#MeToo Arbitration Opt-Out Scope Tested by Law Firm Bias Appeal

A Dallas law firm faced a skeptical Second Circuit on Thursday in its bid to undo a ruling allowing a former employee to opt-out of arbitration for her “entire case” because she alleged sexual harassment.

Whether the #MeToo-inspired Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act applies to all claims in a lawsuit or just those relating to alleged sexual harassment is unsettled. Most lower courts find the 2022 arbitration opt-out law extends to the whole case when a sexual harassment claim is included, but employers generally argue the EFAA wasn’t meant to reach claims unrelated to employment or the alleged harassment.

Practitioners say clarity is needed from the federal appeals court on the issue

The US Court of Appeals for the Second Circuit faced the question here in oral argument for Silvia Diaz-Roa’s lawsuit against Hermes Law PC, litigation management platform ClaimDeck, and Dwayne Hermes—the lawyer who controls both entities.

TikTok Inc. and its parent ByteDance Ltd. also asked the New York-based appeals court to address the topic, and a case involving law firm Adams & Reese LLP asked the question of the Sixth Circuit.

Second Circuit Judges John M. Walker Jr., Joseph F. Bianco, and Myrna Pérez probed counsel for Hermes Law Firm and the other defendants on their position that Diaz-Roa’s claim over lost stock options raises a business dispute separate from her sexual harassment allegations regarding Dwayne Hermes. They also asked attorneys for both sides what Congress intended when it used the word “case” in the EFAA rather than “claim” and what impact a 2022 US Supreme Court ruling has on whether the defendants waived their right to arbitrate by suing in court before seeking arbitration.

That decision, Morgan v. Sundance, Inc., says courts can’t impose new procedural rules in determining whether arbitration should be compelled, Pérez said. She asked defense counsel how the relatedness of Diaz-Roa’s claim over her stock options to her sexual harassment allegations is determined if the Second Circuit doesn’t create a new test.

Courts have always asked which claims in lawsuits are arbitrable and which ones aren’t, Amari L. Hammonds of Orrick, Herrington & Sutcliffe LLP said on behalf of the defendants. The lower court wrongly exempted Diaz-Roa’s conversion claim from arbitration, along with her sexual harassment claim, because the EFAA is a narrow exception to the Federal Arbitration Act’s long-recognized policy favoring the enforcement of arbitration agreements, Hammonds said.

Morgan only said that arbitration pacts must be treated like other contracts and that courts can’t consider whether a party was prejudiced by litigation activity by the other side before arbitration was sought in determining whether arbitration rights were waived, another judge said.

The EFAA provision at issue uses both “dispute” and “case,” Pérez said. She asked Hammonds why Congress shouldn’t be understood to mean something narrower by dispute when it subsequently used case in the same provision.

If Congress meant something broader by case, that would make superfluous the requirement it included in the EFAA that a case must relate to sexual harassment for the arbitration opt-out to be triggered, Hammonds said. The alleged conduct by the defendants supporting Diaz-Roa’s conversion claim has nothing to do with sexual harassment, she said.

Diaz-Roa’s lawyer Valdi Licul of Wigdor LLP disagreed that federal policy favors arbitration. Morgan held that arbitration isn’t disfavored, not that it’s favored, Licul said.

It’s enough to show relatedness under the EFAA that a claim is included in the same suit, the lawyer said. As long as sexual harassment is also claimed. A case is only unrelated to sexual harassment for arbitration opt-out purposes when a plaintiff says they were a victim of sexual harassment but doesn’t actually assert a harassment claim, he said.

One judge said he struggled to understand that view.

Pérez also asked for rules the court should set post-Morgan for assessing when a party has waived their right to arbitrate.

The question should be whether the party seeking arbitration asked a court to decide the same dispute, Vicul said. He disagreed with one judge that the key principle of the ruling in Doyle v. UBS Financial Services Inc. was that the party seeking arbitration lost a motion to dismiss in court before demanding to arbitrate.

Doyle said affirmatively seeking a resolution in court is sufficient for waiver, Licul said.

A court can’t rule without a motion, a judge said.

Hermes Law Firm and the other defendants sought arbitration two months after filing a declaratory judgment action in Texas federal court, not long before Diaz-Roa’s federal suit in New York.

Whether that “first move” waived arbitration or was an acceptable “placeholder” suit was also probed by the judges.

The case is Diaz-Roa v. Hermes Law, P.C., 2d Cir., No. 24-03223, oral argument 10/16/25.