Last week, we covered the Third Circuit’s decision that Goldman Sachs bylaws didn’t clearly establish a vice president’s right to advancement of his legal fees for his criminal travails.  The vice president, software programmer Sergey Aleynikov, isn’t giving up easily, however.

Law360 reports that Aleynikov has filed a petition for panel rehearing or rehearing en banc.  In the federal appellate courts, this is a step that parties can take when they disagree with the decision of the three-judge panel that heard their case.  In a panel rehearing, the panel can revisit and vacate its original decision; in a rehearing en banc, the entire Third Circuit could consider the issue.

Aleynikov contends in his petition that the panel misapplied a doctrine of contractual interpretation called contra proferentem.  In plain English, contra proferentem means that a court will read the written words of a contract against the party that drafted it.  The panel in Aleynikov’s case disagreed as to whether under Delaware law (which governs his dispute), the doctrine can be used to determine whether a person has any rights under a contract.  The two-judge majority said that it can’t, and therefore refused to use the doctrine when it decided whether Aleynikov – as a Goldman vice-president – fell within the definition of an “officer” entitled to advancement under the company’s bylaws.  In dissent, Judge Fuentes asserted that “Delaware has never suggested that there is an exception to its contra proferentem rule where the ambiguity concerns whether a plaintiff is a party to or beneficiary of a contract.”

In his petition, Aleynikov asks the whole Third Circuit to decide who is right: Judge Fuentes or the majority.  He also cites additional Delaware cases that he says support his position, including one “unreported case” that was brought to his counsel’s attention “unbidden by a member of the Delaware bar who read an article commenting on the panel’s decision in The New York Times on Sunday, September 7, 2014.”  Sometimes, to establish a right to advancement rights, it takes a village.

• Civil Litigation
• Executive Compensation
• Indemnification and Advancement
• Summary Judgment

The court of public opinion giveth, and taketh away. You may recall that we reported on the reinstatement of Arthur T. Demoulis as Market Basket’s CEO, following weeks of customer and employee advocacy for the chief. Public opinion, in the case of Desmond Hague, cut the other way in unrelenting fashion. Mr. Hague, president and chief executive of Centerplate, a catering company servicing sports and entertainment venues, was captured on video kicking and abusing an otherwise docile Doberman Pinscher puppy. The Washington Post reports that when the footage made its way to the SPCA of British Columbia, it quickly went viral and users of social media demanded his resignation. Initially, Centerplate dismissed the incident as a personal matter. As media attention increased, Centerplate announced that Mr. Hague would undergo counseling and community service. The masses remained unimpressed, and as the pressure mounted, Mr. Hague was ultimately removed from his position. Given the power of social media, it appears that the court of public opinion has rendered its verdict.

The National Law Review, citing the recent lawsuit filed by TrialGraphix Inc. against its competitor FTI Consulting, Inc. in the New York Supreme Court, offered helpful tips to employers on both sides of the battle over poached employees. In this case, four high-ranking employees conspicuously left TrialGraphix for FTI Consulting. As in similar suits filed by Booz Allen and Arthur J Gallagher Co. (which we discussed here), claims of corporate poaching usually involve claims of trade secret theft and interference with client business relationships. The article highlights the importance of clearly-worded, reasonably-framed restrictive covenant agreements, safeguarding data upon the employee’s departure, and requiring employees to formally acknowledge the return of all company proprietary information and devices. Similarly, employers seeking to hire these employees should review any non-compete agreements to ensure compliance while also requiring the employee to refrain from using the previous employer’s confidential information or trade secrets. Non-disparagement agreements can also go a long way to prevent ill will between the old and the new employers.

• The Inbox

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.

• Civil Litigation
• Executive Compensation
• Indemnification and Advancement
• Summary Judgment

It’s only a matter of time before the traffic swells return to D.C. after a blissful summer of light, breezy roadway locomotion.  As the holiday weekend begins to take hold, ushering in the anticipated congestion, here are a few highlights from around the web to ease you into the long weekend. 

Departing employees leaving for the greener pastures of a rival in their industry might see red when the former employer suspects foul play and takes action.  Such was possibly the case when Arthur J. Gallagher Co. sued three of its former insurance executives in New York federal court as well as Howden Insurance Services Inc., the rival that inherited the trio.  According to Law 360, AJG claims that the executives conspired to stagger their departure dates, steal proprietary information, and lure clients away to Howden.  AJG attributes the projected $700 million loss in revenue in 2014 to business redirected to Howden upon their departures.  AJG first seeks to enjoin Howden from soliciting or working with 13 of AJG current and former clients, and to bar the use of trade secrets allegedly taken from them.

