In this special proceeding/action John R. Klaus ("Klaus, Petitioner or Plaintiff"), sues, under BCL § 1104-a, for dissolution of the corporate Respondent, ICON Construction Services, Inc. ("ICON"), and all Respondents/Defendants for breach of contract, fraud, and breach of fiduciary duty. Petitioner asserts that, under an [*2]agreement with Respondent Keith MacDonald, he became a 23% shareholder of ICON, was thereafter terminated and shut off from all business operations by the majority shareholder, MacDonald, and is entitled to an accounting and damages. He also asserts that MacDonald, his first cousin, fraudulently misrepresented to him his entitlement to future profits and employment, thereby influencing him to give up his equipment and employees and merge his roofing company with that of the Respondent. He alleges that he was thereafter fired without cause and that Respondents failed to pay him in accordance with the terms of the parties' written agreement.

Respondents ICON and MacDonald deny all the allegations set forth and state that no merger ever occurred; but, rather, an agreement to agree, which never came to fruition. According to MacDonald, the entire proposal was based upon a willingness by Klaus to give 100% of his efforts to ICON. However, almost immediately after the parties met and conferred on these issues, Klaus and non-party Joseph Nicoletti ("Nicoletti"), began working for ICON's major competitor in the roofing business, Lance Nills ("Nills"). Based upon an unwillingness to demonstrate any intention to perform, MacDonald, who asserts he never paid Klaus other than through his separate corporation, Centurion Services West, Inc. ("Centurion"), informed Klaus that no deal was going to be consummated. In addition, despite the fact that he claims that neither Klaus nor Nicoletti ever became shareholders of ICON, he paid them in full for all equipment they brought to ICON and paid them an advanced profit sharing check which they never earned. Based on the above, MacDonald contends that Klaus lacks standing to sue for dissolution and is entitled to no damages for breach of a nonexistent contract or on any of Klaus' other claims.

The Court tried the initial issue of Petitioner's standing to pursue a BCL § 1104-a claim, as well as certain intertwined legal issues, over the course of six days and heard the testimony of Klaus, Nicoletti and MacDonald. In addition, the Court admitted into evidence numerous exhibits containing "agreements", the numerous correspondence of the parties, cancelled checks, and tax records. The Court had the opportunity to observe and to adjudge the credibility of each of the witnesses.

John R. Klaus testified that he has been involved in the roofing and siding business since 1996, mostly on Eastern Long Island. He owned his own roofing company, Centurion, in 2008, when he, Nicoletti, owner of J. Anthony Copperworks, Inc. and MacDonald began discussing a possible merger. Prior to the signing of the first agreement (Petitioner's Exhibit 1), Klaus claims all three companies had subcontracted for each other on various roofing jobs over the years. While Petitioner's Exhibit 1 was not signed by Klaus, Nicoletti and MacDonald until January, 2009, Klaus claims he actually merged with ICON on June 1, 2008, by taking all his equipment and employees over to ICON, closing up the Centurion location, and moving into the ICON location.

Thereafter, according to Klaus, MacDonald drafted the first merger agreement, valuing the three corporations and assigning percentage ownership to the shareholders [*3]based thereon. Klaus was to become a 23% shareholder, Nicoletti a 23% shareholder, and MacDonald a 54 % shareholder of the new ICON. Petitioner's Exhibit 1 provides, in pertinent part, as follows:

John R. Klaus III will receive 2.3 shares per year of service to ICCS, Inc. for 10 years but receive profit sharing base (sic) on the sum end total of 23 shares. He will also receive a starting salary of $2,500 per week.

2. The shares have an assigned value (for the ten year vestment period) of $39,000 each . . . Unearned shares can not be sold and will be retained by the original owner of ICCS, Inc.

4. Assuming each share owner is making reasonable, undistracted efforts to perform their job properly and effectively for ICCS, Inc. they will not be given a reduction in salary . . . If an owner resigns, quits or is terminated (Keith MacDonald can not be fired unless his loan to ICCS, Inc. has been satisfied) from ICCS, Inc. before their ten year vestment period has ended they will be permitted to sign a non-compete agreement and receive compensation in place of said shares based on earned shares for time worked and paid out over a ten year term with no interest. In addition to this pay-out if said owner is fired they will also receive one year full salary as a severance pay. If the non-compete is breached then said monies will be forfeited.

