Freeman v. Complex Computing Co., Inc.

• Decision Date: 07 August 1997
• Docket Number: D,1133,Nos. 931,s. 931
• Citation: 119 F.3d 1044
• Parties: Daniel FREEMAN, Plaintiff-Appellee-Cross-Appellant, v. COMPLEX COMPUTING COMPANY, INC., Defendant, Jason Glazier, Defendant-Appellant, Thomson Trading Services, Inc., Defendant-Cross-Appellee. ockets 96-7850, 96-7870.
• Court: U.S. Court of Appeals — Second Circuit

Page 1044

119 F.3d 1044

Daniel FREEMAN, Plaintiff-Appellee-Cross-Appellant, v. COMPLEX COMPUTING COMPANY, INC., Defendant, Jason Glazier, Defendant-Appellant, Thomson Trading Services, Inc., Defendant-Cross-Appellee.

Nos. 931, 1133, Dockets 96-7850, 96-7870.

United States Court of Appeals,

Second Circuit.

Argued March 24, 1997.

Decided Aug. 7, 1997.

Richard B. Cohen, Akabas & Cohen, New York City (Jeffrey T. Horvath, Akabas & Cohen, New York City, of counsel), for Defendant-Appellant.

Barbara E. Olk, Trief & Olk, New York City (Ted Trief, Trief & Olk, New York City, of counsel), for Plaintiff-Appellee-Cross-Appellant.

James F. Rittinger, Satterlee Stephens Burke & Burke LLP, New York City (John L. Slafsky, Satterlee Stephens Burke & Burke LLP, New York City, of counsel), for Defendant-Cross-Appellee.

Before: NEWMAN, Chief Judge, MINER and GODBOLD, ^* Circuit Judges.

Judge GODBOLD concurs in part, and dissents in part, in a separate opinion.

MINER, Circuit Judge:

Defendant-appellant Jason Glazier appeals from a judgment entered in the United States District Court for the Southern District of New York (Kaplan, J.) to the extent that the judgment compels him to arbitrate the claims made against him by plaintiff-appellee-cross-appellant Daniel Freeman. The claims were asserted under the provisions of a contract between Freeman and defendant Complex Computing Company, Inc. ("C3"). The court found that, although Glazier was neither an employee, officer, director, nor shareholder of C3, his control and dominion over C3 warranted the piercing of the corporate veil in order to impose personal liability upon him. Freeman cross-appeals from so much of the judgment as denies his motion to compel arbitration of his claims against defendant Thomson Trading Services, Inc. ("Thomson"), a corporation that purchased the assets of C3, stays his claims against Thomson pending the final determination of the arbitration as to Glazier and C3, and places on the suspense docket those matters not otherwise disposed of by the district court's judgment.

For the reasons that follow, we affirm in part and reverse in part.

BACKGROUND

While pursuing graduate studies under a fellowship at Columbia University in the early 1990s, Glazier co-developed computer software with potential commercial value and negotiated with Columbia to obtain a license for the software. Columbia apparently was unwilling to license software to a corporation of which Glazier was an officer, director, or shareholder. Nonetheless, Columbia was willing to license the software to a corporation that retained Glazier as an independent contractor. The licensed corporation then could sublicense the product to others for profit.

Accordingly, in September of 1992, C3 was incorporated, with an acquaintance of Glazier's as the sole shareholder and initial director, and Seth Akabas (a partner of Glazier's counsel in this action) as the president, treasurer and assistant secretary. In November of 1992, another corporation, Glazier, Inc., of which Glazier was the sole shareholder, entered into an agreement with C3 (the "consulting agreement"). ¹ Under the consulting agreement, Glazier, Inc. was retained as an independent contractor (titled as C3's "Scientific Advisor") to develop and market Glazier's software, which was licensed from Columbia, and to provide support services to C3's clients. Glazier was designated the sole signatory on C3's bank account, and was given a written option to purchase all of C3's stock for $2,000.

In September of 1993, C3 entered into an agreement with Freeman (the "C3-Freeman Agreement"), under which Freeman agreed to sell and license C3's computer software products for a five-year term. In exchange Schedule 1 of the C3-Freeman Agreement listed the customers from whom Freeman would receive commissions. Although C3's president signed the C3-Freeman Agreement, Glazier personally signed the periodic amendments to Schedule 1. On March 24, 1994, Glazier signed an amended Schedule 1 that listed as customers, among numerous others, Thomson Financial, Banker's Trust and Chemical Bank. The amendment provided that "[t]o date, Dan Freeman has performed--and will continue to perform--material marketing services" as regards these customers.

