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Bessemer Trust Company, N.A. v. Branin

April 11, 2008

BESSEMER TRUST COMPANY, N.A., PLAINTIFF,
v.
FRANCIS S. BRANIN, JR., DEFENDANT.



The opinion of the court was delivered by: Sprizzo, D.J.

MEMORANDUM OPINION AND ORDER

Plaintiff, Bessemer Trust Company, N.A. ("Bessemer" or "plaintiff"), brings this action against defendant, Francis S. Branin, Jr. ("Branin" or "defendant"), alleging a violation of the rule of law set forth in Von Bremen v. MacMonnies, 200 N.Y. 41, 93 N.E. 186 (1910) and Mohawk Maintenance Co. v. Kessler, 52 N.Y.2d 276, 419 N.E.2d 324, 437 N.Y.S.2d 646 (1981), which prohibits the impairment of good will which was transferred to a purchaser in connection with the sale of a business. The Court conducted a bench trial on liability from September 20 to September 27, 2004, and heard Summations and Oral Argument on December 17, 2004 and March 14, 2005, respectively. Having heard and observed all witnesses, considered all the evidence presented, as well as the arguments made by the parties' counsel, the Court, for the reasons set forth below, finds in favor of plaintiff in part and in favor of defendant in part. The following shall constitute the Court's findings of fact and conclusions of law as required by Federal ule of Civil Procedure 52(a).

In 1977 defendant joined the investment management firm of Brundage, Story and Rose, LLC ("Brundage"), Trial Tr. at 253; Pl.'s Trial Ex. 43, and became one of several principals/owners of the firm in 1982, Joint Pre-Trial Order, dated Aug. 9, 2004, Ex. A, Joint Statement of Undisputed Facts ("Facts") ¶ 3; Trial Tr. at 242. Until October 2000, defendant served as a portfolio manager at Brundage, a position which entailed working directly with clients and making investment decisions for each individual account handled. See Facts ¶ 3; Trial Tr. at 286.

BACKGROUND

In August 1999 Brundage began discussions with Oppedisano & Company, Inc. ("Oppedisano & Co."), a firm specializing in consulting investment management firms regarding mergers and acquisitions, about a possible acquisition by Bessemer, Facts ¶¶ 4--5, a federally chartered banking institution that provides investment advisory services to clients, id. ¶ 1. Unlike Brundage, however, plaintiff's investment management business was structured in a more centralized fashion, such that those in defendant's position functioned as "client account managers" and did not make investment decisions for the portfolios of their clients. See Trial Tr. at 103--04, 227, 285--87, 361. That Bessemer operated in this fashion was well known to the investment management industry, id. at 229, and to defendant as well, id. at 363, 428, 545--46. Despite this and a series of other differences between Brundage and Bessemer, see id. at 428--33, 543--47, the two firms entered into a Purchase Agreement dated August 18, 2000, Facts ¶ 12; Pl.'s Trial Ex. 24 ("Purchase Agreement"). Defendant supported, and worked towards the consummation of, the transaction. Trial Tr. at 427--29, 544.

Pursuant to the Purchase Agreement, Bessemer purchased the assets of Brundage, including Brundage's client accounts and related good will. Facts ¶ 13. Under the Agreement, Bessemer made an initial payment of $50 million, id. ¶ 17, which was divided amongst the eight owners of Brundage based on a variety of factors, id. ¶ 18; Purchase Agreement at Annex I; Trial Tr. at 547--48. Defendant received over $9.1 million of this initial payment. Facts ¶ 19. In addition to the initial payment, the Purchase Agreement contained a number of contingent payments that could be earned by the now-former owners of Brundage ("Brundage partners") based upon their collective ability to successfully transfer accounts to Bessemer, to enhance the revenues of the transferred accounts, to retain the accounts at Bessemer, and to reduce expenses. Id. ¶¶ 20--21; Trial Tr. at 553--60; Pl.'s Trial Ex.

