Sergey Aleynikov v. Goldman Sachs Group Inc
2014 U.S. App. LEXIS 17004, 765 F.3d 350, 2014 WL 4347187 (2014)
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Rule of Law:
Under Delaware law, when a unilaterally-drafted corporate by-law contains an ambiguous term defining eligibility for benefits like advancement of legal fees, the doctrine of contra proferentem (construing ambiguities against the drafter) does not apply if the ambiguity concerns whether an individual qualifies as a beneficiary at all, rather than the scope of their established rights. Instead, genuine issues of material fact regarding relevant extrinsic evidence, such as course of dealing and trade usage, must be resolved by a factfinder to determine the parties' intent.
Facts:
- Sergey Aleynikov worked as a computer programmer for Goldman, Sachs & Co. (GSCo), a non-corporate subsidiary of The Goldman Sachs Group, Inc. (GS Group), from May 2007 through June 2009, holding the title of vice president in GSCo’s equities division.
- While at GSCo, Aleynikov developed source code for Goldman’s high-frequency trading system but did not supervise other employees, transact business on behalf of GSCo, or exercise management or leadership responsibilities.
- As part of his employment, Aleynikov agreed to keep all proprietary information belonging to GSCo confidential.
- In late April 2009, Aleynikov accepted an employment offer from Teza Technologies, a startup company in the high-frequency trading business.
- On June 5, 2009, his last day in GSCo’s offices, Aleynikov copied GSCo’s source code into computer files and transferred those files to a server in Germany.
- On July 1, 2009, Goldman contacted federal law-enforcement authorities to report the transfer of the files.
- Two days later, FBI agents arrested Aleynikov.
- On August 2, 2012, New York state authorities arrested Aleynikov and charged him with state crimes based upon the same alleged conduct.
Procedural Posture:
- Sergey Aleynikov was indicted by a federal grand jury in the Southern District of New York in February 2010 for violations of the National Stolen Property Act and the Economic Espionage Act.
- The federal District Court for the Southern District of New York granted Aleynikov's motion to dismiss one count but denied it for the remaining two.
- Following an eight-day trial, a jury in the United States District Court for the Southern District of New York found Aleynikov guilty on both federal counts, and he was sentenced to 97 months of imprisonment.
- Aleynikov appealed his conviction to the United States Court of Appeals for the Second Circuit.
- On February 16, 2012, the Second Circuit reversed his conviction, ordered him acquitted and immediately released, concluding his conduct did not violate federal law.
- On August 2, 2012, New York state authorities arrested Aleynikov and charged him with state crimes based upon the same alleged conduct.
- On September 26, 2012, a New York grand jury indicted Aleynikov on two state charges, and the state criminal case remains pending.
- On August 24, 2012, Aleynikov and his counsel sent a letter to Goldman Sachs Group, Inc. (Goldman) seeking indemnification and advancement for his attorney's fees.
- On September 25, 2012, Aleynikov initiated this civil suit against Goldman in the United States District Court for the District of New Jersey, seeking indemnification, advancement, and "fees on fees."
- The District Court denied Aleynikov's initial motion for summary judgment and preliminary injunction on December 14, 2012, ordering expedited discovery.
- Following expedited discovery, the parties filed cross-motions for summary judgment.
- On October 16, 2013, the District Court granted Aleynikov's motion for summary judgment with respect to his claims for advancement and advancement-related fees but denied it for indemnification claims, and also denied Goldman's cross-motion for summary judgment.
- Goldman (Appellant) filed a timely notice of appeal to the United States Court of Appeals for the Third Circuit, which denied Goldman's motion for a stay pending appeal, but granted its motion to expedite the appeal and referred the appellate jurisdiction issue to the merits panel.
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Issue:
Is an employee, holding the title of "vice president" at a non-corporate subsidiary, definitively entitled to advancement of legal fees under an ambiguous corporate by-law provision defining "officer" when the ambiguity concerns the employee's fundamental status as a beneficiary, or do genuine issues of material fact regarding extrinsic evidence preclude summary judgment?
Opinions:
Majority - FISHER, Circuit Judge
No, Aleynikov is not definitively entitled to advancement of legal fees at the summary judgment stage because the term "officer" in GS Group's By-Laws, as applied to a non-corporate subsidiary like GSCo, is ambiguous, and genuine issues of material fact regarding relevant extrinsic evidence preclude summary judgment. The District Court erroneously focused on the meaning of "vice president," a term not present in the By-Laws' definition of "officer." The By-Laws' definition of "officer" for non-corporate subsidiaries ("any officer of such entity, any person serving in a similar capacity or as the manager of such entity") is circular and susceptible to multiple meanings, making it ambiguous. The doctrine of contra proferentem, which construes ambiguities against the drafter, is inapplicable here because the ambiguity concerns whether Aleynikov is a party or intended beneficiary to the contract at all, rather than the scope of rights for an established beneficiary; applying it would "put the cart before the horse." Instead, relevant extrinsic evidence, including GSCo’s internal procedures for appointing officers, its record of providing indemnification/advancement (course of dealing), and industry understanding of titles like "vice president" and "officer" (trade usage), must be considered by a factfinder to resolve the ambiguity. The District Court improperly weighed and discounted this evidence at the summary judgment stage. Therefore, the case is vacated and remanded for further proceedings consistent with this opinion.
Dissenting - FUENTES, Circuit Judge
Yes, Aleynikov is an officer and entitled to advanced legal fees because the term "officer" in Goldman's By-Laws is ambiguous, and under Delaware law, such ambiguities in unilaterally-drafted corporate governing documents must be construed against the drafter (contra proferentem). Delaware law strongly favors applying contra proferentem to ambiguous terms in governing documents, particularly for advancement provisions, to protect the reasonable expectations of stakeholders who did not negotiate the agreement and to incentivize clear drafting. The majority's distinction, that contra proferentem applies only to the scope of rights and not to the determination of party status, lacks support in Delaware case law and contravenes public policy, which aims to ensure all relevant stakeholders can rely on governing documents. The extrinsic evidence the majority permits, such as Goldman's discretionary payments or internal appointment procedures, only reflects Goldman's subjective views and does not contribute to a "mutual understanding" of the contract's meaning, rendering it irrelevant. By allowing the consideration of such improper evidence, the majority privileges Goldman's unilateral interpretation over the reasonable expectations of its employees. Therefore, the advancement provision should be construed against Goldman, entitling Aleynikov to legal fees.
Analysis:
This case significantly impacts the interpretation of corporate by-laws under Delaware law, particularly regarding indemnification and advancement provisions. It clarifies that the doctrine of contra proferentem has limits, explicitly distinguishing between ambiguities concerning the scope of existing rights (where it applies) and fundamental eligibility for those rights (where it does not). This distinction may lead companies to meticulously redefine key roles like 'officer' in their governing documents to prevent protracted litigation over an individual's status. The decision also emphasizes the importance of extrinsic evidence (course of dealing and trade usage) in resolving ambiguities in unilaterally drafted contracts, particularly in industries prone to 'title inflation,' potentially increasing the factual burden at summary judgment for these types of disputes.
