United States Court of Appeals for the
Third Circuit
Case No. 13-4237
SERGEY ALEYNIKOV,
Appellee,
– v. –
THE GOLDMAN SACHS GROUP, INC.,
Appellant.
–––––––––––––––––––––––––––––– ON APPEAL FROM THE OPINION AND ORDER ENTERED IN THE UNITED STATES DISTRICT
COURT FOR THE DISTRICT OF NEW JERSEY, NEWARK AT NO. 2:12-CV-05994 (KM)
BRIEF ON BEHALF OF APPELLEE
KEVIN H. MARINO, ESQ.
JOHN D. TORTORELLA, ESQ. JOHN A. BOYLE, ESQ. MARINO, TORTORELLA & BOYLE, P.C. Attorneys for Appellee 437 Southern Boulevard Chatham, New Jersey 07928 (973) 824-9300
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TABLE OF CONTENTS
TABLE OF AUTHORITIES .................................................................................... ii
JURISDICTIONAL STATEMENT .......................................................................... 1
STATEMENT OF THE ISSUES............................................................................... 2
STATEMENT OF RELATED CASES AND PROCEEDINGS .............................. 3
STATEMENT OF THE CASE .................................................................................. 4
STATEMENT OF THE STANDARD OF REVIEW ............................................. 12
SUMMARY OF THE ARGUMENT ...................................................................... 13
ARGUMENT ........................................................................................................... 22
I. THE DISTRICT COURT’S ORDER SPECIFICALLY ENFORCING ALEYNIKOV’S PROVISIONAL RIGHT TO ADVANCEMENT IS LEGAL, NOT EQUITABLE, AND THUS IS NOT IMMEDIATELY APPEALABLE. ............................................................................................. 22
II. THE DISTRICT COURT CORRECTLY DETERMINED THAT ALEYNIKOV, AS A VICE PRESIDENT OF GSCO, WAS AN “OFFICER” WITHIN THE MEANING OF §6.4[3] OF GS GROUP’S BY-LAWS. .................................................................................. 24
A. Delaware Law Favors Broad Application Of Advancement Provisions And Resolution Of Advancement Disputes On Summary Judgment. ................................................................................. 24
B. The District Court Correctly Held That §6.4[3] Is Unambiguous On Its Face And Includes Vice Presidents Within The Term “Officer.” .................................................................................................. 26
1. The District Court Correctly Held That the Term “Officer” Unambiguously Includes Vice Presidents. ......................... 27
a) The District Court Correctly Held That It Is Reasonable To Interpret The Term “Officer” To Include A “Vice President.” ..... 28
b) The District Court Correctly Held That Goldman’s Proffered Interpretation Of “Officer” Was Unreasonable. ............................ 35
2. The District Court Applied The Correct Standard When Reading The Term “Officer” Unambiguously In Aleynikov’s Favor. .............................................................................. 38
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3. The Undisputed Facts Do Not Support Goldman’s Interpretation Of The Term “Officer” In §6.4[3]. ............................... 41
C. The District Court Properly Held That, Even If “Officer” Were Ambiguous, Two Rules Of Construction Mandate Resolving That Ambiguity In Aleynikov’s Favor. ............................................................ 45
D. Expedited Discovery Did Not Reveal Any Evidence That An Objectively Reasonable Third Person Would Know Of Goldman’s Secret Process And Interpretation. ........................................................... 52
CONCLUSION ........................................................................................................ 62
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TABLE OF AUTHORITIES
Cases
Abi Jaudi & Azar Trading Corp. v. Cigna Worldwide Insurance Co., 391 F. App’x 173 (3d Cir. 2010) .......................................................................... 23
ACLU of N.J. v. Black Horse Pike Reg’l Bd. of Educ., 84 F.3d 1471 (3d Cir. 1996) ................................................................................. 12
Activision Blizzard v. Hayes, 2013 WL 6053804 (Del. Nov. 15, 2013) ............................................................. 47
Bank of N.Y. Mellon v. Commerzbank, 65 A.3d 539 (Del. 2013) ............................................................................... passim
Brakke v. Idaho Dep’t of Corr., 2012 WL 4409905 (D. Idaho Sept. 25, 2012) ...................................................... 29
Brown v. City of Pittsburgh, 586 F.3d 263 (3d Cir. 2009) ................................................................................. 24
Brown v. LiveOps, Inc., 903 A.2d 324 (Del. Ch. 2006) ....................................................................... 25, 46
Brown v. State, 36 A.3d 321 (Del. 2012) ....................................................................................... 37
C.R.A. Realty Corp. v. Crotty, 878 F.2d 562 (2d Cir. 1989) ................................................................................. 30
Centaur Partners, IV v. National Intergroup, Inc., 582 A.2d 923 (Del. 1990) ..................................................................................... 39
Cohen v. Bd. of Trs. of UMDNJ, 867 F.2d 1455 (3d Cir. 1989) ............................................................................... 23
Confederate Motors, Inc. v. Terny, 859 F. Supp. 2d 181 (D. Mass. 2012)................................................................... 25
Council of the Dorset Condo. Apts. v. Gordon, 801 A.2d 1 (Del. 2002) ......................................................................................... 36
DeLucca v. KKAT Mgmt., L.L.C., 2006 WL 224058 (Del. Ch. Jan. 23, 2006) .................................................. passim
Doeblers’ Pa. Hybrids, Inc. v. Doebler, 442 F.3d 812 (3d Cir. 2006) .......................................................................... 12, 41
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DuPont de Nemours v. Rhone Poulenc, 269 F.3d 187 (3d Cir. 2001) .......................................................................... 23, 24
Eagle Industries, Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228 (Del. 1997) ............................................................................ 42, 50
EMC Corp. v. Allen, 1997 WL 1366836 (Mass. Super. Dec. 15, 1997) ................................................ 31
Fagin v. Gilmartin, 432 F.3d 276 (3d Cir. 2005) ................................................................................. 12
Fasciana v. Electronic Data Sys. Corp., 829 A.2d 160 (Del. Ch. 2003) .............................................................................. 25
GMG Capital Invs., LLC v. Athenian Venture Partners I, L.P., 36 A.3d 776 (Del. 2012) .......................................................................... 38, 39, 50
Gold v. Sloan, 486 F.2d 340 (4th Cir. 1973) ......................................................................... 30, 33
Guillory v. Aetna Ins. Co., 415 F.2d 650 (5th Cir. 1969) ................................................................................ 38
Harrah’s Entertainment, Inc. v. JCC Holding Co., 802 A.2d 294 (Del. Ch. 2002) .............................................................................. 50
HLTH Corp. v. Axis Reins. Co., 2009 WL 33266259 (Del. Super. Ct. Sept. 30, 2009) .......................................... 26
Homestore, Inc. v. Tafeen, 888 A.2d 204 (Del. 2005) .................................................................. 24, 25, 31, 47
In re Borders Group, Inc., 453 B.R. 459 (Bankr. S.D.N.Y. 2011) ................................................................. 30
In re Foothills Tex., Inc., 408 B.R. 573 (Bankr. D. Del. 2009) ..................................................................... 31
In re NMI Systems, Inc., 179 B.R. 357 (Bankr. D.D.C. 1995) ..................................................................... 30
In re Public Access Technology.com, Inc., 307 B.R. 500 (Bankr. E.D. Va. 2004) .................................................................. 30
Kaiser Aluminum Corp. v. Matheson, 681 A.2d 392 (Del. 1996) .................................................................. 40, 48, 49, 58
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Kershner v. Mazurkiewicz, 670 F.2d 440 (3d Cir. 1982) ................................................................................. 22
KFC Nat’l Council and Advertising Coop., Inc. v. KFC Corp., 2011 WL 350415 (Del. Ch. Jan. 31, 2011) .......................................................... 49
Kuhn Constr., Inc. v. Diamond State Port Corp., 990 A.2d 393 (Del. 2010) ..................................................................................... 39
L.Q. v. P.Q., 466 A.2d 1213 (Del. 1983) ............................................................................ 35, 38
Lorillard Tobacco Co. v. American Legacy Found, 903 A.2d 728 (Del. 2006) ..................................................................................... 28
Masonic Home of Del., Inc. v. Certain Underwriters at Lloyd’s London, 2013 WL 5872283 (Del. Oct. 30, 2013)............................................................... 27
MBIA Ins. Corp. v. Royal Indem. Co., 426 F.3d 204 (3d Cir. 2005) .......................................................................... 12, 40
Miller v. Palladium Indus., 2012 WL 6740254 (Del. Ch. Dec. 31, 2012) ................................................ 39, 46
Mylan Inc. v. SmithKline Beecham Corp., 723 F.3d 413 (3d Cir. 2013) ................................................................................. 40
NAACP v. N. Hudson Reg’l Fire & Rescue, 665 F.3d 464 (3d Cir. 2011) ................................................................................. 12
Norton v. K-Sea Transp. Partners L.P., 67 A.3d 354 (Del. 2013) .......................................................................... 40, 47, 52
Pell v. E.I. DuPont de Nemours & Co., Inc., 539 F.3d 292 (3d Cir. 2008) ................................................................................. 23
Playtex FP, Inc. v. Columbia Casualty Co., 609 A.2d 1087 (Del. Super. Ct. 1991).................................................................. 50
Price v. Socialist People’s Libyan Arab Jamahiriya, 389 F.3d 192 (D.C. Cir. 2004) ............................................................................. 23
Ridder v. Cityfed Fin. Corp., 47 F.3d 85 (3d Cir. 1995) ..................................................................................... 25
Saber v. Finance Am. Credit Corp., 843 F.2d 697 (3d Cir. 1988) .......................................................................... 22, 23
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Shiftan v. Morgan Joseph Holdings, Inc., 57 A.3d 928 (Del. Ch. 2012) ................................................................................ 48
SI Mgmt. v. Wininger, 707 A.2d 37 (Del. 1998) ................................................................................ 48, 49
Sinclair Television Group v. Mediacom Communications Corp., 2008 WL 276533 (D. Md. Jan. 29, 2008) ............................................................ 42
Stifel Fin. Corp. v. Cochran, 809 A.2d 555 (Del. 2002) ..................................................................................... 25
Stockman v. Heartland Industrial Partners, L.P., 2009 WL 2096213 (Del. Ch. July 14, 2009) ....................................... 7, 21, 37, 49
Sun-Times Media Group, Inc. v. Black, 954 A.2d 380 (Del. Ch. 2008) .............................................................................. 26
Ter Bush & Powell, Inc. v. State Tax Comm’n, 395 N.Y.S.2d 762 (3d Dep’t 1977) ............................................................... 29, 45
United States v. Aleynikov, 676 F.3d 71 (2d Cir. 2012) ..................................................................................... 4
Viking Pump, Inc. v. Century Indem. Co., 2 A.3d 76 (Del. Ch. 2009) .................................................................................... 50
Zimmerman v. Crothall, 62 A.3d 676 (Del. Ch. 2013) ................................................................................ 51
Statutes
28 U.S.C. § 1291 ................................................................................................. 1, 22
28 U.S.C. § 1292(a)(1) ...........................................................................................1, 2
8 Del. C. § 145 ............................................................................................ 24, 25, 31
Securities Exchange Act of 1934, 15 U.S.C. § 78p ....................................................................................... 32, 33, 34
Rules
3d Cir. L.A.R. 28.1(a)(2) ........................................................................................... 3
Fed. R. Civ. P. 30(b)(6) ............................................................................................ 55
Fed. R. Civ. P. 54(b) ........................................................................................... 1, 22
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Regulations
17 C.F.R. § 240.16a-1 ....................................................................................... 32, 33
17 C.F.R. § 240.3b-2 ................................................................................... 32, 33, 34
17 C.F.R. § 240.3b-7 ................................................................................................ 55
Other Authorities
Black’s Law Dictionary 1702 (9th ed. 2009) .......................................................... 28
Ownership Reports and Trading by Officers, Directors and Principal Stockholders, 53 Fed. Reg. 49,997 (proposed Dec. 13, 1988) ............................. 34
Webster’s New Universal Unabridged Dictionary 2036 (2d ed. 1983) .................. 28
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JURISDICTIONAL STATEMENT
The order under review, which granted partial summary judgment to
Plaintiff-Appellee, Sergey Aleynikov (“Aleynikov”), on his claim for advancement
of legal fees and expenses, is not immediately appealable under 28 U.S.C. §1291
because it neither resolves all claims as to all parties nor has been designated final
under Fed. R. Civ. P. 54(b). It is not immediately appealable under 28 U.S.C.
