Brooklyn Supreme Court Recognizes Private Right of Action for Not-for-Profit Employees under New York Nonprofit Revitalization Act Whistleblower Policy Requirement

by Proskauer - Not for Profit/Exempt Organizations
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Not-for-Profit Corporation Law (“NPCL”) § 715-b, enacted as part of the New York Nonprofit Revitalization Act (covered here and here), requires New York not-for-profit corporations with 20 or more employees and annual revenue in excess of $1 million to adopt whistleblower policies “to protect from retaliation persons who report suspected improper conduct.”  Although the statute does not expressly authorize suits by whistleblowers, in Pietra v. Poly Prep Country Day School, No. 506586/2015 (N.Y. Sup. Ct., Kings Cty. October 1, 2016), acting Brooklyn Supreme Court Justice Loren Baily-Schiffman held that a former employee of Poly Prep Country Day School (the “School”), a New York not-for-profit corporation, had a private action against the School to recover damages resulting from the School’s alleged failure to adopt a whistleblower policy in accordance with NPCL § 715-b.

The plaintiff in Pietra alleged that she reported misconduct by her supervisor to the School’s Headmaster, its Director of Finance, and one of the School’s directors.  The plaintiff further alleged that the School and the Headmaster failed to keep her identity as a whistleblower confidential, and, as a result, her supervisor retaliated against her and defamed her in further violation of the statute.  The plaintiff asserted causes of action for breach of contract, defamation, and violation of NPCL § 715-b.

The Court granted the School’s motion to dismiss the plaintiff’s breach of contract and defamation causes of action holding that plaintiff was an at-will employee and the allegedly defamatory statements were non-actionable statements of opinion.  However, the Court denied the School’s motion to dismiss the cause of action asserting a violation of NPCL § 715-b.  While the Court recognized that NPCL § 715-b does not expressly authorize suits for damages by aggrieved employees, the Court held that there is an implied private right of action under the statute.

Courts recognize an implied private right of action where: (1) the plaintiff belongs to the class of people for whose specific benefit the statute was enacted; (2) recognition of a private right of action promotes the legislative purpose for which the statute was enacted; and (3) a private right of action is consistent with the legislative scheme.

Where a private right of action is asserted under a statute that includes an enforcement mechanism, courts have typically held that recognition of a private right of action would conflict with the statutory scheme.  See, e.g., Cruz v. TD Bank, N.A., 22 N.Y.3d 361, 74 (2013) (private right of action incompatible with comprehensive enforcement mechanisms included in statutory scheme).

The NPCL provides the Attorney General with extensive enforcement authority.  See, e.g., People v. Grasso, 11 N.Y.3d 64, 69 (2008) (noting that the NPCL includes at least 18 provisions detailing the Attorney General’s enforcement powers).  The NPCL also authorizes derivative actions against not-for-profit directors and officers. See NPCL § 720(b).

Pietra relied largely on Maimonides Med. Ctr. v. First United American Life Ins. Co., 116 A.D.3d 207, 211 (2d Dep’t 2014) to support its holding that private enforcement of NPCL § 715-b would be consistent with the legislative scheme despite the enforcement provisions set forth in the NPCL.¹  In Maimonides, the plaintiff hospital alleged that an insurer violated the Prompt Payment Law by failing to timely pay claims for payment.  Id. at 211.  The Court noted that the Prompt Payment Law, which was enacted to address the abusive practice of insurers failing to timely pay claims made by health care providers, not only vested the Department of Financial Services with authority to penalize insurers for failing to make timely payments, it also imposed a specific duty for insurers to pay late claims in full with interest and created a corresponding right for health care providers to such payment where an insurer failed to make timely payment.  Id. at 215.  As such, the Court observed that statute was not simply “remedial in nature” and afforded “health care providers and patients certain rights[.]”  Id.  Accordingly, Maimonides held that a private right of action was consistent with the Prompt Payment Law’s legislative scheme.  Id. at 217.

Pietra is distinguishable from Maimonides in that NPCL § 715-b does not impose any specific obligation on a not-for-profit that fails to adopt a whistleblower policy or create any corresponding right for a whistleblower. As such, although the decision has not been appealed to date, we believe other courts will ultimately reject a private right of action under NPCL § 715-b.  For the time being, however, employees of New York not-for-profits who believe they have been subject to retaliation for whistleblowing are likely to pursue claims under NPCL§ 715-b.  A claim under NPCL § 715-b will be particularly attractive to at-will employees like the plaintiff in Pietra who have no cause of action for breach of contract.  As such, New York not-for-profit corporations subject to NPCL § 715-b should adopt whistleblower policies that meet the requirements of the statute, comply with those policies, and carefully consider potential ramifications before taking adverse action against employees who could claim they are whistleblowers.

The author would like to acknowledge Ashley Ferguson for her assistance with this piece.

¹ The author represented Maimonides Medical Center in Maimonides Med. Ctr. v. First United American Life Ins. Co.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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