Court Opinion

ID: 808255
Source: CourtListenerOpinion
Date Created: 2012-09-11 15:03:24+00
Date Added: 2024-06-11T18:00:29.703303
License: Public Domain

In the

United States Court of Appeals
                For the Seventh Circuit

No. 11-1957

G EORGE M C R EYNOLDS, et al.,
                                                 Plaintiffs-Appellants,
                                   v.

M ERRILL L YNCH & C O ., INC., et al.,
                                                Defendants-Appellees.

              Appeal from the United States District Court
         for the Northern District of Illinois, Eastern Division.
              No. 08 C 6105—Robert W. Gettleman, Judge.

    A RGUED O CTOBER 24, 2011—D ECIDED S EPTEMBER 11, 2012

 Before SYKES and T INDER, Circuit Judges, and D EG UILIO ,
District Judge.
  S YKES, Circuit Judge. In 2005 a group of brokers at
Merrill Lynch sued the firm under 42 U.S.C. § 1981 and
Title VII raising various claims of racial discrimination
and seeking to litigate the claims as a class. Among


  The Honorable Jon E. DeGuilio, United States District Court
for the Northern District of Indiana, sitting by designation.
2                                             No. 11-1957

other things, they alleged that the firm’s “teaming” and
account-distribution policies had the effect of steering
black brokers away from the most lucrative assignments
and thus prevented them from earning compensation
comparable to white brokers. That litigation is ongoing.
See McReynolds v. Merrill Lynch, Pierce, Fenner & Smith,
Inc., 672 F.3d 482 (7th Cir. 2012) (reversing the denial
of class certification).
   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 § 1981 and Title VII, but
focused specifically on the retention program. The plain-
tiffs alleged that the bonuses incorporated previous
production levels that were the product of Merrill
Lynch’s underlying discriminatory policies. The defen-
dants moved to dismiss for failure to state a claim,
arguing that the retention program was a race-neutral
compensation system keyed to quality of production and
was therefore exempt from challenge under § 703(h) of
Title VII (codified at 42 U.S.C. § 2000e-2(h)).
  The district court granted the motion. The court first
held that the retention program qualified as a production-
based compensation system within the meaning of the
§ 703(h) exemption. As such, the program was pro-
tected from challenge unless it was adopted with “the
No. 11-1957                                              3

intention to discriminate because of race.” 42 U.S.C.
§ 2000e-2(h). The court then held that the complaint’s
allegations of discriminatory intent were conclusory,
akin to those rejected by the Supreme Court in Ashcroft
v. Iqbal, 556 U.S. 662 (2009). Finally, to the extent that
the allegations pertained to the underlying employ-
ment practices at Merrill Lynch—the “inputs” that pro-
duced the bonuses—the court held that they duplicated
the claims in the earlier, ongoing suit. These holdings
resolved the § 1981 claim as well, so the court dismissed
the entire case with prejudice.
   We affirm. As described in the complaint, the retention
program awarded bonuses based on a race-neutral assess-
ment of a broker’s prior level of production, which
suffices to protect the program under § 703(h) unless it
was adopted with intent to discriminate. It is not enough
to allege, as the complaint does, that the bonuses incorpo-
rated the past discriminatory effects of Merrill Lynch’s
underlying employment practices. See Am. Tobacco Co. v.
Patterson, 456 U.S. 63 (1982); Int’l Bhd. of Teamsters v.
United States, 431 U.S. 324 (1977). The disparate impact
of those employment practices is the subject of the
first lawsuit, and if proven, will be remedied there. With
respect to the retention program itself, the complaint
alleges discriminatory intent in a wholly conclusory
fashion, so dismissal was proper under the pleading
standards announced in Bell Atlantic Corp. v. Twombly,
550 U.S. 544, 570 (2007), and amplified in Iqbal.
4                                               No. 11-1957

                      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 broker-
age firm in the country, employing over 15,000 financial
advisors nationwide. 1 These brokers sell the company’s
financial products and services, and they are paid ac-
cording to a firm-wide grid formula that applies dif-
ferent 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 compensa-
tion 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 42 U.S.C. § 1981, but it was
amended in November 2006 to add 16 additional named
plaintiffs and a discrimination claim under Title VII,

1
  The parties refer to Merrill Lynch’s financial advisors as
“FAs,” but we find that acronym awkward, so we’ll call
them “brokers” instead.
No. 11-1957                                              5

