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L2 Wireless LLC v. Sprint Solutions Inc.

United States District Court, N.D. Texas, Dallas Division

August 22, 2019

L2 WIRELESS, LLC, Plaintiff,
v.
SPRINT SOLUTIONS, INC. and SPRINT NEXTEL CORP., Defendants.

          MEMORANDUM OPINION AND ORDER

          ED KINKEADE UNITED STATES DISTRICT JUDGE

         Before the Court is Defendants Sprint Solutions, Inc. and Sprint Nextel Corp.'s Motion to Compel Arbitration and Dismiss, or in the Alternative, Stay Proceedings (Doc. No. 8). After careful consideration of the motion, the response, the reply, the supporting exhibits, the applicable law, and any relevant portions of the record, the Court GRANTS the motion and dismisses with prejudice Plaintiff's claims.

         A. Factual and Procedural Background

         Plaintiff L2 Wireless, LLC (“Plaintiff”) served as an Authorized Business Representative (“ABR”) of Defendants Sprint Solutions, Inc. and Sprint Nextel Corp. (collectively “Defendants”) for approximately 14 years. Plaintiff and Defendants entered into their most recent Authorized Business Representative Agreement (“the Agreement”) in February 2017. Under the Agreement, Plaintiff acted as an ABR of Defendants, soliciting and subscribing customers to Defendants' services and selling Defendants' products. Defendants would then pay Plaintiff commissions for the subscribed services and products sold.

         In August 2017, Defendants notified Plaintiff by letter that the Agreement was being terminated immediately because Defendants uncovered “a pattern and practice” by Plaintiff that violated the Agreement. Plaintiff contends that the Agreement was terminated without warning and without details of the alleged violations of the Agreement. Furthermore, Plaintiff complains it was not given an opportunity to cure. Upon the termination, Defendants stopped payment of any further compensation, and any compensation Plaintiff had already earned was subject to an offset of any amounts it owed to Defendants.

         Plaintiff filed this lawsuit in this Court on the basis of diversity jurisdiction. Plaintiff asserts claims for breach of contract, fraud, negligent misrepresentation, tortious interference, unjust enrichment, defamation, and quantum meruit. Defendants subsequently filed this motion to compel arbitration arguing an arbitration provision in the Agreement requires Plaintiff to submit its claims to arbitration.

         B. Applicable Law

         The Federal Arbitration Act (“FAA”) provides that a written agreement to arbitrate disputes arising out of a contract “shall be 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 statute does not permit the trial court to exercise any discretion, “but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985).

         On a motion to compel arbitration, the court conducts a two-step analysis. Webb v. Investacorp., Inc., 89 F.3d 252, 257-58 (5th Cir. 1996). The Court first determines whether there is a valid agreement between the parties to arbitrate a dispute. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985); Banc One Acceptance Corp. v. Hill, 367 F.3d 426, 429 (5th Cir. 2004). In making this determination, the court looks to (1) whether the arbitration agreement is valid and enforceable and (2) whether the claims fall within the scope of that arbitration agreement. Banc One, 367 F.3d at 429; see Gulf Guar. Life Ins. Co. v. Conn. Gen. Life Ins. Co., 304 F.3d 476, 486 (5th Cir. 2002)(“Courts are limited to determinations regarding whether a valid agreement to arbitrate exists and the scope and enforcement of the agreement.”). Once the court determines there is a valid arbitration agreement, the strong federal policy favoring the enforcement of arbitration agreements applies, and all ambiguities must be resolved in favor of arbitration. Banc One, 367 F.3d at 429. In the second step, the Court must determine “‘whether legal constraints external to the parties' agreement foreclosed the arbitration of those claims.'” Webb, 89 F.3d at 258 (quoting Mitsubishi Motors, 473 U.S. at 628).

         “The party seeking to compel arbitration need only prove the existence of an agreement to arbitrate by a preponderance of the evidence.” Grant v. Houser, 469 Fed.Appx. 310, 315 (5th Cir. 2012)(per curiam). The party opposing arbitration bears the burden of establishing the invalidity of the agreement or that the claims are outside the scope of the agreement. See Carter v. Countrywide Credit Indus., Inc., 362 F.3d 294, 297 (5th Cir. 2004).

         C. Application of the Law to the Facts

          In their motion, Defendants contend the Agreement between the parties contains a valid agreement to arbitrate disputes. In support of this contention, Defendants submit the Dispute Resolution provision (“Arbitration Provision”), which is incorporated as Exhibit E to the Agreement. According to Defendants, this Arbitration Provision governs the resolution of disputes arising under or related to the Agreement and encompasses all of Plaintiff's claims; therefore, the Court must compel Plaintiff to arbitration. Plaintiff responds that the Arbitration Provision is invalid and unenforceable because: (1) it violates Kansas state law in limiting Defendants' liability and precluding certain remedies available to Plaintiff; (2) it is unconscionable on several grounds and, therefore, void; and (3) Plaintiff's claims do not fall within the scope of the Arbitration Provision. In their reply, Defendants again contend that the Arbitration Provision is valid, and argue that Plaintiff failed to sufficiently establish the Arbitration Provision is invalid and unenforceable for any of the reasons it asserts.

         1. Agreement to Arbitrate Between the Parties

          The threshold question for the court is whether the parties agreed to arbitrate the dispute. Mitsubishi Motors, 473 U.S. at 628. In determining whether an agreement to arbitrate exists, courts apply state law. Banc One, 367 F.3d at 429. In accordance with state law, the court must decide (1) whether the parties have a valid agreement to arbitrate and (2) whether the dispute falls within the scope of that arbitration agreement. Id. at 429-30. In this case, the parties contracted in the Agreement for a choice-of-law provision agreeing to Kansas law. The parties do not dispute the validity of that provision, therefore the Court applies Kansas law. See Overstreet v. Contigroup Cos., Inc., 462 F.3d 409, 411 (5th Cir. 2006).

         a. Valid Agreement to Arbitrate

          Turning first to whether there is a valid agreement to arbitrate, Plaintiff does not dispute the existence of the Agreement with Defendants. Instead, Plaintiff contends the Arbitration Provision is invalid and unenforceable because: (1) the Arbitration Provision violates Kansas public policy because it unlawfully limits Defendants' liability and precludes Plaintiff from recovering certain damages; and (2) the Arbitration Provision is unconscionable for several reasons, including unequal bargaining power between Plaintiff and Defendants. At first blush, Plaintiff's arguments appear to challenge the validity or enforceability of the Arbitration Provision which would be a determination for this Court to make rather ...


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