Fisch v. New Heights Academy Charter School et al
Filing
19
OPINION AND ORDER. The defendants' May 15, 2012 motion to dismiss is granted as to Fisch's claims against the Individual Defendants, and denied as to Fisch's claim against the School under the whistleblower provisions of the FCA. This ruling disposes of all claims against the Individual Defendants. The Clerk of Court shall remove defendants Winnitt, Grossmann, Davis, andRampoltd from the case. Re: 11 MOTION to Dismiss Complaint filed by Gail Grossmann, Joel Rampoldt, Jennifer Davis, New Heights Academy Charter School, Stacy Winitt. (Signed by Judge Denise L. Cote on 9/13/2012) (rjm)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------- X
:
GENE FISCH, JR.,
:
:
Plaintiff,
:
:
-v:
:
NEW HEIGHTS ACADEMY CHARTER SCHOOL, a :
corporation; STACY WINITT,
:
individually and as Executive Director :
of New Heights Academy Charter School; :
GAIL GROSSMAN, individually and as
:
Board President of New Heights Academy :
Charter School; JENNIFER DAVIS,
:
individually and as Board Vice
:
President of New Heights Academy
:
Charter School; and JOEL RAMPOLDT,
:
individually and as a Board Member of :
New Heights Academy Charter School,
:
:
Defendants.
:
:
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APPEARANCES
For Plaintiff:
Jeremy Heisler
Steven L. Wittels
Andrew Melzer
Sanford, Wittels & Heisler, LLP
1350 Avenue of the Americas, 31st Floor
New York, NY 10019
David W. Sanford
Thomas J. Henderson
Brandon Jamison
Sanford, Wittels & Heisler, LLP
1666 Connecticut Ave., Suite 310
Washington, DC 20009
12 Civ. 2033 (DLC)
OPINION & ORDER
For Defendants:
Marjorie Kaye Jr.
Samantha Abeysekera
Jackson Lewis LLP
666 Third Ave.
New York, NY 10017
DENISE COTE, District Judge:
Plaintiff Gene Fisch, Jr. (“Fisch”) brings this action
against defendants New Heights Academy Charter School (the
“School”), Stacy Winnitt (“Winnitt”), Gail Grossmann
(“Grossmann”), Jennifer Davis (“Davis”), and Joel Rampoldt
(“Rampoltd”) pursuant to the whistleblower provisions of the
False Claims Act (“FCA”), 31 U.S.C. § 3730(h), and New York
State law.
The defendants have moved to dismiss Fisch’s
complaint (the “Complaint”) in part, pursuant to Rule 12(b)(6),
Fed. R. Civ. P.
For the following reasons, the motion is
granted in part.
BACKGROUND
The following facts are drawn from the complaint and are
presumed to be true for purposes of this motion.
a charter school in New York City.
The School is
It submits requests for and
receives federal funding to support its operations.
Fisch
alleges that under the relevant federal regulations, the School
is required to use proper fiscal control and fund accounting
2
procedures to ensure that expenditures reimbursed by federal
funds are authorized in advance, are made for eligible
expenditures only, and are actually reported.
Part 80.
See 34 C.F.R.
In order to justify receipt of funds and avoid having
to repay them, Fisch claims, the School is required to account
for its expenditures accurately and fully.
See id. at §§ 80.20,
80.21.
Winnitt, Grossmann, Davis, and Rampoltd (collectively, the
“Individual Defendants”) are members of the School’s Board of
Trustees (the “Board”).
Winnitt is the School’s Executive
Director.
In July 2008, Fisch was hired to serve as the School’s
Chief Operating Officer (“COO”) in order to help the School
handle its finances.
At this time, the School had stated
policies on “Separation” and “Code of Ethics and Conduct,” as
well as a “Whistleblower Policy.”
Fisch alleges that these
policies and other School policies were incorporated into his
employment contract.
When Fisch began his employment, the
School was in the process of providing information to an outside
firm for an annual independent audit.
Once completed, the
results of that audit would serve as the School’s statement to
the federal government justifying its receipt of federal funds.
Upon becoming COO, Fisch conducted his own internal audit
of the School’s finances.
He soon uncovered a number of
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financial accounting improprieties.
Specifically, he discovered
that the School had not required the regular use of purchase
orders prepared and approved in advance, had not reviewed and
separately approved invoices before payments were made, and had
falsified, forged, and backdated certain approved purchase
orders and invoices at the direction of Winnitt.
Fisch also
discovered that approximately $250,000 in invoices, many of them
past due, had not been paid by the School, and that Winnitt had
directed that a demolition take place in relation to a
construction project at the School without the requisite permits
and authorizations.
