HERBERT v. CITY OF NEW YORK

LAUREL ISICOFF, Bankruptcy Judge

This matter arose from a dispute between the now reorganized debtor, Sundale, Ltd. ("Sundale"), and Florida Associates Capital Enterprises, LLC ("FACE"). FACE filed an adversary complaint to determine the extent, validity, and priority of its claims against Sundale and Kendall Hotel and Suites ("KHS") (collectively, Sundale and KHS shall be referred to as the "Reorganized Debtors" or the "Defendants"). FACE asserts that it has a claim in the principal amount of $3,250,000, plus default interest accruing at 18% from May 2005 to the effective date of the Debtors' Chapter 11 plan confirmed in the main bankruptcy case, as well as a claim for attorneys' fees, based on loans FACE extended to Sundale, which loans are secured by real estate owned by Sundale, and through a trust by Sundale's principal, Phillip J. Scutieri, Jr ("Mr. Scutieri").

The two debtors were substantially consolidated pursuant to the Order Confirming Debtors' Second Amended Chapter 11 Plan of Reorganization entered in the main bankruptcy case, 07-21016 (DE #1508 dated May 26, 2009).

The Defendants assert that the FACE loans were not intended to be enforceable but were, as discussed in greater detail below, a payoff relating to a family dispute between the Scutieri family and a man named Raymond G. Chambers and that the funds paid were merely disguised as a loan. The Defendants assert numerous affirmative defenses, and in counterclaims, seek to declare FACE's loan documents unenforceable and to recoup all monies paid by Sundale to FACE. FACE asserts various affirmative defenses to the recoupment claim.

Once having waded through all the facts, disputed and undisputed, relevant and irrelevant, there are two issues that I must resolve. The first issue is the enforceability of release and reaffirmation provisions in mortgage modification agreements executed by Sundale in 2001. Because I find that the release and reaffirmation provisions are enforceable, judgment on Count I of the Plaintiff's Complaint shall be entered in favor of Plaintiff/Counter-Defendant FACE and against the Defendants/Counter-Plaintiffs on Count I of the Counterclaim. The second issue is whether the Defendants/Counter-Plaintiffs have a valid cause of action for recoupment. Because I find that the Defendants/Counter-Plaintiffs have failed to demonstrate by a preponderance of the evidence entitlement to recoupment, judgment is entered against Defendants/Counter-Plaintiffs with respect to Count II of the Counterclaim. The following constitute my findings of fact and conclusions of law in accordance with Federal Rule of Civil Procedure 52, made applicable to this adversary proceeding by virtue of Federal Rule of Bankruptcy Procedure 7052.

JURISDICTION

This Court has jurisdiction over this proceeding pursuant to 28 U.S.C. § 1334(b) and 28 U.S.C. § 157. The jurisdiction of the bankruptcy courts is set forth in 28 U.S.C. § 1334, which provides, in pertinent part, that "the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(b). 28 U.S.C. § 157(b) provides that "[b]ankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11, referred under subsection (a) of this section, and may enter appropriate orders and judgments, subject to review under section 158 of this title." 28 U.S.C. § 157(b). This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(K). With respect to the Counterclaims asserted by the Defendants/Counter-Plaintiffs, this Court has jurisdiction over the lien claim in Count I under 28 U.S.C. § 157(b)(2) as a core proceeding and has jurisdiction over the Recoupment claim in Count II under its "related-to" jurisdiction pursuant to 28 U.S.C. § 1334(b). Venue is proper in this district pursuant to 28 U.S.C. § 1409.

BACKGROUND HISTORY

With the exception of two witnesses, Glenn Stankee and Earl Wald, I have little confidence in the truth and veracity of any of the testimony. I believe a great deal of testimony was the product of manufactured memory, and that time and motivation have colored most of the balance of any otherwise legitimate recollections. Therefore, in rendering my decision, I must rely on the objective and undisputed facts, and only that testimony that I find most reasonable in light of those objective and undisputed facts. However, for purpose of background and understanding, even disputed facts are relevant. Where there is a dispute as to the facts, I will note the dispute. I heard testimony over eight days. If I were to include in this opinion all the facts admitted into evidence, this opinion would take up hundreds of pages. Instead, I have attempted to include those facts that give flavor and context to the ultimate issue but the parties can be well assured that all the testimony and exhibits were reviewed and considered by me in rendering this decision.

While the parties to this dispute are FACE, Sundale and KHS, the facts underlying this dispute start with relationships between the family of Mr. Scutieri, the principal of Sundale and KHS, and Raymond G. Chambers ("Mr. Chambers"). Thus, in order to understand the allegations of the complaint and counterclaim, it is necessary to understand the genesis of the relationship. We start with the cast of characters.

Mr. Chambers is a successful businessman who made his fortune in the leveraged buy-out business in the 1980s. For the last two decades, Mr. Chambers has been focused mainly on philanthropic endeavors. (Raymond Chambers' Trial Testimony at pg. 49:3-23, hereinafter "RC Trial Testimony at pg. ___)."

Delphine Scutieri ("Mrs. Scutieri") was married to Philip Scutieri, Sr. ("Mr. Scutieri, Sr."). Mrs. Scutieri and Mr. Scutieri, Sr. were the parents of Mr. Scutieri, and Joan Adubato ("Mrs. Adubato").

Frank Adubato ("Buzz" or "Mr. Adubato") was, and still is, married to Mrs. Adubato, the daughter of Mr. Scutieri, Sr. and Mrs. Scutieri. Mr. Adubato has been one of Mr. Chambers' closest friends. (RC Trial Testimony at pg. 61:3-14).

Mr. Chambers had a very close personal relationship with the Scutieri family that dates back over forty (40) years. (RC Trial Testimony at pgs. 53:22-25 and 90:9-10; and Exhibit 404, Raymond Chambers Deposition Transcript dated August 26, 2008, at pgs. 38:9 — 41:12). Mr. Chambers and the Scutieri family lived in New Jersey. (Exhibit 404 at pgs. 38:9-41:12). Mr. Chambers also had business relationships with Mr. Scutieri, Sr. and Mr. Scutieri at different times. ( See Exhibit 2). Mrs. Adubato introduced Mr. Chambers to his wife, (RC Trial Testimony at pgs. 53:17-19), and at some brief point in time, Mr. and Mrs. Chambers lived with Mrs. Scutieri and Mr. Scutieri, Sr. Mrs. Adubato was, and may still be, Mrs. Chambers' closest personal friend. ( Id. at 53:22-25).

Since the 1980s, Mr. Chambers' wealth and personal financial affairs have been managed by a company called Van Beuren Management ("VBM"), whose only clients are Mr. Chambers and his family and the various entities in which the Chambers family has interests, including various trusts. ( See David Roy Trial Testimony at pg. 7:18-8:4, hereinafter "DR Trial Testimony at pg. ___)." VBM not only administers Mr. Chambers' numerous trusts, but manages all of Mr. Chambers' financial affairs. VBM is owned by David Roy ("Mr. Roy") and Kurt Borowsky ("Mr. Borowsky"), both of whom are trustees of Mr. Chambers' trusts at VBM. (DR Trial Testimony at pg. 9:16-25). There is no dispute that since the formation of VBM, Mr. Roy and Mr. Borowsky have been, and continue to be, responsible for most, if not all, of Mr. Chambers' money, investments, and even personal expenses. ( Id. at pgs. 9:10-12:1).

Since the early 1970s, Mr. Scutieri has been the owner, through Sundale or its predecessors, of an approximate nine (9) acre tract of land located at 9100 North Kendall Drive, Miami, Florida (the "Sundale Property"). For a time in the mid-1970s, when there was an assisted living facility for retired senior citizens ("ACLF") located at the Sundale Property, Mr. Chambers and Mr. Adubato had some kind of limited partnership interest in the project with Sundale. (RC Trial Testimony at pgs. 92:14-93:3).

On or around November 20, 1997, Mrs. Scutieri advised her son, Mr. Scutieri, that she believed that Mr. Chambers, with the help of Mr. Adubato, (who, in November of 1997, became separated from Mrs. Adubato), had taken certain assets of the estate of Mr. Scutieri, Sr. (the "Estate") ( See Exhibits 2 and 3). Mrs. Scutieri further believed that Mr. Chambers used some of these assets to obtain the capital and assets to begin his leveraged buy-out business. Id.

At Mr. Scutieri's request, Mr. Scutieri met with Mr. Chambers in New Jersey several days later. (Philip Scutieri, Jr., Trial Testimony at pgs. 328:13-329:2, hereinafter "PS Trial Testimony at pg. ___"). At the meeting, Mr. Scutieri asserted Mrs. Scutieri's belief that Mr. Chambers, along with Mr. Adubato, had improperly taken certain assets of Mr. Scutieri, Sr. after his death. Mr. Scutieri accused Mr. Chambers of betraying his parents. Both Mr. Scutieri and Mr. Chambers agree the meeting was very emotional, although they dispute virtually everything about what Mr. Chambers and Mr. Scutieri said during the course of the meeting. ( Compare RC Trial Testimony at pgs. 99:15-102:22 with PS Trial Testimony at pgs. 329:9-330:25).

After leaving the meeting at the restaurant, Mr. Chambers spent that night drafting a letter to Mrs. Scutieri until the early morning hours, and sent the letter to Mrs. Scutieri the next day, (RC Trial Testimony at pg. 59:1-16). This letter contains a detailed explanation by Mr. Chambers concerning his involvement in the disputed assets and that he would "share everything" he had with Mrs. Scutieri and that it gave him "no pleasure whatsoever to have anything" if Mrs. Scutieri was not happy. ( See Exhibit 2).

On December 15, 1997, Mrs. Scutieri wrote a letter to Mr. Chambers advising Mr. Chambers that while she was thankful for his recent letter referring to several past transactions between himself and her late husband, Mr. Scutieri, Sr., she was disturbed with information that had recently been brought to her attention. ( See Exhibit 3). Mrs. Scutieri attached a draft complaint in which she named Mr. Chambers as a defendant, as well as Mr. Adubato, and asked that Mr. Chambers contact Mr. Scutieri to meet and discuss "an amicable solution to my claims." Id.

