5994

TABLE OF CONTENTS PRELIMINARY STATEMENT .....................................................................................................1 STATEMENT OF FACTS AND PROCEDURAL HISTORY.......................................................3 I. ALEYNIKOV IS ENTITLED TO IMMEDIATE ADVANCEMENT OF DEFENSE COSTS RELATED TO THE STATE CHARGES BECAUSE HE WAS AN OFFICER OF GOLDMAN SACHS AND THE STATE CHARGES WERE BROUGHT BY REASON OF THE FACT THAT HE WAS A GOLDMAN SACHS OFFICER. .........................................................................................8 A. Legal Standard ...............................................................................................................8 B. Aleynikov Is Likely To Prevail On His Claim For Mandatory Advancement Of Defense Costs Relating To The State Charges. ........................................................9 1. As Expressly Permitted Under Delaware Law, Goldman Sachss By-Laws Unequivocally Provide For Mandatory Advancement Of Defense Costs. .................................................................... 10 The Charges Against Aleynikov Were Brought By Reason Of The Fact That He Was A Goldman Sachs Officer. ....................................... 13 A Court Considering An Advancement Application Will Not Inquire Into The Merits Of The Underlying Action. ...................................... 16 Aleynikov Has Provided Goldman Sachs With The Necessary Undertaking To Repay Advanced Fees If It Is Ultimately Determined That He Is Not Entitled To Indemnification On The State Charges. .......................................................................................... 17

2. 3. 4.

C. Aleynikov Will Suffer Irreparable Harm Absent Preliminary Injunctive Relief. ........18 D. Requiring Goldman Sachs To Advance Aleynikovs Defense Costs In Accordance With Its Contractual And Statutory Obligations Will Not Harm Goldman Sachs. ...........................................................................................................19 E. The Public Interest Favors The Issuance Of A Preliminary Injunction. ......................20 II. ALEYNIKOV IS ENTITLED TO SUMMARY JUDGMENT ON HIS CLAIMS FOR INDEMNIFICATION AND ADVANCEMENT. ....................................................22 A. Legal Standard .............................................................................................................22 B. There Is No Genuine Issue Of Material Fact That Would Limit Or Delay Goldman Sachss Obligation To Indemnify Aleynikov For Defense Costs Incurred To Defend The Federal Charges Because He Succeeded In Having Those Charges Dismissed. ...........................................................................................24

C. There Is No Genuine Issue Of Material Fact That Would Limit Or Delay Goldman Sachss Obligation To Advance Aleynikov The Reasonable Fees To Defend Against The State Charges. .............................................................................29 III. ALEYNIKOV IS ENTITLED TO THE REASONABLE FEES AND EXPENSES (FEES ON FEES) INCURRED TO COMPEL GOLDMAN SACHS TO HONOR ITS ADVANCEMENT AND INDEMNIFICATION OBLIGATIONS, AND TO PREJUDGMENT INTEREST. ..........................................................................29 A. Fees on Fees .................................................................................................................29 B. Prejudgment Interest ....................................................................................................30 CONCLUSION ..............................................................................................................................33

ii

TABLE OF AUTHORITIES Cases Advanced Mining Sys., Inc. v. Fricke, 623 A.2d 82 (Del. Ch. 1992) .................................................................................................... 12 Alevras v. Tacopina, 226 Fed. Appx. 222 (3d Cir. 2007) ........................................................................................... 23 Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) .................................................................................................................. 23 Barrett v. American Country Holdings, Inc., 951 A.2d 735 (Del Ch. 2008) ................................................................................................... 30 Brown v. Liveops, Inc., 903 A.2d 324 (Del. Ch. 2006) ............................................................................................ 15, 16 Builders World, Inc. v. Marvin Lumber & Cedar, Inc., 482 F. Supp. 2d 1065 (E.D. Wisc. 2007) .................................................................................. 19 Citrin v. International Airport Ctrs. LLC, 922 A.2d 1164 (Del. Ch. 2006) .......................................................................................... 31, 32 Confederate Motors, Inc., v. Terny, 11 Civ. 10213, 2012 U.S. Dist. LEXIS 54891 (D. Mass. Apr. 19, 2012) ...................... 9, 11, 12 Danenburg v. Fitracks, Inc., 6454, 2012 Del. Ch. LEXIS 4 (Del. Ch. Jan. 3, 2012) ............................................................. 23 Danenburg v. Fitracks, Inc., 6454, 2012 Del. Ch. LEXIS 53 (Del. Ch. Mar. 5, 2012) .......................................................... 19 Edgar v. Mite Corp., 457 U.S. 624 (1982) .................................................................................................................... 7 Fagin v. Gilmartin, 432 F.3d 276 (3d Cir. 2005) ....................................................................................................... 7 Fasciana v. Elec. Data Sys. Corp., 829 A.2d 160 (Del Ch. 2003) ..................................................................................................... 9 Gary v. Beazer Homes USA, Inc., 3537, 2008 Del. Ch. LEXIS 72 (Del. Ch. June 11, 2008) ........................................................ 10 Green v. Westcap Corp. of Del., 492 A.2d 260 (Del. Super. 1985) ........................................................................................ 26, 27 Hermelin v. K-V Pharm. Co., 6936, 2011 Del. Ch. LEXIS 172 (Del. Ch. Nov. 23, 2011) ...................................................... 27 Hermelin v. K-V Pharm. Co., 6936, 2012 Del. Ch. LEXIS 23 (Del. Ch. Feb. 7, 2012)........................................................... 26 iii

Homestore, Inc. v. Tafeen, 888 A.2d 204 (Del. 2005) .................................................................................................. passim Jarvis v. Johnson, 668 F.2d 740 (3d Cir. 1982) ..................................................................................................... 30 Jersey Central Power & Light Co. v. Lacey Twp., 772 F.2d 1103 (3d Cir. 1985) ................................................................................................... 22 Kaung v. Cole Natl Corp., 884 A.2d 500 (Del. 2005) ........................................................................................................... 9 Kos Pharm., Inc. v. Andrx Corp., 369 F.3d 700 (3d Cir. 2004) ....................................................................................................... 9 Merritt-Chapman & Scott Corp. v. Wolfson, 321 A.2d 138 (Del. Super. 1974) .............................................................................................. 27 Meyer v. CUNA Mut. Ins. Socy, 648 F.3d 154 (3d Cir. 2011) ..................................................................................................... 30 Moskowitz v. Mayor and Council of Wilmington, 391 A.2d 209 (Del. 1978) ......................................................................................................... 30 OBrien v. IAC/Interactive Corp., 3892, 2010 Del. Ch. LEXIS 189 (Del. Ch. Aug. 27, 2010) ................................................ 31, 32 Perconti v. Thornton Oil Corp., 18360, 2002 Del. Ch. LEXIS 51 (Del. Ch. May 3, 2002) ................................................. passim Pisczatoski v. Filko, 840 F. Supp. 2d 813 (D.N.J. 2012) ..................................................................................... 22, 23 Radiancy, Inc. v. Azar, 1547, 2006 Del. Ch. LEXIS 13 (Del. Ch. Jan. 23, 2006) ......................................................... 19 Reddy v. Electronic Data Sys. Corp., 19467, 2002 Del. Ch. LEXIS 69 (Del. Ch. June 18, 2003) ............................................... passim Rhett v. PSE&G, 11-2099, 2012 U.S. Dist. LEXIS 129110 (D.N.J. Sept. 11, 2012) ..................................... 22, 23 Ridder v. CityFed Fin. Corp., 47 F.3d 85 (3d Cir. 1995) ....................................................................................... 16, 18, 19, 23 Siegel Transfer, Inc. v. Carrier Express, Inc., 54 F.3d 1125 (3d Cir. 1995) ..................................................................................................... 23 Stifel Fin. Corp. v. Cochran, 809 A.2d 555 (Del. 2002) ......................................................................................................... 29 Stockman Heartland Indus. Partners, 4227, 2009 Del. Ch. LEXIS 131 (Del. Ch. July 14, 2009) ................................................. 26, 27

