On August 24, 2010, the Second Circuit Court of Appeals certified the following question to the New York Court of Appeals: "What degree of participation in a new employer's solicitation of a former employer's client by a voluntary seller of that client's good will constitutes improper solicitation?" The question is a good one because it comes up frequently enough in business transactions . . . and litigation . . . to warrant clarification from New York's highest court.
In Bessemer Trust Company, N.A. v. Branin, decided by the Second Circuit on August 24, 2010, an investment firm commenced an action against one of its former executives because he solicited the firm's clients after he left the firm. The investment firm argued that the solicitation was improper because the former executive, and his partners, had sold their firm to the plaintiff, and the sale included the executive's firm's clients and goodwill.
Following a trial on the merits, the federal appeals court held that the former executive was liable under New York's Mohawk doctrine, which prohibits a seller of a client's good will from improperly soliciting business from that client after the client's business is transferred to the purchaser.
In posing its question to the New York Court of Appeals, however, the Second Circuit was concerned about how its decision or the analysis would be affected if (a) the seller was actively developing and participating in a plan whereby others at the seller's new company solicit the client in response to inquiries from the client, and (b) the seller participates in solicitation meetings, but the seller's role is "passive."
It will be interesting to see how the Court of Appeals decides. Stay tuned.