§1292(a)(1) because it calls for the provisional payment of money in an action at
law, not equity.
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STATEMENT OF THE ISSUES
1. Whether an order directing Goldman1 to provisionally advance
Aleynikov’s fees and expenses pending the outcome of state criminal proceedings
against him is an immediately appealable injunction under 28 U.S.C. §1292(a)(1).
(Raised by 10/30/13 Text Order.) Proposed answer: No.
2. Whether the district court correctly determined that Aleynikov, as a
Vice President of GSCo, was an “officer” under the advancement provision of GS
Group’s By-Laws (the “By-Laws”) given the plain meaning of that term, Delaware
law mandating a liberal interpretation of advancement provisions in a corporation’s
constitutive documents, and Delaware’s robust policy of resolving ambiguities in
such documents against the corporation that drafted them. (Raised: A77; Objected
to: A205; Ruled upon: A28,A33.) Proposed answer: Yes.
1 “Goldman” refers to Appellant, The Goldman Sachs Group, Inc. (“GS Group”) and/or its wholly owned subsidiary Goldman, Sachs & Co. (“GSCo”). GS Group and GSCo are used where necessary to distinguish between them.
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STATEMENT OF RELATED CASES AND PROCEEDINGS
Pursuant to 3d Cir. L.A.R. 28.1(a)(2), Aleynikov is aware of three related
cases: this case, Aleynikov v. The Goldman Sachs Group, Inc., 12 Civ. 5994,
pending in the District of New Jersey, in which his claims for indemnification and
“fees-on-fees” invoke the By-Law at issue here; United States v. Aleynikov, 10 Cr.
0096 (the “Federal Case”), the Southern District of New York case in which the
Second Circuit acquitted him of charges based on the conduct underlying the
cross-claims and affirmative defenses pending below; and People v. Aleynikov,
Ind. No. 4447/2012 (the “State Case”), the pending New York Supreme Court case
underlying Aleynikov’s advancement claim.
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STATEMENT OF THE CASE
On March 22, 2007, GSCo, a non-corporate subsidiary of GS Group,
extended a written offer to Aleynikov to become a Vice President in GSCo’s
Equities Division. (A1105,A1108.) From May 7, 2007 through June 30, 2009,
Aleynikov was a GSCo Vice President and computer programmer developing
source code for its high-frequency trading (“HFT”) business. (A70,A1109.) On
July 1, 2009, Goldman contacted federal law-enforcement authorities and reported
that Aleynikov had electronically transferred HFT files and source code outside of
Goldman one month earlier. (A70,A1109.) Two days later, FBI agents arrested
Aleynikov. (A70,A1109.) In February 2010, a federal grand jury indicted him for
three crimes. (A70-71.) Aleynikov moved to dismiss all three charges; the court
granted his motion as to one but denied it as to the other two. (A71,A1109.)
Aleynikov was tried, convicted, and sentenced to 97 months in prison.
(A71,A1109.)
While his appeal was pending, Aleynikov spent 51 weeks in prison. On
February 16, 2012, the day of oral argument, the Second Circuit summarily
reversed his conviction and ordered him acquitted and released immediately.
(A71-72,A1110.) The court later explained that his conduct did not violate federal
law. United States v. Aleynikov, 676 F.3d 71 (2d Cir. 2012).
On August 2, 2012, New York authorities arrested Aleynikov and charged
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him with state crimes based on the conduct alleged in the Federal Case.
(A72,A1110.) On September 26, 2012, a New York grand jury indicted him for
two crimes in the State Case. (A718-20,A1110.) Aleynikov pleaded not guilty.
(A643,A1110.) His motion to suppress is pending.
At the time of Aleynikov’s state arrest, the press reported that Goldman was
paying GSCo Vice President Fabrice Tourre’s legal fees in an SEC enforcement
action. (A598-99,A604-05.) Aleynikov’s counsel reviewed the By-Laws and
found that they mandate indemnification of former GSCo officers. (A73,A1111-
12,A117-18.) Specifically, By-Law §6.4[3]2 promises that GS Group will
indemnify and advance legal fees incurred by anyone named in a criminal
proceeding because he was an “officer” of a GS Group subsidiary (such as GSCo)
and states, “when used with respect to a Subsidiary ... that is not a corporation
[GSCo is a partnership] ... the term officer shall include in addition to any officer
of such entity, any person serving in a similar capacity or as the manager of such
entity.” (A73,A1111-12,A117-18(emphasis supplied).)
On August 24, 2012, Aleynikov demanded that under Delaware General
Corporation Law (“DGCL”) and the By-Laws, GS Group pay him: (1)
2 Section 6.4 defines “officer” differently for purposes of GS Group, its corporate subsidiaries and its non-corporate subsidiaries. (All.) Aleynikov adopts the district court’s convention of referring to the provision of §6.4 relevant to GSCo, a non-corporate subsidiary, as “§6.4[3].”
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indemnification in the Federal Case; and (2) advancement in the State Case.
(A122-26,A1112-13.) Aleynikov provided an Undertaking to repay the advanced
monies if it was ultimately determined that he was not entitled to indemnification.
(A122-27,A1113.) When GS Group refused, Aleynikov filed this action (A65) and
sought a preliminary injunction on advancement and summary judgment. (A169.)
In response, GS Group submitted affidavits regarding the manner in which
GSCo appoints its officers. (A1020-22,A1024-28.) Gregory Palm, GS Group’s
General Counsel, stated that “GS Group and GSCo. appoint their officers by means
of formal resolution processes [and] have a discrete number of officers who
occupy the most senior managerial positions of each company.” (A1021(¶3).)
Matthew Tropp, GSCo Associate General Counsel, swore that “[t]o appoint an
officer of GSCo., the sole general partner adopts a written resolution electing a
particular person to hold a particular office of GSCo.” (A1025(¶7).) Goldman
argued that Aleynikov was not an officer of GSCo because he was not appointed
by that process. (A1026,A47[Doc.#42] at 27.) At oral argument, Goldman stated
that it paid employees’ legal fees “from time to time” as “permissive
indemnification” but never indemnified or advanced fees to a GSCo vice president
under the mandatory indemnification provisions of its By-Laws. (A47[Doc.#42] at
37.) In its December 14, 2012 opinion, the court described the “essential issue” as
whether Aleynikov is an “officer” of GSCo under §6.4[3] for purposes of
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indemnification and advancement. (A169.) The court observed that in §6.4[3],
“an ‘officer’ is defined as, inter alia, ‘any officer,’” concluding, “This is not
helpful; indeed, it is circular.” (A179.)
Notwithstanding that observation and a Delaware Chancery decision,
Stockman v. Heartland Industrial Partners, L.P., 2009 WL 2096213, at *5 (Del.
Ch. July 14, 2009), holding that ambiguities in corporate By-Laws should be
resolved in favor of indemnification and advancement under contra proferentem
and finding parol evidence irrelevant in interpreting a corporation’s constitutive
documents, the district court declined to declare Aleynikov an officer at that
juncture. (A169.) Instead, the court ordered expedited discovery to permit
exploration of (a) whether Goldman had a process for “clearly distinguish[ing]”
officers from non-officers; and (b) its historical practice regarding payment of
employees’ legal fees, after which he invited renewed summary judgment motions.
(A169,A194-95.) As the court later explained, that discovery “was intended to
establish whether there was somewhere, for example, a stated definition of the
term ‘officer’ as used in By-Laws § 6.4[3], or a pattern of indemnifying GSCo
employees that would suggest such a definition.” (A12.)
Discovery revealed that Goldman (1) had no formal, written policy stating
that the only way to become a GSCo officer was by written consent of its general
partner (A902(73:2-8),A1153,A1175(130:20-131:5;217:23-218:5)); and (2) does
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not (a) disclose its written consents to anyone but a select few within its legal
department, (A950(266:14-21-24),A647,A1007-18)); or (b) advise employees that
only those appointed by that process are officers under §6.4[3]. (A950(266:22-
24),A647,A1007-18,A1001-4(67:20-23;70:9-13;74:3-25;78:24-79:7;79:22-80:14).)
During discovery, Goldman disavowed its counsel’s statement that GS
Group provides permissive indemnification to GSCo employees. (A1046-47.)
Instead, after it was revealed that Goldman had paid the legal expenses of fully 51
of the 53 employees (including 15 GSCo vice presidents) who incurred them
during a six-year period (A1251-54,A1105-07), Goldman claimed it did so not as
permissive indemnification under its By-Laws but as a matter of “business
discretion” outside the By-Laws. (A1237-42.)
The parties renewed their cross-motions for summary judgment following
expedited discovery. (A57(Doc.#130),A58(Doc.#143).) Aleynikov did not, as
Goldman contends, merely “repeat[]” arguments raised on his original application
(GSb16), but instead showed that the premise on which that application was denied
— that Goldman had established a process that “clearly distinguished” GSCo
officers from non-officers and a history of discretionary, not mandatory,
indemnification payments (A169,180-83) — was undisputedly false. To the
contrary, Goldman conceded that its “rarely used” resolution “process” was never
“reduced to a writing” and was known only to “the discrete group within the Legal
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Department which has implemented it over time.” (A58(Doc.#145) at 7.)
After extensive briefing and oral argument, the court granted Aleynikov’s
renewed summary judgment motion on his advancement and advancement-related
fees claims and denied the parties’ cross-motions on indemnification and
indemnification-related fees pending further discovery (the “October 16th
Opinion”). (A3-36.) The court employed a multi-step analysis to determine
whether Aleynikov was entitled to advancement under §6.4[3]. First, the court
considered whether §6.4[3] is ambiguous with respect to a vice president’s status
as an officer entitled to advancement. (A27.) The court found that “[t]he usual
and ordinary meaning of vice president, supplemented by [case law discussed in
the Opinion], makes out a fair case that [§6.4[3]] is unambiguous,” that it “may be
enforced as written, as a matter of law, and that advancement of fees should be
awarded.” (A28.)
That determination, the court correctly noted, “might well end the matter,
because the public policy in favor of advancement counsels against consideration
of parol evidence, even when the language is somewhat unclear.” (A29.)
Nonetheless, “in the interest of thoroughness,” the court took the second step of
considering the parol evidence developed in discovery, concluding that it was not
“sufficient to raise a material issue of fact” because it was either irrelevant to an
interpretation of §6.4[3] or supported Aleynikov’s position. (A17-24,A29.)
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As a third and final step, the court “indulge[d] Goldman’s position one step
farther” and assumed “that the term ‘officer’ carries with it some ambiguity as
applied to the vice president of an LLP.” (A30.) But the court concluded that even
if some ambiguity existed, any resulting fact issue would be immaterial “in light of
the Delaware doctrine of contra proferentem,” which requires that ambiguous
terms in a corporate governance document, such as a by-law, be construed against
the document’s drafter. (A30.) As a result, the court “construe[d] [§6.4[3]] against
its corporate drafter, Goldman, and [held] that the term ‘officer’ encompasses
Aleynikov’s position as a vice president of GSCo.” (A33.)
On October 28, 2013, Goldman moved for a stay pending appeal and to
expedite the appeal. Goldman did not first seek a stay in the district court; instead,
the day it filed its stay motion here, Goldman wrote the district court requesting a
temporary stay pending this Court’s ruling on its stay motion. (A62[Doc.#182].)
In an Order and Opinion dated October 29, 2013, after noting that Goldman
had “skipped the preliminary steps” (by not seeking a stay before it) (A614), the
court stayed its October 16th Order for seven days only to give this Court an
opportunity to consider Goldman’s stay motion. (A618.) The court also explained
why it felt GS Group was unlikely to prevail on appeal:
I applied the doctrine of contra proferentem, which has some quirks in Delaware. One of these is that, as to corporate bylaws, and as to the issue of advancement in
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particular, the court must—generally on a paper record—resolve doubtful cases in favor of the employee. That said, there is room for disagreement. But any difficulties were largely created by Goldman’s carelessness in the manner in which it drafted its By-Laws, as well as its liberal conferral of the title of vice president, which it now claims to be an empty title. A vice president is generally considered an “officer,” the word in the By-Laws that I was called on to construe. At least, under Delaware law, I believe that Aleynikov was entitled to assume that when entering into the employment relationship.
