Disloyal Employee Forfeits Wages and Insurance
In City of Binghamton v. Whalen, the City of Binghamton brought an action against a former employee who stole more than $50,000, alleging breach of fiduciary duty and seeking to recover all compensation paid to the employee during the period of infidelity. The State Supreme Court of Broome County partially denied the City’s motion for summary judgment, and the City appealed.
Under New York law, employees owe their employer a duty of loyalty and are prohibited from acting in any manner inconsistent with their agency or trust, and are at all times bound to exercise the “utmost good faith and loyalty” in the performance of their duties. Under what is commonly referred to as the “faithless servant doctrine,” employees who are faithless in the performance of their services are generally “disentitled” to recover their compensation, whether commissions or salary.
Here, defendant Whalen was formerly employed by the City as the Director of Parks and Recreation and, in that capacity, was entrusted with the collection of various fees and funds on the City’s behalf. Whalen pleaded guilty to grand larceny in the third degree, admitting that he stole from the City between January 2007 and November 2012. The City commenced the action for breach of fiduciary duty seeking to recover all paid compensation during that time and a declaration that it is under no continuing obligation to furnish him with health insurance earned through his employment.
The Supreme Court granted the City summary judgment on the issue of liability since Whalen admitted to the theft, but concluded that triable issues of fact remained as to its entitlement to damages under the faithless servant doctrine. The Supreme Court reasoned that despite his over half decade of thievery, Whalen’s otherwise “unblemished” 35 years of service to the City raised issues of fact as to whether forfeiture of compensation was warranted.
On appeal, the Appellate Division, Third Department, ruled that this was error, reasoning that our State’s highest court has made it clear that “forfeiture of compensation is required even when some or all of ‘the services were beneficial to the principal or when the principal suffered no provable damage as a result of the breach of fidelity by the agent.’”
“This is because the function of a breach of fiduciary duty action, unlike an ordinary tort or contract case, is not merely to compensate the plaintiff for wrongs committed by the defendant but…to prevent them, by removing from agents and trustees all inducement to attempt dealing for their own benefit in matters which they have undertaken for others, or to which their agency or trust relates.”
The Appellate Court held that Whalen’s “purported exemplary performance of his duties when he was not stealing from plaintiff does not insulate him from the application of the faithless servant doctrine.”
“Nor is there any basis for apportioning forfeiture of compensation to the specific tasks as to which defendant was disloyal.” Although such a limitation has been recognized by other courts, this Appellate Court found that this limitation applies where, unlike here, the employee is compensated on a task-by-task basis. A “task-by-task forfeiture for salaried employees, like plaintiff, would not only run afoul of ‘New York’s strict application of the forfeiture doctrine,’but would also have the ill effect of ‘embroiling courts in deciding how much general compensation should be forfeited, where the general compensation was awarded while the agent was acting disloyally in some, but not all, of his or her work.’ For these reasons, we decline to relax the faithless servant doctrine so as to limit plaintiff’s forfeiture of all compensation earned by defendant during the period in which he was disloyal.”
The Court concluded that the City was entitled to recover the salary it paid Whalen over a six year period in the amount of $316,535.54, and it declared that the City is relieved of its obligation to provide Whalen with future health insurance benefits earned through his employment.
Cheetahs Never Prosper
In Cheetah Club v. CBS, a divided Appellate Division, First Department, panel found that a CBS News report describing a Manhattan strip club that was raided by the FBI as “Mafia-run” did not give rise to a defamation claim brought by three club managers who were not named in the report.
The three-judge majority said the case was properly dismissed by the Supreme Court for failing to state a cause of action because the CBS report did not name the plaintiffs at all and contained nothing that would cause a reader to think that CBS was referring to them.
After an FBI raid at the club, CBS News broadcasted the event during its noon news broadcast. Reporter Kathryn Brown, in front of Cheetah’s, stated the following:
“Sources tell CBS-2 News this bust is being dubbed Operation Dancing Brides,’ and this strip club here, Cheetahs in Midtown, they say is at the center of the operation. Cheetahs advertises exotic women and the…Federal authorities say it is run by the mafia. They have been here — feds have been here all morning. They conducted an early morning raid and they’ve been here for hours inside collecting evidence. They are still inside right now. Meantime, earlier this morning, agents with the immigrations and customs enforcement arrested 25 men described as ringleaders of this entire operation. Many of them they say are members of the Gambino and Bonanno crime families. They say the men were involved in an elaborate operation to recruit women from Russia and eastern Europe into the U.S…. [to] force the women to work as dancers in strip clubs across New York City, including Cheetahs…This is still a developing story and we will have much more on this tonight on CBS-2 News at 5:00.”
