Johnson v. Everyrealm, Inc.
| Decision Date | 24 February 2023 |
| Docket Number | 22 Civ. 6669 (PAE) |
| Parties | TEYO JOHNSON, Plaintiff, v. EVERYREALM, INC., JULIA SCHWARTZ, JANINE YORIO, AND WILLIAM KERR, Defendants. |
| Court | U.S. District Court — Southern District of New York |
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 Teyo Johnson is a former employee of digital real estate company Everyrealm, Inc. (“Everyrealm”). As a condition of employment, Johnson entered into an agreement with Everyrealm containing a broad mandatory arbitration provision. Johnson now sues Everyrealm and several officers Janine Yorio, Julia Schwartz, and William Kerr (collectively “Everyrealm” or “defendants”).
The claims in Johnson's First Amended Complaint (“FAC”), Dkt. 29, include, against all defendants but Kerr: (1) race discrimination, in violation of 42 U.S.C. § 1981; and, against all defendants: (2) pay discrimination in violation of New York Labor Law (“NYLL”) § 194; (3) sexual harassment, hostile work environment, and discrimination on the basis of gender, race, and ethnicity, in violation of the New York State Human Rights Law (“NYSHRL”), N.Y. Exec. Law §§ 290 et seq.; (4) the same, in violation of the New York City Human Rights Law (“NYCHRL”), N.Y.C. Admin. Code §§ 8-502 et seq.; (5) aiding and abetting the NYSHRL violations above; (6) aiding and abetting the NYCHRL violations above; (7) whistleblower retaliation in violation of NYLL § 740; and (8) common-law intentional infliction of emotional distress. See FAC ¶¶ 162-205.
Everyrealm has moved, under the parties' arbitration agreement, to compel arbitration of Johnson's claims. Johnson counters that, because the FAC includes sexual harassment claims, the arbitration agreement is unenforceable under the EFAA. Everyrealm counters that Johnson's sexual harassment claims are fabricated and 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.
For the following reasons, the Court finds that Johnson's FAC has pled a plausible claim of sexual harassment in violation of the NYCHRL. And the Court construes the EFAA to render an arbitration clause unenforceable as to the entire case involving a viably pled sexual harassment dispute, as opposed to merely the claims in the case that pertain to the alleged sexual harassment. The Court accordingly denies, in its entirety, Everyrealm's motion to enforce the arbitration clause. Johnson's claims will now proceed in this Court.
The FAC 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, the following summary is focused on the allegations germane to the FAC's claims of sexual harassment. The Court recounts other allegations as context and to illuminate the FAC's other claims. The Court rejects defendants' argument that, because the factual allegations on which the FAC's sexual harassment claims rest were generally not included in Johnson's initial Complaint, the Court must disregard these allegations.[2]
1. The Parties
Everyrealm is a digital real estate company with a principal place of business in New York. Id. ¶¶3,15. Yorio is Everyrealm's CEO and a member of its board of directors. Id. ¶ 25. Schwartz is a member of Everyrealm's board and an employee. Id. ¶ 26. Kerr is Everyrealm's general counsel. Id. ¶ 24.
Everyrealm has attracted celebrity and influencer investors. Id. ¶ 7. Johnson was hired to manage celebrity relationships and cultivate new celebrity, sports, and brand partnerships for Everyrealm. Id. ¶ 9. Before working at Everyrealm, Johnson had played football in the National Football League, and worked in private equity and commercial real estate. Id. ¶¶ 35-36.
Johnson, a Nevada resident, was assigned to Everyrealm's New York City office for at least two weeks per month. Id. ¶ 14.
2. Everyrealm Hires Johnson
Johnson was invited to apply for a position at Everyrealm after he helped introduce a professional contact to Yorio, which led to a $500,000 investment in Everyrealm's Series A funding round. Id. ¶ 40. Everyrealm interviewed Johnson and hired him as director of strategic partnerships. Id.
During her interview of Johnson, CEO Yorio told him, in response to an answer of his, “you're not just a pretty face,” embarrassing Johnson. Id. ¶ 47. During the interview and Johnson's ensuing employment, Yorio made strange and unprompted statements to Johnson, including that she, Yorio, was “part Black.” Id. ¶ 49. In July 2022, Johnson learned that Yorio had told other employees after Johnson's interview that he “is the whitest Black guy I've ever met.” Id. ¶ 42.