(A615.)
In an Order dated October 30, 2013, this Court directed Aleynikov to
“address the issue of this Court’s jurisdiction over the appeal in his response to
[Goldman’s] motions,” (10/30/13 Order.) On November 12, 2013, this Court
denied Goldman’s motion for a stay pending appeal, granted its motion to expedite
the appeal, and referred “[t]he issue of this Court’s jurisdiction, the parties
responses, and the appellant’s reply … to the merits panel.” (Doc.# 003111449565
at 2.)
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STATEMENT OF THE STANDARD OF REVIEW
If the Court determines that the order requiring advancement is an
appealable injunction, it will review that order for abuse of discretion. NAACP v.
N. Hudson Reg’l Fire & Rescue, 665 F.3d 464, 476 (3d Cir. 2011); Doeblers’ Pa.
Hybrids, Inc. v. Doebler, 442 F.3d 812, 819 (3d Cir. 2006).3 An abuse of
discretion exists where the district court’s decision “rest[s] upon a clearly
erroneous finding of fact, an errant conclusion of law, or an improper application
of law to fact.” Id. (both quoting ACLU of N.J. v. Black Horse Pike Reg’l Bd. of
Educ., 84 F.3d 1471, 1476 (3d Cir. 1996)).
Under “New Jersey’s choice-of-law rules,” which apply in this diversity
case, “the law of the state of incorporation governs internal corporate affairs.”
Fagin v. Gilmartin, 432 F.3d 276, 282 (3d Cir. 2005). “Since it is undisputed that
Delaware provides the substantive law for this dispute,” this Court must “turn to
that state’s law of contract to determine whether summary judgment was properly
awarded.” MBIA Ins. Corp. v. Royal Indem. Co., 426 F.3d 204, 210 (3d Cir.
2005).
3 Contrary to Goldman’s suggestion, Doebler did not apply or propose de novo review of orders granting injunctions. (GSb18.)
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SUMMARY OF THE ARGUMENT
The court’s holding that “officer” in §6.4[3] includes vice presidents such as
Aleynikov, which is explained in the October 16th Opinion, the December 14th
Opinion, and the October 29th Stay Opinion, was substantively correct and
procedurally sound.
The court’s initial take on the definition of officer in §6.4[3] was that it is
“less than clear;” “not helpful;” and “circular.” (A179.) That observation alone
justified summary judgment in Aleynikov’s favor. While there is powerful
evidence that §6.4[3]’s definition of officer clearly includes vice presidents —
from the SEC’s definition of officer in 17 C.F.R. §240.3b-2 (“The term officer
means a … vice president …”) to the By-Laws’ own use of the term in §1.7 and
§4.1 (adverting to vice presidents and “other officers”) — it does not clearly
exclude vice presidents. As a result, that definition is at best (for Goldman)
ambiguous. Because, as the court would ultimately note, “Delaware law makes an
exception to the usual rule that extrinsic evidence will be considered to resolve an
ambiguity [and instead provides that] ... corporate instruments, unlike negotiated
contracts, will be construed against the corporation,” any perceived ambiguity in
§6.4[3] could properly have been construed against Goldman at the outset pursuant
to “Delaware’s robust application of contra proferentem in this context.”
(A31n.17.)
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Such a determination would have honored “Delaware’s strong statutory
policy in favor of immediate advancement of fees” — which holds that “a court
will tolerate some ambiguity, and will not resort to parol evidence” when
interpreting an advancement provision (A13-14) and “dictates that the By-Laws be
read liberally in favor of indemnification and advancement” (A17) — and the By-
Laws’ own expressed intent to provide that benefit “to the fullest extent permitted
by law.” (A118,A1111-12.) But the court chose not to immediately apply contra
proferentem, which it described as “an interpretive device of last resort.” (A184.)
Instead, the court denied the parties’ motions and authorized expedited discovery,
to be followed by renewed motions for summary judgment.
The court’s decision to stay its hand was, as it explained, based on (a) its
reading of Goldman’s affidavits to assert that it had “established a process of
appointment that clearly distinguishes between officers and non-officers” (A169
(emphasis supplied)); and (b) Goldman’s assertion that it “from time to time”
exercised its discretion to pay employees’ legal fees as “permissive
indemnification,” but that its By-Laws did not require it to do so. In ordering
discovery on these subjects, the court expressed its willingness to consider
extrinsic evidence as to whether Goldman had resolved any ambiguity in §6.4[3]
by making clear to an objectively reasonable person in Aleynikov’s position that
“officer” in that provision was not intended to include vice presidents.
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Under Delaware law — which mandates that ambiguities in a corporation’s
constitutive documents, such as by-laws, be construed against it, particularly as
concerns indemnification and advancement — evidence that Goldman had (a) an
appointment process outside its By-Laws that “clearly distinguished” officers from
non-officers or (b) a history of discretionary indemnification decisions, was not
relevant to the meaning of “officer” in §6.4[3]. But in what it would later term
“the interest of thoroughness,” the court gave Goldman the opportunity to develop
such evidence. (A31n.17.)
Discovery did not bear out Goldman’s claims. First, it revealed — as a
matter of undisputed fact — that although GSCo appoints its few senior-most
officers by written consent of its general partner, that appointment “process” does
not “clearly distinguish” GSCo’s officers from its non-officers, for one simple
reason: it is a secret process. As the court found, far from putting an objectively
reasonable observer on notice that “any officer” in §6.4[3] was intended to mean
“only those officers appointed by formal process,” GSCo’s “unknown, nonpublic
appointment policy” (A21) fails to “explain how a reader of … [§]6.4[3] would
know that ... an ‘officer’ is, and only is, an individual who has been appointed by
written resolution of the general partner.” (A18.) That is particularly so because
§6.4[1] and [2] expressly limit the definition of officers of GS Group and its
corporate subsidiaries to those appointed officers, while §6.4[3] does not. By the
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court’s sound reasoning, Goldman is “free to designate anyone it wishes as an
‘officer’ according to procedures known only to a ‘discrete group within the Legal
Department.’ But in doing so, GSCo does not define, or alter, the meaning of
Section 6.4 of the By-Laws.” (A20-21.) Thus, while Goldman claimed it has a
process that “clearly distinguishes” officers from non-officers — i.e., a process that
makes clear to an objectively reasonable reader the distinction on which it now
relies — discovery revealed that it does not. A secret process does not make
anything clear to those not in on the secret.
Second, discovery was equally unsupportive of Goldman’s claim that it had
only indemnified employees “from time to time” on a “purely discretionary” basis.
Of the 53 employees who required separate counsel in the past six years —
including Goldman CEO Lloyd Blankfein, an appointed officer undisputedly
entitled to indemnification — Goldman (a) paid the legal fees of 51, denying
payment only to Aleynikov and one other individual; and (b) invoked the attorney-
client privilege as to its reasons for those decisions.
The facts revealed in expedited discovery, viewed in the light most favorable
to Goldman, were as follows: (1) its process for appointing its handful of senior-
most officers is known only to a “discrete group within [its] Legal Department”
(A18) and thus does not “clearly distinguish” officers from non-officers in the eyes
of any objectively reasonable person; and (2) it has historically paid virtually all
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the legal fees incurred by its employees and will not reveal its basis for doing so,
meaning that its payment history is unsupportive of the By-Laws interpretation it
posits. Thus, a discovery process that itself reflected “the extent to which the court
has indulged Goldman’s position” (A31n.17) did not advance that position. Under
the circumstances — Delaware law that compels a ruling in Aleynikov’s favor and
ancillary discovery that reveals no disputed facts, much less a genuine issue of
material fact — the court properly granted Aleynikov’s renewed motion for
summary judgment on advancement.
The court’s reasoning, explained in three opinions comprising 68 pages,
should not be disturbed. As a threshold matter, this Court does not have
jurisdiction to hear this appeal because, among other things, the district court’s
order awards provisional relief in an action at law pending resolution of an ongoing
indemnification proceeding and thus is not immediately appealable. Nor should
the Court exercise its discretion to invoke the rarely-used doctrine of pendent
appellate jurisdiction over the denial of Goldman’s cross-motion for summary
judgment.
If the Court finds it has jurisdiction, it should affirm the district court’s
ruling for the reasons expressed in the opinion on appeal. Goldman’s contention
that the court misapplied the summary judgment standard is belied by that
carefully reasoned opinion as presaged by the December 14th Opinion
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(incorporated by reference in the opinion on appeal) and confirmed in the October
29th temporary stay Opinion.
Goldman proceeds from the erroneous notion that the court’s initial finding
that Aleynikov failed to establish a substantial likelihood of success on the merits
precluded it from granting his renewed motion for summary judgment. In refusing
the parties’ joint request that he determine whether “officer” included vice
presidents on a paper record, however, the court simply deferred decision on the
merits pending discovery. When discovery was complete, he made that
determination in a manner that was explicitly mindful of and scrupulously adherent
to the summary judgment standard, stating, “The usual and ordinary meaning of
vice president, supplemented by ... case law [holding that a statute’s reference to
officers included vice presidents], makes out a fair case that the By-Law here is
unambiguous. Even resolving every material factual issue in favor of Goldman, I
find that the By-Law may be enforced as written, as a matter of law, and that
advancement of fees should be awarded.” (A28)(emphasis supplied).) The court
continued, “I am emboldened in that analysis by my belief that the policy of the
statute dictates a broad and liberal construction of indemnification and, especially,
advancement under the By-Laws.” (A28.)
That is right as a matter of substance and procedure. Goldman’s claim that
the court did not view all evidence in the light most favorable to it is inaccurate.
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As its ruling reflects, the court assumed that the facts were exactly as Goldman
portrayed them: that it appoints officers of GSCo by formal process; that its officer
appointment process entails securing the written consent of its general partner and
is known only to a discrete few within its legal department; that the written
consents were not made generally available within GSCo; that in using the term
“officer” in §6.4[3] it did not intend to include vice presidents such as Aleynikov;
and that it paid the legal fees of 51 out of 53 employees outside the context of its
By-Laws. In ruling for Aleynikov despite accepting those contentions, the court
correctly concluded that they did not raise a genuine issue of material fact
sufficient to delay that ruling. Goldman refuses to accept that those undisputed
facts compel summary judgment against it, but they do. Section 6.4[3] is a
unilaterally-drafted corporate By-Law that (a) promises indemnification and
advancement to “officers” (which by its plain meaning includes vice presidents);
but (b) does not define officers by reference to an appointment process. If the
meaning of such a by-law could ever be altered by the existence of such a process
— and, as the district court noted, that is far from evident — it most assuredly
could not be altered by a secret appointment process.
Goldman’s position can be summarized as follows: because the court
permitted discovery into the meaning of §6.4[3], it was bound to either (a) find that
the provision as written clearly excluded vice presidents; (b) resolve any ambiguity
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in the provision in Goldman’s favor; or (c) conduct a trial on the issue. That is
simply not so. The court indulged Goldman by not ruling in Aleynikov’s favor at
the outset. But ordering discovery in an excess of caution is not tantamount to a
binding prediction that it will reveal relevant evidence, much less evidence that
favors one party. Here, beyond being irrelevant to the proper interpretation of a
Delaware corporation’s by-law promising indemnification and advancement to
undefined “officers,” the undisputed facts revealed in discovery — particularly,
that Goldman’s vaunted appointment process was undisclosed and that it paid the
legal fees of virtually everyone to incur them — beyond being irrelevant, did not
advance Goldman’s reading of its own By-Law.
In addition to mischaracterizing the court’s application of the summary
judgment standard and contending that the court resolved factual issues in reaching
its decision, Goldman erroneously contends that §6.4[3]’s use of officer is “facially
unambiguous” and does not include Vice Presidents; that §6.4[3] is unambiguous
when viewed in context; that even if §6.4[3] is ambiguous, that ambiguity is easily
resolved in Goldman’s favor by resort to extrinsic evidence; and that contra
proferentem cannot be used to determine whether a corporate by-law applies to an
employee.