iv

Underbrink v. Warrior Energy Servs. Corp., 2982, 2008 Del. Ch. LEXIS 65 (Del. Ch. May 30, 2008) .................................................. 30, 31 United States v. Aleynikov, 676 F.3d 71 (2d Cir. 2012) ................................................................................................... 5, 28 United States v. Aleynikov, 737 F. Supp. 2d 173 (S.D.N.Y. 2010) .................................................................................. 5, 28 United States v. Gonzalez-Lopez, 548 U.S. 140 (2006) .................................................................................................................. 22 Waltuch v. Conticommodity Servs., Inc., 88 F.3d 87 (2d Cir. 1996) ......................................................................................................... 27 Weinstock v. Lazard Debt Recovery GP, LLC, 20048, 2003 Del. Ch. LEXIS 83 (Del. Ch. Aug. 1, 2003) ........................................................ 10 Witco Corp v. Beekhuis, 38 F.3d 682 (3d Cir. 1994) ..................................................................................... 14, 22, 23, 26 Zaman v. Amedeo Holdings, Inc., 3115, 2008 Del. Ch. LEXIS 60 (Del. Ch. May 23, 2008) ........................................................ 27 Statutes 6 Del. C. 2301(a) ........................................................................................................................ 31 8 Del. C. 145(a) .............................................................................................................. 10, 13, 26 8 Del. C. 145(b) ............................................................................................................. 10, 13, 26 8 Del. C. 145(c) .............................................................................................................. 25, 26, 28 8 Del. C. 145(e) ................................................................................................................... passim 8 Del. C. 145(f) .......................................................................................................................... 12 Rules Fed. R. Civ. P. 56 .......................................................................................................................... 24 L. Civ. R. 7.1(a) ............................................................................................................................ 24 Other Authorities 11-56 Moores Fed. Pract. Civil 56.60[1] ............................................................................... 24

PRELIMINARY STATEMENT Plaintiff, Sergey Aleynikov (Aleynikov), a New Jersey resident and former Vice President of Goldman, Sachs & Co., a subsidiary of Defendant, The Goldman Sachs Group, Inc., (Goldman Sachs), respectfully submits this memorandum of law, together with a Verified Complaint and proposed Order to Show Cause, the Certification of Kevin H. Marino (Marino Certification) and a Statement of Material Facts Not In Dispute, in support of: (1) his

application for an Order to Show Cause why Goldman Sachs should not be required to advance the attorneys fees and expenses he incurs, beginning with a retainer of $500,000 (or such other amount the Court determines is fair and reasonable), to defend allegations, instituted because he was a Goldman Sachs officer, that he downloaded computer source code for Goldman Sachss high-frequency trading system in violation of state law (the State Charges); and (2) his motion for a final Order granting summary judgment in his favor and against Goldman Sachs on that claim for advancement and on his related claims for (a) indemnification for legal fees and expenses of $2,383,002.56 (or such other amount the Court determines is fair and reasonable) that Aleynikov incurred to win a Judgment of Acquittal in February 2012 on federal charges (the Federal Charges) based on the same alleged conduct as the State Charges, plus prejudgment interest; and (b) fees on fees the reasonable fees and costs he incurs in this civil action to enforce his right to indemnification and advancement. Aleynikov seeks a preliminary injunction and moves immediately for summary judgment because, as the Delaware law and corporate bylaws that govern this case make abundantly clear, his right to that relief is indisputable. First, Aleynikov is entitled to summary judgment awarding him indemnification for the cost of defending the Federal Charges because: (a) those charges

were instituted by reason of the fact that he was an officer of Goldman Sachs; and (b) he was acquitted of them. Second, Aleynikov is entitled to summary judgment awarding him advancement of the legal fees and expenses he incurs to defend the State Charges, beginning with a retainer of $500,000 (or such other amount the Court determines is fair and reasonable), because: (a) those charges were also instituted because he was an officer of Goldman Sachs; (b) he has given Goldman Sachs an undertaking in which he has agreed to repay the monies advanced to defend those charges if it is ultimately determined that he is not entitled to indemnification for them; and (c) his right to advancement, as distinct from his right to indemnification, is not dependent on the outcome of the charges. Third, Aleynikov is entitled to recover his legal fees and expenses in this action because Goldman Sachss failure to indemnify him for the Federal Charges or begin to advance his legal fees and expenses for the State Charges necessitated this lawsuit. Beyond his entitlement to summary judgment on his claims for indemnification, advancement and fees on fees, Aleynikov is entitled to a preliminary injunction ordering that advancement with respect to the State Charges begin immediately. That extraordinary relief is warranted because Aleynikov: (a) exhausted his financial resources prior to trial on the Federal Charges; (b) owes a substantial sum for his successful defense of those charges; (c) has not been indemnified despite his acquittal of the Federal Charges; and therefore, (d) does not have the resources to defend the State Charges. Thus, unless the Court orders Goldman Sachs to honor its legal obligation to advance the cost of defending those charges, he will be unable to do so and hence will be irreparably harmed. That threat of immediate and irreparable harm, Aleynikovs 2

substantial likelihood of success on the merits of his advancement claim, the balancing of equities in favor of advancement, and the strong public interest in the enforcement of corporate advancement obligations all entitle him to a preliminary injunction requiring Goldman Sachs to advance his legal fees and expenses to defend the State Charges. For the reasons outlined above and amplified below, Aleynikov is entitled to (a) a preliminary injunction requiring advancement by Goldman Sachs of his cost of defending the State Charges, beginning with the payment of a retainer to MTB in the amount of $500,000 (or such other amount the Court determines is fair and reasonable); (b) an Order entering summary judgment in his favor and against Goldman Sachs on his advancement claim and on his claim for indemnification for the reasonable legal fees and expenses he actually incurred in his successful defense of the Federal Charges, totaling $2,383,002.56 (or such other amount the Court determines is fair and reasonable); and (c) an Order directing Goldman Sachs to pay his fees on fees the reasonable legal fees and expenses he actually incurs in this action to compel compliance with the companys advancement and indemnification obligations together with prejudgment interest. STATEMENT OF FACTS AND PROCEDURAL HISTORY A. Background. Goldman Sachs, through its subsidiary Goldman, Sachs & Co., provides financial services in the United States and around the world and is engaged in, among other activities, high-frequency trading on various commodity and equity markets. (Verified Complaint, 14.) From May 7, 2007 through June 30, 2009, Aleynikov was employed by Goldman, Sachs & Co.

as a Vice President in its Equities Division.1 (Id. 15.) Aleynikov was a member of the team of computer programmers that was responsible for developing and improving certain source code relating to Goldman Sachss high-frequency trading business. (Id.) Aleynikov had security clearance to access all files related to Goldman Sachss high-frequency trading system. (Id.) On or about July 1, 2009, Goldman Sachs, through its employees and agents, contacted the United States Attorneys Office for the Southern District of New York and/or the Federal Bureau of Investigation (the FBI), to report that Aleynikov had electronically transferred files relating to its high-frequency trading system outside of Goldman Sachs during his final days at the office. (Id. 16.) Agents of the FBI arrested Aleynikov at Newark Liberty International Airport in Newark, New Jersey on July 3, 2009. (Id. 17.) Aleynikov was charged in a Criminal Complaint, which alleged that he violated federal law by, inter alia, transferring source code outside of Goldman Sachs. (Id.) In a three-count indictment returned on February 11, 2010 (the Indictment), a federal grand jury charged Aleynikov with violations of federal law based on that alleged misconduct. (Id. 18.) Aleynikov retained Marino, Tortorella & Boyle, P.C. (MTB) to represent him with respect to the Indictment on April 28, 2010. (Id. 19.) MTB filed a motion to dismiss the Indictment on July 16, 2010, arguing that it failed to state an offense under the federal statutes he was charged with violating. (Id. 20.) In a written opinion issued on September 3, 2010, the Honorable Denise L. Cote, U.S.D.J., dismissed one count of the Indictment but declined to
1

