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Friday, October 26, 2007

The Charney v. S&C Settlement: Distorted Perceptions of Employment Discrimination Lawsuits

Aaron Charney has settled his claim of sexual orientation discrimination against Sullivan & Cromwell,  and some of the ensuing commentary has seemed surprisingly far off-base, in my view.

Leonard Link, whose blog often does have lots of good stuff, risks furthering a common misperception by ending his post with this: "Now the question that everybody will be asking is.... will Aaron Charney ever have to work again?"  It's not every day I can answer a question everybody is asking, but today I can:  Yes, unless Charney wants to experience his "early retirement" in a rural trailer park.  I've only once seen an employment discrimination settlement so big that the plaintiff would never have to work again.  A very successful early settlement, from the plaintiff's perspective, usually is about 1-3 years' pay, but it's more common for a good early settlement to be about 6 months' salary, which would be less than $100K.  Settlements that, like Charney's, occur before much discovery tend to be on the smaller side, because the plaintiff doesn't yet have all the evidence that would convince the defendant it wouldn't win on summary judgment.  Employment discrimination settlements almost never are a gold mine, and we shouldn't speculate that this case was.

Another blogger took a "skeptical" view of the speculation that Charney got  "a huge payout" -- but for dubious reasons: "Sullivan & Cromwell had a viable counter-suit against Charney.  In exchange for dropping the counter-suit, Charney likely had to give up a decent portion of any settlement.  Also likely knocking the settlement down was the court's recent dismissal of Charney's Intentional Infliction of Emotional Distress and Conspiracy claims.  Plus, Charney had a lot of hungry lawyer mouths to feed."  The "hungry lawyer mouths" quote is what's bizarre: yes, Charney had three different groups of lawyerrs retained, but (1) if the lawyers were on a contingency fee, it's not like they each got a third -- I'm sure they just shared a standard 33% or 40% fee, and (2) if the lawyers were billing Charney hourly, then Charney probably did better than if he'd paid on contingency, because the case settled early -- before depositions, as I understand it, and discovery is where the real money is spent in litigation (according to both my experience and a study I read showing that discovery is about half of the cost of litigation).

Also, I can't see how Charney's settlement value would've dropped after the court's "dismissal of [his] Intentional Infliction of Emotional Distress and Conspiracy claims."  On his still-standing discrimination claim, Charney was suing for broader relief (the same uncapped emotional distress, punitive damages, and lost wages, plus attorney fees) -- which is why I never liked including "intentional infliction" claims in discrimination suits.

A number of bloggers and commenters are awaiting, or soliting, a leak of the settlement, so let me disappoint you: It ain't happening.  I've written about how common confidential settlements are, and I know the lawyers on both sides of the Charney case: they're pros who'd never leak.  And S&C certainly is keeping this under wraps, so if a leak happens, suspicion would center on Charney, and I'm sure the terms of the settlement give S&C the right to claw back the whole settlement amount if Charney leaks.  Of course, this case has been odd, so it might break all the rules -- but the fact remains that leaks of confidential settlements in employment cases are truly rare.  One blogger summed it up best: "The truth here will not be known."

Posted by Scott on October 26, 2007 at 01:36 PM | Permalink


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Tracked on Oct 31, 2007 12:12:38 PM


Professor Moss, I guess we have a difference of opinion. I appreciate that you made me think through this case even more. But I believe you put misleading words into my mouth at points.

First, as to your claim that S&C's counterclaims "were almost certainly tactical aimed at expanding the discovery they could get from Charney ..." - well, aside from the fact that any claim in a lawsuit can be labeled "tactical" in some way - I never said that S&C's claims had large monetary value. Perhaps S&C could prove large monetary damages, perhaps not. However, the more important aspect of S&C's claims against Charney is that Charney had a big non-monetary incentive to settle. S&C's claims against Charney were embarrassing and potentially damaging to his future career and Charney probably didn't want the claims dragged out any futher. S&C's embarrassing and potentially damaging allegations against Charney are probably one of the major reasons Charney's attorneys agreed to a very broad confidentiality stipulation concerning the exchange of documents in discovery. I don't know how closely you followed this case since I think you may have underestimated the amount of discovery that had occurred before settlement, but Charney did surprise a few people by agreeing to such a broad confidentiality stipulation earlier in the summer.

