A federal appeals court has just ruled that a former executive’s entire lawsuit, harassment and money claims alike, can stay in public court instead of private arbitration.
Allegations · Appellate ruling · Case continuesTL;DR
- Silvia Diaz-Roa alleges she was fired for “cause” on February 9, 2024, weeks after putting in writing that she would exercise stock options in ClaimDeck, a company she helped build. The stock options had fully vested at an estimated value above $1 million. So no small amount for sure!
- She also alleges years of sexual harassment by the firm’s owner, Dwayne Hermes. The defendants deny none of this in the opinion; the court accepted her account as true only for purposes of the appeal.
- Her 2018 employment contract required arbitration of nearly all claims. A 2022 federal law lets people alleging sexual harassment void that agreement.
- The Second Circuit held that voiding the agreement covers the entire lawsuit, not only the harassment claims as the former employer was hoping for. Her stock-related conversion claim stays in court.
The ruling decides where the fight happens, and while also blocking a corporate strategy that would have split one set of events into two forums. This is good for the employee.
Transparency notice. This article relies on the Second Circuit’s September 30, 2026 opinion which I have attached at the bottom of this article. The facts below come from Diaz-Roa’s complaint, which the court accepted as true only because it was reviewing a motion to compel arbitration. They are allegations, not findings.
The Facts
Diaz-Roa joined Hermes Law, a law firm, as an intern in 2017. Dwayne Hermes is its founder, owner and CEO; Andrea Hermes was its Office Manager. In February 2018 she signed an agreement to arbitrate claims against the firm, its employees and agents, with limited exceptions. She was promoted several times and became Director of Innovation. In August 2019 she and Mr. Hermes conceived ClaimDeck, a computerized litigation-management company incorporated in February 2020. Her complaint says she performed work for ClaimDeck while employed by Hermes Law, reporting to Mr. Hermes, and rose to Head of Product and Chief Operating Officer with glowing performance reviews.
What the Defendants Are Alleged to Have Done
As a reward for her work, Diaz-Roa received options to buy ClaimDeck shares, vesting over three years. Options can only be exercised after they vest, which is why timing matters here. By August 2023 hers had fully vested. In December 2023 she told Mr. Hermes, ClaimDeck’s accountants and an attorney on a call that she intended to exercise them. She alleges that her repeated requests for follow-up calls with the attorneys and accountants went nowhere. On January 23, 2024 she repeated her intent in writing.
On February 9, 2024, she was terminated without warning, with the defendants asserting the firing was for cause, despite positive reviews as recently as October 2023. The significance is in the next step. When the defendants later sued first, in Texas, they sought confirmation that the firing was for cause, which they said would automatically terminate her options.
Separately, she alleges harassment throughout her tenure. According to the complaint, both Mr. and Ms. Hermes urged her to flirt with prospective clients to “attract business” and to pursue romantic relationships with industry colleagues to benefit her employers. She alleges Mr. Hermes repeatedly commented on her appearance in front of employees, including telling her to “fix” her makeup and accusing her of looking “tired.” At a November 2023 business dinner, she says, he compared her, the only woman present, to a piece of steak in front of male business acquaintances. She also alleges that around 2017 he jumped onto a scooter she was about to ride and slid behind her in a “compromising position” while a colleague took pictures.
Diaz-Roa signs the arbitration agreement with Hermes Law.
Her stock options are fully vested, valued at more than $1 million (estimated).
She says on a call that she will exercise the options. Later requests for more calls allegedly go unanswered.
She confirms her intent to exercise in writing.
She is terminated, with the defendants asserting cause.
Hermes Law and ClaimDeck sue in Texas seeking a for-cause confirmation; six days later she sues in New York.
The Second Circuit affirms the denial of arbitration.
How Arbitration Entered the Picture
Arbitration is a private dispute process in which a neutral arbitrator, not a judge or jury, decides the case. Under the Federal Arbitration Act, courts must generally enforce such agreements like any other contract. Employers often include them in hiring paperwork, which is how a 2018 intern-era signature came to govern a 2024 dispute over seven-figure stock.
