08-2462-cv(L), 08-2677(XAP)
Bessemer Trust Company, N.A. v. Branin
1 UNITED STATES COURT OF APPEALS
2 FOR THE SECOND CIRCUIT
3 August Term, 2008
4 (Argued: June 3, 2009 Question Certified: August 24, 2010)
5 Docket Nos. 08-2462-cv(L), 08-2677-cv(XAP)
6 -------------------------------------
7 BESSEMER TRUST COMPANY, N.A.,
8 Plaintiff-Counter-Defendant-Appellee-Cross-Appellant,
9 - v -
10 FRANCIS S. BRANIN, JR.,
11 Defendant-Counterclaimant-Appellant-Cross-Appellee.
12 -------------------------------------
13 Before: McLAUGHLIN, CALABRESI, and SACK, Circuit Judges.
14 Appeal by the defendant and cross-appeal by the
15 plaintiff from a judgment of the United States District Court for
16 the Southern District of New York. The district court (John E.
17 Sprizzo, Judge) made three rulings relevant to this appeal.
18 First, it found the defendant liable to the plaintiff for
19 improper solicitation of a client's account where that account
20 had earlier been transferred to the plaintiff by, inter alios,
21 the defendant, in violation of the so-called "Mohawk doctrine."
22 Second, the court granted summary judgment dismissing the
23 defendant's counterclaims against the plaintiff for breach of
24 contract, for promissory estoppel, and in quantum meruit. Third,
25 it awarded damages to the plaintiff based on a "return of
1 capital" rather than a "lost profits" theory. We certify to the
2 New York Court of Appeals a question of New York law relevant to
3 the determination of the defendant's liability under the Mohawk
4 doctrine, affirm the dismissal of the counterclaims, and reserve
5 decision on the question of damages pending a response from the
6 Court of Appeals.
7 Affirmed in part, question certified in part, decision
8 reserved in part.
9 DONALD I. STRAUBER, Chadbourne & Parke
10 LLP (Gretchen N. Werwaiss, Marjory T.
11 Herold, and Bernadette K. Galiano, of
12 counsel), New York, N.Y., for Plaintiff-
13 Counter-Defendant-Appellee-Cross-
14 Appellant.
15 LOUIS P. DiLORENZO, Bond, Schoeneck &
16 King PLLC (Michael I. Bernstein and
17 Michael P. Collins, of counsel), New
18 York, N.Y., for Defendant-
19 Counterclaimant-Appellant-Cross-
20 Appellee.
21 SACK, Circuit Judge:
22 The defendant Francis S. Branin, Jr., a former
23 principal in an investment management firm, and his partners sold
24 their firm and its good will to another investment management
25 firm, the plaintiff Bessemer Trust Company, N.A. ("Bessemer").
26 Soon dissatisfied with his employment at Bessemer, Branin left
27 and joined a competitor. He did not contact his former clients
28 in search of their business directly, but he did respond to their
29 inquiries as to his status. He also participated in at least two
30 in-person meetings with respect to one client, and helped craft
31 his new firm's strategy for soliciting that client's business.
2
1 When this client and several others stopped doing
2 business with Bessemer to do business with Branin's new firm
3 instead, Bessemer brought the instant lawsuit, alleging that
4 Branin had solicited his former clients at Bessemer in violation
5 of the doctrine established by Von Bremen v. MacMonnies, 200 N.Y.
6 41, 93 N.E. 186 (1910) and Mohawk Maintenance Co. v. Kessler, 52
7 N.Y.2d 276, 419 N.E.2d 324, 437 N.Y.S.2d 646 (1981) (the "Mohawk
8 doctrine"), which prohibits, in perpetuity, a voluntary seller of
9 a client's good will from improperly soliciting business from
10 that client after the client's business, including its good will,
11 is transferred to the purchaser. Branin filed counterclaims
12 against Bessemer for breach of contract, in quantum meruit, and
13 for promissory estoppel.
14 After a bench trial in the United States District Court
15 for the Southern District of New York, the court (John E.
16 Sprizzo, Judge) concluded that Branin had improperly solicited
17 one former client, but found insufficient evidence of improper
18 solicitation with respect to the others. Instead of trying
19 Branin's counterclaims, the court granted Bessemer summary
20 judgment dismissing them. Finally, after a second trial on
21 damages, the court adopted a "return of capital," rather than a
22 "lost profits," theory upon which it awarded Bessemer
23 $1,229,173.20 in damages and pre-judgment interest.
24 Branin appeals, contesting the finding of liability,
25 the award of damages and the dismissal of his counterclaims.
3
1 Bessemer cross-appeals with respect to the calculation of
2 damages.
3 The principal legal question before us depends not on
4 interpretation of contract law, but on application of a branch of
5 New York tort law, the Mohawk doctrine. We find insufficient
6 guidance in New York case law to establish whether Branin's
7 behavior constituted actionable improper solicitation under that
8 law. We therefore certify to the New York Court of Appeals that
9 question. Inasmuch as an answer to this question is dispositive
10 of a finding of liability in this case, and is therefore also a
11 threshold question that must be answered before any damages may
12 be awarded, we need not, and choose not to, decide at this time
13 whether the district court properly calculated damages.
14 Branin's promissory estoppel and quantum meruit claims
15 have been waived on appeal. We affirm the dismissal of his
16 breach of contract counterclaims because, for reasons we will
17 explain, as an at-will employee, he cannot prevail on them based
18 on diminution of his responsibilities and because his claim for
19 failure to provide an adequate bonus is without merit as his
20 offer letter explicitly vested Bessemer with the sole discretion
21 as to whether to pay him a bonus, and if so, in what amount.
22 BACKGROUND
23 Defendant Francis S. Branin, Jr., an investment
24 portfolio manager, joined the investment management firm of
25 Brundage, Story and Rose, LLC ("Brundage") in 1977, rose to the
26 level of principal in the firm by 1982, served as Chief Executive
4
1 Officer from 1996 until 2000, and at the time of the events in
2 question, held the largest share of the firm.
3 In October 2000, pursuant to a purchase agreement dated
4 August 18, 2000, (the "Purchase Agreement") Branin and the seven
5 other principals in Brundage sold the assets of the firm,
6 including its client accounts and related good will, to Bessemer
7 for more than $75 million. Branin, in view of his substantial
8 ownership of Brundage and as one of the lead negotiators for
9 Brundage with respect to the sale, had substantial involvement in
10 arranging the sale. All the principals were to be employed by
11 Bessemer at will thereafter. They obtained no ownership stake in
12 the new firm.
