Last week, the federal court for the Southern District of New York issued two important decisions interpreting the recently-enacted Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (“EFAA”), the most significant amendment to the FAA since the FAA’s enactment in 1925 and the first major federal law arising from the #MeToo movement. The goals behind EFAA are certainly laudable. However, this landmark amendment is poorly drafted, and as explained below, I believe both recent court decisions contain flaws.
In Johnson v. Everyrealm, Inc., No. 22 Civ. 6669 (S.D.N.Y. Feb 24, 2023) (click here for a copy of the decision), the court interpreted the scope of EFAA in a broad manner, as covering every claim in the lawsuit. According to this court’s interpretation of EFAA, EFAA invalidates pre-dispute arbitration agreements with respect to an entire case that relates to a sexual harassment dispute, and not merely a particular count or claim of sexual harassment and not merely other claims relating to a sexual harassment claim. In other words, EFAA invalidates the obligation to arbitrate with respect to the entire case as an undivided whole, and the court explained as follows:
[T]he text of § 402(a) makes clear that its invalidation of an arbitration agreement extends to the entirety of the case relating to the sexual harassment dispute, not merely the discrete claims in that case that themselves either allege such harassment or relate to a sexual harassment dispute (for example, a claim of unlawful retaliation for a report of sexual harassment).
I have written an article addressing the amendment and its different possible interpretations. A draft of my article, forthcoming in the Northwestern Journal of Law and Social Policy, can be found at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4147981. As explained in my article, I believe courts should adopt a “nexus” view when applying the amendment in light of the text, history, and policy behind the amendment. However, the federal court in the recent Johnson case adopted a different approach, which I describe as the “broad” view in my article. Under the nexus view, the amendment covers sexual assault or sexual harassment claims as well as any other claim derived from a common nucleus of operative fact as the assault or harassment claim. I believe the Johnson court adopted the wrong legal standard or interpretation of EFAA. However, applying the narrower nexus legal standard to the particular facts of the Johnson case could lead to the same result in Johnson.
Additionally, the Johnson court, in a footnote, explained that it is not appropriate to look at legislative history since the text of EFAA is clear. I beg to differ, and I consider the text of EFAA to be ambiguous and subject to at least three different interpretations. Unfortunately, the legislative history also contains some inconsistent or ambiguous statements, but overall and as explained in my article, I believe the weight of the legislative history favors the nexus view, a legal standard different from and narrower than the broad view adopted by the Johnson court.
The Johnson court adds a qualifying footnote, footnote 23, suggesting that claims must be properly joined in order for EFAA to apply to such claims, and the court suggests the joinder rules are satisfied here since all the claims arise from the plaintiff’s employment with the defendant. FRCP 18, which was not cited by the court, allows for liberal joinder, without imposing a requirement that claims must be related or arise from the same transaction. And so notwithstanding footnote 23 and its suggestion that claims should satisfy the joinder rules in order for EFAA to apply, I still interpret the Johnson court as adopting a broad view of EFAA, as opposed to the narrower nexus view. Also, would EFAA operate differently in a state court that follows different, perhaps narrower, joinder rules?
In the second opinion, Yost v. Everyrealm, Inc., No. 22 Civ. 6549 (S.D.N.Y. Feb 24, 2023) (click here for a copy of the decision), the federal court held that in order for EFAA to apply, the sexual harassment claim must satisfy Twombly’s heightened, plausibility pleading standard. In other words, EFAA appears to incorporate FRCP 8. But what happens if Yost had originally filed a complaint in a state court which does not follow Twombly’s heightened pleading standard? Would EFAA then apply, perhaps as long as the sexual harassment claim is not frivolous, instead of requiring the plaintiff to satisfy the higher Twombly standard manufactured by the Supreme Court? I believe EFAA was intended to provide uniform protections for survivors of sexual assault or harassment, regardless of whether a claim is filed in state court or federal court, and so application of EFAA should not differ depending on the court. Also, as a separate matter, I don’t believe Congress has the power to impose heightened pleading standards (or other procedural rules) for state courts for the state law claims at issue in Yost, and as explained in my article, there are constitutional concerns with certain applications of EFAA.
The Yost court ultimately found that the sexual harassment claim did not satisfy Twombly’s heightened plausibility standard. According to the court, the sexual harassment allegations were “conclusory” and “threadbare.” Thus, the court held that EFAA did not apply, and the court dismissed the sexual harassment claim under FRCP 12b6 while recognizing the plaintiff’s other claims should be subject arbitration (assuming there is a valid arbitration agreement, which requires further briefing). The Yost decision does not appear to mention the dismissal is with prejudice, but FRCP 41b would treat the dismissal of the sexual harassment claim as an adjudication on the merits. If EFAA does not apply, shouldn’t every claim, including the sexual harassment claim, be sent to an arbitrator for resolution according to a valid, broad arbitration agreement? Normally, a federal court does not examine plausibility before compelling arbitration. If the FAA is fully applicable, I believe the arbitrator should have jurisdiction to consider the sexual harassment claim, and it was erroneous for the court to rule on and dismiss the claim on the merits. Note that arbitral rules may allow for more lenient pleading standards, such as traditional, pre-Twombly notice pleading, and thus an arbitrator should be able to hear the sexual harassment allegation in this case (although I have seen some parties draft arbitration agreements expressly incorporating Twombly’s plausibility standard to govern the statement of claim or initial pleading for the arbitration proceeding.)
Here’s another possible angle to consider the 12b6 dismissal in Yost: By applying the 12b6 standard to the sexual harassment claim, isn’t the court treating the claim as being governed by the amendment? In other words, suppose the court had held that the amendment governs and applies here, and so the sexual harassment claim and related claims are properly in court. Then, with the claims properly in court, all regular court rules will apply, such as a 12b6 pleading standard or a summary judgment standard and all other FRCP rules. By applying 12b6 to dismiss the claim here, the court was in effect treating the sexual harassment claim as governed by the amendment. However, the court held to the contrary, that the amendment does not apply here. If the amendment does not apply to invalidate the arbitration agreement, then the arbitration agreement may be fully valid, and thus every claim would now be covered by a broad, valid arbitration clause.
Take a look at the key language from EFAA:
“[A]t the election of the person alleging conduct constituting a sexual harassment dispute or sexual assault dispute, or the named representative of a class or in a collective action alleging such conduct, no predispute arbitration agreement or predispute joint-action waiver 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.”
Isn’t the Yost court saying that the plaintiff did not properly allege conduct constituting sexual harassment, and if so, isn’t the amendment no longer controlling? As a result, the amendment does not invalidate the agreement, and the agreement is still in force. With a broad arbitration agreement, every claim should now be subject to arbitration.
As I mentioned in my article, EFAA is poorly-drafted, and so I expect we are likely to see conflicting court decisions interpreting EFAA as more cases arise.