None of these arguments is availing when considered in light of Delaware
case law — which may help explain why Goldman does not even cite the
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Delaware Chancery Court’s directly applicable ruling in Stockman, on which the
district court expressly and repeatedly relied. In Stockman, the court granted the
plaintiff summary judgment on his claim for advancement, holding that
ambiguities in the defendant’s partnership agreement “should be resolved in favor
of the reasonable expectation of [its] indemnities regarding their indemnification
and advancement rights.” As the district court held, quoting Stockman:
“where the contract in dispute is an entity’s organizing document ... a dispositive order following motion practice may be appropriate even where the contract is ambiguous.... The contra proferentem approach protects the reasonable expectations of people who join a partnership or other entity after it was formed and must rely on the face of the operating agreement to understand their rights and obligations when making the decision to join.”
(A30-31(emphasis in original)(quoting Stockman, 2009 WL 2096213, at *5).)
That observation is particularly pertinent here, where §6.4[3] expressly provides
that officers “shall be presumed to have relied” on the By-Law’s promise of
indemnification and advancement. (A118.) Under Delaware law, any ambiguity
in §6.4[3] would compel a ruling in favor of Aleynikov. The facts revealed in
discovery, viewed in the light most favorable to Goldman, compel the same
conclusion.
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ARGUMENT
I. THE DISTRICT COURT’S ORDER SPECIFICALLY ENFORCING ALEYNIKOV’S PROVISIONAL RIGHT TO ADVANCEMENT IS LEGAL, NOT EQUITABLE, AND THUS IS NOT IMMEDIATELY APPEALABLE.
The district court’s order is not final within the meaning of 28 U.S.C. §1291,
and no part of it could have been made final under Fed. R. Civ. P. 54(b). Indeed,
the district court catalogued the matters that are not final, including Aleynikov’s
indemnification claim and Goldman’s affirmative defenses. (A34-35.) Goldman
argues, however, that an order to pay fees is an injunction immediately appealable
under the narrow exception in 28 U.S.C. §1292(a)(1). This Court construes that
exception with “great care and circumspection.” Kershner v. Mazurkiewicz, 670
F.2d 440, 447 (3d Cir. 1982).
The panel that heard Goldman’s motion for a stay called for briefing on the
question of appellate jurisdiction; that briefing revealed a circuit split on the
question of whether orders for specific performance are injunctions. In this
Circuit, an order to pay money in an action at law is not an injunction. Saber v.
Finance Am. Credit Corp., 843 F.2d 697, 702 (3d Cir. 1988). The motions panel
denied the stay and referred the issue of the Court’s jurisdiction and the parties’
written submissions on that issue to the Merits Panel. (Doc.#003111449565.) To
avoid duplicative briefing, Aleynikov incorporates by reference and respectfully
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refers the Court to the jurisdictional analysis in his opposition to the stay motion,
which explains in detail not only the law of this Circuit, but also the extensive
Delaware precedent making clear that actions for advancement are actions at law,
not suits in equity. (Doc.#003111442330 at 15-19.)
Goldman continues to rely on the other side of the circuit split while
ignoring this Court’s decision in Saber. Goldman does cite Cohen v. Bd. of Trs. of
UMDNJ, 867 F.2d 1455 (3d Cir. 1989) (en banc), but ignores that Cohen accepted
Saber’s holding. Id. at 1467. Goldman also relies on Pell v. E.I. DuPont de
Nemours & Co., Inc., 539 F.3d 292, 307 (3d Cir. 2008), but Pell involved an
equitable right of action created by a federal statute (ERISA), not a right of action
at law created by a State.
Finally, even assuming this Court has jurisdiction over the district court’s
advancement award, it should decline Goldman’s invitation (GSb26) to invoke the
“narrow” and “sparingly” used doctrine of “pendent appellate jurisdiction” to
address the denial of Goldman’s cross-motion for summary judgment. DuPont de
Nemours v. Rhone Poulenc, 269 F.3d 187, 203 (3d Cir. 2001). As this Court has
reiterated, “pendent appellate jurisdiction is often suggested, occasionally
tempting, but only rarely appropriate.” Abi Jaudi & Azar Trading Corp. v. Cigna
Worldwide Insurance Co., 391 F. App’x 173 (3d Cir. 2010) (quoting Price v.
Socialist People’s Libyan Arab Jamahiriya, 389 F.3d 192, 199 (D.C. Cir. 2004)).
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Surely there is no need to address Goldman’s cross-motion for summary judgment
in order to provide “meaningful review” of an appealable order. DuPont, 269 F.3d
at 203. Even where appealable and non-appealable rulings are “‘closely
intertwined,’” as Goldman contends here (GSb26), there is no “compelling reason”
for this Court to review the denial of Goldman’s summary judgment motion,
particularly since that motion sought relief still pending before the district court.
The order “did not dispose of [Aleynikov’s] primary claim” for indemnification;
all of Aleynikov’s claims are still subject to further proceedings that would lead to
a “final judgment.” Brown v. City of Pittsburgh, 586 F.3d 263, 298 (3d Cir. 2009).
The Court should therefore find that it lacks jurisdiction to hear this appeal.
II. THE DISTRICT COURT CORRECTLY DETERMINED THAT ALEYNIKOV, AS A VICE PRESIDENT OF GSCO, WAS AN “OFFICER” WITHIN THE MEANING OF §6.4[3] OF GS GROUP’S BY-LAWS.
A. Delaware Law Favors Broad Application Of Advancement Provisions And Resolution Of Advancement Disputes On Summary Judgment.
DGCL §145(a) and (b) authorizes Delaware corporations like GS Group “to
indemnify their current and former corporate officials from expenses incurred in
legal proceedings ‘by reason of the fact that the person is or was a director, officer,
employee or agent of the corporation.’” Homestore, Inc. v. Tafeen, 888 A.2d 204,
211 (Del. 2005) (quoting DGCL §145(a),(b).) Because an officer’s right to
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indemnification cannot be established until after his defense “has been successful
on the merits or otherwise,” id. at 211, DGCL §145(e) allows for advancement to
provide “corporate officials with immediate interim relief from the personal out-of-
pocket financial burden of paying the significant on-going expenses inevitably
involved with investigations and legal proceedings.” (A176.)
As the district court acknowledged, advancement and indemnification serve
the important public policy goals of encouraging qualified persons to serve as
officers and directors. (A14(quoting Fasciana v. Electronic Data Sys. Corp., 829
A.2d 160, 170 (Del. Ch. 2003).) See also Stifel Fin. Corp. v. Cochran, 809 A.2d
555, 561 (Del. 2002). To further these goals, Delaware courts construe §145 and
indemnification and advancement provisions broadly. Id.; Brown v. LiveOps, Inc.,
903 A.2d 324, 327-28 (Del. Ch. 2006) (confirming right to advancement of former
officer accused of misappropriating software for use by competing enterprise).
Advancement is considered “an especially important corollary to indemnification
as an inducement for attracting capable individuals into corporate service.”
Homestore, 888 A.2d at 211.
Although indemnification requires a demonstration of “success on the merits
or otherwise,” advancement is solely “dependent on the scope of the claims
asserted against the corporate official, not the merits.” Confederate Motors, Inc. v.
Terny, 859 F. Supp. 2d 181, 187 (D. Mass. 2012) (applying Delaware law) (citing
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Ridder v. Cityfed Fin. Corp., 47 F.3d 85, 87 (3d Cir. 1995)). Nor is advancement
withheld when the officer is accused of serious offenses; indeed, “it is precisely in
the circumstance when a business official is accused of serious wrongdoing that
the right to advancement is critical.” DeLucca v. KKAT Mgmt., L.L.C., 2006 WL
224058, at *11 (Del. Ch. Jan. 23, 2006). Moreover, that right “does not go away
simply because the entity from which advancement is sought is alleging that [the
officer] has committed perfidious acts against it.” Id.
Given Delaware’s strong public policy favoring the timely resolution of
advancement disputes and its recognition that such disputes can be resolved
summarily, the court properly granted Aleynikov’s motion for summary judgment
on advancement. See HLTH Corp. v. Axis Reins. Co., 2009 WL 3326625, at *2 &
n.9 (Del. Super. Ct. Sept. 30, 2009); Sun-Times Media Group, Inc. v. Black, 954
A.2d 380, 388 (Del. Ch. 2008).
B. The District Court Correctly Held That §6.4[3] Is Unambiguous On Its Face And Includes Vice Presidents Within The Term “Officer.”
In holding that Aleynikov, as a Vice President, was an officer of GSCo
entitled to advancement under the By-Laws, the court first found that the language
of §6.4[3], on its face, establishes that a vice president is an officer entitled to
advancement and indemnification because “[t]he usual and ordinary meaning of
vice president, supplemented by [case law finding vice presidents to be officers],
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makes out a fair case that the By-Law here [§ 6.4[3]] is unambiguous.” (A28.)
The court relied on dictionary definitions of the term “vice president” and cases
finding that individuals holding the title “vice president” were officers in
concluding that “[i]t is uncontroversial that a ‘vice president,’ at least in the
corporate context, is a kind of officer.” (A27-28.) Ultimately, the court correctly
concluded that because §6.4[3] is unambiguous, the provision “may be enforced as
written, as a matter of law, and [thus] advancement of fees should be awarded.”
(A28.)
1. The District Court Correctly Held That the Term “Officer” Unambiguously Includes Vice Presidents.
Under Delaware law, a “contract is ambiguous only when it is susceptible to
more than one reasonable interpretation.” Masonic Home of Del., Inc. v. Certain
Underwriters at Lloyd’s London, 2013 WL 5872283, at *1 (Del. Oct. 30, 2013).
Here, the court correctly concluded that Aleynikov’s interpretation accords with
the plain meaning of “officer,” the text of the By-Laws, and cases interpreting that
term; it also comports with the SEC’s definition of officer. Goldman’s proffered
interpretation, by contrast, is unsupported by the dictionary definitions it advances,
inconsistent with the text of the By-Laws themselves, and contrary to settled
principles of contract construction. Under Delaware law, that is sufficient reason
to adopt Aleynikov’s interpretation and reject Goldman’s. See Smartmatic Int’l
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Corp. v. Dominion Voting Sys. Int’l Corp., 2013 WL 1821608, at *4 (Del. Ch.
May 1, 2013) (“If parties introduce conflicting interpretations of a term, but one
interpretation better comports with the remaining contents of the document or
gives effect to all the words in dispute, the court may, as a matter of law and
without resorting to extrinsic evidence, resolve the meaning of the disputed term in
favor of the superior interpretation.”).
a) The District Court Correctly Held That It Is Reasonable To Interpret The Term “Officer” To Include A “Vice President.”
In determining the plain meaning of a term that is not defined in a written
instrument, Delaware courts look to dictionaries for assistance. Lorillard Tobacco
Co. v. American Legacy Found, 903 A.2d 728, 738 (Del. 2006). Here, the district
court began by correctly observing the “uncontroversial” principle that standard
dictionaries define “a ‘vice president,’ at least in the corporate context,” as “a kind
of officer.” (A27.) That observation was supported by Black’s Law Dictionary and
Webster’s Dictionary, both of which define a “vice president” as a type of
corporate “officer.” (A27 (quoting Black’s Law Dictionary 1702 (9th ed. 2009);
Webster’s New Universal Unabridged Dictionary 2036 (2d ed. 1983).) Unable to
challenge these uncontroversial definitions, Goldman argues instead that the court
should not have looked to the definition of a “vice president” because that term
“does not appear in § 6.4 of the By-Laws.” (GSb33-34.) This is sophistry. The
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taxonomical question answered by the court was whether a “vice president” is a
species of “officer” for purposes of indemnification.4 Noting that the title “vice
president” connotes “officer” answered this question as well as noting that
“officer” includes “vice presidents.” Moreover, while the word “vice president”
does not appear in §6.4, it does appear in §1.7 and §4.1; in those By-Laws
provisions, as in the dictionary definitions on which the district court relied, a
“Vice President” is referred to as a kind of “officer.” (A115.) As discussed below,
the SEC’s definition of officer also includes vice presidents.
The district court buttressed its conclusion with case law defining the term
“officer” in analogous settings. (A27-28.) Specifically, in Brakke v. Idaho Dep’t
of Corr., 2012 WL 4409905, at *3 (D. Idaho Sept. 25, 2012), the court noted that
“[t]he title ‘Regional Vice President’ connotes an officer role to a normal
observer.” And in Ter Bush & Powell, Inc. v. State Tax Comm’n, 395 N.Y.S.2d
762, 763-64 (3d Dep’t 1977), the court determined that a corporation could not
escape claims that employees were not “officers” when it deliberately conferred
upon them titles like “vice-president” to “assist them in their sales efforts.”