13 In an effort to ensure that the Brundage principals
14 devoted their energies to transferring their client accounts to
15 Bessemer and retaining those accounts, the Purchase Agreement
16 provided that only a portion of the purchase price would be
17 guaranteed -- an initial payment of $50 million, of which Branin
18 received more than $9.1 million and that further payments could
19 be earned upon the meeting of certain benchmarks for client
20 retention, revenue enhancements, and reduction of expenses. The
21 Brundage principals thereafter earned two such contingency
22 payments, one for $10 million in September 2001 in return for
23 their meeting client account transfer benchmarks from Brundage to
24 Bessemer, and a payment of approximately $15 million in April
25 2002 because of a successful reduction of expenses. Branin
26 received nearly one quarter of each of these two payments.
5
1 It soon became clear, however, that Branin and the
2 other former Brundage principals would not be eligible for the
3 remaining two contingency payments, in large measure because one
4 of the former principals, Cheryl Grandfield, departed the firm in
5 January 2001. She actively and successfully solicited many of
6 her clients to follow her. That had a serious adverse effect on
7 the ability of the remaining seven principals to meet the final
8 two contingency-payment benchmarks.
9 Bessemer subsequently brought suit against Grandfield
10 for improper solicitation of clients, alleging the same principal
11 theory of liability that it asserts here. Grandfield settled
12 that lawsuit, agreeing to repay her entire share of the payments
13 she had received from the sale of Brundage.
14 Branin soon became unsatisfied with his role at
15 Bessemer. Several factors in addition to the fact that he would
16 not be eligible for any further contingency payments appear to
17 have contributed to his dissatisfaction at Bessemer. In contrast
18 to his role at Brundage, where he had actively managed the
19 portfolios of his clients, for example, at Bessemer, Branin was a
20 "client account manager" without the authority to make investment
21 decisions himself. And less than two weeks after the closing of
22 the Brundage transaction, Bessemer's CEO left the firm. His
23 replacement reduced Branin's responsibilities, excluding him from
24 management meetings. Branin understood this effectively to be a
25 demotion.
6
1 Branin was also apparently upset by the fact that
2 Bessemer had made minimal effort to introduce him to its new or
3 existing client base and did not involve him in any of the firm's
4 business development projects. Finally, and relevant to Branin's
5 counterclaims in this case, when bonuses were distributed for
6 year-end 2001, Branin received a far smaller bonus as a
7 percentage of his potential target bonus than did the other
8 former Brundage principals.1
9 Branin's Move to Stein Roe
10 Branin then engaged a consulting firm to explore
11 moving, with his business, from Bessemer to another firm. The
12 consultants brought Branin to Stein Roe Investment Counsel LLC
13 ("Stein Roe"), a competing investment management firm. For
14 several months, Branin and Stein Roe negotiated toward a possible
15 deal between them. Branin explicitly described for Stein Roe his
16 client base at Bessemer and touted his ability to bring his
17 Bessemer clients with him.
18 In or prior to June 2002, Branin agreed to move to
19 Stein Roe. At that time, Branin indicated to Stein Roe his hope
20 that within twelve months of joining the firm he would be able to
21 transfer $1.5 to $1.8 million of the approximately $2.3 million
22 in revenue that he was then generating for Bessemer to Stein Roe.
23 He informed Stein Roe that it was possible, however, that few or
1
Branin was also miffed that he had been excluded from a
Bessemer holiday celebration despite the fact that each of the
other former Brundage principals was invited.
7
1 none of his Bessemer clients would move their business. Prior to
2 his resignation from Bessemer, Branin refrained from contacting
3 any of his Bessemer clients to inform them of his impending move.
4 On July 12, 2002, Branin resigned from Bessemer. After
5 his resignation, Branin took limited action to assist Bessemer in
6 client retention, providing the firm with a memorandum profiling
7 each of his accounts and the contact person for each account.
8 Attempts To Bring Clients to Stein Roe
9 At the time Brundage was sold to Bessemer, Branin
10 managed about $450 million in investments, more than ten percent
11 of the approximately $4.1 billion managed by Brundage immediately
12 prior to the sale. Once Branin joined Stein Roe, the company
13 began crafting and implementing a strategy to entice Branin's
14 former Bessemer clients -- most or all of whom had come to
15 Bessemer with him from Brundage -- to move their business to
16 Stein Roe. This strategy included a new schedule of fee rates to
17 be charged to clients that followed Branin, under which clients'
18 fees would not thereby be increased. He and Stein Roe had some
19 initial success. By the following summer, around thirty of
20 Branin's former clients, representing $205 million in assets, had
21 transferred their accounts from Bessemer to Stein Roe, accounting
22 for all but around $23 million of the assets Branin managed at
23 Stein Roe.
24 Branin did not contact his clients directly to ask them
25 to follow him to Stein Roe. He did, however, respond to their
26 inquiries when they asked why he left and, if they requested
8
1 information about the new firm, he sent them material about his
2 new firm. According to the district court's memorandum opinion
3 and order, Branin's "standard" answer to clients who asked why he
4 left Bessemer was that "'a firm like Stein Roe was far more
5 appropriate for me, . . . that the method of dealing with
6 clients, that the approach whereby portfolio managers managed the
7 client portfolios and interacted directly with the clients was
8 more . . . appropriate for my training and experience of 30 years
9 in the business.'" Bessemer Trust Co., N.A. v. Branin, 427
10 F. Supp. 2d 386, 391 (S.D.N.Y. 2006)("Bessemer I") (quoting Joint
11 Statement of Undisputed Facts, Exh. A to Pre-Trial Order dated
12 August 3, 2004) ("Joint Statement of Undisputed Facts") (ellipses
13 in original). Branin did not say or suggest that Stein Roe's
14 approach would be better or more appropriate for any particular
15 client, nor is there evidence that Branin explicitly disparaged
16 Bessemer.
17 The evidence introduced at trial established that
18 Branin had individual meetings, either alone or with other Stein
19 Roe employees participating, with representatives of two former
20 clients with accounts at Bessemer: the Palmer family and Glen
21 Raven, Inc. Their accounts were in the approximate amount of
22 $117 million and $16 million, respectively.
23 The Palmer Family Account
24 The Palmer family had been a Brundage client since the
25 1930s. During the fifteen to twenty years Branin had managed the
26 account there, he developed a close friendship with Carleton
9
1 Palmer, III, who represented the family for these purposes. The
2 two men, along with their wives and children, socialized and
3 vacationed together, and they owned homes in the same community
4 and jointly owned a small fishing boat.
5 Branin nonetheless did not notify Carleton Palmer or
6 the Palmer family of his move from Bessemer to Stein Roe, nor did
7 he contact them directly after the move. Indeed, the Palmer
8 family first learned of Branin's change of employment through an
9 employee of Bessemer.
