George McREYNOLDS, et al., Plaintiffs-Appellants, v. MERRILL LYNCH & CO., INC., et al., Defendants-Appellees.
No. 11-1957.
United States Court of Appeals, Seventh Circuit.
Argued Oct. 24, 2011. Decided Sept. 11, 2012.
694 F.3d 873
Allan D. Dinkoff (argued), Jeffrey S. Klein, Attorneys, Weil, Gotshal & Manges LLP, New York, NY, Stephen M. Shapiro, Attorney, Mayer Brown LLP, Chicago, IL, for Defendants-Appellees.
Julie Loraine Grantz, Attorney, Equal Employment Opportunity Commission, Washington, DC, for Amicus Curiae Equal Employment Opportunity Commission.
Samuel S. Shaulson, Attorney, Morgan, Lewis & Bockius, New York, NY, for Amici Curiae Securities Industry and Financial Markets Association, American Bankers Association, and Chamber of Commerce of the United States of America.
Rae T. Vann, Attorney, Norris Tysse Lampley & Lakis, Washington, DC, for Amicus Curiae Equal Employment Advisory Council.
Before SYKES and TINDER, Circuit Judges, and DeGUILIO, District Judge.*
SYKES, Circuit Judge.
In 2005 a group of brokers at Merrill Lynch sued the firm under
Three years after that suit was filed, Bank of America acquired Merrill Lynch, and the companies introduced a retention-incentive program that would pay bonuses to Merrill Lynch brokers corresponding to their previous levels of production. In response a similar group of brokers filed a second class-action suit, this time against both Merrill Lynch and Bank of America. The new suit again invoked
The district court granted the motion. The court first held that the retention program qualified as a production-based
We affirm. As described in the complaint, the retention program awarded bonuses based on а race-neutral assessment of a broker‘s prior level of production, which suffices to protect the program under
I. Background
Merrill Lynch & Co. and Merrill Lynch, Pierce, Fenner & Smith, Inc. (jointly, “Merrill Lynch“), are financial-services firms engaged in the retail and institutional sale of various financial products. At the time the present case was filed, Merrill Lynch was the largest retail brokerage firm in the cоuntry, employing over 15,000 financial advisors nationwide.1 These brokers sell the company‘s financial products and services, and they are paid according to a firm-wide grid formula that applies different commission rates based on the broker‘s level of production. While the formula is intricate, the basic principle is that a broker‘s compensation is based on “production credits“—in essence, commissions earned on client assets managed by the broker. The compensation formula is neutral with respect to race.
In 2005 George McReynolds, a black broker, filed a class-action discrimination lawsuit against Merrill Lynch in federal court in the Northern District of Illinois. McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc., No. 05-cv-6583 (N.D. Ill. filed Nov. 18, 2005) (”McReynolds I“). The suit was originally brought by McReynolds as the lone named plaintiff and alleged claims of racial discrimination under
A major theme of the McReynolds I litigation is the allegation that black bro-
Meanwhile, on September 15, 2008, Bank of America announced that it would acquire Merrill Lynch in a $50 billion all-stock merger. The transaction closed on January 1, 2009, and Merrill Lynch now operates as a wholly owned subsidiary of Bank of America. As part of the acquisition, the companies decided to pay rеtention-incentive bonuses to Merrill Lynch brokers based on each broker‘s production credits. Thus, brokers who had already been earning higher compensation for producing more business would be offered larger bonuses to remain with the firm through the acquisition.
In response to the retention plan, McReynolds and a group of black brokers filed the present suit, making this case ”McReynolds II.” The named plaintiffs in the two cases are substantially similar, though not identical; all the plaintiffs in this case are also plaintiffs in McReynolds I, and the same law firm represents them. Merrill Lynch is a defendant in both cases, and Bank of America is also a defendant in this case.2
The McReynolds II complaint once again alleges two claims of racial discrimination—one under
In essence the plaintiffs allege that the pervasive past discrimination at Merrill Lynch resulted in production credits that reflected the effects of past discriminatory policies and practices. In turn, the use of production credits to determine retention bonuses amounted to an act of employment discrimination because it had the purpose and effect of depressing the size of bonuses earned by black brokers, or eliminating them altogether. The plaintiffs once again sought class certification.
