Matter of Charles Rizzo & Assoc. Inc.

[*1] Matter of Charles Rizzo & Assoc. Inc. 2005 NY Slip Op 50378(U) Decided on March 8, 2005 Supreme Court, New York County Cahn, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on March 8, 2005
Supreme Court, New York County

In the Matter of the Application of SALVATORE J. COCOLICCHIO, Holder of Twenty-Five Percent of All Outstanding Shares of Common Stock of CHARLES RIZZO & ASSOCIATES, INC., for the Dissolution of Charles Rizzo & Associates, Inc., a Domestic Corporation. In the Matter of the Application of SALVATORE J. COCOLICCHIO, Holder of Twenty-Five Percent of All Outstanding Shares of Common Stock of CHARLES RIZZO & ASSOCIATES, INC., for the Annulment of the Certificate of Dissolution of CHARLES RIZZO & ASSOCIATES, INC., a Domestic Corporation. SALVATORE COCOLICCHIO, Individually and Derivatively on Behalf of CHARLES RIZZO & ASSOCIATES, INC., JEROME SCANLON and MARTIN BUTLER, , Plaintiffs, CHARLES RIZZO, MARIE RIZZO, CHARLES RIZZO & ASSOCIATES OF NY, INC., RALPH HOCHBERG, MARK GEISLER and SKOLNICK & HOCHBERG, P.C., , Defendants. In the Matter of the Application of SALVATORE J. COCOLICCHIO, Holder of Twenty-Five Percent of All Outstanding Shares of Common Stock of CHARLES RIZZO & ASSOCIATES, INC., for the Annulment of the Certificate of Dissolution of CHARLES RIZZO & ASSOCIATES, INC., a Domestic Corporation.

SALVATORE COCOLICCHIO, Individually and Derivatively on Behalf of CHARLES RIZZO & ASSOCIATES, INC., JEROME SCANLON and MARTIN BUTLER, Plaintiffs, - against -

against

CHARLES RIZZO, MARIE RIZZO, CHARLES RIZZO & ASSOCIATES OF NY, INC., RALPH HOCHBERG, MARK GEISLER and SKOLNICK & HOCHBERG, P.C., Defendants.





116993/03

Herman Cahn, J.

Motion sequence nos. 001 (index No. 116993/03), 001, 002 and 003 (index No. 107907/04), and 002, 003 and 004 (index No. 600173/04) are consolidated for disposition.

Charles Rizzo & Associates, Inc. ("CRA"), was a New York close corporation engaged in the business of expediting the procurement of construction permits for developers and contractors. Petitioner Salvatore J. Cocolicchio was a 25% shareholder thereof, with respondent [*2]Charles Rizzo holding the remaining 75%.

The instant matters relate to the dissolution of CRA due to shareholder discord.

Proceeding No. 1 (index No. 116993/03):

Petitioner commenced the first special proceeding (seq. no. 001) in September 2003, seeking an order of judicial dissolution of CRA on grounds of oppressive actions and corporate waste (BCL 1104-a [a] [1], [2]). Petitioner alleges, inter alia, that respondent wrongfully barred him from CRA's offices and removed him from its payroll. During the pendency of the proceeding, respondent caused a certificate of dissolution to be filed with the Department of State on May 7, 2004. Thereafter, respondent cross-moved to dismiss the proceeding (CPLR 404 [a]) as moot, due to said filing.

Proceeding No. 2 (index No. 107907/04):

Upon learning of respondent's unilateral filing of the certificate of dissolution, petitioner commenced the second special proceeding (seq. no. 001) in May 2004, seeking an order nullifying the certificate (BCL 1008 [a]), due to the pendency of Proceeding No. 1, which pre-dated the certificate, and which raised questions concerning the propriety of respondent's actions. The petition in Proceeding No. 2 expounds on the allegations in Proceeding No. 1 by alleging that respondent and his wife, Marie Rizzo, both officers of CRA, transferred substantially all of CRA's assets and proprietary information to a separate corporation wholly owned by respondent, known as Charles Rizzo & Associates NY, Inc. ("CRA II"). Respondent cross-moved to dismiss (CPLR 404 [a]), alleging that the Rizzos voted their 75% interest [FN1] in favor of filing a certificate of dissolution, and in favor of a certain plan of liquidation, which would have resulted in a $25,000.00 pay-out to petitioner (Rizzo Aff. [6/10/04] ¶ 2). Respondent acknowledges that at a meeting of shareholders, petitioner voted against the filing and the plan, as evidenced by the corporate minutes (Goffin Aff. [6/10/04] Ex. 4). However, he denies any oppressive conduct or corporate waste alleging, instead, that petitioner's employment at CRA was lawfully terminated on September 4, 2003, due to his violent behavior (Answer [Proceeding No. 1] ¶ 17; Rizzo Aff. [6/10/04] ¶ 2).