10 Upon learning of Branin's move to Stein Roe, Carleton
11 Palmer called Branin at his home to get his account of the
12 situation -- one that, Palmer testified, was very spare. Palmer
13 followed up with a letter requesting specific information as to
14 how the Palmer account might be handled at Stein Roe. Members of
15 the Palmer family then scheduled back-to-back meetings on August
16 29, 2002, with Stein Roe and Bessemer to discuss the Palmer
17 account.
18 In anticipation of the meeting and at Branin's
19 instance, Branin and other Stein Roe employees prepared "what he
20 described as a 'dog and pony [show]' for a 'LARGE client
21 relationship that I am hoping will join [Stein Roe].'" Bessemer
22 I, 427 F. Supp. 2d at 391 (quoting Pl.'s Trial Ex. 103, e-mail
23 from Branin to Ronald Fisher and Eric Propper dated August 2,
24 2002) (first brackets added; block caps in original). On August
25 22, 2002, Stein Roe held a strategy session organized by Branin
10
1 during which he provided other Stein Roe employees with
2 information about Carleton Palmer and about the nature of, and
3 investment philosophy for, the Palmer account. According to the
4 trial testimony of Carleton Palmer, during the subsequent meeting
5 between Palmer and Stein Roe, Branin "played almost no role,"
6 Trial Tr. at 817, and "pretty much sat over in the corner and
7 kept quiet," id. at 776-77, other than to introduce Carleton
8 Palmer to the firm and "occasionally amplify a point if he knew
9 it was something [the Palmers] would be interested in," id. at
10 776.
11 Following the meetings, the Palmer family remained
12 unsure about whether to move their investment accounts to Stein
13 Roe. The Palmers therefore invited Branin to Ohio to make a
14 specific proposal on behalf of that company, an invitation which
15 he accepted. During that visit, Branin informed the Palmer
16 family that they would pay the same fees at Stein Roe that they
17 were then paying at Bessemer, and that the president of Stein Roe
18 would be the "number two" on the family account. Id. at 787,
19 816. The next day, on September 17, 2002, the Palmer family
20 moved their account to Stein Roe. Carleton Palmer testified that
21 he chose Stein Roe over Bessemer because he was more impressed by
22 Stein Roe's senior management. He also thought that he would be
23 "a much more important client at Stein Roe" because the firm had
24 fewer large clients than Bessemer, making the family account "a
25 big fish in a small pond." Id. at 785.
26 Branin's Assistant
11
1 It was important to Branin that his principal assistant
2 at Bessemer, Alexandra Fuhrmann, join him at Stein Roe. Shortly
3 after Branin informed his staff at Bessemer of his decision to
4 leave the firm, Fuhrmann contacted Stein Roe to seek employment
5 there. Although granted an interview, she was initially told
6 there were no positions available. Three days later, Fuhrmann
7 was nonetheless invited to, and did, attend additional interviews
8 with the president of Stein Roe and others at the company. Her
9 interviews went poorly. Interviewers thought that she had an
10 "unfortunate personality," and an "overly aggressive" demeanor,
11 and that "[i]n a vacuum, [Stein Roe] would never hire her."
12 Bessemer I, 427 F. Supp. 2d at 389 (internal citations omitted).
13
14 Nevertheless, on August 2, 2002, Fuhrmann was offered a
15 position as a vice president. The president of Stein Roe
16 explained her hiring as a way to make Branin comfortable and to
17 assist in administrative work. However, it was understood that
18 her primary responsibility would be "'to help [Branin] transition
19 as much of his client base to [Stein Roe] as possible,'" id. at
20 394 (quoting Pl.'s Trial Exs. 68, 89) (alteration in original),
21 and that this was part of the reason that Branin had recommended
22 she join Stein Roe, see Pl's Trial Ex. 69.
23 Meanwhile, Bessemer, unaware of Fuhrmann's attempts to
24 join Stein Roe, assigned her increasing responsibility in an
25 effort to retain Branin's clients, including promoting her to
26 senior client account manager with respect to several accounts,
12
1 and informing several customers that she would be assuming day-
2 to-day responsibility for their accounts. According to one of
3 Fuhrmann's supervisors at Bessemer, partner Paul Barkus, when
4 Fuhrmann subsequently left Bessemer to join Stein Roe, on August
5 2, 2002, her departure made Bessemer "'look[] kind of foolish to
6 the clients.'" Bessemer I, 427 F. Supp. 2d at 390 (quoting Trial
7 Tr. at 609). And Barkus told Fuhrmann that he "'thought the only
8 reason that [Branin] and Stein Roe wanted her to go to Stein Roe
9 was to help [Branin] transfer accounts from Bessemer to Stein
10 Roe.'" Id. (quoting Trial Tr. at 594) (alteration in original).
11 The Complaint and Counterclaims
12 On November 22, 2002, after Fuhrmann and several of
13 Branin's former Bessemer clients had departed the firm, Bessemer
14 filed the complaint in this action in the Supreme Court of New
15 York County. Bessemer asserted claims for breach of contract and
16 breach of Branin's duty of loyalty to Bessemer based on Branin's
17 allegedly improper solicitation of clients and impairment of the
18 good will which Branin had sold to Bessemer in connection with
19 the sale of Brundage. Branin removed the case to the United
20 States District Court for the Southern District of New York on
21 diversity grounds. He then filed counterclaims for breach of
22 contract relating to his position at Bessemer, breach of contract
23 with respect to his bonus, quantum meruit, and promissory
24 estoppel based on the sale of Brundage and his associated offer
25 of employment by Bessemer.
26 Motions and Trials
13
1 After pre-trial discovery was complete, the parties
2 each brought a motion for summary judgment. These were denied.
3 The case proceeded to a bench trial as to Branin's liability on
4 Bessemer's claim. Following the completion of trial, the filing
5 of post-trial memoranda of law, summations by the parties, oral
6 argument, and additional letter briefs, the district court issued
7 a memorandum opinion and order on April 10, 2006, concluding that
8 Branin violated New York law by impairing Bessemer's good will in
9 the Palmer account, but that Bessemer had not proven a violation
10 of law by a preponderance of the evidence with respect to any
11 other transferred account. Bessemer I, 427 F. Supp. 2d at 397-
12 98.
13 Bessemer then moved for summary judgment on Branin's
14 counterclaims. In February 2007, and by a subsequent memorandum
15 opinion and order, the court granted Bessemer's motion. See
16 Bessemer Trust Co., N.A. v. Branin, 498 F. Supp. 2d 632, 639
17 (S.D.N.Y. 2007) ("Bessemer II"). Recognizing that Branin's
18 employment contract was terminable at will and that Branin "had
19 no contractual right to a bonus above 0% of his salary and [that]
20 his bonus was clearly within the discretion of [Bessemer]," id.
