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Shlala v. Catholic Health and Human Services

April 23, 2010


On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-3488-05.

Per curiam.


Argued February 1, 2010

Before Judges Carchman, Lihotz and Ashrafi.

Plaintiff William Shlala, the Superintendent of the special education schools operated by defendant Catholic Community Services (CCS), appeals from a July 17, 2008 order of the Law Division dismissing his amended complaint alleging, among other things, that his dismissal from his position as Superintendent was in violation of the Conscientious Employee Protection Act, N.J.S.A. 34:19-1 to -8 (CEPA)*fn1. While other issues are implicated on this appeal, our primary focus is whether the trial judge erred in dismissing the CEPA claim against CCS and another organizational defendant, Catholic Health and Human Services (CHHS), because plaintiff failed to show that defendants' stated reasons for terminating his employment were a pretext for retaliation. We conclude that Judge Cifelli did not err in dismissing the complaint against CCS and CHHS, as well as the individual defendant Phillip Frese, Ph.D. Accordingly, we affirm.


Our consideration of the issues on appeal requires an expansive recitation of the relevant facts presented to the judge on the motion for summary judgment. CCS is one of several organizations "controlled by" CHHS. CCS is "primarily a social service agency." However, it also has a "schools component," consisting of five special education schools for "neurologically impaired and/or emotionally disturbed" children. Additionally, CCS operates a non-special education preschool program as well as a "diagnostic program" for the "independent evaluation" of students where there is disagreement about their abilities.

The New Jersey Department of Education (DOE), approved the five CCS special education schools as "private schools for the disabled." This designation allows these schools "to accept public school children who need to be placed out of district and in public or private settings." Based on that approval, CCS schools may "accept children from any school district in the state"; a school district then pays a set amount of tuition to CCS.

CCS deposited the monies it received as special education tuition payments into a common account with monies it received from "[g]rants, health, [and] Medicaid." In the early 2000s, CCS was investigated by the State, which determined that there were criminal irregularities concerning Medicaid payments made to CCS by the State as CCS was overbilling Medicaid and using Medicaid monies to fund its other activities. As a result, CCS's controller was charged and found guilty of a criminal offense, and CCS entered into a settlement, agreeing to reimburse approximately $34,000,000 to the State. Because of this Medicaid reimbursement matter, CCS was experiencing significant cash flow problems when plaintiff began his employment with CCS.

At that time and for the entire period that plaintiff was employed, CCS continued to deposit the special education tuition funds into a common account with other funds received by CCS. CCS would utilize the special education funds for the payment of non-school-related CCS expenses. At his deposition, CCS's former chief operating officer, Richard Suszek, testified that CCS "borrowed temporarily" from one funding source in order to pay expenses in CCS operational areas not related to that funding source, issuing "sort of an IOU" that would be accurately accounted for by CCS and against which the amount borrowed would be later repaid by CCS. Describing this temporary borrowing procedure, Suszek stated that, "from the outside looking in... one would think they [CCS] were diverting these funds elsewhere purposely for... some other reason and... not ever getting it back whole to the school system," but Suszek added that any such perception was incorrect.

In August 2001, plaintiff began his employment with CCS as the Superintendent of CCS's schools; alternatively, his job title was that of Director of the Division of Education at CCS. At his deposition, plaintiff testified that, beginning in the first year of his employment and continuing thereafter, he complained repeatedly to various members of CCS's upper-management, both about CCS's inappropriate commingling of CCS's special education tuition funds with funds from other sources and about the diversion of such tuition funds for the payment of CCS's non-school expenses. He asserted that these accounting and spending irregularities were contrary to controlling State regulations. These repeated complaints to his superiors at CCS provided the basis for his later CEPA-based claims for retaliation.

Complaints against plaintiff were also forthcoming. From August 2001 until April 28, 2004, plaintiff's employment was marked by multiple complaints by CCS employees concerning his management style and conduct. Taken as a whole, those complaints were later set forth by CCS as a basis for its termination of plaintiff's employment. Joseph Turco, who was CCS's Director of Human Resources from July 1997 to October 2003, claimed that plaintiff's general behavior toward other employees "was not consistent with CCS respect concepts" in "the way that he talked to people or didn't talk to people." According to Turco, plaintiff would "ignore" other employees or "treat you as if you're not there," and he projected an attitude that said "I'm a director and you're not important to me and he would do that pretty frequently with people."