The new suit was initially assigned to Judge Matthew Kennelly, and while class discovery was still underway, Merrill Lynch moved to dismiss under
Judge Gettleman granted the motion. As a threshold matter, the judge opted to resolve the motion to dismiss before ruling on class certification, noting that a
Finally, Judge Gettleman took note of a case in the Southern District of New York raising a nearly identical challenge to this same retention program, except that it alleged a claim of sex discrimination. See Goodman v. Merrill Lynch & Co., 716 F.Supp.2d 253 (S.D.N.Y.2010). The judge in Goodman had dismissed the plaintiffs’ complaint, holding that Merrill Lynch‘s retention program was a production-based compensation system protected under
II. Discussion
We review a
The plaintiffs assert claims of racial discrimination under
Section 703(h) of Title VII provides that certain compensation systems are exempt from challenge as an unlawful employment practice absent intent to discriminate:
Notwithstanding any other provision of this subchapter, it 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, color, religion, sex, or national origin....
Section 703(h) thus creates an exception to the general rule that “a prima facie Title VII violation may be established by policies or practices that are neutral on their face and in intent but that nonetheless discriminate in effect against a particular group.” Teamsters, 431 U.S. at 349, 97 S.Ct. 1843. An employment practice that passes muster under Title VII does not violate
1. Production-Based Compensation System
Our first question is whether the retention program qualifies as “a system which measures earnings by quantity or quality of production” within the meaning of
In Teamsters the Supreme Court held that a seniority system cannot be challenged under Title VII merely because it incorporates the effects of past acts of intentional discrimination. 431 U.S. at 353-54, 97 S.Ct. 1843. The Court explained that employees who are the victims of intentional discrimination after Title VII was enacted are entitled to retroactive seniority as a remedy for the violation, id. at 347-48, 97 S.Ct. 1843 (citing Franks v. Bowman Transp. Co., 424 U.S. 747, 778-79, 96 S.Ct. 1251, 47 L.Ed.2d 444 (1976)), but
The Court acknowledged that
Merrill Lynch argues, and we agree, that Teamsters and Patterson control the outcome here. The complaint alleges that retention bonuses are determined by production credits—“in essence, commissions earned on client assets managed by the [broker]“—and that the credits are “generated for the [brokers‘] assets under management on the purchase or sale of certain investment products.” The complaint further alleges that “[a]ssets under management reflect the total amount of clients’ assets that a broker is responsible for managing on the clients’ behalf.” As described in the complaint, the production-credit system is about as direct a measure of production as one could imagine in the financial-services industry, and the plaintiffs do not suggest otherwise.
The complaint likewise alleges that “compensation is largely determined by a ‘grid’ formula that applies different commission rates based on a[] [broker‘s] level of production” and that this formula is “neutral on [its] face.” Nowhere does the complaint allege that the formula is actually applied in a discriminatory manner—only that the “inputs” determining a broker‘s production levels were themselves the products of past discrimination.
Taking these allegations as true, we have little trouble concluding that the retention-bonus program compensates brokers on the basis of production and that it does so in a race-neutral manner. To the extent that the program incorporated the effects of past discrimination, the same was true of the seniority system in Teamsters. Just as the Teamsters plaintiffs could obtain retroactive seniority as a remedy in a claim addressing the underlying discrimination, so too may the plaintiffs hеre obtain a remedy for any underlying discriminatory policies if they succeed in their challenge in McReynolds I. Stated differently, to whatever extent the plaintiffs can prove they would have received larger bonuses but for the past discrimination affecting their production levels, that loss may be incorporated into the remedy in McReynolds I. But the retention program itself is shielded from challenge as a production-based compensation system under
The plaintiffs have several arguments as to why Teamsters should not control, but none are ultimately persuasive. First, they rely on a line of cases holding that a compensation scheme is not protected under
This comparison does not hold up under scrutiny. The material point in Griggs and Association Against Discrimination was that the testing devices at issue in those cases were not validly measuring employees’ merit to begin with and were only serving to create racial disparities. See Griggs, 401 U.S. at 431, 91 S.Ct. 849 (“[N]either the high school completion requirement nor the general intelligence test is shown to bear a demonstrable relationship to successful performance of the jobs for which it was used.“); Ass‘n Against Discrimination, 647 F.2d at 273 (“[I]t would defy reason to characterize as a ‘bona fide merit system’ a test that does not measure the fitness of those who take it for the positions to be filled according to its results.“). This case is quite different. The complaint itself acknоwledges that a broker‘s production credits do, in fact, reflect “commissions earned on client assets managed by the [broker],” and there is no suggestion that this metric of production is improper. It is also undisputed that brokers who more successfully invest their assets under management earn more production credits and that this calculation is made on an objective and racially neutral basis. In short, a broker‘s production credits—on which the retention bonuses were based—do in fact measure the “quality of production” as required for the
This might be a different case if a broker‘s compensation depended on a subjective analysis of how effectively the broker was representing the firm. If, for example, black brokers were receiving systematically poorer reviews than their white counterparts who performed substantially similar work, and the reviews determined cоmpensation, then Merrill Lynch could not shield the system simply by calling it a merit- or production-based system—or at least, the
The plaintiffs also argue that
The seniority system in this litigation is entirely bona fide. It applies equally to all races and ethnic groups. To the extent that it “locks” employees into non-line-driver jobs, it does so for all. The [injured employees] ... are not all Negroes or Spanish-surnamed Americans; to the contrary, the overwhelming majority are white. The placing of line drivers in a separate bargaining unit from other employees is rational in accord with the industry practice.... It is conceded that the seniority system did not have its genesis in racial discrimination, and that it was negotiated and has been maintained free from any illegal purpose.