In July 2008, Fisch reported these financial improprieties
to Winnitt, Grossmann, Rampoltd, and other members of the Board,
and argued that the improper practices should be halted and
corrected.
Winnitt responded that the School was “too small to
get caught.”
Fisch also reported his concerns at a meeting of
the Board’s Finance Committee.
In August and September, Fisch again spoke with Winnitt
about the School’s improper financial and unauthorized
construction practices, and stated his intention to follow up
with the Finance Committee.
Winnitt responded with hostility.
She told Fisch not to worry about the past and repeated her
belief that the School was “too small to get caught.”
She also
instructed Fisch not to speak with the Finance Committee about
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any improprieties and to clear any communications with the
Finance Committee with her.
She informed him that she would sit
in on all his conference calls with the Finance Committee in the
future, and threatened his employment.
In September, Fisch informed the Board and the Finance
Committee that the School’s accounting for federal funds from
2007-08 was inaccurate, that the numbers used for the 2008 audit
were not credible, and that he did not want to sign off on the
audit without redoing the numbers.
That same month, he told
Grossmann and Ramboldt that he believed the School was
misappropriating funds, that “someone could go to jail,” that he
had seen a lawyer about the School’s practices, and that Winnitt
was retaliating against him for investigating and reporting
these issues.
Fisch again expressed his concerns to Winnitt in
October, and she again brushed them aside.
She instructed him
never again to discuss his concerns with the Board and to remove
references to improper accounting practices from his Finance and
Operations Report to the Board.
The 2008 audit by the outside firm was produced in October.
It found a number of deficiencies in the School’s fiscal control
and accounting practices, which supported many of Fisch’s
findings.
The deficiencies included a lack of approval
signatures on purchase orders and invoices, and the School’s
inability to locate certain purchase invoices.
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Fisch continued to voice his concerns about the School’s
financial practices from October to December.
He received a
negative mid-year performance review from Winnitt on December
29.
Winnitt said that she would provide Fisch with an
improvement plan for him to follow, but failed to do so.
From January through March 2009, Fisch prepared a synopsis
of the 2008 audit findings.
During this period, he informed
Winnitt of his discomfort with the figures in the audit and with
submitting those figures to the federal government.
Nevertheless, the audit was submitted to the federal government
with Winnitt’s signature.
Fisch alleges that this submission,
along with the submission of other statements regarding amounts
to be paid or reimbursed to the School with federal funds,
violated the FCA, 31 U.S.C. § 3729(a)(1).
In mid-March, after Fisch informed the Finance Committee
that expenditures did not match grant budgets, Winnitt became
angry with him.
On March 18, the Board’s treasurer agreed with
Fisch regarding certain of the School’s financial improprieties
and indicated that he would raise the matter with the Board.
On
March 20, 2009, Winnitt terminated Fisch’s employment in
retaliation for his investigation and reports, stating that he
was “not a good fit” at the School.
Fisch’s last day at work
was May 15 and his last day on payroll was May 31.
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Fisch filed the Complaint on March 19, 2012, alleging
claims against the School and the Individual Defendants for
violations of the whistleblower provisions of the FCA, 31 U.S.C.
§ 3730(h), and for breach of his employment contract with the
School.
On May 15, the defendants moved to dismiss the FCA
claims against all defendants and the breach of contract claims
against the Individual Defendants only.
The motion to dismiss
was fully submitted on July 10.
DISCUSSION
On a motion to dismiss under Fed. R. Civ. P. 12(b)(6), the
court must “accept all allegations in the complaint as true and
draw all inferences in the non-moving party's favor.”
LaFaro v.
New York Cardiothoracic Grp., PLLC, 570 F.3d 471, 475 (2d Cir.
2009) (citation omitted).
To survive a motion to dismiss, “a
complaint must contain sufficient factual matter, accepted as
true, to state a claim to relief that is plausible on its face.”
Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (citation omitted).
The
court is “not bound to accept as true legal conclusions couched
as factual allegations.”
Id. at 1950–51.
Applying this plausibility standard is “a context-specific
task that requires the reviewing court to draw on its judicial
experience and common sense.”
Id. at 1950. There must be a
“reasonably founded hope that the discovery process will reveal
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relevant evidence.”
Bell Atl. Corp. v. Twombly, 550 U.S. 544,
563 n.8 (2007) (citation omitted).
“Plausibility thus depends
on a host of considerations: the full factual picture presented
by the complaint, the particular cause of action and its
elements, and the existence of alternative explanations so
obvious that they render plaintiff's inferences unreasonable.”
