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Madrigal v. New Cingular Wireless Services

April 16, 2009


The opinion of the court was delivered by: Oliver W. Wanger United States District Judge


I. Date of Scheduling Conference

April 15, 2009.

III. Summary of Pleadings

Plaintiffs' Factual Contentions:

1. On or about April 1, 2002, Plaintiffs entered into an Exclusive Dealer Agreement ("Agreement") with AT&T Wireless Services, Inc. Under the terms of this Agreement, Plaintiffs were authorized to market wireless products and service to existing and potential customers of AT&T Wireless. They opened several retail locations under the name Aztek Cellular from which they offered, sold, and distributed the goods and services of AT&T Wireless to consumers.

2. The Agreement by its terms provided that AT&T Wireless would train Plaintiffs on how to properly offer and sell its products and service; and Plaintiffs were required to solicit business strictly in accordance with AT&T Wireless's established procedures. All prices and terms for wireless service were established by AT&T Wireless. AT&T Wireless also provided promotional literature for Plaintiffs' stores, and Plaintiffs agreed to maintain an adequate stock of AT&T Wireless brochures and other advertising materials to meet any customer needs. Any telemarketing or internet advertising program devised by Plaintiffs required AT&T Wireless's written approval prior to use. The Agreement further provided that AT&T Wireless authorized Plaintiffs to represent themselves to the consuming public as an "Authorized Dealer" of AT&T Wireless and to use its trademarks, service marks, trade names, logos, or similar markings. Plaintiffs were permitted to use such marks in their advertising.

3. In exchange for these rights as well as other benefits and compensation, Plaintiffs granted to AT&T Wireless a purchase money security interest (i) in any and all equipment they purchased from AT&T Wireless; (ii) in any accounts created for or from the sale, lease, license, exchange, or other disposition of equipment by Plaintiffs; and (iii) in any proceeds of such equipment or accounts. Plaintiffs further agreed to pay any charges billed to them for promotional materials that AT&T provided. They also incurred expenses for themselves and all their employees to attend out-of-town mandatory AT&T training, and they were required to carry insurance at their own expense naming AT&T as an additional insured against any claims of injury, including injuries arising from AT&T's own products.

4. Plaintiffs also agreed that they would not solicit, sell, or offer any like goods and services of any competitor of AT&T Wireless during the term of the Agreement, and that they would not lease, sublease, or otherwise provide space at any of their retail locations to any competitive service provider or seller. Similarly, Plaintiffs were prohibited from sharing any resources with a provider or seller of any competitive service. In connection with the Agreement, Plaintiffs were given a copy of a Manual of Dealer Policies. They also were allowed access to certain proprietary information of AT&T Wireless which they agreed they would keep confidential.

5. During the operative term of the Agreement, Plaintiffs experienced notable financial success. They opened a total of nine retail outlets which they operated under the name Aztek Cellular. They focused their marketing on the large local Hispanic community, and their stores generated basic monthly commissions totaling hundreds of thousands of dollars.

6. Despite Plaintiffs' success, Plaintiff Madrigal experienced instances when she was treated negatively by AT&T because she was a woman among mainly male dealers and because she was Hispanic. For example, and in particular, in 2001, AT&T initially refused to contract with Madrigal directly, but required instead that a qualified male be named as the dealer on her business. Thereafter, even when she was allowed to contract in her own name, she was isolated from other participants at dealer conventions, and AT&T personnel would not converse with her or address her inquiries. The AT&T employee specifically charged with developing Hispanic marketing refused to assist her and told her pointedly that she was on her own to develop marketing plans for the Hispanic community in Fresno. Thereafter, AT&T account executives disparaged Madrigal's Hispanic market and contended it was creating friction for Plaintiffs with AT&T, despite the fact that Plaintiffs were experiencing excellent financial results at each of their numerous retail outlets.

7. In about 2005, AT&T Wireless merged with Cingular Wireless. To bridge the change in compensation strategies that arose as a result of the merger, Cingular introduced a program of Special Promotional Incentives Funds ("SPIFs"). As former AT&T Wireless customers were successfully migrated to Cingular and/or additional data features were sold to those customers, Plaintiffs earned SPIFs as incentive compensation for achieving targeted sales opportunities.