42 U.S.C. § 2000e-2. The plaintiffs challenged a wide
array of Merrill Lynch’s employment policies and prac-
tices, alleging racial discrimination in hiring, compensa-
tion, account distribution, and “teaming” (the grouping
of brokers that handle particular accounts).
   A major theme of the McReynolds I litigation is the
allegation that black brokers were systematically steered
away from the most lucrative assignments and thus
prevented from earning compensation comparable to
their white counterparts. The case was assigned to
Judge Robert Gettleman, and in 2010 he denied class
certification. A panel of this court recently reversed that
determination, see McReynolds, 672 F.3d at 492, and the
litigation is ongoing.
  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
retention-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
6                                                   No. 11-1957

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 42 U.S.C. § 1981
and one under Title VII—but the substantive focus is
far more limited in that this suit challenges only the
retention program.3 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 discrimina-
tion because it had the purpose and effect of depressing
the size of bonuses earned by black brokers, or elim-
inating 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 Rule 12(b)(6) of
the Federal Rules of Civil Procedure. Judge Kennelly
denied the motion, holding that the plaintiffs had ade-
quately alleged that the retention plan was adopted
with intent to discriminate. Merrill Lynch then filed an
unopposed motion to transfer the case to Judge Gettleman,

2
  We will refer to the defendants collectively as “Merrill Lynch,”
unless the context requires otherwise.
3
  The version of the complaint at issue here is the plaintiffs’
“First Amended Complaint,” but we refer to it as simply
“the complaint.”
No. 11-1957                                            7

the presiding judge in McReynolds I. After the case was
transferred, the Supreme Court decided Iqbal, which
made it clear that the new pleading standards the Court
had announced two years earlier in Twombly applied
outside the antitrust context of Twombly itself. Based on
Iqbal, Merrill Lynch renewed its motion to dismiss.
  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
Rule 12(b)(6) motion “tests the sufficiency of the com-
plaint, not the merits of the case.” The judge then held
that the retention program was a race-neutral production-
based compensation system protected by § 703(h)
and could be challenged only if it was adopted with
intent to discriminate, not mere awareness that the pro-
gram would disfavor black brokers based on the residual
effects of past discrimination. The judge held that the
complaint’s allegations of intent to discriminate were
nothing more than a “[t]hreadbare recital[] of the
elements of the cause of action, supported by mere
conclusory statements”—the kind of pleading the
Supreme Court rejected in Iqbal. 556 U.S. at 678. To the
extent that the production-credit “inputs” were them-
selves the product of discriminatory policies, the judge
held that the new suit simply duplicated the litigation
already underway in McReynolds I.
   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.
8                                                   No. 11-1957

Merrill Lynch & Co., 716 F. Supp. 2d 253 (S.D.N.Y. 2010).
The judge in Goodman had dismissed the plaintiffs’ com-
plaint, holding that Merrill Lynch’s retention program
was a production-based compensation system pro-
tected under § 703(h) and that the complaint failed to
adequately allege intentional discrimination. Id. at 261-62.

                        II. Discussion
   We review a Rule 12(b)(6) dismissal de novo, construing
the complaint in the light most favorable to the plain-
tiffs, accepting as true all well-pleaded facts, and drawing
reasonable inferences in the plaintiffs’ favor. Tamayo v.
Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008). The plain-
tiffs’ primary argument is that the district court erred
in concluding at the pleading stage that the retention-
bonus program was a valid production-based compensa-
tion system shielded from challenge by § 703(h). They
also maintain that dismissal was inconsistent with the
Lilly Ledbetter Fair Pay Act of 2009, Pub. L. No. 111-2, § 3,
123 Stat. 5 (codified at 42 U.S.C. § 2000e-5(e)(3)). Finally,
they argue that the district court erroneously concluded
that to the extent the allegations in the present com-
plaint focus on Merrill Lynch’s underlying discriminatory
practices, they merely duplicate the claims in the
McReynolds I litigation.4

4
  At the end of their opening brief, the plaintiffs also lodge a
procedural objection to the district court’s decision to address
the dismissal motion ahead of class certification. Rule 23(c) of
                                                   (continued...)
No. 11-1957                                                      9