The court directed a hearing to resolve the factual conflict regarding the existence of oppressive shareholder conduct and corporate waste, necessary to support a section 1104-a petition. Respondent moved (seq. no. 002) to vacate that direction (CPLR 2221 [a]), again, by invoking the filing of his certificate of dissolution, and asserting mootness (Goffin Aff. [7/8/04] ¶ 2). Respondent also moved (seq. no. 003) to stay the hearing (CPLR 2201), and to disqualify petitioner's counsel, Todtman, Nachamie, Spizz & Johns, Esqs., on the ground that Richard B. Feldman, Esq., a member of the firm, may be a necessary hearing witness. It is alleged that Mr. Feldman assisted petitioner in forming a competing corporation, Archetype, Inc., on September 12, 2003, while petitioner was still an officer and director of CRA (Goffin Aff. [7/22/04] at 4 n. 2).

The Plenary Action (index No. 600173/04): [*3]

Plaintiff Salvatore Cocolicchio commenced the plenary action as an individual and a derivative action, together with two CRA employees, plaintiffs Scanlon and Butler. The complaint repeats the allegations of wrongful exclusion and diversion of corporate assets underlying the two related special proceedings, but asserts causes of action for damages, an accounting, and a constructive trust against the Rizzos, their competing corporation CRA II, and their attorneys the remaining defendants who are alleged to have aided them in the diversion of CRA's assets and proprietary information to CRA II.

The Rizzos and CRA II move to dismiss (seq. no. 002) the causes of action for conversion (second), tortious interference with contract (third) and prospective contract (fourth), breach of fiduciary duty (sixth), an accounting (seventh), and a constructive trust (eighth), on grounds of documentary evidence, lack of standing to sue, statute of frauds, failure to state a claim, and failure to join a necessary party (CPLR 3211 [a] [1], [3], [5], [7], [10]).[FN2] Plaintiffs cross-move to add CRA as a party defendant (CPLR 3025).

The attorney defendants move (seq. no. 003) to dismiss the claims against them for failure to state a claim (CPLR 3211 [a] [7]).

The Rizzos and CRA II move (seq. no. 004) to consolidate these related matters (CPLR 602).

Dissolution:

BCL 1104-a enables a shareholder owning 20% or more of the voting shares of a corporation to petition for involuntary, judicial, dissolution on grounds of the following "special circumstances":

(1) The directors or those in control of the corporation have been guilty of illegal, fraudulent or oppressive actions toward the complaining shareholders;

(2) The property or assets of the corporation are being looted, wasted, or diverted for non-corporate purposes by its directors, officers or those in control.

(BCL 1104-a [a].) Upon the filing of an 1104-a petition, BCL 1118 affords the respondent shareholders an option to avoid dissolution by electing to buy out the petitioner's shares at "fair value," which the court may determine on its own if the parties cannot agree (BCL 1118 [b]). Business Corporation Law § 1104-a and § 1118 were enacted in 1979 (L 1979, ch 217) for the specific purpose of enabling minority shareholders of closely held corporations to obtain relief, when they found themselves in a situation of being denied participation in or being "frozen out" of corporate management and being refused employment by the corporation and/or participation in dividends. The statutes were enacted to afford a minority shareholder the right to bring a proceeding to dissolve the corporation and to distribute its assets among the shareholders. Section 1118 counterbalances section 1104-a by affording the corporation the option of electing to purchase the minority's shares, thereby avoiding dissolution.[*4]

(Blake v Blake Agency, Inc., 107 AD2d 139 [2d Dept], lv denied 65 NY2d 609 [1985].)

