This is an update to a post I did last September about solicitation of former customers after the sale of the good will of a business. The Second Circuit requested that the NY Court of Appeals give guidance on whether New York still implied a covenant of non-solicitation of former customers after the sale of the good will of a business, and, if it did, what are its limits.
Today, in Bessemer Trust Co. v. Branin, The court ruled that there is still an implied covenant of non-solicitation of former customers after the sale of the good will of a business. Determining whether there has been improper solicitation is a question of fact.
The court recognized that there is always a risk on the part of the purchaser of a business that customers will decide to go elsewhere as a result of the change in ownership. The decision discusses how a seller of good will – who is no longer working for the purchaser -- may respond to former customers who inquire about the seller’s current employer or business.
Here is the bottom line:
while a seller may not contact his [*9]former clients directly, he may, "in response to inquiries" made on a former client's own initiative, answer factual questions. Furthermore, under the circumstances where a client exercising due diligence requests further information, a seller may assist his new employer in the "active development . . . of a plan" to respond to that client's inquiries. Should that plan result in a meeting with a client, a seller's "largely passive" role at such meeting does not constitute improper solicitation in violation of the "implied covenant." As such, a seller or his new employer may then accept the trade of a former client.
If you plan on doing this, read the entire opinion carefully.
