SCHMELL v. MORGAN STANLEY & CO. INC.

Filing 13

OPINION filed. Signed by Judge Anne E. Thompson on 3/1/2018. (mps)

f.

,.

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

RECEIVED

MAR 0:1 2018
CRAIG SCHMELL,

AT 8:30
WILLIAM T. WALSH
CLERK

Plaintiff,

v.
Civ. No. 17-13080
MORGAN STANLEY & CO., INC.,

OPINION
Defendant.

THOMPSON, U.S.D.J.

INTRODUCTION
This matter comes before the Court upon the Motion to Compel Arbitration and Stay
Proceedings Pending Arbitration by Defendant Morgan Stanley Smith Barney LLC
("Defendant"). (ECF No. 7.) Plaintiff Craig Schmell ("Plaintiff') opposes. (ECF No. 8.) The·
Court has decided this matter based on the written submissions of the parties without oral
argument pursuant to Local Civil Rule 78.l(b). For the following reasons, Defendant's Motion
is denied.

BACKGROUND
This case arises out of Defendant's termination of Plaintiffs employment. Plaintiff was
employed as a Senior Vice President at Defendant's office in Red Bank, New Jersey. (Cotnpl.

mf 6-7, Ex. A, ECF No. 1-1.)

While employed, Plaintiff was writing a self-help book that

referenced his history with drug and alcohol abuse and ultimate recovery. (Id. ~~ 8, 11.)

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Plaintiff presented a draft of the book to his employers in June 2017, who allegedly responded
with threats to his employment based on this past drug and alcohol abuse and requested edits be
made prior to publication, in exchange for Plaintiff's continued employment. (Id. 1112-16.) ,
Despite making the changes, Plaintiff claims he received subsequent threats to his employment.
(Id.

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18-22.) Plaintiff was terminated on October 31, 2017, which he alleges to be

discrimination based on his status as a recovered addict. (Id.

11 23-24, 31.)

On November 13, 2017, Plaintiff filed the instant lawsuit in the New Jersey Superior
Court, Law Division, Monmouth County, pleading one Count: violations of the New Jersey Law
Against Discrimination ("LAD"). (See generally Compl.) Defendant timely removed (ECF No.
1) and then moved to compel arbitration and stay proceedings on January 4, 2018 (ECF No. 7).
Plaintiff opposed (ECF No. 8), Defendant replied (ECF No. 9), and Plaintiff filed an additional
sur-reply (ECF No. 12). 1 This Motion is presently before the Court.

LEGAL STANDARD
Where there is a contract between the parties that provides for arbitration, there is "an
emphatic federal policy in favor of arbitral dispute resolution." KPMG LLC v. Cocchi, 565 U.S.
18, 21 (2011) (per curiam) (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,
473 U.S. 614, 631 (1985) (internal quotation marks omitted); see Federal Arbitration Act, 9
U.S.C. § 2. "Any doubt concerning the scope of arbitrability should be resolved in favor of
arbitration." Mitsubishi Motors Corp., 473 U.S. at 626 (quoting Moses H Cone Mem 'l Hosp. v.
Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983)); see also Gray Holdco, Inc. v. Cassady, 654
F .3d 444, 451 (3d Cir. 2011 ). When a party refuses to submit to arbitration pursuant to a valid

1 Pursuant

to the Local Rules, a moving party is prohibited from filing a sur-reply without leave
of the Court. L. Civ. R. 7.l(d)(6). However, in its discretion, the Court will consider the
arguments presented in Defendant's sur-reply, as cited below.

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contract provision, the party seeking to arbitrate may petition the court for an order compelling
arbitration. 9 U.S.C. § 4.
For this presumption in favor of arbitration to apply, there must be a valid contract
between the parties. The Court must find that "(l) there is an agreement to arbitrate and (2) the
dispute at issue falls within the scope of that agreement." Century Indem. Co. v. Certain

Underwriters at Lloyd's, London, 584 F.3d 513, 523 (3d Cir. 2009). "[S]tate law contract
principles apply in determining whether the parties to an action have agreed to arbitrate." Ricci

v. Sears Holding Corp., 2015 WL 333312, at *2 (D.N.J. Jan. 23, 2015) (citing First Options of
Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). When deciding a motion to compel
arbitration, courts employ the standard for summary judgment pursuant to Federal Rule of Civil
Procedure 56(c). Uddin v. Sears, Roebuck & Co., 2014 WL 130292, at *4 (D.N.J. Mar. 31,
2014). Therefore, the Court must "first determine whether there is a genuine issue of material
fact as to whether a valid arbitration agreement exists." Jayasundera v. Macy's Logistics &

Ops., Dep 't ofHuman Res., 2015 WL 4623508, at *2 (D.N.J. Aug. 3, 2015).
DISCUSSION
Defendant moves the Court to compel arbitration because Plaintifr s lawsuit falls within

its mandatory CARE Program ("Convenient Access to Resolutions for Employees") and
corresponding Arbitration Agreement. Plaintiff claims that he cannot be bound to arbitrate
pursuant to "an Arbitration Agreement that Plaintiff never saw, never reviewed, and never
agreed to solely based on the fact that notice of the Agreement was emailed to Plaintifrs work
email address once." (Pl. 's Opp'n at 1, ECF No. 8.) In response, Defendant argues that Plaintiff
received notice of the agreement, but failed to opt-out. (Def.'s Reply 3-4, 10, ECF No. 11.)

