An Officer or a Vice President: Goldman Sachs Programmer Must Prove Advancement Case to Jury After Appellate Ruling

| Jason M. Knott

"Computer programmer with code in background"

The case of Sergey Aleynikov, a former vice president at Goldman Sachs, has drawn a lot of media attention, including these prior posts here at Suits by Suits. Aleynikov was arrested and jailed for allegedly taking programming code from Goldman Sachs that he had helped create at the firm. His story even inspired parts of Michael Lewis’s book Flash Boys. A federal jury convicted him of economic espionage and theft, but the Second Circuit reversed his conviction, holding that his conduct did not violate federal law. Now, Aleynikov is under indictment by a state grand jury in New York.

Unsurprisingly, Aleynikov wants someone else to pay his legal bills – Goldman Sachs. And it is no surprise that Goldman, which accused him of stealing and had him arrested, doesn’t want to bear the cost of his defense. In 2012, Aleynikov sued Goldman in New Jersey federal court for indemnification and advancement of his legal fees, along with his “fees on fees” for the lawsuit to enforce his claimed right to fees. As we discussed in this post, indemnification means reimbursing fees after they are incurred, and advancement means paying the fees in advance. Advancement is particularly important for those employees who cannot float an expensive legal defense on their own dime.

In the trial court, Aleynikov won a summary judgment ruling that Goldman was required to advance his fees for the ongoing New York criminal case. The basis for the court’s ruling was a provision in Goldman’s bylaws that provided for indemnification and advancement to Goldman “officers.” As a vice president, the trial court ruled, Aleynikov qualified as an “officer” and Goldman was required to pay his fees.

On appeal, however, the Third Circuit found the issue not so simple. Aleynikov v. Goldman Sachs Group, Inc., No. 13-4237 (3d Cir. Sept. 3, 2014). It rejected both Aleynikov’s argument (as accepted by the trial court) that “officer” clearly included vice presidents, and Goldman’s argument that “officer” only meant those appointed by written resolution. Instead, it decided that the term “officers” in the by-laws was ambiguous, such that a jury would have to decide its meaning.

The court also described the type of evidence that the jury will have before it if the case goes to trial. For example, it noted that Goldman provided evidence that it paid the attorneys’ fees for 51 people out of 53 who were considered, rejecting only Aleynikov and another vice president. However, Goldman also paid fees for other vice presidents, and will need to convince the jury that its decision to do so was an exercise of discretion and not something required by its bylaws. Goldman is also likely to introduce “trade usage” evidence to show that the title of vice president isn’t particularly meaningful, such that the norms of the industry would show that it is not included in the common meaning of the term “officer.”

The Aleynikov decision serves as an example of how employees can seek to enforce provisions in corporate bylaws, which are not individualized contracts between employer and executive, for their own benefit. It also illustrates that a company’s desire to confer prestige through significant titles, such as “vice president,” can have consequences when an employee uses the title to establish a contract right.