I claims and Radigan’s counterclaims do not arise from the Shareholder’s Agreement and will
not be resolved without proceedings in this court; and (6) the liability of the Vectech defendants
is not derivative of Radigan’s liability and does not arise from the Shareholder’s Agrecment
because the Vectech defendants are not parties to the Sharcholder’s Agreement. Because the
court agrees that the Shareholder’s Agreement expressly provides for this litigation, only
Compliance’s third argument will be addressed.

Compliance’s claim that Section 27 allows for this suit to be filed and resolved here
requires reference to two other sections of the Shareholder’s Agreement. Section 11 of the
agreement is entitled “restrictive covenants” and provides certain obligations the parties agreed
to, which are titled (1) non-disclosure of confidential information; (2) return of information; (3)
non-solicitation of customers; (4) non-interference; (5) non-competition and (6) termination
without cause. Compliance’s Count III through VI claims seek specific performance, injunctive
relicf and/or damages for Radigan’s continued and threatened breaches of covenants (1) (Count
IL), (2) (Count IV), (3) (Count V) and (5) (Count V1).

Section 12 of the Shareholder’s Agreement, entitled Remedies, provides

Each Shareholder acknowledges and agrees that the restrictions set forth in

Section 11 hereof are reasonable and necessary for the protection of the

Company’s business and goodwill and that the Company will suffer irreparable

injury for which monetary damage alone would be inadequate if a Shareholder

engages in the conduct prohibited thereby. Accordingly, if any Sharcholder

breaches or threatens to breach any such Shareholder’s obligations under Section

1] of this Agreement, then the Company and/or the other Shareholders, in

addition to any other remedies available under law or this Agreement, may obtain

specific performance and/or injunctive relief against such party to prevent such

continued or threatened breach and may recover any damages incurred as a result

of any such continued or threatened breach. In the event of any breach or

breaches of any obligation under Section 11 hereof, whether or not there is
litigation or arbitration relating thereto, the restrictions as to duration contained



legal action to enforce an award rendered by the arbitrator(s), to compel
arbitration, or as is permitted in Section 12 of this Agreement. Upon the entry of
any order dismissing or staying any action filed contrary to the preceding
sentence, the party which filed such action shall promptly pay to the other party
the reasonable attorneys’ fecs, costs, and expenses incurred by such other party
prior to the entry of such order.

(d) Notwithstanding any contrary provisions of this Agrcement, any and all
parties may, from time to time, exercise any and all remedies described in Section
12 of this Agreement.

(c) In any litigation or arbitration initiated in accordance with this

Agreement, the prevailing party thereunder shall be entitled to receive

reimbursement from the non-prevailing party for al! costs and expenses, including

reasonable attorneys’ fees, costs and expenses, incurred in enforcing this

Agreement. ‘The term “prevailing party” shall mean that party whose position is

substantially upheld in the arbitration or in a final judgment rendered in such

litigation (as the case may be), or, if the final judgment is appealed, that party

whose position is substantially upheld by the decision of the final appellate body

to consider the appeal.

(Def. Ex. 1.)

According to Radigan, the FAA and the Illinois Uniform Arbitration Act both require the
court to compel arbitration and stay this suit based on the arbitration clause above. Radigan
argues that the stay applies to the copyright and trade secret misappropriation claims, even if’
those claims are not subject to the Shareholder’s Agrecment and will not be resolved through
arbitration, because arbitration is necessary to resolve some issues in this case and the entire
litigation must be stayed as a result.

