KATHERINE YOST v. EVERYREALM, INC., COMPOUND ASSET MANAGEMENT LLC, REALM METAVERSE REAL ESTATE INC., REPUBLIC REALM MANAGER LLC,
22 Civ. 6549 (PAE)
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
February 24, 2023
PAUL A. ENGELMAYER, District Judge
OPINION & ORDER
PAUL A. ENGELMAYER, District Judge:
This case calls upon the Court to apply the recently enacted Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (the “EFAA“),
Plaintiff Katherine Yost is a former employee of digital real estate company Everyrealm, Inc. (“Everyrealm“). As a condition of employment, first as an independent contractor and then as a full-time employee, Yost entered into three successive agreements with Everyrealm containing broad mandatory arbitration provisions. Yost now sues Everyrealm and several officers, Janine Yorio, Zach Hungate, and William Kerr (collectively, the “Everyrealm defendants“); and Everyrealm affiliates Republic Realm Inc., Republic, Republic Operations LLC, OpenDeal Inc., and OpenDeal Portal LLC (the “affiliate defendants” and collectively with the Everyrealm defendants, “defendants“).
The claims in Yost‘s Second Amended Complaint, Dkt. 35 (“SAC“), include (1) pay discrimination on the basis of gender, in violation of the Equal Pay Act,
The Everyrealm defendants have moved, under the parties’ arbitration agreements, to compel arbitration of Yost‘s claims. Yost asserts that, because the SAC includes sexual harassment claims, the arbitration agreements are unenforceable under the EFAA. She also argues that her claims are outside the scope of the agreements and that, given her personal financial situation, it would be unconscionable to apply to her a cost-shifting provision in the first two arbitration agreements. The Everyrealm defendants counter that the SAC‘s sexual harassment claims are implausibly pled; that these should be dismissed under
For the following reasons, the Court finds that Yost‘s SAC has not pled a plausible claim of sexual harassment in violation of even the NYCHRL, the most lenient of the three statutes under which Yost alleges such a claim. The Court accordingly grants Everyrealm‘s motion to dismiss Yost‘s sexual harassment claims. The Court further construes the EFAA to require that, where a party seeks to invoke the EFAA based on a claim of sexual harassment, such a claim must have been plausibly pled. Accordingly, the Court holds, the EFAA does not present any barrier to arbitration in this case.
Finally, the Court holds, Yost‘s remaining claims against the Everyrealm defendants all fall within the scope of her arbitration agreements with Everyrealm. The Court, however, defers granting the motion to compel arbitration pending the briefing of several interrelated issues relating to the arbitration agreements. First, the parties have not briefed which of these agreements takes precedence. Second, the parties have not briefed whether Yost‘s claims against the affiliate defendants fall within the scope of the governing arbitration agreement(s) and thus must also be arbitrated. Third, Yost has argued that, given her financial circumstances, it would be unconscionable to apply to her a cost-splitting provision in the first two arbitration agreements. The parties have either not briefed, or not adequately briefed, a series of issues relating to that argument: (a) whether this issue is to be resolved by the Court or an arbitrator; (b) whether that provision, which does not appear in the third arbitration agreement, has been overtaken by that agreement; (c) if the cost-splitting provision applies to Yost, concretely why it would be unconscionable to apply it to her given, inter alia, that she stands to bear her costs in this litigation, which she has initiated; and (d) if the cost-shifting provision would be unconscionable as applied, whether the proper remedy is the narrow one of severing and not enforcing that provision, as opposed to the broad one that Yost urges of declining to compel arbitration. The Court herein sets a prompt briefing schedule on those issues and stays all other activity in this litigation pending the final resolution of the motion to compel arbitration.
I. Background2
In its Rule 12(b)(6) analysis, the Court disregards the “contemporaneous writings” of Yost‘s that defendants have filed. See, e.g., Dkts. 39, 83-85. Defendants argue that these expose the falsity of various allegations in the SAC. See Dkt. 41 (“Everyrealm MTD Mem.“) at 20; Dkt. 58 (“Everyrealm MTD Opp.“) at 19-20 (Yost, terming these materials “factually disputed“). But, because analysis under Rule 12(b)(6) turns on the plausibility of the claims of sexual harassment as pled, the extra-SAC materials filed by defendants must be disregarded. See DiFolco v. MSNBC Cable LLC, 622 F.3d 104, 113 (2d Cir. 2010) (“In ruling on a motion pursuant to
For the same reason, the Court disregards factual allegations Yost makes for the first time in connection with opposing the affiliate defendants’ motion to dismiss, which, in any event, the Court does not have a charter to resolve pending resolution of the motion to compel arbitration. See Dkts. 65-66 & Ex. A; see, e.g., Atl. Neurosurgical Specialists, P.A. v. Multiplan, Inc., No. 20 Civ. 10685 (LLS), 2022 WL 158658, at *4 (S.D.N.Y. Jan. 18, 2022) (refusing to consider new facts raised in opposition to motion to dismiss); Guo v. IBM 401(k) Plus Plan, 95 F. Supp. 3d 512, 527 (S.D.N.Y. 2015) (same); Universal Trading & Inv. Co. v. Tymoshenko, No. 11 Civ. 7877 (PAC), 2012 WL 6186471, at *1 (S.D.N.Y. Dec. 12, 2012) (same); Southwick Clothing LLC v. GFT (USA) Corp., No. 99 Civ. 10452 (GBD), 2004 WL 2914093, at *6 (S.D.N.Y. Dec. 15, 2004) (same).
Insofar as this decision also resolves a motion to compel arbitration, courts in this Circuit typically evaluate such motions under standards similar to those for motions for summary judgment. See Barrows v. Brinker Restaurant Corp., 36 F.4th 45, 49 (2d Cir. 2022). Courts consider all relevant evidence supplied by the parties, and draw reasonable inferences in favor of the non-moving party. Meyer v. Uber Techs., Inc., 868 F.3d 66, 74 (2d Cir. 2017). Given the limited issues relating to those agreements that are resolved in this decision, no material disputes of fact are implicated. The content and date of Yost‘s successive employment agreements with Everyrealm are undisputed. See Dkts. 20-1 (“Independent Contractor Agreement“); 12-2 (“Employee Agreement“); 79, Ex. A (“Worksite Employee Agreement“). And these, on their faces, compel arbitration of Yost‘s claims against the Everyrealm defendants. The Court in this decision does not reach the other issues implicating the agreements, including whether they cover Yost‘s claims against the affiliate defendants; whether Yost‘s as-applied challenge to the cost-shifting provision in the first two agreements on grounds of unconscionability has merit; and if so, what the proper remedy would be. The Court also has no occasion to determine here whether any of these issues may implicate disputes of material fact.
The SAC makes many factual allegations in support of its claims. In light
1. The Parties
Everyrealm is a digital real estate company with a principal place of business in New York, New York. SAC ¶¶ 1, 27. It acts as a contractor and/or agent to public companies and is regulated by the SEC. Id. ¶ 27 & n.16. It is an affiliate of defendant Republic, which, as Everyrealm‘s parent, retains control over Everyrealm‘s day-to-day operations and Board of Directors. Id. ¶¶ 10-11 & nn.9-11, 30.
