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Sprint Solutions, Inc. v. Mobile Now, Inc.

United States District Court, District of Columbia

January 13, 2020

SPRINT SOLUTIONS, INC., Plaintiff,
v.
MOBILE NOW, INC., et al., Defendants.

          MEMORANDUM OPINION

          JOHN D. BATES UNITED STATES DISTRICT JUDGE

         Plaintiff Sprint Solutions, Inc. seeks a preliminary injunction enjoining defendant Mobile Now, Inc. and individual defendants Robert and Steven Qureshi from further dissipating what is left of the $11.2 million in funds that Sprint accidentally transferred to Mobile Now and that Mobile Now refuses to return. See Sprint's Mot. & Mem. of Law in Supp. of its Mot. for a TRO & Prelim. Inj. (“Pl.'s Br.”) [ECF No. 2]. Sprint is pursuing its claims against Mobile Now through arbitration but seeks a preliminary injunction to ensure Mobile Now does not further dissipate the funds before an arbitrator decides the matter. Id. at 2. Mobile Now and the Qureshis claim that the money is rightfully theirs and oppose Sprint's motion. See Defs.' Opp'n to Pl.'s Mot. for a Prelim. Inj. (“Opp'n Br.”) [ECF No. 16]. For the reasons explained below, the Court will grant Sprint's motion for a preliminary injunction, but only until an arbitration panel decides for itself whether Sprint should receive interim relief.

         BACKGROUND

         Sprint and Mobile Now Part Ways

         From 2009 to April 2019, Mobile Now served as one of Sprint's largest “authorized representatives” distributing Sprint-branded telecommunications services and related products. Decl. of Nathan McGrath [ECF No. 16-1] ¶ 4. In March 2018, the parties executed a new Authorized Representative Agreement that set forth the terms of the parties' business arrangement and granted Mobile Now the right to sell Sprint products and services. See Authorized Representative Agreement, Tab 1 to Compl. (“Agreement”) [ECF No. 1-1]. Attached to the contract was a dispute-resolution agreement, in which the parties agreed to arbitrate “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, whether arising out of common law, state or federal law.” Exhibit E: Dispute Resolution Agreement, Tab 2 to Compl. (“Arbitration Agreement”) [ECF No. 1-1] ¶ 1.

         In April 2019, Sprint terminated the Agreement with Mobile Now “for cause.” McGrath Decl. ¶ 7. In response, Mobile Now sued Sprint in this Court, seeking close to $90 million in damages for wrongful termination in addition to $12 million for compensation that it claimed it was owed for services rendered before Sprint terminated the Agreement. Decl. of Adam Debernardis [ECF No. 16-2] ¶ 4. Sprint moved to compel arbitration pursuant to the parties' Arbitration Agreement, and this Court granted Sprint's motion and dismissed the case. See Mobile Now, Inc. v. Sprint Corp., 393 F.Supp.3d 56, 60, 72 (D.D.C. 2019).

         Meanwhile, Sprint was working to calculate its final payment to Mobile Now. Decl. of Matt Panther [ECF No. 2-1] ¶ 8. Section 15.2 of the Agreement authorizes Sprint to withhold, for up to 210 days, “all compensation due to [Mobile Now] by Sprint pending a final true-up.” Agreement § 15.2. Under that section, Sprint may “offset all amounts owed by [Mobile Now] against the outstanding compensation due to [Mobile Now] by Sprint, and make a final payment, net of the offsets.” Id. Amounts owed by Mobile Now may include, for example, “equipment balances, advances, Losses, Expenses and 180-day deactivation Charge backs.” Id. Section 6.2 of the Agreement also provides Sprint a right to “charge or withhold any amounts owed by [Mobile Now] . . . to Sprint (or any of Sprint's affiliates or subsidiaries).” Id. § 6.2.

         Sprint determined that it owed Mobile Now $11, 253, 769.08 plus $117, 201.45 in prepaid compensation, but then applied certain deductions equal to $2, 598, 538.40, resulting in a total sum of $8, 772, 432.13. Panther Decl. ¶ 9; Ex. 1 to Suppl. Decl. of Matt Panther [ECF No. 19-1]. Under Mobile Now's calculation, Sprint owed it $12.2 million. McGrath Decl. ¶¶ 12-13. The parties also disagreed as to whether Sprint could pay Mobile Now's earned compensation (regardless of whether it was $8.7 million or $12.2 million) to a third-party Sprint-affiliate named Brightstar, to which Mobile Now allegedly owed more than $17 million. McGrath Decl. ¶ 22; Panther Decl. ¶ 11. Both Sprint and Mobile Now had entered into contractual agreements with Brightstar, an equipment provider, and Sprint claims that its contract with Brightstar required Sprint to offset money that Mobile Now owed to Brightstar before making a “final payment” to Mobile Now. Panther Decl. ¶ 10; Debernardis Decl. ¶ 34.

         A Mistaken Payment of $11.2 Million

         Sprint, having determined that all of the money it owed Mobile Now needed to be paid towards Mobile Now's debt to Brightstar, scheduled the $8.7 million offset payment to Brightstar for November 8, 2019. Panther Decl. ¶ 13. In doing so, Sprint had to temporarily lift a vendor payment hold that had been placed on all payments to Mobile Now. Id. A technical glitch then caused Sprint's accounts payable vendor's software to misread the authorization for the $8.7 million offset payment as also authorizing the full $11.2 million that had been listed in the system as owed to Mobile Now before accounting for Sprint's deductions and the offset payment to Brightstar. Id. As a result, on November 8, Mobile Now wired the $8.7 million to Brightstar on Mobile Now's behalf and wired $11.2 million to Mobile Now's account at Capital One bank, putting Sprint out almost $20 million in total. Id. ¶ 14. The funds were credited to Mobile Now's account on November 13. Id.

