How the Seller of "Good Will" Can Permissibly Solicit His Old Clients Under NY Law

Last year, a Federal appeals court in New York was troubled by the following question in the context of a breach of fiduciary duty and breach of employment agreement claim following the sale of the "good will" of a business:

In the absence of a non-solicitation or non-compete agreement, where is the line drawn between what constitutes permissible solicitation of a former employer's client, and improper solicitation - or poaching - of a former employer's client under New York law? Stated differently, how far does a seller's "implied covenant" not to compete or solicit away its old customers away from the purchase of its good will extend? (Parenthetically, in legal terms, this is known as the "Mohawk Doctrine").

As a result, they punted the question over to New York State's highest court - the Court of Appeals. Recognizing that there is no bright line test, and that each case will inherently be fact-specific, the high court responded that the critical factor will turn on whether this seller and former employee actively engaged in solicitation, or was merely passive, in answering questions that originated from the clients; while the former would be prohibited under the Mohawk Doctrine, the latter would be permitted.

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