

program may have been administered differently on the basis of sex.”).

In ruling to the contrary, the district court relied on the statement in

Teamsters v. United States, 431 U.S. 324, 353-54 (1977), that a seniority system is

not unlawful under Title VII merely because it perpetuates the effects of past

discrimination. This case is distinguishable from Teamsters. In Teamsters, the

plaintiff alleged that a neutral seniority system that credited time worked by white

and black employees on the same basis was not protected by § 703(h) because, as a

result of the employer’s pre-Act refusal to hire blacks as road drivers, black road

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drivers as a group presently were lower on the road driver seniority list than they

would have been absent the past discrimination. 431 U.S. at 330-31. In other

words, the plaintiff was attempting to litigate the lawfulness of the employer’s past

hiring practices by challenging an ancillary effect of that discrimination. See also

United Air Lines v. Evans, 431 U.S. 553, 560 (1977) (female flight attendant fired

pursuant to the airline’s discriminatory policy who did not challenge the original

firing but later sued when she was not credited with past seniority upon being

rehired was precluded from challenging the seniority system; the Supreme Court

stated that a discriminatory act not made the basis of a timely charge is the legal

equivalent of a discriminatory act occurring before Title VII was passed and “is

merely an unfortunate event in history which has no present legal consequence”).

In Teamsters and Evans there were discrete acts of discrimination that had

immediate and tangible adverse effects on the plaintiffs but were not challenged at

the time: the refusal to hire in Teamsters and the termination in Evans. When,

years later, the plaintiffs sought to resurrect those earlier potential claims by

challenging a subsequent ancillary harm in the loss of seniority rights, the Supreme

Court held that they could not. In Teamsters, the past discriminatory hiring

decisions challenged had the immediate effect of leaving the victims either

unemployed or stuck in a less desirable job than white drivers; the later loss of

seniority accompanying a transfer to the line driver position was a secondary

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consequence. And in Evans, the flight attendant forced to resign because of her

sex suffered an immediate loss of employment and salary; the failure to credit her

with seniority for her earlier tenure when she was rehired four years later was a

secondary effect of the earlier unchallenged discrimination. In those cases, the

Supreme Court foreclosed the resurrection of old claims.

The plaintiffs’ claim in this case is fundamentally different. Here, the

disparity in compensation under the ATP was the first tangible consequence of the

discriminatory allocation of accounts and other benefits. The reduced

compensation paid to the black FAs through the ATP was delayed in time but a

direct consequence of defendants’ unequal distribution of accounts at the outset of

the plaintiffs’ employment. Furthermore, there does not appear to have been any

tangible effect of the discriminatory assignment of accounts until it affected the

plaintiffs’ compensation by means of the ATP. Thus, unlike a seniority system

that perpetuates past discrimination and cannot be challenged under Teamsters, the

retention bonus plan here is directly caused by the original intentional

discrimination in distributing client accounts and other benefits.

Furthermore, if the district court were correct in ruling that § 703(h)

immunizes all merit or production systems unless the plaintiffs establish that the

defendant intentionally designed the system to award lower compensation to black

FAs, it would insulate from challenge the type of discrimination the Lilly Ledbetter

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Fair Pay Act was enacted to combat. The Ledbetter Act was enacted to salvage

compensation claims that would otherwise be time-barred, and the timeliness of

the plaintiffs’ claims is not at issue here. But under the district court’s ruling, in

most cases where a plaintiff had a claim resurrected by the Ledbetter Act, § 703(h)

would foreclose the claim.

The Ledbetter facts illustrate this. At the tire plant where Lilly Ledbetter

worked as a manager, raises were based on the employee’s performance

evaluations. Ledbetter v. Goodyear Tire, 550 U.S. 618, 621 (2007). Ledbetter

offered evidence that several supervisors had given her poor evaluations because of

her sex. Id. at 622. As a result, her pay was not increased as much as it would

have had she been evaluated fairly. Id. She contended that the past pay decisions

continued to affect her pay throughout her employment with Goodyear. Id. By the

end of her tenure there, she was making significantly less than all of her male

colleagues. Id. The jury awarded her backpay and damages. Id. The Eleventh

Circuit reversed, and the Supreme Court affirmed, holding that her claim was time-

barred and that she could not “take the intent associated with the prior pay

decisions and shift it to the 1998 pay decision.” Id. at 629.