Booz Allen Hamilton Inc., a Virginia-based consulting firm known for its lucrative government contracts business, sued former employees last year in a New Jersey district court for conspiring to steal proprietary information from the company.  According to Washington Business Journal,  Booz Allen recently amended its complaint to name Deloitte and some of its senior executives in the suit, claiming that they obtained proprietary information about salaries, roles, and security clearances of key employees for the purpose of luring them, their intellectual capital, and the potential business stream to Deloitte.  The Booz Allen team was devoted to the Instructional Development and Immersive Learning (IDIL) capability which invested in and developed 3-D modeling, animations, and interactive simulations. 

• The Inbox

Taiwan and Manhattan’s Foley Square are separated by 7,874 miles, and Taiwanese citizen Meng-Lin Liu couldn’t bridge the distance in federal court.  Liu sought to recover in Manhattan under the Dodd-Frank Act’s anti-retaliation provision (15 U.S.C. § 78u‐6(h)(1)).  However, on August 14, the Second Circuit, which sits in Foley Square, affirmed the dismissal of his whistleblower retaliation claim.  Liu v. Siemens AG, No. 13-4385-cv (2d Cir. Aug. 14, 2014).

As we previously described here, Liu’s case was relatively simple.  He alleged that he repeatedly told his superiors at Siemens in Asia, and the public, that Siemens was violating the Foreign Corrupt Practices Act (FCPA).  As a result, he claimed, Siemens demoted him, stripped him of his responsibilities, and eventually fired him with three months left on his contract.

• Civil Litigation
• Dodd-Frank Act
• Motions to Dismiss
• Whistleblowers

Over the past few days, we’ve been covering the non-compete dispute between American Realty Capital Properties, Inc. (ARCP) and the Carlyle Group LP and Jeffrey Holland.  (Here are Part 1 and Part 2 of our series in case you need to catch up).  It’s time to end the suspense and tell you how the judge, the Honorable David Campbell of the U.S. District Court for the District of Arizona, resolved the dispute. 

Judge Campbell issued his ruling on the same day as the oral argument, denying ARCP’s request for a temporary restraining order against Carlyle and Holland.  He decided that ARCP had not made the necessary showing of a “likelihood of success on the merits” of its claim that Holland would violate his employment agreements by marketing Carlyle’s investment products.  It said that Holland’s “non-solicitation provisions appear[ed] to be unreasonably broad,” because “read literally, they would prevent Defendant Holland from soliciting any form of business from any client of Plaintiff, anywhere in the world.”  Further, the applicable Maryland and Arizona law did not allow the court to “blue pencil” these provisions – i.e., to rewrite them to be legally enforceable.  Similarly, the confidentiality provisions in Holland’s agreements were also too broad to enforce, because they would have forever prohibited Holland from using any information related to ARCP’s customers.

The ARCP-Carlyle-Holland saga involves a couple of additional twists.  Soon after the ruling, ARCP dismissed its Arizona case without prejudice.  It then filed an identical case in New York for breach of contract.  Carlyle and Holland moved for attorneys’ fees in Arizona, relying on an Arizona statute that allows a successful party to recover “reasonable attorneys’ fees in any contested action arising out of contract.”  The court awarded Carlyle and Holland $46,140 for five days of attorney work (of the $134,182 they sought). 

Thus, Carlyle and Holland won the battle, with some additional compensation for their troubles thanks to Arizona law.  However, the war over Holland’s work for Carlyle is now raging in a different forum.

• Breach of Contract
• Noncompete Agreements ‎

Last week, we introduced you to a non-compete dispute between American Realty Capital Properties, Inc. (ARCP), on one side, and the Carlyle Group LP and Jeffrey Holland, on the other side.  Now, it’s time to find out more about the parties’ arguments.

In its application for a preliminary injunction, filed on April 1 of this year, ARCP made two main arguments.  First, it argued that it could legitimately enforce the provisions in Holland’s agreements that precluded him from using its confidential information and from soliciting its investors.  Second, it argued that by marketing Carlyle’s investments, Holland was breaching these provisions.

