Black Merrill brokers lose appeal over bias in bonuses

(Reuters) - A federal appeals court upheld the dismissal of a racial bias lawsuit against Bank of America Corp by black financial advisers at the former Merrill Lynch & Co, but said they could try to recover losses over bonus payouts in a separate case.

Tuesday's decision by the 7th U.S. Circuit Court of Appeals in Chicago rejected a challenge to a retention bonus program that Merrill had adopted to keep brokers from defecting after the companies merged on January 1, 2009.

The court found that payouts were based on "race-neutral" assessments of prior performance, and said the evidence did not show that Merrill paid black brokers lower bonuses than white brokers with an intent to discriminate.

"It is not enough to allege, as the complaint does, that the bonuses incorporated the past discriminatory effects of Merrill Lynch's underlying employment practices," Circuit Judge Diane Sykes wrote for a three-judge appeals court panel.

But the 7th Circuit said black brokers may nonetheless be eligible for "complete relief" in a related case.

In that case, first brought in 2005, the brokers alleged systematic bias at Merrill in hiring, pay and promotions, including the alleged steering of blacks into clerical positions and diversion of lucrative accounts to white brokers.

The 7th Circuit had in February granted class-action status to brokers in that case, reversing a lower-court ruling, and on Tuesday said losses tied to inadequate retention bonuses could be part of any damages award there.

Bank of America spokesman Bill Halldin said the Charlotte, North Carolina-based bank is pleased with Tuesday's decision, which upheld a March 2011 dismissal by U.S. District Judge Robert Gettleman in Chicago of a challenge to the bonus program.

Retention bonuses are often awarded to brokers who work at companies being acquired to keep them from defecting, and can reach seven figures for top producers. Merrill had more than 15,000 brokers before Bank of America bought the company.

Both cases were brought on behalf of black brokers including George McReynolds, a longtime Merrill broker in Nashville.

"(Tuesday's) decision, coupled with the reinstatement of the class-action, makes clear that the plaintiffs will have a full remedy," Linda Friedman, a partner at Stowell & Friedman Ltd in Chicago representing the brokers, said in an interview.

In granting class-action status to the brokers in February, Circuit Judge Richard Posner had said common issues made it more efficient to handle their cases as a group.

"There is no indication that the corporate level of Merrill Lynch (or its parent, Bank of America) wants to discriminate against black brokers. Probably it just wants to maximize profits," Posner wrote. "But in a disparate impact case the presence or absence of discriminatory intent is irrelevant."

The case is McReynolds et al v. Merrill Lynch & Co et al, 7th U.S. Circuit Court of Appeals, No. 11-1957.

(Reporting By Jonathan Stempel in New York; Editing by Maureen Bavdek, Gary Hill)