New filings in the Charney/Sullivan & Cromwell litigation

The next chapter in the saga of gay attorney Aaron Brett Charney and his former employer, Sullivan & Cromwell, unfolded March 1 with the filing of litigation papers on behalf of Charney in the two law suits, which are both pending before Justice Bernard J. Fried in New York Supreme Court, New York County. In Charney’s discrimination/retaliation case against Sullivan & Cromwell, Charney’s attorneys have filed an opposition to Sullivan & Cromwell’s motion to dismiss Charney’s case. In Sullivan & Cromwell’s case against Charney, the attorneys have filed a motion to dismiss S&C’s case and incidentally to oppose S&C’s demand for a preliminary injunction in case their motion is denied. S&C’s responding papers, if any, are to be filed on March 15, and there will be another hearing before Justice Fried on March 27, according to the schedule agreed on the record during the last hearing in this matter.

Justice Fried has adopted the electronic-filing method provided by the Unified Court System, so many of the documents filed in this case are accessible to the public, most easily if you know the docket numbers of the cases. Charney v. S&C is No. 100625/2007. S&C v. Charney is No. 600333/2007. You go to the New York State courts home page, which is www.courts.state.ny.us/home.htm. From there, you click on the eCourts link, then the electronic filing link, then the Efile System link, then the Public Inquiry link, then type the docket number in the search engine, click search, and you’re off to the races. Documents accessible to the public are in pdf files that can be downloaded and printed out at your pleasure. Among the documents on file is the transcript of the one hearing that the attorneys had before Justice Fried on February 8, itself quite a fascinating document to peruse.

To fill in the latecomers, Aaron Charney was a fourth-year associate at S&C, by his account highly praised by clients and co-workers, whose career took an unfortunate turn as he perceived various signs of homophobia from certain partners with whom he worked in the Mergers & Acquisitions Department. He took these perceptions to a firm partner charged with dealing with such complaints, but asserts that no genuine investigation ensued, and that in fact his complaints set in motion the machinery of the law firm to cut short his steady march to partnership. He filed his suit pro se on January 16, was suspended by S&C, and then after a secret settlement conference on January 31 yielded no settlement, S&C discharged him and filed suit against him on February 1. The rarity of a discrimination suit by a law firm associate against a major law firm has made this case the focus of intense attention from the media and the legal profession bloggers.

As those following along undoubtedly know, S&C has refused to engage with Charney on the employment law questions raised by Charney’s complaint. Instead, their motion to dismiss focused on their assertion that his complaint disclosed confidences and secrets of S&C clients, or that litigating the case would lead to such disclosures, for which reason the court should dismiss the case to avoid violating the rights of S&C’s clients. In effect, they seemed to argue that a law firm associate may not pursue a discrimination claim against the firm if the complaint or the subsequent litigation would involve any mention of clients of the firm, the firm’s relationship with the clients, billing matters, or the firm’s staffing of particular client matters. They asserted that Charney had violated the rules of professional responsibility concerning these matters, both in his complaint and in the publicity he generated around the time the complaint was file. They charged him with violating a confidentiality agreement that S&C employees sign, and of stealing firm documents, including a copy of the partnership agreement that he attached to his complaint as an exhibit. They argued that New York precedents supported dismissing the discrimination action in light of Charney’s behavior in connection with the case.

In responding to the motion to dismiss, Eisenberg & Schnell’s memorandum sets out the standard for motions to dismiss in employment discrimination cases in New York, pointing out the utter failure of S&C to meet the standard along the traditional lines of showing that the plaintiff’s factual allegations, if taken to be true, would not support a legal claim. They focus particular attention on the statute under which Charney is suing, the New York City Human Rights Law, which is not discussed in S&C’s memorandum in support of its motion. To the extent that S&C even addresses the retaliation claim, for example, the memo points out that it ignores the specific standard for retaliation described in the NYC law, and ignores recent U.S. Supreme Court precedent under federal discrimination law that assertedly favors the viability of Charney’s claim. (In my prior discussions of this litigation, I have opined that under the federal standards, this would be a difficult hostile environment case, but a rather easier retaliation case; of course, the standard for the court is not the federal standard but rather the standard of the NYC law, which may set a lower evidentiary standard for establishing a hostile environment than federal law requires. Still, from my reading of the initial complaint, which was not drafted by the attorneys Charney engaged upon being countersued by S&C, I think he has a much stronger retaliation claim than discrimination claim.... But I would expected an amended complaint would be coming down the pike if Charney survives this motion to dismiss. For one thing, S&C’s suit against him might create the basis for an additional retaliation claim.)

Fighting fire with fire, the memo takes on S&C’s arguments based on the legal ethics code by invoking a different provision of the New York ethics code, 1-102, which makes clear that attorneys may not discriminate based on sexual orientation in their own employment practices, and specifically states: "Where there is a tribunal with jurisdiction to hear a complaint, if timely brought, other than a Departmental Disciplinary Committee, a complaint based on unlawful discrimination shall be brought before such tribunal in the first instance." I remember when the proposal to amend the disciplinary rules to add the ban on discrimination was under consideration. My recollection is that there was a concern at that time about the interrelationship of disciplinary claims and court proceedings arising from the same allegations of discrimination by or about lawyers, and this language was intended to make clear that discrimination claims should go to court first, and only later upon a judicial determination that unlawful discrimination had taken place, could the same allegations be made to the Disciplinary Committee. (For those unfamiliar with the process in New York, the Departmental Disciplinary Committee would investigate and recommend sanctions for violations of the ethical rules, which would then be considered by the Appellate Division of Supreme Court. Sanctions can range up to permanent disbarment, or be as "slight" as a private admonition.) Thus, in adopting the rules, the courts seem to have anticipated the possibility that there will be lawsuits by lawyers against law firm employers.

