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Bessemer Trust Company, N.A v. Francis S. Branin

April 28, 2011


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

This opinion is uncorrected and subject to revision before publication in the New York Reports.

The United States Court of Appeals for the Second Circuit has certified the following question for our consideration:

"What 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?" Specifically, the Second Circuit seeks our guidance on whether the following two sets of actions, taken together, make out "improper solicitation" under New York law:

"(1) the active development and participation by the seller, in response to inquiries from a former client whose good will the seller has voluntarily sold to a third party, of a plan whereby others at the seller's new company solicit a client, and (2) participation by the seller in solicitation meetings where the seller's role is largely passive."


Plaintiff Bessemer Trust Company, N.A. (Bessemer) is a privately owned wealth management and investment advisory firm headquartered in New York City. Founded in 1907, Bessemer provides services to high net worth individuals, families, and institutional clients. Defendant Francis Branin Jr. is an investment portfolio manager. In 1977, Branin joined the New York City based investment management firm Brundage, Story & Rose, LLC (Brundage) where he too advised high net worth clients. Branin became a principal at Brundage in 1982 and served as its Chief Executive Officer from 1996 through October 2000.

By purchase agreement dated August 18, 2000 (the Purchase Agreement), the shareholders of Brundage agreed to sell the assets of their firm, including Brundage's client accounts and related good will, to Bessemer for more than $75 million. Bessemer acquired these assets in October 2000 and Branin, along with the seven other Brundage principals, began to work at Bessemer at that time.

The Purchase Agreement imposed no express restrictive covenants on the Brundage principals. They were at will employees of Bessemer with no ownership interest in the newly formed firm. The Purchase Agreement further provided that only $50 million of the purchase price was payable up front. Branin, the largest Brundage shareholder, received more than $9.1 million of this amount. The remainder of the purchase price was conditional. If the Brundage principals were able to achieve certain thresholds related to client retention, revenue enhancement, and reduction of expenses, they were eligible to receive the remainder of the purchase price in four subsequent installments. In September 2001 and in April 2002, the Brundage principals, having met designated benchmarks, qualified for the first two contingency payments. In total, Branin received over $15 million for the sale of his interest in Brundage between October 2000 and April 2002. Branin and the rest of the Brundage principals were ineligible for the remaining two contingency payments.

Branin soon became unhappy with his role at Bessemer. He disliked the fact that Bessemer management had reduced his responsibilities and excluded him from key management meetings. As a result, Branin started to explore different opportunities. To that end, from November 2001 to June 2002, Branin periodically met with William Rankin, the President and Chief Executive Officer of Stein Roe Investment Counsel LLC (Stein Roe), a wealth management firm, to discuss the possibility of his employment. The two discussed Branin's desired level of compensation and how such compensation would be structured. Rankin was aware that Bessemer had recently acquired Brundage and understood from these conversations that if Branin were to join Stein Roe, he could not actively solicit his clients to transfer their accounts from Bessemer to Stein Roe.

By late May or early June, Branin had made the decision to join Stein Roe. On July 12, 2002 -- less than two years after Bessemer acquired Brundage -- Branin resigned from Bessemer. Ten days later, by letter dated July 22, 2002, Stein Roe formally offered Branin the position of Senior Vice President and Principal. Branin commenced his employment with Stein Roe on July 29, 2002.

Branin did not notify his existing clients about his decision to resign from Bessemer and join Stein Roe. Bessemer instructed Branin to prepare a list of his clients with the pertinent account holder information so that Bessemer could transition these accounts to other investment advisors at the firm. Branin complied with this directive. Shortly after reviewing the list of Branin's accounts, Bessemer mailed letters to Branin's clients, informing them that Branin was "leaving Bessemer to pursue other career opportunities."

Once Branin joined Stein Roe, some of his former Bessemer clients contacted him. Many of these clients asked Branin why he had left Bessemer. Branin's standard response to these inquiries was "a firm like Stein Roe was far more appropriate for me, . . . that the method of dealing with clients, that the approach whereby portfolio managers managed the client portfolios and interacted directly with the clients was more . . . appropriate for my training and experience of 30 years in the business."

Several of Branin's clients elected to transfer their accounts to Stein Roe in the ensuing months. As relevant to this appeal, the Palmer family, Branin's largest client at Bessemer, were among those who had followed Branin to Stein Roe. The Palmer family first developed a relationship with Branin at Brundage in the 1980s, where Branin served as the junior investment advisor on the account. Eventually, Branin was elevated to lead advisor on the account and he and the head of the Palmer family, Carleton Palmer III (Palmer), had become friends. Despite this friendship, Branin refrained from informing Palmer of his decision to work at Stein Roe. The Palmer family first learned that Branin had left Bessemer when Paul Barkus, a Bessemer employee, telephoned Palmer's brother. Indeed, Barkus specifically advised Palmer's brother that Branin was not permitted to contact them; Barkus informed Palmer's brother that Branin had accepted an offer with a different firm, but did not disclose that it was Stein Roe.

The news that Branin was no longer with Bessemer alarmed the Palmer family. Although Palmer knew Barkus, his primary and virtually exclusive contact at Bessemer was Branin. Palmer immediately called Branin at his home. During this conversation, Branin disclosed that he had joined Stein Roe and, on the advice of counsel, was told not to solicit his Bessemer clients. At the conclusion of the telephone call, Palmer indicated that his family would need time to consider their ...

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