657 F.Supp.3d 563
S.D.N.Y.2023Background
- Plaintiff Katherine Yost, a former Everyrealm employee, signed three successive agreements (Dec. 21, 2021 Independent Contractor Agreement; Jan. 21, 2022 Employment Agreement; Jan. 24, 2022 Worksite Employee Agreement) containing broad arbitration clauses.
- SAC asserts a range of employment claims (Equal Pay Act, NYLL, NYSHRL, NYCHRL, Title VII, ADA, retaliation, IIED, etc.) and added sexual-harassment/hostile-work-environment allegations after the court questioned applicability of the EFAA.
- Alleged facts center on repeated crude sexual gossip by CEO Janine Yorio, disability-related mockery, a threatening confrontation with employee Hungate, pay disparities with male peers, and termination after Yost objected to allegedly discriminatory leave/sick policies.
- Everyrealm moved to compel arbitration under the bilateral arbitration clauses; Yost invoked the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFAA) to argue that arbitration is unenforceable because the SAC includes sexual-harassment claims.
- The court held a Rule 12(b)(6) review of the sexual-harassment claims, dismissed those claims as implausible under the NYCHRL (the most plaintiff-friendly standard), and concluded that, once those claims are dismissed as implausible, the EFAA does not block arbitration of the remaining claims.
- The court found the Everyrealm agreements (and the later Worksite Agreement) plainly encompass the remaining claims against Everyrealm and its officers but ordered supplemental briefing on: which agreement governs, whether affiliate defendants are covered, and an as-applied unconscionability challenge to a cost-splitting provision.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1) Do the SAC allegations plausibly plead sexual harassment (NYCHRL/NYSHRL/Title VII)? | Yost: factual allegations about Yorio's sexual gossip and comments plus knowledge of Yost's bisexuality suffice to show gender/sexual-orientation–based hostile work environment. | Everyrealm: allegations are threadbare, do not tie offending conduct to Yost's protected characteristics, and fail NYCHRL plausibility. | Dismissed sexual-harassment claims: court finds allegations insufficient under NYCHRL (and thus NYSHRL/Title VII) because conduct is not plausibly tied to a protected characteristic. |
| 2) Does the EFAA bar arbitration where the only sexual‑harassment allegations are implausibly pled? | Yost (via amici): any allegation of sexual-harassment conduct — so long as not frivolous — triggers EFAA and extinguishes arbitration for the whole case. | Everyrealm: EFAA applies only where complaint plausibly alleges a violation of federal/state sexual‑harassment law; implausible claims cannot invoke EFAA. | Held for Everyrealm: “alleged to constitute sexual harassment under applicable law” imports the pleading/plausibility requirement; because harassment claims are dismissed as implausible, EFAA does not block arbitration. |
| 3) Are the remaining claims arbitrable and which agreement controls / do affiliates fall within scope? | Yost: disputes which agreement controls and argues some cost-splitting terms are unconscionable as applied. | Everyrealm: the arbitration clauses (Independent Contractor and Employment Agreements; and the later Worksite Agreement) broadly cover disputes arising from employment; arbitration should be compelled. | Court: All remaining claims against Everyrealm and its officers fall within the arbitration clauses; but ordered supplemental briefing to determine which agreement governs and whether affiliates are covered. |
| 4) Is the cost‑splitting provision unconscionable as applied and who decides unconscionability? | Yost: given her financial situation, the cost‑splitting provision in earlier agreements would be unconscionable and should prevent enforcement. | Everyrealm: (implicitly) arbitration clause terms control; arbitrability of unconscionability and applicability require analysis. | Court: Reserved; identified four discrete questions for expedited supplemental briefs (who decides unconscionability, whether later Worksite Agreement supersedes cost‑split term, concrete costs implicated and why unconscionable, and appropriate remedy if unconscionable). |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (announced the modern "plausibility" pleading standard for Rule 12(b)(6))
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (clarified application of plausibility and that courts disregard legal conclusions)
- Mihalik v. Credit Agricole Cheuvreux N. Am., Inc., 715 F.3d 102 (2d Cir. 2013) (explains NYCHRL standard that plaintiff need only show she was treated "less well" because of protected trait)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (reiterates the FAA's liberal federal policy favoring arbitration)
- CompuCredit Corp. v. Greenwood, 565 U.S. 95 (2012) (explains FAA can be overridden by clear congressional command but statutes should be read in context)
- Katz v. Cellco P'ship, 794 F.3d 341 (2d Cir. 2015) (stay of district-court proceedings is appropriate when arbitration is compelled)