21 at 639, the court concluded that Branin's counterclaims were
22 based on an "erroneous interpretation of the Purchase Agreement,"
23 id. at 637.
24 The court then conducted a separate bench trial on
25 damages. It rejected Bessemer's "lost profits" theory of damages
26 and accepted Branin's "return of capital" theory, concluding that
14
1 Branin was liable to Bessemer in the amount of $826,335 plus
2 prejudgment interest of $402,838 for a total of $1,229,173.
3 Bessemer Trust Co., N.A. v. Branin, 544 F. Supp. 2d 385, 390-93
4 (S.D.N.Y. 2008) ("Bessemer III").
5 Branin appeals as to the district court's finding of
6 liability with respect to the Palmer account, the award of
7 damages, and the grant of summary judgment dismissing his
8 counterclaims. Bessemer cross-appeals as to the district court's
9 calculation of damages.
10 DISCUSSION
11 I. Standards of Review
12 "In reviewing a district court's decision in a bench
13 trial, we review the district court's findings of fact for clear
14 error and its conclusions of law de novo." White v. White Rose
15 Food, 237 F.3d 174, 178 (2d Cir. 2001); accord Amalfitano v.
16 Rosenberg, 533 F.3d 117, 123 (2d Cir. 2008). "Under the clearly
17 erroneous standard, there is a strong presumption in favor of a
18 trial court's findings of fact if supported by substantial
19 evidence. We will not upset a factual finding unless we are left
20 with the definite and firm conviction that a mistake has been
21 committed.” White, 237 F.3d at 178 (internal quotation marks
22 omitted).
23 Similarly, in reviewing a grant of summary judgment, we
24 review questions of law and mixed questions of law and fact de
25 novo, McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 202, 204
26 (2d Cir. 2007), and review a district court's factual findings
15
1 for clear error, City of N.Y. v. Agni, 522 F.3d 279, 282 (2d Cir.
2 2008). "[C]onstruing the evidence in the light most favorable to
3 the nonmoving party," Mitchell v. Shane, 350 F.3d 39, 47 (2d Cir.
4 2003), we may affirm only "if the pleadings, the discovery and
5 disclosure materials on file, and any affidavits show that there
6 is no genuine issue as to any material fact and that the movant
7 is entitled to judgment as a matter of law." Fed. R. Civ. P.
8 56(c). "[A] fact is 'material' if it 'might affect the outcome
9 of the suit under the governing law.'" Mitchell, 350 F.3d at 47
10 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
11 (1986)). "A fact issue is 'genuine' if 'the evidence is such
12 that a reasonable jury could return a verdict for the nonmoving
13 party.'" Id. (quoting Anderson, 477 U.S. at 248).
14 Finally, with respect to the district court's
15 determination of damages, we review the legal question of the
16 applicable damages measurement de novo. See Indu Craft, Inc. v.
17 Bank of Baroda, 47 F.3d 490, 494 (2d Cir. 1995). The question of
18 "the amount of recoverable damages is a question of fact,"
19 however, that we review for clear error. Lucente v. IBM Corp.,
20 310 F.3d 243, 261 (2d Cir. 2002) (quotation marks omitted).
21 II. Improper Solicitation of Clients After Voluntary
22 Sale of Good Will Under New York Law
23 The Mohawk doctrine, derived from the New York Court of
24 Appeals decisions in Von Bremen v. MacMonnies, 200 N.Y. 41, 93
25 N.E. 186 (1910) and Mohawk Maint. Co. v. Kessler, 52 N.Y.2d 276,
26 419 N.E.2d 324, 437 N.Y.S.2d 646 (1981), recognizes as part of
16
1 the common law of New York a "so-called 'implied covenant' [by a
2 seller] to refrain from soliciting former customers following the
3 sale of the 'good will' of a business," Mohawk, 52 N.Y.2d at 284,
4 419 N.E.2d at 328, 437 N.Y.S.2d at 650. "This 'implied covenant'
5 . . . precludes [the seller] from approaching his former
6 customers and attempting to regain their patronage after he has
7 purported to transfer their 'good will' to his purchaser." Id.;
8 see also Von Bremen, 200 N.Y. at 52, 93 N.E. at 190 (finding that
9 "a voluntary assignor of the good will of a business" may not
10 "solicit trade from [his] old customers"). The basis for the
11 rule was described by reference to English common law in Von
12 Bremen:
13 "A man may not derogate from his own grant;
14 the vendor is not at liberty to destroy or
15 depreciate the thing which he has sold; there
16 is an implied covenant, on the sale of good
17 will, that the vendor does not solicit the
18 custom which he has parted with; it would be
19 a fraud on the contract to do so. . . . It
20 is not right to profess and to purport to
21 sell that which you do not mean the purchaser
22 to have; it is not an honest thing to pocket
23 the price and then to recapture the subject
24 of sale; to decoy it away or call it back
25 before the purchaser has had time to attach
26 it to himself and make it his very own."
27 Von Bremen, 200 N.Y. at 50-51, 93 N.E. at 189 (quoting Lord
28 MacNaghten's opinion in Trego v. Hunt, (1896) 21 App. Cas. 7).
29 "[T]he right acquired by the purchaser of the 'good
30 will' of a business by virtue of this 'implied covenant' [is] a
31 permanent one [and] is not subject to divestiture upon the
32 passage of a reasonable period of time," since there is a
17
1 continuing duty upon the seller "imposed by law in order to
2 prevent the seller from taking back that which he has purported
3 to sell." Mohawk, 52 N.Y.2d at 284-85, 419 N.E.2d at 329, 437
4 N.Y.S.2d at 651; accord Borne Chem. Co., Inc. v. Dictrow, 85
5 A.D.2d 646, 650, 445 N.Y.S.2d 406, 413 (2d Dep't 1981) ("A cause
6 of action for wrongful diversion of good will previously sold to
7 a plaintiff by a defendant sounds in breach of an implied
8 covenant of the contract of sale that the seller will permanently
9 refrain from soliciting his prior customers.").
10 When the intangible asset of good will is
11 sold along with the tangible assets of a
12 business, the purchaser acquires the right to
13 expect that the firm's established customers
14 will continue to patronize the business. The
15 essence of the transaction [of the sale of
16 good will] is, in effect, an attempt to
17 transfer the loyalties of the business'
18 customers from the seller, who cultivated and
19 created them, to the new proprietor.
20 Mohawk, 52 N.Y.2d at 285, 419 N.E.2d at 329, 437 N.Y.S.2d at 651
21 (internal citations omitted).
22 This duty of the seller not to solicit customers does
23 not, however, include an obligation not to accept such of his
24 former customers as may choose to follow him to his new
25 employment. See id., 52 N.Y.2d at 287, 419 N.E.2d at 330, 437
26 N.Y.S.2d at 652 (recognizing that the seller "may accept the
27 patronage of those customers who were actively dealing with [the
28 purchased company] on the date of the sale if such customers
29 choose to leave [the purchased company] without prompting from
30 [the seller]").