At 5:00 p.m., CBS news program called The Evening Report, contained the following segment:
“Federal authorities carried out boxes of evidence from this Midtown strip club during an early morning raid. They say the club, Cheetahs, is one of several at the center of an underground immigration ring that stretches from Times Square to the heart of Russia. Investigators say Russian and Italian mobsters were working together in the elaborate scheme to bring Russian and eastern European women to the U.S., then funnel them to strip clubs to work as exotic dancers.”
The Report then showed reporter Kathryn Brown interviewing a federal law enforcement official, the director of the National Organization for Women, and David Carlebach, an attorney for Cheetahs. Carlebach was broadcasted saying: “There is absolutely no La Cosa Nostra, as you say, connection.”
The next morning the local CBS New York website posted a summary of the story stating that Cheetahs had been “raided,” and that Cheetahs was “one of several [strip clubs] at the center of an underground immigration ring” controlled by indicted defendants who “protected their turfthrough intimidation and threats of physical and economic harm.” The story ended, “As federal teams cast a wide net around strip clubs and their owners[,] attorney David Carlebach…insisted his client’s hands are clean. There is absolutely no ‘La Cosa Nostra,’ as you say, connection,’ Carlebach said.”
The Court’s majority reasoned that “it is axiomatic that ‘to prevail in defamation litigation, a plaintiff must establish that it was he or she who was libeled or slandered: that the allegedly defamatory communication was about (of and concerning’) him or her.’” The majority concluded that the alleged defamatory broadcasts did not meet New York’s test of being “of and concerning” the plaintiffs, finding: “The fundamental flaw in the complaint is the failure to distinguish the concept of control over an organization from the mere provision of management services to the entity by a vendor or, more specifically, the employees of a vendor.”
In dissent, two justices concluded that there were “sufficient facts pleaded at this early stage in the litigation to reasonably connect the individual plaintiffs with the following statement: ‘it (meaning Cheetahs) is run by the Mafia.’”
The majority countered by saying that “while ‘run’ may colloquially refer to management of the routine, day-to-day operation of a business, its meaning acquires a significantly more sinister connotation when used in the same sentence as ‘Mafia.’” “The public certainly appreciates this distinction, even if the dissent does not appear to grasp its import.”
No Briefs, No Job?
In Lester v. New York State Office of Parks, Recreation & Historic Preservation, a “seasoned” seasonal lifeguard alleged employment discrimination based on age because he was not wearing the type of swimsuit which the State demanded but instead a type of swimsuit commonly worn by older individuals.
According to this recent decision, Lester had worked for many years as a seasonal lifeguard at Jones Beach State Park, which is a part of the State’s park system. In 2007, at age 57, he was not permitted by the State to take his lifeguard rehire test while wearing a “jammer,” or bicycle-short style swimsuit, rather than his state-issued lifeguard uniform – boxer, brief or board shorts. The following year, in June 2008, the then 58-year-old Lester attempted to take the new hire lifeguard test while wearing the same type of “jammer” swimsuit he had worn the year before. The plaintiff was not allowed to participate in the new hire examination while wearing a “jammer” since it was not similar to any of the three types of swimsuits issued by the State as a lifeguard uniform. Prior to 2007, the State did not place restrictions on the type of swimsuit a candidate could wear while taking either the new hire or rehire lifeguard test.
Specifically, with respect to his claim of age discrimination, Lester alleged that he was the oldest applicant to appear for the new hire test, and was not allowed to take the test because he was not wearing the type of swimsuit which the State demanded, but instead the type of swimsuit commonly worn by older individuals – and by most Olympians if you watched the 2016 Rio Olympics. He also alleged that the younger applicants were wearing all different types of swimsuits and were not prohibited from taking the test.
The Supreme Court dismissed the age discrimination claim, but the Appellate Division reversed. The Court reasoned that pursuant to the New York State Human Rights Law, it is “unlawful ‘[f]or an employer…because of an individual’s age…to refuse to hire or employ or to bar or discharge from employment such individual or to discriminate against such individual in compensation or in terms, conditions, or privileges of employment.’ At trial, to establish a prima facie case alleging a violation of this provision, a plaintiff must show that (1) he or she is a member of a protected class; (2) he or she was qualified to hold the position; (3) he or she was terminated from employment or suffered another adverse employment action; and (4) the discharge or other adverse action occurred under circumstances giving rise to an inference of discrimination.”
“To prevail on a motion for summary judgment in a discriminatory employment action, a defendant must demonstrate either the plaintiff’s failure to establish every element of intentional discrimination, or, having offered legitimate, nondiscriminatory reasons for their challenged actions, the absence of a material issue of fact as to whether its explanations were pretextual.”
Here, the Appellate Court found that the State failed to meet its initial burden on that branch of its motion which was for summary judgment dismissing the employment discrimination claim based on age. The State “failed to eliminate all triable issues of fact as to whether it had legitimate, nondiscriminatory reasons for refusing to allow the plaintiff to take the test for new hires in a ‘jammer’ swimsuit.”
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