Republic is an alternative asset crowdfunding company. Id. ¶ 30; see also Affiliate MTD Opp. at 2-4 (citing tweets from @joinrepublic and @Everyrealm describing Republic). Realm Metaverse Real Estate Inc. and Compound Asset Management, LLC are subsidiaries or alter egos of Everyrealm and/or Republic. Id. ¶¶ 28-29. “Republic” is also the trade name of Republic Operations LLC, OpenDeal Inc., OpenDeal Portal LLC, Republic Realm Manager LLC, and Republic Crypto LLC. Id. ¶¶ 31-35.4 The SAC‘s allegations as to Republic encompass all the above entities. Id. ¶ 30.
Yorio is Everyrealm‘s CEO and a member of its board of directors. Id. ¶¶ 1, 36. Kerr is Everyrealm‘s general counsel. Id. ¶ 37. Hungate is an Everyrealm employee. Id. ¶ 38. Yost, a Maryland resident, is a single parent, the primary caretaker of her
2. Everyrealm Hires Yost
In November 2021, Yorio posted on Facebook that Everyrealm was seeking a human resources (“HR“) professional. Id. ¶ 50. Yost was an experienced HR professional, with a degree in business administration and decades of HR experience, and is the owner of an HR consulting firm. Id. ¶ 51. Yost contacted Yorio, whom she had known in high school, and offered her firm‘s services to Everyrealm. Id. ¶¶ 48, 51-52. Yorio hired Yost. Id. ¶ 53.
For the first six weeks of her employment, Yost worked, on an independent contractor basis, as Everyrealm‘s external chief HR officer. Id. At the time, Everyrealm was called “Republic Realm.” Id. Yost handled all HR matters, including candidate interviews and proposing and implementing company-wide HR policies. Id. ¶ 54. As Everyrealm quickly grew, “the demands on [Yost] grew to the point that her work for Everyrealm encroached on the time she had promised other clients.” Id. ¶ 55. Yost told Yorio she would either need a full-time position or to put “hard limits on the time she spent working for Everyrealm.” Id. ¶ 56. Yorio offered Yost a full-time position. Id. ¶ 57. Yost received an official offer on Republic Realm letterhead. Id. ¶ 58.
On December 21, 2021, Yost signed an independent contractor agreement with Everyrealm‘s predecessor, Republic Realm, Inc., in which the parties agreed to arbitrate “any dispute or controversy arising out of or relating to any interpretation, construction, performance or breach of this Agreement.” Dkt. 20 (“Independent Contractor Agreement“). On January 21, 2022, Yost signed an employment agreement with Republic Realm, Inc., which contained a substantially identical provision. Dkt. 12-2 (“Employment Agreement“). On January 24, 2022, Yost signed a third agreement—her second as an employee—with Republic Realm, Inc., and Justworks Employment Group, LLC, Everyrealm‘s “outsourced provider of certain human resources support.” See Dkt. 79-1 (“Worksite Employee Agreement“). This agreement came to light after briefing on this motion was complete. It states that “arbitration [i]s the sole and exclusive means to resolve all disputes that may arise between you and Worksite Employer [Republic Realm Inc.] and/or you and Justworks, including, but not limited to, disputes regarding termination of employment and compensation.” Id.; see infra Section III (more fully quoting agreements).5
3. Yorio Targets Yost‘s Bisexuality and Makes Sexually Explicit Comments
While employed at Everyrealm, Yost was “the target of and witness to sexually offensive remarks and jokes, comments, and questions regarding others’ sex lives” and “was subject to sexually explicit rants and tirades at work.” SAC ¶ 59. Yorio “frequently discussed her theories about the sexuality of other Everyrealm employees in the office with [Yost],” id. ¶ 61, who did not welcome such commentary, id. ¶ 62. Yorio specifically targeted Yost with such comments because Yost is openly bisexual, and Yorio “thought that this attribute made [Yost] an expert on others’ sexual orientations.” Id. ¶ 63.
The SAC also alleges other comments by Yorio relating to sexual matters. At some point after March 20, 2022, Yorio recounted asking a male coworker, Teyo Johnson, whether he was late “because he had ‘hooked up’ with a woman whom [Yorio] referred to as ‘Dog in Bag.‘” Id. ¶ 77. Johnson responded, “No, she was on her period.” Id. When Yorio recounted this, Yost responded, “Why did you ask him that?!” Id. ¶ 78. Yorio “back-peddled,” and “suggested that [Johnson had] walked into the office and offered up this detail to her unprompted.” Id. ¶ 79. In May or June 2022, while Yost was in Everyrealm‘s New York City office, Yorio, “out of the blue” told Yost “there was a rumor that employees named Rachel and Michael were sleeping together.” Id. ¶ 73. Yost responded that “this rumor is none of her concern if it is ‘not affecting their work,‘” id. ¶ 74, and regarded the rumor as “inappropriate gossip,” id. ¶ 75. Yost “did not welcome these sex-related conversations.” Id. ¶ 80.
4. Yorio and Kerr‘s Disability-Related Comments
Yost suffers from attention deficit hyperactivity (“ADHD“), id. ¶ 96, and alcohol-use disorders, id. ¶ 159, conditions she had disclosed to Yorio. Id. ¶¶ 96, 159. In June 2022, Yost witnessed Yorio and Kerr “disrespecting an employee who suffered from dyslexia and . . . ADHD” by referring to the employee as “a ‘moron’ and an ‘idiot’ for allegedly ordering an incorrect amount of office snacks.” Id. ¶ 98. Yost pulled Yorio aside and told her it was inappropriate to mock disabled employees. Id. ¶ 99. Yorio “became irate and continued to mock the employee in front of between six and eight other Everyrealm employees,” and “yelled that the disabled employee was ‘stupid.‘” Id.
The next day, Yost met with Kerr, her manager. Id. ¶ 100. Kerr had been away from the office for a few hours; Yost “noticed alcohol on [his] breath” and believed he was intoxicated. Id. Yost shared “the same feedback” with Kerr as she had with Yorio—that “as a leader at Everyrealm it is important that you do not play into [Yorio‘s] misbehavior, especially around young impressionable employees who don‘t have the experience in the workplace that you and I do.” Id. Kerr responded: “You know Janine. She‘s gonna’ do what she‘s gonna’ do.” Id. ¶ 101. Yost returned to her desk. Id. ¶ 102.
At an Everyrealm event in New York City, Yorio “taunt[ed]” Yost about her alcohol use disorder in front of Everyrealm employees, id. ¶ 159, and pressured her to drink, id. ¶ 162. When Yost arrived at an Everyrealm event where alcohol was being served, Yorio shouted, “We need to get [Yost] SIX drinks!” Id. ¶ 160. Yost, shocked, replied, “Uh, no, I‘ll have a club soda.” Id. ¶ 161. On another occasion, Yorio “attempted to gossip with [Yost] about what she perceived as an employee‘s cocaine addiction.” Id. ¶ 163. Yost asked whether the employee‘s cocaine use was “something interfering with this person‘s job, or [if] she need[ed] to be concerned for safety or health reasons.” Id. ¶ 164. Yorio “backtracked” and replied that “every time she parties with the employee he ‘pulls out cocaine’ so she ‘assume[s] he‘s an addict.‘” Id. ¶ 165 (alterations in original). Yost “understood [Yorio] to have used the term ‘addict’ as a derogatory smear because she knew it would upset [Yost].” Id. ¶ 166. Yorio was aware at the time that Yost was receiving substance use treatment. Id. ¶ 167.
