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NEW YORK CITY-In a court case with more twists and turns than a John Grisham novel, utility monolith KeySpan Corp. is duking it out with the former owners of what is now Roy Kay KeySpan Inc.

Brooklyn-based KeySpan acquired 30-year-old Roy Kay Inc. and its subsidiaries, Roy Kay Mechanical and Roy Kay Electric, in January 2000 for roughly $30 million. According to founder Roy Kay, the complex deal involved up-front cash, a series of installment payments and a performance-based earn-out.

According to court papers filed by Roy Kay and his son David Kay in May, KeySpan intentionally misled them with regard to the terms of a pending merger between KeySpan and another utility company, Eastern Enterprises. The Kays’ lawsuit states KeySpan knew prior to purchasing Roy Kay Inc. that upon completion of the merger Keyspan “would be subject to restrictions on non-energy related business, including general contracting.”

Because the Kays claim that 30% of their business traditionally has derived from general contracting, they conclude that eliminating that portion of the business would severely hamper the company’s ability to turn a profit. The remainder of the company’s revenue came from electrical and mechanical work.

With a sizeable chunk of the deal between Roy Kay Inc. and KeySpan involving a profit-based earn-out of up to $12 million, the Kays feel KeySpan intentionally devalued their company in order to avoid paying the agreed-upon purchase price.

KeySpan fired all four family members in April and banned them from entering the companies’ Freehold, NJ buildings, according to court papers. The Kays say their termination was motivated by KeySpan’s desire to keep them in the dark while continuing to divest the company’s contracting business and further erode its profitability.

The Kays claim KeySpan owes them a total of $23 million on the purchase price of the companies. Other pieces of the original deal are also in dispute.

“We had a non-compete clause that was to pay us $50,000 a month for five years,” David Kay says. “It was the equivalent of $3 million. He notes that the payments have stopped, and that the Kays are seeking to vacate the clause.

In a statement last month, KeySpan attributed poor second-quarter earnings largely to the Kay companies, citing “the unanticipated costs to complete work on certain construction projects, as well as the impact of inaccuracies on the books of these companies, relating to their overall financial and operational performance.” Keyspan is asking the court to rescind the purchase agreement, to order the Kays to refund the money paid at closing (KeySpan cites that figure as $20 million, the Kays say they received only $8 million), and to repay an additional $45 million in loans.

Roy Kay responds hotly to KeySpan’s allegations. “Although KeySpan is telling the press that my son and I are responsible for financial improprieties, they have not filed any of these claims in court,” he says. “That’s because there are none.” Kay and his son David were hired as president and vice president. Their respective spouses, Janet Kay and Alice Kay, were also to hold positions with the company.

KeySpan will not comment on the litigation, but spokesman Robert Mahoney denies that Roy Kay Inc. derived a substantial portion of its income from general contracting. “To the best of my knowledge they were an HVAC and electrical [company] and [performed] some limited construction services as well,” Mahoney tells GlobeSt.com.

However, Roy Kay claims that KeySpan had prior knowledge of the precise nature of his company’s business and that they had it in writing. “The fact that 30% of our business was in general contracting was given to them on the prospectus prior to the purchase,” Roy Kay says.

The Kays, who have hired a publicist to get their story out, claim that a report filed by KeySpan to the Securities and Exchange Commission concedes the Kay companies’ extensive general-contracting history.

Ironically, the Kays continue to collect roughly $15,000 per month in rent from KeySpan. According to David Kay, while Keyspan acquired the companies, the Kay family retains ownership of the three-building, 40,000-sf property that continues to house the operation.

The Kays are not new to controversy or to media attention. The companies garnered national press in 1998 when 20,000 construction workers caused a near-riot in Midtown Manhattan over a $32-million contract awarded by the city to the then-nonunion Roy Kay Inc. for the construction of a new transit command center.

The demonstration was notable not only for its massive scale, but for an incident in which an overwrought demonstrator was arrested for punching a mounted police officer’s horse.

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