The Brundage partners received their first contingent payment, in the amount of $10 million, in September 2001, after they successfully transferred a requisite percentage of accounts from Brundage to Bessemer. Facts ¶¶ 23--24; Trial Tr. at 554; Pl.'s Trial Ex. 41. Defendant received over $2.25 million of this payment. Facts ¶ 25. The Brundage partners also earned a contingent payment for reducing expenses--a payment which pursuant to the Purchase Agreement would be paid eighteen months after the close of the acquisition, and, given that it was calculated as two times any costs successfully reduced, was all but guaranteed to be paid in some amount. See Facts ¶ 26; Trial Tr. at 554--57. On account of this contingent payment, in April 2002 the Brundage partners received approximately $15 million, see Facts ¶ 27, of which defendant received over $3.7 million, id. ¶ 28.

Although the Brundage partners successfully earned two of the available contingent payments, they could not meet the requirements for the remaining two payments--an outcome that was all but assured shortly after the acquisition. See id. ¶ 29. In January 2001, Cheryl Grandfield, one of the Brundage partners, left Bessemer to form her own investment management firm. Trial Tr. at 333--36, 560--64. After actively soliciting her clients to follow her, Grandfield was sued by Bessemer. Id. The case was settled in April 2001 with Grandfield returning the $5 million she received pursuant to the Purchase Agreement in exchange for permission to solicit her clients. Id. As a result of Grandfield's departure, and the departure of many of her clients, the Brundage partners were unable to meet the requirements for the remaining contingent payments. Id. at 560--64.

Branin considered his experience at Bessemer to be unpleasant, see id. at 246--53, 262, 493--502, and by September 2001 he contacted Oppedisano & Co. about exploring different employment opportunities to begin sometime in the second quarter of 2002, see id. at 72--73, 253--59; Facts ¶ 39. On November 7, 2001 Branin met with William Rankin, President and Chief Executive Officer of Stein Roe Investment Counsel LLC ("Stein Roe"), a wealth management firm that was interested in "lifting out" Branin and his business from Bessemer. Facts ¶¶ 33, 36--38, 40--43, 45; Trial Tr. at 73-81; Pl.'s Trial Ex. 45. At a December 21, 2001 lunch with fellow Brundage partner Paul Barkus, Branin discussed the possibility of joining Stein Roe, Trial Tr. at 596--97, indicated that he understood that the owners of Stein Roe were considering the sale of their business in the near future, id. at 596--97, 600--01, explained that he thought that he "had learned from [Grandfield] the right way to transition clients from Bessemer to another firm," id. at 597, 599--600; see id. at 193, 339--40, and expressed the hope that this situation would give him the opportunity to "sell my clients again," id. at 600--01.

Over the ensuing months defendant kept in periodic contact with Rankin, see id. at 93, and the two discussed Branin's current client base, his ability to, and expectations regarding, the transfer of clients from Bessemer to Stein Roe, and his desired compensation, id. at 94--104, 132, 141, 264--72; Pl.'s Trial Ex. 60. Defendant expressed his hope that within twelve months of joining Stein Roe he would be able to transfer $1.5 to $1.8 million of the approximately $2.3 million in revenues that he generated at Bessemer. Pl.'s Trial Exs. 55, 60; Trial Tr. at 141, 265--72. Rankin was less sanguine, see Trial Tr. at 141; Pl.'s Trial Ex. 60, but was nonetheless cognizant that Branin needed to transfer a significant amount of business from Bessemer in order for the relationship to be successful, see Trial Tr. at 81, 132, 195--99.