4 Similarly sophistic is Goldman’s argument that if “officer” were interpreted according to its plain language, “there would be no need to ‘elect’ any officers and give them such ‘powers and duties’ by way of formal resolution.” (GSb48.) The question here is whether vice presidents are officers within the meaning of §6.4[3]. Of course there would be reasons to “elect” officers for other purposes, such as the “regulatory purposes” for which the written consents were adopted. (A1257(¶ 9).)
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Having received the “business benefits” of conferring that title, the corporation
could not escape the “tax consequences” of that decision. Id. at 763.
Goldman does not mention these cases, instead citing securities and
bankruptcy law decisions analyzing whether an employee is an “officer” under
statutes intended to protect against “insider” abuses. (GSb42.) Those cases
support Aleynikov’s position, not Goldman’s. Each began with the presumption
that a “vice president” is an “officer” under the plain meaning of the term. The
courts overcame that presumption by looking past the employee’s title to examine,
for example, the putative officer’s access to inside information or ability to treat
creditors preferentially, to further the teleological goals unique to the statutes they
applied.5 Such functional analysis is plainly inapposite in the context of §6.4[3],
5 See C.R.A. Realty Corp. v. Crotty, 878 F.2d 562, 565 (2d Cir. 1989) (presuming, under an SEC interpretive rule, a “vice president” is an “officer” under §16(b) of the Exchange Act, but deferring to the SEC’s view that “this rule should [not] be rigidly applied” to punish officers not privy to inside information); Gold v. Sloan, 486 F.2d 340, 342, 351 (4th Cir. 1973) (presuming “vice presidents” were “officers” but finding this “‘titular’” status not determinative of whether they enjoyed the access the title was designed to capture); In re NMI Systems, Inc., 179 B.R. 357, 368 (Bankr. D.D.C. 1995) (implying that individual’s “title of vice president and mid-management responsibilities” would have been sufficient to “make him an officer” but for the preference-avoidance statute’s focus on whether the employee was positioned to advantage himself at the expense of creditors); In re Public Access Technology.com, Inc., 307 B.R. 500, 506 (Bankr. E.D. Va. 2004) (following NMI to conclude an individual’s “title of Executive Vice President,... without more, [was] not sufficient to find that [he] was an “officer’” under the Bankruptcy Code, because the relevant Code provision is designed to impose an obligation that is unfair to impose on all officers); In re Borders Group, Inc., 453
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which defines officer to include any officer in addition to the separate category of
those functioning as officers or managers of the entity.
The same is true of two other cases cited by the district court (A28n.16),
EMC Corp. v. Allen, 1997 WL 1366836, at *2 (Mass. Super. Dec. 15, 1997) (“The
plain meaning of that word [officer] includes an individual who holds a position as
vice president.”) and In re Foothills Tex., Inc., 408 B.R. 573, 574 (Bankr. D. Del.
2009) (“A person holding an officer’s title is presumptively an officer.”). These
cases, like those cited by Goldman, only performed a “deeper analysis” to further
ends different than those implicated here.
The goal of Delaware’s advancement law is to further “the public policy
behind section 145” — that is, to “encourage[] corporate service by capable
individuals by protecting their personal financial resources from depletion by the
expenses they incur during an investigation or litigation” — through “enforcement
[of advancement provisions] by courts when corporate officials ... are accused of
serious misconduct.” Homestore, 888 A.2d at 218. Because “the scope of an
advancement proceeding is usually summary in nature and limited to determining
the issue of entitlement in accordance with the corporation’s own uniquely crafted
B.R. 459, 469 (Bankr. S.D.N.Y. 2011) (noting the title of “Executive Vice President” or “Senior Vice President” was not, “by itself,” sufficient “to establish that an individual is a director or officer” under the Bankruptcy Code, based on the specific purpose of holding individuals accountable based on their functional role).
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advancement provisions,” id. at 213, the analysis begins and ends with the text of
the By-Laws, without reference to extrinsic evidence.
Moreover, the district court’s determination that “officer” in §6.4[3]
unambiguously includes vice presidents is consistent with the explicit definition of
“officer” promulgated by the SEC. 17 C.F.R. §240.3b-2. SEC Rule 3b-2
expressly provides that “[t]he term officer means a ... vice president ... and any
person routinely performing corresponding functions with respect to any
organization whether incorporated or unincorporated.” Id. Thus, when GSCo
offered Aleynikov the job of Vice President in its Equities Division, a reasonable
person in his position would have understood — as he undisputedly did — that the
title denoted an officer’s position. (A27(“I received an offer letter that stated that I
was vice president so I assumed that was an officer position.”).)
Goldman itself adverts to the definition of “officer” in Rule 3b-2 to make the
point that the SEC “superseded” the rule for purposes of §16 of the Securities
Exchange Act. (GSb38.) Goldman’s argument ignores that Rule 3b-2 remains the
operative definition of “officer” under the securities laws for all purposes except
those of §16. 17 C.F.R. §240.16a-1 (Rule 16a-1 applies “solely to section 16 of
the [Exchange] Act and the rules thereunder”). Moreover, Goldman’s reliance on
Rule 16a-1 underscores that (i) unless amended for a particular purpose, “officer”
is understood to include all persons denominated vice-president; and (ii) if
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Goldman wished to limit the class of officers entitled to advancement and
indemnification to vice presidents serving a policy-making function, as the SEC
did twenty five years ago, in 1988, when it adopted Rule 16a-1, Goldman could
(and presumably would) have drafted the By-Laws to accomplish that purpose.
Many of the cases on which Goldman relies for the proposition that having
the title vice president does not make one an officer are §16 cases predating the
SEC’s rule change. In that context, courts found application of Rule 3b-2’s broad
definition of officer too draconian given its use as a proxy for possession of inside
information. (GSb42.) In Crotty, for example, the court held that an employee’s
duties and responsibilities (and, particularly, whether he has access to inside
information), rather than his title, determine whether he was an “officer” for §16(b)
purposes. 878 F.2d at 565. Disregarding Rule 3b-2’s definition, the Crotty court
mitigated the harsh impact of applying §16(b) to individuals who lack access to
inside information by crediting an SEC Interpretive Release stating that “‘[t]he
reporting and short-swing profit recovery provisions of §16 were intended to apply
to those officers who have routine access to material non-public information, not
those with particular titles.’” Id. at 565 n.3; see also Gold, 486 F.2d at 351.
Because Rule 3b-2’s broad definition of officer to include all vice presidents did
not suit the narrow purpose of §16, the SEC amended Rule 3b-2 for §16 purposes
to define officer to include only those vice presidents “‘in charge of a principal
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business unit, division or function.” (GSb38.) The emphasized language, as
Goldman explains, was added because “the SEC worried that ‘[i]f applied literally,
the Rule 3b-2 definition of ‘officer’ [which encompasses a “vice president”
without any limiting language, 17 C.F.R. §240.3b-2] can be too broad;’” and the
SEC had “‘particular concern’ over the ‘inclusion of ‘all vice presidents in the
definition.’” (GSb38 (quoting Ownership Reports and Trading by Officers,
Directors and Principal Stockholders, 53 Fed. Reg. 49,997, 50,000 (proposed Dec.
13, 1988) (emphasis supplied by Goldman)).
Goldman’s argument makes Aleynikov’s point. When the SEC determined
that the general definition of “officer” did not serve its purpose in a particular
statute, the SEC adopted a new, more limited definition for purposes of that statute.
If Goldman wished to restrict the rights of advancement to those officers appointed
by written consent of the general partner, it was free to change the definition of
“officer” in that context, just as the SEC did in the §16 context. But Goldman’s
contention that the commonly understood meaning of the term “officer” does not
encompass vice presidents cannot be squared with the authorities on which the
district court relies or with Rule 3b-2, on which Goldman itself inexplicably relies.
In short, the district court properly limited its inquiry to the plain meaning of
the term “officer” in §6.4[3] of the By-Laws, which encompasses persons, such as
Aleynikov, who hold the title of “Vice President.”
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b) The District Court Correctly Held That Goldman’s Proffered Interpretation Of “Officer” Was Unreasonable.
Goldman’s proffered interpretation of “officer,” unlike Aleynikov’s, is
unsupported by any accepted definition of the term, conflicts with the plain
language of the By-Laws, and violates the “well-established principle that in
construing a contract a court cannot in effect rewrite it or supply omitted
provisions.” L.Q. v. P.Q., 466 A.2d 1213, 1217 (Del. 1983); see also Conner v.
Phoenix Steel Corp., 249 A.2d 866, 868 (Del. 1969).
Goldman cites dictionary definitions defining “officer” by the degree of
“‘trust, authority, or command’” the officer’s position entails, arguing that
Aleynikov does not meet this definition because he lacked “managerial
responsibilities.” (GSb34.) Aside from being irrelevant (Aleynikov was an officer
by virtue of his title, not his job responsibilities), these definitions do not support
Goldman’s present argument that “officers” are those individuals — and only those
individuals — “appoint[ed]” pursuant to the “written resolutions of [its] General
Partner.” (A18,A1257(¶11) (“Formal, written resolutions of the General Partner
are the sole process by which GSCo appoints officers and no GSCo officer has
been appointed except by formal, written resolution of the General Partner.”).)
Thus, even GSCo “managing directors” — managers by any definition — are “not
considered GSCo officers unless they are appointed to an officer’s position by
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means of GSCo’s formal, written resolution process.” (A1259(¶22).) Attempting
to escape this obvious consequence of its flawed interpretation, Goldman makes
the desperate argument that its “managing directors manage less senior employees,
not GSCo itself.” (GSb47n.8.) Thus, under Goldman’s curious reading of its own
By-Laws, “vice presidents” are not “officers” and “managing directors” are not
“managers.”
Goldman’s interpretation also conflicts with two settled canons of
construction. First, because Goldman defines “officer” as only those appointed by
its general partner, its definition excludes those §6.4[3] “officers” expressly
defined by their function, i.e., those officers who “serv[e] in a similar capacity [to
an ‘officer’] or as the manager of such entity.” (A118.)6 Goldman’s interpretation
violates Delaware’s mandate that courts “interpret contractual provisions in a way
that gives effect to every term of the instrument.” Council of the Dorset Condo.
Apts. v. Gordon, 801 A.2d 1, 7 (Del. 2002).
Second, Goldman could easily have limited the definition of “officer” of its 6 Goldman argues that its August 9, 2005 resolution removing all elected officers and replacing them with a new slate of elected officers confirms that no unelected officer is an “officer” under §6.4[3]. (GSb47.) But §6.4[3] expressly includes functional officers within its definition of officer. In other words, Goldman itself acknowledges the existence of persons entitled to indemnification and advancement other than those appointed officers by written consent of its general partner. Aleynikov has never contended that he was such a person. But Goldman’s acknowledgement simply cannot be squared with its “officer-means-appointed-officer-only” construction.
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non-corporate subsidiaries — as it asks the Court to do — to refer only to those
“elected or appointed pursuant to formal process.” Goldman’s ability to add this
limiting language is demonstrated by the text of §6.4 itself, which includes such
language in two other places:
“[O]fficer,” when used with respect to [GS Group], shall refer to any officer elected or appointed ...
“[O]fficer,” ... when used with respect to a Subsidiary or other enterprise that is a corporation, shall refer to any person elected or appointed ...
(A118 (emphasis added).) There is no basis under Delaware law to engraft the
missing appointment requirement onto §6.4[3]. See Stockman, 2009 WL 2096213,
at *7 (it was “unreasonable” to engraft a modifier that the company used in other
provisions of the partnership agreement but did not include in the provision at
issue); DeLucca, 2006 WL 224058, at *13 (it is the obligation of the corporation,
not a court, to “delimit the circumstances in which [a corporation is] obliged to
advance funds” through careful drafting).
Indeed, under the doctrine of expressio unius est exclusio alterius, the
omission of the limiting language “elected or appointed” in §6.4[3] is presumed to
be intentional. See, e.g., Brown v. State, 36 A.3d 321, 325 (Del. 2012)
(recognizing that under this doctrine, “where a form of conduct, the manner of its
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performance and operation, and the persons and things to which it refers are
affirmatively or negatively designated, there is an inference that all omissions were
intended….”); Guillory v. Aetna Ins. Co., 415 F.2d 650, 652 (5th Cir. 1969) (“[I]f
Aetna meant to insure only ‘corporate officers,’ elected or appointed through
established procedures, it could have simply said just that.”).
