Yost v. Everyrealm, Inc.

657 F.Supp.3d 563

Katherine YOST, Plaintiff, v. EVERYREALM, INC., Compound Asset Management LLC, Realm Metaverse Real Estate Inc.,Republic Realm Manager LLC, Republic Realm Inc., Republic, Republic Crypto LLC,Republic Operations LLC, OpenDeal Inc., OpenDeal Portal LLC,Janine Yorio, Zach Hungate, and William Kerr, Defendants.

22 Civ. 6549 (PAE)

United States District Court, S.D. New York

Signed February 24, 2023

Shane Seppinni, Seppinni LLP, New York, NY, for Plaintiff.

Lloyd Blades Chinn, Proskauer Rose LLP, New York, NY, for Defendants Janine Yorio, William Kerr, Zach Hungate, Everyrealm, Inc., Republic Realm Inc.

Jason Weber, Isaac Treadaway, Polsinelli PC, Dallas, TX, for Defendants Republic Operations LLC, OpenDeal Inc., OpenDeal Portal LLC.

Anita Yandle, Shelby Hannah Leighton, Karla Ann Gilbride, Public Justice P.C., Washington, DC, for Amicus Public Justice.

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"), Pub. L. No. 117-90, 135 Stat. 26, codified at 9 U.S.C. §§ 401-02, which amended the Federal Arbitration Act ("FAA"), and which President Biden signed into law on March 3, 2022. As pertinent here, the EFAA defines a "sexual harassment dispute" as "a dispute relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law." 9 U.S.C. § 404(4). At the election of a person alleging "conduct constituting a sexual harassment dispute," the EFAA makes pre-dispute arbitration agreements unenforceable "with respect to a case which is filed under Federal, Tribal, or State law and relates to . . . the sexual harassment dispute." Id. § 402(a).

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, 29 U.S.C. §§ 206 et seq.; (2) the same, in violation of New York Labor Law ("NYLL") § 194; (3) sexual harassment, hostile work environment, and discrimination on the basis of, inter alia, gender, sexual orientation, disability, and marital status in violation of the New York State Human Rights Law ("NYSHRL"), N.Y. Exec. Law §§ 290 et seq.; (4) retaliation for opposing unlawful employment practices and complaining about discrimination against herself and others, in violation of NYSHRL § 296; (5) sexual harassment, hostile work environment, and discrimination on the basis of, inter alia, gender, sexual orientation, disability, and marital status, in violation of the New York City Human Rights Law ("NYCHRL"), N.Y.C. Admin. Code §§ 8-502 et seq.; (6) retaliation for opposing unlawful employment practices, in violation of NYCHRL § 8-107; (7) aiding and abetting the NYSHRL violations, above; (8) aiding and abetting the NYCHRL violations, above; (9) whistleblower retaliation in violation of NYLL § 740; (10) termination in retaliation for taking sick leave, in violation of NYLL § 215; (11) common-law intentional infliction of emotional distress; (12) discrimination, sexual harassment, and retaliation in violation of Title VII of the Civil Rights Act of 1964 ("Title VII"), 42 U.S.C. §§ 2000-e et seq.; and (13) discrimination and retaliation in violation of the Americans with Disabilities Act ("ADA"), 42 U.S.C. §§ 12101 et seq. See SAC ¶¶ 192-265. These claims are brought against all defendants except Hungate, who is named in only the third, fifth, and eleventh claims.¹

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 Federal Rule of Civil Procedure 12(b)(6); and that the Court should compel arbitration of the remaining claims, which are within the scope of lawful arbitration provisions.

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

The SAC makes many factual allegations in support of its claims. In light of the narrow issue under the EFAA that the pending motion to compel arbitration presents and on which this decision centers, the following summary is focused on the allegations germane to the SAC's claims of sexual harassment. The Court recounts other allegations as context and to illuminate the SAC's other claims. The Court rejects Everyrealm's argument that, because the factual allegations on which the SAC's sexual harassment claims rest were generally not included in Yost's initial Complaint, Dkt. 1, the Court must disregard these allegations.³

A. Factual Background

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 three children, openly bisexual, and disabled. Id. ¶¶ 21, 40.

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....