After Mrs. Scutieri sent her letter of December 15, 1997, Mr. Chambers and his agents attempted to resolve the dispute. (DR Trial Testimony at pg. 29:8-14). Meetings were held in Miami between the Scutieris and their lawyer and Mr. Chambers' representatives, Mr. Roy and Mr. Nolan, in order to reach an amicable resolution to Mrs. Scutieri's claims against Mr. Chambers. (RC Trial Testimony at pg. 65:9-24). The last of these meetings occurred in May of 1998.

At the end of June 1998, Gary Moore ("Mr. Moore"), apparently at the request of Mr. Roy, traveled to Miami to find out how Mr. Scutieri wanted to resolve the Scutieri family dispute with Mr. Chambers. ( See Gary Moore Trial Testimony at pgs. 17:15 — 18:9, hereinafter "GM Trial Testimony at pg. ___)." Mr. Moore was a former relative of Mr. Chambers, by marriage, as well as a friend and business associate of Mr. Chambers. (RC Trial Testimony at pgs. 50:10-53:4). Mr. Moore was also working for Mr. Scutieri in connection with Mr. Scutieri's efforts to convert his ACLF to a hotel (the "Hotel Project").

During his visit to Miami, Mr. Moore had dinner with Mr. Scutieri and Mr. Wells, Mr. Scutieri's friend and partner in the Hotel Project. (GM Trial Testimony at pgs. 18:22-19:7). During this dinner, Mr. Scutieri claims that Mr. Moore asked him what it would take to resolve the dispute between the Scutieri family and Mr. Chambers. (PS Trial Testimony at pg. 445:13). There was a second meeting the following day. At some point during one of these two meetings Mr. Scutieri told Mr. Moore the number (presumably to resolve the dispute) was $420,000,000 (the "Number"). Mr. Moore communicated the Number to Mr. Roy. ( Id. at pg. 21:17-24).

Mr. Scutieri testified that Mr. Roy called him after Mr. Scutieri's meeting with Mr. Moore. During this call, Mr. Scutieri testified that Mr. Roy told him that we can be "very creative" and "it was going to take some time to get it worked out." (PS Trial Testimony at pg. 468:3-5). Mr. Scutieri testified that he believed after this discussion that the matter with Mr. Chambers had been resolved. ( Id. at pg. 468:15-17). However, nothing else happened after June of 1998 until June of 1999. Mr. Scutieri claims he assumed the delay was because Mr. Roy had told him it would take time to work out logistical issues associated with the settlement. ( Id. at pgs. 467:20-468:5).

In June of 1999, Jacqueline Simmons ("Ms. Simmons"), a close friend of the Scutieri family and an acquaintance of Mr. Chambers, called Mr. Chambers and asked if he would meet with her. (Jacqueline Simmons Trial Testimony at pgs. 21:24-22:7, hereinafter "JS Trial Testimony at pg. ___."). Ms. Simmons claims she did so at the request of Mr. Scutieri. ( Id. at pg. 20:17-21). Ms. Simmons and Mr. Chambers both agree the crux of the phone call was a discussion about an estrangement between Mrs. Scutieri and her daughter Joan, caused by the dispute with Mr. Chambers. (RC Trial Testimony at pgs. 69:24-70:15; JS Trial Testimony at pg. 22:1-7). Whatever was actually said on the phone, there is no dispute that within two weeks after the call Mr. Chambers flew out to Palm Springs to have dinner with Ms. Simmons, which dinner lasted quite a long time, and at which dinner the estrangement between Mrs. Adubato and her mother was discussed. There is also no dispute that at the conclusion of the dinner Mr. Chambers committed to see Mrs. Scutieri in Miami, whether this was his idea or at the request of Ms. Simmons.

Mr. Chambers arranged to meet Mrs. Scutieri and Ms. Simmons, approximately two to three weeks after the dinner meeting, in an American Airlines conference room in the Miami International Airport (the "Airport Meeting"). ( See Exhibit 405, Raymond Chambers Deposition Testimony dated August 27, 2008, at pg. 111:6-15.) In attendance at the Airport Meeting, which took place in June 1999, were Mr. Chambers, Mrs. Scutieri, and Ms. Simmons.

What was said at the Airport Meeting is critical to the litigation and is the real start of the story. Mr. Chambers testified that he had told Mrs. Simmons at the dinner meeting in California that he would meet with Mrs. Scutieri only to discuss the rift between her and Mrs. Adubato in hopes of effecting a reconciliation between the two, and would not discuss the accusations Mr. Scutieri and Mrs. Scutieri had made about him. (RC Trial Testimony at pg. 71:3-17 and pgs. 122:20-123:6). Mr. Chambers recalled that the conversation at the Airport Meeting began with a discussion about family, but then Ms. Simmons raised the issue of the dispute between the Scutieris and Mr. Chambers. ( Id. at pg. 75:1-9). Ms. Simmons told him she had a "creative idea that I think could help resolve the estrangement between Mrs. Scutieri and [Mrs. Adubato]." Id. Mr. Chambers testified that the "creative idea" that Ms. Simmons proposed to Mr. Chambers was him lending Mr. Scutieri $10,000,000 for the Hotel Project. ( Id. at pgs. 75:12-76:13). Mr. Chambers testified that Ms. Simmons told him Mr. Scutieri had upwards of $30,000,000 in equity in the Hotel Project, but that he had not been able to obtain conventional financing because of his reputation and track record. Id. Mr. Chambers testified that he asked Ms. Simmons how this could bring about a reconciliation between Mrs. Scutieri and Mrs. Adubato, and that Ms. Simmons' response was that Mrs. Scutieri was very concerned about Mr. Scutieri, and that helping Mr. Scutieri with the Hotel Project would bring about the reconciliation between Mrs. Scutieri and Mrs. Adubato. Id. Mr. Chambers testified that he told Ms. Simmons and Mrs. Scutieri that he would not loan $10,000,000, but that if Mrs. Simmons really thought this would bring about a reconciliation between Mrs. Scutieri and Mrs. Adubato, he would recommend to his "financial advisors that they, (A), help Phil Junior get a conventional first mortgage loan on the Property and, (B), if that loan fell short of the $10,000,000, that I would recommend to them that our entities provide up to $2 million in a subordinated second mortgage loan." ( Id. at pg. 76:3-13).

Not surprisingly, Ms. Simmons told a different account of what happened at the Airport Meeting. Ms. Simmons testified that once Mr. Chambers arrived, he initiated the conversation and told Mrs. Scutieri that he had met with Ms. Simmons in California and was very disturbed about what was happening within the Scutieri family and that it was due to him, and he "wanted to do whatever [Mrs. Scutieri] wished to correct the problem and make it right, but it was important that the family got back together again." (JS Trial Testimony at pg. 35:12-20). Ms. Simmons testified that Mr. Chambers wanted to know from Mrs. Scutieri what she wanted. ( Id. at pg. 36:14-37:1). According to Ms. Simmons, Mrs. Scutieri said she wanted a $10,000,000 first payment on the money Mr. Chambers owed her and she wanted the money to go to Mr. Scutieri for his Hotel Project. ( Id. at pgs. 37:10 — 39:6). Ms. Simmons also testified that Mrs. Scutieri wanted the remaining amount of the $420,000,000, to be "worked out." ( Id. at pg. 37:10-15).

According to Ms. Simmons, Mr. Chambers told Mrs. Scutieri that he would give $10,000,000 for Mr. Scutieri's Hotel Project, but stated that "it was very complicated and that the monies would have to be disguised as a loan, but he would have his people work it out." ( Id. at pgs. 38:22-39:12; see also Exhibit 30.) Ms. Simmons further testified that Mr. Chambers said the $10,000,000 would be an "initial payment of getting the monies back to Delphine-to the estate of Phil, Sr." (JS Trial Testimony at pg. 39:19-24).

Mr. Chambers denies having agreed to anything other than trying to help Mr. Scutieri get a $10,000,000 loan but acknowledges that, following the Airport Meeting:

I called Dave Roy and said in order to bring about a reconciliation between Mrs. Scutieri and Joan Adubato, I agreed that one of our entities and our professionals would help Phil Junior find conventional financing for his hotel construction project, and in the event and only in the event that the conventional financing wasn't sufficient to cover the construction cost of this project that I had said to Mrs. Scutieri that one of our entities would lend $2,000,000 in a subordinated note but we hope that conventional financing in the amount of ten million dollars, which is what Jackie Simmons described, could be achieved . . .

( See Exhibit 413, Raymond Chambers Deposition taken October 2, 2009, at pgs. 108:12-109:3).

Ms. Simmons testified that immediately after the Airport Meeting, she advised Mr. Scutieri of Mr. Chambers' promise that he would provide $10,000,000 to complete the Hotel Project and that it would have to be "disguised as a loan." (JS Trial Testimony at pg. 39:9-12; PS Trial Testimony 480:15-481:14).

Mr. Roy made an arrangement with an attorney named Michael Inglis ("Mr. Inglis"), a personal friend, to create an entity that would provide a mechanism for providing funding to Sundale for the Hotel Project. The entity they created was FACE. FACE was formed around August 3, 1999 as a limited liability company. (Michael Inglis Trial Testimony at pg. 1171:15-18, hereinafter "MI Trial Testimony at pg. ___."). Its two members are VBM and Mr. Inglis. ( Id. at pg. 1172:17-20). Mr. Inglis is the managing member. ( Id. at 1172:10-11). Pursuant to the governing documents, VBM provided most of the capital; Mr. Inglis' contribution, other than his labor, was $1,000. ( Id. at pg. 1173:3-20).

Funding started almost immediately. Because FACE had not yet been formed, the initial loans were made in Mr. Inglis' name as lender. The funds were channeled from one of Mr. Chambers' trusts through VBM to FACE. Mr. Inglis testified that he knew that VBM would be funding the loan, but Mr. Inglis testified that, until the litigation between FACE and Sundale started, Mr. Inglis did not know that VBM's only clients were Mr. Chambers and his family interests, or that the loans provided by VBM were funded solely from Mr. Chambers' trusts. ( Id. at pgs. 1154:1-55:4).

