May a Delaware firm whose bylaws promise to pay the legal bills of a group of people -- all of its "officers" -- avoid paying on the ground that it failed to make clear who belonged in the group?
Shouldn't the rule that governs in contracts cases -- that a court will construe an ambiguity against the drafter who created it -- apply to the benefit of anyone who can plausibly claim "officer" status?
The Third Circuit said maybe to the first question because it answered no to the second.
But Blawgletter expects the panel's paper will receive further grading, either by the entire Third Circuit or the Supreme Court of Delaware, whose law the panel sought to divine and apply.
In Aleykinov v. Goldman Sachs Group, Inc., No. 13-4327 (3d Cir. Sept. 16, 2014), Sergey Aleykinov, a "vice president" of a Goldman Sachs Group (GSG) subsidiary, Aleykinov won a jury trial in which federal prosecutors alleged he had stolen software from the GSG sub. He demanded indemnification for the fees he had incurred plus ongoing advancement of fees to defend himself against follow-on state charges arising from the same conduct.
Aleykinov cited GSG's bylaws, which bound GSG to pay fees of "officers" at GSG as well as at its corporate and non-corporate subsidiaries. The sub for which Aleykinov worked, a limited partnership, did not have to have officers. As the panel explained:
[The GSG sub] has appointed officers pursuant to a written resolution process, but this process was not widely disseminated. It has no other formal appointment processes for officers. [GSG sub] employs tens of thousands of employees. Approximately one-third of those employees hold the title of vice president. Someone with the title of vice president is more senior than someone with the title of analyst or associate, but less senior than someone with the title of managing director.
Aleynikov, slip op. 5.
The district court in New Jersey granted summary judgment to Aleykinov on his claim for advancement of fees. GSG appealed.
The panel held, by a 3-0 vote, that the bylaws had an ambiguity. But it split 2-1 on the question of whether the contra proferentem rule applied.
The rule provides that "[w]hen one side of a contract was unilaterally responsible for the drafting, courts . . . construe ambiguous terms against the drafter." Id. at 30 (citing Norton v. K-Sea Transp. Partners L.P., 67 A.3d 354, 360 (Del. 2013)).
The majority "conclude[d] that contra proferentem has no application in resolving whether a person has rights under the contract at all – here, whether Aleynikov is an officer of GSCo." Id. at 32 (footnote omitted). "Applying the doctrine of contra proferentem in this circumstance would put the cart before the horse. It would have us resolve ambiguities in favor of a non-drafting individual in order to determine whether that non-drafting individual was even subject to the agreement." Id. at 32-33.
The dissenting judge begged to differ. He explained that, in his view, "neither Delaware case law, nor Delaware public policy, favors the exception to Delaware’s contra proferentem doctrine set forth by the majority." Id. at 8 (Fuentes, J., dissenting). "I therefore believe that we are obliged to apply contra proferentem here, and construe the advancement provision of the By-Laws against Goldman." Id.
He went further, criticizing the majority's allowance of evidence to resolve the ambiguity despite the fact that it related only to GSG's intent and not arguable "officers" like Aleynikov:
Today’s ruling sanctions the consideration of two categories of so-called "course of dealing" evidence: (1) evidence that Goldman invoked its discretion in agreeing to pay the legal fees of individuals in similar positions to Aleynikov; and (2) internal Goldman documents that "appointed and/or removed individuals as officers of GSCo," as well as "evidence that the persons occupying the positions of officer, as appointed in the documents, were publicly identified in regulatory filings." Maj. Op. at 24. This evidence does not speak to the mutual understanding of the contracting parties. I therefore believe it is irrelevant and cannot be considered by the finder of fact.
Id. at 9.
What happens next?
On September 16, 2014, Aleynikov filed a petition for panel rehearing and rehearing en banc. The petition looks to Blawgletter a likely candidate for review by the entire Third Circuit. We don't know why the court did not certify the controlling legal question to the Delaware Supreme Court, and leaving such an important issue to the federal courts seems odd.
We expect that, regardless of what happens in the Aleynikov case, the panel's decision will not provide the last word.
State court option
In the meantime, officers and employees of Delaware entities may wish to bring cases seeking indemnification or advancement under bylaws and similar foundational documents in Delaware state court rather than federal court.