On February 24, 2022, Johnson signed an employment agreement with Everyrealm in which he agreed, inter alia, to arbitrate “any dispute or controversy arising out of or relating to any interpretation, construction, performance, or breach of this Agreement.” Johnson Empl. Agt. at 6.[3] “[E]xcited by the opportunity to join a fast-growing startup and to become the first ex-NFL player to enter the Metaverse,” Johnson decided to join Everyrealm. FAC ¶ 50.
Defendants offered Johnson a non-negotiable pay package entailing a $125,000 base salary and a discretionary $40,000 bonus. Id. ¶ 118. Johnson later learned that he was the lowest paid director in Everyrealm's history, id. ¶ 119, and that white directors in roles similar to his were paid hundreds of thousands of dollars more while also being given millions of dollars in equity, id. ¶ 120. Defendants paid a 23-year-old strategic partnerships associate, who Johnson implies was not Black, a higher base salary than Johnson. Id. ¶ 121.
Everyrealm's employee handbook prohibits sexual harassment. Id. ¶ 52.
3. “Know Your Personnel” and “Know Your Client”
The FAC alleges that Johnson experienced “unrelenting harassment that was unsolicited, unwanted, and sexual in nature throughout his Everyrealm tenure.” Id. ¶ 51. Between March 11 and 20, 2022, Johnson attended a South by Southwest (“SXSW”) conference in Austin, Texas, on a work trip also attended by CEO Yorio and other Everyrealm executives. Id. ¶ 53.
While at SXSW, Yorio told Johnson about a “sex-related game that she encouraged employees to play” that she alternatively called “KYP,” for “Know Your Personnel,” or “KYC,” for “Know Your Client.” Id. ¶¶ 54-55. Yorio told Johnson that both “game names were euphemisms for ‘having sex' or ‘hooking up' with coworkers and business partners”; she instructed Johnson that “the way to play the game was to ‘get laid' by a coworker while on a business trip.” Id. ¶¶ 56-57. Yorio asked Johnson if he would be “doing any KYP,” id. ¶ 58, and “insinuated] that doing so was strongly encouraged,” id. ¶ 59. Johnson, “taken aback,” responded that he was “[a]lready really close with someone.” Id. ¶ 60.
Yorio persisted. Later that evening, she confronted Johnson at the hotel and told him that she ‘“know[s]' that he is in a relationship ‘right now' but that she thought he ‘would cheat on [his girlfriend] if the opportunity arises.'” Id. ¶ 61 (alterations in original). Johnson was “mortified and dismayed,” id. ¶ 62, and declined to participate in KYP, id. ¶ 64.
After they had returned from SXSW to the New York City office, Yorio continued to ask Johnson repeatedly if he had “done” or “would do ‘any KYP.'” Id. ¶ 65. Johnson repeatedly told Yorio he did not want to participate. Id. ¶ 66.
Also in the New York City office, Yorio and Everyrealm's head of gaming, Zachary Huntgate, in Johnson's presence, loudly speculated as to other employees' “KYP game[s]” and about which employees at the company “were allowed to date each other and which were already in relationships.” Id. ¶¶ 67-70. Yorio asked Huntgate who at Everyrealm was going to date an employee named Rachel. Id. ¶ 69. Huntgate responded that Rachel was “for Tyler.” Id. Yorio responded, “[o]h, ok.” Id. ¶ 70. Johnson, the FAC alleges, felt he “could not escape the sexual harassment-filled toxic work environment” that existed “in the conversations that occurred around his desk.” Id. ¶ 71.
4. The Everyrealm Company Party
Sometime after March 21, 2022, Everyrealm hosted a company-wide party in its New York City office. Id. ¶ 72. Johnson attended with his then-girlfriend, whom he brought at the encouragement of Yorio, Schwartz, and an Everyrealm cofounder. Id. ¶¶ 73-74. Johnson's girlfriend suffered from severe anxiety and brought her service dog with her. Id. ¶ 74.
When Johnson and his girlfriend arrived at the party, Yorio and Schwartz ignored him and gave his girlfriend “dirty looks.” Id. ¶ 75. Johnson's girlfriend “picked up on the negative tension and dirty looks,” was uncomfortable, and told him Johnson she wanted to leave minutes after arriving. Id. ¶ 76.
The next day, at Everyrealm's New York City office, Yorio and Schwartz repeatedly mocked Johnson's girlfriend to...
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