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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND : DANIEL J. IVES : v. : Civil Action No. DKC 2003-0848

: ADVANCED BROADBAND SOLUTIONS, INC., et al. : MEMORANDUM OPINION Presently pending and ready for resolution in this breach of contract case is the motion of Defendants Advanced Broadband Solutions, Inc. and Rajeev Sharma to dismiss counts five through eleven of Plaintiff's complaint. The issues have been fully Local Rule 105.6.

briefed and no hearing is deemed necessary.

For the reasons that follow, Defendants' motion to dismiss will be granted as to all counts. I. Background Plaintiff Daniel J. Ives has alleged the following facts: In December 1995, Plaintiff incorporated Advanced Broadband Solutions, Inc. (ABSI) as a Virginia corporation. The company

began active operations in April 1996 and currently supplies systems integration, networking and software solutions to

corporate and governmental clients.

As sole shareholder, Ives In

was elected as the company's President and sole Director.

this capacity, Plaintiff spoke with Defendant Rajeev Sharma, in

1995 and again in late 1996, about joining ABSI.

To assist with

the hiring of Sharma, Ives loaned ABSI at least $38,000 -- an amount that currently remains unpaid. By early 1997, Sharma was

hired to elevate the company's marketing efforts and to generate new business. Also at this time, Ives agreed to sell fifty

percent of the company's stock to Sharma in return for $15,000. As a fifty percent shareholder, Sharma joined the Board of Directors and was elected President. and was elected Vice President. In July 1997, ABSI moved its headquarters and operations to Rockville, Maryland and, on November 21, 1997, ABSI qualified to do business in Maryland as a foreign corporation. Ives Ives remained on the Board

contends that currently ABSI is a Virginia corporation in name only, with substantially all of its assets, offices and

operations within the State of Maryland. In the spring of 1998, ABSI recruited Kevin Donohue as Vice President of Technology to develop the engineering and

technology organization.

ABSI also recruited Tarun Juneja as

Director of Operations to manage operations and finance; Juneja was later promoted to Vice President. Throughout 1998, Ives and

Sharma shared ultimate responsibility for running the company and together negotiated employment agreements on behalf of

themselves and Donohue and Juneja.

Under the terms of the

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employment agreement, Ives was to receive his salary and all bonus money for a period of one year if he was terminated without cause. Ives and Sharma also established an executive

profit sharing bonus plan and agreed that their respective shares would be thirty-eight percent each. Under the plan, the

President had the sole discretion to set the cash value of the bonus pool annually. In 1997, Ives and Sharma decided to secure an 8(a)

certification from the Small Business Administration and, to improve the company's chances of a successful application, Ives agreed to sell ten percent of his shares to Sharma. This

transfer of shares resulted in Sharma becoming the majority shareholder with sixty percent of outstanding shares. Ives and

Sharma agreed that the price of the ten percent interest was to be negotiated at a later date based on the value the company received from its anticipated 8(a) status. Also to aid the

qualification process, Ives agreed to resign from the Board of Directors on or about December 31, 1997, although he continued to serve as Vice President. applied for 8(a) status. March 1999, Ives In late 1998, ABSI eventually

Although ABSI received 8(a) status in that he has never received any

alleges

compensation for his transfer of shares to Sharma.

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By 1999, Ives and Sharma's share of the executive profit sharing pool had been diluted to a thirty-five percent interest each in order to allow profit sharing for Donohue and Juneja. Despite the dilution of shares, Ives and Sharma, as key

executives, were receiving a monthly salary of $9,000 and, by the end of the year, ABSI's annual revenues had increased to approximately $3 million. discovered that Sharma, At some point in 1999, however, Ives Juneja, and possibly Donohue were Ives

diverting corporate funds to their own personal use.

alleges to be aware of at least $30,000 to $40,000 that was diverted in 1999 alone, with some of these diversions disguised as cash advances to Sharma and Juneja. In other instances, ABSI paid Sharma's personal credit line and credit bills. When Ives

voiced his belief that funds were being diverted, his access to the company's books and records was impeded. Thereafter,

disputes between Sharma and Ives grew to encompass disagreements over business development issues and methods of raising capital for the company. Over the course of 1999 and into 2000, Ives

alleges that he was excluded from the corporate decision-making process by the other members. Additionally, Sharma, Donohue and

Juneja frequently met to discuss critical corporate matters when Ives was out of the office on travel.

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On or about May 12, 2000, Ives was summoned to a meeting with Sharma, Donohue and Juneja in which his resignation was demanded. Ives refused to resign unless an equitable settlement

agreement could be negotiated, which accounted for, among other things, the value of his forty percent interest in the company along with payment for the additional ten percent interest that he had previously transferred to Sharma. After the meeting,

Ives attempted to return to his office but discovered that his access card no longer worked. office. Ives never regained access to the

Plaintiff also alleges that all attempts to negotiate Throughout the summer

with Sharma and ABSI were unsuccessful.

of 2000, Ives demanded to be removed as a personal guarantor for all of ABSI's financial instruments, including an SBA loan and a line of credit with the Sandy Springs National Bank. alleges that his requests were not honored. that he received no distributions, Ives

Ives also contends continuation,

salary

dividends, or pay-outs from the executive bonus plan despite the fact that ABSI was generating approximately $4.9 million in revenues by the end of 2001. Despite repeated efforts,

including a written request on February 4, 2003, Plaintiff has been denied access to ABSI's corporate books and records. It is

Ives' continued belief that Sharma and others continue to divert corporate funds for personal use.

