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WIRELESS DISTRIBUTORS, INC. v. SPRINTCOM

September 18, 2003

WIRELESS DISTRIBUTORS, INC., AN ILLINOIS CORPORATION, PLAINTIFF,
v.
SPRINTCOM, INC., A KANSAS CORPORATION D/B/A SPRINT PCS, DEFENDANT



The opinion of the court was delivered by: John W. Darrah, District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff, Wireless Distributors, Inc., filed suit against Defendant, Sprintcom, Inc. d/b/a Sprint PCS, alleging breach of contract and fraudulent misrepresentation. Presently pending before the Court is Sprint's Motion to Dismiss Count n of the Counterclaims.

A reading of Wireless's Complaint supports the following summary of the alleged operative conduct of the parties.

On April 12, 2001, Sprint and ABC Wireless entered into a Distribution Agreement whereby ABC agreed to purchase Sprint telephones, related accessories, and other tangible goods from Sprint for sale to consumers and small business endusers through ABC's physical retail store. Section 2.1 of the Distribution Agreement provided that the term of the Distribution Agreement was one year from the effective date, unless terminated sooner. The Distribution Agreement automatically renewed for consecutive one-year terms unless either party gave the other party written notice of non-renewal at least thirty days before the anniversary of the effective date. Section 18 provided that Sprint could terminate the Distribution Agreement for any reason in its sole discretion upon thirty days' prior written notice to ABC or if ABC violated [ Page 2]

Section 3.7 of the Distribution Agreement.

Pursuant to Section 3.1 of the Distribution Agreement, ABC agreed not to use independent contractors, franchises, dealers or other distributors to sell the Products. Section 3.7 of the Distribution Agreement provided that ABC was only authorized to sell the Products in the stores listed in Exhibit A of the Distribution Agreement and not through any other distribution channel. The Distribution Agreement provided for certain types and levels of compensation to be paid to ABC. Sprint could modify the compensation paid to ABC upon thirty days' written notice pursuant to Section 10.4.

Section 20.8 of the Distribution Agreement provided that the laws of the State of Kansas govern the Distribution Agreement, including its validity, the construction of its terms, and interpretation of the rights and duties of the parties to the Distribution Agreement.

In May 2001, ABC assigned its rights under the Distribution Agreement to Wireless. Sprint consented to the assignment and did business thereafter with Wireless pursuant to the terms of the Distribution Agreement and pursuant to the understanding reached between the parties prior to the assignment.

In April 2001, prior to the assignment, Ronald Goldberg, Wireless's President, and Keith Kim, Wireless's then Vice-President, informed Marlene Perez, Sprint's Account Representative for ABC, that Wireless did not own any retail stores and would be selling the Products to dealers and their subdealers nationwide. Wireless only had a warehouse with an office facility in Lincolnshire, Illinois. Shortly after this discussion, Perez visited Wireless's warehouse from which Wireless intended to sell the Products to its dealers and their subdealers. Based on the conversation and visit, Sprint knew and understood, prior to the assignment, that Wireless would [ Page 3]

be selling the Products to its dealers and their subdealers nationwide and not directly through any retail stores, except the retail store owned by ABC that was listed in Exhibit A of the Distribution Agreement. Furthermore., through the course of dealings between Sprint and Wireless, including face-to-face meetings, telephone conversations and electronic correspondence, Sprint knew and understood that Wireless was selling Products to its dealers and their subdealers.

In February 2002, Sprint advised Wireless that it was in the process of changing the compensation structure for all of its indirect distributor channels, effective April 1, 2002. On March I, 2002, Susan Cheney, Sprint's Chicago Area Vice-President, informed Goldberg by letter that Sprint was changing Wireless's compensation structure under the Distribution Agreement, effective April 1, 2002. On March 6, 2002, Cheney informed Kim that Sprint was changing Wireless's compensation structure under the Distribution Agreement, effective April 1, 2002.

Enclosed in the March 1 and March 6, 2002 letters was an amendment to the Distribution Agreement. Section 4 of the Amendment provided that, beginning April 1, 2002, Wireless's sole compensation under the Distribution Agreement would be based on an exhibit attached to the Amendment known as the "Compensation Addendum".

The Compensation Addendum provided for various components of compensation to Wireless, including: (1) that Wireless agreed that it would sell, market, and promote the Products and not, directly or indirectly, sell, market, solicit, promote or act as an agent for any other wireless telecommunication product or service; (2) Wireless was entitled to a commission of $15.00 per Sprint telephone activation for being an exclusive seller, marketer, and promoter of the Products; (3) Wireless was entitled to a certain commission based upon the number of Sprint [ Page 4]

telephone activations per month; (4) Wireless was entitled to certain commission based upon the type of service plans that individuals purchased with their Sprint telephones; and (5) Wireless was entitled to a 10% discount from invoice ("DPI") on all the Products Wireless purchased from Sprint. The compensation structure outlined in the Compensation Addendum provided for a higher level of compensation to Wireless than under the original compensation structure provided for in the Distribution Agreement.

Pursuant to the Distribution Agreement, Wireless had the right to either accept the Compensation Addendum and continue to do business with Sprint or to decline the Compensation Addendum and terminate the Distribution Agreement, effective April 1, 2002.

In addition to changing Wireless's compensation under the Distribution Agreement, the Amendment deleted Sections 8, 9, 10.1, and 10.2 of the Distribution Agreement and amended Section 11 of the Distribution Agreement. The Amendment did not delete or modify Section 6.2 of the Distribution Agreement, which provided that Wireless was to receive an 8% DFI on all Products Wireless purchased from Sprint.

Notwithstanding the 8% DFI provided for in Section 6.2 of the Distribution Agreement, Sprint historically allowed Wireless a 10% DFI on all Products Wireless purchased from Sprint. In that regard, on August 29, 2001, Cheney advised Kim, via a letter, that as of May 25, 2001, Sprint determined that Wireless would be paid a 10% DFI on all the Products that Wireless purchased from Sprint, effectively amending Section 6.2 of the Distribution Agreement.

During the months of February and March 2002, Kara Grady, Wireless's General Manager, and Goldberg had multiple conversations with Kris Willing, Sprint's Indirect Sales Manager, and Tina Blake, Sprint's ...


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