Glazier developed some
software for Columbia University. They licensed the software back to a
startup, Complex, which was owned by Glazier's friend. Glazier was hired
by Complex as an 'independent consultant'.
Complex didn't have any
assets other than the licensing agreement for the software and Glazier's
hard work.
Complex entered an agreement
with Freeman to help market the software. The software was eventually
licensed to a company called Thompson. Thompson also hired Glazier.
Freeman was not paid for his
efforts to market the software. He sued for breach of contract.
Since Complex had no assets
other than the software they had sold to Thompson, and the expertise of
Glazier, who no longer was working there, there was nothing left for
Freeman to take if he won his breach of contract claim. He asked the
Court to pierce the corporate veil
to allow him to go after Glazier's personal assets.
Normally, a corporation's
liabilities do not transfer to the shareholders. However, in some
situations, the courts will allow a claimant to go after a shareholder's
assets.
Glazier argued that he was
not a shareholder, officer, director, or employee of Complex. How could
he possibly be held responsible for their breach of contract?
The Trial Court found for
Freeman and ordered Glazier to enter arbitration. Glazier appealed.
The Trial Court found that
Glazier did not merely dominate and control Complex, "for all
intents and purposes he was Complex." In addition, he held the sole
economic interest of any significance in the corporation.
The Appellate Court vacated
and remanded.
The Appellate Court found
that even though Glazier didn't own any shares in Complex, he was an
equitable owner because he exercised considerable authority over Complex.
The Court noted that under
the doctrine of equitable ownership,
an individual who exercises sufficient control over the corporation may
be considered to be an owner, even if they technically don't own any
shares.
The Court found that in
addition to being an equitable owner, there must be a showing that the
owner must use that control to commit a fraud or other wrong that
resulted in an unjust loss or injury. Since the Trial Court never asked
this second question, the case was remanded back to determine if Glazier
had committed a wrong.
On remand, the Trial Court
found that Glazier's actions were fraudulent because they left Freeman as
"a general creditor of an essentially defunct corporation with
virtually no assets."