Initially, the loans were all unsecured, and guaranteed by Mr. Scutieri (the "Personal Guarantees"), apparently because at the time that FACE began to advance funds to Sundale, the north portion of the Sundale Property, on which the Hotel Project was located, was encumbered by a first mortgage lien in favor of an off-shore Cayman Island company called Matsuda Capital (the "Matsuda Lien"), a company owned and controlled by Mr. Scutieri. ( Id. at pg. 1199:12-24; see also PS Trial Testimony at pg. 784:10-17). The property was also subject to a lien held by Ms. Simmons (the "Simmons Lien"). (PS Trial Testimony at pg. 798:20-24).

The original monies loaned by FACE or Inglis were evidenced by a series of eight promissory notes (the "Original Notes") totaling $1,700,000. (PS Trial Testimony at pg. 520:8-17; see also Exhibits A1 through A14, 81 and 82), all of which were guaranteed by Mr. Scutieri personally (the "Personal Guarantees"). Mr. Scutieri signed the Personal Guarantees on his own behalf, and signed the Original Notes on behalf of Sundale as president of its general partner

The following table summarizes the notes issued to Sundale:

Principal Amount of Note Date Signed $200,000.00 7/30/1999 $300,000.00 8/06/1999 $300,000.00 9/10/1999 $200,000.00 9/30/1999 $300,000.00 10/05/1999 $150,000.00 10/25/1999 $150,000.00 11/10/1999 $100,000.00 11/11/1999

Kendale Capital, Inc. ( See Exhibits A1 through A14, 81 and 82; see also PS Trial Testimony generally at pgs. 487 through 520 (acknowledging each advance)). Mr. Inglis testified that he never funded without documents, however, sometimes he did fund on faxed signatures. (MI Trial Testimony at pg. 1292:3-16).

On November 29, 1999, the Original Notes and Personal Guarantees were replaced by a $2,000,000 renewal promissory note (the "November 1999 Note"). ( See Exhibit B1). As part of the November 29, 1999 transactions, Mr. Scutieri was released from his personal guarantees, and instead, as part of the transaction evidenced by the November 1999 Note, FACE and Sundale entered into a mortgage and security agreement (the "November 1999 Mortgage and Security Agreement") which secured repayment of the November 1999 Note. ( See Exhibit B2). The property subject to the November 1999 Mortgage and Security Agreement was the Sundale Property owned by Sundale on which the Hotel Project was located and certain adjacent property owned by Mr. Scutieri as Trustee (the "Trustee Parcel"). ( See Id.; see also PS Trial Testimony at pgs. 539:14 — 540:7). The Matsuda Lien and the Simmons Lien were resolved and removed from the Sundale Property prior to the execution of the November 1999 Mortgage and Security Agreement. (PS Trial Testimony at pg. 882:2-16).

In addition to consolidating the Original Notes totaling $1,700,000, Sundale received an additional advance of $300,000.00. ( See PS Trial Testimony at Pg. 541:1-10)

On November 29, 1999, in conjunction with the closing of the November 1999 Note and the November 1999 Mortgage and Security Agreement, the law firm of Ruden, McClosky, Smith, Schuster Russell, P.A. ("Ruden McClosky") issued an opinion letter (the "November 1999 Opinion Letter") opining, among other things, to the validity and enforceability of the November 1999 Note and the November 1999 Mortgage and Security Agreement. ( See Exhibit B9).

After the execution of the November 1999 Note, Mr. Scutieri continued to demand additional funding, with which demands, occasionally only after threats, FACE complied. And so, beginning on December 17, 1999 with an advance of $500,000, FACE made seven additional advances totaling an additional $5,300,000.00. ( See Exhibits C1 through C57). Some of these advances were evidenced by a note personally guaranteed by Mr. Scutieri, while other notes were secured by a mortgage and security agreement. In connection with at least two transactions for which a mortgage and security agreement were signed, the law firm of Ruden McCluskey issued an opinion letter, opining, inter alia, to the validity and enforceability of the applicable note and mortgage and security agreement. ( See Exhibit C21 and Exhibit C50). In total, following the November 1999 Mortgage and Security Agreement, Sundale executed an additional seven notes.

Sundale signed a note on February 18, 2000 for $1,000,000.00 and a note on March 1, 2000 for $1,500,000.00. These notes were restated in the March 10, 2000 Note of $2,500,000. The following chart summarizes these notes: Principal Amount of Note Date Signed $500,000.00 12/17/1999 $500,000.00 1/18/2000 $500,000.00 1/24/2000 $500,000.00 2/02/2000 $2,500,000.00 3/10/2000 $800,000.00 3/22/2000

Between July 30, 1999 and March 22, 2000, FACE loaned Sundale a total of seven million three hundred thousand dollars ($7,300,000.00) (the "FACE Loans"), all of which was ultimately secured by the Sundale Property and the Trustee Parcel. However, Sundale never made a payment of any of its obligations to FACE under this original series of notes.

Beginning in November of 1999, FACE forwarded several potential funding sources to Mr. Scutieri including Mercury Capital and Andy Kurtz. (PS Trial Testimony at pgs. 529:22-530:3). At the same time, Mr. Scutieri was speaking to various funding sources, including Northern Trust Bank. ( Id. at 526:13-16), although Mr. Scutieri claimed he wasn't looking for funding until FACE stopped funding because he expected the money from FACE to continue in accordance with the promise from the Airport Meeting. (PS Trial Testimony at pg. 618:14-20).

On March 28, 2000, Mr. Inglis sent a letter to Mr. Scutieri (the "March 28^th Letter") informing him that FACE would not provide any additional funding for the Hotel Project. (See Exhibit 189). When FACE stopped funding in March of 2000, Mr. Scutieri wrote several nasty letters to David Roy and to Mr. Inglis. (PS Trial Testimony at pgs. 627:17 — 630:17; see also Exhibits 204 and 289). By April 2000 work on the Hotel Project stopped, due, according to Mr. Scutieri, to lack of funding. (PS Trial Testimony at pgs. 632:13-633:2).

Mr. Scutieri apparently continued to look for financing because in March of 2001 Mr. Stankee advised Mr. Inglis that Ocean Bank had agreed to provide financing for the Hotel Project. ( See Exhibit 260). Mr. Stankee's transmittal letter included a commitment letter from Ocean Bank, which commitment letter reflected Ocean Bank was willing to provide Sundale with a $10,000,000 loan, secured by a first lien mortgage on the Sundale Property. This would, of course, require FACE to subordinate its first lien position to Ocean Bank. As consideration for that subordination, the Ocean Bank March letter proposed that of the $10,000,000 Ocean Bank loan, $1,000,000 would be used to pay down the debt to FACE and $3,600,000 of the loan proceeds would be paid to Mr. Scutieri to reimburse him for his investment in the Hotel Project. $2,000,000 of the $3,600.000 would be paid to Mr. Scutieri only after the completion of the renovations and the opening of the Hotel Project, subject to certain additional conditions outlined in the letter. (See Exhibit 256).

The commitment letter also required that Sundale post, as additional security for the loan, a letter of credit in the amount of $1 million. In Mr. Stankee's letter to Mr. Inglis, Mr. Stankee advised that Mr. Scutieri wanted FACE to put up the $1,000,000 letter of credit. Mr. Scutieri also proposed to pay FACE an additional $1,000,000 when he received the $2,000,000. Not surprisingly, FACE was unwilling to agree to subordinate on the terms Mr. Stankee proposed. There were negotiations back and forth between and among FACE, Sundale, Mr. Scutieri and Ocean Bank but no deal was reached.

On May 25, 2001 Mr. Scutieri wrote a lengthy letter to Mike Inglis (Exhibit 289) outlining a history of the loans with FACE and including the following allegations and statements.

a. The funding was merely a disguised loan;

b. The funding was coming from Mr. Chambers' trust fund even though Mr. Scutieri had been led to believe the funds were coming from some other source and that funding was cutoff when Mr. Scutieri found out he was being lied to about the funding source;

c. That the funding was "to settle this thing" regarding Mr. Scutieri's family and his father's estate;

d. That after the funding stopped Mr. Scutieri's phones were tapped and conversations taped, that his and his mother's accounts were being monitored and that his home and office were broken into; and

e. that Mr. Chambers was interfering with his [Mr. Scutieri] getting a deal done with Ocean Bank.

On June 19, 2001, Sundale, Kendale Capital Inc. (Sundale's general partner), Mr. Scutieri individually and as trustee, and Mrs. Scutieri filed a complaint in the District Court of for the Southern District of Florida against FACE, Mr. Chambers, Mr. Adubato, the Amelior Foundation, David Roy and Kurt Borowsky (the "2001 Complaint"). The allegations of the 2001 Complaint start with the Airport Meeting and the $10,000,000, claiming that this funding, while appearing to be a loan, would be cancelled. The 2001 Complaint laid out the allegations relating to Mr. Scutieri Sr.'s estate, and Mr. Chamber's alleged use of estate assets to build his fortune. The 2001 Complaint also alleged that the source of the FACE funding was concealed and that this concealment, as well as the apparent intent to collect the debt, contrary to what was promised, constituted material false representations. However, the 2001 Complaint was never served on FACE and FACE did not learn about the 2001 Complaint until several years later. The 2001 Complaint was dismissed in November, 2001. (PS Trial Testimony at pg. 981:5-7).

The counts of the complaint were Breach of Oral Contract, Third Party Beneficiary, Declaratory Judgment for Cancellation of Mortgage (several counts relating to each secured note), Fraud in the Inducement (also several counts), Breach of Fiduciary Duty, Participation in a Breach of Trust, Conversion, Resulting Trust, Constructive Trust, Fraud and Tortious Interference.

