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Kirsch v. Dean

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

December 31, 2016

TERRI KIRSCH PLAINTIFF
v.
ROBERT DEAN DEFENDANT

          MEMORANDUM OPINION

          Charles R. Simpson III, Senior Judge.

         I. Introduction

         This 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.

         Because 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.

         II. Background

         A. Allegations in the Complaint

         As this 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.

         In 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.

         Kirsch 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).[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 “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. ¶¶ 122-36.

         C. The Stock Restriction Agreement

         In 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. at 4-5.

         At the 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 ...


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