A recent New Jersey Law Journal story, “Jury to Decide if Goldman Sachs Pays Ex-Employee's Legal Bill,” reports that the U.S. Court of Appeals for the Third Circuit has reversed an order requiring Goldman Sachs & Co. to pay millions in legal fees for the defense of a former company vice president who faces criminal charges for sharing program code for the company’s high-speed trading platforms with another company.  Instead, the court said a jury must determine whether the company should have to indemnify the former employee.

By a 2-1 margin, the appeals court vacated the ruling of a Newark federal judge that called for Goldman Sachs to pay for the criminal defense of Sergey Aleynikov, a former computer programmer for the company.  The U.S. District Court for the District of New Jersey held that the company was obligated to pay Aleynikov’s defense because he held the title of vice president, but the appeals court remanded the case to the district court for a trial on the plaintiff’s claim.

The appeals court said U.S. District Judge Kevin McNulty of the District of New Jersey, who granted summary judgment to Aleynikov erred in focusing his analysis on the meaning of the term “vice president,” even though that term does not appear in the relevant section of the company’s bylaws.  The Third Circuit said the plaintiff’s right to advancement of fees depends on the interpretation of the term “officer” as discussed in the bylaws.

Goldman Sachs’ bylaws provide for indemnification and advancement of legal fees to officers, but a jury must evaluate whether Aleynikov is an officer, the appeals court said.  McNulty, the motion judge, said the doctrine of contra proferentem dictated that any ambiguity about whether Aleynikov is an officer should be decided against Goldman Sachs.  That doctrine says that when one side was unilaterally responsible for drafting, courts should construe ambiguous terms against the drafter.

The New York Times reported on this case in “At Goldman Sachs, Even the Legal Fees Are Different.” The story reports that Goldman Sachs’ ambiguous bylaws has the effect of letting the firm decide whose legal bills it will pay and whose it won’t.  Put simply, being able to choose which of its officers will receive advance payments for legal bills gives the firm significant leverage over those who become ensnared in an investigation or lawsuit.  The bylaws of JPMorgan Chase, Bank of America and Morgan Stanley, by contrast, are unambiguous on whose legal fees will be covered.  (Usually, but not always, employees found liable for wrongdoing have to repay the legal advanced they received.)