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Kirsch v. Dean

United States District Court, W.D. Kentucky, Louisville

December 16, 2016



          Charles R. Simpson III, Senior Judge.

         I. Introduction

         This 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.

         II. Allegations in the Verified Amended Counterclaim

         ZFX, 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.

         In 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.

         At some 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.

         McIsaac 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.

         In 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.

         After 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.

         Also in 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.

         In 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.

         When 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.

         In 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. ΒΆ 66. Dean, who had taken over the role of president of the company, then denied Kirsch access ...

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