Yorio stated in a performance review of Yost that “[t]he feedback I receive about you is so uniformly positive and basically all in this vein: ‘At first I thought she was too different, but now I get it, and she‘s fantastic.’ Keep it up. We need you.” Id. ¶ 92. Yost viewed “too different” as a “thinly veiled euphemistic insult for [her] disclosed disabilities, her open bisexuality, and her status as perhaps Everyrealm‘s only single mother, among other protected attributes.” Id. ¶ 93.
5. Yorio Makes Racially Discriminatory Comments
“Yorio and other Everyrealm employees relentlessly focused on race in the hiring process at Everyrealm.” Id. ¶ 108. After an interview, Yorio described a candidate as “the whitest Black guy I‘ve ever met.” Id. ¶ 110. Yost responded, “Hey, we don‘t say that.” Id. ¶ 111. Yorio replied, “No, I mean it in a good way.” Id. ¶ 112. Yost said, “There is no good way,” id. ¶ 113, and “attempted to move on by stating ‘Look, it‘s learning. We all learn,‘” id. ¶ 114. Yorio “took [Yost‘s] feedback as a slight and retaliated against her by yelling . . . to justify her remarks.” Id.
Yost sent Yorio an article on “Code Switching“; there was “no indication that [Yorio] read [it].” Id. ¶¶ 115-116. Yorio also declined an applicant‘s request for an additional $10,000 in salary stating, “More base is out of the question. We are not a charity.” Id. ¶¶ 117, 119. The candidate was of Indian descent and had been adopted as a child. Id. ¶ 118.
6. Yost Is Paid Less than Her Male Peers and Denied Promotions
Defendants offered Yost $140,000 in base salary and a discretionary $25,000 bonus, but no equity. Id. ¶ 82. Yost later “learned that Everyrealm paid male employees with less experience in similarly leveled roles who had similar responsibilities
7. Hungate Intimidates Yost
In an incident in Everyrealm‘s New York City office, Hungate “intimidated and harassed [Yost] in other [d]efendants’ presence.” Id. ¶ 130. The incident began when Hungate approached Yost, Yorio, and another employee and showed Yorio his phone screen. Id. ¶ 131. After looking at the screen, Yorio shrugged and said, “show it to [Yost], see what she says.” Id. Hungate blurted, “I want her gone, Lea has to go,” and “crept uncomfortably close to [Yost‘s] face and showed her his phone.” Id. ¶ 132. Yost “lean[ed] back in her seat to create space.” Id. ¶ 133. Hungate showed Yost a screenshot of a text message exchange with the employee that included roughly five messages. Id. ¶¶ 134-35. One asked, “Did [Hungate] get lip fillers?” Id. ¶ 135. The other employee replied, “[N]ot sure.” Id. Hungate had been removed the week prior as the employee‘s manager. Id. ¶ 141. Yost asked Hungate how he had obtained these messages. Id. ¶ 136. Hungate said the recipient had sent the screenshot to him. Id.
After reviewing the messages, Yost told Hungate that nothing in the messages suggested the at-issue employee was not doing her job, but that “if [Hungate was] feeling harassed regarding her discussion of [his] physical appearance, [Yost] would be happy to speak with [the employee].” Id. ¶ 137. Yost stood up from her seat “because [Hungate] was looming over her menacingly.” Id. ¶ 138. As she stood, Hungate “became irate at [Yost] and yelled, ‘No, she can‘t know we have a mole!‘” Id. Yost was shocked, id. ¶ 139, and believed Hungate was “encouraging employees to spy on women at Everyrealm,” id. ¶ 140.
Yost said to Hungate, “You want me to fire her, but I can‘t say why?” Id. ¶ 142. Hungate responded, “You don‘t have to tell her why.” Id. ¶ 143. Hungate and Yorio both stated that they had never spoken to the at-issue employee about performance issues or inappropriate conversations. Id. ¶¶ 144-45. Hungate “took an aggressive step toward [Yost] and yelled harassingly, ‘You‘re being ridiculous and she fucking sucks.‘” Id. ¶ 146. Neither Yorio, id. ¶ 147, nor Kerr, who had been “nodding off on a couch nearby,” id. ¶ 150, intervened. Yost stated that, because Hungate was no longer the employee‘s manager, he should “let the manager that‘s overseeing her now assess her job performance.” Id. ¶ 148. Yost “collected her things and prepared to walk away.” Id. ¶ 149. Another Everyrealm employee, “sensing [Hungate‘s] threatening demeanor and seeing that [Yost] was upset, offered to walk her out.” Id.
Yost spoke to Kerr about the interaction the next morning. Id. ¶ 154. Kerr “began with, ‘Sorry, I usually don‘t have more than two drinks. I heard what happened.‘” Id. Yost asked Kerr “what [he] was going to do about it.” Id. ¶ 155. Kerr laughed. Id.
8. Everyrealm Retaliates Against Yost
On or about June 19, 2022, Yost and two of her three children were diagnosed with COVID-19. Id. ¶ 168. Yost told Yorio and Everyrealm‘s executive team that she was unable to make a scheduled trip to Everyrealm‘s New York office, but would continue to check her work email. Id. ¶ 169.
A couple days into Yost‘s sick and caregiver leave, Yorio and Kerr “became concerned that employees, including [Yost], were abusing Everyrealm‘s leave policies by taking time off to care for themselves and their loved ones.” Id. ¶ 170. Yorio, Kerr, “and their teams wrote a slapdash two-tiered vacation policy, a reduced sick-leave policy, and a restrictive remote work policy.” Id. ¶ 171. These policies “required female-dominant roles to work in the office and limited women‘s vacation and sick-time, while Everyrealm would offer employees in male-dominated roles like engineering unlimited leave and vacation, and the men could work from home.” Id. ¶ 172.
Despite knowing that Yost was on sick and caregiver leave, Yorio sent Yost a “barrage of notifications” after 10 p.m. on a Saturday night regarding the “urgent” proposed policy change that she expected Yost to review. Id. ¶ 173. Although “ill and exhausted, [Yost] complied and left thoughtful comments in the policy document.” Id. ¶ 174. Yost told Yorio the proposed policies were illegal and discriminatory, and that “it was not an HR best-practice for the company to use certain gendered language like ‘grandfathered’ in company-wide policies.” Id. ¶ 175. Before going to bed that evening, Yost wrote to Kerr that if Yorio went ahead with the proposed policy change, “Yost ‘[would not] be staying on board.‘” Id. ¶ 176 (alterations in original). “If [Yorio] cuts off my access please text me so I know what to expect,” Yost wrote. Id. ¶ 177. Yost added: “I‘ve also alerted her to the discriminatory nature of the draft policy and language within it and advised her not to use it.” Id. Yost ended her message to Kerr with: “Did this policy have something to do with my being out last week for Covid-19? I was supposed to be in New York now so I guess I get it.” Id.