         Mobile Now had received notification of the incoming payment on November 8 along with a detailed “Payment Advice” listing invoice dates and amounts being paid. McGrath Decl. ¶¶ 24- 25. On November 13, Mobile Now “immediately accepted the payment” and applied the funds “to pay down Sprint's outstanding liabilities and unpaid invoices.” Id. ¶ 29. Mobile Now used the funds to repay advances that Mobile Now's principals had made from their own personal funds so that Mobile Now could pay its employees and cover its leases. Id. Of the $11.2 million that was transferred, only about $4 million remains in an account maintained by Mobile Now's principals, id. ¶ 30, though some additional amount may remain in the Qureshis' accounts, see Proposed Order [ECF No. 22-1] ¶ 2.

         Sprint's Efforts to Reclaim its Mistaken Payment

         Sprint did not discover its $11.2 million-dollar error until November 19. Panther Decl. ¶ 15. At that time, Sprint did not contact Mobile Now about the mistaken payment. McGrath Decl. ¶ 32. Instead, Sprint tried to reverse the wire transfer, Panther Decl. ¶ 15, and when that didn't work, Sprint tried to recover some of the funds by initiating direct debits for various amounts against Mobile Now's bank account. Id. ¶ 16. It is Mobile Now's understanding that the bank referred Sprint's actions to its Fraud Department and alerted federal law enforcement. McGrath Decl. ¶ 35.

         It was not until December 4 that Sprint informed Mobile Now of the mistaken payment and requested the return of funds. See Dec. 4, 2019 Letter, Tab 4 to Compl. [ECF No. 1-1] at 1- 2. Mobile Now refused. See Dec. 6, 2019 Letter, Tab 5 to Compl. [ECF No. 1-1] at 1-3. At that point, Sprint made a demand for arbitration, alleging that Mobile Now's decision to retain the funds constitutes a breach of contract, as well as wrongful trover, conversion, and unjust enrichment. Demand for Arbitration, Tab 3 to Compl. [ECF No. 1-1] at 1-2. On December 19, Sprint also filed a complaint against Mobile Now in this Court for refusing to return the $11.2 million, alleging the same claims it seeks to arbitrate: (1) breach of contract, (2) trover and conversion, and (3) quantum meruit and/or unjust enrichment. Compl. [ECF No. 1] ¶¶ 38-63. However, Sprint explained that it did not want this Court to decide the merits of those claims, and it instead sought only a temporary restraining order and preliminary injunction enjoining Mobile Now from dissipating the funds pending an arbitration panel's decision. Id. ¶ 70; Pl.'s Br. at 1-2.

         Mobile Now agreed not to further dissipate the funds until after January 13, 2020, allowing this Court to dismiss the motion for a temporary restraining order as moot and decide only Sprint's motion for a preliminary injunction. See Order, Jan. 7, 2020 [ECF No. 11] at 1-2. The parties are proceeding with arbitration. While no arbitration panel has been appointed yet, an initial conference was set for January 3 and then continued to January 14, 2020. Sprint's Reply in Supp. of its Mot. for a Prelim. Inj. (“Reply Br.”) [ECF No. 18] at 5. Thus, the question before this Court is whether it should grant Sprint's preliminary injunction and enjoin defendants from further dissipating the funds until an arbitration panel decides Sprint's underlying claims, or even just until an arbitration panel decides, for itself, Sprint's request for interim relief.

         LEGAL STANDARD

         A preliminary injunction is “an extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to such relief.” Sherley v. Sebelius, 644 F.3d 388, 392 (D.C. Cir. 2011) (quoting Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 22 (2008)). “A plaintiff seeking a preliminary injunction must establish [1] that he is likely to succeed on the merits, [2] that he is likely to suffer irreparable harm in the absence of preliminary relief, [3] that the balance of equities tips in his favor, and [4] that an injunction is in the public interest.” Aamer v. Obama, 742 F.3d 1023, 1038 (D.C. Cir. 2014) (internal quotation omitted). “When seeking a preliminary injunction, the movant has the burden to show that all four factors, taken together, weigh in favor of the injunction.” Abdullah v. Obama, 753 F.3d 193, 197 (D.C. Cir. 2014) (internal quotation omitted).

         Moreover, in the event that “parties have agreed to arbitrate a dispute, a court may issue an injunction if, in addition to the usual equitable concerns, the integrity of the arbitration process would be threatened absent interim relief.” TK Servs., Inc. v. RWD Consulting, LLC, 263 F.Supp.3d 64, 71 (D.D.C. 2017) (quoting Am. Postal Workers Union, AFL-CIO v. U.S. Postal Serv., 372 F.Supp.2d 83, 90-91 (D.D.C. 2005)). Such “an injunction in aid of arbitration is appropriate . . . only when the actual or threatened harm to the aggrieved party amounts to a frustration or vitiation of arbitration, ” such that a favorable decision by an arbitrator “would be but an empty victory.” Am. Postal Workers Union, 372 F.Supp.2d at 90-91. “The arbitral process, however, is not rendered meaningless by the inability of an arbitrator to completely restore the status quo ante or by the existence ...


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