Litigation Success

Congratulations go to Ying Cao Law LLC! After winning the Motion to Dismiss the case brought by Sprint, our client, represented by Ying Cao, Esq. and Co-Counsel Nicholas Fortuna, Esq. has successfully reached a settlement with Sprint.

Sprint (full name: Sprint Corporation) is a familiar presence in the U.S. telecommunications industry. It is a subsidiary of the Japanese Softbank Group, which is in turn owned by Mr. Masayoshi Son, a Korean-descendant Japanese billionaire. What exactly did Sprint do? Today, we present you with a story of the telecommunication giant’s fishing expedition.

Our client, a Hong Kong-based phone distributor, collects and resells used phone devices around the world. They approached Sprint regarding the possibility to acquire used Sprint phones, making no secret of its business model. Our client plainly stated that it was looking for used cellphones through either a direct purchase or a bidding process. The sales department personnel at Sprint indicated that they would be in touch. A normal purchase-sale of some used devices, it would seem.

Not long after, a mysterious individual who presented himself as an authorized Sprint representative, later identified in Sprint’s complaint as an “investigator,” contacted our client. He claimed to have a batch of new phones in stock and offered a price even lower than that of used ones.

Now that was tempting – new phones directly supplied by Sprint that were even cheaper than used ones! Not imprudently, our client decided to purchase ten devices as a start. They were checked and confirmed to be new and not stolen device. Assuming, not unreasonably, that an authorized Sprint representative would not make unauthorized sales, our client made the purchase of ten new phones.

Their wishes were fulfilled as soon after the test deal, the mysterious representative from Sprint reached out and suggested a bigger purchase. Our unsuspecting client immediately responded by sending more people to check the merchandise. The deal was never consummated, however. As soon as the two sides met, the Sprint representative handed our client a filed complaint, which he jested was a “birthday gift.” Unceremoniously, our client had suddenly become a defendant in a federal lawsuit. The gist of Sprint’s complaint was that our client, by attempting to purchase and sell overseas what were in fact domestic Contract Phones, breached the service contracts attached to those phones.

Some explanations here may shed some light on the situation: Contract phones are products specifically designed to be jointly operated by carriers and manufactures. They are sold at lower-than-market prices, and the loss of profit at the front end is offset by higher monthly fees stipulated by the contract. In other words, if customers were to buy these devices without a corresponding contract, Sprint would lose much more money than they would make. Accordingly, it would seem reasonable for Sprint to litigate the decoupling of Contract phones and their underlying service contracts.  

Here is where Sprint’s “fishing” comes in. Our client made clear, and Sprint’s representative understood as such, that they intended to purchase and re-sell used devices overseas, where Sprint’s network was absent. In addition, Sprint’s representative had never disclosed the Contract Phone status of the devices sold. It is not a logical leap, therefore, for our client to feel that Sprint was setting them up for a deliberate extortion under the guise of some breached contracts that were never disclosed or presented.

In truth, the mysterious Sprint representative was a private investigator. He was tasked with locating Sprint users who bought contract phones, understood their contractual obligations, and chose not to use Sprint network. In his zeal to catch dishonest customers, the investigator had deliberately laid a trap for our unwitting client – a “breach” of service contracts which had never been disclosed and whose terms could not practically have been adhered to by our client.

Fortunately, Sprint’s dishonest scheme stopped at the United States District Court Southern District of New York. There, Sprint first filed its complaint on July 28, 2016. We responded soon thereafter with a Motion to Dismiss. The Motion was granted on June 29, 2017 without prejudice to the filing by plaintiffs, before July 28, 2017, of an amended complaint. According to the Judge:

• The complaint contains a number of claims that sound in fraud but quite plainly do not comply with Rule 9(b)
  
• The frequent failure to differentiate among the various defendants and to specify the allegedly wrongful conduct by each may prove problematic
  
• Some of the moving defendants’ other arguments appear to have at least some merit.
  

Realizing that its attempt to compromise our client had failed, Sprint decided to drop the suit altogether and settled with us on August 28, 2017. The moral of the story seems to be that honest services win more customers than “fishing” schemes.