The Ocean Bank Closing

After several months of negotiations by and amongst Sundale, FACE, Mr. Scutieri and Ocean Bank, on September 7, 2001, Sundale closed a $12,000,000 loan with Ocean Bank (the "Ocean Bank Closing"). ( See Exhibits D30, D36, and D59). The FACE Loan was reduced from $6,300,000 million to $3,250,000 represented by three renewal notes executed by Sundale in favor of FACE (the "Renewal Notes"). FACE agreed to subordinate its lien to the lien of Ocean Bank with respect to the remaining indebtedness. In connection with the Ocean Bank Closing, Sundale, FACE, Ocean Bank, Mr. Scutieri as president and director of Kendale Capital, Inc., counsel for the various parties, as well as others signed a variety of documents, including a Modification Agreement, the Second Modification Agreement and the Third Modification Agreement (collectively, the "Modification Agreements"), on September 7, 2001 which were signed by Sundale and FACE. ( See Exhibits 329, 330, and 331). The Modification Agreements contain specific and unambiguous provisions that acknowledge the continuing indebtedness represented by the Renewal Notes, as well as reaffirmation of the previous loan documents that had been executed by Sundale and Mr. Scutieri, in connection with the existing FACE loans, and acknowledgement that the terms and conditions of the previously executed loan documents remain in full force and effect except as modified by the Modification Agreements. Most significantly, the Modification Agreements formally memorialized the agreements reached between and among Sundale, FACE and Mr. Scutieri in which Sundale and Mr. Scutieri specifically and unequivocally granted a full and complete "release and discharge" to FACE and Mr. Inglis for "any and all manner of liabilities or claims that may exist." (These provisions will be referred to collectively as the "Release and Reaffirmation"). Mr. Scutieri testified he knew the Modification Agreements contained release provisions. (PS Trial Testimony at pg. 1017:2-6). The Modification Agreements, Renewal Notes and all other documents signed by Sundale, Mr. Scutieri and their affiliates and counsel in connection with the Ocean Bank Closing will be referred to collectively as the "Ocean Bank Loan Documents."

In connection with the Ocean Bank Closing and once again on behalf of Sundale and Mr. Scutieri, the Ruden McClosky law firm issued an opinion letter dated September, 2001 (Exhibit D40) that opined to the following:

The Documents [including the Renewal Notes and Modification Agreements] have been duly and validly executed by Kendall Resort, Grand Main, Sundale and Kendale Capital and constitute the valid and binding obligations of Kendall Resort, Grand Main, Sundale, enforceable against Kendall Resort, Grand Main, Sundale and Kendall Capital in accordance with their respective terms.

At the time Ruden McClosky issued the September 7 opinion letter, Mr. Stankee had read the May 25 letter and testified that he had no concern about his firm issuing the September 7 opinion letter. (Trial Testimony of Glen Stankee at pgs. 209:24-10:2, hereinafter "GS Trial Testimony at pg.___."). When asked whether he would have allowed the Ocean Bank Closing to take place if he had any doubt regarding the validity of the FACE loans, Mr. Stankee testified "no." ( Id. at 234:10-18).

Pursuant to the Renewal Notes, Sundale was obligated to make quarterly interest payments until November 29, 2002 and then monthly interest payments starting in December 29, 2002; all principal and unpaid interest were due to be paid on November 29, 2004. Sundale made all interest payments due under the Renewal Notes timely from the time of the Ocean Bank Closing until May 2005. ( See PS Trial Testimony at pg. 1097:3-16; see also Exhibits 337 through 349). In November 2004 Mr. Scutieri asked Michael Inglis to extend the maturity date of the FACE loan because Mr. Scutieri was in the process of obtaining additional financing from Ocean Bank to pay off his obligations to FACE. (MI Trial Testimony at pg. 1285:14-25). Mr. Inglis agreed to the extension and Sundale made additional interest payments, until May 2005 when no further payments were made.

Notwithstanding that Sundale stopped making payments to FACE in May 2005, FACE did not take any steps to collect the debt. Mr. Inglis testified that FACE did not pursue its remedies under its loan documents during this time period because FACE did not want to take over the Hotel subject to the Ocean Bank Loan. (MI Trial Testimony at pg. 1304:10-22). Moreover, FACE had no desire to operate the Hotel. ( Id. at 1307:15-16). Mr. Inglis also testified that FACE didn't want to take any steps that would "inspire" Mr. Scutieri to file a lawsuit. ( Id. at 1307:17-22). Finally, Mr. Inglis testified that FACE didn't want to foreclose because of the fundamental fact that Mr. Chambers was a friend of the Scutieri family and wanted to assist in the Hotel Project. ( Id. at pgs. 1302:14 — 1303:2, 1307:23 — 1308:1).

On December 11, 2007, Ocean Bank advised Sundale that Sundale was in default of its obligations to Ocean Bank. On December 11, 2007, FACE sent its default notice to Sundale. Sundale filed for protection under Chapter 11 of the United States Bankruptcy Code on December 12, 2007 (the "Petition Date"). KHS filed its own Chapter 11 petition on January 30, 2008 after receiving a default notice from the hotel licensor, Holiday Hospital Franchising, Inc.

For details on that dispute, see Sundale, Ltd. v. Ocean Bank, Adversary Case No. 09-1914, United States Bankruptcy Court, Southern District of Florida.

After a very contentious bankruptcy case the Debtors filed a Second Amended Chapter 11 Plan of Reorganization (the "Plan"), which Plan was confirmed on May 26, 2009 (the "Confirmation Order"). The Confirmation Order contemplates certain payments to FACE as therein provided until this adversary proceeding is resolved.

See, e.g., Amended Order Denying Creditors' Motion to Appoint a Chapter 11 Trustee or in the Alternative an Examiner (DE #963).

THE PROCEDURAL HISTORY OF THIS ADVERSARY PROCEEDING

From the inception of the bankruptcy Sundale has contended that the FACE loan is not a "real" loan but delayed filing an adversary proceeding while counsel for the Debtors did some pre-filing due diligence. FACE elected to initiate this adversary proceeding by filing a two count complaint on May 1, 2008 seeking a determination of the extent, validity and priority of its asserted lien on the Sundale Property. After some false starts, and this Court's dismissal of at least the first round of affirmative defenses, the parties went to trial on the Complaint and the Counterplaintiffs' Third Amended Answer, Affirmative Defenses and Counterclaims. At the close of trial FACE stated it would move for judgment on partial findings pursuant to Federal Rule of Bankruptcy Procedure 7052, and, in fact, on January 4, 2010 FACE did file a motion for judgment on partial findings.

The second count, for substantive consolidation, was rendered moot by the Confirmation Order which confirmed the Plan that provided for substantive consolidation of the two debtors.

The central issue raised by the Plaintiff in the Complaint, and the issue to which the Defendants' affirmative defenses and counterclaims relate, is whether FACE is entitled to a judgment declaring that FACE holds a valid, perfected secured claim against the property owned by Sundale. See Complaint (DE #1). The Defendants raise several defenses to the enforceability of FACE's secured claim, and seek a judgment on their counterclaim declaring that FACE does not hold a valid, perfected secured claim against the subject property. See, Third Amended Answer (DE #296). Furthermore, the Defendants seek affirmative recovery from the Plaintiff by virtue of a counterclaim sounding in recoupment. See Id.

To determine the issues raised, this Court must determine whether or not the Release and Reaffirmation are valid and binding against the Defendants. The Plaintiff asserts that, by virtue of the Release and Reaffirmation, a full and complete "release and discharge" was given to FACE and Mr. Inglis from Sundale, after considerable negotiations, for "any and all manner of liabilities or claims that may exist" in connection with the Modification Agreements. The Defendants argue the Release and Reaffirmation were fraudulently obtained and only signed by Defendants under duress.

For the reasons stated herein, I find that the Plaintiff overwhelmingly established a prima facie case that it holds a valid, perfected lien against the Sundale Property and the Trustee Property. Conversely, the Defendants failed to meet their burden of proof in every respect with regard to their affirmative defenses and their counterclaims.

EXTENT, VALIDITY AND PRIORITY OF THE FACE LOAN AND LIENS

Each of FACE and the Defendants/Counterplaintiffs has sought a determination regarding the extent, validity and priority of the FACE liens. The party bearing the burden of proof must demonstrate that it is entitled to judgment in its favor by a preponderance of the evidence. In re Covenant at South Hills, Inc., 410 B.R. 426 (Bankr. W.D. Pa. 2009). Thus, as both parties have sought affirmative relief on this issue, I must determine in whose favor the greater weight of the evidence rests.

The loan documents that govern this dispute are those executed by the parties in September of 2001. These documents modified, and in some instances replaced, the loan documents between Sundale and FACE that existed prior to the Ocean Bank Closing. However, even if the pre-Ocean Bank closing documents have any relevancy to these proceedings, there is no dispute that Sundale and Mr. Scutieri signed every document that supports the lien asserted by FACE. The parties have stipulated that Mr. Scutieri executed the Renewal Notes and the Modification Agreements and that the Modification Agreements were correctly recorded. (Bilateral Pretrial Stipulation, DE #396). Thus, FACE has met its initial burden under Count I of the Complaint proving, that its liens are enforceable, and are prior to all other liens with the exception of the Ocean Bank lien, to which lien FACE expressly subordinated. FACE, having met its initial burden, the burden then shifted to Sundale to prove that, notwithstanding the facial enforceability of the FACE liens, the liens are nonetheless unenforceable.

The Defendants' Affirmative Defenses

Sundale claims nine affirmative defenses — Promissory Estoppel, Unclean Hands, Waiver, Fraudulent Inducement (both defenses), Duress, Fraudulent Misrepresentation, Failure of Consideration, Fraudulent Inducement, and Equitable Estoppel.

The affirmative defenses of promissory estoppel, unclean hands, fraudulent inducement, fraudulent misrepresentation and equitable estoppel are all based on Sundale's allegations that all the FACE Loans were only disguised as loans, that Mr. Scutieri was told he would never have to pay back the loans, that Mr. Roy and Mr. Inglis lied to Mr. Scutieri about the source of the funds lent to Sundale, and that the taint of these falsehoods extended to the Release and Reaffirmation.

Sundale has failed to meet its burden with respect to any of the affirmative defenses it has raised in defense of Count I of the Complaint.

