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June 1, 2005.

DORSETT-FELICELLI, INC., d/b/a Pyramids and PYRAMIDS PRE-SCHOOL, INC., Plaintiffs,
COUNTY OF CLINTON, PAULA CALKINS LACOMBE, individually and in her official capacity as Director of the County of Clinton Department of Public Health, and KATHERINE O'CONNOR, individually and in her official capacity as Early Intervention Official and PreSchool Related Service Coordinator, NORTH COUNTRY KIDS, INC., STEPHANIE GIRARD, KELLY McCAULEY and MELISSA PURCHALSKI, Defendants.

The opinion of the court was delivered by: LAWRENCE KAHN, District Judge


I. Background

Melissa Dorsett-Felicelli is the President and Executive Director of two corporations, Dorsett-Felicelli, Inc., d/b/a Pyramids (hereafter "Pyramids"), and Pyramids Pre-School, Inc. (hereafter "Pre-School") (collectively "Plaintiffs"). Plaintiffs bring this action pursuant to 42 U.S.C. § 1983, alleging that Defendants took retaliatory actions in violation of Dorsett-Felicelli's First Amendment rights. Currently before the Court is a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) by Defendants County of Clinton ("County"), Paula Calkins LaCombe ("LaCombe"), and Katherine O'Connor ("O'Connor") (collectively "County Defendants"). II. Facts

  Pyramids is a corporation that provides individualized services, such as speech, nutritional, occupational and physical therapies, to children of ages birth through three, pursuant to the Early Intervention Program ("EIP") established by New York Public Health Law. See N.Y. PUB. HEALTH LAW §§ 2540-2559.*fn2 The approval of New York State's Department of Health is required to become an authorized provider of these services. N.Y. COMP. CODES R. & REGS. tit. 10, § 69-4.5 (1997). Once approval has been received, a municipal official refers children to the service providers. N.Y. PUB. HEALTH LAW § 2552; N.Y. COMP. CODES R. & REGS. tit. 10, §§ 69-4.2, 4.3 (1997). As evidenced by its contract with the Clinton County Department of Public Health for the period January 12, 2004 through December 31, 2004, Pyramids is an authorized EIP service provider. EIP Contract (Dkt. No. 3, Ex. F). Pyramids receives the statutory fee of $70 for each therapy session provided. Dorsett-Felicelli Aff. (Dkt. No. 3) at ¶ 6.

  Pre-School provides special education and related therapy services to children ages three through five who have learning disabilities, pursuant to the Preschool Special Education ("PSE") Program that has been established under New York State Education Law. N.Y. EDUC. LAW § 4410. Approval of the Commissioner of the New York State Department of Education is required to become a service provider under this program. N.Y. EDUC. LAW § 4410(9). For participation in the PSE Program, children are referred to Pre-School through a school district's board of education. N.Y. EDUC. LAW § 4410(2). Pre-School has signed a contract with the Clinton County Public Health Department to offer PSE services from July 1, 2004 through June 30, 2005. PSE Services Contract (Dkt. No. 3, Ex. M).

  Beginning in the Fall 2003, Dorsett-Felicelli began to voice her objection to what she perceived as the County's unlawful use of independent unlicensed contractors as service providers under these programs. Complaint (Dkt. No. 1) at ¶¶ 27-28. Dorsett-Felicelli contends that the County designates certain providers as independent contractors to save money because this status avoids payment of certain state and federal employee taxes. Dorsett-Felicelli Aff. (Dkt. No. 3) at ¶ 9. Affording some providers this status therefore undercuts Pyramids' and Pre-School's ability to compete and to retain and recruit qualified specialists. Id.

  In a meeting in September 2003, Dorsett-Felicelli complained to several County officials, County Administrator William Bingel, County Attorney Dennis Curtin, and Assistant County Administrator Michael Zurlo, about the County's use of independent contractors for work under these programs. Id. at ¶ 10. In October 2003, Dorsett-Felicelli met with Zurlo, Curtin, and O'Connor, County Coordinator for EIP services, to reiterate her concerns. Id. at ¶ 11. She contends that upon voicing her objection, Curtin threatened that she could encounter problems with the way that Pyramids does its billing. Id. On December 10, 2003, Dorsett-Felicelli took her concerns to the Clinton County Legislature, but she claims that she only received "lip service." Id. at ¶ 12.