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I.

New Jersey Law on Arbitration Provisions
In this action involving a New Jersey citizen employed in one of Defendant's New Jersey

offices, New Jersey contract law governs whether Plaintiff is bound to arbitrate. Applying
general principles of contract law, arbitration agreements "must be the product of mutual assent,"
such that "parties have an understanding of the terms to which they have agreed." Id. at 312-13
(internal quotations and citations omitted). They must be "entered into knowingly and
voluntarily'' after receiving notice. Descafano v. BJ's Wholesale Club, Inc., 2016 WL 1718677,
at *2 (D.N.J. Apr. 28, 2016).
Accordingly, "an arbitration provision cannot be enforced against an employee who does
not sign or otherwise explicitly indicate his or her agreement to it." Leodori v. CIGNA Corp.,
814 A.2d 1098, 1106 (N.J. 2003). This need not be an actual signature, but must demonstrate a
willingness and intent to be bound by the arbitration provision, Ricci, 2015 WL 333312, at *4,
such as failing to opt out, Descafano, 2016 WL 1718677, at *2. The Court should be satisfied
that a plaintiff"actually intended to waive his statutory rights." Uddin, 2014 WL 130292, at *5
(quoting Garfinkel v. Morristown Obstetrics & Gynecology Assocs., P.A., 773 A.2d 665, 673
(N.J. 2001)); see also Garfinkel, 773 A.2d at 673 (requiring agreements "clearly and
unmistakably" establish waiver).

II.

Analysis
Plaintiff received notice of the Arbitration Agreement Defendant seeks to enforce via an

email to all employees informing them of changes to the CARE program and linking the new
CARE Guidebook and Arbitration Agreement. (Krentzman Deel.~ 4.) Plaintiff received this
email from Defendant's Human Resources Department email account at his work email address
at 4:30 PM on September 2, 2015. (Id.~ 5; Ex. B, ECF No. 7-5.) The email, entitled

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"Expansion of CARE Arbitration Program," informed employees that the program was
mandatory unless they opted out and that their continued employment without opting out
constituted acceptance of the Arbitration Agreement. (Krenztman Deel. ,, 6-7.) The new
CARE Guidebook and Arbitration Agreement were also available since May 2015 on
"me@MS," Defendant's internal portal and library for all human resources files. (Id. , 4.)
Employees had thirty (30) days, until October 2, 2015, to comply (id.

if 7; Ex.Bat 1-2), and

during that period, Defendant posted and maintained arbitration and opt-out notices on the
me@MS portal. (Id.

if 15.)

Defendant cites a number of cases involving electronic systems for the argument that the
failure to opt-out gives rise to a binding arbitration agreement. (Def.'s Mot. Compel at 9, ECF
No. 7.) This conclusion, however, is inapposite to the case law. These cases involve more than
passive acquiescence, whereby a "[p]laintiffs review and acceptance of the Agreement [was]
clearly recorded and dated" in the defendants' electronic systems. Ricci, 2015 WL 333312, at *4
(noting that "the PeopleSoft system reflects he entered into the Agreement by clicking 'Yes' and
'Submit."'). In each cited case, the employee was required to move through a series of forms or
webpages and ultimately completed some acknowledgment referencing arbitration or alternative
dispute resolution requirements. See, e.g., Descafano, 2016 WL 1718677, at *3 (finding plaintiff

bound to arbitrate where he signed an acknowledgement of receipt that referred to the
defendant's dispute resolution program); Jayasundera, 2015 WL 4623508, at *4 ("Plaintiff
accepted the terms of the arbitration agreement by electronically signing the SIS
Acknowledgement Form and failing to return the 'opt-out Election Form' within 30 days.");

Uddin, 2014 WL 1310292, at *3 (describing number of webpages with links, attention-grabbing
font, and a series of policy acknowledgments that employees had to complete).