4
   (...continued)
the Federal Rules of Civil Procedure provides that the
district court must address class certification “early” in the
litigation and generally before addressing a motion directed at
the merits. See Bertrand v. Maram, 495 F.3d 452, 455 (7th Cir.
2007). But there is no fixed requirement that the court must
always defer a decision on a Rule 12(b)(6) motion until after
the court addresses class certification. As the district court
noted, a motion to dismiss for failure to state a claim tests the
sufficiency of the complaint, and although a Rule 12(b)(6)
dismissal operates as a final decision on the merits if leave
to replead is not granted, it is sometimes appropriate to decide
a Rule 12(b)(6) motion ahead of class certification. See, e.g.,
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 550 (2007) (affirming
dismissal of antitrust claims prior to ruling on class certifica-
tion); Greenberger v. GEICO Gen. Ins. Co., 631 F.3d 392, 394-96
(7th Cir. 2011) (same); Shlahtichman v. 1-800 Contacts, Inc., 615
F.3d 794, 797 (7th Cir. 2010) (same).
  It was especially appropriate to do so here. As we will explain,
this suit essentially piggybacks on McReynolds I, in which
the same plaintiffs are challenging the various employment
practices at Merrill Lynch that contribute to the determination
of a broker’s production credits. Those production credits, in
turn, form the basis for the retention bonuses at issue here.
Whether the retention-bonus program is insulated from chal-
lenge under § 703(h) is a threshold question that can be resolved
on the pleadings. To the extent that the plaintiffs are really
challenging the disparate impact of the underlying policies
that provide the “inputs” for the bonuses, their claim here is
subsumed within McReynolds I, and if successful, will be
remedied there.
10                                              No. 11-1957

A. Section 703(h)
  The plaintiffs assert claims of racial discrimination
under § 1981 and Title VII based on what the complaint
describes as a long history of discriminatory employ-
ment policies and practices at Merrill Lynch that have
the effect of denying black brokers the same business
opportunities as white brokers. The complaint alleges
that Merrill Lynch uses “production credits” to deter-
mine compensation, that these production credits reflect
the effects of the underlying discrimination, and thus
that the retention program, which paid bonuses based
on production credits, was adopted with intent to dis-
criminate against black brokers.
  Section 703(h) of Title VII provides that certain com-
pensation systems are exempt from challenge as an unlaw-
ful employment practice absent intent to discriminate:
     Notwithstanding any other provision of this sub-
     chapter, 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 produc-
     tion . . . , provided that such differences are not the
     result of an intention to discriminate because of race,
     color, religion, sex, or national origin . . . .
42 U.S.C. § 2000e-2(h). The import of § 703(h) is that
disparate racial impact is insufficient under Title VII to
invalidate a “bona fide seniority or merit system,” or a
“system which measures earnings by quantity or quality
No. 11-1957                                                  11

of production.” Plaintiffs challenging an employment
practice or compensation system of this type must
establish intent to discriminate. Patterson, 456 U.S. at 65.
   Section 703(h) thus creates an exception to the general
rule that “a prima facie Title VII violation may be estab-
lished 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. An employment practice that passes muster under
Title VII does not violate § 1981, Waters v. Wis. Steel Works
of Int’l Harvester Co., 502 F.2d 1309, 1320 n.4 (7th Cir. 1974),
so if the Merrill Lynch retention program is protected
under § 703(h), then dismissal of both claims was proper.

  1. Production-Based Compensation System
   Our first question is whether the retention program
qualifies as “a system which measures earnings by quan-
tity or quality of production” within the meaning of
§ 703(h). The Supreme Court has more often inter-
preted and applied § 703(h) as it pertains to challenges
to seniority and merit systems, but what the Court has
said in those contexts guides the analysis here. The
most relevant cases for our purposes are Teamsters and
Patterson.
  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 inten-
tional discrimination. 431 U.S. at 353-54. The Court ex-
plained that employees who are the victims of intentional
12                                              No. 11-1957

