So your company is considering getting into a new area of business, and to do so, it will have to hire a variety of talent. While the launch of the new venture is not a certainty, the prospects of it are enticing, and time is of the essence. Thus, when talking to potential new hires, you want to focus on the positives and the possibilities. As a recent decision from the federal District Court, Bhammer v. Loomis Sayles and Company, Inc., makes clear, however, failing to disclose factors that may affect the viability of the new opportunity can be fraught with peril.
In 2015 Vishal Bhammer was working for a financial services firm in Hong Kong, when Loomis Sayles began to recruit him for a potential new venture called the “Angleton Fund.” At that time, Bhammer lived and worked in Hong Kong, but the Angleton opportunity would require him it to relocate to Singapore. According to Bhammer, various Loomis officials made the following representations to him during the recruitment process:
- The Angleton Fund had an appropriate and well-defined investment process, strategy, and philosophy.
- Loomis was committed to providing the Angleton Fund with the time and resources needed for success.
- Loomis was proceeding slowly and carefully to ensure the successful launch of the fund.
- Loomis was familiar with the challenges posed by the Asian-Pacific market, and it was making a long-term commitment with the Angleton Fund.
Bhammer eventually accepted an offer from Loomis, and after he passed Loomis’s background check, Bhammer said he was told that there was no reason for him to delay giving notice to his then current employer and relocating to Singapore. Accordingly, Bhammer resigned, effective July 5, 2015, and his employment with Loomis was scheduled to begin on July 20, 2015.
On July 16, however, Bhammer was informed that Loomis had decided not to pursue the Angleton Fund, and his job at Loomis no longer existed. In a letter sent to Bhammer, Loomis explained its reasons as follows:
A recent assessment of the fund’s investment process, philosophy and performance led the CIO and others to conclude that the fund could not succeed without significant investments of time and resources to refine and develop the strategy to match Loomis Sayles’ expectations. Loomis management assessed these factors and determined that the likelihood of Angleton successfully creating a differentiated product that met the firm’s risk/return standards and attracted a reasonable asset base was too low.
Bhammer sued Loomis, claiming it was liable for misrepresentation, tortious nondisclosure and tortious interference. Loomis countered by moving to dismiss all of those claims, arguing, among other things, that it could not be liable because anything said to Bhammer was in the nature of opinions about potential future events. The federal District Court judge rejected all of Loomis’ arguments, in part based on the following section of the Restatement of Torts:
A party to a business transaction is under a duty to exercise reasonable care to disclose to the other before the transaction is consummated … matters known to him that he knows to be necessary to prevent his partial or ambiguous statement of the facts from being misleading.
In light of this, the court went on to hold that:
Here, at a minimum, the complaint plausibly describes circumstances in which Loomis had a duty to disclose “matters . . . necessary to prevent [its] partial or ambiguous statement of facts from being misleading,” or “subsequently acquired information that [it knew would] make untrue or misleading a previous representation that when made was true or believed to be so.”
In other words, if there are factors that that make a new opportunity risky, tenuous or uncertain, you had better disclose them if you want to avoid being in the position that Loomis now finds itself. Moreover, the court’s rationale in Bhammer appears to apply not just to potential new hires, but also to situations where one is seeking an investor or other business partner. So, the next time your company is trying to convince someone to join in a new business, keep in mind that while true optimism is fine, overstating and withholding important facts can lead to more than just some ruffled feathers.