By late May or early June 2002 Branin had informed Rankin that he planned to join Stein Roe, Facts ¶ 51; Trial Tr. at 264, and that he wished for his principal assistant, Alexandra Fuhrmann, to join him, see Facts ¶ 64; Trial Tr. at 290--96. Fuhrmann, who had worked for Branin and Barkus at Brundage, Facts ¶ 63, worked exclusively for Branin at Bessemer where she carried out various tasks regarding his accounts--tasks which resulted in her having spoken to approximately 70% of his clients, see id. ¶ 64; Trial Tr. at 840--41, 898.*fn1 On July 12, 2002, Branin tendered his resignation to Bessemer. Facts ¶ 56; Pl.'s Trial Ex. 62. He informed his staff, including Fuhrmann, of his decision to leave Bessemer and join Stein Roe. Trial Tr. at 290, 296--97, 854--55. Fuhrmann immediately contacted Stein Roe, informed them that she worked for Branin, and asked if they had a position available for her. Id. at 861--63; Facts ¶ 65. Within hours Fuhrmann was interviewing with Eric Propper, the head of Stein Roe's New York office. Facts ¶ 66; Trial Tr. at 108, 863. Fuhrmann was told that there were no positions available. Facts ¶ 67; Trial Tr. at 864, 942--47.

Despite this inauspicious start, on July 15, 2002, Fuhrmann, who was never asked to provide references or recommendations of any kind, see Trial Tr. at 937--42, interviewed with Rankin, id. at 108--09, and the following day she interviewed with a group of Stein Roe employees, id. at 875--76; Pl.'s Trial Ex. 69. The latter meeting went poorly and the interviewers reported back to Rankin with "[r]esoundingly negative" feedback, stating that "[i]n a vacuum, would never hire her" because of her "unfortunate personality" and "overly aggressive" demeanor. Pl.'s Trial Exs. 68, 90; Trial Tr. at 112--14, 127--28, 194, 876--77, 944--51; Facts ¶¶ 79--81.

Meanwhile, Bessemer, which was not informed of Fuhrmann's attempts to join Stein Roe, see Facts ¶ 69, looked to Fuhrmann to fill the void left by Branin's departure, see id. ¶¶ 70--72. Bessemer asked Fuhrmann to call many of Branin's clients, named her senior client account manager on a number of his accounts, and informed numerous customers, in letters dated July 24, 2002, that she would be assuming the day-to-day responsibilities for their accounts. See id. ¶¶ 70--72, 75; Trial Tr. at 595--96, 607--09, 873--89, 963--66; Pl.'s Trial Exs. 59, 84.

By letter dated July 12, 2002, Stein Roe formalized its employment offer to defendant, Facts ¶ 57; Pl.'s Trial Ex. 75, and defendant began working at Stein Roe's New York office on July 29, 2002, Facts ¶ 62. Pursuant to the offer letter, in addition to a base salary of $250,000, benefits, and an option award of eight hundred shares in Stein Roe Investment Counsel Holdings LLC, Pl.'s Trial Ex. 75; Facts ¶¶ 58, 60, Branin was given the option of two different "Transition Incentive Arrangements"--payments that were designed to "shar[e] [the] economic risk" while providing an incentive for the speedy transfer of accounts to Stein Roe, see Trial Tr. at 65--66, 82--89. Branin could choose to receive one payment equal to 60% "of the annual run rate of revenues managed" twelve months after joining the firm, or two payments equal to 40% of the annual run rate at his one and two year anniversaries with the firm. See Pl.'s Trial Ex. 75.

Branin chose the former option. See Trial Tr. at 281; Facts ¶ 61.

On August 2, 2002, despite the dearth of an opening and the resoundingly negative feedback, Fuhrmann was offered a position as Vice President at Stein Roe--an offer which she immediately accepted, Facts ΒΆ 76; Trial Tr. at 889--90, 941--52; Pl.'s Trial Ex. 108, and which Rankin explained was a way to make Branin comfortable and to assist in the administrative work that needed to be done, see Trial Tr. at 109--125. According to Barkus, however, given the responsibilities recently entrusted to Fuhrmann by Bessemer, the move made Bessemer "look[] kind of foolish to the clients," Trial Tr. at 609; see also Pl.'s Trial Ex. 111, and he informed her that he "thought the only reason that [Branin] and Stein Roe wanted her to go to Stein Roe was to help [Branin] transfer accounts from Bessemer to Stein Roe," Trial Tr. at 594. Fuhrmann's salary and bonus at Stein Roe were paid by Branin, with Stein Roe in effect splitting the cost of her base salary by increasing Branin's ...


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