The memo then takes on S&C’s arguments based on the ethical rules, and argues that in fact there is nothing in the Charney complaint or the statements attributed to him that violates the rules. Charney mentions various clients, but he never discusses confidential information concerning their legal affairs, according to the memo. And if S&C is arguing that any mention of clients, fee arrangements, or staffing, would violate the confidentiality rules, the memo responds that this information is already in the public domain courtesy of S&C’s own efforts to publicize its business, mainly through its website and press releases. Once information gets into the public domain, so the argument goes, any confidentiality requirement with respect to that information is at an end. S&C boasts openly about its client list, as attorney Eisenberg documents in an accompanying affidavit and a huge exhibit file, and S&C also speaks openly on its website about the big cases and transactions that it is handling for their clients. As to staffing of client matters, in the attorney bios on the website, S&C reveals which attorneys are working on which client matters. And the press releases, available through the website (and sometimes on client websites as well), sometimes contain detailed discussions about the nature of particular transactions. The memo asserts that nothing Charney was discussing was not already out there for public consumption, and the clients named in Charney’s complaint and public statements show up on the website.

The memo then argues that there is no support in the New York case law for S&C’s argument that this case should be dismissed in order to protect client confidences. According to the memo, the cases S&C relied upon in its motion to dismiss arose in different circumstances where client confidences were genuinely implicated, and of course there are discrimination cases on the books brought by attorneys against their firms in which part of the case involved discriminatory assignment practices that necessarily involved mentioning clients.

The memo makes a forceful argument that S&C’s attempt to get the case thrown out should be rejected by the court. It would be premature to speculate on the success of this opposition, especially as the management-side employment law specialists retained by S&C now have two weeks to come up with their written rejoinders, but the memo standing on its own is very convincing.

The memo seeking dismissal of S&C’s case, submitted by Alterman & Boop, another firm retained by Charney, comes down to a few basic points. First, they argue, there can be no claim of breach of fiduciary duty by an employer against an at-will employee, because these entities are not fiduciaries with respect to each other. Secondly, they argue, because Charney was an at-will employee, the confidentiality pledges which he signed (and which he denies having every violated) would not give rise to an action for breach of contract. (Here, the retrograde employment law of NY, which generally refuses to recognize employee handbooks or personnel manuals as binding contracts, may be helpful to the employee in a defensive posture!) Finally, they argue, to the extent that the lawsuit seeks the return of documents that S&C claims to be wrongfully in Charney’s possession, the claim is essentially moot, because Charney has turned over all the documents in question, either directly to S&C or through submission to the court.

In addition, and to some extent heavily repeating assertions and arguments found in the Eisenberg & Schnell memo, this memo makes the point that the attorney-client privilege and the ethical obligations to protect client secrets exist for the protection of the client, not the attorney, and there is no precedent for the idea that a law firm could sue one of its attorneys for violating these rules. The appropriate venue for dealing with alleged violations of ethical rules is the lawyer disciplinary process that I mentioned above, not a suit at law.

While partners in a law firm have fiduciary duties to each other vis-a-vis their partnership, argues the memo, at-will associates have only the common law duty of loyalty implicit in the employment relationship, violation of which involves misappropriating trade secrets or company confidences necessary for the success of the business, and competing with the company or collaborating with its competitors while still employed by the company, or taking actions intended to impair or diminish the company’s business success. Here, the main allegation by S&C is that Charney wrongly possessed client documents (and firm documents, such as the partnership agreement), but the memo responds that while he was an employee, it was entirely proper for Charney to be in possession of client documents. His right to have such documents in his possession ceased when he was discharged, they argue, but he wasn’t discharged until S&C filed suit against him, and once they demanded the return of client documents in his possession, he complied. (As to the partnership agreement, the memo makes the point that a book on the history of S&C published in 1988 included in its appendix the partnership agreement then in effect. If S&C is so concerned about the confidentiality of their partnership agreement, why did they allow it be published in a book by a mass market publisher?)

The memo does not address Charney’s destruction of the hard drive on his home computer shortly after S&C filed suit against him. Charney was supposed to file an affidavit with the court concerning the details about his "destruction" of the hard drive, but the efile system did not reveal such an affidavit in the publicly available file under either case docket number, so if it is on file, it must be in the section reserved for documents under seal.

Once again, standing alone, the memo in support of the motion to dismiss S&C’s case against Charney makes a very convincing argument, and it will be interesting to see how S&C’s attorneys counter it in their replies. I imagine the efile archive will be a very busy place come March 15!

Those curious for more details about Charney’s experiences at S&C will not find them in these documents, which merely summarize the allegations of the complaint, but then at this stage of the litigation all that is relevant on that front is whether Charney’s factual allegations are sufficient to ground the legal claims he is asserting. Given the rather permissive standard under New York law, at least as described in the Eisenberg/Schnell memo, it seems unlikely that Charney’s case would be dismissed on this basis, so the big question at this point is whether S&C will succeed in their novel argument that the case should be dismissed on other grounds.

Comments

[Marisa Okun]

Professor Leonard,
I was in your employment law class in the Spring of 2004 (my maiden name was Hyman). I read the NY Magazine article about this case and have been reading your postings, and I just want to let you know that I find them very interesting and can't seem to read enough! Thanks again for the great class.