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Gratz v. Ruggiero

United States District Court, E.D. Pennsylvania

May 19, 2017



          JOHN R. PADOVA, J.

         Plaintiff Caryn Gratz asserts claims pursuant to the Racketeer Influenced and Corrupt Organization Act (“RICO”), 18 U.S.C. §§ 1961-68, and state law against Defendants Philadelphia Mental Health Clinic, Inc. (“PMHC”), and against Kerey Ruggiero, Donna Moran, Staffmore, LLC, Behavioral Healthworks, LLC, Ruggiero LLC, and Anthony A. Wolf, Inc. (collectively, the “Ruggiero Defendants”). PMHC and the Ruggiero Defendants have both filed Motions to Dismiss. PMHC asks that we dismiss four of the five Counts asserted against it, and the Ruggiero Defendants ask that we dismiss the two RICO Counts asserted against them. For the following reasons, we deny both Motions.


         The Complaint alleges that, from January 5, 2015 through February 2, 2016, Gratz was the Chief Operating Officer of PMHC, a non-profit corporation that provides mental health services to certain children and is compensated for its services with Medicaid funds. (Compl. ¶¶ 8-9, 11, 23.) Defendant Kerey Ruggiero is the Executive Director and Chief Executive Officer of PMHC. (Id. ¶¶ 1, 7.) Defendants Staffmore, LLC, Behavioral Healthworks, LLC, Anthony A. Wolf, Inc., and Ruggiero LLC are for-profit companies in which Ruggiero holds a controlling interest. (Id. ¶¶ 14, 17-19.) Defendant Donna Moran has held various positions at PMHC in the past, and is currently the Executive Director of Staffmore and a Director of Behavioral Healthworks. (Id. ¶¶ 15, 16.)

         The Complaint alleges that the Ruggiero Defendants “orchestrated a scheme to divert PMHC's funds away from its charitable purpose and into their own pockets.” (Id. ¶ 1.) Specifically, the Complaint alleges that Ruggiero and Moran “made large, regular [electronic] payments from PMHC to [Staffmore, Behavioral Healthworks, Wolf, and Ruggiero LLC] and disguised the payments as program and administrative expenses incurred by PMHC in the operation of its business.” (Id. ¶ 1.) Using this scheme, Ruggiero and Moran were able to conceal their income on tax returns they mailed and wired to the Internal Revenue Service, thereby avoiding tax penalties on excess compensation, and Ruggiero was able to evade taxes altogether. (Id.)

         Immediately prior to joining PMHC in 2015, Gratz was the Managing Director for Behavioral Health Services at Pubic Health Management Corporation (“PHM”), another non-profit organization. (Id. ¶¶ 3, 28, 32.) According to the Complaint, Ruggiero, Moran and PMHC “lured” Gratz away from that position “in order to gain [her] unwitting assistance to maintain their scheme to divert funds away from PMHC's charitable purpose.” (Id. ¶ 3.) To accomplish that purpose, Ruggiero “falsely represented the nature of PMHC's operations and falsely stated the reasons for PMHC's financial plight.” (Id. ¶ 44.)

         Gratz began working at PHMC pursuant to a three year contract. (Id. ¶ 24.) During her first six months of employment, “Gratz gradually discovered that PMHC had several contracts with Ruggiero's for-profit corporations whereby PMHC paid an inflated sum for various services that are normally handled in house or would ordinarily be contracted for at a much lower rate to a legitimate third party provider.” (Id. ¶ 87.) Gratz also discovered that PMHC was paying inflated rent for properties owned by or controlled by Ruggiero, that PMHC funds were bring used to pay Ruggiero's personal expenses, and that PMHC had made undocumented loans to Ruggiero that were never repaid. (Id. ¶¶ 97-99, 101.) When Gratz confronted Ruggiero and Moran about Ruggiero's self-dealing, she was assured that Ruggiero's conduct was both lawful and board-approved. (Id. ¶¶ 104-06.) Moreover, Ruggiero assured Gratz that she was committed to Gratz's cost-cutting initiatives. (Id. ¶ 116.) In spite of these assurances, Gratz could find no evidence that the board had approved Ruggiero's actions, and Ruggiero's self-dealing continued. (Id. ¶¶ 108-09.)