discrimination after Title VII was enacted are entitled to
retroactive seniority as a remedy for the violation, id. at
347-48 (citing Franks v. Bowman Transp. Co., 424 U.S. 747,
778-79 (1976)), but § 703(h) insulates the seniority
system itself from challenge notwithstanding that the
system locks in the effects of past discrimination, id.
  The Court acknowledged that § 703(h) immunized only
“bona fide” seniority systems in which differences in
treatment were not “the result of an intention to discrimi-
nate because of race,” but it declined to hold that any
system that perpetuates the effects of past discrimina-
tion was not “bona fide” as a result. Id. at 353. Rather, the
Court explained that the seniority system in Teamsters
applied neutrally to all races and “did not have its
genesis in racial discrimination,” and was therefore a
bona fide seniority system insulated from challenge
under § 703(h). Id. at 355-56. Patterson reaffirmed the
holding of Teamsters and clarified that § 703(h) applies
equally to seniority systems adopted both before and
after the passage of Title VII. 456 U.S. at 77.
  Merrill Lynch argues, and we agree, that Teamsters
and Patterson control the outcome here. The complaint
alleges that retention bonuses are determined by pro-
duction 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 invest-
ment products.” The complaint further alleges that
“[a]ssets under management reflect the total amount of
clients’ assets that a broker is responsible for managing
No. 11-1957                                              13

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 other-
wise.
  The complaint likewise alleges that “compensation is
largely determined by a ‘grid’ formula that applies dif-
ferent 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 man-
ner—only that the “inputs” determining a broker’s pro-
duction levels were themselves the products of past
discrimination.
  Taking these allegations as true, we have little trouble
concluding that the retention-bonus program com-
pensates 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 under-
lying discrimination, so too may the plaintiffs here
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
14                                                No. 11-1957

shielded from challenge as a production-based compensa-
tion system under § 703(h).
   The plaintiffs have several arguments as to why Team-
sters should not control, but none are ultimately persua-
sive. First, they rely on a line of cases holding that
a compensation scheme is not protected under § 703(h)
if it does not actually measure what it purports to mea-
sure. See, e.g., Griggs v. Duke Power Co., 401 U.S. 424, 434-36
(1971) (holding that § 703(h) does not protect use
of testing requirements with a disparate impact on
racial minorities where the tests were not shown to be
related to job performance); Ass’n Against Discrimination
in Emp’t v. City of Bridgeport, 647 F.2d 256, 272-74 (2d
Cir. 1981) (racially discriminatory test that did not
actually measure fitness for the job could not be charac-
terized as a “bona fide merit system” under § 703(h)).
The plaintiffs contend that just as the tests in Griggs
and Association Against Discrimination were not really
measuring merit, neither is the retention-bonus program
really measuring the quality of production.
   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 dis-
parities. See Griggs, 401 U.S. at 431 (“[N]either the
high school completion requirement nor the general
intelligence test is shown to bear a demonstrable rela-
tionship to successful performance of the jobs for which
it was used.”); Ass’n Against Discrimination, 647 F.2d at
No. 11-1957                                                15

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 acknowledges that a broker’s produc-
tion 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 pro-
duction 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 produc-
tion” as required for the § 703(h) exemption.
  This might be a different case if a broker’s compensa-
tion 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
compensation, then Merrill Lynch could not shield the
system simply by calling it a merit- or production-based
system—or at least, the § 703(h) issue could not be
resolved at the pleading stage. In that situation, the
challenger might have an arguable factual basis for a
claim under Griggs that the evaluations were not
actually measuring production. But here, the complaint
alleges that the retention-bonus program applies equally
to all brokers and uses an objective, mechanical
measure of productivity, avoiding any subjective evalua-
tions.
16                                              No. 11-1957

  The plaintiffs also argue that § 703(h) should
apply only to “piecework” production systems, like the
manufacture of physical products on an assembly line, and
not the sort of financial-asset production-credit system
at issue here. This reading of the statute has no basis in
the text and is not compelled by relevant precedent.
Section 703(h) states that “it shall not be an unlawful
employment practice for an employer to apply different
standards of compensation . . . pursuant to . . . a system
which measures earnings by quantity or quality of pro-
duction.” This language is not limited to piecework
systems; indeed, the specific use of the phrase “quantity
or quality” plainly expands the reach of § 703(h) beyond
quantity-based piecework compensation systems. The
plaintiffs point out that where production-based
systems are discussed in the legislative history of § 703(h),
only piecework systems are mentioned as an example.
Consulting legislative history may be an acceptable
means of decoding an ambiguous statute, see DIRECTV,
Inc. v. Barczewski, 604 F.3d 1004, 1008 (7th Cir. 2010), but
the text of § 703(h) is not ambiguous in any relevant
respect. It broadly exempts compensation systems
based on quantity or quality of production.
  Next, the plaintiffs contend that even if the retention
program qualifies as a production-based system, it is not
“bona fide” as that term is used in § 703(h). See 42 U.S.C.
§ 2000e-2(h) (“[I]t 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 . . . .” (emphasis added)).
No. 11-1957                                                     17