A. Sundale Has Failed to meet its burden with respect to Fraud-Based Affirmative Defenses

Sundale must prove it is entitled to its fraud-based affirmative defenses by clear and convincing evidence. Levenger Co. v. Feldman, 516 F. Supp. 2d 1272, 1291 (S.D. Fla. 2007); In re Fulks, 343 B.R. 701, 708 (Bankr. M.D. Fla. 2006). Sundale claims the FACE Loans are "null and void" or "void and unenforceable") at 19; see also Deutsch Decl., Ex. 9 (Dixon Dep.) at 198-99) At her deposition, Dixon explained that she demanded that Garvey be transferred because

there was too much . . . water cooler talk that was interrupting the overall tone of the school. People were so focused on these two, and I say these two, I mean Ms. Herbert and Mr. Garvey, that people weren't functioning. . . .

(Id., Ex. 9 (Dixon Dep.) at 198-99) Ultimately, Garvey agreed to a voluntary transfer, and left P.S. 149 on December 11, 2007. (Id. Ex. 12 (Spring Dep.) at 19, 20, 25)

III. HERBERT'S ANONYMOUS REPORT TO SCI

At the beginning of December 2007, while standing with Dixon outside the office of P.S. 149's business manager, Katina Williams, Herbert overheard a "40 second" telephone conversation in which Williams was "talking about a check that [Dixon] had made out to cash for a thousand dollars [for school related expenses], and she in turn had the check cashed and used the thousand dollars for a down-payment on one of her cars." (Deutsch Decl., Ex. 8 (Herbert Dep.) at 93-96; see also Def. 56.1 Stmt. ¶ 64) At her deposition, Herbert conceded that she could not "say for certain" that Dixon overheard the conversation. Moreover, Herbert and Dixon never discussed what Herbert overheard. (Deutsch Decl., Ex. 8 (Herbert Dep.) at 95-96; Def. 56.1 Stmt. ¶ 65) Herbert subsequently discussed Dixon's alleged misconduct with Williams, however, who told Herbert that Dixon had misappropriated school and student funds on several occasions. (Pltf. 56.1 Counter-Stmt. ¶ 91)

On December 12, 2007, Herbert sent a letter to SCI alleging that Dixon "lack[ed] integrity, was "dishonest," and had stolen school funds. (Def. 56.1 Stmt. ¶ 66; Leighton Decl., Ex. B (Herbert Dep.) at 99-100) Herbert signed the letter "Anonymous," and took other steps to conceal her identity. For example, she made the letter "sound like it was from a teacher and not from [her]," and referred to herself in the third person as "the one that [Dixon] brought with her from 149." (Def. 56.1 Stmt. ¶ 67; Leighton Decl., Ex. B (Herbert Dep.) at 99, 102)

Dixon testified that she first became aware of this complaint and the identity of the complainant in April 2008, when she met with SCI investigators. (Def. 56.1 Stmt. ¶ 69; (Leighton Decl., Ex. C (Dixon Dep.) at 38-40) There is no contrary evidence.

IV. 2007-08 DISCIPLINARY LETTERS AND DEMOTION

Shortly after Herbert informed Dixon of her pregnancy in October 2007, Dixon issued the first of four disciplinary letters to Herbert. On November 7, 2007, Dixon sent Herbert a disciplinary letter in connection with her alleged use of profanity in speaking with Audrey Santos, a vice president of the PTA, who had questioned Herbert about her pregnancy and relationship with Garvey. (Def. 56.1 Stmt. ¶¶ 25, 26) In a letter to Dixon, Santos alleges that when she questioned Herbert, Plaintiff replied: "`It's my p*ssy and it don't matter who I give it up to. As long as I am not f#cking a student, they shouldn't be concerned.'" (Dixon Decl., Ex. Q) (emphasis in original) Dixon's disciplinary letter to Herbert advised her to "continue to work on finding a more professional yet direct approach when communicating with parents." (Def. 56.1 Stmt. ¶ 28; Dixon Decl., Ex. I)

Herbert denies using profanity and asserts that she merely told Santos that "parents [can] question me about curriculum and instructional matters, not my personal life." (Pltf. Counter-Stmt. ¶ 28; Leighton Decl., Ex. B (Herbert Dep.) at 90)

On January 7, 2008, Dixon issued four separate letters of reprimand to Herbert. The first relates to Herbert's behavior on December 17, 2007, at P.S. 811, an adjoining school. (Def. 56.1 Stmt. ¶ 33-35) P.S. 811's principal and assistant principal sent a written complaint to Dixon about Herbert's loud berating of P.S. 811's nurse in front of students and staff. (Id. at 34-35) Herbert admits calling the nurse "useless," but explains that a student was suffering an asthma attack on December 17, had been hospitalized two weeks before for the same condition, and was at risk of death from the asthma attack. According to Herbert, the nurse refused to treat the child promptly, and Herbert had "to retrieve the child's medicine herself." (Pltf. 56.1 Counter-Stmt. ¶ 36)

The email sent to Dixon by P.S. 811's principal provides some support for Herbert's account. The principal reports that Herbert told him that when she first appeared at P.S. 811 with the asthmatic child — who was admittedly in distress — the nurse's response was, "I work for 811." The nurse also confirmed that she asked Herbert to retrieve the child's medication, because the nurse did not have suitable medication. (Dixon Decl., Ex. T)

As noted above, this and the other letters of complaint considered by this Court are not hearsay because they are not offered for their truth, but instead for their effect on Dixon's state of mind.

In the first of the four January 7, 2008 reprimand letters, Dixon advised Herbert that her "behavior and demeanor was unprofessional":

Although you might have felt that [Nurse] Brown did not treat you in a professional manner, your first and foremost concern should be the health and safety of the student for whom you are responsible. An angry and unprofessional display in front of students and staff results in a disservice to the children you are responsible for and places them in danger of not receiving the appropriate care to which they are entitled. Your ability to prioritize the appropriate actions you should take as "supervisor in charge" during a medical emergency is severely deficient. You are required as a supervisor to put aside your personal interactions with others you might find distasteful. Your failure to do this is unsatisfactory and prohibits your ability to meet your primary responsibilities as Assistant Principal.

(Dixon Decl., Ex. K)

The second January 7, 2008 reprimand letter concerns a December 21, 2008 incident involving Herbert and P.S. 149 business manager Katina Williams, whom Dixon had suspended for one week due to alleged unsatisfactory performance. According to Dixon's letter of reprimand (Dixon Decl., Ex. L), Herbert was aware that Williams had been suspended and was "only permitted to attend her after-school job [on school premises] beginning at 4:00 P.M. daily, for the week she was suspended." Dixon's letter goes on to state that on Friday, December 21, Herbert nonetheless permitted Williams to remain in the main office work area from approximately 2:09 p.m. until 2:22 p.m. (Dixon Decl., Ex. L)

Herbert states, however, that she was on the phone reporting a child abuse case when Williams first arrived at the school, that she briefly called Williams over to ask what she was doing in the building, and that Williams stated that she had come to the school to pick up her niece. (Pltf. 56.1 Counter-Stmt. ¶ 37; Deutsch Decl., Ex. 8 (Herbert Dep.) at 116) Dixon acknowledged at her deposition that the school safety officer — who is responsible for controlling access to the building — also permitted Williams to stay in the building, because "he thought that [Williams] was waiting for her niece to come down." (Deutsch Decl., Ex. 9 (Dixon Dep.) at 91,

93) It also appears that, while waiting for her niece, Williams was standing in an area where guardians or parents commonly wait to pick up students. Id. at 93.

The third January 7, 2008 disciplinary letter concerns a December 21, 2007 argument between LeShawn Hodge, a school parent coordinator, and Isaiah Simmons, an employee of Harlem Children Zone, which operates a program at the school. Hodge reported the incident to Dixon in a January 2, 2008 letter. (Dixon Decl., Ex. U) Hodge stated that she and Simmons "became engaged in a loud argument in front of the main office, which continued outside of the school building." (Dixon Decl., Ex. M) According to Hodge's letter to Dixon, as she was walking by Simmons she said, "Damn people blocking the building." Simmons then said, "People in here have smart mouths." Hodge responded, "That's right, so what." (Dixon Decl., Ex. U) A "verbal altercation" ensued, which Hodge ended by walking away. Moments later, outside the school building, Simmons approached Hodge saying, "you stupid bitch." Two school safety agents then "diffused" the "situation." (Id.) Hodge complained to Dixon that Herbert "was sitting in the Main Office during the verbal altercation in the hallway . . . [and] never once came to see what the altercation was about," instead waiting for school safety personnel to intervene. (Id.)

At her deposition, however, Hodge admitted that the significant part of the altercation — which consumed no more than two to three minutes in total — occurred outside the school building and out of Herbert's view. (Pltf. 56.1 Counter-Stmt. ¶ 43; Deutsch Decl., Ex. 11 (Hodge Dep.) at 44-45)

In the third January 7 disciplinary letter, however, Dixon reprimanded Plaintiff for "witness[ing] the altercation that began directly outside of the main office and . . . ignor[ing] it." (Dixon Decl., Ex. M) Dixon stated that Plaintiff's failure to intervene "immediately placed members of the school community in danger," and that Herbert's "first response should have been to hang up the phone, call school safety and accompany the agent to the place where the argument was occurring." (Id.) Dixon concludes this letter as follows:

Your ability to respond to situations and emergencies regarding incidents that occur in the school, while you are in charge, is seriously flawed. You are therefore unable to perform in a satisfactory manner as an Assistant Principal at P.S./M.S. 149. You have been informed of your deficiencies on numerous occasions both verbally and in writing as documented in your file. Your service for the school year 2007-08 is rated as unsatisfactory and I am recommending the discontinuance of your probationary service as Assistant Principal.

(Id.)

