You sell your company, including its "good will", to a competitor. Your buyer promises in the Purchase Agreement to hire you in a "generally comparable" position and to make you "eligible for participation in the Incentive Cash Bonus Plan". But the contract puts the "amount of the bonus . . . at the discretion of the Salary Committee" and specifies "a range of 0% to 250% of base pay."
After the sale, something makes you mad -- likely including the measly bonuses you've gotten -- and you quit to join another competitor. You don't tell your clients or customers that you've left. But they find out and start calling you. Some of them switch to your new firm, whose efforts to woo them you aid.
Have you done anything wrong?
Can you sue the buyer for giving you tiny (in your view) bonuses?
The Second Circuit said this week that, first, it depends, and, second, no.
The it depends answer resulted in part from the court's doubts about the scope of New York's "Mohawk doctrine", which takes its name from the rulings in Von Bremen v. MacMonnies, 200 N.Y. 41 (1910), and Mohawk Maint. Co. v. Kessler, 52 N.Y.2d 276 (1981). The New York Court of Appeals in those cases held that the seller of a business and its good will owes a never-ending duty to the buyer not to "solicit" clients or customers improperly. Defining what kind of conduct amounts to "improper solicitation" so vexed the Second Circuit panel that Their Honors asked the Court of Appeals in Albany to lend a hand.
The court thus certified the question of "[w]hat 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." Bessemer Trust Co., N.A. v. Branin, No. 08-2462-cv(L), slip op. at 35 (2d Cir. Aug. 24, 2010). The panel added:
We are particularly interested in how the following two sets of circumstances influence this analysis: (1) the active development and participation by the sller, 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 sller's new company solicit the client, and (2) participation by the seller in solicitation meetings where the seller's role is largely passive.
Id. at 35-36.
The no answer about the bonuses turned on the fact that the Purchase Agreement gave the buyer "discretion" in choosing the amount of any bonus -- or, indeed, to award any bonus at all. Id. at 32.
The court reserved judgment on whether the district court erred when it concluded that Francis S. Branin, Jr., violated the Mohawk doctrine by responding to, but not initiating, inquiries from clients whose investments he managed at Bessemer Trust after moving to Stein Roe. But the court affirmed the district court's judgment against Branin on his counterclaim for bigger bonuses.
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