not Productions, sought to obtain the rights to film "Single
Room." The letters are written on MLG stationery using the
phrases, "We demand that you immediately withdraw Mr. Panzer's
option . . . arrange a payment schedule . . . with the
understanding we will `Americanize the story'" and "We would
thus acquire the same rights as . . . Pantom . . . We are of
the opinion Wolfgang Panzer . . . is not a proper director for
this project and that the script must be revised by a writer
of our choice, which is an absolute precondition of any new
deal we make" (emphasis added).
Throughout the entire period prior to September 24, 1986,
Ginsberg provided all the financing for the operations of
Productions, other than the two $500 contributions to capital
by Garrison and the Capones. After the exhaustion of
Productions' initial capitalization, which had been provided
almost entirely by Ginsberg, funds were advanced at such times
as Garrison advised Joseph Kazarnovsky of MLG of the necessity
of specific expenses incurred by Productions. Upon receipt of
the funds, Productions would then make the payment of those
expenses. Usually the MLG checks were signed by Kazarnovsky,
an attorney in Ginsberg's office. On occasion, Productions'
bills were paid directly by MLG or from the escrow account of
Ginsberg's law firm after clearance with Ginsberg. Between
October 1985 and October 1986 MLG had paid Productions over
$1.8 million for expenses in connection with "Single Room."
(Tr. 224, Pt. Ex. 29).*fn6
Because of this unusual procedure, Ginsberg had final
approval of virtually all corporate decisions, financial and
artistic. His power over the corporation is exemplified by the
fact that he delayed the financing of and the acquisition of
the rights to "Single Room" until the "Hawken" shooting was
complete and Garrison had signed Geraldine Page for the new
picture, (Pt. Ex. 37 at 52) and by his action in having
"Hawken" transferred to him without consideration before
Productions started "Single Room."
On November 3, 1986, DGA filed a demand for arbitration on
behalf of those of its members, Panzer, W.C. Gerrity, C.J.
Gerrity, L. Jacobs and A. Merins, who were on the production
crew of "Single Room," seeking from Productions unpaid
salaries for services performed by those members, as well as
related payments to the DGA-Producer Pension, Health and
Welfare Trust Plans.*fn7 At the arbitration hearings in
December 1986 and January and April 1987, Productions was
represented by Garrison and Kazarnovsky. Kazarnovsky testified
in the present action that he relied totally on Garrison in
defending the arbitration as she was the only person with
knowledge of the facts. Ginsberg and MLG were not parties to
the arbitration proceeding. The arbitrator issued a written
award dated August 31, 1987, awarding DGA full relief.
In January 1987 Ginsberg, acting as an attorney, instituted
a suit against Panzer and Pantom Production on behalf of
Productions. It was dismissed.
Thereafter, in May 1987, Garrison entered into an agreement
with Ginsberg whereby she turned over her stock to Ginsberg,
resigned as an officer of Productions, and quitclaimed to
Ginsberg any residual
rights she may have had in "Hawken" (Pl. Exh. 32).*fn8 Under
the agreement, Productions' creditors were notified of
Garrison's resignation and were instructed to contact MLG to
arrange for payment. Also, under the agreement Ginsberg agreed
(1) to use his best efforts to complete post production work
on "Hawken" in order to distribute the work, and (2) to
indemnify Garrison against personal liabilities to
Productions' listed creditors. The agreement called for
Garrison to be paid the amount of her producer's fee from
profits from "Hawken" if profits occurred.
The only remaining asset of Productions after the May 1987
agreement between Garrison and Ginsberg were the partially
completed prints of "Single Room" and related materials.
Thereafter, Ginsberg obtained personal custody of the "Single
Room" prints and related materials by paying the film
laboratory, through MLG. Thus, after the May 1987 agreement
with Garrison, Ginsberg was the sole owner of Productions and
had custody of its only asset.
Ginsberg, through MLG, paid about $50,000 to five creditors
of Productions whom he alleges could have made personal claims
against Garrison. Ginsberg intended that these payments would
thereby relieve Productions of liabilities incurred through
Garrison. Before or shortly after production on "Single Room"
had stopped, certain other creditors of Productions also
received payment from MLG or Ginsberg. Thereafter, Ginsberg
himself decided which of Productions' obligations he would
honor and which he would not. Among those that were not
honored was the arbitrator's award to DGA at issue in this
After Productions failed to pay the arbitration award, DGA
commenced this proceeding in February 1988 by filing a
petition against Productions, Ginsberg and MLG for the amount
of the arbitration award and for attorneys' fees and costs.
Productions did not answer the petition. Ginsberg and MLG deny
any and all liability.
Petitioner argues that Ginsberg, both personally and through
MLG, exerted de facto control of Productions on all decisions
ranging from the financial to the artistic and creative, and
that liability therefore should be imposed beyond Productions'
corporate identity on Ginsberg personally and MLG as the parent
corporation. Plaintiffs argue that the facts satisfy the
standard under New York law for piercing the corporate veil.
Alternatively, petitioners argue that the corporate veil should
be pierced for equitable reasons.
Under New York law there is a strong presumption in favor of
corporate separateness. See William Wrigley Jr. Co. v. Waters,
890 F.2d 594, 600 (2d Cir. 1989) ("It is well settled that New
York courts are reluctant to disregard the corporate entity";
citing cases); Port Chester Elec. Const. Co. v. Atlas, 40
N Y2d 652, 389 N.Y.S.2d 327, 331, 357 N.E.2d 983, 987 (1976)
("Ordinarily [corporations'] separate personalities cannot be
Under the New York standard for piercing the corporate veil,
as initially set forth in Lowendahl v. Baltimore & O.R. Co.,
247 A.D. 144, 287 N.Y.S. 62, 76, aff'd, 272 N.Y. 360,
6 N.E.2d 56 (1936), a shareholder may be liable for the acts of a
corporation if there exists:
1. Control, not mere majority or complete stock
control, but complete domination, not only of the
finances but of policy and business practice
in respect to the transaction attacked [emphasis
added] so that the corporate entity as to this
transaction had at the time [emphasis in original]
no separate mind, will or existence of its own; and
2. Such control must have been used by the
defendant to commit fraud or wrong, to perpetrate
the violation of a statutory or other positive
legal duty, or a dishonest and unjust act in
contravention of plaintiff's legal rights; and
3. The aforesaid control and breach of duty
must proximately cause the injury or unjust loss