Turco observed that if plaintiff thought that "you were not important to his outcome or goal, [then] you were not somebody he had any intention of even just being courteous to," and in fact, Turco's staff considered plaintiff to be "rude." Turco's efforts to have plaintiff project a more civil or friendly demeanor toward his fellow employees were unavailing; plaintiff "would continue to do the same things" despite Turco's remonstrations.

In December 2001 and January 2002, Turco met with the principals of the CCS schools regarding a telephone complaint that had been made on CCS's "confidential hotline."*fn2 The complaint concerned plaintiff's "management style," and Turco advised the principals that an effort had to be made by everyone to "understand each other's style," "to understand each other" by "[u]nderstanding the relationship between Superintendent and Principals" and to change certain long-standing operations and procedures.

On August 14, 2002, an anonymous complaint was lodged on the hotline, asserting that a memorandum from plaintiff to school employees concerning "new work standards" had "created a hostile work environment" and displayed plaintiff's "dictatorial" demeanor. The complaint asserted that plaintiff made significant changes unilaterally, without school staff input, and it attacked plaintiff's work habits and commitment to CCS's overall mission. The complainant further threatened to disclose to the media "the horrendous methods that Mr. Shala [sic] has employed with the school staff with the approval of CCS agency management."

The CCS hotline committee investigated the complaint and issued a September 6, 2002 report recommending that Turco meet with plaintiff "regarding his style" and tell plaintiff to include staff input when making decisions. The report further recommended that plaintiff account for his work time more closely and visit the schools regularly. The report said that "[p]art of the duty of the Division Director [Superintendent] is [to] manage staff issues effectively. Mr. Shlala should be put on notice that if complaints continue, even if they only have a mild validity to them, a change in leadership is recommended."

According to Turco, the committee meant that plaintiff was unable to "communicate effectively with his staff." The committee believed that this was "slowing down the leadership... of the department" and that things "just couldn't continue that way. It was draining resources and creating a bad environment."

On January 15, 2003, a complaint was lodged on the hotline, alleging "three incidents" involving a male school vice principal; one "relate[d] to sexual harassment of staff" by the vice principal. Plaintiff took some action concerning the complaint, and, on April 15, 2003, CCS's chief operating officer, Suszek, issued a "Warning Letter" to plaintiff, criticizing his "decision to unilaterally resolve this issue." That decision was "not in line with the Agencies [sic] policy and practice[,]" and plaintiff's "decision not to use progressive discipline also fails to follow Agency policy." On May 28, 2003, plaintiff issued a memorandum, disputing the basis for Suszek's criticism of his actions.

In approximately May 2003, Suszek met with Ann Boyd Hinton, who headed one of the CCS schools. According to Suszek, Hinton complained about plaintiff's "management style," asserting that "he was rude. He wasn't professional. He didn't communicate, [he] talked down to them, [and he] didn't adhere to the spirit or to the principles of what Catholic Community Services was all about." Because Hinton was the only principal to complain privately to him about plaintiff, Suszek attributed Hinton's complaint to her negative view of the control, oversight and accountability that plaintiff was establishing for CCS schools, all of which meant that "she didn't have that autonomous freedom that she may have enjoyed befor[e]."

CCS's human resources manager James Farrelly offered that, during or after May 2003, Suszek's replacement, Phillip Frese, received an anonymous handwritten letter, addressed to "Dr. Friece" [sic], complaining that plaintiff "has a negative and prejudice [sic] attitude toward minorities," reflected in his "nasty disrespect and racist treatment" of them.*fn3

On June 5, 2003, an anonymous complaint was lodged on the hotline, alleging that, at a "workshop" attended by "all employees, including secretaries" of a school, plaintiff was "threatening," "verbally abusive," and "very hostile," telling employees that he would have their licenses revoked if they left their employment without providing sufficient notice, and that "[h]e was gonna makes [sic] changes and if anyone didn't like it, they could leave." The complaint further said that plaintiff made threats to "people who might have spoken to higher-ups about him," telling the group that he did not care if persons contacted his superiors or complained on the hotline because "he was gonna do what he wanted to do." Plaintiff "was just verbally abusive and very rude[,]" and his behavior "upset our entire staff."

