Dangler v. NYC off Track Betting Corp.

• Decision Date: 01 August 1998
• Docket Number: Docket No. 98-9334
• Citation: 1999 WL 742403,193 F.3d 130
• Parties: (2nd Cir. 1999) LISA DANGLER, as Executrix of the Estate of Richard R. Dangler, Plaintiff-Appellant, v. NEW YORK CITY OFF TRACK BETTING CORPORATION, ALEX SHERMAN, DAVID B. CORNSTEIN, and SHERMAN JACKSON, Defendants-Appellees
• Court: U.S. Court of Appeals — Second Circuit

Page 130

193 F.3d 130 (2nd Cir. 1999)

LISA DANGLER, as Executrix of the Estate of Richard R. Dangler, Plaintiff-Appellant, v. NEW YORK CITY OFF TRACK BETTING CORPORATION, ALEX SHERMAN, DAVID B. CORNSTEIN, and SHERMAN JACKSON, Defendants-Appellees.

Docket No. 98-9334

August Term, 1998

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

Argued: May 27, 1999

Decided: September 23, 1999

Appeal from a judgment of the United States District Court for the Southern District of New York, Deborah A. Batts, Judge, dismissing complaint alleging due process violations and retaliation in violation of First Amendment.

Affirmed in part; vacated and remanded in part.

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] LOUIS A. MANGONE, New York, New York (Mangone & Schnapp, New York, New York, on the brief), for Plaintiff-Appellant.

DAVID B. GOLDIN, New York, New York (Michael D. Hess, Corporation Counsel of the City of New York, Lawrence S. Kahn, Timothy J. O'Shaughnessy, New York, New York, on the brief), for Defendants-Appellees.

Before: KEARSE, MINER, and POOLER, Circuit Judges.

KEARSE, Circuit Judge:

Plaintiff Lisa Dangler, as executrix of the estate of Richard R. Dangler ("Dangler"), appeals from a final judgment of the United States District Court for the Southern District of New York, Deborah A. Batts, Judge, dismissing this action, brought principally under 42 U.S.C. §1983 (1994), alleging, inter alia, that defendants New York City Off Track Betting Corporation ("OTB") et al. violated Dangler's rights under the First Amendment by terminating his employment in retaliation for reporting suspected wrongdoing by OTB officials, and denied him due process in connection with that termination. The district court dismissed the second amended complaint ("complaint") pursuant to Fed. R. Civ. P. 12(b)(6), ruling that the individual defendants accused of First Amendment violations were entitled to qualified immunity on those claims, that the complaint otherwise failed to state a federal claim on which relief could be granted, and that the court would decline to exercise supplemental jurisdiction over the asserted state-law claims. On appeal, plaintiff contends that the court erred in dismissing the complaint; she also contends that she should have been allowed to amend the complaint further and to conduct discovery. For the reasons that follow, we vacate the dismissal of the First Amendment claims, as well as the state-law claims, and remand for further proceedings; we affirm the dismissal of plaintiff's other federal claims.

I. BACKGROUND

OTB is a public benefit corporation created under New York law to, inter alia, operate facilities for off-track wagering on horse racing. See N.Y. Rac. Pari-Mut. Wag. & Breed. L. §601, et seq. (McKinney 1984). At the times of the events at issue here, defendant Alex Sherman was OTB's president and general manager, defendant David B. Cornstein was chairman of its board of directors, and defendant Sherman Jackson was its director of public relations.

Dangler, who died in August 1997, was an employee of OTB from 1970 until August 1995. The central thrust of the complaint was that in early 1995, Dangler learned of irregularities and possible corruption by Sherman and Cornstein, that he communicated his information to OTB's internal investigator and to the New York City Department of Investigation ("DOI"), and that as a consequence, defendants retaliated against him by, inter alia, altering the conditions of his employment, publicly disparaging him, and ultimately terminating his employment. The principal allegations of the extremely detailed complaint, which must be taken as true for the purposes of reviewing a Rule 12(b)(6) dismissal, are summarized below.

A. The Principal Allegations of the Complaint

During his 25 years of employment by OTB, Dangler held many high-level executive positions. From October 1994 until the termination of his employment, he held the position of senior vice president in charge of operations and was OTB's third-highest ranking executive. In that position, Dangler reported to OTB's president and to Robert Palumbo, its executive vice president.

