Second Circuit Asks NY Ct of Appeals to Clarify What Constitutes Improper Solicitation After Sale of Good Will of A Business
Stay tuned. This should be important to anyone voluntarily selling (or buying) the assets of a business, including its good will (or to anyone who hires a person who benefited from the asset sale). In case the relationship doesn’t work out, what are the limits on a seller helping his or her new employer to get the customers who were transferred as part of the sale?
In Bessemer Trust Company v. Branin, the executive of an investment company actively participated in, and was compensated for, the sale of the assets of the company. Following the sale he went to work for the purchaser. That didn’t work out. About twenty months after the sale, he left and went to another company, which approached the clients who were transferred with the sale. He apparently tried to limit his direct involvement in the solicitation, but did have some direct participation. (This grossly simplifies the facts.) The purchaser filed suit.
Historically, in New York, there has been an implied warranty of non-solicitation following the voluntary sale of the good will of a business. Here, the Second Circuit has asked the NY Court of Appeals to clarify what degree of participation constitutes improper solicitation when the new employer of the seller solicits of a former employer's—or purchaser’s -- client. The Second Circuit has asked the Court of Appeals for guidance on the following sets of circumstances:
(1) the active development and participation by the seller, in response to inquiries from a former client whose good will the seller has voluntarily sold to a third party, in a plan whereby others at the seller's new company solicit the client, and (2) participation by the seller in solicitation meetings where the seller's role is largely passive.
Because the sale of a business often results in an unhappy seller – who no longer has the same dominant role in the business – and job applicants often have to bring some business to a new employer, I hope that the Court of Appeals will find this an issue worthy of its attention.