Herbert asserts, however, that she did not address the altercation immediately because (1) she was on the phone reporting a child abuse case; and (2) she did not believe that the altercation was serious, and was only vaguely aware of it. (Pltf. Counter-Stmt. ¶ 41-42; Deutsch Decl., Ex. 8 (Herbert Dep.) at 118-19)

In her fourth January 7, 2008 disciplinary letter to Herbert, Dixon cites the three incidents discussed above and then makes reference to the April 2007 reprimand, which involved Herbert's "did you a favor" remark to a special education student. Dixon ends this letter by repeating that "[a]s a result of [Herbert's] continued failure to perform in a satisfactory manner as an Assistant Principal . . . I must rate you unsatisfactory and recommend the discontinuance of your probationary service. . . ." (Dixon Decl., Ex. N)

In her January 11, 2008 Pedagogical Supervisory Personnel Report concerning Herbert, Dixon recommends that her probationary service as assistant principal be discontinued. (Def. 56.1 Stmt. ¶ 47) As a result, Herbert was discontinued as an assistant principal at P.S. 149 and demoted to the position of teacher. (Def. 56.1 Stmt. ¶ 48)

Pursuant to Section 4.3.2 of the By-Laws of the Panel for Educational Policy of the City School District of the City of New York, Plaintiff sought review of her discontinuance. (Def. 56.1 Stmt. ¶ 49) After a June 25, 2008 hearing, the Chancellor's Committee unanimously concurred with the recommendation to discontinue Herbert's services as assistant principal. (Def. 56.1 Stmt. ¶ 50; Leighton Decl., Ex. X) Plaintiff's subsequent CPLR Article 78 proceeding to challenge the discontinuance was dismissed. (Def. 56.1 Stmt. ¶ 51; Deutsch Decl., Ex. 6)

DISCUSSION I. SUMMARY JUDGMENT STANDARD

Summary judgment is warranted where the moving party shows that "there is no genuine issue as to any material fact" and that it "is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). "A dispute about a `genuine issue' exists for summary judgment purposes where the evidence is such that a reasonable jury could decide in the non-movant's favor." Beyer v. County of Nassau, 524 F.3d 160, 163 (2d Cir. 2008). In deciding a summary judgment motion, the Court "resolve[s] all ambiguities, and credit[s] all factual inferences that could rationally be drawn, in favor of the party opposing summary judgment." Cifra v. Gen. Elec. Co., 252 F.3d 205, 216 (2d Cir. 2001).

"It is now beyond cavil that summary judgment may be appropriate even in the fact-intensive context of discrimination cases," and that "the salutary purposes of summary judgment — avoiding protracted, expensive and harassing trials — apply no less to discrimination cases than to . . . other areas of litigation." Abdu-Brisson v. Delta Air Lines, Inc., 239 F.3d 456, 466 (2d Cir. 2001) (internal quotation omitted). As in any other case, "an employment discrimination plaintiff faced with a properly supported summary judgment motion must `do more than simply show that there is some metaphysical doubt as to the material facts.' . . . She must come forth with evidence sufficient to allow a reasonable jury to find in her favor."Brown v. Henderson, 257 F.3d 246, 252 (2d Cir. 2001) (quotingMatsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)).

"Mere conclusory statements, conjecture or speculation" by the plaintiff will not defeat a summary judgment motion. Gross v. National Broad. Co., Inc., 232 F. Supp. 2d 58, 67 (S.D.N.Y. 2002); see also Holcomb v. Iona Coll., 521 F.3d 130, 137 (2d Cir. 2008) ("Even in the discrimination context . . . a plaintiff must provide more than conclusory allegations to resist a motion for summary judgment."). Instead, the plaintiff must offer "concrete particulars." Bickerstaff v. Vassar Coll., 196 F.3d 435, 451-52 (2d Cir. 1999) (disregarding plaintiff's Rule 56(e) affidavit because it lacked "concrete particulars"); Meiri v. Dacon, 759 F.2d 989, 998 (2d Cir. 1985) ("To allow a party to defeat a motion for summary judgment by offering purely conclusory allegations of discrimination, absent any concrete particulars, would necessitate a trial in all Title VII cases.").

A district court should exercise "an extra measure of caution" before granting summary judgment in a discrimination case, however, "because direct evidence of discriminatory intent is rare and such intent must often be inferred from circumstantial evidence." Holtz v. Rockefeller Co., 258 F.3d 62, 69 (2d Cir. 2001). The Second Circuit has noted that "in discrimination cases where state of mind is at issue, we affirm a grant of summary judgment in favor of an employer sparingly because careful scrutiny of the factual allegations may reveal circumstantial evidence to support the required inference of discrimination."Mandell v. County of Suffolk, 316 F.3d 368, 377 (2d Cir. 2003)

II. DISCRIMINATION CLAIMS

The framework for analyzing Title VII cases is well established:

[Under] the familiar "burden-shifting" framework set forth for Title VII cases by the Supreme Court in McDonnell Douglas Corp. v. Green, 411 U.S. 792, 93 S.ct. 1817, 36 L.Ed.2d 668 (1973) and Texas Dep't of Community Affairs v. Burdine, 450 U.S. 248, 101 S.ct. 1089, 67 L.Ed.2d 207 (1981), . . . the plaintiff bears the initial burden of establishing a prima facie case of discrimination. If the plaintiff does so, the burden shifts to the defendant to articulate "some legitimate, non-discriminatory reason" for its action. If such a reason is provided, plaintiff may no longer rely on the presumption raised by the prima facie case, but may still prevail by showing, without the benefit of the presumption, that the employer's determination was in fact the result of . . . discrimination. "The ultimate burden of persuading the trier of fact that the defendant intentionally discriminated against the plaintiff remains at all times with the plaintiff."

Holcomb, 521 F.3d at 138 (quoting Texas Dept. of Community Affairs v. Burdine, 450 U.S. 248, 253 (1981)).

Herbert has not separately argued her claims under Title VII, the NYSHRL, and the NYCHRL. Accordingly, this Court will apply the same analysis to all of her discrimination claims. Spiegel v. Schulmann, 604 F.3d 72, 80 (2d Cir. 2010) ("[A] plaintiff's discrimination claims under both the NYSHRL and the NYCHRL are subject to the burden-shifting analysis applied to discrimination claims under Title VII."); Salamon v. Our Lady of Victory Hospital, 514 F.3d 217, 226 n. 9 (2d Cir. 2008) (treating Title VII and NYSHRL sex discrimination claims "as analytically identical [and] applying the same standard of proof to both claims"); Dawson v. Bumble Bumble, 398 F.2d 211, 216-27 (2d Cir. 2005) (applying Title VII framework to claims brought under both the NYSHRL and NYCHRL).

A. Prima Facie Case

In order to establish a prima facie case of discrimination, Herbert must show: "(1) that she belonged to a protected class; (2) that she was qualified for the position she held; (3) that she suffered an adverse employment action; and (4) that the adverse employment action occurred under circumstances giving rise to an inference of discriminatory intent." Holcomb, 521 F.3d at 138. Plaintiff's burden in presenting a prima facie case is "not onerous"; indeed, it is "de minimis." Burdine, 450 U.S. at 253; Beyer, 524 F.3d at 163; see also Hollander v. American Cyanamid Co., 172 F.3d 192, 199 (2d Cir. 1999) ("[T]he burden of proof that must be met to establish a prima facie case is minimal."). Although the standard for a prima facie case is low, "a plaintiff's case must fail if [she] cannot carry this preliminary burden." Beyer, 524 F.3d at 163.

Here, Defendants argue that Herbert has failed to make out aprima facie case because "she [has failed] to show that she satisfactorily performed her duties as an assistant principal." (Def. Br. 3-4) But as the above-cited language from Holcomb makes clear, a plaintiff need not demonstrate "satisfactory performance of job duties" in order to make out a prima facie case. The prima facie showing requires only a showing that she was "qualified for the position she held." Holcomb, 521 F.3d at 138. In order to satisfy this prong, Plaintiff "`need not show perfect performance or even average performance,'" Gregory v. Daly, 243 F.3d 687, 697 (2d Cir. 2001) (quoting Flowers v. Crouch-Walker Corp., 552 F.2d 1277, 1283 (7th Cir. 1977), but only that she "`possesses the basic skills necessary for performance of the job." Id. (quoting Owens v. New York City Housing Auth., 934 F.2d 405, 409 (2d Cir. 1991)); see also Slattery v. Swiss Reassurance Am. Corp., 248 F.3d 87, 92 (2d Cir. (2001) ("[A]ll that is required is that the plaintiff establish basic eligibility for the position at issue, and not the greater showing that he satisfies the employer.").

In this case, it is undisputed that at the time of her demotion, Plaintiff had been a teacher in the New York City schools since 1999; that she had earned a promotion in 2005 to the position of Assistant Principal; and that she had received a "satisfactory" rating for the 2006-07 school year. (Def. 56.1 Counter-Stmt. ¶¶ 3-7, 23; Herbert Aff. ¶ 10) Herbert's experience and history of satisfactory performance are sufficient to demonstrate that she was "qualified for the position she held."

In arguing that Herbert has not made out a prima facie case, Defendants point to the several disciplinary "letters and memoranda" Dixon issued to Herbert during the two school years leading up to her demotion. (Def. Br. 4) These alleged performance issues, which according to Defendants were the reason for Herbert's demotion, are properly addressed as part of the second prong of the McDonnell-Douglas test, however, and not as part of Plaintiff's prima facie case: "[T]he qualification prong must not be interpreted in such a way as to shift into the plaintiff's prima facie case an obligation to anticipate and disprove the employer's proffer of a legitimate, non-discriminatory basis for its decision." Gregory, 243 F.3d at 697.