In handwriting at the end of that paragraph, is written and initialed as follows:

"IF FIRED, SHARES Must Be Paid at time in lump sum if requested".

Klaus testified that MacDonald told him he was really a 23 % shareholder from the beginning of this "agreement". The total number of shares attributed to each party (as of the end of the ten year period is ("Keith 38, Bobby 23, Joe 23 and Roberto 16"). The reference to "Roberto", according to Klaus is to Respondent/Defendant Jose Quihiri, who had allegedly been working with ICON and who was to be afforded 16% ownership under Petitioner's Exhibit 1, which Quihiri never signed. Although named as a Defendant in this action and having submitted an affidavit in opposition to the original motion for dissolution, Quihiri has not formally appeared in this lawsuit and did not appear to testify at the hearing. The reference to "Bobby " in the sentence attributing numbers of shares is to Klaus, as this is the name his cousin MacDonald has apparently called him since childhood.

Based on the agreement and his understanding thereof, Klaus claims he helped set up a new shop, checked materials for numerous roofing jobs, ordered material and [*4]equipment and, as stated, brought his own material and equipment into the newly merged entity. Klaus believes that under Petitioner's Exhibit 1, he would be entitled to one year's full salary of $135,000 plus his severance pay in a lump sum. However, he asserts that the agreement was nullified by the parties on April 28, 2009 (Petitioner's Exhibit 2). That document provides:

This document is to record that a previous document made on 1/13/09 to record a merger agreement between ICCS, Inc., J. Anthony Copperworks Inc., and Centurion Services West Inc. is null and void for the following reasons:

1.A successful merger has never taken place in its entirely.

2.A new agreement will be drawn up removing J. Anthony Copperworks, Inc., and its owner(s) from the proposed merger.

3.J. Anthony Copperworks (on behalf of Joseph Nicoletti) has been given (this document will be enforced upon full payment of listed as severance) one year of proposed salary as severance to satisfy his time and effort towards said proposed merger and dually to honor the agreement in its entirety previously proposed on 1/13/09.

4.Joseph Nicoletti and/or J. Anthony Copperworks have officially been terminated from any employment present or future and all parties involved acknowledge that any previous agreement(s) are null and void upon full payment of severance.

Petitioner's Exhibit 2 was signed by Klaus, MacDonald and Nicoletti.

Thereafter, Klaus states that he and MacDonald began to negotiate a new merger agreement. He alleges that Petitioner's Exhibit 3, the new agreement, was presented to him by MacDonald on May 23, 2009, and signed by him without any attorney involvement. At Klaus' insistence, the second "merger agreement" was dated June 1, 2008, so that Klaus would get credit for the one year he had already given to the new corporation. The pertinent provisions of Petitioner's Exhibit 3 were, in many ways similar to those of Petitioner's Exhibit 1. They include the following:

1. The partnership agreement would give ownership of ICCS, Inc. to the following parties based on an agreed upon pre-merger value of a combined $3,000,000 with ICCS, Inc. comprising a total of $2,100,000 and John R. Klaus III comprising a total of $900.000. John R. Klaus III will receive 2.3 shares per year of service to ICCS, Inc. for 10 years but receive profit sharing base (sic) on the sum end total of 23 shares. He will also receive a starting salary of $2,500 per week.

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2. The shares have an assigned value (for the ten year vestment period) of $30,000 each . . .

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3. Voting for general operations of the company will be based on the sum end total of shares for each member and decisions (if disputes arise) will be made based on each members (sic) vote equaling their proposed share ownership at said end of ten year vestment (ICCS 77(Keith 54, Roberto 23), John R. Klaus III 23).

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4. Assuming each share owner is making reasonable, undistracted efforts to perform their job properly and effectively for ICCS, Inc. they will not be given reduction in salary . . . If an owner resigns , quits or is terminated from ICCS, Inc. before their ten year vestment period has ended they will be permitted to sign a non-compete agreement and receive compensation in place of said shares based on earned shares for time worked and paid out over a ten year term with no interest. In addition to this pay-out if said owner is fired they will also receive one full year salary as a severance pay . . . If an owner is fired they do not have to sign a non-compete to receive their compensation package and they can request a lump sum payout of there (sic) earned shares if they so choose assuming the funds are available at this time to distribute.

