Charged with Interpreting “Officer” in Corporate By-Laws, Third Circuit Decides 12 Random People Are Better Suited for the Job

Here are two things we thought when we were a kid: (1) Quicksand was a real threat, something that could suck me into the Earth if I wasn’t careful when walking around outside. We don’t know if this was a function of too many episodes of Gilligan’s Island or what, but quicksand seemed both exotic and like something that could get me if I didn’t watch out. (2) Being a vice president was a real thing, and basically made you Number 2 in a government or business. Well, that’s true for, say, the United States government. And at the time Walter Mondale and George H.W. Bush were my frames of reference for this thought. But for lots of businesses, vice president doesn’t mean all that much.

In fact, at Goldman, Sachs & Co., which employs tens of thousands of employees, about a third of them are vice presidents. This wasn’t a great fact for Sergey Aleynikov, a vice president in Goldman’s equities division from 2007 to 2009. On his last day, according to a Third Circuit opinion from earlier this month, he copied some of the company’s source code into computer files and transferred the files to a server in Germany. A federal grand jury indicted Aleynikov in 2010, and he was eventually convicted of violations of the National Stolen Property Act and the Economic Espionage Act. He served 51 weeks in prison before a federal appeals court reversed his convictions and ordered him immediately released in February 2012. In August of that year, a state grand jury in New York indicted Aleynikov on similar charges; that case remains pending. Michael Lewis wrote a quite compelling Vanity Fairy story about Aleynikov’s case casting serious doubt on these efforts to punish Aleynikov.

Anyway, his legal defense has been very expensive, and he is now trying to recover its costs from Goldman under both the indemnification and advancement provisions of the company’s by-laws. As the court explains, indemnification and advancement are separate but related avenues by which a company pays for an individual’s legal expenses. For indemnification, the corporation reimburses the individual for her legal expenses once she has been successful in the underlying proceeding on the merits or otherwise. For advancement, the company pays legal expenses on an ongoing basis, provided that he must repay the amount advanced if it turns out he’s not successful on the merits or otherwise in the underlying lawsuit.

Aleynikov wants both, but his entitlement to them depends on whether he was an “officer” at Goldman, Sachs. The court determined that an officer is someone who holds a position of trust, authority, or command. As a vice president, was Aleynikov in such a role? The court isn’t sure! The court decided that the evidence introduced by Goldman raised genuine issues of material fact on the meaning of the company’s by-laws. So that’s where this case will apparently go: a jury trial so some twelve of Aleynikov’s peers can study Goldman’s by-laws and determine whether they encompass an employee like him.

Judge Fuentes dissented and wrote separately to say that under the doctrine of contra proferentem, the by-laws should be construed against their drafter, Goldman Sachs. In his view, turning the question over to a jury incentivizes Goldman not to make its by-laws clear, but to keep them ambiguous, “thereby giving many persons the reasonable expectations they will receive advancement, while reserving the right to make unpredictable post hoc determinations about which former employees should be advanced attorney’s fees and which shouldn’t.”

Matt Levine hilariously covered this case at Bloomberg two weeks ago. Check it out here.