United States District Court, C.D. Illinois, Springfield Division
D'KIDS PARTNERS, LP, individually and on behalf of Kirlins, Inc., and DONALD W. KIRLIN, individually and on behalf of Kirlins, Inc., Plaintiffs,
DALE T. KIRLIN, GARY F. KIRLIN, JAMES A. RAPP, SCHMEIDESKAMP, ROBERTSON, NEU & MITCHELL, LLP, and HUTMACHER & RAPP, P.C., Defendants.
OPINION AND ORDER
MYERSCOUGH, UNITED STATES DISTRICT JUDGE
matter is before the Court on Plaintiffs' Motion for
Temporary Restraining Order and Appointment of Interim
Receiver (d/e 41), which the Court has treated as also
requesting a preliminary injunction. On April 24 and 25,
2017, this Court held a hearing on Plaintiffs' requests
for a preliminary injunction and appointment of a receiver.
As to the request for a preliminary injunction, Plaintiffs
have failed to carry their burden to demonstrate: 1) a
probability of success on the merits; 2) inadequacy of legal
remedies; and 3) a risk of irreparable harm. Plaintiffs'
request for a preliminary injunction is accordingly DENIED.
Plaintiff's request for appointment of an interim
receiver is similarly lacking support in the record and is
are Donald Kirlin, a director of Kirlins, Inc., and his
company, D'Kids Partners, LP, which owns 33, 030.75
voting shares of Kirlins, Inc. Two Defendants are
Donald's two brothers, Dale Kirlin, Jr. (hereinafter,
Dale Kirlin) and Gary Kirlin, each of whom are directors of
Kirlins, Inc. and each of whom owns 33, 031.75 voting shares
of Kirlins, Inc. (one share more than Plaintiff Donald's
ownership). Dale Kirlin is also the Chairman and Chief
Executive Officer of Kirlins, Inc. Gary Kirlin is the
President of Kirlins, Inc.
Rapp, former external counsel to Kirlins, Inc. and former
counsel to Plaintiff Donald Kirlin, is also named as a
Defendant, as are his prior law firm, Hutmacher & Rapp,
PC, and his current law firm, Schmeideskamp, Robertson, Neu
& Mitchell, LLP.
bring this suit individually and on behalf of Kirlins, Inc.
(hereinafter, the Company). The First Amended Complaint
(hereinafter, Complaint) alleges claims for civil RICO (Count
I), civil RICO conspiracy (Count II), oppression of a
minority shareholder (Count III), breach of fiduciary duty
(Count IV), unjust enrichment (Count V), conversion (Count
VI), fraudulent concealment (Count VII), equitable accounting
(Count VIII), constructive trust (Count IX), interference
with prospective economic advantage (Count X), legal
malpractice (Count XI), and employment of manipulative and
deceptive practices (Count XII).
Dale and Gary have filed a Motion to Dismiss Plaintiffs'
First Amended Complaint Pursuant to Rules 9(b), 12(b)(6), and
12(b)(1) (d/e 60). James Rapp and his two law firms also
named as Defendants have also filed a Motion to Dismiss the
Complaint under Rule 12(b)(6) (d/e 67). The Court will
address these motions at a later time.
March 13, 2017, Plaintiffs filed a Motion for Temporary
Restraining Order and Appointment of Interim Receiver.
Plaintiffs sought a TRO that: 1) barred Defendants from
calling a vote on the proposed resolutions of the Company for
14 days or until further Court order; 2) barred Defendants or
Kirlins, Inc. from selling any of its assets for 14 days or
until further Court order; and 3) prohibited Dale and Gary
from transacting any business on behalf of Kirlins, Inc.
until further notice of the Court. Plaintiffs also sought
appointment of Rally Management Services, LLC, or another
suitable entity, as interim receiver to manage the daily
operations of Kirlins, Inc. until further order of the Court.
March 14, 2017, the Court denied Plaintiffs' request for
an ex parte Temporary Restraining Order. The Court
ordered that it intended to consider Plaintiffs' motion
as additionally requesting a preliminary injunction and set a
hearing on the request for preliminary injunction and
receivership. Plaintiffs did not object to such treatment of
March 21, 2017, Plaintiff Donald Kirlin and Defendants Dale
and Gary Kirlin participated in a settlement conference with
Judge Schanzle-Haskins. On April 19, 2017, Plaintiffs
supplemented their Motion for Temporary Restraining Order and
Appointment of Interim Receiver. The supplement included
notices and materials for an April 26, 2017, special meeting
of the shareholders to approve the sale of selected stores.
The supplement also included an April 5, 2017, report by
Rally Capital Services, which included an analysis of the
validity of the decisions to sell stores previously sold and
an analysis of the financial position of the Company's
remaining stores earmarked for sale in 2017 (d/e 58-3,
Plaintiffs' ex. 29). In the report, Rally Capital found
that all of management's decisions to close the stores
closed from 2014 to the date of the report appeared to be
valid. The supplement also included an April 19, 2017, update
from Rally Capital encouraging public notice of the proposed
sales and/or an open market bidding process.
special meeting of the shareholders and board members is
scheduled to take place on Wednesday, April 26, 2017. In
addition to a proposal to sell several stores to Hallmark
Retail LLC, the proposal includes a sale of three stores to
Kirlin's 1948, Inc., which is owned by Dale Kirlin's
son, Craig Kirlin. These stores are: Store # 101 in the
Quincy Mall of Quincy, Illinois, Store # 210 in Columbia,
Missouri, and Store # 268 in Kansas City, Missouri.
April 24 and 25, 2017, the Court held a hearing on
Plaintiffs' requests for a preliminary injunction and
appointment of a receiver. Because transcripts of that
hearing are not yet available, this order's record cites
are only to the pleadings and do not include any testimony
given at that hearing.
Court has subject matter jurisdiction over this lawsuit under
federal question and supplemental jurisdiction. See
28 U.S.C. §§ 1331, 1367.
the well-pleaded complaint rule, the federal question forming
the basis of the court's jurisdiction must appear in the
complaint as part of the plaintiff's claim. Fed.R.Civ.P.
8(a)(1); Louisville & Nashville Railroad Co. v.
Mottley, 211 U.S. 149 (1908). Counts I and II of the
Complaint arise under the civil provisions of the Racketeer
Influenced & Corrupt Organization Act, a federal statute.
18 U.S.C. § 1962. Additionally, Count XII arises under a
Security and Exchange Commission regulation prohibiting
employment of manipulative and deceptive devices. 17 C.F.R.
240.10b-5. The Complaint therefore establishes the
Court's federal question subject matter jurisdiction.
the Court has supplemental jurisdiction over the remaining
state law claims under 28 U.S.C. § 1367. The state law
claims form part of the same “case or
controversy” as the federal law claims. See
id. All of the claims in the Complaint concern
Defendants' alleged mismanagement of the Company, and
each of the claims relies on the set of facts set forth at
paragraphs 22 ...