United States District Court, S.D. New York
Attorneys for Plaintiff KRAUSS PLLC By: Geri S. Krauss, Esq.
Attorneys for Defendants CLIFTON BUDD & DEMARIA, LLP By:
Daniel C. Moreland, Esq. Stephen P. Pischl, Esq.
W. SWEET U.S.D.J.
Young Adult Institute, Inc. ("YAI") and George
Contos ("Contos") (collectively, the
"Defendants") have moved pursuant to Rule 12(b)(6)
of the Federal Rules of Civil Procedure to dismiss with
prejudice the first, second, seventh, and eighth causes of
action of the amended complaint ("Amended
Complaint") of the plaintiff, Sanjay Dutt (the
"Plaintiff" or "Dutt") arising out of his
termination as Executive Vice President of YAI on April 20,
2016. Based upon the conclusions set forth below, the motion
of the Defendants is granted as to the second cause of
action, and denied as to the first, seventh, and eighth
causes of action.
filed his initial complaint on August 2, 2017. ECF No. 1.
After the filing by the Defendants of a first motion to
dismiss on October 17, 2017, see ECF No. 15, the Amended
Complaint was filed on November 7, 2017, see ECF No. 19,
mooting the first motion to dismiss. Defendants then filed
the instant motion to dismiss the first, second, seventh, and
eighth causes of action on December 4, 2017, which was heard
and marked fully submitted on February 21, 2018. ECF No. 23.
Amended Complaint alleges claims of discrimination and
retaliation against Dutt due to his race, color, national
origin and age in violation of Sections 1981 and 1983 of the
Civil Rights Act of 1866, 42 U.S.C. § 1981, Title VII of
the Civil Rights Act of 1964, 42 U.S.C. § 20003 et seg.
("Title VII"), the New York State Human Rights Law,
New York Executive Law § 296 et seg. (the "State
Law"), and the Administrative Code of the City of New
York § 8-107 et seg. (the "City Law"); breach
of contract and retaliation in violation of YAI's Code of
Conduct (the "Code of Conduct"), a Corporate
Integrity Agreement it entered into as part of a settlement
and dismissal of Medicaid fraud claims brought against it by
federal and state authorities (the "CIA"), and New
York law; and other related claims. Am. Compl. ¶ 1, ECF
the Amended Complaint alleges eight causes of action: (1)
breach of contract, detrimental reliance, and retaliation as
against YAI, see Id. ¶¶ 61-73; (2) breach
of third-party beneficiary obligations as against YAI, see
Id. ¶¶ 74-80; (3) discrimination under
Section 1981 as against YAI and Contos based on Dutt's
Indian heritage, see Id. ¶¶ 81-54; (4)
discrimination under Title VII as against YAI, see
Id. ¶¶ 85-96; (5) discrimination under
State Law as against YAI and Contos, see Id.
¶¶ 90-96; (6) discrimination under City Law as
against YAI and Contos, see Id. ¶¶ 97-104;
(7) breach of contract and obligation of good faith as
against YAI, see Id. ¶¶ 105-116; and (8)
tortious interference with contract and/or prospective
business relations as against Contos, see Id.
Amended Complaint sets forth the following facts, which are
assumed true for the purpose of this motion to dismiss. See
Koch v. Christie's Int'l PLC, 699 F.3d 141, 145 (2d
Cir. 2012). Plaintiff was hired by YAI, a not-for profit
health and human services agency serving individuals with
developmental and learning disabilities and their families,
to be its Chief Financial Officer ("CFO") on June
25, 2012, at a salary of $250, 000. See Am. Compl.
¶¶ 11, 13. In 2015, Dutt was promoted to assume the
role of Executive Vice President, in addition to continuing
his duties as CFO, and his salary was increased to $280, 000.
Id. ¶ 27.
time Dutt was promoted, YAI was operating pursuant to the
terms of a five-year Corporate Integrity Agreement it had
entered into on January 18, 2011 with the New York State
Office of the Medicaid Inspector General ("OMIG")
in connection with the settlement of claims by federal and
state authorities that YAI had knowingly presented, or caused
to be presented, false claims to the Medicaid program (the
"Medicaid Fraud Settlement"). Id.
¶¶ 14, 15. The CIA set forth detailed mandatory and
affirmative compliance obligations that YAI was required to
follow regarding systems, processes, procedures, controls,
and expertise to ensure accuracy in its reports to the
Medicaid Program. Id. ¶ 19. Pursuant to the
CIA, YAI was also required to establish a written Code of
Conduct to be distributed to all officers, directors, and
employees of YAI (the "Covered Persons"), and which
required, at a minimum, to mandate that all Covered Persons
(i) comply with the policies and procedures implemented
pursuant to the CIA, (ii) report any suspected illegal
activity or violations of the Code of Conduct or other
policies and procedures implemented pursuant to the CIA,
(iii) were subject to consequences for a failure to report
any such noncompliance, and (iv) had the right to be
protected from non-retaliation, non-intimidation and
non-harassment for any such reports. Id.
¶¶ 20-22. The Code of Conduct also required YAI to
retain an Independent Review Organization ("IRO")
to ensure that it was complying with all of its obligations.