The district court properly rejected Goldman’s attempt to rewrite its By-
Laws retroactively to include a more precise definition of officer — which it could
easily have included, but deliberately chose not to include — to the detriment of
Aleynikov, who had no role in drafting the By-Laws. See L.Q., 466 A.2d at 1217.
2. The District Court Applied The Correct Standard When Reading The Term “Officer” Unambiguously In Aleynikov’s Favor.
Goldman erroneously contends that in finding §6.4[3] unambiguous on its
face without considering extrinsic evidence, the court misapplied the summary
judgment standard. (GSb27-30.) In the first place, the court did consider extrinsic
evidence, viewed all of it in the light most favorable to Goldman, and concluded,
“I do not believe that this parol evidence is sufficient to raise a material issue of
fact.” (A29-30.) Moreover, the Delaware Supreme Court has “long upheld awards
of summary judgment in contract disputes where the language at issue is clear and
unambiguous.” GMG Capital Invs., LLC v. Athenian Venture Partners I, L.P., 36
A.3d 776, 783 (Del. 2012); see also Centaur Partners, IV v. National Intergroup,
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Inc., 582 A.2d 923, 926 (Del. 1990). The threshold “ambiguity” determination is a
question of law that must be made within “the contract’s four corners,” GMG, 36
A.3d at 783, and is determined “through the lens of what a reasonable person in the
position of the parties would have thought the contract meant,” Kuhn Constr., Inc.
v. Diamond State Port Corp., 990 A.2d 393, 396 (Del. 2010); see also Miller v.
Palladium Indus., 2012 WL 6740254, at *3 (Del. Ch. Dec. 31, 2012) (“Whether
applying a bylaw or a contract, the Court uses a reasonable third-party’s reading of
the pertinent terms.”).
Goldman’s argument that the court’s ruling “resulted from a misapplication
of the summary judgment standard” (GSb28) ignores that the court reviewed
extrinsic evidence, determined that it was irrelevant, and adhered to the principles
of law discussed above. Goldman erroneously contends that the court (i) was
required to resolve reasonable alternative readings “‘at trial’” (GSb29); (ii)
somehow overlooked the “bounty,” “wealth,” or “raft” of “one-sided,”
“uncontroverted,” “undisputed” and “extensive” “extrinsic evidence,” which it
declares was “overwhelming[ly],” “entire[ly],” and “grossly imbalance[d]” in its
favor, (GSb7GSb8,GSb17,GSb19,GSb20,GSb27,GSb29,GSb36,GSb49); and (iii)
made “multiple factual, logical and inferential errors” (GSb44) although there was
“no conflict whatsoever in the evidence,” (GSb28).
Beyond mischaracterizing the extrinsic evidence uncovered in discovery,
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which directly undermines its position, Goldman’s argument overlooks (a) the
established rule that “extrinsic evidence” is not relevant to determine whether a
“contract is ambiguous,” Norton v. K-Sea Transp. Partners L.P., 67 A.3d 354, 360
(Del. 2013); and (b) that even if the court found the term ambiguous, it is “not
appropriate” to consider “extrinsic evidence” to construe the meaning of a by-law
in whose drafting Aleynikov played no role. Kaiser Aluminum Corp. v. Matheson,
681 A.2d 392, 397 (Del. 1996); Bank of N.Y. Mellon v. Commerzbank, 65 A.3d
539, 551 (Del. 2013). Delaware law differs from the New Jersey law on which
Goldman relies (GSb29) because, “[u]nder New Jersey law ..., courts must always
consider all of the relevant evidence that will assist in determining the intent and
meaning of the contract when making ambiguity determinations.” Mylan Inc. v.
SmithKline Beecham Corp., 723 F.3d 413, 419 (3d Cir. 2013); MBIA, 426 F.3d at
214 (distinguishing Third Circuit cases “consider[ing] extrinsic evidence in
determining whether an agreement is unambiguous” by noting that “[t]hese cases
... were not decided under Delaware law.”). Stated simply, the district court did
not make any “factual” findings — much less “multiple factual, logical and
inferential errors” (GSb44) — by following controlling Delaware law and
recognizing the irrelevance of extrinsic evidence in finding §6.4[3] unambiguous
on its face.
Goldman’s argument that the court’s prior denial of a preliminary injunction
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precluded it from awarding Aleynikov summary judgment (GSb27-28) is equally
meritless. Goldman procured that denial (and forestalled summary judgment) by
suggesting it had an “established practice[]” that might be evidenced through a
“preexisting written policy,” that would have put third parties like Aleynikov on
notice of its interpretation of “officer.” (A12,A180-181.) Expedited discovery
revealed no evidence to support that assertion. The district court’s initial denial of
Aleynikov’s preliminary injunction is irrelevant to this Court’s review of its
subsequent grant of summary judgment. Doebler, 442 F.3d at 819.7
3. The Undisputed Facts Do Not Support Goldman’s Interpretation Of The Term “Officer” In §6.4[3].
Goldman argues that its anomalous interpretation of “officer” is supported
by the following “undisputed background facts”: (1) GSCo has a process for
appointing officers; (2) Aleynikov was not appointed under that process; (3)
Goldman has paid the legal fees of GSCo analysts and associates; and (4) “there
7 Goldman’s argument apparently proceeds from a misreading and misapplication of Doebler. In that case, the district court entered a preliminary injunction, which was affirmed on appeal. 442 F.3d at 820. Thereafter, the district court granted summary judgment and entered a permanent injunction based on the grant of summary judgment. Id. The court of appeals concluded that in that procedural posture, it was crucial to distinguish between the standards for summary judgment and preliminary injunction. The district court’s preliminary factfinding, which was appropriate on a preliminary injunction, was inappropriate on summary judgment, and therefore a permanent injunction based on the inappropriate factfinding was reversed. Id. Here, by contrast the district court’s grant of summary judgment was based on interpreting the By-Laws as a matter of law.
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are no communications from which it could be implied or inferred that [Aleynikov]
was an officer of GSCo or had any officer-like responsibilities.” (GSb36-37.)
Goldman relies on Sinclair Television Group v. Mediacom Communications
Corp., 2008 WL 276533 (D. Md. Jan. 29, 2008), for the proposition that
considering extrinsic evidence is proper. (GSb37.) That reliance is misplaced. In
Eagle Industries, Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228 (Del. 1997),
upon which Sinclair relied, the court stated that while “[t]here may be occasions
where it is appropriate for the trial court to consider some undisputed background
facts to place the contractual provision in its historical setting[,] ... the trial court
must be careful in entertaining background facts to avoid encroaching on the basic
principles” that “[i]f a contract is unambiguous, extrinsic evidence may not be used
to interpret the intent of the parties, to vary the terms of the contract or to create an
ambiguity.” Id. at 1232 & n.7. Goldman urges the Court to do precisely that:
consider extrinsic facts to establish that it did not subjectively intend to extend
mandatory advancements rights to GSCo vice presidents, notwithstanding
§6.4[3]’s plain language to the contrary.
Discovery revealed that, as the court correctly found, these “background
facts” are entirely irrelevant to an interpretation of §6.4[3]. That Goldman has an
appointment process, that Aleynikov was not appointed pursuant to that process,
and that Goldman paid non-officer employees’ legal fees simply do not aid in the
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interpretation of a By-Law that extends advancement rights to officers without
reference to an appointment process or Goldman’s payment history. Neither does
the fact that Aleynikov never “told anyone” and that no one ever “told him” he was
an officer. (GSb53;GSb37.) The By-Laws do not require knowledge of the rights
they confer; to the contrary, they conclusively “presume” reliance on them.
(A118.) And, as shown herein, vice presidents have a reasonable expectation that
their employers will indemnify them if they become ensnared in the investigations
and lawsuits that are ubiquitous in the industry. GSCo offered Aleynikov the
position of “Vice President in the Equities Division of [GSCo]” in an offer letter
signed by another GSCo Vice President. (A1106-07.) This could only have led
him, as it would any objectively reasonable person, to believe he was being offered
an officer’s position. (A963(38:4-11).)
GS Group’s primary argument to the contrary is that its advancement
obligation must be “contextualized” within the “financial services industry,” which
employs thousands of vice presidents. (GSB37.) But the context of that highly
regulated industry demonstrates precisely why it is reasonable for vice presidents
to believe — indeed, expect — that they will be protected by their employer from
ruinous legal bills in the foreseeable event they become involved in an
investigation or lawsuit. Indeed, GSCo’s industry representative, the Securities
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Industry Financial Markets Association (“SIFMA”),8 has espoused this very view.
(A576-588.)
Aleynikov, whom Goldman now casts as a “mid-level computer
programmer,” was undisputedly a talented programmer whom GSCo recruited
aggressively (A807-08(52:7-54:25)) and was the highest paid programmer in his
subgroup (A807). The reasonable expectation that a Vice President like Aleynikov
would be indemnified in the event of an investigation or lawsuit reflects the
sensitivity and highly regulated nature of this line of work, not its variable degree
of “supervisory responsibilities.” (GSb37.) That Goldman now seeks to diminish
the office of Vice President as a position that “‘means nothing,’” is “‘no big deal,’”
or is equivalent to that of a “‘receptionist’” (GSb37-38) would certainly surprise
current and prospective GSCo Vice Presidents in the Equities Division responsible
for investing, trading, or designing platforms to invest the firm’s and clients’
capital each day. It would also surprise the investors who entrust their money to
GSCo, who interact with and rely on GSCo Vice Presidents.
In arguing that the title Vice President is largely meaningless within the
financial industry, Goldman cites to (a) articles regarding title inflation at financial
institutions; and (b) its claim that approximately one-third of its employees are
8 GSCo is a member of SIFMA. (A59[Doc.#153] at 20 n.4.)
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Vice Presidents. (GSb37-38.) But as the district court correctly held:
It may be the case that Goldman (or the industry of which it is a part) has been profligate in conferring the title of vice president. If so, Goldman must bear the consequences of that profligacy. Goldman might easily have chosen to be more sparing with job titles, or to confer them in some other way. It might easily have drafted its By-Laws to restrict indemnification to a well-defined class. It did not.
(A25.) Indeed, the articles Goldman cites demonstrate that corporations benefit by
using arguably inflated titles as surrogates for “pay raises and bonuses” and to
“impress potential customers.” (A468-70.) Having “chosen to award the title of
vice president for good and valid business reasons,” Goldman cannot avoid the
“implications of that decision.” (A28(citing Ter Bush, 395 N.Y.S.2d at 763-64).)
C. The District Court Properly Held That, Even If “Officer” Were Ambiguous, Two Rules Of Construction Mandate Resolving That Ambiguity In Aleynikov’s Favor.
While concluding that §6.4[3] is unambiguous on its face, the court
“indulge[d] Goldman’s position one step farther,” assuming “that the term ‘officer’
carries with it some ambiguity as applied to the vice president of an LLP.” (A30.)
The court concluded that summary judgment was nonetheless warranted because
“Delaware substantive law establishes that an ambiguity in an advancement
provision does not give rise to a material issue of fact when the ambiguity was
introduced by the corporate drafter.” (A30.) In “constru[ing] By-Law section
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6.4[3] “against its corporate drafter, Goldman …, hold[ing] that the term ‘officer’
encompasses Aleynikov’s position as a vice president of GSCo” (A33), the court
correctly applied two settled principles of construction mandating resolution of any
ambiguity in Aleynikov’s favor.
First, to bolster its conclusion that the plain meaning of officer includes vice
presidents, the court invoked the “broad and liberal construction” Delaware courts
have applied to “indemnification and, especially, advancement under the By-
Laws.” (A28.) In so doing, the court faithfully applied Delaware law, which
resolves “ambiguit[ies] in favor of indemnification and advancement.” Miller,
2012 WL 6740254, at *3; see also Brown, 903 A.2d at 327-28 (discussing the
“broad[] constru[ction]” Delaware law requires of “mandatory advancement
provisions”); DeLucca, 2006 WL 224058, at *7 (applying the “interpretative
principle” that, given Delaware’s “strong public policy in favor of assuring key
corporate personnel that the corporation will bear the risks resulting from
performance of their duties,” courts must “read indemnification contracts to
provide coverage when that is reasonable.”).