Although Aleynikov was employed by Goldman, Sachs & Co. through June 30, 2009, his last day in the office was June 5, 2009. (Verified Complaint 15 n1.) 4

dismiss the other counts and ordered Aleynikov to proceed to trial. (Id.) United States v. Aleynikov, 737 F. Supp. 2d 173 (S.D.N.Y. 2010). On December 10, 2010, the jury found Aleynikov guilty on both counts remaining in the Indictment. (Id. 21.) On March 18, 2011, Judge Cote sentenced Aleynikov to a term of imprisonment of 97 months. (Id. 22.) On March 23, 2011, Aleynikov timely filed a notice of appeal of his conviction and sentence to the United States Court of Appeals for the Second Circuit. (Id. 23.) The Second Circuit heard oral argument on Aleynikovs appeal on February 16, 2012, and later that day summarily reversed his conviction and ordered his release from custody. (Id.) The Second Circuit issued an opinion on April 11, 2012, explaining its conclusion that Aleynikovs conduct did not constitute a crime under either federal statute charged in the Indictment. (Id. 24.) United States v. Aleynikov, 676 F.3d 71 (2d Cir. 2012). On June 5, 2012, following the issuance of the Second Circuits Mandate, the District Court entered a Judgment of Acquittal in Aleynikovs favor, thereby confirming his successful defense of the Federal Charges in their entirety. (Id. 25.) In defending the Federal Charges, Aleynikov incurred legal fees and expenses totaling $2,383,002.56 of which he was only able to pay $547,960.00 before being rendered impecunious. (Id. 26.) B. The New York State Charges. On August 2, 2012, Aleynikov was arrested in New Jersey as an alleged fugitive from justice based on New York State charges relating to his alleged download of computer source code to Goldman Sachss high-frequency trading system during his final days at work. (Id. 27.) The Felony Arrest Warrant, dated August 1, 2012, alleges that on June 5, 2009, at Goldman Sachss offices in New York, New York, Aleynikov copied computer source code for Goldmans

high-frequency trading system without having the right to do so, thereby violating various state laws. (Id. 28.) The Manhattan District Attorneys Office has advised Aleynikovs counsel that it will seek an indictment on those charges in the near future. (Id. 29.) Although Aleynikov intends to fight the State Charges, he is currently unemployed, relies on the charity of friends to provide him with shelter, and lacks sufficient resources to retain MTB to defend him. (Id. 30.) C. Goldman Sachss Bylaws Require Mandatory Indemnification And Advancement Of Legal Expenses Of Its Officers To The Fullest Extent Permitted By Law. As indicated above, Aleynikov was a Vice President of Goldman, Sachs & Co., an indirectly wholly owned subsidiary of defendant The Goldman Sachs Group, Inc. (id. 11), at the time he was alleged to have illegally transferred source code outside of the company, and it is this conduct that gave rise to both the Federal and State Charges. The Amended and Restated By-Laws of The Goldman Sachs Group, Inc., as amended and restated as of May 7, 2010 (the By-Laws), provide for the mandatory indemnification and advancement of legal expenses of former officers of its subsidiaries, including Goldman, Sachs & Co., to the fullest extent permitted by law. (Verified Complaint, 31 & Ex. C.) Specifically, Section 6.4 of the By-Laws provides that Goldman Sachs shall indemnify to the full extent permitted by law any person made a party to a criminal proceeding by reason of the fact that such person was an officer of a Subsidiary of the Corporation. (Id.) The By-Laws go on to define a Subsidiary to include any partnership in which The Goldman Sachs Group, Inc. owns, directly or indirectly, a majority of the economic or voting ownership interest. (Id.) Goldman, Sachs & Co., Inc., as an indirectly wholly owned subsidiary of Goldman Sachs, falls squarely

within the definition of Subsidiary. (Id.) With respect to advancement, the By-Laws provide: Expenses, including attorneys fees, incurred by any such person in defending any such action, suit or proceeding shall be paid or reimbursed by the Corporation promptly upon demand by such person and, if any such demand is made in advance of the final disposition of any such action, suit or proceeding, promptly upon receipt by the Corporation of an undertaking of such person to repay such expenses if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation. (Id.) (By-Laws, 6.4) (emphasis supplied). D. Aleynikovs Demand For Indemnification And Advancement Of Legal Expenses. By letter dated August 24, 2012, MTB demanded that Goldman Sachs honor its obligations to Aleynikov under Delaware General Corporation Law (DGCL)2 and the ByLaws to: (1) promptly indemnify him for the actual and reasonable legal expenses that he incurred in connection with his defense of the Federal Charges; and (2) promptly begin to advance the actual and reasonable legal expenses he incurs in connection with his defense of the State Charges.3 (Verified Complaint, 32 & Ex. D.) Aleynikov also provided Goldman Sachs

In a case in which state substantive law applies, the court must apply the forum states choice of law rules. Fagin v. Gilmartin, 432 F.3d 276, 282 (3d Cir. 2005). Under New Jerseys choice of law rules, the internal affairs of a corporation are governed by the law of the state of incorporation. Id. As the Supreme Court explained: The internal affairs doctrine is a conflict of laws principle which recognizes that only one State should have the authority to regulate a corporations internal affairs matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders because otherwise a corporation could be faced with conflicting demands. Edgar v. Mite Corp., 457 U.S. 624, 645 (1982). The Goldman Sachs Group, Inc. is a Delaware corporation. Consequently, Aleynikovs right to indemnification and advancement by Goldman Sachs is governed by Delaware law.
3

The amount demanded in that letter did not include additional expenses paid directly by Aleynikov totaling $46,960. Therefore, while Aleynikov demanded $2,336,042.56 in the August 24, 2012 letter, he seeks $2,383,002.56 in this action. (Id. 32 n.2.) 7

with an Undertaking by which he promised to repay the legal fees and expenses advanced in connection with the State Charges if it should ultimately be determined that he is not entitled to indemnification. (Id. 33 & Ex. D.) Goldman Sachs has not complied with or even responded to Aleynikovs demand for indemnification and advancement. (Id. 34.) Aleynikov incurred significant legal fees and expenses in connection with his successful defense of the Federal Charges. (Id. 35.) He exhausted his financial resources long before his trial on the Federal Charges and is currently indebted to MTB for the additional fees and expenses incurred through trial and appellate proceedings. (Id.) Because he succeeded on each of the Federal Charges brought against him, Aleynikov is entitled to indemnification for the reasonable fees and expenses incurred in his defense. (Id.) MTB has agreed to defend

Aleynikov on an hourly basis to defend the State Charges and has asked him to provide MTB with an initial retainer of $500,000 (or such other amount the Court determines is fair and reasonable) to secure payment of MTBs fees and expenses in connection with the State Charges. (Id. 36.) As Aleynikovs defense of the Federal Charges left him impecunious, however, he is unable to pay his debts, let alone the retainer necessary for his defense of the State Charges. (Id. 37.) I. ALEYNIKOV IS ENTITLED TO IMMEDIATE ADVANCEMENT OF DEFENSE COSTS RELATED TO THE STATE CHARGES BECAUSE HE WAS AN OFFICER OF GOLDMAN SACHS AND THE STATE CHARGES WERE BROUGHT BY REASON OF THE FACT THAT HE WAS A GOLDMAN SACHS OFFICER. A.

Legal Standard

To prevail on an application for a preliminary injunction, the moving party must demonstrate: (1) a likelihood of success on the merits; (2) that it will suffer irreparable harm if

the injunction is denied; (3) that granting preliminary relief will not result in even greater harm to the nonmoving party; and (4) that the public interest favors such relief. Kos Pharm., Inc. v. Andrx Corp., 369 F.3d 700, 708 (3d Cir. 2004). Although preliminary injunctive relief is considered an extraordinary remedy, Aleynikov clearly satisfies these prerequisites and is entitled to a preliminary injunction for advancement of legal fees. B.

Aleynikov Is Likely To Prevail On His Claim For Mandatory Advancement Of Defense Costs Relating To The State Charges.