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In further support of this argument, Defendant relies on Jaworski, v. Ernst & Young, LLP,
119 A.3d 939 (N.J. Super. Ct. App. Div. 2015), cert. denied 125 A.3d 392 (Table) (N.J. 2015),
for the proposition that Plaintiff's continued employment following email notice of the
arbitration policy change constitutes assent to the policy. (Def. 's Reply at 4.) It is true that
under New Jersey law "where an arbitration agreement states an employee accepts its terms by
continued employment, the agreement will bind an employee who continues employment beyond
the agreement's effective date." Nascimento v. Anheuser-Busch Cos., LLC, 2016 WL 4472955,
at *5 (D.N.J. Aug. 24, 2016); see also Martindale, 800 A.2d 872, 879 (N.J. 2002); Dugan v. Best

Buy Co. Inc., 2017 WL 3442807, at *4 (N.J. Super. Ct. App. Div. Aug. 11, 2017) (finding
continued employment may constitute acceptance depending on longevity; three weeks of
continued employment was insufficient to bind the plaintiff).
Given the opt-out procedure here, it appears that Plaintiff's continued employment
without opt-out constitutes assent. Like in Jaworski., the body of the email included basic
information regarding the new CARE provisions, 119 A.3d at 943, informing employees that
"the CARE Arbitration Program will be mandatory for all employees in the U.S., and all covered
claims between the Firm and employees will be resolved through final and binding arbitration on
a non-class, non.-collective and non-representative action basis as more fully described in the
Arbitration Agreement and CARE Guidebook." (Ex. B at 1.) Without following the outlined
opt-out procedure, Plaintiff remained employed for two years following this email and the policy
change.
Unlike the cases on which Defendant relies, here there is an underlying dispute as to
whether Plaintiff had notice of the agreement. (Pl.'s Letter Sur-Reply at 2, ECF No. 12.)
Plaintiff presents certified statements that he has no recollection of receiving, viewing, or

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opening the September 2, 2015 email or accessing the me@MS site (Schmell Deel. ,, 4--{), ECF
No. 8-1), and Defendant presents documentary evidence of its email system with a record of the
September 2, 2015 email that was delivered to Plaintiff (Ex. B; Krentzman Suppl. Deel., 4, ECF
No. 11-2). But see Jaworski, 119 A.3d at 946 n.3 ("[P]laintiffs do not challenge the adequacy of
the email notice of changes to the Program ... .");Ricci, 2015 WL 333312, at *4 ("Plaintiff has
provided no declaration or other sworn statement in support of his argument that he had no
knowledge of the Agreement ...."). Defendant also provides exhibits of email correspondence
on Plaintiffs account September 2-3, 2015 for the argwnent that he was working, accessing
email, and that therefore notice was adequate. (Def. 's Reply at 7; Ex. 2, ECF No. 11-3.)2
Plaintiff's certification presents a genuine dispute of material fact as to whether he was
on notice of the agreement to arbitrate such that there was a meeting of the minds and he could
mutually assent to the terms of the CARE program. 3 And without adequate notice, there is a
genuine dispute of material fact as to whether the alleged assent through continued employment

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Defendant cites case law, including one case involving this Defendant and the same companywide CARE email, to argue that evidence of an email sent and received constitutes valid notice.
(See Def.'s Reply at 5 ("As these courts have recognized, by demonstrating that an email
providing an arbitration agreement was sent to the employee under normal business procedures,
the employer establishes a rebuttable presumption of receipt.").) The court in Grant v. Morgan
Stanley Smith Barney LLC, 2017 WL 1044484, at* (S.D. Fl. Mar. 20, 2017), found that the
September 2, 2015 CARE email gave rise to a binding arbitration agreement-where the plaintiff
acknowledged seeing but not reading the email. Id. at *3. This is an argument already rejected
by courts in New Jersey and this Circuit. See Noble v. Samsung Elecs. Am., Inc., 682 F. App'x
113, 116 (3d Cir. 2017); Hoover v. Sears Holding Corp., 2017 WL 2577572, at *3 (D.N.J. June
14, 2017). Although Grant is certainly persuasive and the other cases make valid points with
respect to the presumption of delivery with email notice, Plaintiff's certification renders this case
factually distinct.
3 It is true that under the Rule 56 summary judgment employed for this Motion, "self-serving
affidavits are insufficient." Kirleis v. Dickie, McCamey & Chilcote, P.C., 560 F.3d 156, 161 (3d
Cir. 2009). Such declarations may sufficiently raise a genuine dispute of material fact in the
context of arbitration where the declarations specifically claimed that the plaintiff was never
provided a copy of the agreement, never signed an agreement, and thus never agreed to arbitrate.
See id. at 161.
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without opt-out was knowing and voluntary. See Descafano, 2016 WL 1718677, at *2.
Therefore, the Court cannot find that Plaintiff is bound to arbitrate pursuant to this agreement.
Having found that the email notification and Plaintiffs continued employment cannot constitute
notice and assent to the CARE Arbitration Program. under the facts as presented, the Court need
not consider whether this dispute falls within the scope of the Arbitration Agreement.

CONCLUSION
For the reasons stated above, the Court denies Defendant's Motion to Compel
Arbitration. An accompanying Order will follow.

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