United States District Court, D. Arizona
ORDER
Douglas L. Rayes United States District Judge
At
issue is Plaintiff Kellye Evans' motion for a preliminary
injunction (Doc. 23), which is fully briefed (Docs. 26, 35,
52). The Court held an evidentiary hearing on August 12,
2019, and thereafter took the matter under advisement. For
the following reasons, the Court denies Evans' motion.
I.
Background
This
case presents a dispute over the ownership of a medical
scribe[1] company called Scribe One, LLC. Evans
claims that she is the sole owner of Scribe One, that
Defendants Bruce Tizes and Sydney Stern are unlawfully
holding themselves out as Scribe One's owners, and that
Tizes and Stern have taken actions to undermine Evans'
ability to effectively operate the business.[2]
A.
Evans' Allegations[3]
Evans
alleges that she formed Evans Consulting, LLC, a medical
consulting company, in 2016 and served as its sole owner and
member. In January 2017, Evans Consulting contracted with the
San Carlos Apache Healthcare Corporation
(“SCAHC”) to provide consulting services to its
hospital. Eventually, the contract evolved into one in which
Evans Consulting provided medical scribe services directly to
SCAHC. To fulfil these obligations, Evans Consulting hired
approximately fifteen medical scribes, trained and supervised
by Evans.
In
March 2017, Evans met Tizes, an emergency medicine physician
and entrepreneur. In June 2017, Evans and Tizes orally agreed
to form Scribe One (“the Formation Agreement”).
The terms of the Formation Agreement were as follows: Evans
would have a 70% ownership interest in Scribe One; Evans
would transfer ownership of Evans Consulting to Scribe One so
that Scribe One would have the benefit of the SCAHC contract;
Evans would manage and oversee all of Scribe One's
operations; beginning September 2017, Scribe One would pay
Evans a salary and provide her with other employee benefits,
in addition to her equity interest in the company; Tizes
would have a 30% ownership interest in Scribe One, contingent
upon him making a payment to Evans equal to 30% of the gross
revenues that Scribe One would generate between July 1, 2017
and December 31, 2018 (“the Buy-In Payment”);
Tizes would make the Buy-In-Payment no later than eighteen
months after formation of Scribe One; Tizes would provide
operational assistance to Scribe One on a part-time basis so
that he could continue working full-time as a physician; and
Tizes would file the necessary paperwork with the Delaware
Division of Corporations to form Scribe One, obtain the
domain “ScribeOne.com, ” and setup the
company's website and email accounts. The parties did not
discuss or agree that Tizes would receive a salary.
On June
27, 2017, Evans signed a document prepared by Tizes
transferring ownership of Evans Consulting to Scribe One. Two
days later, Tizes formed Scribe One as a Delaware limited
liability company. Unbeknownst to Evans, however, Tizes
formed the new company with Stern as the sole and managing
member. Had Evans known that Stern would be designated as
Scribe One's sole owner and member, she would not have
transferred Evans Consulting to the new company. Evans
learned that Stern was designated as Scribe One's sole
owner and member in October 2017, when either Tizes or Stern
filed an application to register a foreign limited liability
company with the Arizona Corporation Commission
(“ACC”). The application identified Stern as
Scribe One's only member. Thereafter, Evans repeatedly
requested that Tizes and Stern correct the filings, to no
avail.
On July
1, 2017, Scribe One took control of Evans Consulting. All
Evans Consulting employees became Scribe One employees, and
Evans began transferring all revenue collected under the
SCAHC contract to a Scribe One bank account. Evans has since
sought and procured new contracts, and recruited, hired,
trained, and supervised new employees, all on behalf of
Scribe One.
At some
point, Tizes refused to provide Evans with administrative
privileges and control over many systems required for her to
run the business. Instead, Stern increasingly performed those
administrative functions.
Beginning
in October 2017, Tizes began collecting from Scribe One a
monthly salary and health benefits. In October 2018, two
months before he was to make the Buy-In Payment, Tizes
informed Evans that he no longer wanted to participate in
Scribe One and suggested that Evans buy him out. He also
stopped performing work for Scribe One, although he continued
to collect salary and benefits. As a result, Evans had to
rely on Stern for administrative access and support. Between
October and December 2018, Tizes repeatedly promised to meet
with Evans to resolve their business dispute but failed to do
so.
Eventually,
in January 2019, Evans met with Tizes, who suggested that
Evans give him an even larger share of Scribe One so that he
could take the company public. Evans rejected Tizes offer,
noting that he had not fulfilled his obligations under the
Formation Agreement by making the Buy-In Payment and
correcting corporate filings to reflect Evans as Scribe
One's owner.
By
February 2019, Tizes and Stern had ceased all communications
with Evans, leaving Evans without the administrative access
needed to effectively run the company. Evans fears that her
own reputation and Scribe One's business operations will
be irreparable damaged if she is unable to manage the
company.
B.
The Preliminary Injunction Hearing
The
Court summarizes below the material testimony from the three
main players in this story: Evans, Stern, and Tizes. Evans
called two additional witnesses, Theresa Delarm and William
Jones, but the testimony from these witnesses does not
materially affect the Court's analysis.
i.
Evans' Testimony
In
2017, Evans met Tizes and the two discussed forming Scribe
One. Per their discussions, Evans would transfer Evans
Consulting and its associated contracts and profits to Scribe
One and own 70% of the new company; Tizes would own 30% of
the new company and make the Buy-In Payment eighteen months
later. In June or July 2017, Tizes drafted a document that
both transferred Evans Consulting to Scribe One and detailed
the terms of Scribe One's formation, but Evans lost this
document. Evans cannot recall whether Tizes signed this
document.
In July
2017, Evans told Evans Consulting employees that the company
was rebranding as Scribe One. Starting in July 2017, Evans
began transferring money from the SCAHC contract to Scribe
One. She eventually transferred all Evans Consulting
employees and proprietary materials to Scribe One and began
hiring new employees and procuring new contracts for Scribe
One. For example, Evans procured contracts with Banner
University Medical Center and Barrow Neurological Institute
on behalf of Scribe One, which would have gone to Evans
Consulting had Scribe One not been created.[4]
Since
its inception, Evans has held herself out as Scribe One's
owner, but her name was purposefully left off Scribe
One's incorporation documents. Evans previously worked
for a different scribe company in Texas, with which she had a
non-compete agreement. Although she believed this non-compete
agreement was unenforceable, Tizes had recommended that
Evans' name be left off the incorporation documents out
of caution. Evans believed that Tizes would incorporate
Scribe One under his own name and add Evans as an owner after
her non-compete agreement expired. Instead, Scribe One's
incorporation documents identified Stern as its owner and
sole member. In addition, Stern took out an insurance policy
for Scribe One, opened its bank account, and applied for its
Employer Identification Number (“EIN”). Evans
learned that Stern was identified as Scribe One's owner
in October 2017, when Stern applied to register Scribe One as
a foreign limited liability company with the ACC. Tizes told
Evans that Stern formed the company ...