United States District Court, W.D. Kentucky, Louisville
Charles R. Simpson III, Senior Judge.
matter is before the Court on the motion of Defendant Robert
Dean to compel arbitration and to stay further proceedings as
to claims concerning ZFX, Inc. (“ZFX”), ECF No.
14. Plaintiff Terri Kirsch responded, ECF No. 18, and Dean
replied, ECF No. 28. Kirsch then moved to stay the American
Arbitration Association (AAA) arbitration proceedings pending
the Court's decision on Dean's motion to compel
arbitration, ECF No. 35. Dean responded, ECF No. 37, and
Kirsch replied, ECF No. 41.
these motions involve the same facts and issues, the Court
will address them in a single memorandum opinion and order.
For the reasons set forth below, the Court will grant
Dean's motion to compel arbitration and to stay further
proceedings as to Kirsch's claims concerning ZFX. The
Court will also deny Kirsch's motion to stay the AAA
arbitration proceedings as moot.
Allegations in the Complaint
Court has previously discussed, Kirsch and Dean are each 50
percent shareholders in ZFX. Compl. ¶¶ 2-4, ECF No.
1. ZFX 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 shares and membership units in ZFX Property
Holdings, LLC (“ZFX Property”). Id.
¶¶ 3, 20. Around December 2015, Kirsch learned that
Dean had removed her from the corporate records as an officer
and director. Id. ¶ 27.
February 2016, Dean sent Kirsch proposed sale agreements for
her shares, which she signed. Id. ¶¶
28-29. But before he bought her shares, Dean told Kirsch that
he had discovered a number of financial irregularities that
had occurred while she had been serving as president of ZFX
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's computer system and financial records. Id.
¶ 32. He also discontinued her health and dental
insurance plans, and her pay. Id. ¶ 34.
then brought this action against Dean. She seeks a
declaration of rights that she is a 50% owner, director, and
president of ZFX and a 50% owner and member of ZFX Property
(Count I). Id. ¶¶ 37-39. She also asserts
that Dean breached his fiduciary duties he owed her as a
shareholder and member (Court II), and seeks punitive damages
(Count IV). Id. ¶¶ 40-61.
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 “by failing to act
on an informed basis and in good faith in overseeing
ZFX's financial affairs” (Count 1). 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 (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 (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.
The Stock Restriction Agreement
relevant part, the Stock Restriction Agreement is a contract
that was made “by and among ZFX, Inc. . . . and Robert
Dean and Terri Kirsch.” Ex. 1 at 1, ECF No. 13-1. The
Stock Restriction Agreement was intended to “impose
limitations on the resale and/or transfer of shares of the
Corporation, and to provide for the orderly resale of such
shares upon the occurrence of certain events.”
Id. For example, the document restricts the free
transfer of shares, requires Dean and Kirsch to offer the
other and ZFX a right of first refusal before selling shares
to a third party, requires the company to maintain insurance
for its shareholders, and prevents Dean and Kirsch from
competing with ZFX in the event that either of them would end
his or her relationship with the company. Id. at
1-10. The Stock Restriction Agreement also includes a
mandatory purchase requirement. Id. at 4. The
mandatory purchase requirement states that in the event of
“the termination of a Shareholder's employment with
the Company for any reason, ” the “Selling
Shareholder shall sell, and the Remaining Shareholders shall
purchase on a pro rata basis, all of the Shares of the
Company owned by the Selling Shareholder.” Id.
end of the Stock Restriction Agreement is an arbitration
provision. Id. at 9. The arbitration provision
applies to any disputes “between the parties with
respect to any of the terms of [sic] provisions of this
Agreement, or with ...