Court Opinion

ID: 5487292
Source: CourtListenerOpinion
Date Created: 2022-01-10 02:17:43.998031+00
Date Added: 2024-06-11T08:33:42.255878
License: Public Domain

Chief Judge Lippman (dissenting).
In the wake of the devastation caused by fraudulent financial schemes—such as the Mad-off ponzi operation, infamous for many reasons including the length of time during which it continued undetected—the courts can ill afford to turn a blind eye to the potential for abuses that may be committed by unscrupulous financial services companies in violation of the public trust and the law. In the absence of conscientious efforts by those insiders entrusted to report and prevent such abuses of investors, such behavior can run rampant until a third party outside the company discovers it and takes action. The message that will be taken from the majority’s decision is self-evident: if compliance officers (and others similarly situated) wish to keep their jobs, they should keep their heads down and ignore good-faith suspicions or evidence they may have that their employers have engaged in illegal and unethical behavior, even where such violations could cause or have caused staggering losses to their employers’ clients. The majority’s conclusion that an investment adviser like defendant Peconic has every right to fire its compliance officer, simply for *266doing his job, flies in the face of what we have learned from the Madoff debacle, runs counter to the letter and spirit of this Court’s precedent, and facilitates the perpetration of frauds on the public.
Because the majority unduly narrows the scope of a purposefully and carefully crafted exception to the doctrine of at-will employment, and unfathomably permits the termination of a hedge fund’s chief and deputy chief compliance officers in the midst of their investigation of the CEO’s allegedly “manipulative and deceptive trading practices that include[d] illegal ‘front-running’ in violation of federal and state securities laws,”1 I respectfully dissent.
The majority concedes that “there are some employment relationships, other than those between a lawyer and a law firm, that might fit within the Wieder exception” (majority op at 264), but erroneously concludes that such a relationship did not exist in this case. Nevertheless, the decision of the Court undermines the exception to the at-will employment doctrine (as recognized in Wieder v Skala, 80 NY2d 628 [1992], and reaffirmed in Horn v New York Times, 100 NY2d 85 [2003]), by excluding arbitrarily hedge fund compliance officers from the protections extended to lawyers working in law firms. In so doing, hedge fund managers are given carte blanche to terminate the very employees who are charged with the critical statutorily mandated role2 of ensuring adherence to ethical and legal obligations, for doing the jobs they were hired to do. These protections must exist not only to decrease the likelihood that such employees will succumb to pressures to ignore or violate their obligations for fear of termination, but also to protect the public.
Our decisions in Wieder and Horn provide guideposts for determining whether an employment relationship falls within *267the exception to the general rule.3 As applied to plaintiff Sullivan, chief among these considerations are that his sole function as compliance officer was to ensure compliance with the applicable internal and external ethical and legal requirements, his employer was bound by the same obligations, and his job as a compliance officer entailed fundamental self-regulatory functions.
In Wieder, we held that the plaintiff law firm associate’s “central professional purpose” for associating with the employer was “the lawful and ethical practice of law” (Wieder, 80 NY2d at 636). Sullivan’s central purpose as a compliance officer was to ensure that his employer adhered to the regulations governing hedge funds. In other words, it was Sullivan’s responsibility to make certain that Peconic engaged in the lawful and ethical provision of investment adviser services.
As the Supreme Court correctly reasoned below in this case, “Sullivan and [Peconic] were engaged in a ‘common professional enterprise’ and ‘were mutually bound to follow’ both the Code [of Ethics] and any federal or state securities laws at issue.” Sullivan’s position is comparable to that of the plaintiff lawyer in Wieder and in stark contrast to that of the plaintiff doctor in Horn, who was not covered by the Wieder exception, in part because while as a physician she had certain obligations to the New York Times employees with whom she interacted, those obligations were not shared by her non-medical employer. Here, Sullivan and his employer shared certain fundamental ethical and legal responsibilities that they were bound to respect in their dealings with and on behalf of Peconic’s clients.
Just as the plaintiff in Wieder was engaged in a self-regulating profession, the practice of law, Sullivan’s job responsibilities at Peconic involved substantial self-regulatory aspects. This was not the case in Horn, wherein the Court held that “the principle of physician-patient confidentiality ... is not a self-policing rule critical to professional self-regulation” (100 NY2d at 96).
*268The majority attempts to distinguish this case from Wieder. However, the purportedly material distinctions identified fail to appropriately take into account the principles we expounded upon in Wieder. The Court erroneously finds it to be relevant that Sullivan “had four other titles at Peconic” (majority op at 264). That is not a logical basis upon which to justify the different treatment of the plaintiff in Wieder as compared to Sullivan. If that were a valid distinction, then an unscrupulous employer wishing to avoid the application of the Wieder exception in a case in which it would otherwise apply would shield itself by giving any person potentially subject to the exception additional job titles and/or functions. Nothing in Wieder suggests that we intended to create such a loophole. That said, where an employee is merely peripherally responsible for informing his or her employer (or others) of violations of certain obligations, that person is unlikely to be covered by the Wieder exception. This is not such a case. Within Sullivan’s role as a compliance officer, his sole duty was to ensure compliance with the applicable provisions of law and ethical rules and Peconic was also bound to adhere to the same rules in providing services to its clients. And, of course, in order to succeed, plaintiff would have to prove that he was terminated due to his actions as Chief Compliance Officer, not in some other capacity at Peconic.