Id. ¶ 19.
compliance with the CIA and as an integral part of its
Compliance and Ethics Program, YAI adopted the required Code
of Conduct. Id. ¶ 25. It provides:
YAI prohibits all forms of retaliation, intimidation, and
harassment against an individual who makes a good-faith
report of known or suspected non-compliance with the Code of
Conduct, the Personnel Practices Manual, a YAI policy or
procedure or an applicable law or regulation. YAI will not
penalize any individual making such a report. YAI will take
appropriate disciplinary action against anyone who penalizes
or intimidates an individual for reporting such a concern in
Id. ¶ 25. The Code of Conduct further requires
each employee to:
[R]eport promptly any actual or suspected violation of the
Code of Conduct, PPM, a YAI policy or procedure, or
applicable law or regulation to your immediate supervisor,
management staff, or the Compliance Officer. This includes
actual or suspected violations by anyone you supervise. It
also includes actual or suspected violations [by] anyone
outranking you. This includes Agency officers and trustees.
You must also report violations that you know or suspect will
occur in the future.
Id. ¶ 24.
component of Dutt's job when he was hired was to ensure
that YAI scrupulously complied with these compliance
obligations and ensured the accuracy of YAI's Medicaid
reimbursement submission. Id. ¶ 26. Plaintiff
alleges that during his tenure at YAI, he was a dedicated,
hard-working and highly regarded employee. Id.
¶ 27. YAI acknowledged Dutt's value, and in
particular his importance to the compliance program, in a
letter by its attorneys dated November 23, 2015 to OMIG (the
"OMIG Letter"). Id. ¶ 28. YAI advised
OMIG that it was developing retention agreements to offer
Plaintiff and two other senior executives guaranteed
employment for a fixed term, subject to traditional bases for
termination for cause, and that the three executives would
qualify for a one-time, special retention bonus by remaining
at YAI through the agreed-upon term. Id. ¶ 29.
In the OMIG Letter, YAI indicated that the reason for this
offer was to assure OMIG that YAI understood the need to
retain senior executives and promote organizational
continuity and oversight by individuals who had long-standing
experience at YAI and who were attuned to its culture.
Id. ¶ 28.
thereafter in mid-November 2015, Contos, the CEO of YAI,
Id. ¶ 2, extended to Plaintiff the offer as
described to OMIG, further specifying that the contract would
be for two years and for more money than his present salary.
Id. ¶ 31. Dutt understood that Contos was
making the offer on behalf of and with the knowledge,
approval, and authority of the Board of Directors of YAI (the
"Board"). Id. ¶ 32. Plaintiff
immediately accepted the offer. Id. ¶ 33.
the same time, Dutt and a group of 11 senior and executive
level managers (the "Group") became extremely
concerned that YAI was not complying with its obligations
under the CIA and its compliance program. Id. ¶
34. Plaintiff alleges that these concerns were apparent from
the serious deficiencies in the manner in which YAI was being
governed and managed by Jeffrey Mordos ("Mordos"),
YAI's Board Chairman, and Contos. Id. ¶ 35.
Mordos and Contos had taken actions contrary to the CIA
requirements, which the Group believed were so improper and
ill-advised that the fiscal stability of YAI and the quality
of the services it provided to those it served were at
serious risk, and that such behavior "severely
compromised" the corporate compliance program.
actions, and failures to act, taken by Mordos and Contos
resulted in, among other things: (i) the loss of YAI's
largest affiliate and nearly $60 million in revenue and the
potential loss of others; (ii) the departure of members of
the leadership team; (iii) the hiring of consultants and
vendors without compliance with the Procurement and Bidding
Policy and Procedure that was implemented as a result of the
recommendations of the IRO under the CIA and/or YAI's own
policies and vetting procedures, which resulted in the hiring
of friends of Mordos and Contos who lacked qualifications for
the jobs; (iv) improper billing of personal, excessive, and
impermissible expenses to YAI; (v) decision-making without
input from senior and executive management; and (vi) the
reduction of the Board from 21 members to only 9, which made
it difficult to fulfill its functions. Id. ¶
believed that it was his obligation under the CIA and the
Code of Conduct to report these concerns to YAI. Id.
¶ 38. The Group prepared a letter (the "Managers
Letter") and presentation for the Board, and then set up
a meeting to discuss these issues with Contos (the
"Meeting"). Id. ¶¶ 37, 39. Dutt
attended the Meeting on December 16, 2015. Id.
¶ 42. In participating in the Group and reporting these
concerns, Dutt expressly relied on the non-retaliation
provisions mandated under the CIA and the Code of Conduct.
Id. ¶ 38. At the meeting, Contos' reaction
was hostile and negative. Id. ¶ 43.
the Meeting, Contos, in complete contravention of the
mandated non-retaliation protections in the CIA and the Code
of Conduct, immediately commenced a campaign of retaliation
against Dutt and other Group members. Id.
¶¶ 44-46. Plaintiff alleges that this campaign
consisted of intimidation, retaliation, and inducements to
prevent the senior executive officers from further pursuing
these compliance and management issues with the Board or
OMIG. Id. ¶ 44. As a result, the Managers
Letter was never presented to the Board or OMIG. Id.
alleges that Contos then ceased his campaign of retaliation
against certain white members of the Group, who were even
awarded with raises, but continued to retaliate against the
non-white members of the Group. Id. ¶ 45.
Contos targeted Dutt, ultimately ending in his demeaning
termination. Id. From the date of the December
meeting on, Contos completely cut Dutt out of the management
of YAI, refused Dutt's requests for meetings, and instead