Opinion ID: 626720
Heading Depth: 1
Heading Rank: 4

Heading: The New York Court of Appeals's Answer to Our Certified Question

Text: The New York Court of Appeals accepted and answered our certified question. It noted that, [u]nder New York common law, a seller has an `implied covenant' or `duty to refrain from soliciting former customers, which arises upon the sale of the `good will' of an established business.' Bessemer V, 16 N.Y.3d at 556, 949 N.E.2d at 468, 925 N.Y.S.2d at 377 (quoting Mohawk Maintenance Co., 52 N.Y.2d at 283, 419 N.E.2d at 328, 437 N.Y.S.2d at 650). This covenant, which is effective in perpetuity, is based on the principle that the vendor is not at liberty to destroy or depreciate the thing which he has sold; there is an implied covenant, on the sale of [`]good will['], that the vendor does not solicit the custom which he has parted with; it would be a fraud on the contract to do so. Id. (quoting Von Bremen v. MacMonnies, 200 N.Y. 41, 50-51, 93 N.E. 186, 189 (1910)). Thus, the seller of good will may not  actively solicit the customers associated with it. Id. at 557, 949 N.E.2d at 468, 925 N.Y.S.2d at 377. Despite these general principles, a buyer of good will assumes certain risks relating to the continuation of the purchased business. Id. Unless the buyer has also secured from the seller of good will a binding promise not to compete, the buyer risks loss of customers to him or her. Id. Rather than creating a hard and fast rule [to] determin[e] whether a seller of `good will' has improperly solicited his former clients in response to our certified question, the Court of Appeals instructed that in making this assessment on a case-by-case basis, the trier of fact must consider the principles underlying the rule in Mohawk and the factors involved within the relevant industry that may impair the `good will' conveyed by the original seller. Id. at 557, 949 N.E.2d at 469, 925 N.Y.S.2d at 378. Among the factors to be considered in this inquiry are whether the seller initiated contact with his or her former clients associated with the sold good will. The `implied covenant' not to solicit former customers bars a seller from taking affirmative steps to directly communicate with them, such as by send[ing] targeted mailings or mak[ing] individualized telephone calls to his former customers informing them of his new business ventures. [4] Id. at 557-58, 949 N.E.2d at 469, 925 N.Y.S.2d at 378. The Court of Appeals explained that while a seller is not free to tout his new business venture simply because a former client has fortuitously communicated with him first, he is allowed to make certain responses to questioning initiated by the former client. Id. The seller may answer the factual inquiries of a former client, so long as such responses do not go beyond the scope of the specific information sought. Id. at 558-59, 949 N.E.2d at 469-70, 925 N.Y.S.2d at 378-79. And even if prompted, he may not disparage[ ] the purchaser of his business. Id. at 559, 949 N.E.2d at 470, 925 N.Y.S.2d at 379. Nor may he explain ... why he believes his products or services are superior in response to a question from a former client. Id. When the seller of good will subsequently joins a firm that competes with the buyer, he may convey certain information about his former client to his new employer, including a former client's investment preferences, financial goals, and tolerance of risk. Id. However, the seller may not convey to his new employer information that is proprietary to a purchaser of `good will.' Id. Should the former client request a sales pitch meeting, as the Palmer family did, the seller may help his new employer prepare for the meeting and may be present when such meeting takes place, ... [s]o long as [his] role is limited to responses to factual matters. Id. In sum, the Court of Appeals concluded, 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[,] ... [and] assist his new employer in the `active development ... [of] a plan' to respond to that client's inquiries. Should that plan result in a meeting with a client, a seller's `largely passive' role at such meeting ... [is permissible]. Id. at 559-60, 949 N.E.2d at 470, 925 N.Y.S.2d at 379 (second ellipsis in original; some alterations in original).