L–7 Designs, Inc. v. Old Navy, LLC, 647 F.3d 419, 430 (2d Cir.
2011).
I.
FCA Claims
The FCA “authorizes private citizens to sue on behalf of
the United States to recover treble damages from those who
knowingly make false claims for money or property upon the
Government or who knowingly submit false statements in support
of such claims or to avoid the payment of money or property to
the Government.”
U.S. ex rel. Lissack v. Sakura Global Capital
Mkts., Inc., 377 F.3d 145, 146 (2d Cir. 2004).
The wrongful
activity must be linked “to the government's decision to pay” a
claim.
Mikes v. Straus, 274 F.3d 687, 696 (2d Cir. 2001).
The Complaint alleges violations of the FCA’s whistleblower
provision, 31 U.S.C. § 3730(h) (“Section 3730(h)”), which, at
the time of the events at issue in the Complaint, provided as
follows:
Any employee who is discharged . . . by his or her
employer because of lawful acts done by the employee
on behalf of the employee or others in furtherance of
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an action under this section, including investigation
for, initiation of, testimony for, or assistance in an
action filed or to be filed under this section, shall
be entitled to all relief necessary to make the
employee whole. Such relief shall include
reinstatement with the same seniority status such
employee would have had but for the discrimination, 2
times the amount of back pay, interest on the back
pay, and compensation for any special damages
sustained as a result of the discrimination, including
litigation costs and reasonable attorneys' fees.
31 U.S.C. § 3730(h) (subsequently amended in 2009).
In order to sustain an action under 31 U.S.C. § 3730(h),
Fisch must prove that: 1) he engaged in conduct protected under
the statute; 2) his employer knew that he was engaged in such
conduct; and 3) he was terminated in retaliation for the
protected conduct.
See, e.g., Mendiondo v. Centinela Hosp. Med.
Center, 521 F.3d 1097, 1104 (9th Cir. 2008).
Fisch has
adequately pled each of the above elements with respect to the
School.
He has not done so with respect to the Individual
Defendants, however, because they do not qualify as “employers”
within the meaning of the statute.
A.
The Individual Defendants’ Liability
The Individual Defendants, which consist of the School’s
Executive Director and other members of the Board, cannot be
liable under Section 3730(h) because they do not qualify as
employers for purposes of the statute.
liability only on employers.
Section 3730(h) imposes
See, e.g., U.S. ex rel. Siewick v.
Jamieson Sci. & Eng'g, Inc., 322 F.3d 738, 740 (D.C. Cir. 2003).
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Because the FCA does not define the term “employer,” it is given
its ordinary common law meaning.
507 U.S. 529, 534 (1993).
See United States v. Texas,
Accordingly, it is the corporation
only, not its officers, that is the employer of the
corporation’s employees.
See Meyer v. Holley, 537 U.S. 280, 286
(2003); cf. Tomka v. Seiler Corp., 66 F.3d 1295, 1313-17 (2d
Cir. 1995) (holding that the word “employer” does not cover a
supervisor in his personal capacity for cases arising under
Title VII).
The motion to dismiss thus successfully disposes of
Fisch’s FCA whistleblower claims against the Individual
Defendants.
Fisch points to a handful of out-of-Circuit cases in which
district courts allowed Section 3730(h) claims to go forward
against individual defendants.
In light of the clear language
of the statute, however, this Court joins the overwhelming
balance of authority holding otherwise.
See, e.g., Yesudian ex
rel. U.S. v. Howard Univ., 270 F.3d 969, 972 (D.C. Cir. 2001)
(“Section 3730(h) plainly mentions only the ‘employer’ as
incurring liability, and the word ‘employer’ does not normally
apply to a supervisor in his individual capacity.”).
Fisch notes that Congress amended Section 3730(h) on May
20, 2009 to exclude the word “employer,” see Pub. L. 111-21, §
4(f)(1), (2), effective May 20, 2009, and that at least one
court in this Circuit has held that this amendment allows for
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FCA retaliation claims against individual defendants.
See U.S.
ex rel. Moore v. Cmty. Health Servs., Inc., 3:09 CV 1127 (JBA),
2012 WL 1069474, at *9 (D. Conn. Mar. 29, 2012).
this Court to hold the same.
Fisch urges
Fisch concedes, however, that the
2009 amendments to Section 3730(h) do not apply retroactively.
See id.
Fisch was terminated on March 20, 2009 and his last day
at work for the School was May 15, 2009.
He does not allege
that the defendants engaged in any form of retaliatory conduct
after May 20, 2009 that might give rise to liability under
Section 3730(h).
Thus, even if the 2009 amendments to the FCA
had the requisite effect on individual liability, they have no
impact on the individual liability of these defendants.