Compliance argues that this case should not be stayed and the Count II-VI claims not
sent lo arbitration because (1) any right to arbitration has been waived due to the defendants’
submission to this court's jurisdiction; (2) the defendants challenge the existence of the

Shareholder’s Agreement itsclf (3) the Shareholder’s Agreement expressly allows for this

litigation; (4) Radigan has defaulted in procceding in arbitration; (5) the complaint’s Count | and


therein shall extend for a period equal to the cumulative duration of such breach
or breaches.
Compliance argues that because it is bringing an action for specific performance,

injunctive relief and/or damages as a result of breaches of the Section 11 covenants, its action is
expressly provided for under Section 12. The arbitration clause in Section 27 refers to Section 12
actions in two parts. After explaining that subsections (a)-(e) are exceptions to the general rule
of arbitration, subsection (c) provides that “Any party may file suit, motion, petition or otherwise
commence any legal action (o enforce an award rendered by the arbitrator(s), to compel
arbitration, or as is permitted in Section 12 of this Agreement. (emphasis added). Subsection (d)
of Section 27 also states the parties may still “from time to time exercise any and all remedies
described in Section 12 of this Agreement.” Compliance’s argument, therefore, is that it has
done exactly what is provided for in the Shareholder’s Agreement, It brought a suit for remedies
listed in Section 12 based on alleged violations of the covenants contained in Section 11.

in response, Radigan reaffirms his belief that Section 27 clearly provides that all disputes
are to be resolved by arbitration, and that Section 12 only relates to remedies that may be
afforded and not the forum for resolving any such disputes. Radigan fails, however, to
adequately explain the language of Section 27 which allows for suit to be filed or legal action
commenced “as is permitted in Section 12 of this Agreement,” or, in other words, for specific
performance, injunctive relief and damages incurred for violations of the Section 11 covenants.
While Radigan claims, despite this language, that arbitration is still clearly provided for by the
agrcement, he argues at most this language makes Section 27 ambiguous when viewed in light of
Section 12 and that, based on Seventh Circuit precedent, ambiguity in an arbitration provision

should be interpreted in favor of arbitration. £.g., Matthews v. Rolling Hudig Hall Co., 72 F.3d


’

Minut= Onder Fors (06497)

United States District Court, Northern District of Mlinois

Jame judge e if OF
vende Magitrate Judge Joan H. Lefkow “than Acted Suge
CASE NUMBER 03 C 3323 DATE 9/15/2003
CASE Compliance Software Solutions Corp. vs. Vectech Pharmaceutical Consultants, Inc.,
TITLE etal.

[In the following box (a) indicate the party filing the motion, c.g,, plaintif¥, defendant, 3rd party plaintiff, and (b) state brictly the nature
of the motion being presented.]

MOTION:
DOCKET ENTRY:
ql) Oo Filed motion of [ use listing in “Motion” box above,]
Q) Q Brief in support of motion due
(3) a Answer brief to motion due____. Reply to answer bricfdue___.
(4) Oo Ruling/Hearing onset for at
(5) Oo Status hearing[held/continued to] [set for/re-set for]on set for at,
(6) o Pretrial conference[held/continued to] [set for/re-set for] on setfor at
(7) im Trial[set for/re-set for]on_—at__
(8) o (Bench/Jury trial] [Hearing] held/continued to at
(9) o This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OFRCP4(m) Local Rule 41.1 COFRCP41(a)(1) OO FRCP41(a)(2).
qo) of (Other docket entry] Enter Memorandum Opinion and Order. Motion of defendant James T.

Radigan to stay this case [21-1] is denied. The stay on discovery previously entered is lifted. Status

hearing is set for 10/29/03 at 9:30 a.m.

ql) ow

(For further detail sce order attached to the original minute order.]

No notives requited, advised in open vourt.
2

No notices required. umber of notions

Notices mailed by judge's staff.
NY JUGS

SEP 1 6 2003

Notified counsel by telephone, date duckeied

Ducketing to mail notices,

Mail AQ 450 form.

