## Facts

- Brunswick Corporation sold bowling lanes and pinsetters under conditional sales agreements to Waxman Construction Corp., a New York corporation formed in 1960 by Harry and Sydney Waxman.
- The corporation was intentionally created as a no-asset entity to serve as the signatory and obligor on the equipment-financing contracts; the Waxmans signed only as corporate officers.
- The Waxmans operated five new bowling alleys through separate partnerships that held operating accounts and owned non-Brunswick fixtures; the Waxmans also owned or leased the real estate.
- Licenses and permits for the alleys were held in individual or partnership capacities, and operational proceeds were deposited in bowling-alley accounts rather than the corporation’s account.
- Construction Corp. functioned primarily as a payment conduit for the equipment obligations and did not observe typical corporate formalities.
- After default, Brunswick repossessed and resold the equipment and claimed a deficiency of about $1.18 million (less unearned finance charges), plus interest.
- Brunswick brought a diversity action seeking to hold the Waxmans personally liable by piercing the corporate veil of Waxman Construction Corp.

## Issues

1. Whether, under New York law, the corporate veil of a knowingly thinly capitalized, no-asset corporation should be pierced to impose personal liability on its principals for a contract deficiency.
2. Whether the fragmented operating structure and lack of corporate formalities constituted fraud or inequity sufficient to disregard the corporate form where the creditor knew the arrangement when contracting.

## Decision

- The district court, after a bench trial, dismissed the complaint and entered judgment for the defendants, finding veil piercing unwarranted.
- The Second Circuit affirmed, holding that the Waxmans were not personally liable for the corporation’s deficiency.
- The court relied on findings that Brunswick understood Construction Corp. was a no-asset obligor and extended credit based on its own evaluation of the business prospects, not on any personal guaranty.

## Legal Principles

- Under New York law, veil piercing is an equitable remedy used to prevent fraud or achieve equity, not to shift ordinary contract risk after a business failure.
- A creditor that knowingly contracts with a no-asset or thinly capitalized corporation generally cannot obtain veil piercing absent proof of fraud, asset diversion, or other misuse of the corporate form causing harm beyond the risk accepted at contracting.
- Lack of corporate formalities and closely related affiliated entities, without deceptive conduct or post-contractual manipulation injuring the creditor, is insufficient to impose personal liability.

## Conclusion

The Second Circuit refused to disregard the corporate form because Brunswick knowingly accepted the credit risk of contracting with a no-asset corporate obligor and did not prove fraud or inequity that would justify imposing personal liability on the Waxmans.


Brunswick Corp. v. Waxman, 599 F.2d 34 (2d Cir. 1979)