Perhaps the majority’s emphasis on Sullivan’s multiple roles is drawn from the language of our decision in Horn, where we implicitly recognized that the plaintiff doctor’s primary job function was not the ethical and lawful provision of medical treatment to New York Times employees, but rather that her main role was to “ apply[ ] her professional expertise in furtherance of her responsibilities as a part of corporate management” (100 NY2d at 95). However, it cannot similarly be said that Sullivan’s primary role as Chief Compliance Officer was anything other than to ensure the ethical and lawful provision of investment adviser services. In Horn, we noted that “Horn was employed as the Associate Medical Director of the Times’ in-house Medical Department, where whatever medical care and treatment she rendered was provided only to fellow employees and only as directed by her employer” and that she alleged that she was responsible for determining whether “injuries suffered by Times employees were work-related, thus making the employees eligible for Worker’s Compensation payments” (Horn, 100 NY2d at 95 [internal quotation marks omitted]). We found *269that “[w]hen Horn made assessments as to whether a Times employee had suffered a work-related illness or injury, she was surely calling upon her knowledge as a physician, but not just for the benefit of the employee” (id.). Here the Chief Compliance Officer position was created in order to protect Peconic’s clients from ethical and legal violations. Additionally, Peconic had the same responsibility to its clients as did Sullivan. In Horn, the New York Times may have had certain responsibilities to its employees, but it was not a provider of medical services and it was therefore not subject to the same rules and regulations governing the relationship between physicians and patients.
Much is made of the fact that Sullivan was not a member of a firm of compliance officers (see majority op at 264), leading to the erroneous conclusion that he was not situated similarly to the plaintiff in Wieder, who was an attorney working for a firm of attorneys. The plaintiff in Wieder was an employee of a business that represented clients and was bound to follow certain stringent legal and ethical rules. Similarly, Sullivan was an employee of a business that was subject to certain legal and ethical obligations to its clients and his reason for being, as a compliance officer, was to ensure that in providing services to those clients, those rules were followed at all times.
The majority suggests that, going forward, employees in Sullivan’s position can look to federal whistleblower protections. But the common law should protect compliance officers from retaliatory termination from the inception of their investigations into suspected wrongdoing, even before they make any reports to the government, without the need for recourse to federal statutes or, for that matter, to state statutes.
The Court’s decision concludes that “[n]othing in federal law persuades us that we should change our own law to create a remedy where Congress did not” (majority op at 265). The clear implication of this statement is that in order for hedge fund compliance officers to be entitled to the same protections as attorneys working in law firms, these protections must be conferred by statute. This approach creates a problem for legislators to solve where none existed previously. Prior to today, it was unnecessary for either Congress or this State’s Legislature to create a new rule to protect employees like Sullivan. The at-will employment doctrine and the Wieder exception, both of which are creatures of common law, provide clear guidance. Rather than alluding to the possible creation of a new statutory remedy, this Court should instead properly apply Wieder.
*270The majority unwisely limits the exception to the at-will employment doctrine that we identified in Wieder. In so doing, it creates a great potential for abuse in the financial services industry. I respectfully dissent and would reinstate the second cause of action in the complaint.
Judges Graffeo, Read, Pigott and Jones concur with Judge Smith; Chief Judge Lippman dissents in a separate opinion in which Judge Ciparick concurs.
Order affirmed, etc.

. This allegation is included in Sullivan’s complaint. Sullivan also alleges that he relied on and was bound by Peconic’s internal code of ethics when he “refus[ed] to engage in securities violations” and instead chose to speak out about certain trades he alleges were “improper [and] apparently illegal.” Specifically, the complaint alleges that by making these trades, Harnisch violated a provision in the code of ethics prohibiting Peconic from “ ‘taking advantage of investment opportunities belonging to a client without recommending or effecting a suitable transaction in that security for the client.’ ”

. Pursuant to 17 CFR 275.206(4)-7 (a), (c), a registered investment adviser must designate a chief compliance officer.

. It is noteworthy that in Wieder, we were cognizant of the problems inherent in a contractual relationship wherein a person requires another to carry out certain tasks and then proceeds to prevent that person from completing those duties: “when A and B agree that B will do something it is understood that A will not prevent B from doing it. The concept is rooted in notions of common sense and fairness” Wieder, 80 NY2d at 637). We found that “tj]ust such fundamental understanding, though unexpressed, was inherent in the relationship between plaintiff and defendant law firm” (id.). That is no less true of the relationship between a compliance officer and a hedge fund.