According to the complaint, plaintiff must have later realized that he had exceeded some bounds because, at lunch at the workshop, he "came up with a complete opposite speech" that stressed "everybody working together." Although there is no written report of the incident or response, neither party raises any factual question as to the incident or its aftermath.

On June 15, 2003, yet another anonymous complaint was lodged on the hotline against plaintiff and another CCS staffer, alleging both that the staffer was unqualified for the position to which plaintiff had assigned her, and that plaintiff "lacks tact... and is very disrespectful to employees and runs the school likes [sic] it's a dictatorship." The complaint further alleged that plaintiff did not take employee claims of sexual harassment and racism seriously, treating them rather as a "joke" and a "waste of his time." The complaint also asserted that plaintiff's "tactics have caused us not to get any school referrals [of special-education students] this school year and it has been the worst school year that Catholic Communities has ever had."

On August 20, 2003, two more anonymous complaints were lodged on the hotline, setting out job security concerns by employees who worked in CCS's pre-school program and who were told that the "school will be closing." The complaint alleged that plaintiff would not return telephone calls made to him either by employees or by parents of schoolchildren, who were "upset" about the prospective closing. As with the more recent hotline calls, no report followed, but neither plaintiff nor defendants deny the accuracy or content of the fact that there was such a complaint.

Plaintiff's secretary, Patty Arroyo, began her employment with CCS on April 7, 2003, and very shortly thereafter began keeping notes describing her concerns about working for plaintiff. In those notes, Arroyo described her experience at an employee orientation meeting, where she asked the presenter "a question pertaining to sexual harassment"; plaintiff "made [a] statement saying I need something new in my life." Arroyo wrote that she explained to the presenter that her question pertained to something that "happened on a previous job," but she was "embarrassed" by plaintiff's remark and "scared of losing my job."

Arroyo's notes also complained about plaintiff's comment in her presence that he "is ready to be someone's sugar daddy" as well as his comments that he disliked "disloyalty" and would be "vindictive" to a disloyal person, which "she perceived as a threat of retaliation if she complained about him." Her notes also included an entry indicating that plaintiff said that he has "connections with the 'mob.'"

At some point, plaintiff asked Arroyo "to adjust his computer, while he was [seated] at his desk, and he would not get up from the chair while she worked [on the computer,] so that she was 'leaning over him' while 'closing out a stuck file' on the computer."

On September 1, 2003, Arroyo filed a written complaint for workplace harassment against plaintiff with CCS's Human Resources department, based on plaintiff's alleged comments and the computer-adjustment incident, as well as on other "inappropriate remarks," "yelling" and "cursing" that she alleged had occurred in the office. An investigation ensued, following which Arroyo was determined to have been "hypersensitive" in the face of plaintiff's "boisterous" and loud "communication style." Insofar as the computer-adjustment allegation was concerned, any fault was determined to have been mutual, in that plaintiff should have moved out of Arroyo's way while she made the adjustment, and Arroyo should not have leaned over plaintiff but requested him to move before making the adjustment.

As a result of the investigation, Human Resources Director Turco was supposed to issue to plaintiff "a written warning stressing the importance of [a] non-threatening work environment." At his deposition, Turco remarked that he did not "recall that coming about," and the record does not include such a written warning.

On October 28, 2003, Assistant Principal Virgilio M. Alomar sent a letter to CCS's Human Resources Department, complaining that he had been "discriminated against, due to my National Origin (Puerto Rican) and have been exposed to a hostile work environment," as a result of plaintiff's promotion of a Caucasian woman, rather than him, to a position as a principal. However, plaintiff did not make the promotion unilaterally; it was made based upon the recommendation of an interviewing committee.

A series of hotline complaints quickly followed. On December 4, 2003, an anonymous complaint was lodged on the hotline, asserting that there were "serious and severe racial tensions going on in my workplace... amongst the general staff working in the building as well as the staff in the administrative offices."

On December 5, 2003, an anonymous complaint was lodged on the hotline concerning "the use of Agency [CCS] vehicles for personal use," chiefly by a school principal and with plaintiff's approval. The matter was resolved after an exchange of emails between plaintiff and hotline audit director Alice Blount-Fenney. On December 10, 2003, Blount-Fenney issued a confidential report concerning her investigation of an earlier hotline complaint about working conditions at a CCS school. Included in the report were the school's staff's perceptions of "potential biased treatment" by plaintiff because of his alleged favoring of certain employees over others.