The second "merger agreement" was signed by MacDonald and Klaus but again not by Quihiri. According to Klaus, he worked for one full year for the new corporation. However, he claims that MacDonald was threatened by his major competitor in the area, Nills. According to Klaus, MacDonald devised a scheme whereby Klaus and Nicoletti would go and work for Nills but use their employment time there to try and influence Nills to stop raiding ICON's employees. Accordingly, between January 2009 and July 2009, when he asserts that MacDonald terminated him, Klaus spent his time divided between the two corporations. He asserts that he continued to perform field measuring, attend weekly meetings, order materials and check out work sites for the merged entity, even while he was working for Nills. Klaus received a profit sharing check from ICON in February 2009 in the amount of $23,000. MacDonald telephoned Klaus at one point after this had been going on for a while and allegedly admitted that he had made a mistake allowing Klaus to work for Nills. He offered to terminate Klaus and pay him his full compensation under the merger agreement. Klaus stopped working for ICON completely in July 2009. He admitted that he became a 15% shareholder of Nills in August 2009. However, he asserts that the entire Nills scheme was created by MacDonald, as evidenced by an e-mail he received from MacDonald on February 1, 2009 (Petitioner's Exhibit 6), stating that ICON is saving $22,000 in officers' salaries under this scenario and offering Klaus his pro rata share of $100,000 in ICON profits.

Joseph Nicoletti testified that he has been in the metal and copper work industry since 1990 and his corporation, J. Anthony Copperworks, was mostly engaged in custom metal works. Between 1996 and 2008, he worked on many jobs with MacDonald and met Klaus when his corporation acted as a subcontractor for ICON. He discussed merger with MacDonald for about one year and signed Petitioner's Exhibit 1, [*6]which is set out in part above. In his view, the values set forth in Petitioner's Exhibit 1 for the three merging corporations was based upon the value of their accounts, their equipment and materials and their expertise in the field. He received one profit sharing check after the merger agreement for $23,000, just like Klaus. Nicoletti testified that MacDonald received $54.000. He believes the parties performed 20 to 25 jobs as a merged entity but he and MacDonald had a falling out in the Spring of 2009 because MacDonald, who kept all the ICON books, would not open his books to the other shareholders. He met with MacDonald and Klaus and agreed that he would sign a nullification agreement as long as he received the severance pay of $130,000. He asserts he has been paid $105,000 and will be paid $25,000 more when a current job is completed. Since the nullification agreement, he continued to perform some subcontracting work for ICON. Nicoletti testified that MacDonald told him that he would give him the remaining $25,000.

Nicoletti states that he brought equipment and employees to ICON and that he has been paid by ICON for his equipment. In total, he only worked for ICON three or four months. He supports Klaus' view that it was MacDonald's idea that Klaus and Nicoletti should begin working for Nills in early 2009.

Keith MacDonald testified that he began ICON as its 100% shareholder in 2000. He describes the business as installation of roofing, siding and metal fabrication in Eastern Long Island , mostly for "high end" residential buildings. He states that he has known his first cousin Klaus "Bobby" for his entire life and that he has always given Klaus' corporation, Centurion, priority in subcontracting opportunities. When he discussed a possible merger with his cousin, it was understood that ICON would slowly assimilate the business of Centurion while Klaus worked for ICON for a period of not less than ten years. He tried to get all the roofers in the area interested, including Nicoletti from J. Anthony Copperworks, Klaus from Centurion, Nills and Quihiri from another entity called USA General. Since Nicoletti and Klaus wanted to proceed, the parties entered into Petitioner's Exhibit 1 in January 2009. However, according to MacDonald, Petitioner's Exhibit 1 is nothing more than a proposal and indeed it is titled as follows:

Here is the merger agreement outline between ICCS, Inc., J. Anthony Copperworks Inc. & Centurion Services West Inc.;