  Plaintiffs contend that the County was surreptitiously involved in encouraging three of Pyramids' employees, Melissa Puchalski, Stephanie Girard and Kelly McCauley, to form North Country Kids, a competing agency which also provided EIP and PSE services. Id. at ¶ 14. As evidence of this allegation, Plaintiffs point out that the County scrambled to have North Country Kids' provider status approved prior to Pyramids' termination of employment of these three employees because their employment with a licensed service provider, such as Pyramids, was necessary to allow transfer of session hours to North Country Kids. Id. To expedite the North Country Kids' service provider approval, the County Legislature "took the unusual step of calling for a vote on the agreement by telephone rather than in chambers." Id. Plaintiffs also note that North Country Kids was included on a February 4, 2004 list of service providers compiled by the Clinton County Department of Public Health, when its approval by the County Legislature was not obtained until February 11. Id. at ¶¶ 15-16. State approval was never obtained.

  In a memorandum dated February 12, 2004, County Defendants notified Pyramids and Pre-School that effective February 16, 2004, County Defendants had elected to transfer EIP and PSE session hours away from Pyramids and Pre-School to North Country Kids. Clinton County Health Dep't. Memo (Dkt. No. 3, Ex. G). Plaintiffs contend that this represents a gross revenue of $207,480 annually. Dorsett-Felicelli Aff. (Dkt. No. 3) at ¶ 17.

  Shortly after this transfer of session hours, an anonymous letter was sent to the Department of Education, alleging that Pyramids' services jeopardize the safety of the children. Id. at ¶ 18. The Department of Education, understandably concerned for the safety of the children, did an investigation and reported that there was no merit to these allegations and that Pyramids services were of "exemplary quality." Letter of Rusty Kindlon, State Dep't. of Ed. (Dkt. No. 3, Ex. I). Dorsett-Felicelli believes that County Defendants were involved in the sending of this letter. Dorsett-Felicelli Aff. (Dkt. No. 3) at ¶ 18. She hired a forensic linguistic analyst who is of the opinion that O'Connor may have written the anonymous letter. Id. at ¶ 18. The County has refused requests to investigate the matter. Id.

  On June 1, 2004, Pyramids filed an Article 78 proceeding in the Supreme Court of the State of New York, County of Clinton, against defendants County of Clinton, County of Clinton Department of Public Health, LaCombe, and O'Connor. Complaint (Dkt. No. 1) at ¶ 51. That action seeks declaratory and injunctive relief and specifically "seeks to have the session hours reinstated on the ground that the respondents in that proceeding acted arbitrarily and capriciously with regards to Pyramids." Dorsett-Felicelli Aff. (Dkt. No. 3) at ¶ 19.

  Plaintiffs contend that in response to the filing of that Article 78 proceeding, County Defendants retaliated against Pyramids and Pre-School. Id. at ¶ 20. In August 2003, County Defendants had made 546 EIP session referrals to Pyramids, a number consistent with previous months, but in June 2004, referrals dropped to 100. Id. Additionally, after the filing of the Article 78 proceeding, on September 1, 2004, County Defendants transferred Special Education Itinerant Teacher ("SEIT") services for 11 students, a total of 30 sessions per week for 40 weeks, sessions that are part of the PSE Program, away from Pre-School.*fn3 Id. at ¶ 21. The transfer of SEIT sessions constitute a loss of about $76,800 of income to Pre-School. Complaint (Dkt. No. 1) at ¶ 57.

  Plaintiffs filed the instant action on September 30, 2004, along with a motion for a preliminary injunction. Complaint (Dkt. No. 1); P.I. Motion (Dkt. No. 3). The Clinton County Supreme Court issued a decision in the Article 78 proceeding on October 31, 2004. Dorsett-Felicelli, Inc., d/b/a/ Pyramids v. County of Clinton, et al., No. 04-0547 (N.Y. Sup. Ct. Oct. 31, 2004). Justice McGill dismissed the case and held that petitioners, Dorsett-Felicelli and Pyramids, lacked standing because the statutes and regulations were not implemented to protect against the harm of which they complained, explaining that "petitioner[s] simply failed to make the `critical showing' that [their] injury falls within the `zone of interest' of either [the Public Health Law or Education Law]." Id. at 9.

  On November 16, 2004, the Court issued an Order ("Nov. 16 Order") on the motion for a preliminary injunction holding, inter alia, that (1) the Court would abstain from all claims for declaratory or injunctive relief relating to the transfer of EIP session hours and (2) the motion with respect to the ...

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