Goldman argues that this policy is limited to situations when “‘key corporate
personnel’” invoke advancement or indemnification rights. (GSb40.) That
misstates the law. Delaware’s policy “encourages corporate service by capable
individuals” — not “key” individuals — “by protecting their personal financial
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resources from depletion by the expenses they incur during an investigation or
litigation” through “enforcement [of advancement provisions] when corporate
officials ... are accused of serious misconduct.” Homestore, 888 A.2d at 218. Of
course, this policy benefits the “key corporate personnel” referenced in DeLucca,
but it is by no means limited to such individuals, and nothing in DeLucca or
Delaware law suggests that it is. Indeed, Goldman’s position is at odds with
SIFMA’s acknowledgement that “[i]ndemnification of employees and
advancement of their fees are essential” to enable firms like GSCo to “recruit[] and
retain[] top talent.” (A576.)
Second, the Delaware Supreme Court has a long tradition of applying contra
proferentem in various settings to place the interpretative risks created by
ambiguous language upon corporate drafters.9 See Commerzbank, 65 A.3d at 551
(applying contra proferentem to resolve “ambiguous” provision in “LLC
Agreement” and related documents in securityholder’s favor); Norton, 67 A.3d at
360 (“If the contractual language [in the limited partnership agreement] at issue is
9 The established authority applying contra proferentem was not broken by Activision Blizzard v. Hayes, 2013 WL 6053804 (Del. Nov. 15, 2013), which Goldman assured this Court, in its unsuccessful stay motion, would “no doubt address [contra proferentem’s] limited role.” (Doc.#003111434330 at 17n.10.) That decision has now issued, and holds that the Chancery Court misread an unambiguous charter provision concerning a “‘merger’” or other “‘business combination.’” It does not address contra proferentem at all, much less upset Delaware’s longstanding application of it.
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ambiguous and if the limited partners did not negotiate for the agreement’s terms,
we apply the contra proferentem principle and construe the ambiguous terms
against the drafter.”); Kaiser, 681 A.2d at 397 (applying contra proferentem to
resolve “ambiguity” against drafter of certificates governing debt securities); SI
Mgmt. v. Wininger, 707 A.2d 37, 43 (Del. 1998) (applying contra proferentem to
construe a limited partnership agreement against its drafter). The doctrine is one of
“last resort” (GSb17,GSb20,GSb53,GSb54) not because its use is uncommon but
because courts look to the plain meaning of the text and other principles of
construction before applying it. Shiftan v. Morgan Joseph Holdings, Inc., 57 A.3d
928, 935-936 (Del. Ch. 2012) (“Our Supreme Court has frequently invoked this
doctrine of contra proferentem to resolve ambiguities about the rights of investors
in the governing instruments of business entities”) (emphasis supplied). That is
precisely what the court did here.
Goldman advances two arguments for why contra proferentem does not
require that drafting ambiguities be resolved in Aleynikov’s favor. First, Goldman
contends that Delaware “courts look at extrinsic evidence to resolve ambiguity
before applying contra proferentem.” (GSb54.) But Delaware courts certainly do
not consider extrinsic evidence of the drafter’s intent where, as here, the written
instrument in question was not the product of bilateral negotiation. Commerzbank,
65 A.3d at 551 (“Here, an inquiry into what the parties intended would serve no
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useful purpose, because it would yield information about the views and positions
of only one side of the dispute — the Bank, the Company, and Trust II. This case
does not fit the conventional model of contracts ‘negotiated’ by and among all the
interested parties.’”); SI Mgmt., 707 A.2d at 43-44 (“Because the articulation of
contract terms in this case appears to have been entirely within the control of one
party — the General Partner — that party bears full responsibility for the effect of
those terms. Accordingly, extrinsic evidence is irrelevant to the intent of all parties
at the time they entered into the agreement.”); Matheson, 681 A.2d at 397 (it was
“not appropriate” to rely upon “extrinsic evidence” to interpret ambiguities in a
securities certificate because it would bear only on the thoughts and positions of
the issuer and underwriter); KFC Nat’l Council and Advertising Coop., Inc. v.
KFC Corp., 2011 WL 350415, at *14 (Del. Ch. Jan. 31, 2011) (“In the case of
entities whose governing instruments were not the product of bilateral negotiation,
parol evidence is typically not relevant in resolving any ambiguities.”); Stockman,
2009 WL 2096213, at *5 (“[I]n the case of an entity with ongoing operations, key
constituents, including directors, officers, and employees, look to the governing
instrument’s words, and not some obscure archive of parol evidence”); DeLucca,
2006 WL 224058, at *6 (when “construing corporate instruments,” “resort to parol
evidence” is “rarely ... appropriate or even helpful”).
Goldman supports its argument by selectively quoting cases involving
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bilaterally negotiated contracts. Harrah’s Entertainment, Inc. v. JCC Holding Co.,
802 A.2d 294, 309 (Del. Ch. 2002), for example, stated that “[o]rdinarily, when
corporate instruments are ambiguous, the court must consider the relevant extrinsic
evidence in aid of identifying which of the reasonable readings was intended by the
parties.” (GSb54-55 (quoting Harrah’s at 309 & n.33 (citing Eagle Industries, 702
A.2d at 1232).) But Harrah’s went on to explain that this “general rule” is
“inapplicable” when a court is asked to construe an agreement “drafted solely by
the corporate general partner.” Id. at 309. Harrah’s thus drew the critical
distinction between a bilaterally-negotiated contract (as in Eagle Industries), in
which extrinsic evidence may be relevant to elucidate the intent of negotiating
parties, and a unilaterally-drafted contract, such as the By-Laws, in which extrinsic
evidence serves no “useful purpose.” Commerzbank, 65 A.3d at 551; see also
GMG, 36 A.3d at 784 (“Extrinsic evidence, such as prior communications and
course of dealing, must be considered by the factfinder to resolve the ambiguity as
to [the contracting counterparty’s] remedy.”); Playtex FP, Inc. v. Columbia
Casualty Co., 609 A.2d 1087, 1092 (Del. Super. Ct. 1991) (“Because this was a
negotiated contract, not a contract of adhesion, the doctrine of reasonable
expectations is not applicable.”); Viking Pump, Inc. v. Century Indem. Co., 2 A.3d
76, 101 & n.78 (Del. Ch. 2009) (citing the rule in Eagle Industries and discussing
the relevance of the contracting parties’ “course of conduct”); Zimmerman v.
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Crothall, 62 A.3d 676, 697-98 (Del. Ch. 2013) (“Here, the Operating Agreement
was negotiated by the parties.”).
Second, Goldman argues that contra proferentem does not apply here
because this case concerns whether a plaintiff, as opposed to a plaintiff’s “claim,”
was within the scope of the advancement provision. (GSb56.) Goldman cites no
support for this argument, instead hyperbolizing that the district court’s opinion
was the first to apply the “doctrine of contra proferentum to the threshold question
of whether a plaintiff was a party to or intended beneficiary of a corporate
instrument providing for advancement.” (GSb56-57.) That statement overlooks
DeLucca, which analyzed whether the plaintiff was “within the class of persons
who are generally covered by the Operating Agreement’s advancement
provisions.” 2006 WL 224058, at *7. DeLucca ultimately resolved that question
based on the plain meaning of the agreement, but its prefatory discussion of contra
proferentem indicates that it was fully prepared to apply that doctrine if it found
the agreement ambiguous. Id. at *6.
Goldman’s argument also reflects a fundamental misunderstanding of both
contra proferentem and principles of contract interpretation. There is no such
thing as “standing” to invoke a principle of construction (GSb57); these principles
inhere in the interpretation of every contract. The doctrine applies whenever one
party exercises sole control over the drafting of the contract in question. See
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Norton, 67 A.3d at 360 (contra proferentem applies if third parties “did not
negotiate for the agreement’s terms”).
D. Expedited Discovery Did Not Reveal Any Evidence That An Objectively Reasonable Third Person Would Know Of Goldman’s Secret Process And Interpretation.
In the October 16th Opinion, after concluding that §6.4[3] is unambiguous
as to the meaning of “officer” (A28), the court noted that “might well end the
matter, because the public policy in favor of advancement counsels against
consideration of parol evidence, even when the language is somewhat unclear.”
(A29.) Despite correctly finding that resort to extrinsic evidence is inappropriate
in this context, the court — in an abundance of caution — considered the extrinsic
evidence introduced in this case. (A17-25,A29.)
In an attempt to manufacture a factual dispute warranting reversal, Goldman
mischaracterizes the court’s analysis, claiming it considered parol evidence as
necessary to interpret §6.4[3] in Aleynikov’s favor. (GSb40.) But the October
16th Opinion makes clear that the court did no such thing. To the contrary, the
court stated that consideration of parol evidence was not necessary or appropriate
for two reasons: (1) §6.4[3] is not ambiguous; and (2) the doctrine of contra
proferentem mandates that any ambiguity be resolved in Aleynikov’s favor without
resort to parol evidence as to Goldman’s intent when unilaterally drafting the By-
Laws. (A14,A29.) The court made clear that it considered extrinsic evidence only
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“in the interest of thoroughness” and to “indulge[] Goldman’s position,” not
because it was “required to do so.” (A31n.17.)
Ultimately, the court concluded that (a) the evidence regarding Goldman’s
alleged officer-appointment process did not support its position and thus did not
create a material issue of fact, (A21); and (b) the evidence regarding Goldman’s
history of providing advancement and indemnification either supported
Aleynikov’s position or was irrelevant, (A22,A29). The conclusions were correct.
As to the alleged “process that clearly distinguished officers from non-
officers,” the court found that process was neither written nor publicized:
Goldman does not [] point to any document wherein this procedure — appointment by resolution — is established or memorialized. Nor does Goldman explain how a reader of By-Laws Section 6.4 would know that, for a non-corporate subsidiary, specifically a New York limited liability partnership, an “officer” is, and only is, an individual who has been appointed by written resolution of the general partner.
(A18 (emphasis in original).) As a result, the court found, there was nothing that
would allow anyone within or without Goldman to know that only those appointed
by written resolution would be considered officers:
Nothing in any document before me says that non-corporate “officers” for purposes of indemnification (or any other purpose) are limited to individuals designated by written consent. No one could discern from reading any generally promulgated document that [those appointed officers by written resolution] ... are the only
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individuals that meet the definition in Section 6.4[3] of the By-Laws.
(A19.) Thus, the court concluded, Goldman’s appointment policy was “unknown,”
“nonpublic” and “potentially inequitable to employees, who have only the By-
Laws to go by in determining whether they are eligible for indemnification [and]
advancement.” (A21.)
The court’s conclusions — that (a) Goldman’s appointment process is not
disclosed publicly or within Goldman and not memorialized in any writing; and (b)
there is no document stating that only those appointed by written consent are
officers — are the only ones supported by the undisputed evidence. (A902(73:2-
8),A949(264:20-23),A987(11:16-20),A1153(130:20-131:5),(A1175(217:23-18:5).)
Goldman does not contend otherwise, having conceded that its process was not
communicated beyond the “‘discrete group within the Legal Department which has
implemented it over time.’” (A16.)
Further, Goldman’s written consents evidence only that certain GSCo
executive officers were appointed to their positions by written consent, not that
every GSCo officer attained his position in that way.10 (A1007-18.) In any event,
10 Goldman argues that its August 9, 2005 written consent appointing certain officers, discussed above at n.6, makes clear that the appointment-by-resolution process is the sole avenue for becoming a GSCo officer because it states that “all persons previously elected as officers of [GSCo] are hereby removed as officers of [GSCo].” (GSb44-46.) Leaving aside that the resolution and its language are
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it is undisputed that GSCo does not make available to the public or to GSCo vice
presidents the written consents appointing certain officers, (A950(266:14-
21),A950(266:22-24)), which it has designated “Confidential” in this litigation.
(A342-353.)11
Significantly, when directly asked how, by simply reading §6.4, one could
determine the officers of GSCo, Goldman’s 30(b)(6) representative responded, “I
think one would look to see who are the officers appointed as officers of [GSCo].”