MacDonald did not give Klaus 2.3 shares as of the date of Petitioner's Exhibit 1. It was merely a proposal. As set forth in checks from ICON to Centurion, he did pay for all equipment that Centurion gave to ICON. Although neither Nicoletti nor Klaus had become shareholder, he gave them both the initial $23,000 "profit sharing" checks as an incentive for them to bring in business and start working for ICON. It never came to fruition. According to MacDonald, Klaus only worked exclusively for ICON, a prerequisite for becoming a shareholder, for four to six months. Indeed, after signing Petitioner's Exhibit 1, according to MacDonald, Nicoletti performed no work for ICON and brought in no work. Instead, he continued to work for J. Anthony Copperworks and [*7]began working for his major competitor, Nills. As a result, he sent an e-mail to Nicoletti dated March 29, 2009 concerning Nicoletti's termination (Respondent's Exhibit G). Eventually, MacDonald, Klaus and Nicoletti signed Petitioner's Exhibit 2 and he paid Nicoletti slightly over $100,000 solely to avoid litigation. He does not believe he owes Nicoletti any more money under their agreement.

In addition, according to MacDonald, Klaus also did not work for ICON after signing Petitioner's Exhibit 1. Rather, Centurion continued to perform certain subcontract work and ICON used some of Centurion's laborers. He did continue to have discussions with Klaus after the nullification agreement (Petitioner's Exhibit 2) and thereafter, in May, 2009, he and Klaus signed Petitioner's Exhibit 3. However, like Petitioner's Exhibit 1, MacDonald asserts that Petitioner's Exhibit 3 is no more than an outline of a proposal, which never came to fruition. MacDonald asserts that following December 2008, Klaus performed no services for ICON.

In addition to the above, ICON's tax returns for the years in question, Respondent's Exhibit I and Respondent's Exhibit J, demonstrate that MacDonald was the sole shareholder of ICON. Basically, MacDonald insists that Klaus never became a shareholder, an employee, or officer nor held any position in ICON. Rather, he worked for ICON as Centurion under various subcontracts. According to MacDonald, after signing Petitioner's Exhibit 3, Klaus never returned to ICON. In addition, he presented a printout from ICON's Quickbooks for the period June 1, 2008 through March 1, 2009, during which all ICON checks to Klaus were made to him as a subcontractor (Respondent's Exhibit K). He explains a list of ICON jobs he composed in October 2008 (Petitioner's Exhibit 8) as well as a later list he composed under the title "ICON Custom Construction" (Petitioner's Exhibit 15) where he lists Klaus as "office, shop and field support executive" as merely his attempt to coddle Klaus. Yet, records drafted by MacDonald in November and December 2008 set forth notations of "salary" for Klaus and Nicoletti. In addition, Petitioner's Exhibit 13 is an e-mail from MacDonald to Nicoletti dated December 23, 2008, in which MacDonald refers to a new ICON employee; this occurring at the same time that MacDonald asserts Nicoletti and Klaus were not employed by ICON. In addition Petitioner's Exhibit 6, sent in February 2009 is an e-mail from MacDonald to Klaus and Nicoletti sent the same day that he chastises them in a letter about their employment by Nills, praising them for allowing ICON to save $22,000 in officers' salaries as a result of their work for Nills. MacDonald's explanation for these seeming inconsistencies was that he was attempting to maintain good relations with all three entities and eventually lure Klaus and Nicoletti back, none of which came to fruition. When asked to describe the "loan" set forth in the first "merger" agreement with Klaus and Nicoletti, MacDonald testified that it exemplified the approximate value of his estimate of what ICON placed into the new proposed corporation; that being vehicles, accounts receivables and cash on hand. However, he stated that no actual loan in the form of cash was tendered to the new entity.

A party seeking dissolution of a corporation based upon special circumstances must demonstrate initially ownership of at least 20% of the corporate stock; absent proof thereof, the corporation is entitled to dismissal of the proceeding on the basis of lack of standing. BCL § 1104-a. The burden on the party claiming to be a 20% shareholder may be satisfied in a number of ways, including tendering proof of share certificates; the existence of an agreement between parties demonstrating an intent to form a corporation; tax records; as well as the conduct of the parties which may evidence exercise of functions consistent with shareholder status. See, U S Radiator v State of New York, 208 NY 144, 101 NE 144(1913); Matter of Heisler v Gingras, 90 NY2d 682 (1997); 665 NYS 2d 59, 687 NE 2d 1342 (1997); Matter of Estate of Purnell v LH Radiologists, 90 NY2d 524, 664 NYS 2d 238, 686 NE 2d 1332 (1997).