431 U.S. at 355-56, 97 S.Ct. 1843. The plaintiffs maintain that although the retention program is racially neutral on its face, it cannot be considered “bona fide” because the production-credit system on which it is based had its genesis in Merrill Lynch‘s discriminatory policies and practices and was neither negotiated nor maintained free from illegal purpose.
We do not need to grapple with the question whether the term “bona fide” has some specialized meaning in this context.5 On the most straightforward reading of the statute, the “bona fide” modifier applies to seniority and merit systems, not to production-based compensation systems. To repeat, the statute provides that “it shall not be an unlawful employment practice for an employer to apply different standards of compensation ... pursuant to a bona fide seniority or merit system, or a system which measures earnings by quantity or quality of production.” If the “bona fide” modifier were meant to apply to production-based systems as well as seniority and merit systems, the more natural phrasing would authorize employers to use different standards of compensation “pursuant to a bona fide seniority system, merit system, or system which measures earnings by quantity or quality of production.”6
The interpretive question is largely irrelevant, however, because even if the “bona fide” modifier applies, the concept is inherently built into what it means for a system to measure quantity or quality of production. Indeed, the “bona fide” question is essentially identical to the question whether the retention-bonus program is, in fact, a production-based system. If there
Finally, when the Supreme Court explained why the seniority system in Teamsters was “entirely bona fide,” 431 U.S. at 355, 97 S.Ct. 1843, it did so in language that distinguished a bona fide seniority system from one adopted as a “result of an intention to discriminate.” The Court observed that the seniority system qualified as “bona fide” in part because it “did not have its genesis in racial discrimination” and was “negotiated and ... maintained free from any illegal purpose.” Id. at 356, 97 S.Ct. 1843. This anticipates the next step in the
2. Intent to Discriminate
Because it qualifies as a production-based compensation system, the retention program is exempt frоm challenge under
Teamsters cоnfirms this understanding of the statute. There, it was conceded that the differences in seniority (and thus the differences in employment privileges) were the product of intentional discrimination, but the seniority system itself was nevertheless immune from challenge under
Iqbal clarified two working principles underlying the Twombly decision. First, although the complaint‘s factual allegations are accepted as true at the pleading stage, allegations in the form of legal conclusions are insufficient to survive a
Applying these principles here, the allegations that Merrill Lynch knew that the production-credit system had a disparate impact on black brokers are legally insufficient. Instead, the complaint must allege enough factual content to support an inference that the retention program itself was adopted because of its adverse effects on black brokers. See Iqbal, 556 U.S. at 676-77, 129 S.Ct. 1937; Pers. Adm‘r of Mass. v. Feeney, 442 U.S. 256, 279, 99 S.Ct. 2282, 60 L.Ed.2d 870 (1979).
The plaintiffs suggest that reliance on Iqbal and Feeney is misplaced because those cases concerned constitutional claims, not statutory claims. The distinction makes no difference. It is well-established that an intentional-disсrimination claim under Title VII is evaluated the same way as an intentional-discrimination claim arising under the Equal Protection Clause:
Neither [Washington v.] Davis [426 U.S. 229, 96 S.Ct. 2040, 48 L.Ed.2d 597 (1976)] nor [Personnel Administrator v.] Feeney were Title VII cases, a point emphasized in Davis. But when intentional discrimination is charged under Title VII[,] the inquiry is the same as in an equal protection case. The difference between the statutory and constitutional prohibitions becomes important only when a practice is challenged based on a theory of “disparate impact,” as distinct from “disparate treatment“....