Respondents' filing of a voluntary certificate of dissolution during the pendency of Proceeding No. 1 should not be allowed to serve as an end-run around the salutary protections afforded by BCL 1104-a to petitioner, a minority shareholder of a close corporation. To be sure, petitioner bears the burden of proving his allegations of shareholder oppression and corporate waste; but respondents will not be permitted to circumvent petitioner's statutory opportunity to do so (see, Kavanaugh v Kavanaugh Knitting Co., 226 NY 185 [1919]). If petitioner succeeds at a trial of those allegations, respondents' unilaterally resolved liquidation pay-out to petitioner in the sum of $25,000.00 will be rendered a nullity. Respondent will still have the option under BCL 1118 to purchase petitioner's shares at fair value, to be agreed by the parties or determined by the court.

If petitioner does not succeed in proving the requisite shareholder oppression or corporate waste, respondents' resolution to voluntarily dissolve CRA will, of course, be valid, given their majority interest. However, that does not divest the court of its authority under BCL 1008 to "supervise dissolution and liquidation" to ensure that corporate assets are distributed in a fair and equitable manner.

Since all parties essentially seek dissolution of CRA, regardless of the form, it seems unnecessary to "annul" respondents' certificate of dissolution under BCL 1008. Rather, that section alternatively enables the court to: suspend . . . the dissolution or continue the liquidation of the corporation under the supervision of the court and may make all such orders as it may deem proper in all matters in connection with the dissolution or the winding up of the affairs of the corporation . . . .

(BCL 1008 [a].)

Accordingly, the petitions in both special proceedings (seq. nos. 001 [index No. 116993/03] and 001 [index No. 107907/04]) are granted to the extent that respondents' certificate of dissolution is suspended pending further order of the court, to be rendered after an evidentiary hearing on petitioner's allegations. Respondents' cross-motions to dismiss the proceedings are denied, without prejudice to renew at the conclusion of the hearing. Respondents' motions to vacate a prior direction for the hearing and/or stay the hearing (seq. nos. 002 and 003 [index No. 107907/04]) are denied due to the material issues of fact which are necessary to be tried, as aforesaid.

Disqualification:

"It is well settled that the disqualification of an attorney is a matter which rests within the sound discretion of the court" (Campolongo v Campolongo, 2 AD3d 476 [2d Dept 2003]).

Respondents assert that petitioner's counsel should be disqualified because one of the members of the firm, Richard B. Feldman, Esq., assisted petitioner in setting up Archetype, Inc., on September 12, 2003, to compete with CRA. Petitioner does not dispute that he formed Archetype, but maintains that he did so with the understanding that respondents formed, or were forming, their own company, CRA II, to similarly compete. Insofar as Mr. Feldman represents petitioner, individually or derivatively on behalf of CRA, the court does not perceive a conflict [*5]vis-a-vis the issues of shareholder oppression or corporate waste alleged against respondents. Even if he did assist petitioner in establishing what is, in reality, a competing company to CRA II, that would seem entirely consistent with, albeit not conclusively probative of, petitioner's notion of a breakdown in the parties' CRA affiliation, allegedly caused by respondents' unfair treatment of him and diversion of corporate assets to CRA II.

On the other hand, the court does perceive the very real probability, noted by respondents, that Feldman will be called by respondents to testify as to circumstances surrounding petitioner's formation of an entity (Archetype) which may or may not have wrongly competed with CRA. Said counsel's status as a prospective fact witness at the hearing militates in favor of disqualification in accord with Code of Professional Responsibility EC 5-9 and DR 5-102 (B), which provide: . . . An advocate who becomes a witness is in the unseemly and ineffective position of arguing his or her own credibility. The roles of an advocate on issues of fact and of a witness are inconsistent; the function of an advocate is to advance or argue the cause of another, while that of a witness is to state facts objectively.

(EC 5-9.) Neither a lawyer nor the lawyer's firm shall accept employment in contemplated or pending litigation if the lawyer knows it is obvious that the lawyer or another lawyer in the lawyer's firm may be called as a witness on a significant issue other than on behalf of the client, and it is apparent that the testimony would or might be prejudicial to the client.