B.
Protected Conduct
In order for an employee’s actions to constitute “protected
conduct” under Section 3730(h), they must have been “in
furtherance of an action under the FCA.”
Garcia v. Aspira of
New York, Inc., 07 Civ. 5600 (PKC), 2011 WL 1458155, at *4
(S.D.N.Y. Apr. 13, 2011) (citation omitted).
In other words,
the employee “must have been investigating matters that were
calculated, or reasonably could lead, to a viable FCA action.”
Shekoyan v. Sibley Int'l, 409 F.3d 414, 423 (D.C. Cir. 2005)
(citation omitted).
Although it is not necessary for the
plaintiff actually to file a qui tam lawsuit, or even “to know
that the investigation could lead to” such a suit, id. (citation
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omitted), mere investigation of an employer’s non-compliance
with federal regulations is not enough.
See Faldetta v.
Lockheed Martin Corp., 98 Civ. 2614 (RCC), 2000 WL 1682759, at
*12 (S.D.N.Y. Nov. 9, 2000).
The plaintiff’s investigation must
be “directed at exposing a fraud upon the government.”
Moor-
Jankowski v. Bd. Of Trustees of New York Univ., 96 Civ. 5997
(JFK), 1998 WL 474084, at *10 (S.D.N.Y. Aug. 10, 1998) (citation
omitted).
The allegations in the Complaint more than meet this
standard.
Fisch claims that he investigated a variety of
financial improprieties in connection with the School’s
submission of the 2008 audit and other statements regarding
amounts to be paid or reimbursed to the School with federal
funds.
He alleges that he uncovered widespread accounting
irregularities, including the School’s failure to use purchase
orders prepared and approved in advance, its failure to review
and separately approve invoices before making payments, and its
falsification, forgery, and backdating of certain approved
purchase orders and invoices at the direction of Winnitt.
Drawing all inferences in Fisch’s favor, he plausibly
alleges that he gathered facts and information about defendant’s
conduct that reasonably could have led to a viable FCA action,
and that his actions were directed at exposing fraud upon the
government.
Fisch’s activities went beyond mere investigation
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of his employer’s failure to comply with federal regulations.
He informed members of the Board that “someone could go to jail”
if the relevant financial information was submitted to the
government, and went so far as to tell Board members that he had
consulted with an attorney.
Although Fisch did not actually
file a qui tam action against the School, the Complaint alleges
violations of accounting and fiscal control regulations
intimately associated with the payment of federal grants.
34 C.F.R. §§ 80.20, 80.21.
See
And it alleges that these violations
included fraudulent submissions, including intentionally
falsified, forged, and backdated approved purchase orders and
invoices.
The defendants argue that Fisch’s actions do not constitute
“protected conduct” because, in investigating the School’s
finances and audit procedures, he was simply acting in his
capacity as COO.
They note that the Complaint states that Fisch
was hired “to help the School handle its finances,” and that
“sign[ing] off” on the audit was one of his job
responsibilities.
They further note that the Complaint does not
cite any discrete false statements submitted to the government
for payment or reimbursement, or allege that the School’s
purchase orders and invoices did not correspond to actual School
expenditures.
The sum total of the allegations in the
Complaint, defendants argue, amount to a claim that Fisch
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investigated the School’s failure to abide by the relevant
accounting regulations.
These arguments misconstrue the standard for pleading a
Section 3730(h) violation and the nature of the allegations in
the Complaint.
To state a viable claim under Section 3730(h),
the plaintiff need not plead his fraud allegations with
particularity.
See Mendiondo, 521 F.3d at 1103.
It is
necessary only that he be “investigating matters that were
calculated, or reasonably could lead, to a viable FCA action.”
Shekoyan, 409 F.3d at 423 (citation omitted).
The investigation
of large-scale financial irregularities and accounting failures
addressed in the Complaint, which were allegedly included in
submissions filed with the federal government to justify payment
or reimbursement of federal funds, more than meet this standard.
C.
Notice
To satisfy the second element of an FCA retaliation claim,
Fisch must adequately plead that the School knew he was engaged
in protected conduct.
“Absent such notice, then a fortiori,
[the School’s] actions could not constitute retaliation.”
Faldetta, 2000 WL 1682759, at *13 (citation omitted).
Naturally, an employee who simply engages in behavior wholly
consistent with his job description will not, without more,
provide notice that he is acting “in furtherance” of an FCA
action.
See Eberhardt v. Integrated Design & Const., Inc., 167
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F.3d 861, 868-69 (4th Cir. 1999).
