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Sprint Nextel Corporation v. Au Electronics, Inc.

United States District Court, Seventh Circuit

January 23, 2014

Sprint Nextel Corporation and Sprint Communications Company, L.P., Plaintiffs,
AU Electronics, Inc. d/b/a A-U Electronics, Inc., an Illinois corporation; Global Mobile Trading, Inc. d/b/a AU Express Cash 4 Electronics d/b/a A-U Express d/b/a AU, Inc., an Illinois corporation; Umair Yasin, individually; and Adnan Vadria, individually, Defendants.


THOMAS M. DURKIN, District Judge.

Plaintiffs Sprint Nextel Corporation and Sprint Communications Company, L.P. (collectively, "Sprint") bring this action against defendants AU Electronics, Inc. ("AU"), Global Mobile Trading, Inc. ("GMT"), Umair Yasin ("Yasin"), and Adnan Vadria ("Vadria"), alleging that defendants are engaged in a pattern of unlawful business practices involving the bulk purchase and resale of Sprint cellular phones.[1] On August 20, 2013, the parties signed a settlement agreement which provides for a complete resolution of the lawsuit. R. 134. Defendants later notified the Court that they were repudiating the agreement, R. 132, which prompted a dispute between the parties over whether the agreement was enforceable. Presently before the Court is Sprint's motion to enforce the settlement agreement. R. 141. For the reasons explained below, Sprint's motion is granted.


On November 13, 2012, Sprint filed a fifteen-count complaint alleging that defendants were "willfully infring[ing] Sprint's rights related to its specially-manufactured wireless telephones" through an elaborate "Bulk Handset Trafficking Scheme." R. 1 ¶ 1. According to the complaint, defendants instigated the scheme by acquiring large quantities of phones from Sprint and its authorized retailers. Id. ¶ 3. Defendants then removed the phones from their original packaging and shipped them overseas, unlocked or to be unlocked, to be sold for a substantial profit. Id. As a result of this alleged scheme, Sprint brought numerous claims under federal and state law, including violations of the Lanham Act, 15 U.S.C. § 1051 et seq., and the Computer Fraud and Abuse Act, 18 U.S.C. § 1030. R. 1 ¶¶ 119, 160.

Due to the continuing nature of the alleged conduct, the Court ordered defendants to preserve all evidence related to the lawsuit. R. 51. While discovery was ongoing, defendants filed two motions to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6). R. 17; R. 60. Then, during the week of August 12, 2013, counsel for Sprint took depositions of Vadria and Yasin at the offices of defendants' counsel. R. 141 at 3. At that point, the parties began discussing the possibility of settlement.[2] Id. at 3-4. Settlement discussions continued throughout the week, and on August 16, 2013, the parties reached an agreement. Id. The settlement agreement was memorialized in writing, and the parties exchanged notarized signature pages on August 20, 2013. Id. at 4-5.

The settlement agreement provides for a complete resolution of the lawsuit and includes provisions that are highly favorable to all parties. Section 9(A) of the agreement provides for entry of Final Judgment against defendants in the amount of $[redacted]. R. 134 at 5. Sprint is barred from executing on the Final Judgment, however, if defendants pay four installments of $[redacted], with each installment separated by several months:

Defendants stipulate and agree that the amount of the Final Judgment entered in this Lawsuit in favor of Sprint and against Defendant AU Electronics, Inc. d/b/a A-U Electronics, Inc., shall be $[redacted] in the form attached hereto as Exhibit A to Exhibit 1. Sprint agrees not to execute on the Final Judgment provided Defendants (a) fully and timely comply with all of their obligations under this Agreement and the Permanent Injunction; and (b) fully and timely make payment in the amount of $[redacted] to Sprint... in four equal installments of $[redacted] each, paid no later than January 31, 2014, May 1, 2014, August 1, 2014, and December 29, 2014, respectively.

Id. at 5-6. In exchange, defendants are required to cease "any conduct consisting of or related to... the Bulk Handset Trafficking Scheme [including] but not limited to purchasing, selling, unlocking, reflashing, altering, advertising, soliciting and/or shipping, directly or indirectly, any Sprint Phones." Id. at 3. Defendants are also prohibited from using third parties to engage in such conduct. Id. at 3-4.

At the center of this dispute is a provision that prohibits the parties from disclosing Sprint's forbearance in executing on the Final Judgment. Under Section 9(C) of the agreement:

Any forbearance by Sprint in executing on the Final Judgment shall remain STRICTLY CONFIDENTIAL and both Sprint and Defendants are strictly prohibited from disclosing such forbearance or filing with the Court any document reflecting such forbearance under all circumstances except in connection with an action to enforce the terms of this Agreement. In that event, Defendant may file a copy of this Agreement with the Court under seal, pursuant to the applicable Rules of Civil Procedure and the Local Rules of the Court. The forbearance in execution of the Final Judgment under this Settlement Agreement is not a forgiveness of a debt.

