consulting and option agreements are critical in assessing plaintiff's position here.
The consulting agreement obligated Glazier, Inc. to serve C3 and vested in it the responsibility "for marketing [C3's] software products, developing new software products, enhancing [C3's] existing software products, and providing support services to [C3's] clients." (Akabas Aff. Ex. F, § 3) It was terminable if Glazier himself was unable to perform or supervise the performance of Glazier, Inc.'s obligations. (Id. § 5) C3 was obligated to pay Glazier, Inc. annual compensation of $ 150,000, subject to adjustment for changes in the consumer price index. In addition, Glazier, Inc. was entitled to a "bonus" for each calendar year equal to 60% of the first $ 200,000, 70% of the next $ 200,000, 80% of the third $ 200,000, and 85% of all royalties received by C3 in excess of $ 600,000. (Id. § 4) Indeed, C3 covenanted that it would not pay any compensation whatsoever to anyone unless Glazier, Inc. had received every nickel to which it was entitled under the agreement. (Id § 4(f)) Since the clause determined Glazier, Inc.'s bonus on the basis of royalties -- that is to say, gross revenues as opposed to net profits -- the effect of the clause was to funnel the lion's share of C3's revenues to Glazier, Inc. and presumably to Glazier.
The option agreement that Glazier entered into with Feldman also is quite significant. Feldman, by then the sole stockholder of C3, granted Glazier the option to purchase all of his shares at any time during the five year term of the agreement for $ 2,000. (Olk Aff. Ex. F) Thus, the option agreement gave Glazier the entire benefit of any appreciation in the value of the stock, and thus of C3. Moreover, by giving him the right to acquire all of the outstanding equity at any time for nominal consideration, it gave him the ability to oust Feldman as a director and, either directly or indirectly, to control the identities of the officers and directors.
Considerably more could be said. Glazier, for example, held himself out as technical director of C3. But there is no need. Glazier had total control over the operation of C3. He had the sole economic interest of any significance. To regard him as anything but the sole stockholder and controlling person of C3 would be to exalt form over substance.
As the Circuit recently reiterated, "the courts will pierce the corporate veil 'in two broad situations: to prevent fraud or other wrong, or where a parent dominates and controls a subsidiary.'" Thomson-CSF, S.A., 64 F.3d at 777 (quoting Carte Blanche (Singapore) Pte., Ltd. v. Diners Club Int'l, Inc., 2 F.3d 24, 26 (2d Cir. 1993)); see also Wm. Passalacqua Builders, Inc. v. Resnick Developers South, Inc., 933 F.2d 131, 138 (2d Cir. 1991). Here, C3 was formed by Glazier as a vehicle to comply in form with Columbia University's policy on the exploitation of software developed by its graduate students. It was Glazier's intellectual product and powers that C3 had to sell. Glazier was to receive the overwhelming bulk of its gross revenues. He had the sole power of signature over its bank accounts. The option gave him complete control over Feldman's actions as C3's sole stockholder and thus the power to control the selection and continuation in office of its directors and officers, as well as the sole interest in the economic achievement of the corporation. Hence, Glazier did not merely dominate and control C3 -- to all intents and purposes, he was C3. Glazier therefore is bound by the arbitration clause in the C3-Freeman contract.
Arbitrability of the Claims Against Thomson
Freeman contends that Thomson too is bound by his arbitration agreement with C3, as C3's successor. This theory, however, is unavailing.
Freeman and Thomson agree that a corporation that purchases the assets of another entity normally is liable under New York law for the debts and liabilities of the seller only in certain exceptional circumstances. The exceptions that both sides recognize are stated in Schumacher v. Richards Shear Co., Inc., 59 N.Y.2d 239, 464 N.Y.S.2d 437, 451 N.E.2d 195 (1983):
"A corporation may be held liable for the torts of its predecessor if (1) it expressly or impliedly assumed the predecessor's tort liability, (2) there was a consolidation or merger of seller and purchaser, (3) the purchasing corporation was a mere continuance of the selling corporation, or (4) the transaction is entered into fraudulently to escape such obligations." Id. 59 N.Y. at 245, 464 N.Y.S.2d at 440.
It is in the application of this standard, however, that the parties part ways.
Plaintiff asserts that Thomson should be held to be C3's successor under each of these four exceptions. The Court addresses each.
1. Express or Implied Assumption
The Assets Purchase Agreement between C3 and Thomson precludes any holding that Thomson expressly or impliedly assumed any obligation under C3's contract with plaintiff. Section 2.2 of the Agreement states:
"2.2 Liabilities not Assumed by [Thomson]. Anything in this Agreement to the contrary notwithstanding, [C3] shall be responsible for all of its liabilities and obligations not expressly assumed by the [Thomson] and [Thomson] shall not assume, or in any way be liable or responsible for, any liabilities or obligations of [C3] except as specifically provided [in Schedule 1.1(v) to the Agreement]. Without limiting the generality of the foregoing, [Thomson] shall not assume, and [C3] expressly retains liability for, the following: