Brunswick Corp. v. Waxman

Harry Waxman and Sydney Waxman (defendants) signed a series of conditional sales contracts as officers of Waxman Construction Corporation (Waxman Construction). The contracts were for the purchase of bowling lanes and pinsetters from Brunswick Corporation (Brunswick) (plaintiff) for use in five bowling alleys that the Waxmans operated through five partnerships. The non-Brunswick equipment and fixtures in the alleys were owned by the partnerships. The Waxmans personally owned or leased the real estate on which the bowling alleys were operated. Waxman Construction had been formed as a no-asset corporation, or dummy corporation, for the purpose of serving as a signatory and obligor on the Brunswick sales contracts. Brunswick knew that Waxman Construction was a no-asset corporation, and before completing the transaction, Brunswick conducted due diligence to determine whether the bowling alleys were likely to generate sufficient revenue for Waxman Construction to make the payments on the equipment. Waxman Construction was unable to meet its obligations under the sales contracts. The parties executed an extension agreement by which title to the Brunswick equipment was transferred from Waxman Construction to five new corporations. The new corporations were supposed to receive additional non-Brunswick assets, but the Waxmans never transferred those assets. The new corporations were also as inactive as Waxman Construction had been. Two of the new corporations went into default on the Brunswick obligation. Ultimately, Brunswick repossessed the equipment from those two corporations and sold it at a loss. Brunswick sued the Waxmans personally to recover its losses on the repossessed equipment. After a bench trial, the district court entered judgment in favor of the Waxmans, and Brunswick appealed.