Freeman v. Complex Computing Co.

United States Court of Appeals for the Second Circuit · 1997 · Corporations

119 F.3d 1044 (1997)

Updated July 19, 2026

CorporationsArbitrationPiercing the corporate veilSuccessor liabilityequitable ownershipalter egoveil piercingcomplete control

Facts

C3 was formed so Columbia would license software connected to Glazier even though Columbia would not license it to a corporation in which Glazier was an officer, director, or shareholder; Glazier nonetheless controlled C3 through a consulting arrangement, sole signatory authority over C3's bank account, and an option to buy all of its stock. C3 later entered into a sales agreement with Freeman containing an arbitration clause and provisions regarding commissions and compensation upon termination or certain corporate transactions. Glazier personally signed amendments listing customers for whom Freeman would receive commissions, and later signed C3's termination letter stating the termination was meant to combat an overly generous termination clause and force renegotiation. Thomson later bought C3's assets, assumed many C3 agreements but expressly excluded the Freeman agreement, and as part of the transaction Glazier received substantial payments while C3 was left with little cash.

Issue

Whether Glazier, though not a shareholder, officer, director, or employee of C3, could be compelled to arbitrate as C3's alter ego by piercing the corporate veil. Also, whether the district court correctly refused to compel Thomson to arbitrate on a successor-liability theory and stayed Freeman's claims against Thomson.

Rule

For veil piercing under New York law, the plaintiff must prove: (1) the owner exercised such control that the corporation became a mere instrumentality of the owner; (2) that control was used to commit a fraud or other wrong; and (3) the fraud or wrong caused an unjust loss or injury to the plaintiff. A person need not be a formal shareholder to be subject to veil piercing, because one who exercises sufficient domination over a corporation may be treated as its equitable owner.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Albany, Nova Metrics LLC entered a commission contract with Lena Ortiz containing an arbitration clause. Although Devin Cross held no stock and no formal title in Nova Metrics, he alone controlled its bank account, worked from the same office as the company, directed all major decisions, and held an option to buy all company shares for a nominal price.

If Lena seeks to compel Devin to arbitrate on an alter-ego theory, which is the strongest argument that Devin may be treated as an owner for veil-piercing purposes under New York law?

Explanation. New York veil-piercing doctrine recognizes equitable ownership. A person need not be a formal shareholder if he exercised sufficient domination over the corporation, disregarded corporate separateness, and acted as though corporate assets were his alone to manage and distribute. That principle supports treating Devin as an owner for veil-piercing analysis, though additional elements would still be required to pierce the veil.