May 2011 Archives

Revisiting Commercial Competition in New York

May 26, 2011

Some time ago, our newsletter article (see below) discussed some of the fine lines of allowable commercial competition. That issue was recently front and center before the Court of Appeals after the Federal courts could not make a decision. In Bessemer Trust Co., N.A. v. Branin, Branin was sued by Bessemer Trust for improperly competing.

Briefly, Bessemer Trust purchased the business owned by Branin (and others). Although Branin was to stay with Bessemer Trust, he left to a competitor. Bessemer Trust notified Branin's clients that he had left, and some of those clients contacted him on their own. While Branin did not solicit any of his old clients, he did respond to their unsolicited requests for information of his new employer, attended a few meetings, and assisted his new employer in devising a plan to have these past clients move their business to Branin's new employer. After a number of clients followed Branin, Bessemer Trust filed suit, claiming that Branin improperly solicited his old clients, inducing them to transfer their accounts from Bessmer Trust to Barnin's new firm.

The question the Court of Appeals addressed was the extent of participation in the solicitation of a former employer's client necessary to constitute improper solicitation. The court determined that while "a seller has an 'implied covenant' or 'duty to refrain from soliciting former customers,'" that a customer follows a departing employee is, standing alone, insufficient to find any wrongdoing on the departing employee's part. In finding no wrongdoing by Branin, the court focused on Branin's lack of solicitation of his former clients, or formally "selling" his new employer to his past clients, noting that those clients sought out Branin and followed up on his move with little encouragement from Branin.

For reasons not addressed, Bessemer Trust did not ask Branin to sign a non-compete/non-solicitation agreement, something which could have obviated the need for a lawsuit, and certainly a lawsuit of this complexity. This highlights, again, the importance of a properly drafted non-compete/non-solicitation agreement.

Our Firm assists companies and employees in addressing these issues throughout New York State and would be happy to discuss them with you.