The long-running legal dispute between Morgan Stanley and a group of several hundred former advisors who believe that they are owed millions of dollars in payments through past participation in a deferred compensation plan took another step forward this week with the filing of a lawsuit by three advisors against the senior leadership of the U.S. Department of Labor.
Among the officials named in the lawsuit are Labor Secretary Lori Chavez-DeRemer and Daniel Aronowitz, head of the Employee Benefits Security Administration.
Alan Rosca, an attorney representing the advisor-plaintiffs in the new lawsuit, told ThinkAdvisor that suing the DOL officials is an “extraordinary and unfortunate development,” but one that was made inevitable by what he described as an “unprecedented” advisory opinion issued in mid-September by the DOL.
That opinion backed Morgan Stanley’s overall position that the advisors involved in the case do not have a right to what the firm has argued are unvested incentive payments and not retirement benefits subject to anti-clawback rules under federal law — namely the Employee Retirement Income Security Act. That position contradicts at least some trial and appellate court rulings as well as a string of pro-advisor FINRA arbitration outcomes.
The lawsuit argues that the DOL’s advisory opinion — suggesting that the deferred incentive compensation program at question is a bonus program and thereby exempt from certain federal regulations — is a “textbook example of an arbitrary and capricious agency action that violates the Administrative Procedures Act.”
Morgan Stanley declined to comment on the lawsuit, which does not name the firm as a defendant. The DOL has not responded to a request for comment.
Rosca said the advisory opinion is not likely to change the outcome of previously litigated cases involving the advisors he represents, with an appellate court having recently rejected Morgan Stanley’s appeal in a key prior ruling that determined that the advisors’ claims need to be arbitrated on an individual basis. But he does worry about the potential chilling effect of the DOL’s opinion in dozens of ongoing arbitration cases involved hundreds of advisors.
“Beyond this individual issue, we’re also shocked by the government’s action here to weigh in with an advisory opinion in a private dispute between Morgan Stanley and these advisors,” Rosca said.
Rosca urged members of the public to review the exhibits attached to the lawsuit, which appear to show a degree of coordination between lobbying firms associated with Morgan Stanley and DOL officials who had the authority to prioritize and publish an advisory opinion on the ongoing issue.
“Pending disputes aren’t supposed to get advisory opinions,” Rosca said. “The government isn’t supposed to take a side on an issue like this. That’s the DOL’s policy and we’re trying to hold them to account. Regardless of the outcome, the scrutiny itself is important. This isn’t how the government is supposed to work.”
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