Under Delaware law, [a]n advancement action is a summary proceeding. Confederate Motors, Inc., v. Terny, 11 Civ. 10213, 2012 U.S. Dist. LEXIS 54891, at *14 (D. Mass. Apr. 19, 2012) (quoting Kaung v. Cole Natl Corp., 884 A.2d 500, 509 (Del. 2005)). As the Confederate Motors court explained, [u]nlike proceedings to determine the right to receive final indemnification, the scope of an advancement proceeding is limited to determining the issue of entitlement according to the corporations advancement provisions and not to issues regarding the movants alleged conduct in the underlying litigation. Id. at *14-15 (quoting Kaung, 884 A.2d at 509). Thus, [t]he key question in a summary advancement action or, as here, an emergent application for a preliminary injunction coupled with a motion for summary judgment on an advancement claim is whether the plaintiff seeking advancement is facing claims that are subject to his advancement right, a determination that can, in this case and in most cases, be based on a review of the pleadings against him in the actions for which advancement is sought. Id. at *3 (quoting Fasciana v. Elec. Data Sys. Corp., 829 A.2d 160, 167 (Del Ch. 2003)); see also DeLucca v. KKAT Mgmt., L.L.C., 1384-N, 2006 Del. Ch. LEXIS 19, at *20 (Del. Ch. Jan. 23, 2006) (Advancement cases are particularly appropriate for resolution on a paper record.); Weinstock v. Lazard Debt Recovery GP, LLC, 20048, 2003 Del. 9

Ch. LEXIS 83, at *6 (Del. Ch. Aug. 1, 2003) (As in most advancement disputes, summary judgment practice is an efficient and appropriate method to decide this case, as the relevant question turns on the application of the terms of the corporate instruments setting forth the purported right to advancement and the pleadings in the proceedings for which advancement is sought.); Gary v. Beazer Homes USA, Inc., 3537, 2008 Del. Ch. LEXIS 72, at *9-10 (Del. Ch. June 11, 2008) (same). As explained below, the State Charges that while Aleynikov was employed as a Goldman Sachs Vice President and computer programmer, he stole the companys secret scientific and computer related material in the form of computer source code for its highfrequency trading system unequivocally trigger his right to advancement under Delaware law and Goldman Sachss By-Laws. Accordingly, he has demonstrated a substantial likelihood on the success of his advancement claim and, indeed, a right to summary judgment on that claim. 1. As Expressly Permitted Under Delaware Law, Goldman Sachss By-Laws Unequivocally Provide For Mandatory Advancement Of Defense Costs. Section 145(a) and (b) of the Delaware General Corporation Law gives corporations the power to indemnify their current and former corporate officials from expenses incurred in legal proceedings by reason of the fact that the person is or was a director, officer, employee or agent of the corporation. Confederate Motors, 2012 U.S. Dist. LEXIS 54891, at *10 (quoting Homestore, Inc. v. Tafeen, 888 A.2d 204, 212 (Del. 2005)). As the Homestore court explained, however, an officers right to indemnification in a particular case cannot be established until after his defense has been successful on the merits or otherwise. Id. at 211. Therefore, to provide corporate officials with immediate interim relief from the personal out-of-pocket financial burden of paying the significant on-going expenses inevitably involved with 10

investigations and legal proceedings[,] the statutory scheme also allows for the advancement of expenses to the corporate officials. Confederate Motors, 2012 U.S. Dist. LEXIS 54891, at *11 (quoting Homestore, 888 A.2d at 212). Specifically, 145(e) of the DGCL provides, in pertinent part: Expenses (including attorneys fees) incurred by an officer or director of the corporation in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the corporation as authorized in this section. Such expenses (including attorneys fees) incurred by former directors and officers or other employees and agents of the corporation or by persons serving at the request of the corporation as directors, officers, employees or agents of another corporation, partnership, joint venture, trust or other enterprise may be so paid upon such terms and conditions, if any, as the corporation deems appropriate. Id. Goldman Sachs exercised this power granted it under 145(e) by adopting By-Laws that provide for mandatory advancement of a former officers legal expenses when criminal charges are pending against him by reason of the fact that he was an officer of the company. Specifically, Section 6.4 of the By-Laws expressly states that [e]xpenses, including attorneys fees, incurred by[,] inter alia, an officer made party to a criminal proceeding by reason of the fact that he was or is an officer of one of Goldman Sachss subsidiaries, shall be paid or reimbursed by the Corporation promptly upon demand by such person and, if any such demand is made in advance of the final disposition of any such action, suit or proceeding, promptly upon receipt by the Corporation of an undertaking of such person to repay such expenses if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation. 11

(By-Laws, 6.4) (emphasis supplied). Thus, Section 6.4 of the By-Laws (like provisions set forth in many other companies bylaws) makes advancement mandatory upon the companys receipt of an undertaking. This framework is entirely permissible, as Section 145(f) of the DGCL provides Delaware corporations with the authority to provide broader indemnification rights than those provided elsewhere in the statute. 8 Del. C. 145(f) (The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this section shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise . . . .); see also Homestore, 888 A.2d at 212 (The

advancement authority conferred by section 145(e) is permissive. Nevertheless, mandatory advancement provisions are set forth in a great many corporate charters, bylaws and indemnification agreements.); Advanced Mining Sys., Inc. v. Fricke, 623 A.2d 82, 83 (Del. Ch. 1992) (stating, most corporations . . . have by by-law exercised the authority recognized by Section 145 so as to mandate the extension of indemnification rights in circumstances in which indemnification would be permissible under Section 145). Advancement is considered an especially important corollary to indemnification as an inducement for attracting capable individuals into corporate service. Homestore, 888 A.2d at 211. Although correlative, the right to indemnification and the right to advancement are two distinct legal rights, id. at 212, with the former being dependent on the merits of the claims and the latter being dependent on the scope of the claims asserted against the corporate official, not the merits, Confederate Motors, 2012 U.S. LEXIS 54891, at *12. As the court in Homestore explained:

12

The right to advancement is not dependent on the right to indemnification. [Footnote omitted.] The right to indemnification requires success on the merits or otherwise in defending proceedings brought under section 145(a) or (b). [Footnote omitted.] Section 145(e), however, expressly contemplates that corporations may confer a right to advancement that is greater than the right to indemnification and recognizes that advances must be repaid if it is ultimately determined that the corporate official is not entitled to be indemnified. Id. at 212-13 (emphasis in original). Thus, although this Court cannot determine whether Aleynikov is entitled to indemnification with respect to the State Charges until those charges have been resolved,4 he is entitled to an order directing the advancement by Goldman Sachs of his legal fees and expenses to defend those charges, as mandated by the companys By-Laws. 2. The Charges Against Aleynikov Were Brought By Reason Of The Fact That He Was A Goldman Sachs Officer. To be entitled to advancement in a criminal action under Delaware Law and the ByLaws, the claims asserted against Aleynikov must arise by reason of the fact that he was an officer of the Corporation. (By-Laws, 6.4.) That condition is clearly satisfied in this case. First, with respect to Aleynikovs status as an officer, Section 6.4 of Goldman Sachss By-Laws, the Indemnification (and advancement) provision, defines officer as someone identified in any of the four subsections of Section 4.1, which includes vice presidents. With respect to nonincorporated subsidiaries of the Corporation, such as Goldman, Sachs & Co. (a limited partnership), the term officer means any officer of such entity. Thus, there is no doubt that Aleynikov, as a Vice President of Goldman, Sachs & Co., is an officer within the meaning of the Goldman Sachs By-Law governing indemnification and advancement.
4

By contrast, as explained in Section II, below, Aleynikov is now entitled to an order granting his claim for indemnification with respect to the Federal Charges, on which he has fully and finally prevailed. 13