The statute itself does not explain what is meant by
“bona fide,” but in Teamsters the Supreme Court
elaborated on the term in the context of a seniority system:
    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 Span-
    ish-surnamed Americans; to the contrary, the over-
    whelming majority are white. The placing of line
    drivers in a separate bargaining unit from other em-
    ployees 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. 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 main-
tained 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

5
   A standard definition of “bona fide” is: “1. Made in good faith;
without fraud or deceit. 2. Sincere; genuine.” B LACK ’S L AW
D ICTIONARY 199 (9th ed. 2004).
18                                                   No. 11-1957

and merit systems, not to production-based compensa-
tion 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 com-
pensation “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.

6
   We have not been able to find any case that has squarely
addressed this interpretive question. The plaintiffs cite Beasley
v. Kroehler Manufacturing Co., 406 F. Supp. 926, 928-29 (N.D. Tex.
1976), for the proposition that “a production system must be
shown to measure the actual quantity or quality of the em-
ployee’s production—without employer manipulation—before
it qualifies as bona fide.” But Beasley says nothing of the
sort—indeed, the court went so far as to quote § 703(h) as
excluding the bona fide language as applied to production-based
compensation systems. See id. (“Title VII specifically provides
that ‘it shall not be an unlawful employment practice for an
employer to apply different standards of compensation . . .
pursuant to a . . . quantity or quality of production[.]’ 42 U.S.C.
§ 2000e-2(h).” (alterations in original)).
No. 11-1957                                              19

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 were truly
a dispute as to whether the retention program mea-
sured production—as would be the case in the “subjec-
tive analysis” hypothetical discussed above—then
perhaps it could be said that the retention program
was not “bona fide.” But as we have explained, the reten-
tion program qualifies as a production-based system,
so any extra “bona fide” analysis is beside the point.
  Finally, when the Supreme Court explained why the
seniority system in Teamsters was “entirely bona fide,”
431 U.S. at 355, 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 ob-
served that the seniority system qualified as “bona fide”
in part because it “did not have its genesis in racial dis-
crimination” and was “negotiated and . . . maintained
free from any illegal purpose.” Id. at 356. This anticipates
the next step in the § 703(h) analysis, which concerns
the issue of discriminatory intent.

  2. Intent to Discriminate
  Because it qualifies as a production-based compensa-
tion system, the retention program is exempt from chal-
lenge under § 703(h) provided it was “not the result of an
intention to discriminate because of race.” As an initial
matter, the plaintiffs argue that even if the retention
program itself was not adopted with a discriminatory
purpose, it was based on production levels that re-
20                                             No. 11-1957

flected the effects of past intentional discrimination, so
the actual differences in bonus pay resulted from an
intention to discriminate, if only indirectly. This argu-
ment relies on a misreading of the statutory language.
Appropriately excerpted, § 703(h) provides that “it
shall not be an unlawful employment practice . . . to
apply different standards of compensation . . . provided
that such differences are not the result of an intention
to discriminate.” The phrase “such differences” in the
proviso refers back to “standards of compensation,”
not the actual amount of compensation.
  Teamsters confirms 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 § 703(h). The plaintiffs suggest that
production-based systems should be treated differently
from seniority systems, but nothing in the text of
the statute or the Court’s analysis in Teamsters supports
limiting that case to its facts. The proviso applies across
the board. By its terms, § 703(h) authorizes employers to
apply different standards of compensation pursuant to
a seniority, merit, or production-based system provided
that the system was not adopted with a discriminatory
purpose. Although Teamsters addressed a seniority
system, the Court’s interpretation of § 703(h) applies with
No. 11-1957                                                    21

equal force here.7 A production-based compensation
system, like a seniority or merit system, forfeits the pro-
tection of § 703(h) only if the system itself was
adopted with the intent to discriminate.
   The complaint alleges this intent, but it does so only
generally, raising the question whether the allegations
pass muster under the heightened pleading standards
set forth in Twombly and Iqbal. To survive a motion to
dismiss under Rule 12(b)(6), a complaint must “state a
claim to relief that is plausible on its face.” Twombly,
550 U.S. at 570. “A claim has facial plausibility when
the plaintiff pleads factual content that allows the court
to draw the reasonable inference that the defendant is
liable for the misconduct alleged.” Iqbal, 556 U.S. at 678.
“Where a complaint pleads facts that are ‘merely con-
sistent with’ a defendant’s liability, it ‘stops short of the
line between possibility and plausibility of entitlement

