Is a Vice President an Officer Entitled to Indemnification or Advancement?
Correction: an earlier version of this post did not indicate that Sergey Aleynikov’s original federal court conviction was reversed by the Second Circuit and that new charges were brought by the New York grand jury that currently remain pending.
This question didn’t seem to be that complicated at first blush. Now it is. The Third Circuit’s recent ruling that a former Vice President of Goldman Sachs is not necessarily an officer entitled to indemnification/advancement potentially changes the landscape on this issue and necessitates a study of your company’s by-laws. In Aleynikov v. Goldman Sachs Group, Inc., 2014 U.S. App. LEXIS 17004 (3rd Cir. Sept. 3, 2014), Petition for Rehearing En Banc Denied, No. 13-4237 (3rd Cir. Sep. 29, 2014). Sergey Aleynikov, a former Goldman Vice President, was originally found guilty under federal laws and sentenced to jail for allegedly stealing Goldman source code information before going to work for a competitor. A year later the United States Court of Appeals for the Second Circuit reversed this federal conviction and acquitted him. Thereafter, he was indicted by a New York grand jury for alleged violations of New York law based on the same offense, which remain pending. In June 2014, the New York court ruled that the FBI “did not have probable cause to arrest defendant, let alone search him or his home.” The court found that the arrest was “illegal,” and that Mr. Aleynikov’s “Fourth Amendment rights were violated as a result of a mistake of law.”
While the District Court of New Jersey, applying Delaware law, found Aleynikov to unambiguously be an officer and thereby entitled to indemnification and advancement, the Third Circuit disagreed and vacated this ruling. It found the term “officer” to be ambiguous in the Goldman by-laws. The Third Circuit determined it was inappropriate to then apply the doctrine of contra proferentem to construe the ambiguities against the unilateral drafter, Goldman. Instead, the Third Circuit provided that extrinsic evidence should be considered to resolve the ambiguity, including “course of dealing” and “trade usage” evidence. Because this evidence raised genuine issues of material fact, the Third Circuit remanded the case back to the District Court for a trial. On September 29, 2014, the Third Circuit denied a motion for rehearing en banc.
In light of this ruling, you should consider dusting off your company’s by-laws to perhaps more specifically and clearly define the term “officer.” In addition, consider addressing this question: does your company intend to provide indemnity and advancement to Vice Presidents of your company?