         In early January 2016, Gratz formally launched an initiative for PMHC to directly hire service providers rather than obtaining them though Ruggiero's staffing companies. (Id. ¶¶ 128-29.) She also began speaking regularly to Geoffrey Rupprecht, PHMC's CFO, about her concerns about Ruggiero's self-dealing and lack of board approval for various contracts, as well as her belief that Ruggiero's conduct was illegal. (Id. ¶¶ 125, 130, 132.) She “informed Rupprecht that she believed that no Board meetings were being conducted and that Ruggiero was misrepresenting Board directives that Ruggiero claimed had approved PMHC's fiscally irresponsible transactions diverting PMHC funds away from their charitable purpose and into Ruggiero's pockets.” (Id. ¶ 151.) On January 27, 2016, Gratz told Rupprecht that they needed to make copies of documents evidencing Ruggiero's self-dealing and turn them over to the attorney general. (Id. ¶¶ 163, 165-66.) Two days later, Ruggiero expressed open hostility towards Gratz and pushed back against Gratz's cost-cutting initiatives. (Id. ¶¶ 172-75.) Shortly thereafter, on February 2, 2016, Ruggiero terminated Gratz's employment with PHMC. (Id. ¶¶ 26, 177.) When Ruggiero did so, she presented Gratz with a Confidentiality and Release Agreement and told Gratz that if she signed the release at that very moment, Ruggiero would provide her with two months' salary, but that if she refused to sign it, the offer was “off the table.” (Id. ¶ 181, 184.) Gratz, however, refused to sign the Release under those conditions, and she never signed the Release. (Id. ¶ 186.)

         The Complaint asserts five counts.[1] Counts I and II assert RICO claims against all seven Defendants pursuant to § 1962(c) and § 1962(d), respectively.[2] Count III asserts a state law common law claim against PMHC for wrongful termination of employment in violation of public policy. Count IV asserts a claim against PMHC pursuant to the Pennsylvania Whistleblower Law, 43 Pa. Cons. Stat. Ann. §§ 1421-28. Count V asserts a state law claim against PMHC for breach of Gratz's employment contract. PMHC has moved to dismiss the claims against it in Counts I through IV, and the Ruggiero Defendants have moved to dismiss the claims against them in Counts I and II.


         When considering a motion to dismiss pursuant to Rule 12(b)(6), we consider “the complaint, exhibits attached to the complaint, [and] matters of public record, as well as undisputedly authentic documents if the complainant's claims are based upon these documents.” Mayer v. Belichick, 605 F.3d 223, 230 (3d Cir. 2010) (citing Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993)). We “may also consider the RICO Case Statement filed by Plaintiff[, ] which ‘is a pleading that may be considered part of the operative complaint for the purposes of a motion to dismiss.'” State Farm Mut. Auto. Ins. Co. v. Makris, Civ. A. No. 01-5351, 2003 WL 924615, at *4 (E.D. Pa. Mar. 4, 2003) (quoting Allen Neurosurgical Assocs., Inc., v. Lehigh Valley Health Network, Civ. A. No. 99-4653, 2001 WL. 41143, at *3 n.1 (E.D. Pa. Jan.18, 2001)). We take the factual allegations of the complaint as true and draw all reasonable inferences in favor of the plaintiff. DelRio-Mocci v. Connolly Props., Inc., 672 F.3d 241, 245 (3d Cir. 2012) (citing Warren Gen. Hosp. v. Amgen, Inc., 643 F.3d 77, 84 (3d Cir. 2011)). Legal conclusions, however, receive no deference, as the court is “‘not bound to accept as true a legal conclusion couched as a factual allegation.'” Wood v. Moss, 134 S.Ct. 2056, 2065 n.5 (2014) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).

