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Madrigal v. New Cingular Wireless Services

August 17, 2009


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



Before the court is a motion to compel arbitration pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. § 4, brought by Defendants New Cingular Wireless Services, Inc. and AT&T Mobility, LCC (collectively "Defendants"). Defendants contend that the four claims asserted by Plaintiffs Anamiria Madrigal and her company Atzek Cellular, Inc. ("Plaintiffs") in the First Amended Complaint ("FAC"), and the counterclaims asserted by Defendants in their responsive pleading, are subject to an arbitration clause in an Exclusive Dealer Agreement executed between the parties.

The following background facts are taken from the parties' submissions in connection with the motion and other documents on file in this case.


A. The Dealer Agreement

On or about April 1, 2002, Plaintiff Anamiria Madrigal and AT&T Wireless Services, Inc. entered into an Exclusive Dealer Agreement ("Dealer Agreement"). (Doc. 13 at 3; Doc. 16 at 10.)*fn1 The terms of the Dealer Agreement authorized Madrigal to market wireless products and services to customers of AT&T Wireless. (Doc. 13 at 3.)

Madrigal opened and operated several retail stores under the name "Aztek Cellular." (Doc. 13 at 3; Doc. 16 at 10.) After "Atzek Cellular" incorporated, on August 8, 2002, Madrigal assigned her rights under the Dealer Agreement to Atzek Cellular, Inc. (Woosley Decl. ¶ 5, Ex. C.) The term of the Dealer Agreement was two years with automatic one-year extensions if not terminated by either party. (Doc. 13 at 4; Doc. 16 at 10.) The Dealer Agreement was renewed in 2004 and 2005. (Doc. 13 at 4; Doc. 16 at 10.)

During the term of the Dealer Agreement, Plaintiffs experienced considerable financial success while operating nine retail stores. (Doc. 13 at 4.)

B. The Switch From AT&T To Cingular And The Commission Dispute

In 2004, Cingular Wireless acquired AT&T Wireless after which AT&T Wireless was renamed New Cingular Wireless Services, Inc. (Doc. 13 at 2.) As part of the conversion from AT&T Wireless to Cingular, Plaintiffs were offered "Special Promotional Incentives Funds" ("SPIFs"). (Doc. 13 at 5.) For former AT&T Wireless customers Plaintiffs successfully transferred to Cingular and/or sold additional data features, Plaintiffs earned SPIFs (or commissions) as incentive compensation. (Id.)

By the fall of 2005, Plaintiffs calculated that they were owed more than $2,000,000 in unpaid and improperly calculated commissions. (Doc. 13 at 5; Doc. 16 at 4-5.) However, calculations of SPIFs were complicated and Cingular contested the unpaid amount claimed by Plaintiffs. (Doc. 13 at 5.) Plaintiffs were offered $475,000 in settlement. (Doc. 13 at 5; Doc. 16 at 5.) Plaintiffs rejected the offer and alleged that Cingular's calculations were erroneous. (Doc. 13 at 5; Doc. 16 at 5.) Plaintiffs maintain that Cingular "had no accounting reflecting their own calculations were in error." (Doc. 13 at 5; Doc. 16 at 5.) Cingular then reduced its offer to $435,000, without providing supporting documentation. (Doc. 13 at 5; Doc. 16 at 5.)

After Plaintiffs refused to compromise, on December 24, 2005, Defendants served Plaintiffs with a 90-day written notice of termination of the Dealer Agreement. (Doc. 13 at 4; Doc. 16 at 10.) On or about April 1, 2006, the Dealer Agreement terminated. (Doc. 13 at 8; Doc. 16 at 10.) Cingular made a final attempt to settle the disputed commissions for $149,275. (Doc. 13 at 5; Doc. 16 at 5.) Plaintiffs rejected the offer.

Subsequently, Plaintiffs, through counsel, requested mediation or, in the alternative, arbitration of the commission dispute. (Swingle Decl. Ex. A.) The parties agreed to mediate (Swingle Decl. Exs. B-C), but the mediation never occurred. After retaining new counsel, Plaintiffs requested arbitration of the commission claims. (Cornwell Decl. Exs. A-B.)

A couple months later, apart from the commission claims, Plaintiff Madrigal filed a state-court complaint asserting statutory claims arising from termination of the Dealer Agreement.