In response, Congress enacted The Lilly Ledbetter Fair Pay Act, which

amends Title VII to extend the time permitted for an employee to bring a

compensation claim by allowing each new paycheck to trigger the running of the

12


limitations period under Title VII. The Ledbetter Act provides that, with respect to

compensation discrimination, “an unlawful employment practice occurs . . . when a

discriminatory compensation decision or other practice is adopted, when an

individual becomes subject to a discriminatory compensation decision or other

practice, or when an individual is affected by application of a discriminatory

compensation decision or other practice, including each time wages, benefits, or

other compensation is paid, resulting in whole or in part from such a decision or

other practice.” 42 U.S.C. § 2000e-5(e)(3)(A).

Under the district court’s decision in this case, a defendant facing a claim

like Ledbetter’s would be able to shield its compensation plan under § 703(h),

thereby effectively nullifying the Ledbetter Act. The allegation in this case that the

defendant calculated the FAs’ retention bonuses using the quintile rankings based

on earnings from client accounts that were unequally distributed based on race is

analogous to the allegation in Ledbetter. In Ledbetter, the employer used a facially

neutral compensation system that based raises on performance evaluations.

Ledbetter proved that her compensation was lower than that of comparable male

employees because her supervisors gave her lower performance evaluations

because she was a woman. Congress made clear in enacting the Ledbetter Act that

such a claim should be permitted under Title VII. However, if the district court’s

13


decision in this case were correct, her claim would presumably founder on

§ 703(h) as well.

Ledbetter’s salary was based on a facially neutral merit system that was not

enacted for the purpose of sex discrimination. Her showing that the disparity was

caused by intentional discrimination in the evaluations entered into the system

would, under the district court’s analysis here, be merely a perpetuation of past

discrimination. Neither in Ledbetter nor in this case is that a fair characterization.

Because in each case the lower compensation challenged by the plaintiffs was the

first tangible consequence of the discriminatory evaluations or account

assignments, the plaintiffs can show that the challenged disparities were the result

of the defendants’ intentional discrimination.

CONCLUSION

For the foregoing reasons, the judgment of the district court should be

reversed and the case remanded for further proceedings.

Respectfully submitted, P. DAVID LOPEZ General Counsel LORRAINE C. DAVIS Acting Associate General Counsel VINCENT J. BLACKWOOD Assistant General Counsel

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/s/ Julie L. Gantz ______________________________ JULIE L. GANTZ Attorney EQUAL EMPLOYMENT OPPORTUNITY COMMISSION Office of General Counsel 131 M St. N.E., 5th Floor Washington, D.C. 20507 (202) 663-4718 [email protected]

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16

CERTIFICATE OF COMPLIANCE

This brief complies with the type-volume limitation of Fed. R. App. P.

32(a)(7)(B) because it contains 3,261 words, excluding the parts of the brief

exempted by Fed. R. App. P. 32(a)(7)(B)(iii).

This brief complies with the typeface requirements of Fed. R. App. P.

32(a)(5) and the type style requirements of Fed. R. App. P. 32(a)(6) because it has

been prepared in a proportionally spaced typeface using Microsoft Word 2003 in

Times New Roman 14 point.

/s/ Julie L. Gantz _________________________________ JULIE L. GANTZ Attorney EQUAL EMPLOYMENT OPPORTUNITY COMMISSION Office of General Counsel 131 M St. N.E., 5th Floor Washington, D.C. 20507 (202) 663-4718 [email protected]

Dated: July 26, 2011


CERTIFICATE OF SERVICE

I, Julie L. Gantz, hereby certify that on July 26, 2011, I electronically filed

the foregoing with the Clerk of the Court for the United States Court of Appeals

for the Seventh Circuit by using the CM/EFC system. I certify that all participants

in the case are registered CM/ECF users and that service will be accomplished by

the CM/ECF system.

/s/ Julie L. Gantz ____________________________ Julie L. Gantz Attorney EQUAL EMPLOYMENT OPPORTUNITY COMMISSION Office of General Counsel 131 M St. N.E., 5th Floor Washington, D.C. 20507 (202) 663-4718 [email protected]


Documents

No. 11-1957 GEORGE MCREYNOLDS, MAROC HOWARD, FRANKIE …merrillclassaction.com/pdfs/EEOC_Amicus_Brief_072611.pdf · GEORGE MCREYNOLDS, MAROC HOWARD, FRANKIE ROSS, ... Plaintiffs/Appellants,