Defendants do not and could not credibly dispute that Herbert has offered sufficient evidence to make out the three remaining elements of prima facie case. It is clear that Plaintiff belonged to a protected class: Title VII prohibits discrimination "because of . . . sex" and designates "pregnancy, childbirth, or related medical conditions" as one form of sex-based discrimination. 42 U.S.C. § 2000e2-2(a)(1); § 2000e(k). Defendants were on notice of Herbert's pregnancy as of October 2007 and knew that she was a member of this protected class. (Def. 56.1 Stmt. ¶ 59)

It is also clear that Herbert suffered an adverse employment action when she was discontinued as Assistant Principal on January 7, 2008. "A plaintiff sustains an adverse employment action if he or she endures a `materially adverse change' in the terms or conditions of employment." Galabya v. New York City Dept. of Educ., 202 F.3d 636, 640 (2d Cir. 2000) (quotingRichardson v. New York State Dept. of Correctional Servs., 180 F.3d 426, 446 (2d Cir. 1999)). Such a change "`might be indicated by a termination of employment, a demotion evidenced by a decrease in wage or salary, a less distinguished title, a material loss of benefits, significantly diminished material responsibilities, or other indices . . . unique to a particular situation.'" Galabya, 202 F.3d at 640 (quoting Crady v. Liberty Nat'l Bank and Trust Co., 993 F.2d 132, 136 (7th Cir. 1993)). Here, Herbert's demotion from assistant principal to teacher "diminished [her] material responsibilities" and caused her to hold a "less distinguished title." This constitutes an adverse employment action within the meaning of Title VII.

Finally, Plaintiff has presented evidence from which a reasonable jury could find that her demotion occurred under circumstances giving rise to an inference of discrimination. Like the "qualifications" prong of the prima facie case, this is a "low threshold," Holcomb, 521 F.3d at 139, and the necessary inference "may be derived from a variety of circumstances, including, but not limited "`the sequence of events leading to the plaintiff's discharge.'" Leibowitz v. Cornell Univ., 584 F.3d 487, 502 (2d Cir. 2009) (quoting Chambers v. TRM Copy Ctrs. Corp., 43 F.3d 29, 37 (2d Cir. 1994)); see also Carlton v. Mystic Transp., Inc., 202 F.3d 129, 135 (2d Cir. 2000) (inference of discrimination permissible where employer transferred plaintiff's duties to two younger employees after plaintiff's termination).

Here, Dixon expressed her disapproval of Herbert's pregnancy and her belief that it "ha[d] been detrimental to the morale of the school," and Dixon's disciplinary actions concerning Herbert — during the 2007-08 school year — began soon after Herbert disclosed that she was pregnant. Dixon believed that Herbert's pregnancy presented an enormous distraction at the school, attracting so much attention that "we could barely get work done." (Pltf. 56.1 Counter-Stmt. ¶ 102) Dixon also reported to SCI parents' concerns as well as her own concerns about Herbert's pregnancy and the effect that the pregnancy was having on the school. (Leighton Decl., Ex. C (Dixon Dep.) at 194-97; Dixon Decl., Ex. O) Indeed, Dixon told SCI that "this entire matter has been detrimental to the morale of the school." (Dixon Decl., Ex. O) Herbert was ultimately replaced as assistant principal by a woman who was not pregnant. (Pltf. 56.1 Counter-Stmt. ¶ 127)

Dixon also took action against Garvey, Herbert's alleged paramour, demanding that he be transferred. (Deutsch Decl., Ex. 12 (Spring Dep.) at 11, 20) In demanding that Garvey be transferred, Dixon cited his role in "get[ing] my assistant principal pregnant" and the fact that "now the entire school is talking about [Herbert's pregnancy]." (Pltf. 56.1 Counter-Stmt. ¶ 112-13; Deutsch Decl., Ex. 12 (Spring Dep.) at 19) Given this evidence, a reasonable jury could conclude that Herbert's pregnancy played a role in Dixon's decision to demote Herbert.

B. Defendants' Proffered Reasons for Herbert's Demotion

Because Herbert has made out a prima facie case of pregnancy-based discrimination, "the burden [of production] shifts to the [D]efendant[s] to articulate `some legitimate, non-discriminatory reason'" for Plaintiff's discontinuance as assistant principal. Holcomb, 521 F.3d at 138 (quoting Burdine, 450 U.S. at 253). "`The defendant must clearly set forth, through the introduction of admissible evidence,' reasons for its actions which, if believed by the trier of fact, would support a finding that unlawful discrimination was not the cause of the employment action." St. Mary's Honor Ctr. v. Hicks, 509 U.S. 502, 507 (1993) (quoting Burdine, 450 U.S. at 254-55) (emphasis in original).

Here, Defendants argue (Def. Br. 5) that Herbert was demoted solely because of poor performance, citing five alleged acts of unprofessional conduct: (1) the March 2007 incident in which Herbert told a special education child that Dixon "did him a favor" by permitting him to remain in the school (Def. 56.1 Stmt. ¶ 20); (2) the November 2007 incident in which the PTA vice president reported that Herbert had used profanity in responding to the

Defendants do not contend that Herbert's alleged relationship with Garvey played any role in their demotion determination.

parent's expression of concerns about the pregnancy (Dixon Decl., Ex. Q); (3) the December 2007 incident in which the principal of an adjoining school claimed that Herbert had publicly berated a school nurse (Dixon Decl., Ex. T); (4) Herbert's failure to escort a suspended employee promptly out of the school building on December 21, 2007 (Dixon Decl., Ex. L); and (5) Herbert's failure to address an altercation between LeShawn Hodge and a Harlem Children Zone employee on December 21, 2007. (Dixon Decl., Ex. M)

Because Defendants have articulated non-discriminatory reasons for Herbert's demotion and have supported their proffered reasons with citations to admissible evidence, they have met their burden of production under the McDonnell-Douglas test.

C. Herbert's Claim That These Reasons Are Pretextual

Because of Defendants' showing, the burden next shifts to Plaintiff to demonstrate that Defendants' proffered reasons were pretextual, and that the real reason for her demotion was discrimination based on her pregnancy. In this regard, proof that an employer's proffered reasons are false may be "quite persuasive." Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 147 (2000). A Title VII plaintiff may also offer evidence of remarks made by the employer at or about the time of the adverse action "to show that the decision-maker was motivated by the discriminatory sentiment expressed in the remark." Tomassi v. Insigna Fin. Group, Inc., 478 F.3d 111, 115 (2d Cir. 2006). "The more a remark evinces a discriminatory state of mind, and the closer the remark's relation to the alleged discriminatory behavior, the more probative that remark will be." Id. Here, issues of fact remain as to whether the five alleged acts of "unprofessional conduct" cited by Defendants were in fact the reason for Herbert's demotion.

In considering the misconduct cited by Defendants, this Court recognizes that the question is not "whether the employer reached a correct conclusion in attributing fault [to the plaintiff] . . ., but whether the employer made a good-faith business determination." Baur v. Rosenberg, Mine, Falkoff Wolff, 2008 U.S. Dist. LEXIS 99819, at *5 (S.D.N.Y. Dec. 2, 2008); see also McPherson v. New York City Dep't of Educ., 457 F.3d 211, 216 (2d Cir. 2006) ("In a discrimination case . . . we are decidedly not interested in the truth of the allegations against plaintiff. We are interested in what motivated the employer. . . ." (emphasis in original) (internal quotation omitted)); Agugliaro v. Brooks Bros., Inc., 927 F. Supp. 741, 747 (S.D.N.Y. 1996) ("Even assuming defendants were wrong in their belief that plaintiff had engaged in sexual misconduct, what is significant is that they based their decision to dismiss plaintiff on that belief, and not on his age, gender, or pension status."). Here, however, Herbert has offered evidence suggesting that Dixon may have had reason to question the significance of the incidents she cited, or may have improperly relied on events that occurred outside the relevant time period. And, as discussed below, the adverse employment action against Herbert took place in a context in which Dixon had repeatedly expressed concerns about Herbert's pregnancy.

The first incident cited by Defendants, concerning Herbert's March 2007 remark to the special education student, occurred during the 2006-07 school year, for which Herbert received a "satisfactory" rating. Thus, it bears little causal relationship to her demotion in January 2008; indeed, the New York City Department of Education instructs managers such as Dixon not to consider "events which pre-or post-date the period of evaluation" when assessing a pedagogical employee such as Herbert. (Deutsch Decl., Ex. 2)

With respect to the second incident — alleging the use of profanity in addressing concerns expressed by the PTA vice president — Herbert not only denies having engaged in such conduct, but also has produced evidence suggesting that Dixon had reason to doubt the authenticity of Santos's letter, because Santos is a "functioning illiterate." (Pltf. 56.1 Counter-Stmt. ¶ 28; Dixon Decl., Ex. Q; Deutsch Decl., Ex. 8 (Herbert Dep.) at 91)

Herbert has also presented evidence to demonstrate that the email Dixon received about Herbert's confrontation with the P.S. 811 nurse was more ambiguous than Dixon revealed in her disciplinary letter regarding that incident. The email from P.S. 811's principal to Dixon acknowledged that, when Herbert requested medication for an asthmatic child in serious distress, the nurse responded by telling Herbert "I work for 811." The email also acknowledged that Herbert ultimately had to retrieve the child's medicine herself. (Dixon Decl., Ex. T) But Dixon's disciplinary letter simply reprimands Herbert for her "behavior and demeanor" and suggests that Herbert failed to protect "the health and safety of the student for whom [she was] responsible." (Dixon Decl., Ex. K) A rational jury could find that Dixon exaggerated the egregiousness of Herbert's behavior during this incident.

Herbert has also presented evidence suggesting that Dixon did not act in good faith in reprimanding her for permitting Williams — who had been suspended for one week — to enter and remain in the school building. It is undisputed that (1) a school safety officer permitted Williams to enter and remain in the school building; (2) Williams was waiting inside the building to pick up her niece — which parents or guardians are permitted to do; (3) even during the period of her suspension, Williams was permitted to enter the building for purposes of her work with the Harlem Children Zone; (4) Williams was only briefly inside the building; and (5) Williams' presence in the building presented no safety issue. (Pltf. 56.1 Counter-Stmt. ¶ 37; Deutsch Decl., Ex. 8 (Herbert Dep.) at 116; Deutsch Decl., Ex. 9 (Dixon Dep.) at 86, 89-90; Dixon Decl., Ex. L) These facts, and Dixon's testimony concerning these facts, suggest that Dixon knew the incident was not as protracted or serious as her disciplinary letter portrays it to be.