In the fall of 1994, OTB used a computerized wagering system provided and maintained by Amtote International ("Amtote"); as the contract with Amtote was due to expire in October 1996, OTB began consideration of the issuance of a new contract, worth some $35,000,000, for the acquisition of a new computerized system. All OTB contracts for goods and services for amounts in excess of $10,000 were required to be awarded on the basis of competitive bidding. With respect to such contracts, the procedure was for OTB to prepare and advertise a request for proposals ("RFP") and to analyze the RFP responses before awarding a contract. It was anticipated that the companies bidding on the contract to supply OTB's new computerized betting system beginning in October 1996 would include Amtote and Autotote Corporation ("Autotote").

Sherman became OTB's president and general manager in November 1994. In January 1995, Dangler met with him and outlined the laws and regulations governing OTB contracts. Sherman expressed dissatisfaction with the fact that OTB was required to proceed in accordance with those laws and regulations. Several weeks later, an OTB official informed Dangler of overhearing a conversation between Sherman and the chairman of Autotote, which left the impression that Sherman would try to steer the contract for OTB's new computerized betting system to Autotote.

In early February, Dangler was informed by OTB's director of security and a financial division official of what they believed were irregularities surrounding the renewal of a lease for one of OTB's betting parlors in Queens, New York. They informed Dangler that the amount to be paid to the landlord included $16,000 that was characterized as a retroactive payment for security guard services provided by the landlord for the prior five years; but OTB had provided its own security services for those premises, and the landlord had never provided such services. Moreover, the landlord's earlier attempts to obtain such payments had been rejected by prior OTB management.

Dangler also was informed by Palumbo that a member of OTB's board of directors was insistent that one Joseph Horn be given an exclusive concession at a new OTB betting facility. However, Horn also owned a restaurant formerly called "Goodfellows." OTB officials had previously inspected "Goodfellows" and had observed evidence indicating that the premises were being used improperly as an "after hours" club and had seen transactions that appeared to relate to illegal conduct.

At all times pertinent to these events, OTB had a written policy requiring all employees to disclose corrupt or illegal activities at OTB. That policy, as reflected in various corporate documents, (a) "provide[d] that all employees of [OTB] are 'obligated to report any incidents of possible wrongs or corruption to the OTB Inspector General'" (Complaint ¶15 (quoting OTB Employee Handbook at 3 (Mar. 1994 ed.)) (complaint's emphasis omitted)); (b) stated that "'[a]ny employee who refuse[d] or fail[ed] to appear to answer questions as to the performance of his/her official duties before the Corporation, the [New York City] Department of Investigation, or any lawfully constituted court,'" or who, having made an appearance, "'refuse[d] to answer'" such questions or answered "'in a palpably evasive, transparently sham, false, or untruthful manner,'" would be "'subject to charges of misconduct'" (Complaint ¶16 (quoting OTB Uniform Rules of Discipline §§2.0, 2.1)); and (c) stated that "'no officer, employee, or Director of [OTB] shall take any adverse personnel action with respect to another officer or employee in retaliation for his or her making a report of information concerning corrupt or other criminal activity, conflict of interest, gross mismanagement or abuse of authority to the Inspector General.'" (Complaint ¶17 (quoting December 21, 1988 OTB Board of Directors Resolution) (complaint's emphasis omitted).)

On February 7, 1995, Dangler contacted OTB Inspector General ("OTBIG") Robert Unger and informed him of the apparently improper $16,000 payment to the Queens landlord and of the insistence on granting a concession to a person who apparently ran an illegal operation elsewhere.

Prior to February 7, Dangler had not been criticized for his work at OTB. Indeed, when OTB was attempting to downsize in December 1994 and January 1995 and was offering other executives early retirement/severance "buy-out" packages, Dangler was encouraged to remain with OTB. Palumbo informed him that everyone above Dangler in the OTB hierarchy was pleased with Dangler's work, and that although Sherman was dissatisfied with others at OTB, Sherman "loved" Dangler. (Complaint ¶21.)

On February 9 and 10, however, shortly after Dangler's first communication with Inspector General Unger, Sherman summoned Dangler to his office several times and challenged Dangler's loyalty to OTB. Sherman threatened to fire Dangler "because Mr. Dangler was unhappy with what management was doing" (Complaint ¶27); Sherman stated that he wanted only "'team players'" at OTB (Complaint ¶28). Sometime in February, Sherman, Cornstein, and others began to strip Dangler of his staff and areas of responsibility, to disparage Dangler on the basis of criticisms that were pretextual, and to embarrass and humiliate him, in retaliation for his reports to Unger.

On February 16, Dangler reported Sherman's threats to OTBIG Unger. On February 24, he relayed to Unger the information he had just received that Sherman appeared to be trying to steer the anticipated $35 million contract for the new computerized betting system to Autotote.

In the meantime, on February 21, Dangler was contacted by DOI inspector Brian Foley, who sought information from Dangler. At the ensuing meeting on...