Second, Delaware courts interpret the phrase by reason of in indemnification and advancement provisions to mean by virtue of, by force of or by the authority of. Perconti v. Thornton Oil Corp., 18360, 2002 Del. Ch. LEXIS 51, at *13 (Del. Ch. May 3, 2002). All that is required for criminal charges to be brought by reason of the fact that an individual was a corporate officer is a causal connection or nexus between . . . the charges alleged in the criminal proceedings and the corporate function or official corporate capacity. Id. (quotation marks and alteration omitted); see also Homestore, 888 A.2d at 213-14 ([I]f there is a nexus or causal connection between any of the underlying proceedings contemplated by section 145(e) and ones official corporate capacity, those proceedings are by reason of the fact that one was a corporate officer, without regard to ones motivation for engaging in that conduct.). The Delaware courts and legislature under state law have chosen to provide broad statutory indemnification protection in situations where a corporate officer or director successfully defends against claims of personal liability that arise from or have a nexus to his corporate position. Witco Corp. v. Beekhuis, 38 F.3d 682, 686 (3d Cir. 1994). Here, the criminal charges against Aleynikov clearly arose from and have a nexus to his position at Goldman Sachs: he is alleged to have stolen Goldman Sachss computer source code while he was an officer of the company. And the fact that the conduct he is alleged to have committed is adverse to Goldman Sachs does no violence to his claim for advancement. A corporate officers right to advancement does not go away simply because the entity from which advancement is sought is alleging that [the officer] has committed perfidious acts against it. DeLucca, 2006 Del. Ch. LEXIS 19, at *39. To the contrary, where, as here, a former corporate officer makes a claim to be indemnified for his legal fees and expenses in proceedings instituted against him by

14

reason of the fact that he was an officer, he is entitled to advancement of those fees and expenses. The Delaware Chancery Courts decision in Brown v. Liveops, Inc., 903 A.2d 324 (Del. Ch. 2006), makes this point with particular force on facts strikingly similar to those presented here. In Brown, the plaintiff, a former director and officer of a company, brought an

indemnification action against the companys successor and sought advancement of legal expenses in connection with a California state court action brought by the successor claiming that he stole the companys documents, trade secrets (including source code) and other confidential and proprietary information while he was a corporate official. 903 A.2d at 325, 32829 & n.1. The plaintiff allegedly took the trade secrets and other confidential and proprietary information to form a competing business. Id. at 325. The defendant successor moved to dismiss the former officers action, arguing that he had no right to indemnification or advancement because his conduct was not taken on the companys behalf, and he was not performing a corporate function or action in a recognizable official capacity on behalf of the company when he allegedly committed the bad acts. Id. The Delaware Chancery Court rejected defendants argument and denied its motion to dismiss, concluding that the claims against the plaintiff were inextricably intertwined with his position as an officer and director of the company because the underlying action directly arose out of his former position with the company and not solely after his departure from the company. Id. at 328-29. In reaching this conclusion, the court observed that in Perconti, [t]he court held that the relevant inquiry was whether the criminal scheme is alleged to have employed the corporate powers (or, for example, confidential inside information acquired through the corporate status)

15

conferred upon the officer by virtue of his status. Id. at 329 & n.24 (quoting Perconti, 2002 Del. Ch. LEXIS 51 at *24-26). The Brown court found that, as in Perconti, the plaintiffs corporate powers were used, and were necessary, for the commission of the alleged misconduct. Id. at 329. So too here. The State and Federal Charges are based on the contention that Aleynikov employed his corporate powers to acquire proprietary source code from Goldman Sachs. He therefore did so by reason of the fact that he was an officer of Goldman Sachs within the meaning of the By-Laws and the DGCL. See DeLucca, 2006 Del. Ch. LEXIS 19 at *16-18 (awarding advancement in connection with defense of claims that an employee misused the companys trade secrets and confidential information for her own personal benefit in violation of the companys operating agreements). 3. A Court Considering An Advancement Application Will Not Inquire Into The Merits Of The Underlying Action. The focus on an advancement claim is limited and narrow in that it precludes litigation of the merits of entitlement to indemnification for defending oneself in the underlying proceedings. Id. at 214. The Third Circuits decision in Ridder v. CityFed Fin. Corp., 47 F.3d 85 (3d Cir. 1995) makes this clear. In Ridder, the Resolution Trust Corporation (RTC), as receiver for a company in receivership, sued three former employees of the companys subsidiary for committing various frauds. Id. at 86. Among the alleged misdeeds giving rise to the suit were concealing criminal activity from the company and divulging confidential information for personal gain. Ridder demanded advancement of his defense costs; when the company refused, he sought a preliminary injunction to obtain immediate payment and moved for summary judgment. Id. The district court denied the injunction, reasoning that RTC had 16

strong claims against Ridder and his co-defendants in the related litigation and that it would harm the other creditors of the company to advance legal fees. Reversing that decision, the Third Circuit found that the district court had framed the question incorrectly. As the Third Circuit explained: The issue before the district court was not whether appellants were likely to prevail in the RTC litigation, but whether they were likely to prevail in their assertion that CityFed should advance the costs of defense. Under Delaware law, appellants right to receive the costs of defense in advance does not depend upon the merits of the claims asserted against them, and is separate and distinct from any right of indemnification they may later be able to establish. Id. at 87. That reasoning applies with equal force here. As in Ridder, when determining whether Aleynikov is entitled to advancement, the pertinent inquiry is not whether he will ultimately prevail with respect to the State Charges, but whether those charges were brought by reason of the fact that he was an officer of Goldman Sachs that is, whether those charges arise out of or have a nexus to his position as an officer of Goldman Sachs. Because they undeniably do, Aleynikov is covered by 145(e) and the By-Laws and is therefore entitled to advancement. 4. Aleynikov Has Provided Goldman Sachs With The Necessary Undertaking To Repay Advanced Fees If It Is Ultimately Determined That He Is Not Entitled To Indemnification On The State Charges. If it is later determined that a corporate officer whose defense costs are advanced is not entitled to indemnification, he must repay the advanced funds. Homestore, 888 A.2d at 214. But that question does not bear on the Courts determination of whether the officer is entitled to advancement in the first instance. Indeed, the provisions in both Section 6.4 of the By-Laws and DGCL 145(e) expressly condition the companys obligation to advance legal expenses upon the officers execution of an undertaking by which he agrees to repay the advanced funds if it is 17

ultimately determined that the officer is not entitled to be indemnified by the corporation, thereby leav[ing] no room for argument on that score. See Ridder, 87 F.3d at 87. Aleynikov satisfied that condition by providing Goldman Sachs with an undertaking on August 24, 2012, the date on which he made his claim for indemnification and advancement. Accordingly, because the plain language of Section 6.4 requires Goldman Sachs to advance the legal fees and expenses Aleynikov incurs to defend the State Charges which, like the Federal Charges, arose by reason of the fact that he was an officer of Goldman Sachs Aleynikov is entitled to mandatory advancement his legal fees and expenses with respect to those charges beginning with the payment of a retainer in the amount of $500,000 (or such other amount the Court determines is fair and reasonable), as his attorneys have requested pursuant to the By-Laws. See id. at 211-12 (recognizing that companys similar bylaw provisions

provided corporate officials with an unconditional mandatory right to advancement); Reddy v. Electronic Data Sys. Corp., 19467, 2002 Del. Ch. LEXIS 69 (Del. Ch. June 18, 2003) (finding corporate executive entitled to advancement of legal expenses in connection with civil and criminal actions arising out of alleged serious financial fraud committed in his official capacity, which fraud was intended to benefit himself at the expense of the corporation). C.

Aleynikov Will Suffer Irreparable Harm Absent Preliminary Injunctive Relief.