Am. Nurses’ Ass‘n v. Illinois, 783 F.2d 716, 722 (7th Cir.1986) (citation omitted); see also EEOC v. Joe‘s Stone Crab, Inc., 220 F.3d 1263, 1273 (11th Cir.2000) (“[T]o show discriminatory intent [under Title VII], a plaintiff must demonstrate ‘that the decisionmaker ... selected or reaffirmed a particular course of action at least in part because of, not merely in spite of, its adverse effects on an identifiable group.‘” (alteration in original) (quoting Feeney, 442 U.S. at 279, 99 S.Ct. 2282) (internal quotation marks omitted)). By operation of
The complaint alleges in some detail that black brokers at Merrill Lynch have been the victims of discriminatory employment poliсies and practices and that they receive fewer production credits as a result. But much less is said about the retention program itself. The complaint alleges that the retention awards were “based on annualized production credits through September 2008,” that the awards for black brokers “were lower than they would have been absent unlawful discrimination,” and that both Merrill Lynch and Bank of America were aware of this differential and the underlying discriminatory practices that allegedly caused it. As to whether the retention program itself was adopted with discriminatory purpose, however, the complaint asserts only the following:
Defendants intentionally designed and implemented retention bonuses based largely on production credits that had a disparate impact on and intentionally discriminated against African Americans and women. Defendants identified and selected for higher compensation the FAs they would try hardest to retain via the retention bonuses, and they knew that they were offering more generous retention packages to white men than to African Americans and women. Simply put, Defendants intended to retain and more generously compensate white men rather than African Americans and women. Defendants did not want to retain African American FAs, and have engaged in policies and practices designed to further their higher rates of attrition.
We agree with the district court that these allegations of intent are the sort of conclusory allegations that are insufficient under Iqbal. All four sentences say basically the same thing and at roughly the same level of generality—that Merrill Lynch intentionally designed the retention program based on production levels that incorporated the effects of past discrimination, and that the firm did sо with the intent to discriminate against black brokers. Stated as such, the assertion is merely a conclusion, unsupported by the necessary factual allegations to support a reasonable inference of discriminatory intent. Iqbal, 556 U.S. at 679, 129 S.Ct. 1937 (“While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations.“). Indeed, it is helpful to compare this language to the rejected complaint in Iqbal itself, which alleged that the defendants “knew of, condoned, and willfully and maliciously agreed to subject [the plaintiff] to harsh conditions of confinement as a matter of policy, solely on account of [his] religion, race, and/or national origin and for no legitimate penological interest.” Id. at 680, 129 S.Ct. 1937 (internal quotation marks omitted).
The plaintiffs argue that the complaint adequately alleges intentional discrimination but the district court erroneously rejected the аllegations as “implausible” by drawing two improper inferences: first, that the true motive of the retention program was to retain the most productive brokers; and second, that Bank of America would have wanted to avoid discrimination to prevent a lawsuit. Had the complaint adequately alleged intentional discrimination in the first place, this might be a valid point. The “plausibility” standard under Iqbal “does not imply that the district court should decide whose version to believe, or which version is more likely than not.” Swanson v. Citibank, N.A., 614 F.3d 400, 404 (7th Cir.2010). But the complaint did not adequately allege intentional discrimination in the first place. The district court recognized as much, holding that the plaintiffs offered nothing
In any event, our standard of review is de novo, and based on our own review of the complaint, we conclude that it contains insufficient factual content to support an inference that the retention program itself was intentionally discriminatory. The plaintiffs have alleged that Merrill Lynch‘s past employment practices had discriminatory effects on black brokers and the firm knew it when it designed the retention program. But however ample the complaint‘s allegations might be to support a disparate-impact claim vis-à-vis the underlying employment practices, they are insufficient to support a claim of intentional discrimination with respect to the retention program. Under Teamsters the past discriminatory “inputs” are legally irrelevant to the lawfulness of the retention program. The complaint needs to allege some facts tending to support a plausible inference that the retention program itself was adopted for a discriminatory purpose.
The complaint contains no factual allegations of this nature. It alleges only that Merrill Lynch was aware of the disparate impact of its policies on black brokers and then asserts in wholly conclusory terms that this impact was the purpose of the retention program. Under a combined reading of Teamsters and Iqbal, these allegations are legally insufficient to state a claim. This is a complex discrimination claim, and we have observed that under Iqbal and Twombly, “[t]he required level of factual specificity rises with the complexity of the claim.” McCauley v. City of Chicago, 671 F.3d 611, 616-17 (7th Cir.2011) (citing Swanson, 614 F.3d at 405). Because the complaint contains only conclusory allegations that the retention program was adopted with intent to discriminate, it fails to state a claim upon which relief may be granted.