By the next morning, Everyrealm had revoked Yost‘s access to all company platforms. Id. ¶ 178. On June 26, 2022, Yost emailed Kerr. Id. ¶ 179. She reported that, when “[she] informed [Yorio] that allowing the engineering subgroup to have access to a special set of benefits is creating adverse impact because it is discriminatory against women,” Yorio had replied to Yost, “I‘m not making this about gender.” Id. Yost told Kerr that “the policy clearly outlines a discriminatory practice.” Id. ¶ 180. Yost asked Kerr, “why [was] my technology so abruptly cut off and what [] should [I] expect in terms of next steps in communication“? Id. ¶ 181 (alterations in original). Kerr did not respond. Id. ¶ 182.
Two days later, on June 28, 2022, Yost emailed Kerr again. Id. “[L]et me make myself clear that while I did tell [Yorio] that I would not administer any policy that I found to be discriminatory or non-compliant, at no time did I resign from my position.” Id. Yost stated that she “[could not] afford to leave my position without another prospect,” but that “[b]eing asked to do something illegal or unethical is not a choice.” Id.
Later that day, Kerr responded to Yost that he had begun an investigation into her allegations. Id. ¶ 183. However, on June 29, 2022, Kerr replied again that a “letter confirming [Yost‘s] resignation” was enclosed. Id. ¶ 184.
Yost replied, copying Everyrealm‘s chief financial officer James Goede and board
Everyrealm did not offer Yost any COBRA payment “even though [it] knew that (1) she was out on protected sick leave and caregiver leave when it terminated her without notice and (2) that [Yost] relied on Everyrealm‘s insurance plan for her substance use treatment among other necessities.” Id. ¶ 188. Yost has since had to fund her and her children‘s medical expenses out-of-pocket. Id. ¶ 189. She has been forced to go without medical care and has suffered physical side effects from emotional distress relating to her termination. Id. ¶ 191.
Yost alleges that defendants terminated her in retaliation for her refusal to implement “plainly illegal, retaliatory, and discriminatory personnel policies that made women and other protected groups second-class employees at Everyrealm.” Id. ¶ 22.
B. Procedural Background
On August 2, 2022, Yost filed the initial Complaint. Dkt. 1. On August 4, 2022, Yost filed an Amended Complaint. Dkt. 4 (“AC“).
On August 12, 2022, defendants moved to compel arbitration under Yost‘s January 24, 2022 employment agreement. Dkt. 9. In support, they filed a memorandum of law, Dkt. 10 (“MTC Mem.“), and declarations, Dkts. 11-12. On August 15, 2022, the Court set a briefing schedule. Dkt. 14. On September 6, 2022, Yost opposed arbitration, Dkt. 15 (“MTC Opp.“), and filed declarations in support, Dkts. 16-17. On September 9, 2022, defendants replied, Dkt. 18 (“MTC Reply“), and filed a declaration in support, Dkt. 19.6 On September 14, 2022, Yost requested leave to file a surreply, Dkt. 21, which defendants opposed, Dkt. 22. On September 16, 2022, the Court granted Yost‘s request, Dkt. 23. On September 22, 2022, Yost filed a surreply, Dkt. 24, and a declaration, Dkt. 25.
On September 27, 2022, Yost moved for emergency relief to enjoin the arbitration that, Yost stated, defendants had—without notice to the Court—initiated on September 12, 2022. Dkt. 28. In support, Yost filed a memorandum of law and declaration. Dkts. 29-30. On September 28, 2022, defendants filed a letter objecting to Yost‘s failure to confer with them before seeking emergency relief. Dkt. 31. Defendants represented that Yost had been on notice
of the arbitration since September 1, 2022—11 days earlier than the date Yost had represented to the Court. Id.
The same day, the Court directed defendants to file a response to Yost‘s motion for emergency relief, and scheduled a hearing to address the motion and parallel developments in Johnson v. Everyrealm, No. 22 Civ. 6669, a lawsuit brought by another Everyrealm employee represented by the same counsel as Yost and as to which Everyrealm also sought to compel arbitration.7 Dkt. 32. On October 3, 2022, defendants responded. Dkt. 33.
On October 6, 2022, the Court held the hearing. The Court determined that, under the EFAA,
On October 14, 2022, Yost filed the SAC. It added, to the AC‘s third and fifth claims, claims of a hostile work environment and sexual harassment. It also added the 12th claim, for violations of Title VII, and the 13th, for violations of the ADA.
On November 2, 2022, defendants moved to dismiss the SAC, Dkt. 40, and filed a supporting memorandum of law, Everyrealm MTD Mem., and declarations, Dkts. 38-39. On November 16, 2022, the affiliate defendants filed a motion to dismiss, Dkt. 55, and a memorandum of law in support, Dkt. 56 (“Affiliate MTD Mem.“). On November 16, 2022, Yost opposed Everyrealm‘s motion to dismiss, Everyrealm MTD Opp., and filed a declaration in support, Dkt. 59. On November 22, 2022, Public Justice requested leave to file an amicus brief on behalf of itself, the American Association for Justice, the National Women‘s Law Center, the National Employment Lawyers Association, Rape, Abuse & Incest National Network, Rise, and Lift Our Voices (collectively, “amici“), Dkt. 62, which the Court granted the same day, Dkt. 63. On November 30, 2022, Yost opposed the affiliate defendants’ motion to dismiss, Affiliate MTD Opp., and filed declarations in support, Dkts. 65-66. On December 7, 2022, amici filed a brief in support of Yost. Dkt. 71 (“Amici Br.“). On December 7, 2022, the affiliate defendants replied. Dkt. 72 (“Affiliate MTD Reply“). On December 16, 2022, the Everyrealm defendants replied. Dkt. 78 (“Everyrealm MTD Reply“).
On February 13, 2023, the Court ordered Yost to show cause for her failure to serve four defendants: Republic Crypto LLC, Compound Asset Management LLC, Realm Metaverse Real Estate Inc., and Republic Realm Manager LLC. Dkt. 81. On February 15, 2023, Yost moved for
the voluntary dismissal of these defendants. Dkt. 87. On February 16, 2023, the Court approved the voluntary dismissal. Dkt. 89.9
II. Arbitrability of Yost‘s Claims
Defendants move to compel arbitration of all claims in the SAC, based on the mandatory arbitration provision in Yost‘s independent contractor and employment agreements. Yost opposes the motion predominantly
First, the Court examines whether the SAC states a plausible claim of sexual harassment under any of the three statutes (Title VII, the NYSHRL, and the NYCHRL) under which such claims are pled. The Court holds that it does not. The Court accordingly dismisses these claims under
Second, the Court examines whether the EFAA applies where the only bases for invoking the EFAA are claims of sexual harassment that have been found implausibly pled. The Court holds that it does not. The EFAA thus does not present any barrier to the motion to compel arbitration here.
Third, the Court identifies issues specific to the arbitration agreements here that are in need of further briefing. These include which agreement controls; whether the SAC‘s claims against the affiliate defendants fall within the operative arbitration agreement; and whether Yost‘s challenge on grounds of unconscionability to a cost-shifting provision in the first two agreements is moot; if not, whether that challenge is meritorious; and if so, what remedy is proper.
