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Mobile Now, Inc. v. Sprint Corp.

United States District Court, District of Columbia

August 19, 2019

MOBILE NOW, INC., Plaintiff,
v.
SPRINT CORPORATION, Defendant.

          MEMORANDUM OPINION

          JOHN D. BATES UNITED STATES DISTRICT JUDGE.

         Sprint is one of the largest wireless telecommunications carriers in the United States. For years, Mobile Now acted as one of Sprint's “authorized representatives, ” selling Sprint-branded products in brick-and-mortar stores and online in return for certain payments and commissions. In 2019, Sprint terminated its contracts with Mobile Now, alleging that the company had engaged in fraudulent practices. Mobile Now has since brought this action against Sprint alleging, among other things, fraud, breach of contract, and defamation. Currently pending before the Court is [24] Sprint's motion to compel arbitration. Sprint argues that Mobile Now executed an agreement with Sprint containing a dispute resolution procedure that mandates binding arbitration of Mobile Now's claims. Mobile Now does not dispute that it executed the agreement, but argues, among other things, that the dispute resolution procedure is unenforceable because it was fraudulently induced and is unconscionable. For the reasons that follow, the Court will grant Sprint's motion to compel arbitration.

         BACKGROUND

         I. Facts

         In 2018, Sprint Solutions, Inc. and Mobile Now, Inc. executed an Authorized Representative Agreement. Am. Compl. [ECF No. 15] ¶¶ 48-49; Ex. 1 to Am. Compl. (“Agreement”) [ECF No. 29-1].[1] The Agreement, a version of which the parties negotiated and renewed every few years, set forth the parties' basic business relationship and granted Mobile Now the non-exclusive right to sell customers Sprint products and services. See Agreement at 2-3. The Agreement covered, among other things, compensation-including for selling Sprint service plans and “Sprint Prepaid” services-and, in a three-page exhibit, dispute resolution. See Agreement at 2-3, 61-63;[2] Am. Compl. ¶¶ 92-95. The parties separately executed a Prepaid Distribution Agreement, which pertained to Mobile Now's distribution of certain Sprint prepaid products and services. Am. Compl. ¶¶ 92-95; Def.'s 2nd Mot. & Mem. of Law in Supp. of Mot. to Compel Arbitration (“Mot. to Compel”) [ECF No. 24] at 17 n.7.

         The dispute resolution exhibit set forth detailed procedures governing any “Dispute, ” defined broadly to include “any controversy, dispute, or claim of every kind . . . and nature arising out of or relating to the negotiation, construction, validity, interpretation, performance, enforcement, operation, breach, continuation or termination” of the Agreement. Agreement at 61. Except as elsewhere provided in the Agreement, Mobile Now and Sprint “each waive[d] its respective right . . . [t]o litigate Disputes in court.” Id. at 62. If a Dispute arose, Sprint first “ha[d] the right to require that [it] be submitted to mediation.” Id. at 61. If Sprint decided not to elect mediation or if mediation failed, Disputes could be pursued “by filing an arbitration.” Id. “[A]rbitration [would] be governed by the Wireless Industry Arbitration Rules of the [American Arbitration Association], ” at a location chosen by Sprint, by arbitrators chosen by both parties, with each party paying one-half of the arbitrator's expenses. Id. The dispute resolution procedure “continue[d] in full force and effect after the expiration or termination of” the Agreement. Id. at 63. Finally, the Agreement provided that “[i]t [was] expressly understood by [Mobile Now] that this dispute resolution process may only be invoked regarding Sprint's right to terminate the . . . Agreement after the termination has gone into effect.” Id. at 61.

         Mobile Now does not dispute that the parties negotiated the Agreement containing this dispute resolution procedure for almost a year. See Am. Compl. ¶¶ 28-32. During that time, the parties agreed to various changes memorialized in an Addendum. See Ex. 3 to Pl.'s Sealed Mot. for Leave to File Docs. Under Seal (“Addendum”) [ECF No. 2-3] at 2-6. The Addendum did not alter or affect the Agreement's dispute resolution procedure. See id. Instead, the dispute resolution provisions remained substantively identical to the procedure Mobile Now had agreed to in previous years. Compare Agreement at 61-63, with Ex. A to Keen Decl. in support of First Mot. to Compel Arbitration (“2011 Authorized Representative Agreement”) [ECF No. 20] at 59-61, and Ex. B to Keen Decl. in support of First Mot. to Compel Arbitration [ECF No. 21] (“2014 Authorized Representative Agreement”) at 97-100.

