Court of Appeals Answers Certified Questions in Improper Solicitation Case
Our September 13, 2010 blog entry described Bessemer Trust Co., N.A. v. Branin, 08-2462-cv(L), 08-2677-cv(XAP) (2d Cir. 2010), in which the Second Circuit examined New York's Mohawk doctrine. That doctrine requires a seller to refrain from soliciting former customers following the sale of the "good will" of the seller's business. In Bessemer, the Second Circuit noted that the duty of the seller not to solicit customers does not include "an obligation not to accept such of his former customers as may choose to follow him to his new employment." So long as the client's decision to follow the seller did not come about through "improper solicitation", the law is not violated. The Second Circuit then determined that New York law was not clear on whether the defendant's actions in Bessemer constituted "improper solicitation" and certified questions to the New York Court of Appeals regarding the degree of participation necessary to constitute "improper solicitation".
The New York Court of Appeals accepted the certified questions and, after hearing argument and considering the briefs submitted by the parties, held that a seller of "good will" may answer the factual inquiries of a former client, so long as the responses do not go beyond the scope of the specific information sought. See Bessemer Trust Co., N.A. v. Branin, 2011 WL 1583932 (N.Y.), April 28, 2011. A seller's right to answer all the questions posed by the former client is not unlimited, however. According to the Court of Appeals, a seller of "good will" engages in improper solicitation when, even if prompted, "he disparages the purchaser of his business" by, for example, explaining why he believes his products or services are superior.
Finally, in response to the specific questions certified by the Second Circuit, the New York Court of Appeals stated that a seller of good will is free to convey certain information about his former client to his new employer. In the context of the financial services industry (the industry involved in Bessemer) appropriate topics include items such as a former client's investment preferences, financial goals, and tolerance of risk; it may not include information that is proprietary to a purchaser of good will, however. In addition, a seller may aide his new employer in preparing for a "sales pitch" meeting requested by a former client and the seller may be present when the meeting takes place. The seller's role in the meeting, however, must be limited to responses to factual matters in order to comply with New York's Mohawk doctrine.
Sean C. McPhee, Esq.