In 2022, Congress carved out an exception, the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFAA). A person alleging sexual harassment can elect to void an arbitration agreement signed before the dispute arose. Whether the EFAA applies is decided by a court, not an arbitrator.
After the firing, Hermes Law and ClaimDeck started an arbitration against Diaz-Roa and, as noted, went to a Texas federal court. Diaz-Roa sued in New York on six claims: two for sexual harassment under city and state human rights laws, plus breach of contract, withholding of earned compensation under New York Labor Law, tortious interference with contract, and conversion (wrongfully taking or keeping someone’s property, here the stock options). The defendants then moved to compel arbitration. The district court stayed the arbitration on November 1, 2024.
What the Court Actually Decided
On November 21, 2024, the district court denied arbitration, refused to transfer the case to Texas, and dismissed most of the complaint. Only the two harassment claims and the conversion claim survived, and all claims against Ms. Hermes were dismissed. Diaz-Roa did not appeal those dismissals.
The defendants did not dispute that her harassment claims properly triggered the EFAA. Their argument was narrower: the statute voids arbitration only for the harassment claims, so the conversion claim over the stock options should be severed and sent to arbitration. That would have produced two proceedings from one set of events.
| Question | Defendants’ reading | Second Circuit’s holding |
|---|---|---|
| What does “case” in the EFAA mean? | An individual claim | The lawsuit as a whole |
| Harassment claims | Stay in court | Stay in court |
| Stock-option conversion claim | Sent to arbitration | Stays in court |
Comparison of the parties’ positions on appeal; the right column is the court’s holding.
Legal receipts
“The word ‘case’ is read most naturally to refer to an entire lawsuit.”Second Circuit opinion, Part II.B
“We hold that, when it is applicable, the EFAA enables a plaintiff to invalidate a pre-dispute arbitration agreement as to the entire lawsuit.”Second Circuit opinion, introduction
The panel (Judges Walker, Bianco and Pérez, with Judge Bianco writing) rested on the statute’s wording. Congress said an agreement is unenforceable “with respect to a case,” and used the narrower word “claim” elsewhere in the same law. The court also noted that Congress passed this version rather than a competing bill that would have applied only to individual claims. It found the Sixth and Ninth Circuits had reached the same conclusion, and called a lone district-court ruling to the contrary an outlier. It rejected the defendants’ arguments from the federal policy favoring arbitration and from legislative history, finding the statute’s text clear.
The ruling is an affirmance of a ruling on arbitration. It makes no finding on harassment, termination, or the options.
Why This Matters Beyond One Lawsuit
Editorial analysisThe court made no findings about social harm, and the allegations here are unproven. But the sequence in the record shows how the rules often work against employees in favour of the capital owners, and this specific ruling closes one route.
First, the timing of the paperwork. The arbitration agreement was signed when Diaz-Roa was an intern, years before the events she alleges. An employee at that stage has little ability to bargain over such a clause, yet it was later asserted over a dispute involving a roughly $1 million asset. Second, the alleged sequence on the options: vesting completed, intent to exercise stated in writing, termination for cause 17 days later, and a lawsuit by the company seeking a ruling that wipes out the options. If a company can end a worker’s equity by labeling a firing “for cause,” the worker’s leverage depends on where that label gets tested.
That is where the ruling matters for people beyond this plaintiff. Under the defendants’ reading, a worker who alleges harassment would have had to fight that claim in court and her pay-related claim in private arbitration, doubling cost and effort for one set of events. The court’s reading avoids that. Congress’s sponsors said the same in the record the court cited: a survivor “files a court case in order to seek accountability,” and “all of the related claims will proceed together.”
Three circuits now agree. For workers in the Second, Sixth and Ninth Circuits, a harassment claim keeps related money claims in the same courtroom.
The source document for this investigation is attached below.