18
1 The New York Court of Appeals has drawn an "important
2 distinction between the duty to refrain from soliciting
3 customers" on the one hand, which arises by operation of law upon
4 the sale of good will, and the "separate duty to refrain from
5 competing with the purchaser, which may only arise out of an
6 express agreement." Id., 52 N.Y.2d at 283, 419 N.E.2d at 328,
7 437 N.Y.S.2d at 650.2 "When a business is sold, the purchaser
8 acquires no legal right to expect that the seller will refrain
9 from engaging in a competing enterprise." Id. Rather, "the
10 seller remains free to pursue his own economic interests without
11 restraint unless the purchaser has managed to extract from him an
12 express promise to refrain from competing." Id. This includes
13 the right to contract with the seller's former customers,
14 provided that there is no improper solicitation, and, "[i]ndeed,
15 the occurrence of a certain amount of attrition is one of the
16 risks that the purchaser must assume when he acquires an
17 established business." Id., 52 N.Y.2d at 285, 419 N.E.2d at 329,
18 437 N.Y.S.2d at 651. So long as the client's decision to follow
19 the seller "did not come about through improper solicitation,"
20 the implied covenant is not violated and the lost account "should
21 not be considered in ascertaining plaintiffs' damages." Hyde
2
The parties might have, but did not, negotiate a non-
competition agreement upon the sale of Brundage to Bessemer. And
competitive behavior does not, in and of itself, trigger
application of the implied covenant attached to the sale of good
will inasmuch as this "'implied covenant' imposes a much narrower
duty than do express covenants purporting to restrict the
seller's right to compete." Mohawk, 52 N.Y.2d at 284, 419 N.E.2d
at 328, at 437 N.Y.S.2d at 650.
19
1 Park Prods. Corp. v. Maximilian Lerner Corp., 65 N.Y.2d 316, 322,
2 480 N.E.2d 1084, 1088, 491 N.Y.S.2d 302, 306 (1985).
3 The difficulty lies, of course, in determining what
4 actions constitute "improper solicitation," an issue upon which
5 New York courts offer somewhat limited guidance. In the case
6 before us, Branin argues that he did not solicit any clients
7 because he was simply responding to their inquiries.3 Bessemer
8 counters that "even if a former customer made the initial
9 contact, Branin was prohibited from taking any action that would
10 tend in any way to exploit a client's established loyalties or to
11 prompt or encourage the client to leave Bessemer," Appellee's Br.
12 at 27-28, and that Branin could accept former clients' business
13 "only if they left Bessemer and joined him at Stein Roe 'without
14 prompting' or 'any act' from Branin," id. at 28. The district
15 court took a middle path, concluding that Bessemer had
16 established that Branin's solicitation was improper as to the
17 Palmer account, but that there was insufficient evidence to
18 demonstrate solicitation of any other account, including the Glen
19 Raven account, with whose representative Branin also met in
3
Branin also argues that his actions were permissible
because they assisted the clients in making informed choices, as
is each client's right under the Investment Advisor Act of 1940.
Branin has cited no case law that suggests, let alone holds, that
the right of the client to make an informed choice would permit
improper solicitation of that client. The argument does not help
answer the basic question: whether Branin improperly solicited
his clients.
20
1 person while at Stein Roe.4 Bessemer I, 427 F. Supp. 2d. at 395-
2 98.
3 We find no clear error in the district court's finding
4 of fact "that Branin intended to take his clients with him from
5 Bessemer to Stein Roe." Id. at 393. Branin himself stated that
6 he "'had learned . . . the right way to transition clients from
7 Bessemer to another firm.'" Id. (quoting Trial Tr. at 597, 599-
8 600). He expressed his desire to transfer $1.5 to $1.8 million
9 in revenue from Bessemer to Stein Roe. Id.
10 Once at Stein Roe, as noted above, Branin took actions
11 both to help Stein Roe solicit his clients and to frustrate
12 Bessemer's ability to retain them. Most prominently, he called a
13 meeting for the express purpose of devising a strategy to solicit
14 the Palmer family business, requested a new schedule of fees for
15 his former clients so as to entice them to move, held in-depth
16 discussions with employees at Stein Roe in which he described his
17 clients at Bessemer and what would motivate them to move their
18 business to Stein Roe, and participated in both phone and in-
19 person meetings with his former clients during which he discussed
20 his reasons for moving from Bessemer to Stein Roe.
21 Branin's principal assistant at Bessemer, whose
22 intimate knowledge of Branin's clients would likely have been of
4
The district court also noted that Bessemer had not
advanced, and the court therefore did not consider, any argument
as to clients that left Bessemer but did not join Stein Roe, even
though the court believed that such an argument could have been
cognizable under Mohawk. Bessemer I, 427 F. Supp. 2d. at 395
n.8.
21
1 significant benefit to Bessemer in its effort to retain Branin's
2 accounts -- a fact of which Branin testified he was aware, was
3 hired by Stein Roe despite receiving thoroughly negative reviews
4 during her interviews and without having submitted any references
5 or recommendations, because the president of Stein Roe believed
6 that she could "help [Branin] transition as much of his client
7 base to [Stein Roe] as possible." Id. at 394 (quotation marks
8 and citation omitted, alteration in original). Indeed, this was
9 part of the reason that Branin initially suggested that Stein Roe
10 hire her, and her hiring was important enough to Branin that he
11 offered to pay a portion of her salary at Stein Roe out of his
12 own pocket.
13 The district court's not-clearly-erroneous finding was
14 that Branin's input helped "Stein Roe's presenters [to] steer[]
15 clear of topics in which Palmer had little interest and focus[]
16 only on those things that were of interest to him." Bessemer I,
17 427 F. Supp. 2d at 396. And Carleton Palmer, the family
18 representative, testified that Branin "occasionally amplif[ied] a
19 point if he knew it was something I would be interested in from
20 his relationship with me." Trial Tr. at 776. Branin then
21 traveled to Ohio for a second meeting with Palmer, in which he
22 presented the Palmer family with a proposed fee schedule and
23 promised the CEO of Stein Roe as the "number two" on the account.
