Law School Case Brief
Freeman v. Complex Computing Co. - 119 F.3d 1044 (2d Cir. 1997)
New York courts have recognized for veil-piercing purposes the doctrine of equitable ownership, under which an individual who exercises sufficient control over the corporation may be deemed an "equitable owner," notwithstanding the fact that the individual is not a shareholder of the corporation. A nonshareholder defendant may be, "in reality," the equitable owner of a corporation where the nonshareholder defendant exercises considerable authority over the corporation to the point of completely disregarding the corporate form and acting as though its assets are his alone to manage and distribute.
Plaintiff filed claims against defendant corporate owner. The district court resolved to pierce the corporate veil in order to impose personal liability upon him, and compelled him to arbitrate the claims made against him by plaintiff employee which were asserted under the provisions in their contract. Defendant sought review.
Did the district court err in piercing the corporate veil in order to impose personal liability on the defendant corporate owner?
The court ruled that even though defendant corporate owner was a nonsignatory to defendant corporation, because defendant corporate owner exercised considerable authority over defendant corporation to the point of completely disregarding the corporate form and acting as though its assets were his alone to manage and distribute, the court found that he was appropriately viewed as defendant cooperation's equitable owner for veil-piercing purposes. However, it was error for the district court to pierce the corporate veil solely on the basis of a finding of domination and control without a showing that defendant corporate owner used that control to commit a fraud or other wrong that resulted in unjust loss or injury to plaintiff.
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