         On March 19, 2019, Sprint sent Mobile Now a notice that it was terminating the Agreement. Am. Compl. ¶¶ 64-65; Ex. 3 to Compl. [ECF No. 18] at 1. Sprint alleged in its notice that Mobile Now had engaged in a fraudulent practice called “slamming” or “cramming, ” which involved “automatically enrolling new customers into [value-added service programs] irrespective of whether the customer(s) knew of or asked to join those programs.” Mot. to Compel at 4 (emphasis omitted); Am. Compl. ¶¶ 67. The same day, Sprint sent a notice that it was terminating the Prepaid Distribution Agreement on the same grounds. Am. Compl. ¶ 96.

         II. Procedural History

         Mobile Now brings five claims against Sprint.[3] Am. Compl. ¶¶ 103-142. Count One alleges that Sprint engaged in a fraudulent scheme to induce Mobile Now to sign the Agreement. Id. at ¶¶ 103-12. Count Two alleges that Sprint breached the Agreement by, among other things, failing to pay Mobile Now certain amounts owed under its terms. Id. at ¶¶ 113-16. Count Three alleges that Sprint breached the Prepaid Distribution Agreement by failing to pay commissions owed under that contract. Id. at ¶¶ 117-19. Count Four alleges that Sprint breached a contract implied in fact concerning the resale of certain Sprint products and accessories in exchange for commissions. Id. at ¶¶ 120-27. Count Five alleges that Sprint defamed Mobile Now by sharing the notice of termination of the Agreement with at least two third parties in the telecommunications industry. Id. at ¶¶ 128-39.

         In response, Sprint has filed a motion to compel arbitration of all five claims under the Agreement's dispute resolution procedures. Mot. to Compel at 16-18. Mobile Now opposes the motion, arguing, among other things, that the dispute resolution procedure was fraudulently induced and is unconscionable. Mem. in Opp'n to Mot. to Compel (“Opp'n”) [ECF No. 26] at 1, 28-29, 36-37. Mobile Now further contends that, even if the dispute resolution procedure is valid, at least two of Mobile Now's claims fall outside the scope of the Agreement's dispute resolution procedures. Id. at 35-36. The motion has been fully briefed and is ripe for resolution.[4]

         LEGAL STANDARD

         The standard governing a motion to compel arbitration is the same one used to resolve summary judgment motions pursuant to Federal Rule of Civil Procedure 56(c). The motion is treated “as if it were a request for summary disposition of . . . whether or not there had been a meeting of the minds on the agreement to arbitrate.” Aliron Int'l, Inc. v. Cherokee Nation Indus., Inc., 531 F.3d 863, 865 (D.C. Cir. 2008) (internal citation and quotation marks omitted). The party moving to compel-here, Sprint-must first present evidence sufficient to show an enforceable agreement to arbitrate. Skrynnikov, 943 F.Supp.2d at 175-76. The burden then shifts to the party opposing arbitration-here, Mobile Now-to establish a genuine issue of material fact as to the making or validity of that agreement. Id. “The Court will compel arbitration if the pleadings and the evidence show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Mercadante v. XE Servs., LLC, 78 F.Supp.3d 131, 136 (D.D.C. 2015) (quoting Haire v. Smith, Currie & Hancock LLP, 925 F.Supp.2d 126, 129 (D.D.C. 2013)).

         ANALYSIS

         Neither party disputes that this case is governed by the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1-14. See Mot. to Compel at 8; Opp'n at 19-20. The FAA “create[s] a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act.” Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). “[E]nacted . . . in response to widespread judicial hostility to arbitration agreements, ” the FAA “reflect[s] both a liberal federal policy favoring arbitration, and the fundamental principle that arbitration is a matter of contract.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011) (internal citations and quotation marks omitted).

         Section 2 of the FAA provides that:

A written provision in any . . . contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

9 U.S.C. § 2. When a party moves to arbitrate in a case governed by section 2 of the FAA, a court's role is limited to determining whether there is a valid agreement to arbitrate, and whether the specific dispute falls within the scope of the arbitration agreement. Shelton v. The Ritz Carlton Hotel Co., 550 F.Supp.2d 74, 79 (D.D.C. 2008); see also Nelson v. Insignia/Esg, Inc., 215 F.Supp.2d 143, 149-150 (D.D.C. 2002). In so doing, courts must, “as a matter of federal law, ” resolve “any doubts concerning the scope of arbitrable issues . . . in favor of arbitration.” Moses H. Cone, 460 U.S. at 24-25.

         I. Validity of the Agreement to Arbitrate

         To determine whether the parties have executed a valid arbitration agreement, federal courts apply state contract law. Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 686-87 (1996); First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995). Before turning to the merits, the Court must therefore address the parties' preliminary dispute concerning what state law applies. Sprint contends that Kansas law applies, pointing to a choice-of-law provision in the Agreement. See Mot. to Compel at 10. Mobile Now disagrees, arguing that, because the entire Agreement is unenforceable as a matter of law, the ...


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