Court Says Morgan Stanley Employee Failed to Opt Out of Arbitration Clause

August 27, 2019

In a recent federal court case, a former Morgan Stanley employee alleged that he had been wrongfully terminated when Morgan Stanley learned that the Navy had called him for at least six months of active duty. In response to his lawsuit, Morgan Stanley asserted that the former employee had failed to opt-out of a mandatory arbitration program, and, as such, was bound to arbitrate his claims. At first, the employee claimed to have never received the email notice of the program or his right to opt out. That seemed like a winning position. Then Morgan Stanley snatched victory from the jaws of defeat.

Case In Point

Former Morgan Stanley Smith Barney, LLC employee Rajesh Gupta filed a Complaint in the United States District Court for the Northern District of Illinois ("NDIL") alleging that he had been unlawfully terminated and defamed. In response to Gupta's lawsuit, Morgan Stanley filed a Motion to Compel Arbitration. Rajesh Gupta, Plaintiff, v. Morgan Stanley Smith Barney, LLC and Morgan Stanley Smith Barney FA Notes Holdings LLC, Defendants (Opinion and Order, United States District Court for the Northern District of Illinois, 17-CV-8375 / May 9, 2018)
As set forth under the NDIL Opinion under "Background":

Gupta is a reserve member of the United States Navy Judge Advocate General Corps (JAG). Gupta contends that, in early 2017, the Navy called him for at least six months of JAG duty, but his supervisors at Morgan Stanley disliked this. He contends that they "effectively terminated" him and tried to recoup his unvested bonuses, which are held as promissory notes by the second defendant named in the complaint. (The Court will refer to the defendants collectively as Morgan Stanley.) Under the Uniformed Services Employment and Reemployment Rights Act (USERRA), 38 U.S.C. § 4311(a) an employer may not terminate an employee for serving in one of the uniformed services. 

Gupta has sued Morgan Stanley for defamation (in relation to comments made about his departure) and for violations of the USERRA. Morgan Stanley argues Gupta is bound to arbitrate these claims by an agreement that it contends was formed via email. On September 2, 2015, a person using the address sent an e-mail to the address, stating: 

By continuing your employment with Morgan Stanley, you accept . . . the terms of the Arbitration Agreement and the arbitration provisions of the CARE Guidebook, unless you elect to opt out of the CARE Arbitration Program by completing, signing and submitting an effective CARE Arbitration Program Opt-Out Form by October 2, 2015. 

D.E. 7, Defs.' Ex. 2 at 1. Gupta never completed an opt-out form, but he contends he never saw this e-mail and would have opted out of arbitration if he had. Morgan Stanley introduced by affidavit evidence that Gupta, using the same e-mail address, received, and responded to, numerous e-mails on the same day this e-mail was sent.

Silence as Assent

Gupta concedes that his failure to respond to the September 2nd email could be deemed as an "assent" if such "silence" was in response to a firm offer by Morgan Stanley whereby his employer had given him reason to understand that said assent may be manifested by silence or inaction. Gupta insists that Morgan Stanley failed to convey such a reason. Further, Gupta argued that even if he had assented by silence to a term of a contract, said assent could not be extended to cover the entire contract. In contrast, Morgan Stanley insisted that Illinois law permits an employer to deem the lack of an employee's opt-out from an agreement as constituting assent. NDIL found in pertinent part that:

[I]n the September 2 e-mail, Morgan Stanley described an arbitration program, stated in plain terms that recipients had a month to opt out, and provided a way to do so. D.E. 7, Defs.' Ex. 2 at 1. Under these circumstances, Morgan Stanley could reasonably construe an employee's silence as acceptance.

Page 3 of the NDIL Opinion

I Do Declare

Additionally, Gupta stated in a sworn declaration that he never received the September 2nd email, and, he argues that such a statement is dispositive enough to deny the pending Morgan Stanley's Motion to Compel. NDIL disagreed and stated in part that:

[G]upta's declaration does not warrant denying arbitration outright. But, under the FAA, Gupta may be entitled to a trial on whether the parties formed an agreement requiring arbitration. 9 U.S.C. § 4. The standard for whether a trial is required on the question of the existence of an arbitration agreement is similar to the standard on a motion for summary judgment; "the party must identify specific evidence in the record demonstrating a material factual dispute for trial." . . .