Aleynikov is insolvent and is currently unable to pay his debts, including the significant unpaid legal fees and expenses he owes MTB for successfully defending him against the Federal Charges. Absent advancement of his legal fees, Aleynikov will be unable to fund his defense of the State Charges. Aleynikov will therefore suffer irreparable harm if Goldman Sachs does not advance the amount necessary to retain and compensate counsel to defend the State Charges. 18

This threat of irreparable harm warrants the issuance of a preliminary injunction. See Ridder, 47 F.3d at 87 (directing district court to issue an injunction requiring the appellee to advance defense costs where the [a]ppellants made a strong showing that, unless defense costs were advanced to them, their ability to defend the RTC action would be irreparably harmed.); Builders World, Inc. v. Marvin Lumber & Cedar, Inc., 482 F. Supp. 2d 1065, 1076 (E.D. Wisc. 2007) (concluding that because plaintiff would become insolvent and/or be unable to finance the lawsuit through the completion of trial proceedings, plaintiff was likely to suffer irreparable harm). With respect to Aleynikovs demand that Goldman Sachs begin by advancing the retainer required by MTB, Delaware courts have expressly found it appropriate to order payment of a retainer where advancement is due. Danenburg v. Fitracks, Inc., 6454, 2012 Del. Ch. LEXIS 53, at *17 (Del. Ch. Mar. 5, 2012) (noting that Delaware courts have approved advancement of retainers); Radiancy, Inc. v. Azar, 1547, 2006 Del. Ch. LEXIS 13, at *14 (Del. Ch. Jan. 23, 2006) (approving advancement of a retainer to secure the services of counsel). Accordingly, Goldman Sachss fulfillment of its advancement obligation to Aleynikov must begin with its advancement of MTBs reasonable retainer. D.

Requiring Goldman Sachs To Advance Aleynikovs Defense Costs In Accordance With Its Contractual And Statutory Obligations Will Not Harm Goldman Sachs.

Goldman Sachs is a global investment banking and securities firm specializing in investment banking, trading and principal investments, asset management and securities services. The company provides services to corporations, financial institutions, governments, and high-net worth individuals. (Marino Cert., Ex. 1, page from Goldman Sachss website.) On July 17,

19

2012, Goldman Sachs reported net revenues of $6.3 billion and net earnings of $962 million for the fiscal quarter ending June 30, 2012. (Id., Ex. 2, 7/17/2012 Goldman Sachs press release concerning Second Quarter 2012 Results.) Thus, it can hardly be said that meeting its obligation to advance Aleynikovs retainer of $500,000 (or such other amount the Court determines is fair and reasonable) and to continue to advance his fees and expenses in accordance with its obligations under its own By-Laws and the DGCL would harm the company. E.

The Public Interest Favors The Issuance Of A Preliminary Injunction.

It is in the public interest to require companies to honor their obligations, imposed under both the companies bylaws and the applicable corporation law, to indemnify and advance the legal expenses of their officers, who rely on their rights to indemnification and advancement in continuing employment with the companies. The Delaware Chancery Court in Reddy succinctly articulated the policy interests at stake. 2002 Del. Ch. LEXIS 69, at *16-17. In Reddy, an EDS employee sought advancement in connection with two actions: a criminal action brought in the Southern District of New York charging him with manipulating financial statements to increase his compensation, and an action by EDS itself based on the same allegedly fraudulent conduct. Id. at *16. EDS argued that it should not have to pay advancement because Reddys conduct was motivated by personal greed. While acknowledging the provocative nature of corporate advancement of the legal expenses of an officer or director accused of wronging his company, Chancellor Strine nonetheless squarely rejected this argument, reasoning as follows: Corporate advancement practice has an admittedly maddening aspect. At the time that an advancement dispute ripens, it is often the case that the corporate board has drawn harsh conclusions about the integrity and fidelity of the corporate official seeking advancement. The board may well have a firm basis to believe that the official intentionally injured the corporation. It therefore is 20

reluctant to advance funds for his defense, fearing that the funds will never be paid back and resisting the idea of seeing further depletion of corporate resources at the instance of someone perceived to be a faithless fiduciary. But, to give effect to this natural human reaction as public policy would be unwise. Imagine what EDS believes to be unthinkable: that the United States government and EDS are in fact wrong about Reddy. What if he in fact did not falsify records? What if he in fact did not do anything that was even grossly negligent? In that circumstance, it would be difficult to conceive of an argument that would properly leave him holding the bag for all of his legal fees and expenses resulting from two cases centering on his conduct as an employee of EDS. That result would make the promise made to Reddy in the EDS bylaws an illusory one. For these reasons, this court has often been required to uphold the indemnification and advancement rights of corporate officials accused of serious misconduct, because to do otherwise would undermine the salutary public policies served by 145. Reddy, 2002 Del. Ch. LEXIS 69, at *16-17; see also Radiancy, 2006 Del. Ch. LEXIS 13, at *2 (It is no answer to an advancement action, as either a legal or logical matter, to say that the corporation now believes the fiduciary to have been unfaithful. Indeed, it is in those very cases that the right to advancement attaches most strongly.) The public policy considerations explained by the Delaware Chancery Court are particularly resonant in this case. Although Goldman Sachs may be convinced that Aleynikov breached his duty as a corporate officer or acted contrary to the best interests of the company, those strongly held beliefs cannot trump the important public policy of assuring that corporate officers have sufficient funds to defend themselves against allegations of wrongdoing. That is particularly so where, as here, Goldman Sachs and the federal prosecuting authorities including the federal case agent whose affidavit supported the District Attorneys application for an arrest warrant in the state case were equally confident that the conduct of which Aleynikov 21

stands accused violated federal criminal statutes and were found to be entirely wrong as a matter of law. For the reasons articulated in Reddy, public policy would thus only be served by ordering Goldman Sachs to advance Aleynikovs defense costs immediately. It is also in the public interest to ensure that a criminal defendant is given the opportunity to provide a meaningful defense by protecting his Sixth Amendment right to counsel, which includes a fair opportunity to secure counsel of his choice. See U.S. Const. amend. VI; United States v. Gonzalez-Lopez, 548 U.S. 140, 144 (2006); Powell v. Alabama, 287 U.S. 45, 53 (1932); United States v. Voigt, 89 F.3d 1050, 1074 (3d Cir. 1996)). For all of these reasons, Aleynikov is entitled to advancement of his legal fees and expenses with respect to the State Charges. II. ALEYNIKOV IS ENTITLED TO SUMMARY JUDGMENT ON HIS CLAIMS FOR INDEMNIFICATION AND ADVANCEMENT. A.

Legal Standard

Summary judgment is appropriate where the movant establishes that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Pisczatoski v. Filko, 840 F. Supp. 2d 813, 818 (D.N.J. 2012) (quoting Fed. R. Civ. P. 56(a)). The movant bears the initial responsibility of advising the court of the basis for its motion and identifying those portions of the record that demonstrate the absence of a genuine issue of material fact. Witco, 38 F.3d at 686. Once the movant has satisfied this initial burden, the opposing party must establish the existence of a genuine issue as to a material fact. Rhett v. PSE&G, 11-2099, 2012 U.S. Dist. LEXIS 129110, at *3 (D.N.J. Sept. 11, 2012) (citing Jersey Central Power & Light Co. v. Lacey Twp., 772 F.2d 1103, 1109 (3d Cir. 1985)). To do so, the opposing party cannot rest on mere allegations and instead must present actual evidence that creates a genuine issue as to a material 22

fact for trial. Id. (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986), and Siegel Transfer, Inc. v. Carrier Express, Inc., 54 F.3d 1125, 1130-31 (3d Cir. 1995)). Moreover, only a factual dispute that might affect the outcome of the lawsuit under governing law will preclude the entry of summary judgment. Id. (citing Anderson, 477 U.S. at 247-48)). If, after drawing all reasonable inferences in favor of the non-moving party, the court finds that no reasonable jury could find in its favor, then summary judgment is appropriate. Id. at *3-4 (citing Alevras v. Tacopina, 226 Fed. Appx. 222, 227 (3d Cir. 2007)). A lawsuit such as this one, which presents purely legal issues, is properly resolved on summary judgment. See Pisczatoski, 840 F. Supp. 2d at 818. Indeed, courts routinely resolve indemnification and advancement claims brought pursuant to a corporations bylaws and/or the DGCL on summary judgment motions. See, e.g., Danenburg v. Fitracks, Inc., 6454, 2012 Del. Ch. LEXIS 4 (Del. Ch. Jan. 3, 2012) (determining that a summary judgment motion was the appropriate vehicle for resolving a request for advancement and indemnification based on the allegations in the underlying action and the wording of the applicable bylaws); Ridder, 47 F.3d at 86 (reversing district courts order denying motion for summary judgment and preliminary injunction based on conclusion that appellants were entitled under the DGCL and the corporate bylaws to have their costs of defense advanced to them as a matter of law); Witco, 38 F.3d at 684 (affirming the district courts grant of summary judgment on the issue of indemnification under the DGCL); Reddy, 2002 Del. Ch. LEXIS 69, at *31 (granting summary judgment on plaintiffs advancement claim pursuant to companys bylaws and DGCL and directing company to advance plaintiff his reasonable expenses); Perconti, 2002 Del. Ch. LEXIS 51, at *41 (granting summary judgment on plaintiffs claim for indemnification of legal fees and expenses incurred in the