Furthermore, though you cite an unnamed recruiter supposedly admitting that some plaintiffs are "radioactive" when trying to find jobs after suing their former employers, I don't think that means you can discount the allegations against Charney. These claims against Charney likely turned him from potentially "radioactive" into nuclear. I can see at least some employers who could be sympathetic to Charney and his claims against S&C, but I can't imagine many employers who can forgive him if he sent confidential employer documents to the press.

I also don't know why you put quotation marks around "he [Charney] stole documents," since I never said that. I said that Charney was accused of sending confidential lawfirm documents to the press and I did say that Charney claimed the documents just happened to show up at his doorstep, but I never said that he stole the documents. I think it was misleading to use those quotation marks.

Posted by: Anon | Nov 5, 2007 9:46:49 AM

S&C's counterclaims (breach of fiduciary duty for misapropriating documents, etc.) were almost certainly tactical, aimed at expanding the discovery they could get from Charney and at stressing the "hjestole documents" allegation that, under the after-acquired evidence doctrine, would have been a key affirmative defense for S&C against Charney's discrimination claim. I don't see real monetary damages S&C suffered even if their allegations were true, and I don't see such largely nonmonetary claims as likely to affect settlement value. So maybe I didn't "ignore" this point "for some reason"

Also, when you wrote "if Charney does have trouble finding a job, it's probably because he may have admitted to sending confidential law firm documents to the press" -- well, no: plaintiffs not accused of stealing documents still become "radioactive" to other employers in their field (that's the word one executive recruiter once used in admitting the dark truth that's commonly known but never acknowledged).

So while you personally clearly are most focused on the "he stole documents" allegations, those allegations aren't really critical to settlement value and aren't really the reason Charney will have re-employment problems.

Posted by: Scott Moss | Nov 5, 2007 8:16:17 AM

Anon 5:03 -

Aaron Charney likely did not get such a big settlement that you predict. You ignore the fact that Sullivan and Cromwell had a counter-claim against Charney. Sullivan and Cromwell didn't agree to drop their suit against Charney for nothing. But don't feel bad. Professor Moss also ignores this key point for some reason.

Also, Charney may have trouble finding an in-house position or even a small-law position. You can't forget that he was accused of, and I believe admitted to, sending confidential law firm documents (that he claims just happened to show up on his doorstep??!!) to the press. Many potential employers probably won't view that as a selling point to hiring him.

Posted by: Anon | Nov 5, 2007 7:54:37 AM

The emotional distress claim was dismissed as duplicative, and the conspiracy claim was dismissed because the judge found that the allegations on which it rested were all actionable as part of the city human rights claim. The city human rights act, the sole basis for the suit, does not cap punitive damages. The depos taken last spring around the motion practice gave rise to sensational allegations about statements made by an S&C senior partner in the January 31 "settlement meeting" that, if repeated in open court, would be devastating to certain reputations. In other words, S&C had strong motivations here to pay off Charney to make this thing go away, rather than have to file an answer to the complaint and submit to depos of their partners and, perhaps down the road, testimony under oath in court. In fact, there is still a possible lawsuit against S&C by Gera Grinberg, the S&C former associate and close friend of Charney, who evidently was prepared to back up Charney's account of that January 31 meeting and who is no longer at S&C at their election, not his....

So, what does this translate into in a money settlement? I would have thought the settlement value of this thing was not the usual, due to these extraordinary aspects of the case. And because this is not under the state or federal laws, there were no punitives caps, and Charney had a pretty decent retaliation case, if not a particularly strong hostile environment harassment case, maybe he got somewhat more than some of the folks above are guessing, based on their experience with more run-of-the-mill cases.

But assuming everybody keeps the confidences they are supposed to keep, we'll never really know.

As to Charney working again for a biglaw firm, that sounds out of the question. But perhaps given his M&A expertise, he can end up in-house at a financial institution, or perhaps working with a boutique firm of some sort. Otherwise, he needs to change his specialty or go into another line of work. I wonder if he might become a law prof. The money's not as good as practice in biglaw, but the hours are better.

Posted by: Anon | Nov 1, 2007 5:03:21 PM

Anon 8:58:

Even taking your assumption that Charney experienced unlawful discrimination as true (though that was never determined and *many* people disagree with that assumption), if Charney does have trouble finding a job, it's probably because he may have admitted to sending confidential law firm documents to the press. What employer, AmLaw 200 to AmLaw 5000 to the Gap or Starbucks, would hire someone who has sent employer documents to the press?