In the hearing on the motion, held a week later on April 8, the court summarized the dispute as follows:

It seems to me that the key question is this: [ARCP] is concerned that Mr. Holland’s work for Carlyle … will be in direct competition with the plaintiff’s business of marketing REITs … to financial advisors because that was the business Mr. Holland oversaw while he was with Cole, the predecessor to ARCP, and that that business is highly dependent upon relationships with independent financial advisors or financial advisors with firms.

Holland, ARCP said, would be exploiting these relationships in violation of his agreements if he was allowed to market Carlyle’s products to Cole’s investors.  It counsel argued that ARCP would be “irreparably harmed by that because he will be preying upon . . . my client's confidential information and on its good will.”

Holland, meanwhile, argued that Carlyle did not market REITs, that he would be marketing Carlyle’s products mostly to a different class of purchasers, and that if his agreements covered these activities, they would be too broad to be enforceable.  As his counsel summarized: “It cannot be the case that because you learn how to build a retail relationship in one financial product, that you can’t do it in another if you’re not competing.”

Tomorrow, we’ll talk about the court’s resolution of the dispute, as well as an interesting side-effect of its ruling.

• Breach of Contract
• Noncompete Agreements ‎

A recent decision from the Third Circuit proved a boon to employers facing the dangers of class arbitration in costly wage/hour disputes.  In its decision, the Third Circuit determined that courts, rather than arbitrators, should decide whether class arbitration exists in the absence of specific language in the arbitration agreement.  Employers generally oppose class arbitration because of arbitrators’ tendency to allow them, and the low prospects of overturning an unfavorable arbitration decision.  The longer-term consequences of the decision also bode well for employers who seek to insert class waivers in their arbitration agreements.  Law 360 interviewed Steven Suflas, a Ballard Spahr partner, who opined that employers can now take solace in the fact that a court will likely enforce class waivers found in arbitration agreements. 

Speaking of upholding class waivers in arbitration agreements, the California Supreme Court’s recent Iskanian decision did just that.  However, the court did carve out a general exception to the rule, stating that employers may not bar arbitration of claims brought under the Private Attorneys General Act (PAGA) as a matter of California public policy.  As if on cue, plaintiffs in a federal putative wage class action against CarMax Auto Superstores California LLC filed new state claims under PAGA, claiming they could not be arbitrated despite being ordered to arbitrate other claims on July 2.  As reported by Law 360, CarMax argues that plaintiffs are seeking to avoid the arbitration order with the state PAGA claims while plaintiffs maintain that the suits are substantially different. 

• The Inbox

“Nasty, brutish, and short” isn’t just Hobbes’s famous explanation of human life in the state of nature.  It also hits close to the mark in describing how litigation over non-compete provisions often proceeds, as a recent case illustrates.

The plaintiff in the case was American Realty Capital Properties, Inc. (ARCP), a publicly traded REIT (a real estate investment trust).  Allied on the other side were the Carlyle Group LP and Jeffrey Holland.  Holland used to work for Cole Real Estate Investments, a company that ARCP bought in February of 2014.  According to ARCP’s court filings, it paid Holland handsomely when it acquired Cole, giving him $7.1 million in connection with the change.  Holland then told ARCP that he wanted to take some time off.  ARCP was comfortable with that, given that Holland had previously signed both an employment agreement and a consulting agreement in which he agreed not to solicit Cole’s or ARCP’s investors for 12 months.

Within a couple of months, Holland joined Carlyle, one of the world’s largest investment firms, to raise funds for its products.  To put it mildly, ARCP was not pleased with this development.  At the beginning of April, it sued both Holland and Carlyle and filed an application for a preliminary injunction and temporary restraining order (TRO). 

• Breach of Contract
• Noncompete Agreements ‎

A recent decision from an appeals court in Pennsylvania is a warning to companies that the non-compete agreement they think they have with their top executive could be unintentionally wiped out with a few words in a later agreement.  In law-speak, the words are called an “integration clause” or a “merger clause.”  Through them, the parties agree that their agreement is their “entire” agreement and that it wipes out any earlier agreements. 

In the Pennsylvania case, Randy Baker was the President and CEO of Diskriter when Diskriter was acquired by Joansville Holdings, Inc.  The terms of the acquisition were memorialized in a stock purchase agreement (“SPA”), which had non-compete and non-solicitation clauses that apparently bound Baker.

• Breach of Contract
• Noncompete Agreements ‎