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Dutt v. Young Adult Institute, Inc.

United States District Court, S.D. New York

June 26, 2018

SANJAY DUTT, Plaintiff,
v.
YOUNG ADULT INSTITUTE, INC. and GEORGE CONTOS, Defendants.

          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.

          OPINION

          R0BERT W. SWEET U.S.D.J.

         Defendants 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.

         I. Prior Proceedings

         Plaintiff 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.

         The 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 No. 19.

         Specifically, 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. ¶¶ 117-124.

         II. The Facts

         The 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.

         At the 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.

         In 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 good faith.

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.

         A key 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.

         Shortly 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.

         Around 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. Id.

         The 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. ¶ 36.

         Dutt 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.

         Following 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.

         Plaintiff 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 met ...


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