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Brunswick Corp. v. Waxman | 599 F.2d 34 (1979)

Shareholders typically have no personal liability for the obligations of the corporation, but courts may pierce the corporate veil to hold shareholders liable if equity requires. In Brunswick Corporation versus Waxman, the court considered whether to pierce the corporate veil of a dummy corporation despite that the party to whom the corporation owed an obligation knew it was transacting with a dummy corporation.

In 1960, business partners Harry and Sydney Waxman formed Waxman Construction Corporation, a no-asset corporation, for the purpose of purchasing bowling equipment from Brunswick Corporation. Accordingly, Waxman Corporation and Brunswick entered a series of conditional sales agreements for bowling lanes and pinsetters. The Waxmans planned to use the equipment for 5 new bowling alleys they owned and operated through 5 separate partnerships. The Waxmans also personally owned the properties on which the bowling alleys were located. Waxman Corporation didn’t pay rent to the Waxmans for the property, and the Waxmans didn’t pay rent to Waxman Corporation for the equipment. Brunswick knew that Waxman Corporation was a no-asset corporation, and prior to contracting with the corporation, Brunswick had investigated the Waxmans’ bowling alleys to determine whether the alleys themselves could generate the proceeds necessary to cover the corporation’s obligations. After the entire bowling industry declined, Waxman Corporation defaulted on its obligations under the sales contracts. Brunswick ultimately repossessed the equipment and sold it at a substantial loss.

Brunswick sued the Waxmans, asserting that the district court should’ve pierced Waxman Corporation’s corporate veil to hold the Waxmans personally liable for Brunswick’s losses. But the district court disagreed and dismissed Brunswick’s complaint. Specifically, the district court found that Brunswick entered the sales contracts with Waxman Corporation knowing that it was a no-asset corporation, or so-called dummy corporation, that the Waxmans created for the sole purpose of taking title to the bowling equipment so they could avoid personal liability. Brunswick appealed to the Second Circuit.

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