United States District Court, W.D. Kentucky, Louisville
Charles R. Simpson III, Senior Judge.
matter is before the Court on the motion of Plaintiff Terri
Kirsch to dismiss Count VI of Defendant Robert Dean's
verified amended counterclaim under Federal Rule of Civil
Procedure 12(b)(6), ECF No. 17-1. Dean responded, ECF No. 30,
and Kirsch replied, ECF No. 39. For the reasons discussed
below, the Court will deny Kirsch's motion to dismiss
Count VI of the verified amended counterclaim.
Allegations in the Verified Amended Counterclaim
Inc. (“ZFX”) is a Nevada corporation that
provides flying effects services for stage performances,
including “custom-built harness fabrication, a full
studio for rehearsal and proof of concept, and in-house
fabrication for custom effects.” V. Am. Countercl.
¶¶ 10-11, ECF No. 13. Plaintiff Terri Kirsch and
Defendant Robert Dean are each 50 percent shareholders in
ZFX. Id. ¶ 14. Kirsch began serving as
ZFX's president in 1996, a position that she held until
2014. Id. ¶ 13.
2005, ZFX began leasing property in Louisville, Kentucky.
Id. ¶ 15. The following year, ZFX moved most of
its operations from Las Vegas, Nevada to Louisville.
Id. ¶ 15. In the years after ZFX moved its
operations to Louisville, ZFX expanded its number of
employees and increased its annual sales. Id. ¶
17. Kirsch and Dean also eventually moved to Louisville.
Id. ¶ 16.
point after ZFX began its operations, Janet McIsaac, a
California resident, started serving as its vice president of
finance. Id. ¶ 19. As vice president of
finance, she was responsible for disbursing payments for
ZFX's expenses and preparing its financial statements.
Id. McIsaac also served as ZFX's manager of
human resources. Id. ¶ 21.
was a friend of Kirsch. See id. ¶ 22. Kirsch
insisted that only she oversee McIsaac's work for ZFX,
and she represented to Dean and ZFX's outside accountants
and auditors that she was monitoring McIsaac's work for
the company. Id. ¶¶ 22, 24. Kirsch
prevented anyone else working for ZFX from monitoring
McIsaac's work. Id. ¶ 25. Kirsch also
insisted that all of ZFX's bank and credit card
statements be sent to McIsaac's house in California.
Id. ¶ 23. At least two times, Kirsch refused to
follow a recommendation that another employee perform
ZFX's bank and credit card reconciliations because
McIsaac was the person entering the transaction and paying
the company's bills. Id. ¶ 28.
2009, Kirsch's husband was diagnosed with cancer.
Id. ¶ 29. Kirsch gradually reduced her
workload. Id. In 2012, Dean and Kirsch signed a
document entitled the “Stock Restriction Agreement
Between ZFX, Inc. and It's [sic] Shareholders”
(“the Stock Restriction Agreement”). Id.
¶ 123. In relevant part, the Stock Restriction Agreement
provides that if Dean or Kirsch ended their relationship with
ZFX, the remaining shareholder would purchase all of his or
her shares (“the buy-out provision”).
Id. ¶ 124. The Stock Restriction Agreement also
requires Dean and Kirsch to arbitrate disputes that concern
the document or either of their performances under the
document (“the arbitration provision”).
Id. ¶ 127.
her husband passed away in 2014, Kirsch informed Dean that
she was considering selling her shares in ZFX. Id.
¶ 30. In early 2015, Kirsch resigned from her position
as president of ZFX. Id. ¶ 32. She then moved
to California. Id. ¶ 36.
2015, Kirsch used ZFX funds to pay for renovations on rental
properties that she owned. Id. ¶ 34. She also
misrepresented to ZFX's lending institutions that she was
no longer a director, officer, or shareholder of the company,
or a guarantor on the loan for ZFX's Louisville property.
Id. ¶¶ 37-39.
August 2015, Kirsch and Dean began negotiating terms under
which he would purchase her shares in ZFX and ZFX Property
Holdings, LLC, the Kentucky limited liability company that
owned the property on which ZFX operated. Id.
¶¶ 18, 40. But before Dean bought Kirsch's
shares in ZFX, ZFX discovered that McIsaac had been
embezzling company funds while Kirsch had been responsible
for overseeing her work. Id. ¶¶ 18, 48.
confronted about her embezzlement of company funds, McIsaac
also informed ZFX that Kirsch had been permitting her to
charge the company for personal expenses as a type of bonus.
Id. ¶¶ 50-51. These expenses, unknown to
Dean, included six or more trips to exotic destinations or on
luxury cruise liners, as well as a trip to Mexico to attend a
wedding. Id. ¶¶ 52- 53, 60. These expenses
were never reported to ZFX or noted as compensation on the
company's financial statements or tax reports.
Id. ¶ 57.
March 2016, after Kirsch refused to cooperate in its
investigation of McIsaac, ZFX informed Kirsch that her pay
was being terminated, and her health and dental plans would
end. Id. ¶ 66. Dean, who had taken over the
role of president of the company, then denied Kirsch access