7
  The EEOC, as an amicus for the plaintiffs, suggests an odd
distinction between Teamsters and the present case. The agency
argues that Teamsters involved “discrete acts of discrimination
that had immediate and tangible adverse effects on the plaintiffs
but were not challenged at the time,” but in this case, “the
disparity in compensation under the [retention program] was
the first tangible consequence of the discriminatory allocation
of accounts and other benefits.” Setting aside whether this
distinction is valid in theory, the argument cannot be squared
with the complaint, which asserts that Merrill Lynch’s underly-
ing discriminatory policies had a disparate impact on brokers’
wages well before the acquisition by Bank of America, and
that those policies are the subject of litigation in McReynolds I.
22                                               No. 11-1957

to relief.’ ” Id. (quoting Twombly, 550 U.S. at 557) (internal
quotation marks omitted).
  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 Rule 12(b)(6) motion. Id. Accord-
ingly, “[t]hreadbare recitals of the elements of the cause
of action, supported by mere conclusory statements,
do not suffice.” Id. Second, the plausibility standard
calls for a “context-specific” inquiry that requires the
court “to draw on its judicial experience and common
sense.” Id. at 679. This is “not akin to a ‘probability re-
quirement,’ ” but the plaintiff must allege “more than
a sheer possibility that a defendant has acted unlawfully.”
Id. at 678.
   Applying these principles here, the allegations that
Merrill Lynch knew that the production-credit system
had a disparate impact on black brokers are legally insuf-
ficient. 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; Pers. Adm’r
of Mass. v. Feeney, 442 U.S. 256, 279 (1979).
  The plaintiffs suggest that reliance on Iqbal and Feeney
is misplaced because those cases concerned constitu-
tional claims, not statutory claims. The distinction
makes no difference. It is well-established that an
intentional-discrimination claim under Title VII is evalu-
No. 11-1957                                                  23

ated the same way as an intentional-discrimination
claim arising under the Equal Protection Clause:
    Neither [Washington v.] Davis nor [Personnel Administra-
    tor 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 be-
    tween 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 discrim-
inatory intent [under Title VII], a plaintiff must demon-
strate ‘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) (internal quotation marks omit-
ted)). By operation of § 703(h), both the Title VII and § 1981
claims require a showing of intentional discrimination,
so Iqbal and Feeney provide the proper decisional frame-
work.
  The complaint alleges in some detail that black
brokers at Merrill Lynch have been the victims of dis-
criminatory employment policies and practices and
that they receive fewer production credits as a result.
But much less is said about the retention program it-
self. The complaint alleges that the retention awards
24                                            No. 11-1957

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 under-
lying 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 intention-
     ally 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. Defen-
     dants 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 general-
ity—that Merrill Lynch intentionally designed the re-
tention program based on production levels that incorpo-
No. 11-1957                                               25

rated the effects of past discrimination, and that the
firm did so with the intent to discriminate against black
brokers. Stated as such, the assertion is merely a con-
clusion, unsupported by the necessary factual allegations
to support a reasonable inference of discriminatory
intent. Iqbal, 556 U.S. at 679 (“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 com-
plaint 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 (internal quota-
tion marks omitted).
  The plaintiffs argue that the complaint adequately
alleges intentional discrimination but the district court
erroneously rejected the allegations 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
26                                              No. 11-1957

first place. The district court recognized as much,
holding that the plaintiffs offered nothing more than
conclusory allegations of discriminatory intent.
  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 intention-
ally discriminatory. The plaintiffs have alleged that
Merrill Lynch’s past employment practices had discrim-
inatory 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 em-
ployment 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 com-
bined 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 specific-
No. 11-1957                                                27

ity 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 § 703(h). This argument com-
pletely misunderstands the Fair Pay Act.
  The Act was passed following the Supreme Court’s
decision in Ledbetter v. Goodyear Tire & Rubber Co., Inc., 550
U.S. 618 (2009), 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. Lilly Ledbetter filed suit within 180 days
of receiving a paycheck reflecting an allegedly discrim-
inatory 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.
28                                              No. 11-1957