The hotline investigations prompted complaints by plaintiff. On December 17, 2003, plaintiff filed a complaint with CCS's Director of Human Relations against Blount-Fenney, alleging that she failed both to communicate with him and to maintain her impartiality during hotline investigations, and that she attempted to "personally manage" CCS's Division of Education. Plaintiff's complaint against Bount-Fenney was not resolved before his employment with CCS was terminated. The chief operating officer Frese met with plaintiff in February 2004 and discussed with him his "inappropriate treatment of internal auditor Alice Fenney."

On February 11, 2004, plaintiff allegedly said aloud in the presence of Arroyo, that he "hasn't had an affair for a while." Arroyo later reported this comment when CCS personnel were conducting an investigation two months later, following plaintiff's suspension from his employment. Frese also noted that, on April 7, 2004, plaintiff said to his secretary, Arroyo, that plaintiff was a "dirty old dog." Arroyo thought that plaintiff's comment was made "in a sexual way," and she reported it to plaintiff's superiors. The ensuing investigation found no evidence that plaintiff made the "dirty dog" comment.

In addition to employee complaints about plaintiff's management style and conduct, plaintiff's employment as Superintendent of the CCS schools was marked by other problems.

First, total student enrollment in the CCS schools fell by approximately twenty-five percent during the two-and-one-half years when plaintiff was in charge. The total enrollment at CCS's special education schools fell from 209 students at the beginning of the September 2001 school year to 147 students in March 2004. Plaintiff recognized that one of his job functions was to "keep an eye" on the number of students enrolled in the schools and to increase the enrollment. CCS's school "budget was always postulated on the dollar amount of tuition [expected to be paid by the school districts sending children to CCS schools], which was dependent on the population of students[,]" and plaintiff would look at the schools' enrollment numbers to determine whether the schools had "made their... target number to support the budget."

A consequence of the declining enrollment was that CCS's "deficit," which totaled $724,084 on July 1, 2001, when plaintiff began his employment, climbed to $1,614,112 by March 4, 2004, near the time that plaintiff's employment ended. Plaintiff recognized that CCS had a sizable deficit in 2004, but he attributed it to losses brought on by difficulty concerning the State certification of school personnel.

CCS had hired teachers, administrators, social workers and nurses who may have met the educational requirements for their positions, but who did not have the necessary State certifications for those positions. Plaintiff was made aware of this certification problem in the fall of 2003, was informed that CCS would have to return certain monies it had already received if the certification issue was not addressed and resolved, and was charged by his superiors at CCS with solving the problem.

At a meeting with the CCS principals, plaintiff indicated his awareness that he and the principals were responsible for solving the certification problem: we still are coming up with [a] few people who aren't appropriately certified and I even said [to the principals] look folks, this is coming down through [CCS's chief financial officer] John Westervelt from [chief operating officer] Dr. Frese. If this continues, people are going to be terminated, your administrators on line [sic]. I said I can assure you my head will be rolling down the street and when you see it it's because you will be rolling along with me, we got to straighten this out.

As a result of the deficient certifications, CCS was not getting reimbursed by the State and, as a consequence, incurred between a one million and a two million dollar shortfall during the 2003-2004 school year.

A final problem early in plaintiff's tenure concerned his purchase of computers from a local Apple Store. CCS had budgeted $450,000 for the purchase of computers in the 2001-2002 and 2002-2003 school years. Also, CCS had a known, though unwritten, purchasing policy that required Board or upper-management approval for purchases in excess of $100,000.

In early 2002, plaintiff ordered computers valued at $229,879 from an Apple Store. He did so without obtaining the approval of CCS's upper management and was in violation of CCS's purchasing policy.

CCS did not initially approve of plaintiff's purchase of the computers, but later approved payment for them, because they had already been delivered and set up. Though not clear in the record, apparently plaintiff placed another order for Apple computers on March 7, 2003, again without purchase approval, though CCS again later paid for the computers.

In the beginning of April 2004, plaintiff's secretary, Arroyo, met with personnel from CCS's Human Resources department, complaining to them about plaintiff's "dirty old dog" remark. The matter eventually made its way to Frese, who later indicated that the "issue with Patty Arroyo was a culmination of negative reports that I had with... [plaintiff's] performance[.]" According to Frese, those "negative reports" included both the loss of more than a million dollars because of the staff-certification problem and the ...

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