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Gupta v. Morgan Stanley Smith Barney, LLC

United States Court of Appeals, Seventh Circuit

August 19, 2019

Rajesh Gupta, Plaintiff-Appellant,
Morgan Stanley Smith Barney, LLC, et al., Defendants-Appellees.

          Argued April 17, 2019

          Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 17 C 8375 - Matthew F. Kennelly, Judge.

          Before Sykes, Brennan, and Scudder, Circuit Judges.


         This appeal presents a question of contract formation. After Rajesh Gupta sued his former employer Morgan Stanley for discrimination, retaliation, and defamation, the company moved to compel arbitration.[1] Morgan Stanley contends Gupta agreed to arbitrate these claims after he did not opt out of the company's arbitration agreement. Gupta responds that during his employment he neither saw an arbitration offer nor agreed to arbitrate employment-related disputes. The district court sided with Morgan Stanley and sent the parties off to arbitration. Gupta appeals this ruling, and we affirm.


         Morgan Stanley hired Gupta as a financial advisor in 2013. Upon joining the company, Gupta signed an employment agreement containing an arbitration clause "agree[ing] to arbitrate any dispute, claim, or controversy that may arise between you and Morgan Stanley ... that is required to be arbitrated ... pursuant to any arbitration agreement to which you are a party." That agreement also contained a merger clause providing:

All terms and conditions of your employment with Morgan Stanley are contained in this Agreement and other written agreements between you and Morgan Stanley, and the policies and procedures of the Firm ... This writing constitutes the entire agreement of the parties with respect to the subject matter recited in this Agreement. This Agreement may be amended only by a writing signed by both you and Morgan Stanley.

         Among the additional terms and conditions, Morgan Stanley administered an employee dispute resolution program called "CARE/' an acronym for "Convenient Access to Resolutions for Employees." CARE applied to all U.S. employees of Morgan Stanley, and the company posted a "CARE guidebook" explaining the program on its intranet site for employee access.

         When Gupta joined Morgan Stanley, the CARE program did not require employees to arbitrate employment discrimination claims. But it did specify that the program's terms "may change or be discontinued," and that any such changes would be "announced in advance" before becoming "equally binding upon [the employee] and the Firm." That change came in 2015, when Morgan Stanley amended its CARE program to compel mandatory arbitration for all employment-related disputes, including discrimination claims. To announce the amended program, Morgan Stanley sent an email to the account of each of its employees in the U.S.

         Morgan Stanley emailed Gupta the new arbitration agreement on September 2, 2015. The email's subject line read "Expansion of CARE Arbitration Program," and the email itself explained that, effective October 2, 2015, "final and binding arbitration" under the new "CARE arbitration program" would be "mandatory for all employees" unless an employee individually elected to opt out. The email included links to the new arbitration agreement and Morgan Stanley's revised CARE guidebook, and it encouraged employees to "read and understand" both documents because "they describe the terms, features and details of this program." The revised CARE guidebook similarly explained that "employment discrimination claims under ... any federal ... law (including claims of harassment and retaliation under those laws) will be resolved by final and binding arbitration."

         The final section of the company's September 2 email to Gupta, entitled "Next Steps/' attached a link to the arbitration agreement opt-out form, explained instructions for submitting that form, and again notified that Gupta had until October 2, 2015, to decline. The email twice cautioned that, if the employee did not opt out, continued employment would reflect that the employee "consented and agreed to the terms" of the arbitration agreement and CARE guidebook. The email concluded with an assurance that opting out of the arbitration agreement would not adversely affect Gupta's employment status. The one page opt-out form attached to the email prominently placed the opt-out deadline in bold capital letters, allowed for submission by email, and provided directions if Morgan Stanley failed to confirm the employee's rejection of mandatory arbitration.

         Over the next thirty days, Gupta had access via links on the September 2 email to the arbitration agreement, CARE guidebook, and arbitration opt-out form. During this period, Morgan Stanley also maintained on its intranet page (accessible by all Morgan Stanley employees) a reminder notification about the upcoming expansion to mandatory arbitration and the deadline to opt out. The reminder encouraged employees to "carefully review the September 2 email from Human Resources" and once more instructed that, unless they chose to opt out, continued employment would bind them to the terms of the new arbitration agreement.

         The October 2015 deadline to opt out came and went. Gupta did not submit an opt-out form, respond to the September 2 email, or otherwise communicate with human resources about the mandatory arbitration program. He continued to work at Morgan Stanley for two more years until, he alleges, the company forced him to resign because of imminent military leave.[2] Gupta sued Morgan Stanley for discrimination and retaliation in violation of the Uniformed Services Employment and Reemployment Rights Act, 38 U.S.C. §§ 4301-35, and a related defamation claim.

         Morgan Stanley moved to compel arbitration under the terms of the 2015 CARE arbitration program and agreement. Gupta resisted, asserting he never agreed to arbitrate. He said he first saw the September 2 email and arbitration agreement when Morgan Stanley filed its motion to compel and filed a declaration to that effect.[3]

         The district court deferred ruling on Morgan Stanley's motion to compel "pending a trial regarding whether an agreement to arbitrate exists." The court agreed with Morgan Stanley that Illinois law permits an offeror to construe silence as acceptance if circumstances make it reasonable to do so. But it treated Gupta's sworn statement that he had "never seen" the September 2 email as a denial that he received the email, not simply a denial that he read it. At that point, the court found Morgan Stanley had not reliably demonstrated that Gupta had received the email. Because Gupta said Morgan Stanley never sent him an offer, the court reasoned, "there [was] a genuine dispute about the existence of an agreement to arbitrate." See 9 U.S.C. ยง 4 ("If the making of the arbitration agreement ... be in issue, the court shall proceed summarily to the trial thereof."). After the parties' submitted pretrial evidence, however, Gupta could no longer ...

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