B. Lilly Ledbetter Fair Pay Act
The plaintiffs also argue that dismissal was improper under the Lilly Ledbetter Fair Pay Act of 2009, which they claim creates a new cause of action for discriminatory practices whenever compensation is paid pursuant to past discriminatory employment decisions. They argue, in essence, that a new cause of action was created when Merrill Lynch paid the retention bonuses, taking this case outside the ambit of
The Act was passed following the Supreme Court‘s decision in Ledbetter v. Goodyear Tire & Rubber Co., Inc., 550 U.S. 618, 127 S.Ct. 2162, 167 L.Ed.2d 982 (2007), which held that Title VII‘s 180-day statute of limitations begins to run when a discriminatory pay decision is made, not each time compensation is paid, id. at 632, 127 S.Ct. 2162. Lilly Ledbetter filed suit within 180 days of receiving a paycheck reflecting an allegedly discriminatory wage, but the employment decisions that caused the claimed disparity in pay occurred much earlier. The Court held that the limitations period began to run at the time the discriminatory employment decisions were made, not each time a paycheck was issued. Id. at 627-28, 127 S.Ct. 2162.
In response to this decision, Congress passed the Fair Pay Act, which provides as follows:
For purposes of this section, an unlawful employment practice occurs, with respect to discrimination in cоmpensation in violation of this title, 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, includ-
ing each time wages, benefits, or other compensation is paid, resulting in whole or in part from such a decision or other practice.
The Act therefore concerns the question of timing—it affects when discriminatory practices may be challenged by extending the statute of limitations every time a paycheck is issued. It is an accrual rule; it does not affect the substance of the claim. Indeed, in AT & T Corp. v. Hulteen, 556 U.S. 701, 715-16, 129 S.Ct. 1962, 173 L.Ed.2d 898 (2009), the Supreme Court specifically held that
The same is true here. Thе plaintiffs have challenged only the retention program, but the program is immune from challenge as a race-neutral production-based compensation system under
C. Construing the Complaint as a Challenge to Underlying Discriminatory Practices
Finally, the plaintiffs argue that even if the retention program itself is protected, the complaint should be construed as a challenge to the underlying discriminatory prаctices at Merrill Lynch—about which there are many detailed allegations in the complaint—and the district court therefore should not have dismissed the suit as duplicative of the claims made in McReynolds I.8 This argument would be difficult to win under any circumstances, and it is especially weak here. The district court has broad discretion to dismiss a complaint “for reasons of wise judicial administration ... whenever it is duplicative of a parallel action already pending in another federal court.” Serlin v. Arthur Andersen & Co., 3 F.3d 221, 223 (7th Cir.1993) (quoting Ridge Gold Standard Liquors, Inc. v. Joseph E. Seagram & Sons, Inc., 572 F.Supp. 1210, 1213 (N.D.Ill.1983)). A suit is duplicative if the “claims, parties, and available relief do not significantly differ between the two actions.” Ridge Gold, 572 F.Supp. at 1213. The district court has significant latitude on this question, and we will reverse only for abuse of discretion. Serlin, 3 F.3d at 223.
The plaintiffs insist that because the class and the claims are broader in McReynolds I, and Bank of America is named as a defendant here but not in the earlier case, the two actions are sufficiently different to proceed as independent actions. We disagree. The larger class size and broader scope of the claims in McReynolds I actually support the district court‘s holding that any challenge to Merrill Lynch‘s underlying employment practices here is subsumed in the earlier case. And to the extent that Bank of America may be liable as a corporate parent, the plaintiffs can try to amend their complaint in McReynolds I to add Bank of America as a defendant. See EEOC v. Vucitech, 842 F.2d 936, 944 (7th Cir.1988); see also Worth v. Tyer, 276 F.3d 249, 259-60 (7th Cir.2001) (“‘When the successor company knows about its predecessor‘s liability, knows the precise extent of that liability, and knows that the predecessor itself would not be able to pay a judgment obtained against it, the presumption should be in favor of successor liability....‘” (quoting Vucitech, 842 F.2d at 945)). But allowing a separate suit seeking the same remedy would be redundant.
Finally, the plaintiffs make the curious assertion that dismissal would “eliminate[] the role of the [EEOC] in investigating employment discrimination claims against employers that repeatedly commit ‘similar or related’ discriminatory acts.” The argument seems to be that the district court‘s refusal to entertain this duplicative lawsuit will somehow discourage potential plaintiffs from filing charges with the EEOC and thus prevent the agency from adequately investigating long-standing discriminatory practices. We see no such disincentive. Plaintiffs may always file new claims with the EEOC. Dismissal here simply reflects the district court‘s conclusion that if the complaint in this case is construed as a challenge to Merrill Lynch‘s underlying discriminatory practices, there are not, in fact, any new claims being made—only the potential for greater damages in the earlier suit. This conclusion was not an abuse of discretion.9
AFFIRMED.