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Kirsch v. Dean

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

June 6, 2017

TERRI KIRSCH PLAINTIFF
v.
ROBERT DEAN DEFENDANT

          MEMORANDUM OPINION

          Charles R. Simpson III, Senior Judge United States District Court.

         I. Introduction

         This matter is before the Court on the objections of Defendant Robert Dean to the order that Magistrate Judge Dave Whalin issued on April 3, 2017 (“the magistrate judge's order”), ECF No. 83. Plaintiff Terri Kirsch responded, ECF No. 84. Dean did not reply. For the reasons explained below, the Court will deny Dean's objections to the magistrate judge's order.

         At this time, the Court will also address ZFX, Inc.'s motion to intervene in this litigation under Federal Rule of Civil Procedure 24, ECF No. 49, and its proposed motion to disqualify Kirsch's counsel and to strike filings made by the law firm, ECF No. 49-3. Kirsch jointly responded to these motions, ECF No. 58. ZFX, Inc. replied, ECF No. 64. For the following reasons, the Court will deny ZFX, Inc.'s motion to intervene and its proposed motion to disqualify Kirsch's counsel and to strike filings made by the law firm.

         II. Background

         The Court has recounted the facts of this case at several points in this litigation. See, e.g., Mem. Op. 8/31/3016 1-2, ECF No. 10; Mem. Op. 12/07/2016 1-2, ECF No. 46. The Court, however, believes a review of the events giving rise to Kirsch's claims against Dean and Dean's counterclaims, as well as the procedural history of the case, would be of assistance in considering Dean's objections and ZFX, Inc.'s motions.

         A. Allegations in the Complaint

         Kirsch and Defendant Robert Dean are each 50 percent shareholders in ZFX, Inc. Compl. ¶¶ 2-4, ECF No. 1. ZFX, Inc. is a Nevada corporation that provides flying effects services for stage performances. Id. ¶¶ 4, 7-8. In 2014, Kirsch told Dean that she was considering selling her ZFX, Inc. shares. Id. ¶ 20. Around December 2015, Kirsch learned that Dean had removed her from the corporate records as an officer and director. Id. ¶ 27.

         In February 2016, Dean sent Kirsch proposed sale agreements, which she signed. Id. ¶¶ 28-29. Dean then told Kirsch that he had discovered a number of financial irregularities that had occurred while she was serving as president of ZFX, Inc. and that he would not be able to execute the sales agreement until the financial irregularities were resolved. Id. ¶ 33. He removed Kirsch's access to ZFX, Inc.'s computer system and financial records. Id. ¶ 32. He also discontinued her health and dental insurance plans, and her pay. Id. ¶ 34.

         Kirsch then brought this action against Dean. She seeks a declaration of rights that she is a 50% owner, director, and president of ZFX, Inc. and a 50% owner and member of ZFX Property Holdings, LLC, a Kentucky limited liability company that owns the property on which ZFX, Inc. operates (Count I). Id. ¶¶ 17, 37-39. She also asserts that Dean breached his fiduciary duties he owed her as a shareholder and member (Court II), applies for a custodian under Nevada Revised Statute § 78.347 (Count III), and seeks punitive damages (Count IV).[1] Id. ¶¶ 40-61.

         B. Dean's Counterclaims

         In response to Kirsch's claims against him, Dean filed an answer and a verified amended counterclaim in which he asserts several claims against her. He alleges that she breached her fiduciary duty to ZFX, Inc. “by failing to act on an informed basis and in good faith in overseeing ZFX's financial affairs” (Count I). V. Am. Countercl. ¶¶ 75-80, ECF No. 13. Dean also alleges that Kirsch engaged in waste (Count II), id. ¶¶ 81-88, and that she aided and abetted a company employee in embezzling funds from ZFX, Inc. (Count III), id. ¶¶ 89-94. He seeks declaratory relief (Count IV). Id. ¶¶ 95-105. He further contends that Kirsch breached her fiduciary duty to him as a 50 percent shareholder in ZFX, Inc. (Count V). Id. ¶¶ 106-21. Finally, he alleges that Kirsch breached a document entitled “Stock Restriction Agreement Between ZFX, Inc. and It's [sic] Shareholders” (the “Stock Restriction Agreement”) when she pursued claims in court that the document requires to be arbitrated under its arbitration provision (Count VI). Id. ¶¶ 122-36.

         C. The Court's Order of Arbitration

         Dean moved to compel arbitration of Kirsch's claims and to stay further proceedings in this Court pending the completion of arbitration. Mot. Compel Arbitration 1, ECF No. 14. This Court granted Dean's motion to compel arbitration and to stay further proceedings as to Kirsch's claims against Dean related to ZFX, Inc. Order 12/31/2016 1, ECF No. 55. The Court stated that “Kirsch's claims [against Dean] involving ZFX Property Holdings, LLC [were] not . . . subject to arbitration.” Id. The Court explained that Kirsch's claims related to ZFX, Inc. arose from Dean's failure to purchase her ZFX, Inc. shares, an event that implicated the arbitration provision found in the Stock Restriction Agreement. Mem. Op. 12/31/2016 5, ECF No. 54. In comparison, neither Kirsch's claims involving ZFX Property Holdings, LLC nor Dean's amended counterclaims implicated the arbitration provision. Id. at 10.

         D. The Magistrate Judge's Order Staying Dean's Counterclaims

         Dean then moved to stay all litigation of Kirsch's claims related to ZFX Property Holdings, LLC pending the completion of arbitration. Mot. Stay 1, ECF No. 60. Dean also requested that his amended counterclaims proceed in this Court simultaneously with arbitration. Id. Dean explained that “[t]he Court has already conveyed that almost all of [his] counterclaims are legally and factually independent from Kirsch's arbitrable claims.” Id. at 7. He further argued that counterclaim VI “does not concern the alleged conduct or legal issues that have been referred to arbitration” and thus that “there is no reason to stay this counterclaim pending completion of ...


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