24 Id. at 786-87.
25 None of this behavior by Branin requires a conclusion
26 under New York law as we understand it, however, that Branin
22
1 "solicited" Palmer as a client. As the district court correctly
2 noted, other than Palmer and Glen Raven, Bessemer "has offered no
3 proof about which clients spoke to Branin before they transferred
4 their accounts, heard Branin's standard response, were familiar
5 with Fuhrmann, or knew that their fees would be the same at Stein
6 Roe." Bessemer I, 427 F. Supp. 2d at 395. Even had "all of the
7 clients at issue [been] party to these actions by defendant, no
8 evidence has been presented to show that these clients would not
9 have joined Branin absent these inducements." Id. And inasmuch
10 as the Palmer family transferred their account only after Stein
11 Roe was able to demonstrate, in a meeting in which Branin took
12 part, that the firm would be a superior investment manager in
13 light of the family's investment needs, we think it relevant that
14 New York law permits several steps Bessemer might have pursued to
15 protect itself in this regard, including non-competition and non-
16 solicitation agreements that could have been, but were not,
17 entered into with the Brundage principals at the time of the sale
18 of the firm to Bessemer.
19 The district court implicitly recognized what we think
20 to be so: The fact that Branin participated in the meetings
21 relating to the departure of the Palmer family to Stein Roe does
22 not necessarily demonstrate that he was engaged in improper
23 solicitation because, as was the case with the Glen Raven account
24 with respect to which Branin also held an in person meeting while
25 at Stein Roe, there is no conclusive proof or finding of a
26 causative link between what Branin did and the family's decision
23
1 to change investment advisors. See id. (finding, despite the
2 fact that Branin had participated in a meeting with Glen Raven
3 discussing the moving of the account to Stein Roe, that there was
4 no solicitation because Glen Raven "was intent on following
5 Branin regardless of any action or inaction on his part and
6 therefore nothing Branin did caused the transfer of the Glen
7 Raven account"). Under the circumstances, the Palmer family may
8 well have followed in any event.
9 The district court found that, "[t]aking all these
10 actions together," it had "no doubt that Branin stepped over the
11 line and improperly induced the Palmers to leave Bessemer and
12 join Stein Roe." Id. at 396. We recognize that these actions
13 are far from passive acceptance of a client's inquiries, but we
14 lack the clarity of conviction of the district court on this
15 point.5
5
We also harbor a concern as to how our decision here
might affect a situation where the defendant has left to
establish his or her own, new business, rather than for another
firm. In that case, former clients would indisputably be free to
contact the start-up firm to discuss the prospect of transferring
their accounts, provided that there was no improper solicitation
on the hypothetical defendant's part. Unless we were to reach
the highly unlikely conclusion that a voluntary seller of good
will could never start a competing, solo practitioner business
and receive former clients that wished to join him, then it seems
to us that everything that Branin did here -- such as preparing
an individualized sales pitch or presenting a new fee schedule --
would have to be appropriate if done by a voluntary seller
setting up his own solo business. It is not clear to us that the
result should be different here solely because Stein Roe existed
prior to Branin's move and because there are other employees who
could have participated in the sales presentations and
preparations.
24
1 The district court found the question of "initiation"
2 irrelevant to its analysis. See id. at 396 n.10 (finding that
3 "Von Bremen and Mohawk Maintenance Co. place no significance on
4 who initiates the communications between the seller of good will
5 and his now-former clients"). In the court's view, Von Bremen's
6 broader concern was that "it would be bad faith" for the seller
7 "to avail himself as against the [buyer] of any special knowledge
8 or advantage derived by him from the business whose good will he
9 has voluntarily sold." Id. at 396 (quoting Von Bremer, 200 N.Y.
10 at 52, 93 N.E. at 190) (quotation marks and emphasis omitted).
11 We read the New York case law differently. Inasmuch as
12 Von Bremen relied on bad faith, the reliance on bad faith was not
13 relevant to the solicitation analysis, but was instead part of a
14 separate discussion of the basis for the distinction between
15 voluntary and involuntary sales of good will and for applying the
16 implied covenant in the former case to the exclusion of the
17 latter. See Von Bremen, 200 N.Y. at 51-52, 93 N.E. at 190. And,
18 contrary to the district court's suggestion that "initiation" is
19 of no special significance, the identity of the initiator has
20 been treated as both relevant and important for courts that have
21 applied the implied covenant. They have characterized the
22 forbidden action with words signifying direct initiation of
23 communication, such as "solicit," Von Bremen, 200 N.Y. at 48, 93
24 N.E. at 188; Mohawk, 52 N.Y.2d at 286, 419 N.E.2d at 329, 437
25 N.Y.S.2d at 651, "approach[]," Mohawk, 52 N.Y.2d at 284, 419
26 N.E.2d at 328, 437 N.Y.S.2d at 650; Slomin's, Inc. v. Gray, 176
25
1 A.D.2d 934, 936, 575 N.Y.S.2d 545, 547 (2d Dep't 1991); Kraft
2 Agency, Inc. v. Delmonico, 110 A.D.2d 177, 181, 494 N.Y.S.2d 77,
3 80 (4th Dep't 1985), "apply," Von Bremen, 200 N.Y. at 48, 93 N.E.
4 at 188, "specifically and directly appeal[]," id., 200 N.Y. at
5 50, 93 N.E. at 188, and "drum up or circularize," In re Brown,
6 242 N.Y. 1, 10 (1926) (Cardozo, J.). In Von Bremen itself, the
7 Court of Appeals recognized that a previous attempt to divorce
8 solicitation from initiation that had been made by Lord Jessel in
9 Leggott v. Barrett, (1880) 15 Ch.D. 306 had been rejected by the
10 higher court. Von Bremen, 200 N.Y. at 48, 93 N.E. at 188. The
11 language of Mohawk is perhaps the most suggestive of the
12 importance of initiation in the application of the implied
13 covenant, since the court described the implied covenant as
14 "restrict[ing] the economic freedom of the seller only insofar as
15 it precludes him from approaching his former customers and
16 attempting to regain their patronage after he has purported to
17 transfer their 'good will' to his purchaser." Mohawk, 52 N.Y.2d
18 at 284, 419 N.E.2d at 328, 437 N.Y.S.2d at 650 (emphasis added).
19 And in the case before us, it is entirely clear that the Palmer
20 family, not Branin, initiated the contacts that led to the
21 transfer of its account to Stein Roe.
22 We might make the assessments as to whether Branin's
23 efforts in following up on the Palmer family's initiation of
24 contacts constituted improper solicitation. Or, insofar as
25 factual questions as to "initiation" and "causation" are
26 involved, we might return the case to the district court, asking
26
1 it for a more specific examination of those issues. But we find
2 it difficult for either us or a district court to make that
3 determination in the absence of further explication as to the law
4 of the State of New York as to "improper solicitation" under
5 these circumstances. Especially in light of the importance of
6 New York, and New York law, in the financial services industry,
7 we think, and the New York Court of Appeals may agree, that it is
8 that court which should make this determination in the first
9 instance.