Id. The agreement also contains a provision that delayed filing of the stipulation for entry of Final Judgment and Permanent Injunction for 60 days, until October 21, 2013. R. 124 at 2. The purpose of this provision was to give defendants time to pursue claims against their insurers. See id. at 2 n.1. Specifically, Section 10 of the agreement provides that:

No earlier than sixty (60) days from the full execution of this Agreement, Sprint will file a Stipulation for the entry of a Final Judgment and Permanent Injunction against Defendants in the Lawsuit in substantially the form attached hereto as Exhibit 1.

R. 134 at 6. As a result of these two provisions, the parties did not immediately inform the Court that they had executed a settlement agreement on August 20, 2013. To the Court's knowledge, defendants' motions to dismiss were still pending on that date and for some time thereafter.

On September 11, 2013, federal and state law enforcement agents executed search warrants at AU's offices for alleged violations of 18 U.S.C. §§ 1956(a)(2)(A) and (h) (money laundering), 2314 (transportation of stolen goods), and 2315 (sale or receipt of stolen goods). R. 141 at 5. During this raid, the agents seized all of defendants' inventory and records and placed a $9, 999, 999.00 lien against AU's bank account. Id.

On September 16, 2013, defendants filed a motion to advance a hearing or decision on the pending motions to dismiss, or in the alternative, for a summary judgment conference. R. 129. In their motion, defendants advised the Court of the September 11, 2013 raid on AU's offices and accused Sprint of instigating it. Id. ¶¶ 1-2. Defendants then demanded a ruling on the pending motions to dismiss, noting that the Court had provided "no explanation for why [it] ha[d] chosen to delay in ruling." Id. ¶¶ 6, 15. In the alternative, defendants requested an in-chambers hearing to discuss a potential motion for summary judgment. Id. ¶ 16. Defendants, however, made no mention of the fact that the parties had already signed a settlement agreement which had, at least on its face, completely resolved the lawsuit nearly four weeks earlier.

Defendants' September 16, 2013 motion to advance a hearing or decision prompted two filings later that day. First, Sprint filed a notice of settlement which, for the first time, informed the Court that "all parties to this case have reached a comprehensive settlement." R. 131 at 1. Sprint noted that the agreement contained a 60-day delay for filing the stipulation for entry of Final Judgment and Permanent Injunction but explained that it could not "wait any longer to inform the Court of the parties' settlement, " given defendants' filing earlier that day that "request[ed] the Court to needlessly expend judicial resources on a case that has been settled in all respects." Id. at 2. Shortly thereafter, defendants informed the Court that they were repudiating the settlement agreement due to allegations that Sprint had caused or contributed to the governmental raid on AU's offices and Sprint's disclosure of "strictly confidential" terms of the settlement agreement by filing its notice of settlement. R. 132 ¶¶ 4, 7. In response, the Court held a telephonic status hearing on September 17, 2013. R. 136. The Court heard arguments from all parties and then instructed Sprint to submit a brief explaining why the settlement agreement should be enforced. Id. An accompanying briefing schedule on the issue was set. Id.

On September 19, 2013, defendants filed a motion for expedited discovery, asking the Court to compel Sprint to produce "any and all communications with government authorities regarding [d]efendants." R. 138 at 1. This request was based defendants' allegation that Sprint had affirmatively represented during settlement negotiations that it "had [not] previously communicated or shared information with the government[, ] and to [its] knowledge, there was no active investigation of [d]efendants." Id. ¶ 9. Defendants asserted that they would be entitled to rescission and repudiation of the settlement agreement if it was shown that Sprint had committed fraud in making these statements. Id. ¶ 13.

The Court granted defendants' motion in part and ordered Sprint to provide affidavits from individuals who had contact with law enforcement personnel between August 16, 2013 and September 18, 2013. R. 144. The Court did not require disclosure of communications predating the settlement agreement, however, due in part to an integration clause which provides that "[t]his Agreement expresses the entire agreement between the [p]arties with respect to the compromise of the claims described herein." R. 134 at 11.

In response to the discovery order, Sprint produced affidavits from its Group Manager of Corporate Security Investigations, Richard E. Stephenson, and its attorney in this case, James Baldinger. R. 145; R. 146. Both affidavits maintained that, during the relevant dates, Sprint's employees and agents had not "provided any information to law enforcement regarding the Defendants in this case, except in response to a request by a member of law enforcement." R. 145 ¶ 5; R 146 ¶ 4. Sprint notes that such communications are expressly permitted by Section 17 of the settlement agreement, which provides that:

Sprint shall not disclose Defendants' information beyond what is reasonably necessary to investigate and pursue claims of participation in the Bulk Handset Trafficking Scheme or ...

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