Copy to judge/mugisirate judge,

courtroom Sui . ghd dare mniled natice
MD deputy’s i-Ud wo
initials

Date/time recived in

central Clerk’s Office nailing deputy initials



50, 53 (7th Cir. 1995). The language in Section 27, however, is quite clear. Subsection (c)
unambiguously allows for suit to be filed or legal action otherwise commenced “as is permitted
by Section 12” of the Shareholder’s Agreement. Section 12 allows for actions seeking specific
performance, injunctive relief and damages for violations of the Section 11 covenants.
Morcover, subsection (d) clearly states that the remedies in Section 12 of the Shareholder’s
Agreement may be exercised by the parties. Subsections (c) and (d) are clearly identified as
exceptions to the general rule of mandatory arbitration to resolve disputes.' Thus, thesc claims
are not required to be arbitrated under the Shareholder’s Agreement. Compliance may bring the
Count LIU-VI claims in this court, and Radigan’s motion (o stay this case is denied.
CONCLUSION

For the reasons stated above, Radigan’s motion to stay this case is denied [#21]. The stay

on discovery previously entered is lifted. This casc will be called for status on October 29, 2003

at 9:30 am,

Enter: Sere nigs.

(_/7 JOAN HUMPHREY LEFKOW
United States District Judge

Date: September 15, 2003

‘ Indeed, there is language in Section 12 which addresses both litigation and arbitration, The last sentence
of Section 12 expressly provides “whether or not there is /idigation or arbitration relating thereto ....” (cmphasis
added).



UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

COMPLIANCE SOFTWARE SOLUTIONS
CORP.,

Plaintiff,

No. 03 C 3323
Judge Joan H. Lefkow

YS.

VECTECH PHARMACEUTICAL
CONSULTANTS, INC., VECTECH
INTEGRATED SYSTEMS, and JAMES T.
RADIGAN,

Defendants.

MEMORANDUM OPINION AND ORDER

Plaintiff, Compliance Software Solutions Corp. (“Compliance”), filed this action on May
19, 2003 against defendants, Vectech Pharmaceutical Consultants, Inc., Vectech Integrated
Systems (collectively “Vectech”) and James T. Radigan (“Radigan”). The complaint alleges
copynght infringement (Count 1) and misappropriation of trade secrets (Count II) against all
defendants. The complaint also alleges that Radigan breached four parts of a Shareholder’s
Agreement (Counts II-VI). On May 20, 2003, Compliance moved for a temporary restraining
order, which the court set for hearing on June 3, 2003 (later continued to June 5) with responses
by the defendants to be filed on June 2, 2003. On June 5 Compliance’s motion for a temporary
restraining order was withdrawn without prejudicc, and the court entered a consent order
executed by the parties. The consent order placed certain materials and payments in the

possession of the court pending resolution of this case.

>



Thereafter, on June 9, 2003, the defendants answered Compliance’s complaint and
Radigan filed counterclaims; no mention was made in the answer that any portion of the case
should be referred to arbitration. Radigan’s counterclaims asserted that Compliance unlawfully
accessed one or more of Radigan’s computers without authorization from Radigan, thereby
obtaining information from his computers and damaging or eliminating data stored on those
computers. Compliance filed its answer to Radigan’s counterclaims on July 2, 2003. Currently
Radigan has moved under 9 U.S.C. § 3 for a stay of these proccedings in favor of arbitration of
Compliance’s breach of the Shareholder’s Agreement claims (Counts II-VI). Discovery has
been stayed pending the court’s ruling on this motion. For the reasons stated below, the motion
is denied,

DISCUSSION

Under the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1 ef seq., a court is to stay any
proceeding “referable to arbitration” on application of one of the parties so long as an agreement
for arbitration exists in writing, 9 U.S.C. § 3. Radigan argues that Compliance’s Count II-VI
claims are refcrable to arbitration based on Section 27 of the Shareholder’s Agreement, which
provides as follows,

Section 27, Arbitration, All disputes, controversies, and claims arising under or

relating to this Agreement (“Disputes”) shall be resolved by final and binding

arbitration administered in Chicago, Illinois by the American Arbitration

Association (“AAA”) under its Commercial Arbitration Rules in effect at the time

the Disputes arises, except that:

(a) Arbitration of all Disputes shall be pursuant to the then current Federal

Rules of Civil Procedure to the extent conflicting with the then current

Commercial Arbitration Rules.

(b) Any party to the arbitration may seck to have judgment upon the award

rendered by the arbitrator(s) entcred in any court having jurisdiction thereof.
(c) Any party may file suit, motion, petition or otherwise commence any