23

successful defense of an indictment, pursuant to companys bylaws and DGCL). Rule 56 of the Federal Rules of Civil Procedure, which governs summary judgment motions, does not limit how early a party may move for summary judgment. Specifically, Rule 56(b) provides: Unless a different time is set by local rule or the court orders otherwise, a party may file a motion for summary judgment at any time until 30 days after the close of all discovery. Fed. R. Civ. P. 56(b).5 This Courts local rules expressly permit an application for a judgment to be entertained as soon as a judge is assigned. L. Civ. R. 7.1(a). Aleynikovs motion for summary judgment on his indemnification and advancement claims is therefore timely. B.

There Is No Genuine Issue Of Material Fact That Would Limit Or Delay Goldman Sachss Obligation To Indemnify Aleynikov For Defense Costs Incurred To Defend The Federal Charges Because He Succeeded In Having Those Charges Dismissed.

Aleynikovs right to indemnification is mandated both by the By-Laws and the DGCL. Section 6.4 of the By-Laws provides, in clear and unambiguous language, that Goldman Sachs shall indemnify to the full extent permitted by law, inter alia, an officer of one of its subsidiary
5

Prior to December 1, 2009, the rule was different, as one commentator explains: [T]here were limits on when the parties could move for summary judgment. A defendant could, as now, move for summary judgment at any time. [Footnote omitted.] However, a claiming party, usually a plaintiff, was required to wait for 20 days after commencement of the action (essentially, the amount of time the defendant had to answer) or until the opposing party had served its own motion for summary judgment, before filing a motion for summary judgment. [Footnote omitted.] The waiting period for motions by a plaintiff has been eliminated.

11-56 Moores Fed. Pract. Civil 56.60[1]. The reason for the amendment was that the timing provisions for summary judgment were considered outmoded. Fed. R. Civ. P. 56, Advisory Committee Note to 2009 Amendment. Rule 56(b) now permits any party plaintiff or defendant to move for summary judgment at any time, even as early as the commencement of the action. Id. 24

companies who is made party to a criminal action by reason of the fact that such person was an officer of the company. (By-Laws, 6.4.) Aleynikovs right to indemnification under Section 6.4 is enforceable against Goldman Sachs, and he is presumed to have relied on this right to indemnification in serving as an officer of the company. (Id.) Moreover, as set forth in Section 6.4, Aleynikovs right to indemnification survives the termination of his employment with the company. (Id.) Accordingly, under the plain language of Section 6.4 of the By-Laws, Aleynikov is entitled to reimbursement for the legal fees he incurred in defending against the Federal Charges that arose by reason of the fact that he was an officer of Goldman Sachs. See Homestore, 888 A.2d at 212 (recognizing that bylaws containing similar indemnification language provided corporate officials with a mandatory right of indemnification); Hibbert, 457 A.2d at 343-44 (finding that the defendant was entitled to indemnification under the plain terms of the companys bylaws). Aleynikovs entitlement to mandatory indemnification under Goldman Sachss By-Laws is consistent with the mandatory indemnification provision of the DGCL because he was entirely successful in defending the Federal Charges. Specifically, DGCL 145(c) provides: (c) To the extent that a present or former director or officer of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of this section, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys fees) actually and reasonably incurred by such person in connection therewith.

25

8 Del. C. 145(c) (emphasis supplied).6 That mandatory provision creates an absolute right to indemnification when an officer is successful on the merits or otherwise in the underlying action. Hermelin v. K-V Pharm. Co., 6936, 2012 Del. Ch. LEXIS 23, at *2 (Del. Ch. Feb. 7, 2012) (The statute requires a corporation to indemnify a person who was made a party to a proceeding by reason of his service to the corporation and has achieved success on the merits or otherwise in that proceeding.) (emphasis in original); Stockman Heartland Indus. Partners, 4227, 2009 Del. Ch. LEXIS 131, at * 41 (Del. Ch. July 14, 2009) (recognizing that under 145(c), corporate indemnitees have an absolute right to mandatory indemnification where they are successful on the merits or otherwise in the underlying proceeding); Perconti, 2002 Del. Ch. LEXIS 51, at *10 (Under 8 Del. C. 145(c), an officer or director who meets the requirements of the statutory provision has an absolute right to indemnification.); Witco Corp v. Beekhuis, 38 F.3d 682, 691 (3d Cir. 1994) (Section 145(c) is a mandatory provision that applies to all Delaware corporations and grants an absolute right of indemnification in such situations.) (citing Green v. Westcap Corp. of Del., 492 A.2d 260, 265 (Del. Super. 1985)). Courts interpret the indemnification rights granted under the DGCL very broadly. Witco, 38 F.3d at 691. In keeping with a broad construction of 145(c), courts recognize that success for purposes of the statute means any result other than conviction, and that there is no

DGCL 145(a) covers any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) in which a person is made a party by reason of the fact that the person is or was[,] inter alia, an officer of the corporation; and under 145(b), it is any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor in which a person is made a party by reason of the fact that the person is or was[,] inter alia, an officer of the corporation. 8 Del. C. 145(a), (b). 26

requirement of a showing of good faith or innocence.7 Perconti, 2002 Del. Ch. LEXIS 51, at *15 (rejecting argument that a corporate officer is not entitled to indemnification when his conduct was motivated by personal self-interest and greed); see Green, 492 A.2d at 262, 265-66 (former officer who obtained a judgment of acquittal as to all counts of an indictment alleging use of false financial statements concerning the companys financial condition in obtaining a loan was entitled to indemnification even though the judge who directed the judgment of acquittal noted that the court did not find him innocent and that he believed he would be punished in civil courts); Merritt-Chapman & Scott Corp. v. Wolfson, 321 A.2d 138, 141 (Del. Super. 1974) (Success is vindication. In a criminal action, any result other than conviction must be considered success.); Hermelin v. K-V Pharm. Co., 6936, 2011 Del. Ch. LEXIS 172, at *1-2 (Del. Ch. Nov. 23, 2011) (recognizing that evidence relating to plaintiffs good faith or lack thereof is irrelevant under the mandatory indemnification provision of 145(c)); Stockman, 2009 Del. Ch. LEXIS 131, at *41 (An indemnitee in a criminal proceeding is successful any time she avoids conviction[.]); Zaman v. Amedeo Holdings, Inc., 3115, 2008 Del. Ch. LEXIS 60, at *72 (Del. Ch. May 23, 2008) (The success on the merits or otherwise standard is one that grants indemnification to corporate officials even when they have not been adjudged innocent in some ethical or moral sense.); Waltuch v. Conticommodity Servs., Inc., 88 F.3d 87, 96 (2d Cir. 1996) (recognizing that under Delaware law, vindication, when used as a synonym
7

