A fired advisor who accuses Morgan Stanley of wrongful termination over the publication of his memoir about alcohol and drug abuse will not be forced into arbitration ― at least not yet.
Last week, a federal judge in New Jersey partially ruled against Morgan Stanley, which is seeking, for the second time, to force Craig Schmell into arbitration. Schmell is an advisor of 26 years and author of “The Uninvited: How I Crashed My Way into Finding Myself.”
While the firm fired him because of purported reputational risk stemming from Schemll's memoir, Schmell contends Morgan Stanley's real reason was that he is a recovering addict, according to his lawsuit. His addiction issues detailed in the memoir happened about 30 years ago prior to his employment at the company, he says.
Judge Anne Thompson's ruling focused on whether Schmell and the firm had indeed agreed to arbitrate disputes and whether his specific claims were subject to arbitration. She temporarily denied Morgan's request, ordering that both parties will have an opportunity for discovery, a process by which the plaintiff and defendant can seek documents like emails and memos from the other side.
"The instant dispute is not about the underlying claim and substantive statute, but whether a contract existed between plaintiff [Schmell] and defendant [Morgan Stanley] under which he may be compelled to arbitrate disputes," Thompson wrote in her decision.
Morgan Stanley will have an opportunity to refile its arbitration request after a 60-day period, according to the judge's order.
"We are very pleased with the court’s decision to keep the matter in a public forum so as to quash Morgan Stanley’s desperate effort to hide its misconduct in arbitration," says Joshua Bauchner, Schmell's attorney at Woodland Park, New Jersey-based law firm Ansell Grimm & Aaron.
A spokeswoman for Morgan Stanley declined to comment on the case.
Firms often prefer arbitration over the courts for settling disputes because of their perceived efficiency and the opportunity for discovery is more limited, says Tom Lewis, an attorney at law firm Stevens & Lee, who is not affiliated with this case.
"You can't get depositions within FINRA unless there is an extraordinary reason why," he says.
There are two issues at stake, Lewis says. First, whether there is an agreement by both sides to arbitration and then whether the claims are in fact subject to arbitration. Some claims, such as discrimination, are exempt.
Schmell, who worked at Morgan Stanley from 2009 until his termination in October 2017, started working on his book with a coauthor in 2015. He provided Morgan Stanley, which was previously unaware of his past addiction issues, with a draft of the book in June 2017, according court documents.
The firm requested several edits, including removing mention of Morgan Stanley's name, which Schmell says he agreed to.
Still, Morgan Stanley later concluded that the book represented a reputation risk to the firm, and as Schmell planned to move ahead with its publication, terminated his employment. Schmell, however, contends that the real motive for his termination was not reputational risk to Morgan Stanley but his status as a recovering addict. He notes that Morgan waited to fire him until after he took a leave of absence to finish writing his memoir.
"Worse, defendant’s [Morgan Stanley's] stated reason for plaintiff’s [Schmell's] termination ― reputational harm ― is undermined by defendant’s own unlawful conduct and fines which place it in the national news cycle on a regular basis and cause far greater damage to defendant’s reputation than plaintiff’s past alcohol and drug addiction ever could," Schmell says in his lawsuit.
The promo on Amazon.com for Schmell's book does not mention Morgan Stanley, but does focus on celebrity encounters.
"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.