## Facts

- Daniel Freeman signed a written agreement with Complex Computing Company, Inc. (C3) on September 30, 1993 to serve as an independent sales representative for C3’s software products.
- The agreement provided a long-term commission schedule tied to defined “Revenues” from defined “Commissionable Sales,” and contained an arbitration clause and a termination clause.
- Jason Glazier developed the software commercialized by C3 and exercised de facto control over C3’s operations, despite lacking formal status as an officer, director, employee, or shareholder.
- C3’s meaningful value consisted primarily of the software license and Glazier’s services; Glazier was the only signatory on C3’s bank account, and C3 used Glazier’s apartment as its business address.
- In August 1994, C3 entered a licensing/distribution arrangement with Thomson Trading Services, Inc.; Freeman claimed the Thomson-related business resulted from his efforts under the agreement.
- In October 1994, C3 terminated Freeman by letter signed by Glazier.
- Thomson later hired Glazier and purchased substantially all of C3’s assets, assuming many liabilities but expressly excluding C3’s obligations under the Freeman agreement.
- After the asset sale, C3 was effectively left without assets; Freeman sought commissions and attempted to compel arbitration against C3, Glazier (via veil-piercing), and Thomson (as an alleged successor).

## Issues

1. Whether a person lacking formal stock ownership or corporate title can be treated as an “equitable owner” subject to veil-piercing under New York law.
2. Whether veil-piercing may bind a non-signatory (Glazier) to the contract’s arbitration clause.
3. Whether Thomson could be compelled to arbitrate as a successor to C3 following an asset purchase that excluded the Freeman agreement.
4. Whether the record supported the required veil-piercing element that the controller used domination to commit a fraud or other wrong causing the plaintiff’s injury.

## Decision

- The Second Circuit affirmed the determination that Glazier’s control could satisfy the domination/equitable ownership element for veil-piercing.
- The Second Circuit vacated the order compelling Glazier to arbitrate and remanded for explicit findings on whether Glazier used his control to commit a fraud or other wrong that injured Freeman.
- The Second Circuit affirmed the denial of Freeman’s motion to compel arbitration against Thomson.
- On remand, the district court found that Glazier used C3’s form and the Thomson transactions to effect a wrongful asset transfer leaving Freeman without an effective remedy, and it again compelled Glazier to arbitrate.

## Legal Principles

- Under New York law, veil-piercing may apply to an “equitable owner” who, though not a record shareholder, exercises sufficient control and holds the corporation’s meaningful economic interest.
- Veil-piercing requires (1) domination and control and (2) use of that domination to commit a fraud or other wrong resulting in the plaintiff’s loss or injury; control alone is insufficient.
- A non-signatory may be compelled to arbitrate when veil-piercing is warranted, because the individual is treated as bound by the corporation’s contractual obligations, including the arbitration clause.
- Under New York successor-liability rules, an asset purchaser is generally not liable for the seller’s obligations unless an exception applies (assumption of liabilities, de facto merger, mere continuation, or a transaction structured to escape liability); an express exclusion of the disputed contract weighs against compelling arbitration.

## Conclusion

The case held that New York veil-piercing can reach a non-shareholder controller as an equitable owner and can bind that person to arbitrate, but only upon findings that the controller used domination to commit a fraud or other wrong causing the plaintiff’s injury; it also declined to compel arbitration against an asset purchaser absent a basis for successor liability.


Freeman v. Complex Computing Co., 119 F.3d 1044 (2d Cir. 1997)