A. Does the SAC Plausibly Plead a Claim of Sexual Harassment?
The Court considers first whether the SAC pleads a viable claim of sexual harassment. All parties agree—or appear to agree—that if it does, the EFAA applies to this lawsuit. In the companion case of Johnson v. Everyrealm, No. 22 Civ. 6669 (PAE) (S.D.N.Y. Feb. 24, 2023) (citation forthcoming), the Court has found a viably pled such claim, under the NYCHRL. The Court accordingly, applying the text of the EFAA, has held the entire “case,”
1. Standards for Motions Under Rule 12(b)(6)
In evaluating the plausibility of the SAC‘s sexual harassment claims, the Court applies familiar standards. To survive a motion to dismiss under
2. Standards for Sexual Harassment Claims Under the NYCHRL
Although the SAC brings sexual harassment claims under Title VII, the
The NYCHRL‘s liability standards are more lenient than those of Title VII, and historically have been lower than those of the NYSHRL, whose standards until recently had been keyed to Title VII‘s more demanding standards. As pertinent here, to establish a hostile work environment under Title VII required a showing of “severe and pervasive” conduct. See Williams v. N.Y.C. Hous. Auth., et al., No. 21-1527, slip op. at 24-25 (2d Cir. Feb. 23, 2023); McHenry v. Fox News Network, LLC, 510 F. Supp. 3d 51, 66 (S.D.N.Y. 2020). An amendment to the NYSHRL, effective October 11, 2019, has put in place a more lenient standard of liability that has been likened to that of the NYCHRL. See Mondelo v. Quinn, Emanuel, Urquhart & Sullivan, LLP, No. 21 Civ. 02512 (CM), 2022 WL 524551, at *9 (S.D.N.Y. Feb. 22, 2022) (amendment removed “severe and pervasive” requirement). The amended NYSHRL applies to the claims in this case, which postdate the effective date of the amendment. See id.; cf. Wellner v. Montefiore Med. Ctr., No. 17 Civ. 3479 (KPF), 2019 WL 4081898, at *5 n.4 (S.D.N.Y. Aug. 29, 2019) (amendments do not apply to conduct predating amendment‘s effective date). The amended NYSHRL, like the NYCHRL, is to be construed “liberally for the accomplishment of the remedial purposes thereof, regardless of whether federal civil rights laws including those laws with provisions worded comparably to the provisions of [the NYSHRL] have been so construed.” McHenry, 510 F. Supp. 3d at 68 (alteration in original) (citing
3. Application to Yost‘s Claims
The Everyrealm defendants argue that the SAC‘s NYCHRL allegations do not plausibly plead that Yorio‘s conduct was “because of” Yost‘s gender, sex, or sexual orientation.11 See Everyrealm MTD Mem.
The SAC‘s factual allegations in support of a claim of sexual harassment are threadbare. As reviewed above, these essentially involve Yorio‘s having spoken either to Yost, or in Yost‘s presence, about the sexual activities or orientations of coworkers. The SAC does not supply any basis to infer that Yorio‘s chatter to this effect had anything to do with Yost‘s “gender” or “sex.” Yost accordingly defends this claim on the ground that Yorio‘s remarks were based on Yost‘s sexual orientation.
Such a showing is necessary. Under the NYCHRL, as under Title VII and the NYSHRL, generalized hostility or generally uncivilized behavior is not actionable. Whether a claim in a complaint is cast as alleging sexual harassment or hostile work environment,12 the defendant‘s offending conduct must have been keyed to a protected characteristic of the plaintiff. See, e.g., Stinson v. City Univ. of N.Y., No. 17 Civ. 3949 (KBF), 2018 WL 2727886, at *8 (S.D.N.Y. June 6, 2018) (“In order to prevail on a hostile work environment claim under the NYCHRL, a plaintiff must show that she was treated ‘less well than other employees’ on the basis of a protected characteristic.“); Goodwine v. City of New York, No. 15 Civ. 2868 (JMF), 2016 WL 3017398, at *9 (S.D.N.Y. May 23, 2016) (NYCHRL requires that conduct was based on protected characteristic); Harris v. NYU Langone Med. Ctr., No. 12 Civ. 0454 (RA) (JLC), 2013 WL 3487032, at *27 (S.D.N.Y. July 9, 2013) (“[T]he broader remediation available under the [NYCHRL] does not allow the Plaintiff to dispense with linking his claim of hostility to some attitude that the law forbids.“), report and recommendation adopted, 2013 WL 5425336 (S.D.N.Y. Sept. 27, 2013); see also Shukla v. Deloitte Consulting LLP, No. 19 Civ. 0578 (AJN) (SDA), 2020 WL 3181785, at *10-11 (S.D.N.Y. June 15, 2020) (dismissing NYCHRL hostile work environment and discrimination claims where complaint did not allege that discrimination was “based upon [plaintiff‘s] gender“); cf. Mihalik, 715 F.3d at 114-15 (reversing dismissal of NYCHRL claim where supervisor‘s unwanted sexual attention towards employee, including two sexual propositions, was “because of” plaintiff‘s sex).
Here, the SAC alleges Yorio made
Yorio‘s other conduct on the topic of sex, as alleged, included repeating another employee‘s statement that a coworker‘s “balls will be in [his or her] mouth by the end of the night,” id. ¶ 66, gossiping that two employees were “sleeping together,” id. ¶ 73, and remarking that an Everyrealm cofounder, whom she had previously speculated was “in the closet,” “can‘t manage [his or her] way out of a paper bag,” id. ¶ 71. The SAC does not link these comments to Yost‘s sexual orientation. The SAC instead declares that Yorio must have believed Yost‘s bisexuality made her “an expert on others’ sexual orientations.” Id. ¶ 63. Such is, however, the epitome of the conclusory statement in a pleading that a court must ignore. See Pungitore v. Barbera, 506 F. App‘x 40, 42 (2d Cir. 2012); Goodwine, 2016 WL 3017398, at *8. The Court accordingly puts aside these comments about others’ sexual doings or predilections. Such remarks, however inappropriate or infantile, are disconnected from any protected characteristic of Yost‘s.
The SAC‘s claim of sexual harassment therefore reduces to the two comments, above, by Yorio about other employees’ sexual orientations. Despite amending her complaint twice and being admonished to include in her SAC all factual allegations relevant to such claims, Yost has proven unable to allege any other comments by Yorio (or any other defendant) regarding sexual orientation—and no comments whatsoever about Yost‘s. That lacuna is telling. See, e.g., Scalercio-Isenberg v. Morgan Stanley Servs. Grp. Inc., No. 19 Civ. 6034 (JPO), 2019 WL 6916099, at *6 (S.D.N.Y. Dec. 19, 2019) (NYCHRL gender-based discrimination claim not plausibly pled where plaintiff failed to demonstrate defendants declined to hire her because of her gender); Stinson, 2018 WL 2727886, at *10 (NYCHRL claim not plausibly pled where plaintiff did not allege comments were “based on” protected characteristic because “[a]t no
The SAC‘s allegations thus fall far short of those in cases where courts in this District have sustained claims of sexual harassment or hostile work environments under the NYCHRL based on sexual orientation. The SAC does not allege that Yorio ever referenced or asked about Yost‘s sexual orientation. Cf. Small v. N.Y.C. Dep‘t of Educ., No. 21 Civ. 1527 (GHW), 2023 WL 112546, at *8 (S.D.N.Y. Jan. 5, 2023) (NYCHRL claim plausibly pled where coworkers and administrators often discussed plaintiff‘s sexuality, supervisor questioned parents about plaintiff and his sexuality, and supervisor stated she did not like him because he is gay); Sanderson v. Leg Apparel LLC, No. 19 Civ. 8423 (GHW), 2020 WL 7342742, at *8 (S.D.N.Y. Dec. 14, 2020) (NYCHRL claim plausibly pled where supervisor made repeated comments about plaintiff‘s sexual orientation with intent to embarrass and diminish him); Raji, 2018 WL 1363760, at *1, *7 (NYCHRL claim plausibly pled where defendant asked if plaintiff was gay, called him a homophobic slur 30–40 times, and discussed or ridiculed the sexual orientations of other coworkers on multiple occasions). Nor does the SAC allege that Yorio displayed a general hostility toward non-heterosexual people or relationships. Cf. Roberts v. United Parcel Serv., Inc., 115 F. Supp. 3d 344, 349-51, 371 (E.D.N.Y. 2015) (NYCHRL claim plausibly pled where supervisor repeatedly told plaintiff that “being lesbian is a sin” and “wrong,” and that she was “going to hell“).