In this case, although the evidence strongly supports Petitioner's claim, in the Court's view, of an agreement with ICON's majority shareholder to form a merged corporation, a reading of either and/or both of the merger agreements (Petitioner's Exhibit 1 and Petitioner's Exhibit 3) demonstrate that , even giving Petitioner the benefit of the doubt, he was, at most, a 2.3% shareholder of ICON at the end of his claimed one year of service. The stock certificate is solely in the name of MacDonald and the tax returns for ICON for the period in question set forth that MacDonald is the sole shareholder. Petitioner simply has not set forth necessary facts in his testimony to permit the court to determine that he has sufficient ownership in ICON to bring a special proceeding pursuant to BCL § 1104-a. Accordingly, the First Cause of Action for dissolution and the Eighth Cause of Action for an accounting in the Verified Petition are hereby dismissed.

In his pre-hearing memorandum, Respondent's counsel suggests that a dismissal of the special proceeding may require dismissal of what he terms ancillary claims set forth in Klaus' pleading. In that pleading. Klaus asserts claims against MacDonald for breach of contract; unjust enrichment, breach of fiduciary duty and fraud all relating to MacDonald's and/or ICON's alleged improper actions, in convincing Klaus to give up Centurion and thereafter not receiving a real opportunity to become a substantial shareholder as well as employee of ICON. As set forth above, MacDonald takes the position that Petitioner's Exhibit 1 and ultimately Petitioner's Exhibit 3 were no more than agreements to agree, that Klaus, in any case, never complied with their terms by not giving his efforts to ICON, and that anything owed Klaus has been paid in full or indeed overpaid.

The elements of a cause of action for breach of contract are (1) formation of a contract; (2) performance by the plaintiff, (3) defendant's failure to perform, and (4) resulting damage. Furia v Furia, 116 AD2d 694, 498 NYS 2d 12 (2d Dep't 1986). An action for unjust enrichment requires the claimant to demonstrate that (1) the defendant received money, property and/or services from the Plaintiff; (2) the defendant benefitted from the receipt thereof; and (3) under principles of equity, the defendant should not be permitted to retain such without payment. State v International Asset Recovery Corp, 56 AD3d 849, 866 NYS 2d 823 (3d Dep't 2008); Baron v Pfizer, Inc, 42 AD3d 627, 840 NYS 2d 445 (3d Dep't 2007 ). Recovery for unjust enrichment, which is quasi contract in [*9]nature, may not be obtained where there is a valid enforceable contract between the parties. Goldman v Metropolitan Life Ins Co, 5 NY3d 561, 877 NYS 2d 583, 841 NE 2d 742 (2005).

In order to establish a breach of fiduciary duty, a plaintiff must prove the existence of a fiduciary relationship, misconduct by the defendant, and damages that were directly caused by the defendant's misconduct. Kurtzman v Burgstol, 40 AD3d 558, 835 NYS 644 (1st Dep't 2007 ). However, a claim for breach fiduciary duty may not be maintained when it is based on the same facts as a breach of contract claim. Brooks v Trust Company National Association, 26 AD3d 628, 809 NYS 2d 270 (3d Dep't 2006).

Fraud in the inducement exists where , although a signer of an agreement knows the terms thereof, and assents to such terms, the assent has been induced by the defendant's fraudulent misrepresentation of material facts. See, Delessio v Kressler, 6 AD3d 57, 773 NYS 2d 434 (2d Dep't 2004 ).

The Petitioner's pleading is hereby converted into a complaint pursuant to CPLR § 103(c) and the causes of action for breach of contract, unjust enrichment, and breach of fiduciary duty (plead in the alternative) as well as fraud in the inducement may proceed at this juncture. All responsive pleadings shall be served within thirty days from this date.

Counsel are directed to appear for a discovery conference on March 29 , 2011.

This constitutes the DECISION and ORDER of the Court.

Dated: February 9, 2011

Riverhead, New York