(DR 5-102 [B]; see also, S&S Hotel Ventures Ltd. Partnership v 777 S.H. Corp., 69 NY2d 437, 444 n. 4 [1987] ["the rule is not for the protection of the client or the adversary, but the integrity of the profession"].)

Accordingly, respondents' motion to disqualify petitioner's counsel, Todtman, Nachamie, Spizz & Johns, P.C. (seq. no. 003 [index No. 107907/04]), in connection with the forthcoming hearing, is granted. The parties have commenced a mediation-accounting proceeding since these motions were made. Feldman need not be disqualified from taking part in the mediation-accounting.

Motions to Dismiss:

Defendants, the Rizzos and CRA II, move to dismiss the causes of action for conversion (second), tortious interference with contract (third) and prospective contract (fourth), breach of fiduciary duty (sixth), an accounting (seventh), and a constructive trust (eighth), on grounds of documentary evidence, lack of standing to sue, statute of frauds, failure to state a claim, and failure to join a necessary party (CPLR 3211 [a] [1], [3], [5], [7], [10]). Plaintiffs cross-move to add CRA as a party defendant (CPLR 3025). The attorney defendants move to dismiss the claims against them for failure to state a claim (CPLR 3211 [a] [7]).

Failure to State a Claim

On a motion to dismiss for failure to state a claim, the complaint should be given a liberal construction, its factual allegations are to be taken as true, and the court is limited to ascertaining "whether the facts, as alleged, fit within any discernible legal theory" (Sheila C. v [*6]Povich, 11 AD3d 120 [1st Dept 2004]).

The second cause of action attempts to assert a claim for conversion by alleging that "[defendants Charles Rizzo, Marie Rizzo and CRA NY[[FN3]] have converted CRA's assets" (Complaint ¶ 32), including "the contracts and agreements with its customers and clients" (id. ¶ 34). The scope of the diverted assets is further defined as "including but not limited to contracts, proposals, accounts receivable, cash proceeds, employees, goodwill, use of office and equipment and all other tangible and intangible assets of CRA, and defendant CRA NY participated in and benefitted from said breach" (id. ¶ 27). Insofar as the allegations relate to intangibles, i.e., the aforesaid items except for equipment and cash (Culinary Connection Holdings, Inc. v Culinary Connection of Great Neck, Inc., 1 AD3d 558 [2d Dept 2003], lv denied 3 NY3d 601 [2004]), the motion to dismiss this cause of action is granted (and is, otherwise, denied) because "a cause of action for conversion of intangible property is not actionable under New York law" (MBF Clearing Corp. v Shine, 212 AD2d 478 [1st Dept 1995]).[FN4]

The third cause of action asserts a claim for tortious interference with contract by alleging that "[defendants knew that CRA had existing written agreements and proposals from its customers and clients" (Complaint ¶ 40), that "[defendants tortiously interfered with CRA's contractual rights by causing the customers and clients of CRA to breach their agreements with CRA in utilizing the services of CRA NY" (id. ¶ 41), that defendants "caused a termination of these agreements and a transfer of same to CRA NY" (id. ¶ 42), and that "CRA has been damaged by the termination of the contracts and agreements with its customers and clients" (id. ¶ 44). These allegations are sufficient to state a cause of action for tortious interference with contract, which applies where defendant, with knowledge of the existence of a contract between plaintiff and a third party or parties, procured a breach of the contract, causing damages to the plaintiff (Bogoni v Friedlander, 197 AD2d 281 [1st Dept ], lv denied 84 NY2d 803 [1994]). This cause of action may be stated as against corporate officers or shareholders, such as the Rizzos, who are alleged to have interfered with a corporate contract and a third party or parties for their own gain (Zuckerwise v Sorceron, Inc., 289 AD2d 114 [1st Dept 2001]; Hoag v Chancellor, Inc., 246 AD2d 224 [1st Dept 1998]).

Defendants are wrong to suggest that specific details of the contracts must be alleged in order to state this claim. The complaint adequately provides notice of the substance of the claim, as described above. Further elucidation is available through the discovery process (CPLR 3101 et seq.; 3211 [d]). The motion to dismiss the third cause of action is, therefore, denied.