Page 4 of the NDIL Opinion

A Matter of Receipt

In considering Gupta's and Morgan Stanley's arguments concerning whether the declaration raised a triable issue, NDIL found that:

The Court concludes that a genuine dispute exists in this case. Gupta's declaration states "I have never seen [the September 2 e-mail] until I saw it attached to the declaration filed with the instant motion." D.E. 17, Pl.'s Ex. 1 ¶ 6. The most natural reading of this declaration is as a denial of receipt of the e-mail, not simply a denial that Gupta read the e-mail, which would not be enough to create a triable dispute. Morgan Stanley has offered two affidavits on this point. The first, submitted with its motion, is from Jessica Krentzman, an employee in Morgan Stanley's human resources department. Krentzman says that the relevant e-mail was received by Gupta via his Morgan Stanley e-mail account, using his assigned individual e-mail address. D.E. 7, Defs.' Ex. 1 ¶ 5 (Krentzman Decl.). A copy of the e-mail is attached to the affidavit; it is addressed to Id., Defs.' Ex. 2 at 1. The second declaration, from Patricia Kenneally, a Morgan Stanley paralegal, was filed shortly after Morgan Stanley's reply brief. D.E. 22 (Kenneally Decl.). It says essentially the same thing as the earlier declaration, with the addition of the following: "Morgan Stanley cannot currently determine whether Mr. Gupta opened the September 2, 2015 email referenced above, it can only determine that it was sent and received on that date." Id. ¶ 4. Neither affidavit, however, attaches the documentation from which the affiants determined that the e-mail was received by Gupta or describes how that determination was made, so there is no way to assess the reliability of the affiants' statements. The Court also notes that Kenneally's affidavit states that Gupta's address was, id. ¶ 3, which differs slightly from what appears on the face of the e-mail copies (the "pwm" is missing), though the Court cannot say that is significant. The Court concludes, for these reasons, that there is a genuine dispute regarding whether Gupta received the relevant e-mail and thus whether an agreement to arbitrate was formed.

Pages 5 - 6 of the NDIL Opinion

Morgan Stanley contends that since it was the party that had transmitted the subject email, it is entitled to the presumption that it was delivered; and, further, that Gupta's mere denial of his receipt does not, in and of itself, create an issue of fact. Although Morgan Stanley supported its argument with case citations, NDIL rejected the line of reasoning and underscored its finding that a genuine dispute existed as to the agreement to arbitrate. Accordingly, NDIL deferred ruling on Morgan Stanley's Motion to Compel Arbitration pending a trial regarding the nature of the arbitration agreement's existence. 

Stipulation . . . Never Mind

By "Second Revised Stipulation" dated August 15, 2018, Gupta stipulated "that the email arrived at his in-box."

NDIL Compels Arbitration

As explained in  Rajesh Gupta, Plaintiff, v. Morgan Stanley Smith Barney, LLC and Morgan Stanley Smith Barney FA Notes Holdings LLC, Defendants (Order Granting Motion to Compel Arbitration, NDIL, 17-CV-8375 / August 20, 2018), based upon  Gupta's Stipulation that the subject email had, in fact, arrived in his email in-box,  NDIL granted Morgan Stanley's Motion to Compel and direct that arbitration before JAMS proceed. In pertinent part, NDIL found that:

[I]n light of the stipulation, there does not remain a genuine dispute requiring a trial. The arrival of the September 2, 2015 e-mail at Gupta's Morgan Stanley work e-mail in-box, combined with his failure to opt out of the company's arbitration program, gives rise to an agreement to arbitrate for the reasons described in the Court's May 9 decision. 

