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Court rules in favor of Morgan Stanley in ex-advisor’s wrongful termination suit

A federal judge ruled in favor of Morgan Stanley in the firm’s long-running fight to force employee disputes into a private arbitration system.

On Oct. 15, Judge Anne E. Thompson of the United States District Court of New Jersey backed Morgan Stanley’s bid to compel advisor Craig Schmell, who sued the firm for wrongful termination, to bring his case to the private arbitration forum Morgan Stanely created several years ago.

Schmell has filed notice that he will appeal the ruling, according to court documents, a move that could send the case to a federal appeals court.

“We are disappointed with the court’s decision which suggests that Morgan Stanley can unilaterally waive thousands of its employees’ Constitutional rights without their knowledge and consent, and in contravention of governing law,” Joshua S. Bauchner, Schmell’s attorney at Ansell Grimm & Aaron, said in an email.

This was Morgan Stanley’s third attempt to push Schmell’s lawsuit over his 2017 termination into its private program.

“We are pleased with the court’s decision in this case and look forward to addressing this dispute on the merits,” a Morgan Stanley spokeswoman said in a statement.

Morgan_Stanley_glass_entrance_Bloomberg
Pedestrians walk outside Morgan Stanley headquarters in New York, U.S., on Thursday, July 19, 2012. Morgan Stanley reported a 50 percent drop in earnings and said it will cut more jobs as revenue from trading stocks and bonds declined the most among Wall Street banks. Photographer: Victor J. Blue/Bloomberg

The company fired Schmell, an advisor of 26 years, over his memoir detailing a battle with drug abuse. Schmell’s struggle with addiction, as told in “The Uninvited: How I Crashed My Way into Finding Myself,” occurred prior to his employment at Morgan Stanley. A promo for the book on Amazon highlights Schmell’s encounters with celebrities as part of an “inspiring coming-of-age story.”

“Singing on stage at the Grammys, getting high inside the Kremlin, driving in a U.S. president's motorcade — Craig Schmell has a world-class talent for talking his way into places he does not belong. But when his self-absorbed life crashes down around him, he finally learns how to be a better man,” the blurb reads.

Schmell contends that he provided management with an advance copy of the draft text and made changes requested by the company that included removing any mention of Morgan Stanley, according to court documents.

Still, Morgan Stanley fired him because of perceived reputational risk. Schmell says his termination was discriminatory because of his past drug addiction battles.

In December 2017, he filed a lawsuit against the firm in federal court in New Jersey, prompting the firm to attempt to steer his complaint into its dispute resolution program.

In a March ruling, Judge Thompson initially denied the company’s request to force Schmell’s case to private arbitration. Judge Thompson said there was a genuine dispute as to whether Schmell had been properly notified of an opt-out provision Morgan Stanley offered employees when it introduced its private arbitration program, dubbed CARE, in 2015. After Morgan Stanley again moved to compel Schmell’s case to arbitration, Judge Thompson granted both parties a 60-day discovery period to ascertain whether Schmell had received sufficient notice.

Morgan Stanley had sent employees an email saying they had one month to opt out; it also posted a notice to a company intranet server, according to court documents.

In the Oct. 15 ruling, Judge Thompson said the evidence showed Schmell had received notice via email; was required to review his work email as a condition of his employment; and had answered other emails on the same day, both before and after Morgan sent notice of the opt-out provision.

“All of these facts establish that plaintiff [Schmell] had notice of the email,” she writes in her opinion.

Morgan’s win — which could be overturned pending Schmell’s appeal — follows a similar victory in another case brought by a former employee. In early October, a federal judge backed the company’s request to send John Lockette’s lawsuit alleging racial discrimination at Morgan Stanley to the firm’s private arbitration program.

When it was introduced, the program faced criticism for allegedly creating an unfair playing field for employee disputes.

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