On the other hand, the fourth cause of action for tortious interference with [*7]prospective contract should be dismissed because it does not allege that defendants acted "with the sole purpose of harming" plaintiff or CRA (Baker v Guardian Life Ins. Co., 12 AD3d 285 [1st Dept 2004]).[FN5] The motion to dismiss this cause of action is granted.

The sixth and seventh causes of action are brought in plaintiff's individual capacity as a minority shareholder of this close corporation, for breach of fiduciary duty to him, seeking, alternatively, damages and/or an accounting. Giving the complaint a liberal construction (Sheila C., supra), the opening paragraphs of both pleaded causes of action incorporate all the factual allegations of the complaint (Complaint ¶¶ 58, 65), which essentially fall into two categories: (1) claims relating to diversion of assets and corporate waste by the Rizzos, benefitting their own corporation, CRA II; and (2) claims relating to plaintiff's personal corporate exile from CRA by defendants. The first category cannot form the basis of individual claims, as they are wrongs to CRA per se, and must be brought derivatively (Abrams v Donati, 66 NY2d 951 [1985], rearg denied 67 NY2d 758 [1986]). As to that category of claims, the motion is granted.

However, the motion is denied as to the latter category of claims, aforesaid. A minority shareholder in a close corporation is owed a fiduciary duty by the majority shareholders (Richbell Information Servs., Inc. v Jupiter Partners, L.P., 309 AD2d 288 [1st Dept 2003]). The allegations of plaintiff's wrongful exclusion from CRA's corporate affairs, if proven, are, actionable as individual claims.

The seventh cause of action, seeking an accounting, is similarly viable, as a minority shareholder may seek equitable relief on account of breach of fiduciary duty by the majority shareholders (Tierno v Puglisi, 279 AD2d 836 [3d Dept 2001]).

Accordingly, the motion to dismiss the sixth and seventh causes of action is denied.

The eighth cause of action is asserted by CRA employees, plaintiffs Jerome Scanlon and Martin Butler. They join Cocolicchio's allegations that defendants wrongly expelled him from the corporation and diverted assets to CRA II, and add that the Rizzos orally promised them that (1) CRA would pay them the cash surrender value on policies insuring their lives, upon maturity, if they remained in CRA's employ; and (2) they would receive an option to purchase CRA stock in exchange for their assignments of the policies to CRA, which they did (Complaint ¶¶ 71-73). They seek imposition of a constructive trust upon any proceeds received by CRA from the policies.

Defendants assert that the foregoing agreement runs afoul of the statute of frauds insofar as Scanlon and Butler do not allege that the maturity date of the policies was within one year of their agreement, or that the term of their promised employment at CRA was for less than one year (GOL 5-701 [a] [1]). However, Scanlon and Butler's allegation that they actually assigned the policies to CRA in reliance on the oral agreement (Complaint ¶ 73) raises "an issue of fact as to whether the oral agreement was removed from the statute of frauds" on the ground that the assignment may constitute partial performance which is unequivocally referable to the [*8]agreement (EDP Hosp. Computer Sys., Inc. v Bronx-Lebanon Hosp. Ctr., 13 AD3d 476 [2d Dept 2004]). Consequently, the statute of frauds, at this stage, does not provide a basis for dismissal of this claim.

Nonetheless, dismissal of this claim lies in the principle that the equitable remedy of constructive trust is only available as between parties who share a confidential or fiduciary relationship (Sharp v Kosmalski, 40 NY2d 119 [1976]). Scanlon and Butler are not shareholders of the close corporation they were employees (Complaint ¶¶ 7, 8). Therefore, they do not share the requisite relationship with CRA or the defendants (Vitale v Steinberg, 307 AD2d 107 [1st Dept 2003]), and are not entitled to this remedy.

Accordingly, the motion to dismiss the eighth cause of action is granted, insofar as it seeks the equitable remedy of constructive trust.[FN6]

Defendants assert that Scanlon and Butler's claims implicate not only the Rizzos, CRA II, and the attorney defendants, but also CRA itself, on whose behalf Charles Rizzo is alleged to have acted in making the promises set forth in the eighth cause of action (Complaint ¶¶ 70-77). Therefore, defendants assert that CRA should be deemed a necessary party defendant. Scanlon and Butler confirm that point of view by cross-moving to so add CRA.

