A federal appeals court tossed out a ruling that would have forced Goldman Sachs Group Inc. (GS:US) to pay the legal fees of a former computer programmer charged with stealing the bank’s trade secrets.
Sergey Aleynikov is accused of taking the high-speed trading code on his last day of work at Goldman Sachs. He’s fighting charges in state court in New York after his federal conviction was overturned.
Aleynikov, whose case was the inspiration for Michael Lewis’s bestseller “Flash Boys,” sued in September 2012 in New Jersey seeking more than $2.4 million from Goldman Sachs to cover his legal fees. Goldman Sachs appealed a judge’s ruling in Aleynikov’s favor. The appeal raised the issue of whether Aleynikov was an officer at the company, which would have required the bank under its bylaws to cover his legal costs.
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It’s unclear whether the term officer would include Aleynikov, who held the title of vice president at one of Goldman’s units but had no supervisory or leadership responsibilities, the U.S. Court of Appeals in Philadelphia said today in a split ruling.
“The bylaws are ambiguous and genuine issues of material fact preclude summary judgment,” the court ruled.
Aleynikov was convicted in 2010 on federal charges of stealing the code and served about one year of an eight-year sentence before the verdict was overturned by the U.S. Court of Appeals in New York. He was later charged by New York state prosecutors in Manhattan over the same matter.
Under Delaware law, which governs Goldman, a corporation pays the legal expenses of officers, directors and other employees accused of wrongdoing in the course of performing duties for the company.
The district court erred in focusing its analysis on the meaning of the term vice president and not on the definition of officer, which appears in the relevant language of the company’s bylaws, the appeals court said.
“It is not immediately apparent what characteristics make someone an officer,” the court said.
U.S. Circuit Judge Julio Fuentes dissented in part, writing that the majority’s opinion “does not honor Aleynikov’s reasonable expectations about the meaning of Goldman’s bylaws.”
Instead, the ruling gives Goldman an incentive to keep the ambiguous language in place so it can reserve the right to make “unpredictable post hoc determinations about which former employees should be advanced attorney’s fees and which shouldn’t,” Fuentes wrote.
Aleynikov claimed in his initial complaint that he doesn’t have the money to fight the state case or pay a law firm an initial retainer of $500,000, according to court records.
The appeals case is Aleynikov v. Goldman Sachs Group Inc., 13-4237, U.S. Court of Appeals for the Third Circuit (Philadelphia). The lower court case is Aleynikov v. Goldman Sachs Group Inc., 12-cv-05994, U.S. District Court, District of New Jersey (Newark).
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