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Evans v. Scribe One Ltd. LLC

United States District Court, D. Arizona

November 19, 2019

Kellye Evans, Plaintiff,
Scribe One Limited LLC, et al., Defendants.


          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 “, ” 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 ...

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