The corporation on whose behalf the derivative plaintiff sues "is ordinarily an indispensable party in a derivative suit" and "should be joined as a defendant" (Tobias v Tobias, 192 AD2d 438, 440 [1st Dept 1993]). The cross-motion for leave to serve and file a supplemental summons and second amended complaint adding CRA as a party defendant is, thus, granted; defendants' motion to dismiss for failure to join a necessary party is, consequently, denied. Plaintiffs shall serve and file such complaint, which shall conform herewith in all respects, no later than ten days from service of a copy hereof on their attorneys.

The ninth cause of action alleges that the attorney defendants breached their fiduciary duties to CRA, as its corporate counsel, by assisting the Rizzos in diverting CRA's assets and corporate opportunities to CRA II (Complaint ¶¶ 78-83). The attorney defendants respond that any alleged advice they may have furnished the Rizzos as to how to divert assets from CRA falls within a "privilege to advise," whereby attorneys are not personally liable to third parties for acts committed by their clients using the attorneys' advice, under certain circumstances (see, Levine v Graphic Scanning Corp., 87 AD2d 755 [1st Dept 1982] ["absent fraud or other special circumstances, an attorney is not liable to third parties for purported injuries caused by services performed on behalf of a client or advice offered to that client"]).

The attorney defendants are misguided in equating the foregoing rule with the [*9]conduct alleged here. The complaint, liberally read and taken as true for purposes of this motion (Sheila C. v Povich, supra), alleges that the attorney defendants were engaged in an irreconcilable conflict of interest, by assisting the Rizzos in denuding CRA of its assets while serving as corporate counsel to CRA. "[A] lawyer for a corporation represents the corporation, not its employees" (Polovy v Duncan, 269 AD2d 111 [1st Dept 2000]). The foregoing rule cited by the attorney defendants does not apply, as it does not assume that the injured third party was represented by the very attorney who counseled the malfeasance.

Accordingly, the motion to dismiss the ninth cause of action is denied.

The first (breach of fiduciary duty derivative), second (conversion derivative), third (tortious interference with contract derivative), fourth (tortious interference with prospective contract derivative), sixth (breach of fiduciary duty individual), and ninth (breach of fiduciary duty against the attorney defendants derivative) causes of action seek punitive, in addition to compensatory, damages. Defendants move to dismiss the demands for punitive damages, for failure to state a claim therefor.

Punitive damages are only appropriate "as an additional and exemplary remedy" where, inter alia, it is especially egregious and "part of a pattern directed at the public generally" (New York Univ. v Continental Ins. Co., 87 NY2d 308, 316 [1995]). This internecine controversy among shareholders of a close corporation does not rise to the level of conduct warranting punitive damages. The motion to dismiss plaintiffs' claims for punitive damages is granted.

Defense Founded on Documentary Evidence

Defendants' notice of motion states that they also move "pursuant to CPLR 3211, subd. [1], dismissing the First, Second, Third, Fourth, Fifth and Eighth causes of Action in the Amended Complaint based upon a defense founded upon documentary evidence" (Notice of Motion [4/28/04] at 1-2). However, at no time do they discuss this prong of their motion or identify the documentary evidence intended (see, Rizzo Aff. [4/27/04], passim; Rizzo Reply Aff. [7/6/04], passim; Def. Memo. [4/28/04], passim; Def. Reply Memo. [7/6/04], passim).

A motion to dismiss based on a defense founded upon documentary evidence (CPLR 3211 [a] [1]) may be granted "only where the documentary evidence utterly refutes plaintiff's factual allegations, conclusively establishing a defense as a matter of law" (Goshen v Mutual Life Ins. Co., 98 NY2d 314, 326 [2002]). In the absence of any discussion by movant's counsel in support of this motion, the court has reviewed the exhibits attached to the moving papers. None of them fall within the foregoing category of conclusive proof in refutation of plaintiff's claims.

Accordingly, defendants' motion to dismiss under CPLR 3211 (a) (1) is denied.

Capacity to Sue

Defendants argue that Cocolicchio lacks the capacity to bring derivative claims on behalf of CRA because of their assertion that he established a competing corporation Archetype after his ouster from CRA by defendants. The argument is without merit.

