Sullivan v. Harnisch, 66 A.D.3d 117 (2011)
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New York common law does not recognize a cause of action for wrongful discharge of an at-will employee, and this rule extends to compliance officers of hedge funds, even when they are allegedly terminated for objecting to unlawful conduct.
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Summary
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Joseph Sullivan, a 15% partner and Chief Compliance Officer at Peconic Partners, was fired after objecting to the majority owner’s (Harnisch) stock sales, which Sullivan believed constituted illegal “front-running.” Sullivan sued, claiming his termination violated a company policy against retaliation for reporting such conduct. The New York Court of Appeals affirmed the dismissal of Sullivan’s claim, holding that New York law does not provide a cause of action for wrongful discharge of an at-will employee in these circumstances, refusing to extend the narrow exception created in Wieder v. Skala to a hedge fund compliance officer.
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Facts
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Joseph Sullivan was a partner and held multiple executive positions, including Chief Compliance Officer, at Peconic Partners, a hedge fund. He confronted William Harnisch, the majority owner, about alleged “front-running,” where Harnisch sold stock for personal accounts ahead of client transactions. Sullivan insisted the transactions be reversed or properly addressed. Harnisch refused, and Sullivan was terminated shortly after objecting to a proposed agreement eliminating Sullivan’s ownership interest. Sullivan did not report Harnisch’s conduct to outside authorities like the SEC.
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Procedural History
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Sullivan sued Harnisch and Peconic, asserting several causes of action, including wrongful termination. Supreme Court initially found the wrongful termination claim legally sufficient. The Appellate Division reversed, dismissing the claim. The New York Court of Appeals granted leave to appeal and affirmed the Appellate Division’s decision.
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Issue(s)
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Whether New York common law recognizes an exception to the at-will employment doctrine, providing a cause of action for a compliance officer of a hedge fund who is terminated for objecting to allegedly illegal trading practices within the firm.
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Holding
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No, because the narrow exception to the at-will employment doctrine recognized in Wieder v. Skala, applicable to attorneys fired for adhering to ethical obligations, does not extend to a hedge fund compliance officer in these circumstances.
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Court’s Reasoning
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The Court reaffirmed the principle from Murphy v. American Home Prods. Corp. that, absent a constitutional, statutory, or contractual violation, an employer can terminate at-will employment. The court acknowledged the narrow exception created in Wieder v. Skala, holding that the ethical obligations of lawyers are so intrinsic to the lawyer-law firm relationship as to imply a contractual term preventing termination for adhering to those obligations. However, the court distinguished Sullivan’s situation from Wieder. The court reasoned that Sullivan’s regulatory and ethical obligations as a compliance officer were not as inseparable from his employment duties as a lawyer’s ethical obligations are to their legal practice. The court noted Sullivan held multiple positions within Peconic, including partner, and was not solely a compliance officer. His role as compliance officer was not, in the Court’s view, “at the very core and, indeed, the only purpose” of his employment. The court also noted that while federal regulations emphasize the importance of compliance officers, this does not warrant expanding state common law to intrude further into the employer-employee relationship. The Court further pointed to the Dodd-Frank Act, which provides whistleblower protection for those reporting securities law violations to the SEC, but does not cover internal complaints. The court stated, “Nothing in federal law persuades us that we should change our own law to create a remedy where Congress did not.”