10 Generalizing, we seek instruction as to whether two
11 sets of actions, taken together, amount to "improper
12 solicitation" under the law of the Mohawk doctrine: (1) the
13 active development and participation by the seller, in response
14 to inquiries from a former client whose good will the seller has
15 voluntarily sold to a third party, of a plan whereby others at
16 the seller's new company solicit a client, and (2) participation
17 by the seller in solicitation meetings where the seller's role is
18 largely passive.
19 III. Damages
20 Following a two-day trial on damages, the district
21 court rejected Bessemer's "lost profits" theory of damages and
22 accepted Branin's "return of capital" theory, concluding that
23 Branin was liable to Bessemer on the breach of contract claim in
24 the amount of $1,229,173: $826,335 damages and $402,838
25 prejudgment interest. Bessemer III, 544 F. Supp. 2d at 393.
26 Both parties challenge this finding. Branin argues that there
27
1 should be no damage award because Bessemer did not prove a causal
2 link between the breach and Bessemer's injury. Bessemer argues
3 that the district court erred in accepting Branin's "return of
4 capital" theory rather than its own "lost profits" theory.
5 Since we are certifying the threshold question of
6 whether Branin is liable to Bessemer for improper solicitation,
7 we need not reach th question of how Bessemer's damages should be
8 calculated, and thus reserve judgment on that issue. However, we
9 do consider Branin's argument that, even if he breached the
10 contract, the breach was harmless, because such a finding would
11 obviate the need to determine liability. Branin bases this
12 argument upon the district court's observation that it was
13 "really hav[ing] difficulty believing that [Palmer] was going to
14 stay with [Bessemer] given what he thought of [its] people. . . .
15 Even assuming that he was not going to go over to Branin, he was
16 not going to stay with Bessemer." Trial Tr. at 1060, quoted in
17 Appellant's Br. at 17 n.5. We find this argument unpersuasive
18 because it overlooks the fact that the district court made at
19 least two explicit findings on the issue. See Bessemer III, 544
20 F. Supp. 2d at 389 n.8 (finding "that defendant's conduct played
21 a role, but not the sole role in Palmer leaving Bessemer");
22 Bessemer I, 427 F. Supp. 2d at 396 (finding that Bessemer "has
23 carried th[e] burden" to "prove that Branin's improper actions
24 caused Palmer to move his account from Bessemer to Stein Roe").
25 As Branin has demonstrated no clear error in these findings of
26 fact, we reject his argument that Bessemer has failed to prove
28
1 that, provided Branin is liable, damages would be greater than
2 "zero."
3 We reserve decision on the correct method for the
4 calculation of damages until we receive further guidance from the
5 New York Court of Appeals on liability, and, if it wishes, on
6 damages, should the court choose to accept the question that we
7 certify.
8 IV. Branin's Counterclaims
9 Branin asserted four counterclaims in the district
10 court: breach of contract with respect to his position at
11 Bessemer, breach of contract as to his bonus, quantum meruit, and
12 promissory estoppel based on the sale of the business and his
13 offer of employment by Bessemer. On appeal, Branin alleges error
14 only with respect to the district court's grant of summary
15 judgment on his breach of contract claims. The quantum meruit
16 and promissory estoppel arguments are therefore waived. See
17 Norton v. Sam's Club, 145 F.3d 114, 117 (2d Cir. 1998). And we
18 find no error in the district court's rejection of Branin's
19 remaining breach of contract claims.
20 A. Breach of Bonus Plan
21 Exhibit D to the Purchase Agreement sets out the
22 criteria by which Branin's cash bonus was to be determined.
23 Specifically, that exhibit provides that while Branin is
24 "eligible for participation in the Incentive Cash Bonus Plan[,
25 t]he amount of the bonus is at the discretion of the Salary
29
1 Committee, and at this time has a range of 0% to 250% of base
2 pay." Purchase Agreement, Ex. D, at 1.
3 Branin alleges that at the end of 2001, the other
4 former Brundage principals received bonuses amounting to between
5 ninety-two and more than one-hundred percent of the maximum
6 bonuses provided for in Exhibit D to the Purchase Agreement. He
7 asserts that he received instead only twenty percent of his
8 potential bonus (slightly more than fifty percent of his base
9 salary). He alleges that this constitutes a breach of Exhibit D.
10 The district court rejected this claim on the ground that the
11 same agreement expressly "allows for a discretionary bonus range
12 between 0% and 250% of his salary," Bessemer II, 498 F. Supp. 2d
13 at 638, and Branin's bonus, at more than fifty percent of his
14 salary, "was within this range," id.
15 Branin concedes that under New York law "the insertion
16 of the word discretion into a bonus arrangement signals the end
17 to any possible challenge to a bonus determination," Appellant's
18 Br. at 60, but argues that the allowance for discretion does not
19 settle the matter here. He asserts that the Purchase Agreement
20 included a "detailed written bonus plan incorporating explicit
21 objective criteria and procedures." Id. Branin provides no
22 persuasive authority to support his theory.
23 In Valentine v. Carlisle Leasing Int'l Co., No. 97 Civ.
24 1406, 1998 WL 690877, 1998 U.S. Dist. LEXIS 15581 (N.D.N.Y. Sept.
25 30, 1998), on which Branin relies as support for his argument,
26 the court reached precisely the opposite result from that which
30
1 Branin seeks here. The court considered an offer letter that
2 "clearly stated" that the employer "would retain absolute
3 discretion to determine both whether [the plaintiff] would
4 receive a bonus and, if so, how much he would receive." Id.,
5 1998 WL 690877, at *4, 1998 U.S. Dist. LEXIS 15581, at *11. In
6 light of this explicitly conferred discretion, the court held
7 that the plaintiff had no right to have the bonus terms enforced.
8 Id.
9 To be sure, in reaching this conclusion, the Valentine
10 court noted in dicta that the employee's letter conferring
11 employment "indicated only generally that [the employee's]
12 entitlement to a bonus would depend on his performance and that
13 of the company but did not set forth objective criteria on which
14 [the employer] would base its decision." Id. Branin attempts to
15 seize on this language in Valentine to argue that where, as here,
16 objective criteria are present, the failure to provide a bonus
17 that meets those criteria is actionable despite the fact that
18 discretion to provide a bonus was explicitly reserved by the
19 employer. But, Valentine does not stand for the proposition
20 offered. The dicta relied on by Branin did nothing more than
21 explain the many ways in which the employer reserved discretion
22 for itself.
23 Exhibit D to the Purchase Agreement that Branin seeks
24 to enforce here expressly states that its terms "do not and are
25 not intended to create either an expressed or implied employment
26 contract." Purchase Agreement, Ex. D at 2. Exhibit D expressly
31
1 states that any bonus to be awarded is "at the discretion of the
2 Salary Committee." Id. We find no error in the district court's
3 reading of these clauses as dispositive of Branin's claim: They
4 reserve to the Salary Committee the decision to award or not to
5 award a bonus, and in what amount.