C. Procedural History

On November 18, 2008, Plaintiff Madrigal filed a complaint in Fresno County Superior Court alleging four statutory causes of action. On January 7, 2009, the action was removed to federal court on diversity of citizenship grounds. On March 5, 2009, Plaintiffs*fn2 filed a FAC alleging the same four statutory causes of action, which are: (1) a violation of the California Fair Dealership Law, Civil Code §§ 80-86; (2) a violation of the California Franchise Relations Act, Bus. & Prof. Code § 20000 et seq.; (3) a violation of the New York Franchise Law, N.Y. Gen. Bus. Law § 680; and (4) a violation of the California Unfair Competition Law, Bus. & Prof. Code § 17200 et seq. All of these claims allege, among other things, that the termination of the Dealer Agreement was unlawful and part of a scheme to put pressure on Plaintiffs to settle the commission dispute on terms adverse to Plaintiffs.

Defendants have demanded that Plaintiffs arbitrate their claims in this lawsuit. (De Liberty Decl. Ex. D.) Plaintiffs have resisted arbitration of their statutory claims despite their willingness to arbitrate the dispute over the commissions. (Cornwell Decl. Ex. B.)


The FAA represents a "liberal federal policy favoring arbitration agreements." Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991) (internal quotation marks omitted). The "central purpose of the [FAA] [is] to ensure that private agreements to arbitrate are enforced according to their terms." Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 53-54 (1995). The "preeminent concern of Congress in passing the [FAA] was to enforce private agreements into which parties had entered, a concern which requires that [courts] rigorously enforce agreements to arbitrate." Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 625-26 (1985) (internal quotation marks omitted).

In pertinent part, section 2 of the FAA provides that a "written" arbitration provision in any "contract evidencing a transaction involving commerce" is "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. The term "involving commerce" in section 2 is the "functional equivalent of the more familiar term 'affecting commerce' -- words of art that ordinarily signal the broadest permissible exercise of Congress' Commerce Clause Power." Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56 (2003) (per curiam). The FAA "provides for the enforcement of arbitration agreements within the full reach of the Commerce Clause." Id. (internal quotation marks omitted). To fall within the FAA, the "contract evidencing a transaction involving commerce," in which an arbitration agreement is embedded, need not be one "within the flow of interstate commerce," nor one that, "taken alone," has "a substantial effect on interstate commerce." Id. (internal quotation marks omitted). "Congress' Commerce Clause power may be exercised in individual cases without showing any specific effect upon interstate commerce if in the aggregate the economic activity in question would represent a general practice... subject to federal control." Id. 56-57 (internal quotation marks omitted).

Defendants engage in cellular business throughout the United States, entering into dealership agreements across the country. (Woosley Decl. ¶¶ 9-11.) The Dealer Agreement here, reached between parties from different states, involves the provision of cellular services to end customers over a significant period of time. The Dealer Agreement represents a transaction "involving commerce," and even if there were "any... doubt about the magnitude of the impact on interstate commerce caused by the particular" Dealer Agreement in this case, "that doubt would dissipate upon consideration of the "general practice th[at] transaction[] represent[s]." Citizens Bank, 539 U.S. at 57-58. "No elaborate explanation is needed to make evident the broad impact [cellular services have] on the national economy." Id. at 58. The written arbitration agreement here is embedded in a contract evidencing a transaction involving commerce within the meaning of the FAA.

Section 4 of the FAA "authorizes a federal district court to issue an order compelling arbitration if there has been a 'failure, neglect, or refusal' to comply with the arbitration agreement." Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 226 (1987) (quoting 9 U.S.C. § 4).

When a party brings a motion to compel arbitration under section 4, a threshold inquiry is whether an "arbitration" agreement exists. See Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). No party disputes that the Dealer Agreement contains an arbitration agreement.*fn3

The next inquiry deals with the scope of the arbitration agreement. "[A]rbitration is simply a matter of contract between the parties; it is a way to resolve those disputes-but only those disputes-that the parties have agreed to submit to arbitration." First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 943 (1995). "Accordingly, the [next] task of a court asked to compel arbitration of a dispute is to determine whether the parties agreed to arbitrate that dispute." Mitsubishi Motors Corp., 473 U.S. at 626.

In opposition to the motion to compel arbitration, Plaintiffs contend that the scope of the arbitration agreement does not encompass the statutory claims in the FAC. Alternatively, Plaintiffs argue that even if the statutory claims fall within the scope of the arbitration agreement, the arbitration agreement is unconscionable (under California law) and thus invalid. Finally, Plaintiffs argue that even if the arbitration agreement encompasses the statutory claims and is not unconscionable, Defendants waived their right to enforce the arbitration agreement. For the reasons that follow, Plaintiffs' first and second challenge to the arbitration agreement as ...

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