Page 2 of the NDIL Order Granting Motion

7th Circuit Appeal: Mutual Assent -- it's "objective"

Gupta appealed the NDIL's order compelling arbitration to the United States Court of 
Appeals for the Seventh Circuit ("7Cir").  Rajesh Gupta, Plaintiff/Appellant, v. Morgan Stanley Smith Barney, LLC and Morgan Stanley Smith Barney FA Notes Holdings LLC, Defendants'Appellees (Opinion, 18-3584, 17-CV-8375 / August 19, 2019) 
In determining whether an agreement to arbitrate existed, 7Cir established its test as requiring whether a manifestation of mutual asset on the part of two or more persons occurred. In applying Illinois law, 7Cir pursued the so-called "objective theory" to determine whether a contract was formed -- and under that approach, the parties "subjective" intent is not determinative. In consider the applicable facts, 7Cir explained that:

The pre-2015 CARE program explicitly stated its terms were subject to change after an "announce[ment] in advance," so Gupta had to keep abreast of the company's dispute resolution policies upon announcement. Morgan Stanley emailed the arbitration policy changes to Gupta personally, granted him thirty days to review the new arbitration agreement, circulated an opt-out form, conspicuously displayed the deadline to opt out, posted a continual company intranet reminder of the new arbitration policy and opt-out date, and repeatedly informed that it would construe silence as acceptance of mandatory arbitration. All these actions bolstered the company's expectation of a response. 

Gupta worked for Morgan Stanley for four years. That employment included regular email communication, and justified Morgan Stanley's expectation of a reply, and its assumption that Gupta's silence indicated his acceptance of mandatory arbitration. This case does not present an unsolicited offer-by-email from a stranger when the expectation of the offeree's response is rare, if not baseless. 

Instead, 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. Here, Gupta submits no evidence, policy, or prior course of dealings from which we can infer that Gupta was free as an employee to ignore Morgan Stanley's communications without repercussion. Instead, Gupta argues Morgan Stanley failed to provide enough notice to trigger his response  . . .

Pages 13 - 14 of the 7Cir Opinion

Taking the parties' respective conduct into account, 7Cir found that each had manifested mutual assent to mandatory arbitration, and, further, that:

[M]organ Stanley reasonably construed Gupta's silence as acceptance of the arbitration agreement after he was given a clear offer, a reasonable opportunity to opt-out, and repeated instructions that silence and continued employment reflected acceptance. See Ragan, 824 N.E.2d at 1188-89 (holding silence reflected acceptance of arbitration agreement No. 18-3584 15 where plaintiff "had a reasonable opportunity to reject the offer but failed to do so"); see also Boomer v. AT & T Corp., 309 F.3d 404, 415 (7th Cir. 2002) (holding same under Illinois law). Similarly, the parties' employment relationship made it reasonable to expect Gupta would notify Morgan Stanley if he intended to decline its offer, as well as that silence would convey acceptance. Bauer, 743 F.3d at 228. When, as here, "inaction is indistinguishable from overt acceptance," Najd, 294 F.3d at 1109, we may infer the parties have agreed. For these reasons, we conclude the district court reasonably construed Gupta's silence and continued employment as assent to the arbitration agreement. 

Pages 14 - 15 of the 7Cir Opinion

Bill Singer's Comment

1. Silence aint' always golden -- regardless of what the Tremeloes sing.

2. Before you swear on a stack of bibles that you never, ever, no-way got no email in your inbox, make sure that you really never, ever, no-way, didn't get no email in your inbox because if you think that someone ain't gonna double-check that, think again.

3. You may be able to "fudge" some facts and issues if the in-box is a private one such as .gmail; however, if the in-box if a firm-issued address that is maintained by your employer, the firm will likely have the ability to go into its archives and find proof of the message hitting your address.

3. Let's start with the premise that Morgan Stanley sent an Employment Agreement to its associated persons in the firm's Private Wealth Management ("'pwm") division via their respective addresses. As such, if you are a PWM employee, you may be deemed to be on notice for all materials sent by your employer to your in-box. Which raises an interesting point. If the volume of content that flows from the employer to the employee is large enough as to be "burdensome," is it reasonable to infer that an employee reads all such incoming communications and should be on notice of same? If we add the additional volume of customer correspondence, doesn't that expand "burdensome" concerns?

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