Gupta v. Morgan Stanley Smith Barney, LCC
Posted on Categories Court Decisions, Securities Arbitration

By James L. Komie

An employee is bound to arbitrate under the employer’s modified arbitration program requiring arbitration of discrimination claims where he failed to opt out after receiving an email regarding the modified policy, even though he claimed he never actually saw or read the email.

Gupta vs. Morgan Stanley Smith Barney, LCC, No. 18-3584 (7th Cir., 8/19/19).

Plaintiff was a Morgan Stanley financial advisor who resigned after being advised the company was opening an internal investigation into possible “selling away” by him of insurance products. Shortly after resigning, plaintiff filed suit in federal court alleging discrimination, retaliation and defamation. Morgan Stanley moved to compel arbitration under the company’s arbitration program, which was modified two years before plaintiff’s resignation to require arbitration of discrimination claims. Even though plaintiff never signed a document agreeing to the modified arbitration requirement, Morgan Stanley argued he was nevertheless bound by the modified policy, because he had failed to opt out after receiving notice via email.

Plaintiff initially denied that he had ever seen the email regarding the modified policy, but eventually admitted that the company had sent it to him at his Morgan Stanley email address – but he continued to deny that he actually saw it. On that record, the trial court granted Morgan Stanley’s motion to compel arbitration. The 7th Circuit affirms. Under the Federal Arbitration Act, state contract law – here, Illinois - governs whether a binding arbitration agreement was reached. The question under Illinois law is whether the parties’ conduct objectively shows offer and acceptance – not whether it was their subjective intent to enter into a contract. Plaintiff’s argument that he did not have actual knowledge of the proposed modification is irrelevant. An employee is in a different position than a member of the general public. “Employment includes the understanding that employees will act with diligence in following an employer’s instructions and responding to requests, whether transmitted by email or another reasonable mode of communication.”

Plaintiff’s failure to review the email sent to him by the company thus does not preclude him from being bound to the modified arbitration requirement by his failure to opt out. This is particularly so, since the documents plaintiff signed when he joined Morgan Stanley advised him that the terms of the arbitration program could be modified. He thus “had to keep abreast of the company’s dispute resolution policies upon announcement.” The fact that plaintiff’s original employment agreement had a merger clause specifying that the agreement could not be modified without a writing signed by both parties does not save the day for him. The requirement of a signed writing applies only to the terms set forth in the employment agreement. The arbitration agreement was a separate document and thus not subject to the merger clause. Plaintiff is therefore required to arbitrate his claims against Morgan Stanley.

(J. Komie: This is a very useful precedent for the industry. It is simple for employees to claim they did not actually see a notice of a modified policy. To require a firm to prove that the employee read the modified policy would impose an unreasonable burden on firms and give employees an easy out. The Court’s reasoning that part of the employment arrangement is an employee’s duty to read communications from the employer is the key to the Court’s holding.) (EIC: See SOLA 2018-30 for summary of an earlier decision in this case -- also written by Mr. Komie.)

(SOLA Ref. No. 2019-33-01)

NOTICE: The court decision synopsis published above represents an abbreviated description of the actual decision and is re-printed here for its educational value. The author's effort is to report concisely the substance of the decision or a selected portion of the decision; commentary or analysis is generally reserved for the italicized section at the bottom of the summary. Subscribers to SAC's Online Litigation Alert (SOLA), from which this synopsis is excerpted, have immediate access to the full decision, in addition to the synopsis. 

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