8. Calculations of SPIFs that had been earned was a complicated process, and Cingular frequently was delayed in providing accurate and complete SPIF accountings and payments to Plaintiffs. By the fall of 2005, Plaintiffs calculated that Cingular owed them more than $2,000,000 in unpaid SPIFs and improperly calculated commissions. In response to their demands for payment, Cingular offered to settle up the account for $475,000. Plaintiffs refused, since Cingular had no accounting reflecting their own calculations were in error. Cingular then reduced its offer to $435,000, again without any supporting documentation. When Plaintiffs again refused to compromise their claim, instead of paying what was owed, Cingular sent them a notice of termination of their dealership. Cingular also made a final offer to settle the disputed SPIFs and commissions for only $149,275.

9. The notice of termination was completely unexpected and contrary to the renewal terms that Plaintiffs already had been given. The term of the original Agreement was two years with automatic one-year extensions if not otherwise terminated by either of the parties. When the Agreement came up for renewal in 2004 and 2005 it was renewed. In the fall of 2005, Plaintiffs were informed the Agreement would be renewed again in 2006. Instead, on December 24, 2005, Defendants served Plaintiffs with a 90-day written notice of termination.

10. Defendants took back Plaintiffs' dealership on or about April 1, 2006. They made no effort at that time to buy back any of Plaintiffs' inventory or to compensate them for the value of their business or the funds they had invested in the authorized dealership.

Plaintiffs' Legal Contentions:

1. That Defendants are the agents, employees, alter egos, and/or successors of each other and of AT&T Wireless Services, Inc.

2. That Plaintiffs are "persons" who were granted a "dealership" as those terms are defined in California Civil Code § 81.

3. That Plaintiffs were discriminated against because of Plaintiff Madrigal's sex, color, race, ancestry, and national origin in violation of California Civil Code § 51.

4. That Plaintiffs' Exclusive Dealer Agreement and its various renewals constituted a franchise pursuant to California Business & Professions Code § 20000 et seq.

5. That Defendants' termination and refusal to renew Plaintiffs' Exclusive Dealer Agreement was unlawful pursuant to the California Franchise Relations Act.

6. That Plaintiffs' Exclusive Dealer Agreement and its various renewals constituted a franchise pursuant to New York General Business Code § 681.

7. That Defendants' termination and refusal to renew Plaintiffs' Exclusive Dealer Agreement was unlawful pursuant to the New York Franchise Law.

8. That Plaintiffs have been damaged by the conduct of Defendants.

9. That Plaintiffs are entitled to damages.

10. That Plaintiffs are entitled to the fair repurchase value of all the resalable inventory they had at the time of termination.

11. That Plaintiffs are entitled to attorneys' fees pursuant to California Civil Code § 86 and New York General Business Law § 691.

12. That Defendants' conduct in their relations with Plaintiffs was unfair, unlawful, and fraudulent and constituted unfair competition pursuant to California Business & Professions Code § 17200 et seq.

13. That Plaintiffs are entitled to restitution of their wrongfully withheld funds and disgorgement of Defendants' profits acquired as a result of their unfair, illegal, and fraudulent business acts and practices.

14. That Plaintiffs complied with all the terms of their Exclusive Dealer Agreement and the Manual of Dealer Policies provided to them by Defendants during the term of their franchise dealership.

15. That Defendants failed to comply with all the terms required of them by Plaintiffs' Exclusive Dealer Agreement and by their own Manual of Dealer Policies during the term of Plaintiffs' franchise dealership.

16. That Plaintiffs adequately complied with the arbitration provisions of the Exclusive Dealer Agreement.

17. That Defendants waived any rights they had to arbitrate any claims or causes of action set forth in the First Amended Complaint for Damages.

18. That the arbitration provisions of the Exclusive Dealer Agreement violate California's public policy and are not enforceable by a court in California regardless of ...

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