Finally, Herbert has presented evidence discrediting Defendants' account of the "altercation" between Hodge and Simmons, which Herbert was accused of ignoring. In Hodge's letter to Dixon complaining about the incident, Hodge acknowledges that the significant part of the "altercation" took place outside of the school and presumably outside of Herbert's hearing, and was "diffused" by two school safety agents. (See Dixon Decl., Ex. U) This calls into question the sincerity of Dixon's disciplinary letter, which describes the incident as an "emergenc[y]" and a "potentially dangerous incident," to which Plaintiff's "first response should have been to hang up the phone, call school safety and accompany the agent to the place where the argument was occurring." (Dixon Decl., Ex. M) There is also no evidence that Hodge and Simmons — the individuals who actually engaged in the "altercation" were punished in any way — nor is there any evidence that the school safety agents — who presumably are primarily responsible for maintaining order at and around the school — were disciplined.

In sum, "credit[ing] all factual inferences that could rationally be drawn[] in favor of [Herbert]," as this Court must do, Cifra v. Gen. Elec. Co., 252 F.3d 205, 216 (2d Cir. 2001), a rational jury could conclude that Defendants' proffered reasons for demoting Herbert are false. Moreover, in addition to the evidence discussed above, Herbert has submitted substantial affirmative evidence demonstrating that at and around the time Dixon was disciplining Herbert, she was deeply concerned about the effect Herbert's pregnancy was having on the school community. This evidence was discussed in connection with this Court's prima facie case determination (see pp. 18-19, supra) and that discussion will not be repeated here.

Defendants argue, however, that Herbert "cannot establish that the basis for [Dixon's] actions constituted pretext . . . when [the record] readily establish[es] that Principal Dixon acted . . . in response to allegations and concerns brought by other individuals." (Def. Reply Br. 6) Dixon's intent and state of mind here presents a question of fact, however. Dixon herself repeatedly expressed concerns about the effect of Herbert's pregnancy on the school community, and many of the concerns about Herbert raised by "other individuals" relate to Herbert's pregnancy. (See Dixon Decl., Exs. Q, R, S) It is no defense to a charge of pregnancy discrimination that the decision-maker was engaging in pregnancy discrimination at the behest of others.

To defeat summary judgment, Herbert need only show that "the evidence, taken as a whole, supports a sufficient rational inference of discrimination." Weinstock v. Columbia Univ., 224 F.3d 33, 42 (2d Cir. 2000). The evidence that Defendants' proffered reasons were false, and Dixon's contemporaneous statements that Herbert's pregnancy was having a detrimental effect on the school, permit a "rational inference" that Defendants' true motives were discriminatory. Accordingly, there are material issues of fact as to whether Defendants' proffered reasons for Herbert's demotion were a pretext for pregnancy discrimination.

III. WHISTLEBLOWER CLAIMS

Herbert alleges that Defendants retaliated against her, in violation of New York Civil Service Law § 75-b and New York Education Law § 3208-d, for filing a complaint with SCI concerning Dixon's alleged embezzlement. As discussed above, Herbert's anonymous complaint to SCI — submitted on or about December 12, 2007 — accused Dixon of lacking integrity, being dishonest, and stealing school funds. (Def. 56.1 Stmt. ¶ 66)

New York State Civil Service Law § 75-b forbids a public employer from taking disciplinary or adverse personnel action against a public employee who discloses a violation of law, rule, or regulation:

A public employer shall not dismiss or take other disciplinary or other adverse personnel action against a public employee regarding the employee's employment because the employee discloses to a governmental body information: (i) regarding a violation of a law, rule or regulation which violation creates and presents a substantial and specific danger to the public health or safety; or (ii) which the employee reasonably believes to be true and reasonably believes constitutes an improper governmental action. "Improper governmental action" shall mean any action by a public employer or employee, or an agent of such employer or employee, which is undertaken in the performance of such agent's official duties, whether or not such action is within the scope of his employment, and which is in violation of any federal, state or local law, rule or regulation.

N.Y. Civil Service Law § 75-b(2)(a).

New York Education Law § 3028-d addresses the "[p]rotection of school employees who report information regarding illegal or inappropriate financial practices":

Any employee of a school district, board of cooperative educational services, or charter school having reasonable cause to suspect that the fiscal practices or actions of an employee or officer of a school district, charter school, or board of cooperative educational services, violate any local, state, federal law or rule and regulation, relating to the financial practices of such entity and who in good faith reports such information to an official of such school district, board of cooperative educational services or charter school, or to the office of the state comptroller, the commissioner or to law enforcement authorities, shall have immunity from any civil liability that may arise from the making of such report, and no school district, or employee or officer thereof, charter school, or employee or officer thereof, or board of cooperative educational services, or employee or officer thereof, shall take, request, or cause a retaliatory action against any such employee who makes such report.

N.Y. Educ. Law § 302.

Courts interpreting Civil Service Law § 75-b have recognized that to state a prima facie case of retaliation, a plaintiff must offer evidence demonstrating that the decision-maker responsible for the adverse personnel action was aware of the plaintiff's complaints. See Manessis v. New York City Dept. of Transp., No. 02 Civ. 359 (SAS), 2003 WL 289969, at * 15 (S.D.N.Y. Feb. 10, 2003) ("Plaintiff cannot establish a prima facie Whistleblower retaliation claim because he has offered no evidence that [defendants] were even aware that he had filed complaints with the IG's Office. . . . [Defendants] cannot be liable for retaliation if they had no knowledge of plaintiff's IG complaints. Accordingly, plaintiff's Whistleblower claim fails as a matter of law and must be dismissed."); Palmer v. Niagara Frontier Transp. Auth., 56 A.D.3d 1245, 1246 (4th Dep't 2008) ("[D]efendant established that the supervisors who terminated plaintiff's employment were unaware of plaintiff's disclosure, and thus there is no causal connection on the record before us between the disclosure of plaintiff's safety concerns and plaintiff's termination.").

Here, Herbert has not offered evidence demonstrating that Dixon was aware — at the time she recommended Herbert's demotion in January 2008 — that Herbert had filed a complaint with SCI. Indeed, Dixon has testified that she first learned that Herbert had submitted a complaint in April 2008, three months after recommending Herbert's demotion. (Def. 56.1 Stmt. ¶ 70) While Herbert claims that Dixon received a copy of her anonymous letter to SCI in December 2007 (Pltf. Counter-Stmt. ¶ 69; Herbert Aff. ¶ 26), given that Herbert submitted the letter anonymously (Deutsch Decl., Ex. 8 (Herbert Dep.) at 98) and referred to herself in the third person to protect her anonymity (id. at 99), there is no basis for finding that Dixon's December 2007 receipt of the anonymous letter establishes Dixon's knowledge that Herbert was the complainant.

Herbert argues, however, that Dixon was aware that Herbert had overheard Business Manager Katina Williams discussing Dixon's embezzlement in December 2007, and would have likely inferred that Herbert reported this misconduct a short time later in the

anonymous letter to SCI. (Cmplt. ¶ 33; Pltf. Br. 19) Herbert's argument requires this Court to draw multiple inferences, however, none of which is supported by the evidence.

As an initial matter, there is no evidence that Dixon overheard Williams' telephone conversation. When asked at her deposition whether Dixon overheard Williams's telephone conversation, Herbert responded, "I cannot say for certain." (Leighton Decl., Ex. B (Herbert Dep.) at 96) Even if this Court could find that Dixon heard the conversation, and was aware that Herbert overheard the conversation as well, it would then have to infer that Dixon inferred that Herbert was the complainant when she was shown the anonymous letter to SCI in December 2007. Given Herbert's steps to protect her identity, however — including referring to herself in the third person — there is no rational basis to draw such an inference. Moreover, Dixon denies having any knowledge of the complainant's identity until April 2008, long after Herbert was demoted. (Def. 56.1 Stmt. ¶ 70) In short, there is no evidence in the record to suggest that Dixon knew at the time of Herbert's demotion in January 2008 that the December 2007 complaint to SCI was authored by Herbert. Herbert cannot rely on conjecture and speculation — and that is all there is here — to defeat Defendants' summary judgment motion concerning the whistleblower retaliation claim. See Manessis, 2003 WL 289969, at * 15 (dismissing N.Y. Civil Service § 75-b retaliation claim because decision-maker lacked knowledge of plaintiff's complaint); see also Murray v. Visiting Nurse Servs. of NY, 528 F. Supp. 2d 257, 271 (S.D.N.Y. 2007) (noting in Title VII retaliation context that "district courts have consistently held that, with regard to the causation prong of the prima facie standard, absent any evidence to support an inference that the decision-makers knew of plaintiff's complaints, plaintiff cannot rely on circumstantial evidence of knowledge as evidence of causation"); Gross v. National Broad. Co., Inc., 232 F. Supp. 2d 58, 67 (S.D.N.Y. 2002) ("Mere conclusory statements, conjecture or speculation" by the plaintiff will not defeat a summary judgment motion.).

Herbert also states, in a conclusory fashion, that her relationship with Dixon deteriorated in December 2007 after she sent her anonymous letter to SCI. (Pltf. Br. 19; Pltf. 56.1 Counter-Stmt. ¶ 65) Absent supporting facts, however, these conclusory statements are not entitled to any weight, particularly in light of Herbert's repeated assertions — in her Rule 56.1 Counter-Statement — of a deteriorating relationship.See, e.g., Pltf. 56.1 Counter-Stmt. ¶ 77 (relationship "started to change in 2006-07 academic year"), ¶ 81 ("relationship with Principal Dixon got `progressively worse' when Plaintiff told her that she was pregnant in October 2007").

Because Herbert has not offered any evidence that Dixon knew — at the time she recommended Herbert's demotion in January 2008 — that Herbert had authored the December 2007 anonymous complaint to SCI, Defendants are entitled to summary judgment on Herbert's whistleblower retaliation claim.

CONCLUSION

For the reasons stated above, Defendants' motion for summary judgment is GRANTED as to Plaintiff's whistleblower claims (Fourth and Fifth Claims for Relief) and otherwise DENIED. The Clerk of the Court is directed to terminate the motion (Docket No. 18).

SO ORDERED.