The Court thus finds that the SAC fails to allege a plausible claim of sexual harassment under the NYCHRL. Insofar as the handful of crude remarks by Yost that are pled here are disconnected from any protected characteristic of the plaintiff‘s, sustaining her sexual harassment claim would treat the NYCHRL as a general civility code, contrary to uniform case law. See, e.g., Fattoruso v. Hilton Grand Vacations Co., LLC, 873 F. Supp. 2d 569, 578 (S.D.N.Y. 2012), aff‘d, 525 F. App‘x 26 (2d Cir. 2013) (dismissing NYCHRL sexual harassment claim where “nothing . . . indicates that plaintiff was treated ‘unequally’ based upon his gender“); Russo v. N.Y. Presbyterian Hosp., 972 F. Supp. 2d 429, 450–52 (E.D.N.Y. 2013) (dismissing NYCHRL sexual harassment claim where surgeon‘s inappropriate comments and curses directed at entire staff, not just one gender) (collecting like cases); Casalino v. N.Y. State Cath. Health Plan, Inc., No. 09 Civ. 2583 (LAP), 2012 WL 1079943, at *7, *9 (S.D.N.Y. Mar. 30, 2012) (same); see also Scalercio-Isenberg, 2019 WL 6916099, at *6 (dismissing NYCHRL claim where
Accordingly, the SAC fails to allege a claim of sexual harassment under any body of law—city, state, or federal. The Court grants the Everyrealm defendants’ motion to dismiss all sexual harassment claims in the SAC under
B. Does the EFAA Apply Where the Only Basis for So Claiming Are Implausibly Pled and Dismissed Claims of Sexual Harassment?
The dismissal of the SAC‘s sexual harassment claims presents a question of statutory construction. All agree that the EFAA is triggered by a complaint that plausibly pleads a claim of sexual harassment. But where, as here, a plaintiff‘s only basis for claiming that a complaint triggers the EFAA are implausibly pled claims of sexual harassment, does the EFAA still operate to invalidate a binding arbitration agreement?14
Under the EFAA, that threshold question is reserved for the Court. See
Everyrealm argues that, for the EFAA to make an arbitration agreement unenforceable, a plaintiff must allege conduct that, taken as true, states a plausible sexual harassment claim. Yost, via her amici, argues that even an implausibly pled such claim brings a case within the EFAA, so long as the claim was not sanctionably frivolous. Compare Everyrealm MTD Mem. at 9–14, and Everyrealm MTD Reply at 15–16, with Amici Br. at 5–8. This question appears to be one of first impression. The case law to address the EFAA has overwhelmingly addressed a different question: whether the plaintiffs’ claims had accrued before the EFAA‘s effective date. See supra note 15. But see also Pepe v. N.Y. Life Ins. Co., No. 22 Civ. 4005 (SSV), 2023 WL 1814879, at *4 n.19 (E.D. La. Feb. 7, 2023) (EFAA did not apply where complaint‘s factual allegations and two references to “harassment” did not describe sexual harassment). The Court‘s decision today in the companion case of Johnson v. Everyrealm, No. 22 Civ. 6669, did not have occasion to resolve that question, because Johnson‘s sexual harassment claim under the NYCHRL was plausibly pled.
When resolving a dispute over a statute‘s meaning, the Court “begin[s] with the statutory text, exhausting all the textual and structural clues bearing on its meaning and construing each word in its context and in light of the terms surrounding it.” United States v. Bedi, 15 F.4th 222, 226 (2d Cir. 2021) (internal quotation marks and citations omitted). Where the text is plain and unambiguous, the Court‘s inquiry ends there. See BedRoc Ltd., LLC v. United States, 541 U.S. 176, 183 (2004); United States v. Gayle, 342 F.3d 89, 92 (2d Cir. 2003). “Plain meaning draws on ‘the specific context in which that language is used.‘” Williams v. MTA Bus Co., 44 F.4th 115, 127 (2d Cir. 2022) (citation omitted). However, “[i]f upon examination [the Court] find[s] the text to be ambiguous, [it] look[s] to traditional canons of statutory construction for guidance in resolving the ambiguity.” Id.
The operative text here is in EFAA sections 402(a) and 401(4). Section 402(a) provides that “at the election of the person alleging conduct constituting a sexual harassment dispute,” no pre-dispute arbitration agreement shall be valid or enforceable “with respect to a case which is filed under Federal, Tribal, or State law and relates to the sexual assault dispute or the sexual harassment dispute.”
This statutory language requires some parsing. The initial clause of § 402(a),
Section 401(4), however, precludes that result. It does so by requiring that the dispute relate to “conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law.” It thus requires the plaintiff to assert that the conduct violated such a law. It does so by modifying the term “alleged” with the qualifying words “to constitute sexual harassment under applicable Federal, Tribal, or State law.”
Thus, although the term “alleged” commonly refers to an allegation of fact,16 as used in § 401(4), the term adds a legal dimension to the required allegation. And § 401(4)‘s concluding clause identifies the legal measuring stick. The conduct must have been “alleged to constitute sexual harassment under applicable Federal, Tribal, or State law.” Congress‘s decision to add those qualifying words is significant. See Bedi, 15 F.4th at 226 (each word in a statute must be construed “in its context and in light of the terms surrounding it“). This plain language makes the EFAA inapplicable where there has not been an allegation that such conduct violated a law prohibiting sexual harassment.
The issue here then is whether—when a plaintiff‘s basis to invoke the EFAA is that her complaint claims a violation of a “Federal, Tribal, or State” law against sexual harassment—such a claim must be plausibly pled. Or, may the plaintiff, even after dismissal of a conclusory or otherwise deficient claim, nonetheless invoke the EFAA to block arbitration of the balance of her claims? The EFAA‘s text does not definitively decide this point. But for four reasons, the Court holds, the term “alleged” as used in § 401(4) is best read to implicitly incorporate the plausibility standard.