Unlike subsection (c) of 145, subsection (a) authorizes indemnification only if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person's conduct was unlawful. Similarly, subsection (b) authorizes indemnification only if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation. 8 Del. C. 145. In Green, the court recognized that this language from subsections (a) and (b) was not incorporated into subsection (c). 492 A.2d at 264-65. 27

for success under 145(c), does not mean moral exoneration; rather, [e]scape from an adverse judgment or other detriment, for whatever reason, is determinative). The Perconti court explained the important policy concerns served by the traditionally broad reading of Section 145(c): First, Section 145(c) assures indemnification to the corporate officer who has been successful in the criminal proceeding. It does not require a determination that the corporate officer was innocent. Guilty parties may prevail in criminal proceedings for any of a number of reasons, including, of course, the requirement that the jury be convinced of guilt beyond a reasonable doubt or a prosecutorial decision not to devote additional resources to obtaining a conviction following a mistrial. Second, to require the corporate officer seeking indemnification under Section 145(c) to demonstrate that he pursued his course of conduct for the benefit of the corporation or for purposes other than self-interest would limit the rights clearly conferred by Section 145(c) in a manner that was not (but could have been) included in the legislative standard. [Footnote omitted.] The right of a successful corporate officer to indemnification derives from his status as a corporate officer. If the conduct resulting in the prosecution was done in his capacity as a corporate officer, without regard to what his motivation may have been, then the ensuing prosecution was by reason of the fact that he was a corporate officer. 2002 Del. Ch. LEXIS 51, at *15-16. In this case, Aleynikov achieved complete victory in defending the Federal Charges. Judge Cote dismissed one count of the Indictment on a pre-trial motion, Aleynikov, 737 F. Supp. 2d at 194, and the Second Circuit reversed Aleynikovs judgment of conviction on the remaining counts based on its determination that those charges of the Indictment did not state a crime as a matter of law. Aleynikov, 676 F.3d at 76. Because Aleynikov was acquitted of all the Federal Charges, he undeniably was successful in the criminal proceeding within the meaning of DGCL 145(c). Accordingly, he is entitled to mandatory indemnification under the statute for 28

the actual and reasonable legal expenses he incurred in defending the Federal Charges. In sum, Aleynikov is entitled to summary judgment declaring that he is entitled to mandatory indemnification, under both Goldman Sachss By-Laws and DGCL 145(c), for the legal fees and expenses incurred in connection with the Federal Charges. C.

There Is No Genuine Issue Of Material Fact That Would Limit Or Delay Goldman Sachss Obligation To Advance Aleynikov The Reasonable Fees To Defend Against The State Charges.

For the reasons articulated in Section I, supra, Aleynikov is also entitled to summary judgment on his claim for advancement. Only three questions are relevant to the determination of whether Aleynikov is entitled to advancement under Delaware law and the By-Laws: (1) Was he a former Officer of the company? (2) Is he the subject of a criminal investigation or action because of conduct he engaged in as an Officer of the Company? (3) Has he undertaken to repay Goldman Sachs for any defense costs advanced to him if it is ultimately determined that he is not entitled to indemnification? (By-Laws, 6.4; DGCL, 145(e).) It is undisputed that the answer to each of those questions is Yes. Accordingly, Aleynikov is entitled to summary judgment on his claim for advancement of defense costs. III. ALEYNIKOV IS ENTITLED TO THE REASONABLE FEES AND EXPENSES (FEES ON FEES) INCURRED TO COMPEL GOLDMAN SACHS TO HONOR ITS ADVANCEMENT AND INDEMNIFICATION OBLIGATIONS, AND TO PREJUDGMENT INTEREST. A.

Fees on Fees

Under Delaware law, an officer entitled to mandatory advancement and indemnification is entitled to recover fees on fees viz., the reasonable legal fees incurred to compel the company to honor its advancement and indemnification obligations. Stifel Fin. Corp. v.

Cochran, 809 A.2d 555, 556 (Del. 2002) (reversing the Court of Chancery for failing to order 29

fees on fees in an indemnification action); Barrett v. American Country Holdings, Inc., 951 A.2d 735, 746 (Del Ch. 2008) (Sadly, Kingsways stockholders will end up paying for the time- and resource-wasting litigation. In accord with the Supreme Court jurisprudence mandating fees on fees in advancement actions, Kingway must pay all the fees and expenses of the Former Directors counsel.). In this case, as detailed in sections I and II above, the By-Laws and DGCL 145 impose upon Goldman Sachs a mandatory obligation to advance Aleynikovs defense costs relating to the State Charges and to indemnify him for the defense costs related to his complete success on the Federal Charges. Despite Aleynikovs written demand for indemnification and advancement and his execution of an undertaking promising to repay the amounts advanced to him if it is ultimately determined that he is not entitled to indemnification, Goldman Sachs has refused to honor that demand. Given that Aleynikov was forced to seek court intervention to vindicate his clear right to advancement and indemnification, he is also entitled to recover the reasonable fees incurred to vindicate that right. B.

Prejudgment Interest

In a diversity action such as this one, the award of prejudgment interest is governed by the applicable state law. Meyer v. CUNA Mut. Ins. Socy, 648 F.3d 154, 162 (3d Cir. 2011); Jarvis v. Johnson, 668 F.2d 740, 741, 746 (3d Cir. 1982). Under Delaware law, prejudgment interest is awarded as a matter of right and not of judicial discretion. Moskowitz v. Mayor and Council of Wilmington, 391 A.2d 209, 210 (Del. 1978); Underbrink v. Warrior Energy Servs. Corp., 2982, 2008 Del. Ch. LEXIS 65, at *75 (Del. Ch. May 30, 2008) (In Delaware, prejudgment interest is awarded as a matter of right.). The primary purpose of prejudgment

30

interest is to ensure that a plaintiff to whom payment was owed does not suffer injury by the defendants justified delay. Citrin v. International Airport Ctrs. LLC, 922 A.2d 1164, 1167 (Del. Ch. 2006). Requiring a defendant to pay a fair rate of interest during the period of unjustified delay helps make the plaintiff more whole, while depriving the defendant of a windfall. Citrin, 922 A.2d at 1167. Prejudgment interest on 145 claims begins to accrue when the plaintiff has demanded indemnification and advancement and the defendant has, without justification, refused to honor its indemnification and advancement obligations. Citrin, 922 A.2d at 1167; OBrien v.

IAC/Interactive Corp., 3892, 2010 Del. Ch. LEXIS 189, at *52 (Del. Ch. Aug. 27, 2010); Underbrink, 2008 Del. Ch. LEXIS 65, at *75. Delaware courts distinguish between expenses incurred before the first demand by a plaintiff and those expenses incurred after the demand. With respect to expenses incurred before the demand, interest begins to run from the date of the demand. With respect to expenses incurred after the demand, interest begins to run from the date of payment of those expenses. Citrin, 922 A.2d at 1167-68; OBrien, 2010 Del. Ch. LEXIS 189, at *56; Underbrink, 2008 Del. Ch. LEXIS 65, at *76. Expenses, both pre- and post-demand, accrue at the legal rate as defined in 6 Del. C. 2301(a), compounded quarterly. OBrien, 2010 Del. Ch. LEXIS 189, at *58; Underbrink, 2008 Del. Ch. LEXIS 65, at *78. Section 2301(a) defines the legal rate of interest as 5% over the Federal Reserve discount rate including any surcharge as of the time from which interest is due. 6 Del. C. 2301(a). All of the expenses that are subject to Aleynikovs indemnification claim were incurred 31

prior to his demand for payment on August 24, 2012.

(Verified Complaint, Ex. D.)

Accordingly, Aleynikov respectfully submits that Court award him prejudgment interest on his indemnification award consistent with the Delaware statutory legal rate from September 15, 2012, which is ten business days after Aleynikovs first demand and a reasonable estimate of the time it would have taken him to deliver his invoices to Goldman Sachs (five days), to the date of Goldman Sachss payment. Citrin, 922 A.2d at 1169; OBrien, 2010 Del. Ch. LEXIS 189, at *51, 55. Aleynikov also respectfully requests that the Court should award him prejudgment interest on his advancement award consistent with the Delaware statutory legal rate from September 14, 2012, on both pre- and post-demand expenses, because he is without sufficient funds to pay any of the expenses he has incurred thus far in connection with defending against the State Charges.

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