Accordingly, an employee
assigned the task of investigating fraud within a company must
go beyond the assigned task and put his employer on notice that
an FCA action is “a reasonable possibility.”
Fisch has satisfied this element.
Id. at 869.
He alleges not only that
he helped the School handle its finances and prepare its 2008
audit and other submissions in accordance with his job
responsibilities as COO, but also that he warned the members of
the Board of possible legal consequences of the financial
improprieties he uncovered.
Fisch told Board members that
“someone could go to jail” as a result of the School’s improper
accounting practices, and that he had consulted with an
attorney.
Fisch further alleges that Winnitt explicitly
acknowledged that the School’s actions were improper or illegal
by stating that the School was “too small to get caught.”
Irrespective of the nature or scope of Fisch’s assigned job
responsibilities, a reasonable factfinder could conclude that
the School was on notice of a potential FCA action.
“[C]haracterizing the employer’s conduct as illegal . . . or
recommending that legal counsel become involved” is sufficient
to provide notice to an employer of a potential qui tam lawsuit,
even if these statements come from an employee “tasked with the
internal investigation of fraud against the government.”
868.
15
Id. at
D.
Retaliation
Fisch has adequately pled facts that, if proven, would
permit a jury to conclude that his employment was terminated in
retaliation for his protected conduct.
Fisch claims that he was
fired mere days after Winnitt became angry with him for
informing members of the Finance Committee that expenditures did
not match grant budgets.
The Complaint describes a pattern of
retaliatory behavior by Winnitt that culminated in Fisch’s
firing: Winnitt initially resisted Fisch’s efforts to
investigate financial and accounting practices at the School,
then she limited his authority to speak independently with the
Board and the Finance Committee and threatened his employment.
Next, she punished him through a poor performance review, and
finally she fired him.
These allegations are sufficient to
allow Fisch’s claim to go forward.
II.
Breach of Contract Claims
Fisch alleges that the defendants breached his contract
with the School by, inter alia, violating the School’s stated
policies on “Separation” and “Code of Ethics and Conduct,” and
its “Whistleblower Policy.”
The defendants seek dismissal of
the breach of contract claims against the Individual Defendants
only.
The parties do not argue that any law other than New York
law applies.
“[W]here the parties agree that New York law
controls, this is sufficient to establish choice of law.”
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Federal Ins. Co. v. American Home Assurance Co., 639 F.3d 557,
566 (2d Cir. 2011).
To state a claim for breach of contract under New York law,
“a complaint need only allege (1) the existence of an agreement,
(2) adequate performance of the contract by the plaintiff, (3)
breach of contract by the defendant, and (4) damages.”
Eternity
Global Master Fund Ltd. v. Morgan Guar. Trust Co. of N.Y., 375
F.3d 168, 177 (2d Cir. 2004) (citation omitted).
It is black
letter law, however, that generally “one who is not a party to a
contract cannot be held liable for a breach of that contract.”
Underdog Trucking, LLC, Reggie Anders v. Verizon Servs. Corp.,
09 Civ. 8918 (DLC), 2010 WL 2900048, at *3 (S.D.N.Y. July 20,
2010).
It is undisputed that the Individual Defendants did not
enter into a contract with Fisch in their individual capacities.
Accordingly, the breach of contract claims against them must be
dismissed.
Fisch argues that the Individual Defendants may be held
individually liable for aiding and abetting breach of contract,
inducing a breach of contract, tortious interference of
contract, fraud, and various other torts.
Although Fisch did
not plead any of these causes of action, he argues that the
Court should liberally construe the Complaint to allow these
claims to go forward.
These arguments are unavailing.
The
Complaint wholly fails to plead the elements of any of the above
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causes of action with respect to any of the Individual
Defendants.
It fails to plead fraud with sufficient
particularity to survive the pleading requirements of Rule 9(b),
Fed. R. Civ. P., or the facts necessary to support individual
liability under a theory of piercing the corporate veil.
See De
Jesus v. Sears, Roebuck & Co., Inc., 87 F.3d 65, 69–70 (2d Cir.
1995) (addressing the pleading requirements for piercing the
corporate veil under New York law).
And there is no cause of
action for aiding and abetting breach of contract under New York
law.
See Purvi Enterprises, LLC v. City of New York, 62 A.D.3d
508, 509 (N.Y. App. Div. 2009).
CONCLUSION
The defendants’ May 15, 2012 motion to dismiss is granted
as to Fisch’s claims against the Individual Defendants, and
denied as to Fisch’s claim against the School under the
whistleblower provisions of the FCA.
This ruling disposes of
all claims against the Individual Defendants.
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The Clerk of
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