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Mortenson Kim Inc. v. Safar

United States District Court, E.D. Wisconsin

November 30, 2017




         Plaintiff Mortenson Kim, Inc., formerly known as Mortenson Safar Kim, Inc. (MSK), a Wisconsin corporation whose principal place of business is in Milwaukee, Wisconsin, filed this lawsuit against defendant Shannon Safar, an Indiana resident, on September 5, 2017. Safar has filed a motion to compel arbitration. (ECF No. 8.) Mortenson Kim opposes the motion. Both parties have consented to the full jurisdiction of a magistrate judge. (ECF Nos. 3, 10.) Because the amount in controversy exceeds $75, 000, the court has jurisdiction under 28 U.S.C. § 1332.


         Mortenson Kim is a marketing, media, and public relations firm. (ECF No. 12 at ¶ 1.) Safar became an employee of Mortenson Kim in 2008 and its president in 2011. (Id. at ¶ 2.) Chris Mortenson is the controlling shareholder and chief executive officer of Mortenson Kim. (Id. at ¶ 1.)

         In 2012 Mortenson included Safar in a plan to solicit a potential client that represented a substantial business opportunity. (Id. at ¶¶ 3-6.) Mortenson states that in November 2012 Safar threatened to withhold the potential client's business unless she was provided increased compensation and an ownership interest in Mortenson Kim. (Id. at ¶ 7.) Mortenson states that, because of the substantial time, resources, and personal funds invested in attempting to gain the potential client's business, he was forced to give in to Safar's demands or face financial ruin. (Id. at ¶ 8.) Mortenson additionally alleges that in November 2013 Safar engaged in secret negotiations with a competing advertising agency who expressed interest in acquiring Mortenson Kim. (Id. at ¶ 13.)

         On March 15, 2014, Safar executed three agreements that gave her a ten percent ownership interest in MSK. First, she signed a First Amended and Restated Stock Purchase and Transfer Restriction Agreement (the Shareholders Agreement). (ECF No. 1-4.) The purpose of the Agreement was to “amend and restate [MSK's] Stock Restriction Agreement…in order to better reflect [MSK's and its shareholders'] intentions regarding the continuity and proper maintenance, control and operation of the business of [MSK].” (Id. at 1.) The Shareholders Agreement includes an arbitration clause that states:

Any controversy arising out of, or relating to, this Agreement or any modification or extension of this Agreement, including any claim for damages, rescission, specific performance or other legal or equitable relief, will be settled by arbitration in Milwaukee, Wisconsin, in accordance with the rules then obtaining of the American Arbitration Association. The parties agree that arbitration proceedings must be instituted within two (2) years after the claimed breach occurred, and that the failure to institute arbitration proceedings within this period will constitute an absolute bar to the institution of any proceedings and a waiver of all claims. The determination of the arbitrator when made will be binding upon all parties bound by the terms of this Agreement. Judgment upon the award rendered by the arbitrator may be entered in any court of competent jurisdiction.

(ECF No. 1-4 at 18.)

         In addition, that same day Safar executed a Subscription Agreement effective January 1, 2014, for the option to purchase ten shares of MSK stock. (ECF No. 1-2.) The MSK Subscription Agreement stated that Safar “agrees that the execution of this Subscription Agreement constitutes his or her acceptance of the [Shareholders]

         Agreement, … and [Safar] agrees to execute a copy of the [Shareholders] Agreement and to be bound by all of the terms and conditions thereof[.]” (ECF No. 1-2 at 3.) The same day she signed a second Subscription Agreement for an option to purchase an additional ten shares in MSK. (ECF No. 1-3.) It contained the same language binding Safar to the terms and conditions of the Shareholders Agreement.

         Mortenson Kim alleges a series of interactions in which Safar undermined business plans and misrepresented information to the detriment of MSK. (ECF No. 1, ¶¶ 23-25.) Mortenson offered Safar the opportunity to resign on July 24, 2017, and her employment was officially terminated on July 28, 2017. (Id. at ¶ 25.) According to Mortenson Kim, on July 27, 2017, Safar accessed confidential and proprietary business information concerning MSK's clients and accounts without MSK's knowledge or consent, deleted the call history from her company phone after being explicitly instructed not to do so, and still has two of MSK's external hard drives on which resides confidential MSK business information. (Id. at ¶¶ 26, 27.)

         Mortenson Kim's Complaint contains six causes of action. Its first claim seeks a declaration that “Safar's ownership interest in MSK was obtained as the result of economic duress, and that any ownership transfers, the Shareholders Agreement, the MSK Subscription Agreement, and the First Amendment be declared null and void ab initio, as those documents relate to Safar.” (ECF No. 1, ¶ 33.) The second claim alleges that “Safar, through her unlawful and unreasonable threats and demands, and her disparagement of Mortenson and MSK to MSK's employees, clients and competitors, breached the MSK Subscription Agreement.” (ECF No. 1, ¶ 35.) The third claim alleges that Safar breached her fiduciary duties owed to MSK as its president. (ECF No. 1, ¶ 37.) The fourth claim alleges that Safar breached her duties of loyalty, good faith and fair dealing owed MSK as its president. (ECF No. 1, ¶ 40.) The fifth claim seeks to enjoin Safar from using confidential and proprietary MSK business information which she wrongfully appropriated in violation of, among other things, her obligations under the Shareholders Agreement. (ECF No. 1, ¶¶ 42-43.) Finally, in order to determine the amount of damages it has sustained, the sixth claim seeks an accounting “of the confidential and proprietary information Safar has taken from [MSK].” (ECF No. 1, ¶ 44.)


         Section 2 of the Federal Arbitration Act, 9 U.S.C. ...

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