         A plaintiff's pleading obligation is to set forth “a short and plain statement of the claim, ” Fed.R.Civ.P. 8(a)(2), which gives the defendant “‘fair notice of what the . . . claim is and the grounds upon which it rests.'” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (alteration in original) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). The complaint must contain “‘sufficient factual matter to show that the claim is facially plausible, ' thus enabling ‘the court to draw the reasonable inference that the defendant is liable for [the] misconduct alleged.'” Warren Gen. Hosp., 643 F.3d at 84 (quoting Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009)). “The plausibility standard is not akin to a ‘probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556). “A complaint that pleads facts ‘merely consistent with a defendant's liability . . . stops short of the line between possibility and plausibility of entitlement to relief.'” Connelly v. Lane Constr. Corp., 809 F.3d 780, 786 (3d Cir. 2016) (alteration in original) (quoting Iqbal, 556 U.S. at 678). “The plausibility determination ‘is a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.'” Id. 786-87 (quoting Iqbal, 556 U.S. at 679). In the end, we will grant a motion to dismiss brought pursuant to Rule 12(b)(6) if the factual allegations in the complaint are not sufficient “‘to raise a right to relief above the speculative level.'” W. Run Student Hous. Assocs., LLC v. Huntington Nat'l Bank, 712 F.3d 165, 169 (3d Cir. 2013) (quoting Twombly, 550 U.S. at 555).


         PMHC and the Ruggiero Defendants both argue that that we should dismiss the RICO counts against them because Gratz does not have standing to pursue a RICO claim. In the alternative, PMHC and the Ruggiero Defendants argue that we should dismiss those same counts because they do not adequately allege the elements of a RICO claim. PMHC also argues that we should dismiss the Pennsylvania Whistleblower Law claim against it because that Law applies only to public bodies, not non-profits, and that we should dismiss the wrongful discharge claim because such a claim can only be pursued by at-will employees.

         A. RICO

         The RICO statute authorizes civil suits by “any person injured in his business or property by reason of a violation of [18 U.S.C. § 1962].” 18 U.S.C. § 1964(c). Here, the Complaint alleges violations of subsections 1962(c) and (d).

         Section 1962(c) makes it “unlawful for any person employed by or associated with any enterprise engaged in . . . interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity . . . .” 18 U.S.C. § 1962(c). To state a claim under Section 1962(c), a plaintiff must allege “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.” Warden v. McLelland, 288 F.3d 105, 114 (3d Cir. 2002) (quotation omitted). The RICO statute defines “racketeering activity” to include many state and federal crimes, including wire fraud, mail fraud, and witness tampering. 18 U.S.C. § 1961(1). A “pattern” requires “at least two acts of racketeering activity” that occur within a ten-year period. 18 U.S.C. § 1961(5). To prove a pattern of racketeering activity, a plaintiff must show that “the racketeering predicates are related, and that they amount to or pose a threat of continued . . . activity.” H.J., Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 239 (1989). Racketeering activities are related if they “‘have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events.'” Id. at 240 (quoting 18 U.S.C. § 3575(e)); Mega Concrete v. Smith, Civ. A. No. 09-4234, 2013 WL 3716515, at *10 (E.D. Pa. July 15, 2013) (citing H.J., Inc., 492 U.S. at 239-40).

         Section 1962(d) provides for a RICO conspiracy claim, making it unlawful “for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of this section.” 18 U.S.C. § 1962(d). To state a claim under § 1962(d), “‘a plaintiff must allege (1) agreement to commit the predicate acts . . ., and (2) knowledge that those acts were a part of a pattern of racketeering activity conducted in such a way as to violate section 1962(a), (b) or (c).'” Grant v. Turner, 505 F. App'x 107, 112 (3d Cir. 2012) (quoting Rose v. Bartle, 871 F.2d 331, 366 (3d Cir. 1989)). While “a defendant need not himself commit or agree to undertake all acts necessary to make out a § 1962(c) violation, ” he must “agree to facilitate the commission of activities prohibited under RICO.” Mega ...

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