Also, consent decrees excluded, no employer "assumes" liability in a settlement agreement. In fact, they explicitly disclaim liability and usually note that no authority has judged them liable. The stated reason for paying the settlement is to avoid the costs and inconvenience of further litigation.

Posted by: anon | Oct 30, 2007 10:06:43 PM

I am not an employment lawyer, but would also submit that Charney's situation is unique in the fact that he is all but unemployable in the subfield that he once practiced, which is essentially all of Biglaw, at least in New York. But for the discrimination he experienced, it would be reasonable to assume that Charney would continue his Biglaw career and make partner, if not at S&C then at another large firm.

The value of being an associate at S&C goes far beyond associate compensation and even potential partner prospects at S&C. There is also value in the prestige that comes with being an S&C associate. that value has been all but wiped out in Charney's case. The typical associate who is dissatisfied with their firm can easily, for example, switch to a comperable firm and continue his career there.

I think we can safely assume that no AmLaw 200 firm is going to touch Charney. If the settlement assumes that S&C is liable, it should also take into consideration the fact that charney will have to consider a completely new career path. Charney may work again, but it will not be, at least for the time being, at anything close to the salary he was making or was certain to make.

Posted by: Anon | Oct 30, 2007 8:58:31 PM

I agree that employment law cases do not generally result in huge settlements, however, your critiques of "skeptical" are weak at points.

I agree with "skeptical" that the settling of the counter-suit would lower any settlement Charney would have received without the presence of Sullivan and Cromwell's counter-suit.

In my experience as an employment litigator, the dismissal of some of Plaintiff's charges from the lawsuit certainly lowers the ultimate settlement value of the case *even if* the dismissed claims were weak, frivolous, or were covered by "broader relief" in remaining claims. Anytime a judge is willing to dismiss claims from a lawsuit in a motion to dismiss, the settlement a Plaintiff can expect is lower than before the dismissal. There's simply less for the Plaintiff to bargain with, and the defense is emboldened by the fact that the judge may also side with them later on to dismiss the remaining claims in a summary judgment motion. We may just have a difference of opinion, but in my experience, a dismissal of *any* claim in a case lowers its value.

You may be right that the three different law groups representing Charney (two groups representing Charney on his claims and one defending Charney in the counter-suit, I believe) all agreed to split 40% of the settlement. But if all or some of the lawyers were paid on an hourly schedule, I think your implication that the case was barely in discovery and therefore relatively inexpensive is misleading. Though only one known deposition was taken, there were also *two* motions to dismiss, an amended complaint, and a number of hearings. While I agree that the case was settled early in the process, there was already motion practice and a bit more discovery than what is implied in your post. While you may not agree with "skeptical's" viewpoint, it's not bizarre and not dubious.

Your claim that the terms of the settlement will not be leaked because you can vouch for the integrity of the lawyers is appreciated. It's likely the terms will not be leaked. However, I think most people assume that if the terms are leaked, it will be Charney, not the lawyers who do so. Charney was already accused (and may have admitted) to sending confidential law firm documents to the press. And while the settlement will have a penalty provision should Charney leak the settlement terms, good luck to Sullivan in tracing the leak back to the culprit and proving its case in court should the terms be leaked.

Posted by: Anon | Oct 26, 2007 10:55:49 PM

Anon: Yes, Charney certainly could have argued that his lost wages are not just his then-current associate compensation, but his prospective partner compensation. I've argued the same when representing someone who was fired, arguing that s/he would've been promoted in X years. So you end up with two damages calculations, one assuming "no promotion" (i.e., X years of current comp with modest annual raises), and one assuming promotion (i.e., X years of current comp and then Y years of "partner comp").

But partnership at a huge firm like S&C is uncertain enough that such a calculation would be a longshot -- so Charney's claim to "promotion income" is weaker than that of, say, a wall street employee arguing that s/he would've been promoted to VP or Director or whatever in X years

So I see Charney's as a typical discrimination case, albeit that of a relatively high-income worker.

Posted by: Scott Moss | Oct 26, 2007 3:29:32 PM

1) Don't you think this could be one of the exceptional cases that would result in a large settlement, since Charney may have made partner at S&C, which would result in future earnings far greater than his current expectations?

2) Another factor minimizing the significance of legal costs is that attorney's fees are available for the prevailing party in NYC human rights law suits, which would have been factored in to the settlement agreement.

Posted by: anon | Oct 26, 2007 3:23:10 PM

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