6 B. Breach of Purchase Agreement
7 The Purchase Agreement required that Branin be given a
8 position at Bessemer "generally comparable" to his former
9 position at Brundage. Purchase Agreement, § 7.01(vii). The
10 parties agreed upon what that position would be, the title of
11 Managing Director, the base salary and bonus range, the terms of
12 vacation time, and the form and scope of other benefits. Branin
13 does not dispute that he received all that was agreed upon in
14 this respect. Branin nonetheless continued to argue to the
15 district court, and continues to argue here, that he suffered
16 "diminished responsibilities, exclusion from meetings, and
17 effective demotion throughout his time at Bessemer." Bessemer
18 II, 498 F. Supp. 2d at 635. Because of these alleged diminished
19 responsibilities, Branin maintains that "questions of fact exist
20 as to whether there was a material diminution in Mr. Branin's
21 duties and responsibilities subsequent to the closing."
22 Appellant's Br. at 63.
23 The district court rejected this argument, concluding
24 that even had Branin suffered the demotion and other grievances
25 he alleges, Bessemer would not have breached any term of the
32
1 Purchase Agreement or offer letter by doing so. Bessemer II, 498
2 F. Supp. 2d at 635-36. We agree.
3 Branin characterizes the Purchase Agreement's
4 requirement that he be provided with a role that was "generally
5 comparable" to the role he had at Brundage as "a commitment that
6 so long as Mr. Branin remained in Bessemer's employ, he would
7 function in a comparable position with commensurate authority."
8 Appellant's Br. at 64. But that is not what the contract says.
9 Rather, the contract provides as a condition precedent to closing
10 that the Brundage principals, Branin among them, accept in
11 writing the terms of employment offered by Bessemer for a
12 generally comparable position prior to the closing date. There
13 is no allegation that this condition was not fulfilled. And
14 Branin seems to concede as much in his admission that his
15 "employment at Bessemer was not subject to a definite duration."
16 Id. Branin was thus essentially an at-will employee whose duties
17 were subject to change or termination based on the needs and
18 desires of his employer. Cf., e.g., Finley v. Giacobbe, 79 F.3d
19 1285, 1294-95 (2d Cir. 1996) (noting that, with limited
20 exceptions not relevant here, under New York law, "an employee
21 serving purely at will, by definition, has no contractual right
22 to avoid dismissal"). If he could be dismissed at will by
23 Bessemer, it seems to us, the lesser action of changing his role
24 at the firm, subject of course to his choosing to depart at his
25 option instead, was permissible too.
26 V. Certification to the New York Court of Appeals
33
1 Under the rules of this Circuit, "[i]f state law
2 permits, the court may certify a question of state law to that
3 state's highest court." 2d Cir. R. 27.2(a); see also Prats v.
4 Port Auth. of N.Y. & N.J., 315 F.3d 146, 150-51 (2d Cir. 2002).
5 Certification is within the discretion of this Court. See
6 McCarthy v. Olin Corp., 119 F.3d 148, 153 (2d Cir. 1997).
7 In the past, we have recognized several factors that
8 guide our decision of whether to certify a question to the New
9 York Court of Appeals. First, and most important, we have
10 recognized that certification may be appropriate if the New York
11 Court of Appeals has not squarely addressed an issue and other
12 decisions by New York courts are insufficient to predict how the
13 Court of Appeals would resolve it. See Kuhne v. Cohen &
14 Slamowitz, LLP, 579 F.3d 189, 198 (2d Cir. 2009); O'Mara v. Town
15 of Wappinger, 485 F.3d 693, 698 (2d Cir. 2007). We find
16 insufficient guidance in past New York cases regarding the
17 application of the Mohawk doctrine to determine how it would be
18 applied to the facts of this case. And, as we have noted, we
19 think that because of the prominence of the financial services
20 industry in the State of New York, clarification of New York law
21 on the issues presented in this case would be of significant
22 public interest.
23 Second, certification may be appropriate where
24 resolution of an issue involves value judgments and public policy
25 choices that the New York Court of Appeals is best situated to
26 make. See Colavito v. N.Y. Organ Donor Network, Inc., 438 F.3d
34
1 214, 229 (2d Cir. 2006); Blue Cross & Blue Shield of N.J., Inc.
2 v. Phillip Morris USA, Inc., 344 F.3d 211, 221 (2d Cir. 2003).
3 We think that the New York Court of Appeals is better positioned
4 to determined the scope of permissible solicitation under New
5 York law of former clients by voluntary sellers of those clients'
6 good will.
7 Finally, we have found certification appropriate where
8 the question certified will determine the outcome of the case.
9 See O'Mara, 485 F.3d at 698 (analyzing earlier version of the
10 Second Circuit local rule governing certification). Here,
11 resolution of the question of the scope of the Mohawk doctrine
12 will determine our resolution of the question of liability and
13 therefore control the outcome of this appeal of the district
14 court's decision.
15 Because each of these factors suggests that
16 certification is appropriate, we hereby certify the question
17 restated below.
18 CONCLUSION
19 For the foregoing reasons, we certify the following
20 question to the New York Court of Appeals: What degree of
21 participation in a new employer's solicitation of a former
22 employer's client by a voluntary seller of that client's good
23 will constitutes improper solicitation? We are particularly
24 interested in how the following two sets of circumstances
25 influence this analysis: (1) the active development and
26 participation by the seller, in response to inquiries from a
35
1 former client whose good will the seller has voluntarily sold to
2 a third party, in a plan whereby others at the seller's new
3 company solicit the client, and (2) participation by the seller
4 in solicitation meetings where the seller's role is largely
5 passive. We do not intend to in any way limit the scope of the
6 New York Court of Appeals' analysis based on the facts of the
7 case through the formulation of this question, and we invite the
8 Court of Appeals to expand upon or alter the question as it may
9 deem appropriate. See Kirschner v. KPMG LLP, 590 F.3d 186, 195
10 (2d Cir. 2009).
11 Pursuant to New York Court of Appeals Rule 500.17 and
12 United States Court of Appeals for the Second Circuit Rule 27.2,
13 it is hereby ORDERED that the Clerk of this Court transmit to the
14 Clerk of the Court of Appeals of the State of New York this
15 opinion as our certificate, together with a complete set of the
16 briefs, appendix, and record filed in this Court by the parties.
17 We direct the parties to bear equally any fees and costs that may
18 be imposed by the New York Court of Appeals in connection with
19 this certification. This panel will retain jurisdiction of the
20 appeal after disposition of this certification by the New York
21 Court of Appeals, and after the Court of Appeals' judgment should
22 it choose to accept this certification.
36