In Wynn, et al. v. The New York City Housing Authority14 Civ. 2818 (S.D.N.Y. July 29, 2015), several employees (who were either African-American or Hispanic) alleged that their employer, the New York City Housing Authority (“NYCHA”) systematically undercompensated them based on their race and/or ethnicity in violation of 42 U.S.C. Section 1981 as well as New York City Human Rights Law (“NYCHRL”). Id. at 1. The NYCHA filed a motion to dismiss both for failure to state a claim as well as for lack of subject matter jurisdiction.  In a decision highlighting both the legal questions that must be addressed in deciding a motion dismiss claims of wage-based discrimination, as well as the standards that courts must apply when deciding whether to grant leave to amend a complaint, Judge Shira Scheindlin granted in part and denied in part  the NYCHA’s motion to dismiss.

Background Facts

Plaintiffs are employed as Plasterer Tenderers with the NYCHA. Id. at 1. Plaintiffs, who worked for the NYCHA from between 12 and 17 years, allege that they were discriminated against based on their race and were not paid prevailing wages. Id.at 2. Plaintiffs also alleged that the NYCHA attempts to cover up their discriminatory practices by assigning them to an improper job title (and thus locking them into certain salary schedule set by an applicable collective bargaining agreement). Id. at 2-3.

The Court’s Decision

In an analysis that all corporate counsel would be wise to read, the Court set forth exactly what must be established by a party seeking to have a case dismissed under both Rule 12(b)(1) and 12(b)(6). With respect to a Rule 12(b)(1) dismissal, a court must “take all uncontroverted facts in the complaint as true, and draw all reasonable inferences in favor of the party asserting jurisdiction.” In reaching such a decision, courts are permitted to look to “evidence outside of the pleadings” when deciding issues of fact concerning jurisdiction. Id. at 3-4.

Here, the NYCHA argued that plaintiffs’ claims are governed by a collective bargaining agreement, and thus the Court lacked subject matter jurisdiction because plaintiffs failed to exhaust their administrative remedies.   Id. at 13.  The Court flatly rejected this argument, finding that “NYCHA fails to cite any case linking the existence of a collective bargaining agreement to depriving federal courts of subject matter jurisdiction to hear a claim of employment discrimination.  There is none.”  Id. at 14.  As such, Judge Scheindlin refused to dismiss the case based on lack of subject matter jurisdiction.  Id.

As to the remainder of the NYCHA’s motion, Judge Scheindlin – as many judges frequently do when faced with a defective initial pleading – granted Plaintiffs a proverbial second bite of the apple to state valid causes of action. With respect to their Section 1981 claim alleging municipal liability, Plaintiffs’ proposed amended complaint alleged that the NYCHA gave preferential treatment to Mason Helpers – who are predominantly white – by assigning them to a higher rate of pay than the positions they held, Plasterer Tenderers, a position mostly occupied by Hispanic and African-American employees. Id. at 17-18. The Court held that the new alleged practice – assigning a lower compensation and incorrect job title to minority workers – could constitute a “persistent or widespread practice that has the force of law” which is needed to state a claim for municipal liability. As such, the Court allowed Plaintiffs’ to amend their complaint. Id. at 18.

The Court similarly granted Plaintiffs leave to amend their Section 1981 and 1983 claims, claims as well as their claims for discrimination under the New York City Human Rights Law.  Id. at 18-20. The Court, however, refused to grant Plaintiffs leave to assert a disparate impact theory of liability in connection with their Section 1981 and 1983 claims since such claims are not cognizable under Section 1981 or a claim of denial of equal protection under Section 1983. Id. at 21.

Implications For Employers

While the Court’s decision to, for the most part, allow Plaintiffs to replead their claims is not a surprise, this decision highlights a common question companies face when presented with a barebones, deficient, initial pleading:  move to dismiss, or, litigate the case with the deficient pleading on the books and use it to set up the case for dismissal at the summary judgment stage.  Each case is different, however, it may be beneficial to hold off on moving to dismiss for fear of facing a better pleading drafted with the benefit of a Court providing a roadmap for a better plead complaint well as to prevent tipping off the other side to arguments that could wipe the case out at summary judgment. As such, think strategically so as to avoid winning the battle but losing the war!