Morgan Stanley Prevails in Dismissing Class-Action Discrimination Suit
A federal judge in New York City has granted Morgan Stanley’s motion to dismiss a purported class-action lawsuit alleging discrimination in the way the firm allocated accounts to African Americans and women.
U.S. Circuit Judge Richard Sullivan acknowledged the “potentially-far-reaching consequences” for African Americans of the ‘serious” allegations, but ruled that three of the seven named plaintiffs in “Kathy Frazier et al versus Morgan Stanley” are required by their employment contracts to bring individual claims in arbitration rather than in court. Class-action claims are not allowed in arbitration under Financial Industry Regulatory Authority rules.
The four other named plaintiffs “failed to overcome the stringent administrative” processes required for civil rights claims, or argued insufficient facts, he ruled.
The 24-page decision, which was dated November 29, is a victory for brokerage firms that generally favor arbitration over courts, and, particularly, for Morgan Stanley. The firm has won a series of recent decisions dismissing employees’ claims that they were not adequately notified in May 2015 of ways to opt out of its tightened CARE arbitration program, making arbitration mandatory.
However, the defendants continue to argue their individual race discrimination claims in the New York court, and Morgan Stanley on December 17 filed an answer to their third amended complaint denying the remaining discrimination claims.
“The most prominent feature [of the decision] is the arbitration issue, which is again a clear signal that Morgan Stanley prefers to divide and conquer and rely on arbitration as a means to silence class members and evade litigation,” said Linda Stowell, the Chicago lawyer who co-represented the plaintiffs and has has long represented women and minorities in discrimination suits against broker-dealers.
Since the case was briefed, five courts have rejected arguments by defendants that Morgan Stanley gave insufficient notice of changes in its arbitration requirements, the judge said.
“The court reached the right result here, and we look forward to adjudicating the remaining claims on their specific facts,” Morgan Stanley spokeswoman Susan Siering wrote in an email. “Morgan Stanley is strongly committed to attracting, retaining and developing diverse talent and takes complaints of discrimination very seriously.”
Frazier, who worked in Morgan Stanley’s Honolulu, Hawaii, office from 2007 until she resigned in November 2013, before the arbitration program was tightened, alleged that ”lucrative accounts were routinely ‘steered’ to male, non-African American FA” and said her complaints of discrimination led to hostility, poaching of her clients and continued exclusion, according to the ruling.
An amended complaint in the case included “near-verbatim, boilerplate accounts” of the six other plaintiffs’ experiences in Morgan Stanley offices in seven cities. The judge concluded that the facts presented “do not support an inference of a pattern or practice of discriminatory treatment” and “fall short of support for the inference that intentional discrimination was…standard operating procedure’” for Morgan Stanley.
Friedman said on Monday evening that she was still reviewing the decision and had not decided whether to proceed with a possible appeal, re-filing or arbitration to invalidate Morgan Stanley’s modified CARE program.