(A991(27:9-11).) But when asked, “Why would one look to an appointment
irrelevant because no one in Aleynikov’s position ever saw it, the resolution speaks only to the removal of “elected” officers and says nothing about those individuals, like Aleynikov, who became officers for purposes of §6.4 by other means. Indeed, §6.4 expressly states that for its purposes (as opposed to more general ones), “officer” not only includes officers, but also those who serve in a similar capacity or as the manager of such entity. By Goldman’s lights, the August 9, 2005 resolution even deprived those §6.4 officers of their officer status, although their status was plainly not dependent on election or appointment. In the same vein, By-Law §4.1 expressly provides that, as to GS Group, election by the Board is just one way to become an officer. The provision provides that an existing officer can be authorized to appoint others as Vice Presidents, Treasurers and Secretaries. (A115.) Thus, even if the August 9, 2005 resolution had been publicly available, it would not have established that the appointment-by-resolution was the sole means to become an officer of GSCo for purposes of advancement and indemnification. 11 Goldman suggests that it identified GSCo’s officers in public filings. (GSb15.) But the SEC and FINRA forms to which Goldman adverts call for disclosure of “Executive Officers,” a term separately defined by the SEC in 17 C.F.R. § 240.3b-7 for certain regulatory purposes having nothing to do with the definition of officer under §6.4[3]. (A375-90.) This definitional distinction only highlights that Goldman could have limited the right to advancement to Executive Officers when it drafted the By-Laws, but chose not to.
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process when no appointment process is referred to in this provision of the
bylaws?,” he responded, “I don’t know.” (A991(27:12-15).) He also admitted that
his conclusion that Aleynikov was not an officer was arrived at this simply: he
“went to look at the records of those who were appointed officers of GS Co.[,]
... did not find a resolution appointing Mr. Aleynikov an officer of GS Co.[,] ...
[a]nd based upon that, ... determined that he was not an officer of GS Co.”
(A947(255:14-24.)
But Goldman admits that those consents were never made publicly available
or disclosed within the firm, (A950(266:22-24),(A1001(67:20-23)), and that vice
presidents and other employees were not advised of the purported policy that the
only way to become an officer for purposes of indemnification and advancement
was to be appointed by written consent. (A1002-3(70:9-13;74:3-25),A1004(78:24-
79:7;79:22-80:14).) Stated simply, Goldman admits that no one beyond a select
few in its legal department has ever (a) seen the confidential written consents
appointing GSCo’s Executive Officers; or (b) been advised that only those
appointed by such consents are officers of GSCo.
Because the appointment-by-written-consent procedure is not made known
to those people, like Aleynikov, who are presumed — by the terms of the By-Laws
themselves (A118) — to have relied on §6.4 in deciding to accept employment
with Goldman, the court concluded that “GSCo’s appointment procedure has little
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to say about the interpretive issue before the Court, and does not in itself suffice to
create a material, triable issue of fact.” (A21.) Goldman contends that in so ruling,
the court “discredited” or “misconstrued” the “evidence of its appointment process
because there is no basis in law or fact [] to require that such information
[regarding its appointment procedure] appear in a ‘generally promulgated
document.’” (GSb44-45.) Goldman reasons that it was “incorrect to place any
weight on the fact that Goldman [] did not ‘promulgate even a rough rule of
recognition to the effect that the written-consent process is the means by which
officers may be distinguished from non-officers’” because “the resolutions
themselves make clear that they are precisely what distinguish officers from non-
officers.” (GSb47-48.) In the end, Goldman believes all that matters is that (a) it
had an appointment procedure; and (b) Aleynikov was not appointed an officer
pursuant to it. (GSb43-44 (“The fact that Aleynikov was never appointed an
officer of GSCo by its ‘only process for appointing officers’ should have ended the
inquiry.”).)
But in focusing solely on the existence of its appointment procedure and
ignoring whether that procedure (or the fact that it was the only way to become a
§6.4[3] officer) was made known to anyone outside a small cabal within its legal
department, Goldman misses the point. The court did not discredit or reject
Goldman’s evidence of a practice of appointing certain officers by way of written
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consent of its general partner. To the contrary, the court credited that assertion and
evidence completely. (A13.) It concluded, however, that since the appointment
process was not made known to those individuals “who have only the By-Laws to
go by in determining whether they are eligible for indemnification [and]
advancement,” (A21), its existence is irrelevant to whether Aleynikov is entitled to
advancement and indemnification. The court thus correctly recognized that “under
Delaware’s substantive contract law, certain factual issues proffered by the
defendant/drafter are not deemed ‘material’ to the court’s decision.” (A31.)
Finally, Goldman contends that “the existence of [its appointment] process
precluded summary judgment in Aleynikov’s favor,” (GSb46), but that process
could only conceivably be relevant if it were publicized in a way that put an
objectively reasonable person on notice as to who was and who was not an officer
of GSCo for purposes of §6.4[3]. (A19,A169.) Where the governing principle in
interpreting the meaning of “officer” as used in By-Law §6.4[3] — assuming an
ambiguity — is the reasonable expectation of those individuals who must rely on
that provision in determining whether they are entitled to indemnification and
advancement, Commerzbank, 65 A.3d at 552; Matheson, 681 A.2d at 395, an
unwritten process of appointing officers that is never made known to those
individuals has no bearing on the interpretive analysis, as the court correctly held.
As for Goldman’s admission that it often pays the legal fees of those it
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contends are not officers, the court correctly found that, regardless of Goldman’s
shifting characterization of those payments,12 the fact that it (a) paid the legal fees
of 51 of 53 employees (including fifteen vice presidents) in the past six years and
refused to pay only Aleynikov’s fees and those of one other individual; and (b)
“has never cited a person’s status as vice president as a reason for refusing to
provide advancement or indemnification” is “persuasive evidence that a vice
president is an officer entitled to advancement or indemnification under the By-
Laws.” (A22,A1053.) That “course of conduct,” the court reasoned, “would lead
a reasonable observer to conclude that a wide range of employees, not just a few
higher-ups, are entitled to advancement and indemnification.” (A21.)
Alternatively, accepting as true Goldman’s contention that its legal-fee
payments were entirely discretionary and made outside the By-Laws, the court
correctly held that those payments were irrelevant to determining whether
Aleynikov, as a GSCo Vice President, was an officer entitled to advancement and
indemnification because GSCo’s “indemnification decisions and the By-Laws
occupy separate worlds” according to Goldman’s own position. (A24.) In other
words, if the decision to pay legal fees was purely discretionary and made
12 The court noted that Goldman “back-pedaled” from its counsel’s characterization of the payments as “permissive indemnification” at the first oral argument but concluded that the change of terminology “makes no difference” as to Aleynikov’s entitlement to advancement and indemnification. (A21.)
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independent of the By-Laws, Goldman’s historical payment practice, by definition,
could not aid the objectively reasonable observer’s understanding of the By-Laws.
On appeal, Goldman attacks only the court’s conclusion that there is no
contemporaneous evidence that its legal-fee payments were made as a matter of
business discretion, not pursuant to the By-Laws. (GSb48-52.) Indeed, Goldman
argues that there is a “raft of evidence making absolutely clear that its payments of
legal fees ... were made on a purely discretion basis outside the By-Laws.”
(GSb49.) Leaving aside that there is no such evidence, Goldman cannot and does
not dispute that: (1) its practice of paying the legal fees of a broad range of
employees, whether discretionary or mandatory, would lead anyone unaware of the
reasons for those payments to conclude that the right to advancement and
indemnification is vested in a group far broader than its most senior officers; and
(2) assuming Goldman’s legal-fee payments were discretionary and independent of
the By-Laws, they are entirely irrelevant to the interpretation of those By-Laws.
As to the first conclusion, Goldman has never contended, and has produced
no evidence to suggest, that it publicly disclosed or made known within the firm
that it was paying individuals’ legal fees as a matter of business discretion and not
pursuant to its By-laws. As with an officer-appointment process kept secret and
not disclosed to anyone, Goldman’s internal and undisclosed characterizations of
its payment of legal fees could not have affected the reasonable expectations of
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61
someone in Aleynikov’s position as to whether he was an officer entitled to
indemnification and advancement. All that a reasonable observer could possibly
have known was that Goldman had advanced the legal fees of individuals, other
than its most senior executives, who were accused of serious misconduct —
including, as the court noted, “GSCo vice presidents … Tourre, who was sued by
the SEC, and Neil Morrison, who was the subject of administrative proceedings
based on his alleged involvement in a Massachusetts pay-to-play scheme.” (A23.)
Accordingly, even if there was evidence that GSCo paid legal fees as a matter of
business discretion, independent of the By-Laws, that evidence was irrelevant.
Goldman fails even to address the court’s second conclusion: that evidence
of its payment history is irrelevant. That evidence certainly does not create a
genuine issue of material fact that warranted denying Aleynikov summary
judgment.
In sum, the court correctly concluded that extrinsic evidence regarding
Goldman’s officer-appointment process and history of legal-fee payments would
not create a genuine issue of material fact even if it were proper to consider that
evidence in considering Aleynikov’s entitlement to advancement.
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CONCLUSION
For the reasons set forth above, Aleynikov respectfully submits that if the
Court finds jurisdiction over this appeal, it should affirm the district court’s
decision.
Dated: December 2, 2013 Respectfully submitted, Chatham, New Jersey
MARINO, TORTORELLA & BOYLE, P.C. By: /s/ Kevin H. Marino Kevin H. Marino John D. Tortorella John A. Boyle 437 Southern Boulevard Chatham, New Jersey 07928-1488 (973) 824-9300 Attorneys for Plaintiff-Appellee
Sergey Aleynikov
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CERTIFICATION OF ADMISSION TO BAR
I, Kevin H. Marino, certify as follows:
1. I am a member in good standing of the bar of the United States Court of
Appeals for the Third Circuit.
2. Pursuant to 28 U.S.C. § 1746, I certify under penalty of perjury that the
foregoing is true and correct.
/s/ Kevin H. Marino Kevin H. Marino December 2, 2013
Case: 13-4237 Document: 003111469575 Page: 71 Date Filed: 12/02/2013
CERTIFICATE OF COMPLIANCE WITH FEDERAL RULE OF APPELLATE PROCEDURE 32(a) AND LOCAL RULE 31.1
Pursuant to Fed. R. App. P. 32(a)(7)(C), I certify the following:
This brief complies with the type-volume limitation of Rule
32(a)(7)(B) of the Federal Rules of Appellate Procedure because this brief
contains 13,924 words, excluding the parts of the brief exempted by Rule
32(a)(7)(B)(iii) of the Federal Rules of Appellate Procedure.
This brief complies with the typeface requirements of Rule 32(a)(5) of
the Federal Rules of Appellate Procedure and the type style requirements of
Rule 32(a)(6) of the Federal Rules of Appellate Procedure because this brief
has been prepared in a proportionally spaced typeface using the 2008 version
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This brief complies with the electronic filing requirements of Local
Rule 31.1(c) because the text of this electronic brief is identical to the text of
the paper copies, and the Vipre Virus Protection, version 3.1 has been run
on the file containing the electronic version of this brief and no viruses have
been detected.
/s/ Kevin H. Marino Kevin H. Marino December 2, 2013
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AFFIDAVIT OF SERVICE DOCKET NO. 13-4237 -------------------------------------------------------------------------------X Sergey Aleynikov, vs. The Goldman Sachs Group, Inc. -------------------------------------------------------------------------------X
I, Elissa Matias, swear under the pain and penalty of perjury, that according to law and being over
the age of 18, upon my oath depose and say that:
on December 2, 2013 I served the within Brief on Behalf of Appellee in the above captioned matter upon:
Christopher E. Duffy, Esquire Boies, Schiller & Flexner 575 Lexington Avenue 7th Floor New York, NY 10022 A. Ross Pearlson, Esquire Wolff & Samson One Boland Drive The Offices at Crystal Lake West Orange, NJ 07052 via electronic filing and electronic service as well as Express Mail by depositing 2 copies of same, enclosed in a post-paid, properly addressed wrapper, in an official depository maintained by United States Postal Service. Unless otherwise noted, copies have been sent to the court on the same date as above for filing via Express Mail. Sworn to before me on December 2, 2013 /s/ Robyn Cocho /s/ Elissa Matias Robyn Cocho Elissa Matias Notary Public State of New Jersey No. 2193491 Commission Expires January 8, 2017
Job # 250829
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