First,
Second, requiring a sexual harassment claim to be capable of surviving dismissal at the threshold of a litigation fully vindicates the purposes of the EFAA. The stated purpose of the EFAA is to empower sexual harassment claimants to pursue their claims in a judicial, rather than arbitral, forum. See H.R. Rep. No. 117-234, at 3–4 (2022). That important purpose is achieved by enabling such a claimant, notwithstanding an otherwise valid arbitration agreement, to bring her claims of sexual harassment in court and to litigate them there through the point of their durable dismissal. And, as the Court holds today in the companion case, as long as a claim of sexual harassment pends in a case, the EFAA, by its terms, blocks arbitration of the entire “case” containing that claim. See Johnson v. Everyrealm, No. 22 Civ. 6669 (PAE) (S.D.N.Y. Feb. 24, 2023) (citation forthcoming). After the dismissal of all sexual harassment claim(s) for failure to meet the plausibility standard, however, that purpose is not served by requiring the remaining (that is, non-sexual harassment) claims in the case to be litigated in court, in the face of a binding arbitration agreement.
Third, requiring such extraneous claims to be resolved in court after the dismissal of the sexual harassment claims, barring a clear statutory command to do so, would affront Congress‘s intent in enacting the FAA—of which, critically, the EFAA is a part. In evaluating statutory text, a court must construe words “with a view to their place in the overall statutory scheme,” mindful that its “duty, after all, is to construe statutes, not isolated provisions.” King v. Burwell, 576 U.S. 473, 486 (2015) (internal quotation marks and citation omitted). The FAA famously reflects a “liberal federal policy favoring arbitration.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011). The FAA‘s mandate may be “overridden by a contrary congressional command,” CompuCredit Corp. v. Greenwood, 565 U.S. 95, 98 (2012) (quotation marks omitted), as, in fact, the EFAA unequivocally does in explicitly removing cases sounding in sexual harassment (or sexual assault) from arbitration.
But to read the EFAA tacitly to void arbitration agreements after the point at which plaintiffs have proven themselves unable to plead claims of sexual harassment consistent with Iqbal, 556 U.S. at 678 (
Fourth, although not dispositive on this point, courts in other contexts have construed the statutory term “allege” in accord with the foregoing analysis. The Resource Conservation and Restoration Act (“RCRA“), for example, authorizes, inter alia, citizen suits “against any person . . . who is alleged to be in violation of” any requirement of its solid waste disposal provisions.
This case, in fact, supplies an excellent illustration of why such a construction would accord with the purposes of the FAA, as amended by the EFAA, and why Yost‘s alternative would not. Yost‘s initial and Amended Complaints, see Dkts. 1, 4, despite bringing a broad range of disparate employment-related claims against many defendants, did not bring any claims of sexual harassment. Only after the Everyrealm defendants moved to compel arbitration based on Yost‘s arbitration agreement, see Dkts. 9–12, did Yost suggest sexual harassment claims so as to implicate the EFAA, see MTC Opp. at 3–5, 6–7. The Court gave Yost an opportunity to plead such claims while admonishing her to assure that her amended complaint “contains all factual allegations bearing on her claim of sexual harassment.” See Dkt. 34 at 2. Yost‘s SAC added such claims and factual support as Yost could, presumably, muster. However, the Court has held today, the sexual harassment claims in the SAC are conclusory and threadbare. They decisively fail the most lenient standard available for pleading sexual harassment—that of the NYCHRL. The Court accordingly has dismissed these claims. No further claims of sexual harassment remain in this case or could be brought, with Yost having exhausted her full fund of ostensibly germane factual material. The only references to sexual harassment that remain in the case thus are the SAC‘s conclusory labels of defendants’ conduct as such.
In these circumstances, Yost‘s bid to block the arbitration of her remaining claims—which all arise from her employment and, at least as to the Everyrealm defendants, fall squarely within her arbitration agreements—is incompatible with
The Court accordingly holds that, with the SAC‘s sexual harassment claims having been dismissed as implausible, the EFAA no longer has any bearing on this litigation. To the extent that Yost‘s claims are covered by a valid arbitration agreement, these claims must be resolved in arbitration.
III. Enforcement of the Arbitration Agreement
The final step in analyzing the motion to compel arbitration entails determining which defendants and claims fall within the operative arbitration agreement. Certain conclusions are apparent, but to resolve reliably and fully the issues relating to the proper application of the arbitration agreements to the SAC, the Court will require supplemental briefing.
The first arbitration agreement is contained in Yost‘s December 21, 2021 Independent Contractor Agreement, which was between Yost and Everyrealm‘s predecessor, Republic Realm, Inc. See Dkt. 20-1. It provides:
Arbitration. Except as provided in Section 13.5.2 below, Contractor agrees that any dispute or controversy arising out of or relating to any interpretation, construction, performance or breach of this Agreement, shall be settled by arbitration to be held in the State of New York, in accordance with the rules then in effect of the American Arbitration Association. The arbitrator [sic] shall be final, conclusive, and binding on both Realm and Contractor. Judgment may be entered on the arbitrator‘s decision in any court having jurisdiction. Realm and Contractor shall each pay one-half of the costs and expenses of such arbitration, and each of Realm and Contractor shall separately pay counsel fees and expenses.
Id. at 13.5.1. The agreement also states:
Severability. If one or more of the provisions in this Agreement is deemed void or unenforceable to any extent in any context, such provisions shall nevertheless be enforced to the fullest extent allowed by law in that and other contexts, and the validity and force of the remainder of this Agreement shall not be affected. If any term or provision set forth in Section 9 is ruled by a tribunal of competent jurisdiction to be excessively broad as to time, duration, geographical scope, activity or subject, the other provisions of this Agreement shall nevertheless stand and the construction and interpretation of Section 9 shall be deemed to be the longest period and/or greatest size permissible by law under the circumstances, and the parties hereto agree that such court shall reduce the time period and/or geographic scope to permissible duration or size.
Id. at 13.3 (emphasis in original).
The second arbitration agreement is contained in Yost‘s January 21, 2022 Employment Agreement, which was also between Yost and Everyrealm‘s predecessor, Republic Realm, Inc., and contains substantially
Arbitration. Except as provided in Section 13(e)(ii)17 below, you agree that any dispute or controversy arising out of or relating to any interpretation, construction, performance or breach of this Agreement, shall be settled by arbitration to be held in the State of New York, in accordance with the rules then in effect of the American Arbitration Association. The arbitrator [sic] shall be final, conclusive, and binding on both the Company and you. Judgment may be entered in any court having jurisdiction. The Company and you shall each pay one-half of the costs and expenses of such arbitration, and each of the Company and you shall separately pay counsel fees and expense
Id. § 13(e)(i)). The agreement also states:
Severability. If one or more of the provisions in this Agreement are deemed void or unenforceable to any extent in any context, such provisions shall nevertheless be enforced to the fullest extent allowed by law in that and other contexts, and the validity and force of the remainder of this Agreement shall not be affected. If any term or provision set forth in . . . Section 13 is ruled by a tribunal of competent jurisdiction to be excessively broad as to . . . activity or subject, the other provisions of this Agreement shall nevertheless stand and the construction and interpretation of such term or provision shall be deemed to be the longest period and/or greatest size permissible by law under the circumstances, and the
parties hereto agree that such court shall reduce the time period and/or geographic scope to permissible duration or size.
Id. § 13(c).
