United States: Citing "Issue Preclusion," The Delaware Court Of Chancery Denies Advancement To A Company's Vice President

The Delaware Court of Chancery typically holds that a corporation must advance the fees and expenses of an executive or officer-level employee who is required to defend a civil, criminal, administrative or investigative action by virtue of his or her employment with the company. Recently, however, Vice Chancellor J. Travis Laster held that a plaintiff was not entitled to advancement because he did not prove that someone with the bare title of "Vice President," without any managerial or supervisory responsibilities, fit within the definition of "officer" found in the relevant bylaws.

The Court of Chancery's holding in Aleynikov v. The Goldman Sachs Group, Inc., C.A. No. 10636-VCL (Del. Ch., July 13, 2016) was based, in large part, on its conclusion that it was bound by an incorrect finding by the Third Circuit in a related action because the doctrine of "issue preclusion prevent[ed] relitigation of wrong decisions just as much as right ones." B&B Hardware, Inc. v. Hargis Indus., Inc., 135 S. Ct. 1293, 1308 (2015). Given that the majority of this opinion addresses how "issue preclusion" is construed under New Jersey law, its usefulness for Delaware advancement cases is limited. Still, Vice Chancellor Laster's approach appears to demonstrate Delaware's predisposition in favor of advancement and indemnification rights.

Background

Plaintiff Sergey Aleynikov ("Plaintiff") held the title of Vice President in the Equities Division of a subsidiary of The Goldman Sachs Group, Inc. ("Goldman"). Despite his title, Plaintiff did not have any managerial or supervisory responsibilities. On September 25, 2012, Plaintiff filed a complaint in the District of New Jersey (the "District Court"), asserting that under Goldman's bylaws (the "Bylaws"), he was entitled to indemnification for his successful defense of a criminal proceeding in federal court and advancement to defend a criminal proceeding in state court. The Bylaws provided for advancement and indemnification to any "officer" of Goldman's subsidiaries, but the term "officer" was vaguely defined as "any officer of such entity, any person serving in a similar capacity or as the manager of such entity." The District Court granted Plaintiff's motion for summary judgment, but on appeal, the Third Circuit reversed and vacated the lower court's ruling.

Plaintiff then filed suit in the Delaware Court of Chancery, seeking advancements to defend counterclaims brought against him by Goldman and its subsidiary in the District Court. Plaintiff had the burden of proving by a preponderance of the evidence that he was an "officer" of Goldman's subsidiary and entitled to advancement under the Bylaws. After a one-day trial, Vice Chancellor Laster held that Plaintiff failed to satisfy his burden.

Discussion

Vice Chancellor Laster explained that his analysis of Plaintiff's arguments was constrained by the doctrine of "issue preclusion," which prevented Plaintiff from relitigating matters that the Third Circuit decided when it vacated the District Court's finding in Plaintiff's favor. Applying New Jersey law, the Court of Chancery found that two of the Third Circuit's rulings had preclusive effect in this action. The first was the conclusion that the definition of "officer" in the Bylaws was ambiguous, and the second was that the doctrine of contra proferentem should not apply to construe the Bylaws against Goldman.

Vice Chancellor Laster disagreed strongly with the second ruling. The Third Circuit explained its holding by asserting that contra proferentem would put the cart before the horse by resolving the Bylaws' ambiguities in favor of Plaintiff before even determining whether Plaintiff was subject to the Bylaws. The Court of Chancery flatly rejected that position, noting that Plaintiff was undeniably entitled to the benefits of the Bylaws by virtue of his employment with Goldman's subsidiary. Thus, the only question was whether the right to advancement was one of those benefits. Vice Chancellor Laster opined that this is the type of situation where the doctrine of contra proferentem should and does apply. He then provided an extensive list of reasons for his position, including that:

  1. Goldman unilaterally drafted its Bylaws and, therefore, was in the best position to remove any ambiguity relating to the definition of "officer."
  2. Goldman drafted its Bylaws so it should be held responsible for any reasonable expectation created by the Bylaws.
  3. An individual with the title "Vice President" could reasonably conclude that he was an "officer" who was entitled to advancement rights under the Bylaws. It is for that reason that the Third Circuit found that the definition of "officer" was ambiguous and the District Court granted summary judgment in Plaintiff's favor.
  4. The Bylaws identify the set of "officers" for Goldman as including "vice presidents."
  5. A definition of "officers" that encompasses "vice presidents" is consistent with:
    • Delaware General Corporation Law
    • Tradition at commercial and investment banks, dating back to 1929
    • Federal securities law
  6. Goldman created ambiguity by handing the title of "Vice President" out freely, both to individuals that it considered officers and to those that it did not.
  7. Corporations are allowed to provide advancement rights to as many people as they would like, so the fact that a company has a large number of "vice presidents" would not lead a reasonable person to assume that every "vice president" did not possess advancement rights.
  8. A reasonable person with the title "Vice President" would not assume that that he or she was not an "officer" simply because he or she did not receive formal appointment from the board of directors.
  9. A "vice president" without supervisory or managerial functions could still be an "officer."
  10. Delaware's policy in favor of advancement and indemnification requires bylaws to be read in favor of the existence of advancement and indemnification rights.

Ultimately, Vice Chancellor Laster acknowledged that he was bound by the Third Circuit's decision not to apply the doctrine of contra proferentem and looked to other evidence to support Plaintiff's assertion that he was entitled to advancement as an "officer" of Goldman's subsidiary. Finding none, the Court of Chancery entered judgment in Goldman's favor.

Takeaway

Although Vice Chancellor Laster did not find that Plaintiff was entitled to advancement under the Bylaws, this decision reinforces the Delaware policy in favor of advancement and indemnification rights. Vice Chancellor Laster spent a considerable portion of his opinion explaining how the Third Circuit should have (and the Court of Chancery likely would have) used the doctrine of contra proferentem to construe ambiguities in bylaws in favor of the individual seeking advancement or indemnification.

If you have any questions about this Alert, please contact Marvin G. Pickholz, Oderah C. Nwaeze, any of the attorneys in the White-Collar Criminal Defense, Corporate Investigations and Regulatory Compliance Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions