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NY Court Clarifies Standard For "Improper Solicitation" of Old Clients

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In a fascinating - and significant - April 28 decision, New York State's highest court answered the following question: How far can you go to help your new employer solicit your former clients under New York law? Here are some of the salient facts in the breach of contract and breach of fiduciary duty case of Bessemer Trust Co., N.A. v. Branin: In this case, Branin was a former executive of Brundage, who sold its assets, including its good will, to Bessemer for $75 million in August, 2000, with $50 million of the purchase price being payable up front, and the remaining $25 million being contingent on Bessemer and its principals meeting certain performance benchmarks. Branin, who was Brundage's largest individual shareholder, received just over $9 million as his share of the sale. Branin continued to work for Brundage for just under 2 years, at which point he sought different employment. Although Branin did not have any written non-compete agreement barring solicitation of former clients (which, given the magnitude of the asset purchase agreement is, to say the least, rather puzzling), he went out of his way not to actively solicit any of his former clients that were part of the asset purchase agreement when he finally left in June, 2002. In fact, he didn't even tell any of those clients he was leaving; rather, when these clients contacted Branin privately, he informed them that he was pursuing work with a different firm in the field because this new firm's operating philosophy "was more appropriate for him." Some clients, including his largest one, went out of their way to follow him, and left Bessemer. And this lawsuit followed. In response to a question posed by a federal appeals court, New York State's highest court concluded its opinion as follows: "The issue in which the Second Circuit seeks our guidance is to what degree a seller may assist his new employer in responding to inquiries made by a former client. Since the seller of "good will," absent a restrictive covenant, may compete with a purchaser, we conclude that certain activity within a new employer's firm must be permissible ... "While a seller may not contact his former clients directly, he may, "in response to inquiries" made on a former client's own initiative, answer factual questions ... a seller's "largely passive" role at [a client] meeting does not constitute improper solicitation in violation of the "implied covenant." To my thinking, this is a good and logical rule.

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