As a CRA shareholder, Cocolicchio has standing to bring derivative claims on behalf of CRA (BCL 626 [a]). The alleged diversion by defendants of CRA's assets to their own corporation CRA II are derivative in nature, as they constitute a wrong to the plaintiff/corporation itself (Abrams, supra). At the same time, as explained above, Cocolicchio [*10]has standing to bring individual claims on his own behalf in respect of his alleged exclusion by defendants from CRA's corporate affairs, as they constitute a wrong to him "independent of any duty owing to the corporation wronged" (id., at 953).

Defendants' assertion of a conflict on plaintiff's part is a bootstrap argument. While plaintiff does not deny the establishment of Archetype, he explains having done so as an oppressed minority shareholder who was wrongfully expelled from CRA's corporate affairs by defendants/majority-shareholders, in breach of their fiduciary duties (Cocolicchio Aff., 1/9/04, ¶¶ 1-4, 7 [Ex. C to Smith Aff., 6/25/04]). His lawful capacity to bring suit as against such alleged shareholder oppression (Richbell Information Servs., Inc., supra) cannot be mutated by defendants as a means of asserting a "conflict" merely because defendants' actions compelled him to seek out other means of gainful self-employment, be it through Archetype, or otherwise. While plaintiff bears the ultimate burden of proving his allegations of corporate exile, the court cannot, at this pleading stage, conclude that plaintiff's establishment of a new corporation, subsequent to his ouster, disqualifies him from shareholder derivative status.[FN7]

Consolidation:

Defendants move to consolidate the special proceedings and plenary action. The instant matters all involve common questions of law and fact, as detailed above, and are appropriate for consolidation (CPLR 602 [a]). The motion is granted; all papers served and filed in the instant matters shall bear the caption hereinabove set forth.

This shall constitute the decision and order of the court.

Dated:March 8, 2005

E N T E R :

/s/

J. S. C.

[*11]

Footnotes

Footnote 1:Respondent attests that both he and his wife, Marie Rizzo, own the 75% shareholder interest in CRA (Rizzo Aff. [6/10/04] ¶ 1). Petitioner, however, submits a copy of the parties' shareholder agreement dated November 7, 1983, identifying only himself and Charles Rizzo as shareholders of CRA (Petition [Proceeding No. 1] Ex. A).

Footnote 2:The remaining causes of action are for breaches of fiduciary duty (first and ninth) and breach of the duty of good faith and fair dealing (fifth).

Footnote 3:The complaint's reference to "CRA NY" is to Charles Rizzo & Associates of NY, Inc., referred to generally herein as "CRA II" (Complaint ¶ 3).

Footnote 4:Notwithstanding, the first cause of action for breach of fiduciary duty not a subject of the instant motion to dismiss clearly does encompass the alleged misappropriation of CRA's intangible assets by the Rizzos, who, as officers and shareholders of a close corporation, were prohibited from doing so (Greenberg v Greenberg, 206 AD2d 963 [4th Dept 1994]).

Footnote 5:The first cause of action for breach of fiduciary duty encompasses the alleged misappropriation of CRA's prospective business dealings by the Rizzos (Greenberg v Greenberg, supra).

Footnote 6:Scanlon and Butler's inability to secure the equitable remedy of constructive trust, demanded in the complaint, does not foreclose them from other possible relief, at law, to which they may be entitled for breach of contract, as long as they do not run afoul of the statute of frauds (CPLR 3017 [a] ["the court may grant any type of relief within its jurisdiction appropriate to the proof whether or not demanded, imposing such terms as may be just"]). In this regard, Scanlon and Butler may present evidence either on a motion for summary judgment or at trial, showing partial performance capable of removing this agreement from the purview of the statute of frauds.

Footnote 7:This case is unlike Steinberg v Steinberg (106 Misc 2d 720 [Sup Ct, NY County 1980] [cited in Sigfeld Realty v Landsman, 234 AD2d 148 [1st Dept 1996]) which disqualified the putative derivative plaintiff on a finding that "she profited from the misappropriation of which she now complains" (Steinberg, supra, at 723). Plaintiff's establishment of Archetype after his ouster from CRA is distinct of defendants' alleged diversion of CRA's assets, en masse. He cannot be said to have benefitted from defendants' alleged conduct, which he challenges in this lawsuit.