Charney Case Passes Hurdle; Sullivan Case Limping

Today, N.Y. State Supreme Court Justice Bernard J. Fried issued rulings on the pending motions to dismiss in Charney v. Sullivan & Cromwell and Sullivan & Cromwell v. Charney.  When the dust settled, it appeared that Charney was left in a better position than S&C.

To recap briefly, Charney filed suit against Sullivan & Cromwell back in January, alleging sexual orientation discrimination and retaliation in violation of the New York City Human Rights Law.  After a January 31 settlement meeting was unsuccessful, Sullivan & Cromwell filed suit against Charney on February 1, and discharged him from the firm.  (He had been suspended upon filing of his lawsuit.)  S&C claimed that in Charney's complaint and his actions to publicize the case, he had revealed S&C client confidences and secrets, as well as revealed firm confidences, thus breaching a fiduciary duty to the firm and his contract with the firm.  They also included in their complaint a count for conversion (of firm property) and replevin.  Both sides moved to dismiss.

S&C's motion to dismiss did not engage with the merits of Charney's claim.  Instead, it said essentially that the complaint should be dismissed because it exposed client confidences and secrets and litigating the case along the lines Charney proposed in his complaint would inevitably expose more such confidences and secrets, and the complaint should be dismissed for that reason.  S&C argued in the alternative that either the court should strike from the complaint everything objectionable, or dismiss with leave to file an amended, cleaned-up complaint.

In ruling on S&C's motion to dismiss, Fried decided to take one of the alternatives - dismissal without prejudice with leave to file an amended complaint.  In essence, then, Fried rejected S&C's main argument: that Charney should not be allowed to pursue his discrimination/retaliation claim because of the danger of exposing client confidences and secrets.  Indeed, after a thorough examination of the complaint and the relevant New York case law, Fried wrote: "Applying these principles, I conclude that there is nothing in or annexed to Charney's complaint that discloses attorney-client privileged materials.  In particular, an in-house counsel's exhortation to S&C to keep its fees down on a legal matter and conversations between a S&C attorney and a client in which an associate was praised for doing good work are not directly relevant to legal advice."  As to S&C's argument that Charney was disclosing client secrets: "S&C has pointed to no authority holding that 'client secret' is broad enough, as a matter of law, to include the names of clients or the attorneys staffed on particular transactions, attorney reviews, or conversations between attorneys and clients regarding attorney performance, barring a specific request by a client that this information be kept secret.  Consequently, the determination that a client secret has been disclosed would ordinarily depend on issues of fact.  Based on the documents submitted on this motion, however, it appears that the clients have acquiesced in the publication of the fact that they were represented by S&C and of S&C's staffing on these deals.  Consequently, I conclude that the identification of nine S&C clients and the references to five corporate deals in the complaint cannot be considered client secrets."

Here's where the strategy of Charney's attorneys in attaching printouts from the S&C website to their submission in opposition to the motion to dismiss scored a real bulls-eye.  They were able to show to Justice Fried's satisfaction that S&C's own publicity efforts had disclosed the information that they were now purporting to treat as "secrets" in connection with Charney's case....

As a result, "Based on the documents before me," wrote Justice Fried, "I cannot conclude as a matter of law that S&C is entitled to strike the above references to clients and deals from Charney's complaint based on DR-4-101."

However, Fried went on, there was quite a bit of irrelevant matter in Charney's complaint, some of it potentially raising confidentiality or secrecy issues.  One solution to that problem would be to issue an order going through the complaint and striking stuff, but Fried chose the other alternative:  "Rather than sifting through Charney's complaint and attachments to strike the inappropriate material, I will strike the entire complaint and grant Charney leave to replead in accordance with this order.  In light of my decision dismissing Charney's complaint, I will not sign a discovery order until an amended complaint is served and filed."

So - the bottom line is that as to his own lawsuit against S&C, Charney has, de facto, survived the motion to dismiss and is actually in better shape, because now his attorneys, specialists in representing plaintiffs in discrimination cases, get to file a brand new, carefully constructed complaint in place of the complaint that Charney, not an employment law specialist, had filed pro se.  And, once that's on file, to commence discovery against S&C on the merits of the case.

Charney also had a motion pending before Justice Fried, to dismiss S&C's lawsuit against him.  Here, he was almost as successful....

First, Justice Fried rejected S&C's argument that it could maintain a civil action against a former associate for breach of fiduciary duty.  Fried pointed out that under NY law, "an attorney's violation of a disciplinary rule does not, by itself, give rise to a cause of action by his client for breach of fiduciary duty, breach or contract, or legal malpractice.  And if the client has no such private cause of action, then the propriety of extending such a right to S&C, which is purporting to act on behalf of its clients, is even less compelling. . .  The law is equally clear that no fiduciary duties exist between an employer and an at-will employee.  S&C is asking me to make an exception to this rule for an associate attorney who violates his ethical obligations to the firm's clients and acts disloyally to the firm by saying embarrassing things and leaking confidential firm documents to the press to bolster his own discrimination lawsuit.  In doing so, S&C relies on an amalgamation of an attorney's ethical violations and an employee's duty of loyalty to his employer.  The duty of loyalty, however, has been limited to cases where the employee, acting as the agent of the employer, unfairly competes with his employer, diverts business opportunities to himself or others to the financial detriment of the employer, or accepts improper kickbacks."  After showing how the cases S&C cites do not support its position in this case, Fried concluded that "the first cause of action fails to state a cause of action for beach of fiduciary duty against Charney."

The breach of contract claim is dicier.  It is based on Charney having signed a form when he was hired acknowledging he was bound by S&C's rules.  The confidentiality rules spelled out in the attached policy document, by their terms, were intended for support staff, not attorneys, but there was a reference to the Office Manual, spelling out rules governing attorneys.  But the high-priced legal talent hired by S&C to represent it in this dispute with Charney FAILED TO ATTACH A COPY OF THE OFFICE MANUAL AS AN EXHIBIT, leaving it to Charney's counsel to speculate in their motion to dismiss that the Manual probably has the standard disclaimer that employers include in such documents, disclaiming any intention to enter into a contract with the employees or bind itself in any way.  NY law has not generally accepted the employee handbook exception to the employment at will rule, so there is a mutuality problem with finding a contract.  But Fried doesn't go into that; instead, he says in the absence of the manual there remains a factual question, precluding deciding whether to dismiss the contract action at this point.

Similarly, on the conversion and replevin counts, Charney was arguing they were mooted out by his return of all documents requested.  But Fried decided these counts were not necessarily moot, at least on the papers before him, since there remained questions whether Charney had turned over everything, so he declined to dismiss this count.  In addition, Fried granted S&C's request to make the TRO against Charney into a preliminary injunction, expanded to include those "acting in concert with him," so he is now under court orders to continue keeping quiet and not revealing anything confidential or secret.

In other words, S&C did achieve something successful out of today's rulings - a further order to Charney to shut up publicly about the case pending its resolution.  So he's not being uppity when he runs in and out of court without a word for press or bloggers standing by - he's just complying with the court's order to keep his mouth shut.

Interesting developments. We have not heard the last of this case!