The third arbitration agreement is contained in Yost‘s January 24, 2022 Workplace Employment Agreement, between Republic Realm, Inc., and Justworks. See Dkt. 79-1. It includes a lengthy arbitration provision that “supersedes any and all prior agreements regarding [arbitration].” Id. ¶ 10. This agreement, which refers to Republic Realm, Inc., as Yost‘s “Worksite Employer,” provides that the parties:
[A]gree to use binding arbitration as the sole and exclusive means to resolve all disputes that may arise between you and Worksite Employer and/or you and Justworks, including, but not limited to, disputes regarding termination of employment and compensation. You specifically waive and relinquish your right to bring a claim against Worksite Employer and/or Justworks, in a court of law, and this waiver shall be equally binding on any person who represents or seeks to represent you in a lawsuit against Worksite Employer or Justworks in a court of law. Similarly, Worksite Employer and Justworks specifically waive and relinquish their respective rights to bring a claim against you in a court of law, and this waiver shall be equally binding on any person who represents or seeks to represent Worksite Employer or Justworks in a lawsuit against you in a court of law.
Id. The arbitration provision also extends to all claims by Yost against “Worksite Employer (or its owners, directors, officers, managers, employees or agents)” and the same for Justworks. Id. And it
[I]nclude[s] within [its] scope . . . all disputes, whether based on tort, contract,
statute (including, but not limited to, any claims brought under the Fair Labor Standards Act or any other similar state or local law or regulation, or claims of discrimination, harassment and/or retaliation, whether they be based on the Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act, the American with Disabilities Act . . . or other similar local, state, or federal law or regulation), equitable law, or otherwise.
Id. Unlike the Employment Agreement, the arbitration provision does not include a provision for cost-splitting. Id.
It is clear to the Court that, by their terms and familiar principles of construction, any of these agreements covers all of the SAC‘s claims against the Everyrealm defendants (Everyrealm and its officers or employees Yorio, Schwartz, and Kerr). Those defendants have moved to compel arbitration based on the Employment Agreement.18 See MTC Mem. at 9–15. Although the parties have not addressed the Workplace Employment Agreement, the broad terms of that agreement, too, clearly cover such claims and defendants.
However, in part because the third agreement came to light late, and in part because of gaps in the briefing, including as to whether the affiliate defendants join in the motion to compel arbitration,19 several issues potentially bearing on the motion to compel require supplemental briefing.20 These are:
- Which arbitration agreement controls, and why?
- Do the SAC‘s claims against the affiliate defendants fall within the scope of the governing arbitration agreement? If so, do the affiliate defendants move to compel arbitration of these claims?
3. Insofar as Yost has argued that, given her financial circumstances, it would be unconscionable to apply a cost-splitting provision in the Employment Agreement to her, see MTC Opp. at 15–19, (a) is the determination of unconscionability to be made by the Court or an arbitrator; (b) has the cost-splitting provision in the Employment Agreement (and in the earlier Independent Contractor Agreement) been overtaken by the Workplace Employment Agreement, whose arbitration clause does not contain such a provision; (c) if that provision does apply in an arbitration, what costs are implicated by that provision, and on what concrete basis would it be unconscionable to apply a cost- (not fee-) splitting agreement to Yost, given that in the litigation she has initiated, or in an arbitration not governed by such a provision, Yost would presumably be responsible for paying her own costs; and (d) if it were found unconscionable to compel Yost to split costs with defendants, is the proper remedy pursuant to the severance provisions
The Court directs counsel to brief these issues expeditiously, with Yost‘s brief due Friday, March 10, 2023, and defendants’ brief(s) due Friday, March 24, 2023. The Court does not invite a reply. Pending the resolution of the motion to compel arbitration, the Court does not invite submissions on other issues, whether in the form of motions to amend, dismiss, or for sanctions, as to each of which one or more parties has signaled an interest in moving. The Court reminds counsel that, in the likely event that a motion to compel arbitration is granted, in whole or in part, the Court would thereupon stay proceedings in this Court pending the resolution of the arbitration. See Katz v. Cellco P‘ship, 794 F.3d 341, 345 (2d Cir. 2015).
CONCLUSION
For the foregoing reasons, the Court grants the Everyrealm defendants’ motions to dismiss the sexual harassment claims in Yost‘s Second Amended Complaint, and holds that, with the dismissal in full of these claims, the EFAA no longer has any bearing on the pending motion to compel arbitration in this case. The Court directs the Clerk of Court to terminate the motions pending at docket numbers 10, 40, and 55.
The Court has identified in this decision open questions relating to the motion to compel arbitration that require supplemental briefing, including as to the operative arbitration agreement and whether it covers all or only some defendants, and including relating to Yost‘s claim that it would be unconscionable to apply a cost-splitting provision to her. See supra Section III. The Court directs Yost to file a brief addressing these issues by Friday, March 10, 2023. The Court directs defendant(s) to file brief(s) on these issues by Friday, March 24, 2023.
SO ORDERED.
Dated: February 24, 2023
New York, New York
PAUL A. ENGELMAYER
United States District Judge
Notes
As to defendants’ first point, the Court, as explained above, must treat plaintiff‘s factual pleadings as true. At an appropriate time, presumably after discovery, defendants will be at liberty to argue—in the forum in which this case ultimately proceeds—that facts alleged by Yost have been proven untrue. If such is established, defendants may seek appropriate relief.
As to defendants’ second point, the factual allegations added by the SAC do not contradict the initial Complaint. “Where a plaintiff blatantly changes his statement of the facts in order to respond to the defendant‘s motion to dismiss and directly contradicts the facts set forth in his original complaint, a court is authorized to accept the facts described in the original complaint as true.” Vasquez v. Reilly, No. 15 Civ. 9528 (KMK), 2017 WL 946306, at *3 (S.D.N.Y. Mar. 9, 2017) (emphasis added) (internal alterations, quotation marks, and citation omitted). And where an initial pleading‘s factual allegations preclude relief, a plaintiff may be held to them despite deleting them from a successor complaint. See, e.g., Underwood v. Coinbase Glob., Inc., No. 21 Civ. 8353 (PAE), 2023 U.S. Dist. LEXIS 17201, at *17-19 (S.D.N.Y. Feb. 1, 2023) (collecting cases). “Where, however, an amended pleading is not in ‘direct’ contradiction with the original pleading, courts apply the general rule recognizing that an amended pleading completely replaces the original pleading.” Brooks v. 1st Precinct Police Dep‘t, No. 11 Civ. 6070 (MKB), 2014 WL 1875037, at *3 (E.D.N.Y. May 9, 2014). Such is the case here. The SAC does not squarely contradict any facts pled in the initial Complaint, including as to its allegations in support of its sexual harassment claims under the NYSHRL and NYCHRL. See Frey v. Pekoske, No. 18 Civ. 7088 (CS), 2021 WL 1565380, at *10 (S.D.N.Y. Apr. 21, 2021) (no direct contradiction where fourth complaint alleged a second off-camera search occurred, even after three earlier complaints and pleadings alleged only one search); id. (challenge to new allegations was “the stuff of fact-finding, not a motion to dismiss“). Indeed, the initial Complaint, although not bringing claims of sexual harassment, made factual allegations to this effect under the header, “Ms. Yorio Repeatedly Sexually Harasses Ms. Yost.” See Dkt. 1 ¶¶ 95-105. The SAC reprises these allegations. See SAC ¶¶ 61-71.