Yang v. The Bank Of New York Mellon Corporation

Background

John (“Jack”) Yang alleged that he was hired by Alcentra NY and BNY Mellon in 2013 and later became Head of Americas for Alcentra NY. His compensation included awards under the Long-Term Incentive Plan and Long-Term Incentive Cash Award Plan. He was also given BNY Mellon’s Code of Conduct, which encouraged employees to report suspected misconduct and stated that the company had zero tolerance for retaliation.

In 2017, Alcentra NY became the subadvisor to the Stira Alcentra Global Credit Fund. According to Yang’s amended complaint, Alcentra management later directed employees to stop performing subadvisory duties, including making investments, attending meetings, and providing updates. Yang believed that following this directive could violate fiduciary duties, securities laws, Securities and Exchange Commission rules, and representations in the fund’s prospectus.

Yang reported the directive and his concerns to the Stira Fund’s president and to BNY Mellon counsel. He alleged that, afterward, his supervisor and another manager subjected him to retaliation, including hostility, exclusion from discussions, a negative performance review, an 80% reduction in incentive compensation, and termination in January 2019. He also alleged that defendants withheld vested awards under the incentive and deferred-compensation plans.

Yang’s amended complaint asserted claims for retaliation under Section 1514A of the Sarbanes-Oxley Act, breach of contract, quantum meruit, and unjust enrichment. The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim.

Court’s analysis

Sarbanes-Oxley retaliation

The court held that Yang plausibly alleged protected activity under Section 1514A. The statute protects an employee who reports conduct that the employee reasonably believes violates certain federal laws, including securities laws and Securities and Exchange Commission rules.

The court concluded that Yang did not need to cite specific statutes or regulations when reporting the conduct. His allegations that he told BNY Mellon counsel about the directive, its possible effect on the fund’s prospectus and investor communications, and potential regulatory penalties were sufficient at the motion-to-dismiss stage.

The court also concluded that Yang plausibly alleged a reasonable belief that the directive was unlawful. The court emphasized that Section 1514A does not require the reported conduct actually to have violated the cited laws. Based on Yang’s alleged experience as a senior banking executive and his understanding of Alcentra NY’s duties to the fund and its investors, the court found that his belief was not unreasonable as a matter of law. The court rejected defendants’ argument that notice to the fund eliminated the possibility of misleading statements or fiduciary-duty violations.

Breach of contract

The court dismissed Yang’s contract claims. Under the offer letter, Yang’s employment was at will. The court found that BNY Mellon’s Code of Conduct did not expressly promise that employees who reported misconduct would be protected from termination or other penalties. The Code’s general encouragement to report misconduct and its statement that employees who retaliated could face discipline did not create an express limit on the employer’s right to terminate an at-will employee. The Code also stated that it did not alter the terms and conditions of employment.

The court separately held that Yang could not state a contract claim based on the Long-Term Incentive Plan or the Cash Award Plan. The Long-Term Incentive Plan stated that employees had no right to receive an award and gave defendants discretion over awards and administration. The Cash Award Plan allowed defendants to terminate the plan or award letters and gave them complete discretion over administration and interpretation. Because neither plan required defendants to continue providing awards, the court dismissed the related contract claims.

The court also dismissed Yang’s claims based on the implied covenant of good faith and fair dealing. That covenant generally requires parties to act consistently with promises in a contract, but it cannot limit rights that the contract expressly gives without restriction. Because the plans gave defendants unrestricted discretion and the Long-Term Incentive Plan disclaimed an intent to create a binding obligation, the court found no viable implied-covenant claim.

Quantum meruit and unjust enrichment

The court allowed Yang’s quantum meruit and unjust-enrichment theories to proceed at this stage. Under New York law, these alternative, quasi-contract theories generally cannot proceed when an express contract covers the same subject. But the court found that Yang had not plausibly alleged an enforceable express contract governing these claims. The court also rejected defendants’ argument that the quasi-contract claims were derivative of the Sarbanes-Oxley claim.

Disposition

Judge Alison J. Nathan granted in part and denied in part defendants’ motion to dismiss. The court dismissed Yang’s breach-of-contract claims with prejudice. It held that Yang stated a claim for retaliation under Section 1514A and adequately pleaded quantum meruit and unjust enrichment, so those claims could proceed. The court administratively denied defendants’ motion to dismiss the original complaint and denied defendants’ request for oral argument. The opinion states that the parties were to proceed with discovery under the case-management plan and later orders.