Will Merrill Lynch's proposed $40 million settlement be enough to quash the ongoing litigation surrounding deferred compensation claims that have haunted the firm since its acquisition by Bank of America? Some legal experts say no.

The terms of the proposed settlement includes 1,476 advisors with $500,000 or less in production, who voluntarily left the firm and participated in certain compensation award programs. All of the advisors have to have been employed with the firm as of Sept. 15, 2008, when the deal with Bank of America was struck. But, the settlement excludes a large number of the estimated 3,300 to 3,500 advisors who left Merrill and participated in the awards programs. It also leaves out those who signed with Merrill's Advisor Transition Program.

Because of those exemptions and the choice that members of the settlement class have to opt out of the deal and pursue claims on their own, lawyers watching the case predict the spate of litigation will continue. "I don't think this gets Merrill off the hook by any means," says Ronald Amato, a Chicago-based attorney. "It is potentially going to invite more arbitration cases against the firm."

The proposed settlement comes after a FINRA arbitration panel awarded $10.2 million to two former Merrill reps-Meri Ramazio and Tamara Smolchek-for their deferred compensation claim in April.

At the heart of that arbitration are the same issues in the class action: the Merrill Lynch deferred compensation plans including the Financial Advisor Capital Accumulation Award Plan; the Growth Award Plan and the WealthBuilder Account Plan, and how the compensation from those plans changed after Merrill Lynch agreed to be acquired by Bank of America.

All three plans included so-called "good reason" clauses. Plan participants would be eligible for payouts if they were terminated or left for "good reason" in the event that a change in control of the firm resulted in "meaningful and detrimental" changes to their responsibilities, base salary, office location or benefits, states the class action's amended complaint. The suit alleges that when the advisors left Merrill, they sought payouts under those plans, but Merrill refused to pay them the amounts owed them under the terms of the plans.

Under the settlement, the class of advisors is eligible for 60%, 50% or 40% reimbursement on their plan values based on at least six scenarios including if they filed a claim and when they left the firm. At the top, a class member gets 60% if he or she filed an arbitration claim on or before June 30, 2012 and left the firm voluntarily on or before June 30, 2010. A class member who did not put in for legal action or arbitration on or before June 30, 2012, and left the firm voluntarily after June 30, 2010 is eligible for 40%.

At press time, the settlement was still awaiting final court approval. Merrill has denied any wrongdoing or liability. "We continue to believe that these claims have no merit," firm spokesman Bill Halldin says. "Those who participated in the Advisor Transition Program were offered substantial retention payments to stay at Bank of America following the merger and signed agreements to participate in the program."

Charles McCallum III, a lawyer in Vestavia Hills, Ala., who represents the two advisors who brought the class action suit-Scott Chambers and John Burnette-called the settlement a "hard fought" outcome.

But Michael Taaffe, a Sarasota, Fla.-based lawyer at Shumaker, Loop & Kendrick, which represented the advisors who received the $10.2 million arbitration award, expressed his concerns that once attorneys' fees and other costs are taken out of the settlement, it could only amount to $30 million, resulting 25 cents to 30 cents on the dollar for advisors in the class. Of the 1,000 advisors Taaffe represents, about 572 of them fall into the class. Some of them could opt to pursue arbitration instead.

James Eccleston, a Chicago-based lawyer working with at least 25 former Merrill reps, has seen a couple of other advisor transition settlements that included a waiver for claims tied to the compensation awards programs. For advisors who have signed those kinds of documents, arbitrations may be harder to win. Still, when class action notices do go out, the "floodgates will open," says Eccleston, and he expects to hear the same question from many advisors: should I settle or not settle?

The answer to that question may be more complicated because of the settlement terms, says attorney Michael Arias of Coral Gables, Fla.-based practice V. Michael Arias P.A. The settlement makes it more attractive to get rid of an attorney, when an advisor already has one, to get a bigger payout, he says.

And all former Merrill Lynch advisors will have to consider another influence: their current employer, says Steven Caruso, a New York-based partner at Maddox Hargett & Caruso P.C., a law firm representing investors. Some firms may have a relationship with Merrill Lynch or not want their advisors suing another firm, which may make taking part in the settlement the only viable option.

But all of those factors do not make it impossible for advisors who go against Merrill Lynch to win, says Robert Kraus, a partner at Kraus & Zuchlewski LLP in New York. “Merrill’s position is not iron clad,” Kraus says. “They have lost a couple of times already.”

Yet, the settlement may come too late for advisors like Clarence Frisbee, now an advisor in Kalispell, Mt. for Stifel Nicolaus. He was one of the first advisors to bring a "good reason" claim against Merrill in an arbitration two years ago. An 11- year Merrill veteran, Frisbee opened the firm's Kalispell office.

Frisbee represented himself in the arbitration seeking $120,000. He lost. "The class action that provides 40% to 60% of what they should have had is inadequate," Frisbee declares. "A full reimbursement was what they should have done at the time, and was always the right and correct thing to do."