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On March 24, 2003, Plaintiff filed a complaint against Defendants ABSI and Sharma, in his official capacity and

individually, alleging the following: (1) Derivative Claim for Breach of Fiduciary Duty (against Sharma); (2) Derivative Claim for Conversion (against Sharma); (3) Derivative Claim for Unjust Enrichment (against Sharma); (4) Breach of Fiduciary Duty

(against Sharma); (5) Claim for an Accounting; (6) Conversion (against ABSI); (7) Unjust enrichment (against ABSI); (8) Breach of Contract (against ABSI); (9) Breach of Stock Purchase

Agreement (against Sharma); (10) Oppression and Freeze Out of a Minority Shareholder (against Sharma); and (11) Direct Claim for Dissolution of ABSI. On May 16, 2003, Defendants filed a motion

to dismiss counts five through eleven, arguing that counts five and eleven involve issues appropriately reserved for the state courts, that counts six through nine are barred by the statute of limitations or the statute of frauds, and that count ten is improperly pled. II. Analysis A. Abstention

Defendant moves to dismiss counts 5 and 11, those seeking equitable relief of an accounting and dissolution, asserting that the court either lacks jurisdiction or should abstain from exercising jurisdiction under Burford v. Sun Oil Co., 319 U.S. 6

315 (1943).1 involves

Defendant contends that each of these claims of corporate governance and regulation

matters

traditionally reserved to the state courts.

The court agrees.

The standard for declining to exercise jurisdiction under Burford was well stated in Johnson v. Collins Entertainment Co., Inc., 199 F.3d 710, 719 (4th Cir. 1999): The Supreme Court has admonished the federal courts to respect the efforts of state governments to ensure uniform treatment of essentially local problems. See Quackenbush [v. Allstate Ins. Co.] 517 U.S. [706 (1996)] at 728, 116 S.Ct. 1712. Principles of federalism and comity require no less. See id. Basic abstention doctrine requires federal courts to avoid interference with a state's administration of its own affairs. See Meredith v. Talbot County, 828 F.2d 228, 231 (4th Cir.1987). Though "[a]bstention from the exercise of federal jurisdiction is the exception, not the rule," Colorado River Water Conservation Dist. v. United States , 424 U.S. 800, 813, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), its importance in our system of dual sovereignty cannot be underestimated. It safeguards our federal system from the "[d]elay, misunderstanding of local law, and needless conflict with [a] state policy" that inevitably result from federal judicial intrusions into areas of core state prerogative. Burford , 319 U.S. at 327, 63 S.Ct. 1098.

As pointed out in Feiwus v. Genpar, Inc., 43 F.Supp.2d 289, 296 n. 6 (E.D.N.Y. 1999), federal courts differ about whether they do not have jurisdiction over claims for corporate dissolution or whether they do, but should abstain. 7

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In light of those guiding principles: a federal court's exercise of discretion in deciding whether to invoke Burford abstention "must reflect principles of federalism and comity." Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 728, 116 S.Ct. 1712, 135 L.Ed.2d 1 (1996) (internal quotation omitted). These constitutional commitments require federal courts to "exercise their discretionary power with proper regard for the rightful independence of state governments in carrying out their domestic policy." Burford, 319 U.S. at 318, 63 S.Ct. 1098 (internal quotation omitted). Courts should abstain from deciding cases presenting "difficult questions of state law bearing on policy problems of substantial public import whose importance transcends the result in the case then at bar," or whose adjudication in a federal forum "would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern." New Orleans Pub. Serv., Inc. v. Council of New Orleans, 491 U.S. 350, 361, 109 S.Ct. 2506, 105 L.Ed.2d 298 (1989) ("NOPSI") (quoting Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 814, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976)). Abstention is also "the exception, not the rule." Colorado River, 424 U.S. at 813, 96 S.Ct. 1236. First Penn-Pacific Life Ins. Co. v. Evans, 304 F.3d 345, 348 (4th Cir. 2002). Furthermore:

The Supreme Court's decisions "do not provide a formulaic test for determining when dismissal under Burford is appropriate." Quackenbush, 517 U.S. at 727, 116 S.Ct. 1712. Nevertheless, the general concern that should inform a federal court's discretion is clear enough:

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Ultimately, what is at stake is a federal court's decision, based on a careful consideration of the federal interests in retaining jurisdiction over the dispute and the competing concern for the "independence of state action," Burford, 319 U.S., at 334, 63 S.Ct. 1098, that the State's interests are paramount and that a dispute would best be adjudicated in a state forum. Id. at 728, 116 S.Ct. 1712. Id. Abstention on Burford grounds in cases seeking equitable relief affecting corporations is a well recognized application of the doctrine. (6th Cir. 2002); See, e.g. , Caudill v. Eubanks, 301 F.3d 658 Friedman v. Revenue Management of New York, Plaintiff argues that the

Inc., 38 F.3d 668 (2d Cir. 1994).

Fourth Circuit typically rejects abstention in favor of hearing equitable corporate claims. Plaintiff's contention, and the cases cited in support, do not apply under the facts as alleged in this case. Plaintiff cites to a number of cases that he claims support his argument that this court should not abstain from deciding the equitable corporate claims of another state. cases, though, are unpublished. Most of these

All of them lack any holding,

or even discussion, of whether a federal court should abstain from resolving equitable claims 9 raising questions of state

corporate law. Cir. 1990),

For example, Everett v. I-Net, 1990 WL 41953 (4th

involved an appeal from a Maryland district court's

refusal to dissolve a Maryland corporation based on a lack of evidence of fraud or wrongdoing. abstention was an issue. There is no indication that

Everett does not suggest that this

court should ignore the common practice of avoiding interference with another state's interest in managing the affairs of its corporate entities. The Virginia Code sets forth a comprehensive scheme

governing corporate matters, with detailed provisions pertaining to the dissolution of a state corporation.

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