No Notice: NJ Federal Court Declines to Compel Arbitration

By Elena Gurevich

Morgan Stanley has lost a bid to compel arbitration against a former employee.

A New Jersey federal district court ruled that the arbitration agreement circulated by the company via email could not be constituted as adequate notice, and therefore was not binding on the plaintiff.

This is not the first time a New Jersey court has struck down a motion to compel arbitration. There seems to be a trend in the approach that New Jersey state and federal courts take in examining the ADR process. The courts are looking closely at arbitration clauses in light of the state’s consumer protection and employment discrimination laws. See “Examining New Jersey’s Arbitration Scrutiny,” CPR Speaks blog  (July 12, 2016)(available at http://bit.ly/2GMH0A5).

In Schmell v. Morgan Stanley & Co., Civ. No. 17-13080 (D.C. N.J. March 1)(available at http://bit.ly/2FZnmiY), the court did not even look at the cases Morgan Stanley relied on, saying that the fact the plaintiff—a senior vice president in the financial services company’s Red Bank, N.J., office—had notice of the agreement was in dispute.

The court found that the defendant company’s evidence that the plaintiff was working and accessing emails on the day the email in question was sent could not be considered as proof of adequate notice.

U.S. District Court Judge Anne E. Thompson also found that the plaintiff’s certified statements that he had no recollection of receiving and viewing the email were indicative of the fact that there had been no meeting of the minds, and therefore no mutual assent to the agreement.

Noting the plaintiff’s certification, the opinion also stated that the email notification and the plaintiff’s continued employment did not constitute notice, despite contrary case law. Therefore, Thompson reasoned, the court did not have to “consider whether this dispute falls within the scope of the Arbitration Agreement.”

She declined to compel arbitration, rejecting Morgan Stanley’s motion. The firm had fired the plaintiff last October, alleging discrimination for past conduct involving drug and alcohol abuse that the plaintiff detailed in a book about his life. The Thompson opinion states that the plaintiff was terminated even though he had made the changes to the book that Morgan Stanley had demanded he make, in order to continue working at the company.

According to the plaintiff’s attorney, Joshua Bauchner, a partner in the Woodland Park, N.J., office of Ansell Grimm & Aaron, no notice of appeal has been filed in the case. Attorney for Morgan Stanley, Kerrie Heslin, a partner in Chatham, N.J.’s Nukk-Freeman & Cerra, has not responded to an email request for comment.

The New Jersey treatment of arbitration agreements continues to evolve. A December attempt to make legislative changes died in committee, but it is likely that similar initiatives will emerge.

A Senate bill attempted to bar provisions in employment contracts that waive rights or remedies as well as agreements that conceal details relating to discrimination claims. Though the bill didn’t mention arbitration, the accompanying statement makes its intention clear, noting that “provision in any employment contract or agreement which has the purpose or effect of concealing the details relating to a claim of discrimination, retaliation, or harassment, including claims that are submitted to arbitration, would be deemed against public policy and unenforceable.”

The proposal can be found here: http://bit.ly/2IEKtBl.

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The author is a CPR intern.

 

 

District Court Overrules Arbitrator’s Authority on Class Certification

By Ginsey Varghese

A recent decision in a long-running New York case permitting federal review of an arbitrator’s authority in class arbitration may have substantial implications for arbitration law.

In January, a New York Southern District Court decision vacated an arbitrator’s class certification award to protect the due process rights of more than 70,000 absent class members in a gender discrimination matter, Jock v. Sterling Jewelers Inc., No. 08 CIV. 2875, 2018 WL 418571 (S.D.N.Y. Jan. 15, 2018) (available at http://bit.ly/2EjEQWp).

U.S. District Court Judge Jed Rakoff held that the arbitrator exceeded her powers under the Federal Arbitration Act because an arbitrator cannot bind non-parties when the arbitration agreement does not allow class-action procedures. Id. at 2018 WL 418571, at *5; 9 U.S.C. §10(a)(statute available at http://bit.ly/120BmfV).

The FAA authorizes vacatur in four limited circumstances, one of which Rakoff employed in this case, “where the arbitrators exceeded their powers, or so imperfectly executed them that a . . . final and definite award upon the subject matter was not federal made.” 9 U.S.C. §10(a).

The case began in March 2008 with several female Sterling employees filing a class action discrimination suit against the company. The district court compelled arbitration. Jock v. Sterling Jewelers, Inc., 564 F. Supp. 2d 307, 310-12 (S.D.N.Y 2008).

The case has since endured several procedural appeals, with the latest decision resting in part on U.S. Supreme Court Associate Justice Samuel A. Alito Jr.’s concurrence in Oxford Health Plans LLC v. Sutter, where Alito distinguished “absent members,” reasoning that “it is far from clear [whether] they will be bound by the arbitrator’s ultimate resolution of the dispute.” 569 U.S. 564, 574 (2013).

This case appears to be the first time that Alito’s concurrence has been used to overrule an arbitrator’s authority. See Andrew C. Glass, Robert W. Sparkes III, Roger L. Smerage, and Elma Delic, “A First in Second (Circuit): On Remand, District Court Breaks New Ground by Vacating Arbitrator’s Class Certification Award,” K&L Gates blog (Feb. 1, 2018)(available at http://bit.ly/2ELn66I).

At this stage, Rakoff’s decision provides protection for companies with arbitration provisions that are silent on class action procedures, but it undermines and challenges arbitrator authority.

As has been a constant in the litigation, there’s more to come. Rakoff’s decision is the subject of a Jan. 18 notice of appeal, and is now, once again, pending review before the Second U.S. Circuit of Appeals. Jock v. Sterling Jewelers Inc., 18-153.

More on Jock, including its long history and pending appeal will appear in the April issue of Alternatives. March is out now, free here for CPR members, and here for the public.

The author is a CPR Institute 2018 intern. She is a law student at Pepperdine University’s School of Law in Malibu, Calif.