We have been monitoring and blogging here about the Seventh Circuit’s curious decision in McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 672 F.3d 482 (7th Cir. 2012) (“McReynolds I”). Sometimes when an appellate court issues a decision in the case, it brings a sense of finality and closure, at least to the parties. For the parties involved in the McReynolds cases, however, the journey appears to be getting - in the words of Lewis Carroll - “curiouser and curiouser.”

McReynolds I involves racial discrimination claims brought by a group of Merrill Lynch brokers on behalf of a purported class. The brokers allege that the firm’s “teaming” and account distribution policies steered the most lucrative accounts away from African-American brokers, thus reducing the compensation in comparison to white brokers. A similar group of brokers filed a second case after Bank of America acquired Merrill Lynch (“McReynolds II”). In the wake of the acquisition, the companies implemented a retention-incentive program.  Under that program, brokers would receive bonuses based upon previous productivity. In other words, the bonuses incorporated productivity as defined and shaped under the teaming and account distribution policies. In his second complaint, McReynolds alleged that both Merrill Lynch and Bank of America violated antidiscrimination laws by basing a retention bonus program on an allegedly discriminatory set of policies. Defendants moved to dismiss, arguing that the retention program was race-neutral and thus exempt from challenge under § 703(h) of Title VII, 42 U.S.C. § 2000d-2(h). The district court granted the motion, and Plaintiffs appealed. 

On appeal, the Seventh Circuit affirmed the dismissal in McReynolds v. Merrill Lunch & Co., Inc., No. 11-1957, 2012 WL 3932328, *14 (7th Cir. Sept. 11, 2012). In its decision, the Seventh Circuit agreed with defendants that the retention bonus program as described in the complaint “awarded bonuses based on a race-neutral assessment of a broker’s prior level of production...” Id. at *1. The Seventh Circuit made this determination after quoting extensively from the complaint itself.  Id. at *5. It further found that to the extent that the complaint alleged discriminatory intent, it did so in a “wholly conclusory fashion” that did not meet the pleading standards the Supreme Court established in Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Id. at *1. 

Given the Seventh Circuit’s conclusion that the program described in the complaint was a race-neutral assessment, it was a short step to the conclusion that the complaint failed to state a claim upon which relief could be granted. The Seventh Circuit noted that Title VII provides that “certain compensation systems are exempt from challenge as an unlawful employment practice absent intent to discriminate.” Id. at *4. The statute expressly states that a compensation system which “measures earnings by quantity or quality of production” cannot be an “unlawful employment practice” unless there is an “intention to discriminate.” Id. at *4(quoting § 703(h)). The Seventh Circuit found that the “import of § 703(h) is that disparate racial impact is insufficient under Title VII to invalidate … a system which measures earnings by quantity or quality of production.”  Id. (emphasis in original). It then opined  that the complaint in McReynolds II lacked sufficient “factual content to support an inference that the retention program itself was intentionally discriminatory,” even if the defendants knew that the “teaming” and account distribution policies Merrill Lynch had implemented were the subject of a discrimination lawsuit at the time the retention program was implemented. Id. at *11 (emphasis in original). 

In a strange bit of dicta, the Seventh Circuit appears to provide guidance to future plaintiffs about how to frame claims for discrimination in compensation. The Seventh Circuit stated that “[t]his might be a different case if a broker’s compensation depended on a subjective analysis of how effectively the broker was representing the firm.” Id. at *7. The Seventh Circuit also stated that if “black brokers were receiving systematically poorer reviews than their white counterparts who performed substantially similar work, and the reviews determined compensation, then Merrill Lynch could not shield the system simply by calling it a merit-or production-based system” and enjoy an exemption under § 703(h). Id. However, what makes this unnecessary advice so surreal is that the Seventh Circuit offers no explanation of how any challenge to such a hypothetical “subjective” analysis, if brought on behalf of a class of black brokers, could survive the Supreme Court’s holding in Wal-Mart v. Dukes, 131 S.Ct. 2541 (2011).