Revitalization Act Held to Grant Whistleblower Implied Private Right of Action

by Cadwalader, Wickersham & Taft LLP
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On October 24, 2016 the New York Supreme Court, Kings County entered a decision allowing a former employee to proceed with a lawsuit against a not-for-profit, private college preparatory school and its headmaster alleging violations of the whistleblower provisions of the New York Not-for-Profit Corporation Law (“NPCL”).  Implemented by the Nonprofit Revitalization Act of 2013 (the “Revitalization Act”), NPCL § 715-b requires not-for-profit corporations with twenty or more employees and annual revenue in excess of $1,000,000 in the prior fiscal year to adopt a whistleblower policy “to protect from retaliation persons who report suspected misconduct”.  Section 715-b is silent regarding whether a private party may seek to enforce its requirements.  Unless reversed on appeal, the decision creates a precedent for allowing a private cause of action and has important implications for corporations subject to the NPCL.

The plaintiff in Della Pietra v. Poly Prep Country Day School is an alumna and the former Director of Alumni Relations of Poly Prep Country Day School (“Poly Prep”).  She alleged that the Director of Development of Poly Prep took several school-sponsored trips to Cuba for the purported goal of coordinating sporting events for Poly Prep’s wrestling team that were, in reality, opportunities to pursue personal business opportunities.  The plaintiff reported her concerns to the school’s Headmaster (also named as a defendant), the Director of Finance, and an attorney alumnus on the Board’s Audit/Legal Committee.  The plaintiff claims that Poly Prep failed to keep her identity confidential, which resulted in retaliation by her supervisor and ultimately her termination, in violation of NPCL § 715-b.  Her complaint seeks money damages for the “mental anguish and humiliation” caused by the failure of the school to adopt a whistleblower policy and comply with the requirements of NPCL § 715-b.

Poly Prep moved to dismiss the complaint arguing that regardless of the veracity of the plaintiff’s factual claims, only the Attorney General or members of the Board of Directors have standing to bring suit to enforce NPCL § 715-b since NPCL § 715-b does not expressly grant a private right of action to a third party.  The Revitalization Act did not expressly authorize a private right of action so the Court was required to rule on whether a right of action could be fairly implied based on the legislative purposes underlying the Revitalization Act.  Applying the test established in Burns Jackson v. Lindner, 59 N.Y.2d 314 (1983), the Court considered the following factors in determining whether an implied right of action exists:  (1) whether the plaintiff is one of the class for whose particular benefit the statute was enacted; (2) whether recognition of a private right of action would promote the legislative purpose; and (3) whether creation of such a right would be consistent with the legislative scheme.  The Court did not address Poly Prep’s claim that the legislative purpose of the Revitalization Act “is to provide a mechanism through which a not-for-profit organization’s performance is to be monitored by its board of directors, by its officers, as well as the Attorney General of the State of New York.”  The Court found that the plaintiff was within the class of persons the law intended to benefit and that permitting her suit to proceed would promote the legislative purpose of protecting whistleblowers from retaliation, a goal expressly stated in NPCL § 715-b.  The Court also determined that recognition of her standing to sue would be consistent with the legislative scheme to promote enforcement of the whistleblower provision, notwithstanding the lack of explicit references to a private right of action under NPCL § 715-b in the legislative record of the Revitalization Act.

If not overturned, judicial recognition of an implied right of action in the Della Pietra case could spur more robust enforcement of the NPCL’s whistleblower provision and could possibly be extended to other provisions of the NPCL where the law is silent regarding the right of private parties to bring suit, such as the conflict of interest requirements added to the NPCL by the Revitalization Act.

 

 

 

  1.    Della Pietra v. Poly Prep Country Day Sch., Index No. 506586/2015 (Sup. Ct. Kings. Cnty. Oct. 24, 2016) (Baily-Schiffman, J.), NYSCEF No. 114.
  2.    Previous Clients and Friends Memoranda have discussed the Revitalization Act and subsequent amendments.  See Clarifying Amendments to the Nonprofit Revitalization Act Signed into Law (Dec. 21, 2015), http://www.cadwalader.com/resources/clients-friends-memos/clarifying-amendments-to-the-nonprofit-revitalization-act-signed-into-law; Nonprofit Revitalization Act Employed Board Chair Prohibition Delayed to 2017 (Oct. 29, 2015), http://www.cadwalader.com/resources/clients-friends-memos/nonprofit-revitalization-act-employed-board-chair-prohibition-delayed-to-2017; Nonprofit Revitalization Act of 2013 – Best Governance Practices Made Mandatory (Jan. 10, 2014), http://www.cadwalader.com/resources/clients-friends-memos/nonprofit-revitalization-act-of-2013-best-governance-practices-made-mandatory.
  3.    Assembly Bill A10365B in the 2015-2016 legislative session (pending the Governor’s signature) would amend the whistleblower provisions of the NPCL to prohibit an employee who also holds a position as a director from participating in any board or committee deliberations concerning whistleblower policies and prohibit any person who is the subject of a whistleblower complaint from being present at or participating in board or committee deliberations or voting on the matter relating to the complaint and to repeal NPCL § 712-a(c), which requires the board or an audit committee, comprised exclusively of independent directors, to oversee and implement the conflict of interest and whistleblower policies.  None of these proposed changes address a private cause of action.
  4.    Under N.Y. C.P.L.R. § 5701 an order denying a defendant’s pretrial motion to dismiss the plaintiff’s complaint is immediately appealable as of right within 30 days from service of notice of entry of the judgment. Poly Prep may also choose to appeal until the Supreme Court enters final judgment. N.Y. C.P.L.R. § 5501(a)(1).
  5.    Plaintiff also filed claims for breach of contract and libel that the Court dismissed.
  6.    Memo. of Law in Support of Defendants’ Motion to Dismiss Plaintiff’s Verified Second Amended Complaint at 8, Della Pietra v. Poly Prep Country Day Sch., Index No. 506586/2015 (Sup. Ct. Kings. Cnty. Nov. 5, 2016) (Baily-Schiffman, J.), NYSCEF No. 76.

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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