[ by Melanie Gretchen and Howard Haykin ] Merrill Lynch, currently battling more than 1,000 former brokers in deferred-pay claim cases, has selected a new law firm to represent the firm in its remaining cases.  Merrill reportedly made the switch after a disclosure by one of the previous lawyers likely damaged one of the brokerage's cases as it faces a growing number of claims.  The estimated potential damages related to pending cases exceed $1 billion, and there are hundreds more claims that could be filed. Morgan, Lewis & Bockius LLP will now represent Merrill Lynch, replacing Reed Smith LLC.  Reed Smith continues to represent Merrill in other matters.  The need for a new law firm was precipitated by a lawyer for Reed Smith LLP who apparently undermined Merrill's arguments in its biggest case so far. Merrill is trying to overturn a 4/3/12 FINRA arbitration ruling that awarded $10mn to two brokers in that case.  The change could mark a fresh start for Merrill, and perhaps ease the way towards resolution of this a mountain of deferred-pay claims. Changing the Game. Earlier this month, the brokerage firm announced that it had retained Morgan, Lewis to represent the firm as lead attorney in more than 150 deferred-compensation disputes that have filed for FINRA arbitration, according to people familiar with the situation.  This was confirmed by a Merrill spokesperson, who also reiterated the company's view that its takeover by Bank of America does not, by itself, provide grounds for these claims:

"We believe these claims are without merit and we're continuing to defend against them."

An Uphill Battle. Among the many challenges facing Merrill is one that might have been avoided.  Merrill asked a federal judge to void an earlier arbitration ruling in favor of former Merrill brokers Tamara Smolchek and Meri Ramazio whose $10.2 million victory included deferred pay, compensation for lost income, and punitive damages.  The bank claimed that one of the arbitrators on the 3-person panel was married to a Florida lawyer who had sued Merrill in the past. However, 6 weeks later, Reed Smith's Douglas Spaulding discovered that he had documents with information about the arbitrator's spouse that Merrill claimed it didn't know until hearings were in progress.  Possessing this information and not disclosing it to the panel prior to the case was extremely unfortunate. The Case So Far. Representing the firm from the start of these claims, Reed Smith advised Merrill to set up a "good reason" committee to review claims from brokers seeking immediate vesting for deferred pay.  According to this, brokers who left the firm would not be eligible for the deferred compensation, unless they provided a "good reason" for leaving. Former brokers claim that Merrill's September 2008 merger agreement with Bank of America, plus the impact it had on their compensation and business, was good reason.  However, according to the Smolchek ruling, the good reason committee was a "sham" that denied every claim but could not provide arbitrators with documentation for its decisions, after which Reed Smith advised Merrill to defend these denials during arbitration hearings. Going forward, Reed Smith will continue defending Merrill in cases which have already begun, including the Smolcheck case and a deferred-pay lawsuit filed in 2008 by 2 Alabama brokers, awaiting class-action certification from a Manhattan federal court judge. Pros & Cons of a Switch. A new legal team could shed fresh light on the situation at hand.  In this context, Morgan Lewis "does not have the issue of having given advice to Bank of America during the underlying committee's work and then having to defend that advice through the litigation of these cases," said Michael Taaffe, a Sarasota, Florida, lawyer who represents Ms. Smolchek and about 1,000 other ex-Merrill brokers. On the other hand, Reed Smith's dismissal could raise the odds of a global settlement, other lawyers said.

"Oftentimes when a case goes wrong, there's bad blood between lawyers and no progress is being made. With new counsel, there could be a new series of discussions potentially ending this matter." -- Thomas Lewis of Stark & Stark, a New Jersey lawyer specializing in broker employment cases.

Does Size Matter? If nothing else, Morgan Lewis has numbers on its side: the firm is one of the largest law firms in the United States, according to the American Lawyer, and represents a client list that is comprised of half of the 100 largest U.S. companies.

"They're highly regarded and well known for their defenses of the financial services industry, especially brokerages. -- Matthew Farley, a Drinker, Biddle & Reath LLP attorney who has represented brokerages for 40 years.

For further details, go to:  [Reuters, 6/22/12].