When You Can Recover Damages for Theft of Business Goodwill in New York
Image: Creative Commons - Don Hankins
When dealing with the breach of an agreement to sell a business that is backed by a non-compete clause, such as where A sells B his business, including A's "good will," i.e., his client base, how can B establish his damages if A violates this agreement?
In other words, what, if anything, can B recover for A's tortious interference with the customer list he essentially just bought?
Lest you think that this is a straightforward question, consider this:
On some, elemental level, it may be inherently challenging to prove concrete damages, because many of these "good will" customers may not have had existing, long-term agreements with A; they may be purchasers who conduct business individual purchase order by purchase order. Another example would be patients of a medical practice, who also have no long-term contract with their doctor.
For this reason, many asset purchase agreements will contain a liquidated damages clause that attempts to fairly represent a measure of damages that bears some relationship to the anticipated damages that would, or could, be caused by the seller's breach of the agreement.
But what if there is no liquidated damages clause, and the purchaser paid, in large part, for the "goodwill" of the business? Can you still recover under New York law?
In short, the answer is yes; this is one of the examples where that type of damage will be recoverable under New York law. And here's why:
"[When] the APA is silent with respect to damages, we apply a "commonsense rule" to determine "what the parties would have concluded had they considered the subject" (Kenford Co. v County of Erie, 67 NY2d at 262; see Ashland Mgt. v Janien, 82 NY2d at 404) ... A purchaser of goodwill " 'acquires the right to expect that the firm's established customers will continue to patronize the business' " (Bessemer Trust Co., N.A. v Branin, 16 NY3d 549, 557 , quoting Mohawk Maintenance Co. v Kessler, 52 NY2d 276, 285 )."