C3 agreed to pay Freeman commissions on the revenue received by C3 over a ten-year period from the client-base developed by Freeman, including the revenue received from sales and licensing, maintenance and support services. The C3-Freeman Agreement included provisions relating to Freeman's compensation if C3 terminated the agreement prior to its expiration, or if C3 made a sale that did not result in revenues because of a future merger, consolidation, or stock acquisition. The agreement included an arbitration clause, ² as well as a provision that the entire agreement would be binding upon the heirs, legal representatives, successors and assigns of the parties.

On August 22, 1994, C3 and Thomson Investment Software, a unit or affiliate of Thomson, entered into a licensing agreement that granted Thomson exclusive worldwide sales and marketing rights of C3's products. Freeman contends that the licensing agreement resulted from efforts made by him over approximately nine months to bring the transaction to fruition.

In October of 1994, C3 gave Freeman the requisite 60-days notice of the termination of its agreement with him. The letter of termination, signed by Glazier, explained that C3's exercise of its option to terminate Freeman's employment was "an action to combat the overly generous termination clause we committed to, and to force a renegotiation of your sales contract."

Glazier was hired in January of 1995 as Thomson Investment Software's Vice President and Director of Research and Development at a starting salary of $150,000 plus additional payments of "incentive compensation" based in part upon the revenues received by Thomson in connection with the sale or license of products developed by Glazier. On the same day, Thomson and C3 entered into an assets purchase agreement (the "Thomson Agreement" or "assets purchase agreement"). As part of the transaction, Thomson assumed C3's intellectual products, trademarks and tradenames. It also assumed most of the liabilities and obligations of existing agreements involving C3, including agreements with C3 customers such as Banker's Trust and Chemical Bank. The Thomson Agreement set forth a list of C3 agreements assumed by Thomson, but expressly excluded the C3-Freeman Agreement. Thomson paid a total of $750,000, from which Glazier was paid $450,000 as a "signing bonus" in connection with his new employment contract; and C3 was paid $300,000, $100,000 of which was held by Thomson in an escrow account to indemnify Thomson for legal expenses in defending itself against claims arising from the assets purchase agreement, as well as for other expenses.

In May of 1995, Freeman commenced the action giving rise to this appeal. Named as defendants were C3, Thomson, and Glazier. In his complaint Freeman alleged that C3 and Thomson terminated the August 22, 1994, licensing agreement and entered into the assets purchase agreement with the specific intent of depriving him of commissions due. Freeman asserted claims against C3 and, on successor liability theories, Thomson, for breach of contract. He sought relief from Glazier and Thomson for inducement of C3's alleged breach of contract and on a fraudulent conveyance theory. He estimated that he currently was due more than $100,000 Pursuant to 9 U.S.C. § 3, defendants responded by seeking a stay of the action pending arbitration. Defendants contended that Freeman was obliged to arbitrate his claims against C3 in accordance with the terms of the C3-Freeman Agreement, and that the claims against Thomson and Glazier should not proceed until the arbitration was concluded. Freeman then moved to compel all three defendants to arbitrate, asserting that Glazier and Thomson were obliged to arbitrate on the theory that they were alter egos of, or successors in interest to, C3. Defendants countered that the arbitration clause in the agreement did not bind either Glazier or Thompson because neither one was a signatory to the C3-Freeman Agreement.

and that the moneys due him in the future under the agreement would be in excess of $5 million.

In a memorandum opinion dated June 28, 1996, the district court found that both C3 and Glazier should be compelled to arbitrate their disputes with Freeman in accordance with the C3-Freeman Agreement. The district court found that Glazier was subject to the arbitration clause of the C3-Freeman Agreement because he "did not merely dominate and control C3--to all intents and purposes, he was C3" and because he held the "sole economic interest of any significance" in the corporation. Freeman v. Complex Computing Co., Inc., 931 F.Supp. 1115, 1120 (S.D.N.Y.1996). The district court intended the judgment to "dispose[ ] of all claims asserted herein between and among [Freeman, C3 and Glazier]." Id. at 1124.

Freeman's motion to compel arbitration of his claims against Thomson was denied, however, and Freeman's claims against Thomson were stayed pending the final determination of the arbitration. Freeman had argued that the district court should hold Thomson liable as C3's successor under each of four exceptions to the general rule that a corporation is not responsible for the debts and liabilities of its predecessor, specifically: (1) there was an express or implied assumption of the predecessor's liabilities; (2) there was a consolidation or merger of seller and purchaser; (3) the purchaser was a mere continuation of seller; and (4) the transaction was fraudulently entered into in order to escape obligations. The district court rejected each of these arguments.

First, the district court rejected Freeman's "assumption of liability" argument. It reasoned that it should not infer the existence of an...