  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
     compensation in violation of this title, when a dis-
     criminatory 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 applica-
     tion of a discriminatory compensation decision or
     other practice, including each time wages, benefits,
     or other compensation is paid, resulting in whole or
     in part from such a decision or other practice.
42 U.S.C. § 2000e-5(e)(3)(A). The statute thus reverses the
decision in Ledbetter and clarifies that an unlawful em-
ployment practice occurs for purposes of the statute
of limitations “each time . . . compensation is paid, re-
sulting in whole or in part from [an unlawful employ-
ment] 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 pay-
check 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 (2009), the Supreme Court
specifically held that § 703(h), as interpreted in Teamsters,
survived the Fair Pay Act. Hulteen held that a bona fide
seniority system was protected by § 703(h) even though
it did not retroactively equalize pregnancy leaves taken
before the passage of the Pregnancy Discrimination
Act (“PDA”). Id. at 704-06. The Court thus applied Team-
No. 11-1957                                              29

sters in the context of pregnancy discrimination. In
holding that the Fair Pay Act did not affect its decision,
the Court noted that “AT & T’s pre-PDA decision not
to award Hulteen service credit for pregnancy leave
was not discriminatory, with the consequence that
Hulteen has not been ‘affected by application of a dis-
criminatory compensation decision or other practice.’ ” Id.
at 716 (quoting 42 U.S.C. § 2000e-5(e)(3)(A)). In other
words, by virtue of § 703(h), the employer had not, in
fact, committed an unlawful employment practice, so
there was no way that future payments could have
“continued” this nonexistent discrimination.
   The same is true here. The plaintiffs have challenged
only the retention program, but the program is immune
from challenge as a race-neutral production-based com-
pensation system under § 703(h). As such, there is no
Title VII violation in the first place, so it makes no sense
to say that the payment of bonus awards extended the
statute of limitations. What the Fair Pay Act would do,
if applicable here, is allow the plaintiffs another chance
to challenge Merrill Lynch’s underlying discriminatory
practices if the statute of limitations had run on those
claims. But the plaintiffs are already challenging those
practices in McReynolds I, so the Fair Pay Act simply has
no role to play in this litigation.

C. Construing the Complaint as a Challenge to Underly-
   ing Discriminatory Practices
  Finally, the plaintiffs argue that even if the retention
program itself is protected, the complaint should be
30                                              No. 11-1957

construed as a challenge to the underlying discrim-
inatory practices 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 cir-
cumstances, 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 signifi-
cantly 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.
  Application of that standard here is quite straightfor-
ward. All of the named plaintiffs in this case are also
plaintiffs in McReynolds I, and the McReynolds I litigation
challenges the underlying employment practices that
are alleged to have caused differences in brokers’ produc-
tion credits, and by extension in the retention awards.

8
  Merrill Lynch maintains that the plaintiffs waived this
argument by failing to make it in the district court. To the
contrary, the plaintiffs specifically raised this argument in
their brief in response to the motion to dismiss.
No. 11-1957                                                    31

The plaintiffs will be able to obtain complete relief in
McReynolds I because any loss relating to reduced
retention awards based on lower production credits can
simply be treated as part of the damages in that case
should the plaintiffs prevail on the merits.
   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 presump-
tion 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’
32                                                   No. 11-1957

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 con-
clusion 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
                                                      A FFIRMED.

9
  In their reply brief, the plaintiffs also argue that the case
should have been stayed rather than dismissed. See Gleash v.
Yuswak, 308 F.3d 758, 760 (7th Cir. 2002) (“Even when prudence
calls for putting a redundant suit on hold, it must be stayed
rather than dismissed unless there is no possibility of prejudice
to the plaintiff.”). Arguments raised for the first time in a reply
brief are waived. See Mendez v. Perla Dental, 646 F.3d 420, 423-24
(7th Cir. 2011). Moreover, we doubt that the decision to dismiss
rather than stay this case could have possibly prejudiced the
plaintiffs. As we have noted, to the extent that they prevail on
their claims in McReynolds I, the plaintiffs will have a complete
remedy.

                              9-11-12