In NY, How Far Can You Go to Help Your New Employer Solicit Your Old Clients? September 1, 2010

That’s exactly the question that was recently posed, or in legal terms, “certified,” to New York State’s highest court by the Federal system’s Second Circuit Court of Appeals.

In Bessemer Trust Company, N.A. v. Branin, the plaintiff sued one of its former executives in federal court for damages they allegedly sustained when he solicited his old clients from the time that he worked at their firm. According to the plaintiff, under New York’s “Mohawk Doctrine,” the defendant was prohibited from soliciting his former clients (effectively, a non-compete), because his clients and goodwill were part and parcel of his sale of the investment firm to the plaintiff.

Rejecting the defendant’s assertion that the Mohawk Doctrine was inapplicable because he “only passively assisted” his new employer in trying to pry these clients away from the plaintiff, the trial court found that he was liable to the plaintiff. On appeal, however, the Second Circuit remained troubled by the following questions, which it referred to the New York Court of Appeals:

“What degree of participation in a new employer’s solicitation of a former employer’s client by a voluntary seller of that client’s good will constitutes improper solicitation? We are particularly interested in how the following two sets of circumstances influence this analysis: (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.”

The Court of Appeals’ decision on these issues will certainly be subject to a lot of debate (and probably – litigation).

Jonathan Cooper is a New York Business Litigation and New York Commercial Litigation Lawyer with a focus on New York breach of contract and New York business fraud claims before the Nassau, Queens, Brooklyn, Bronx, Westchester and Suffolk County courts of New York State. For more information, feel free to contact his Long Island office at 516-791-5700.

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