Sprint Nextel Corporation v. Middle Man, Inc., The et al

Filing 151

MEMORANDUM AND ORDER granting in part and denying in part 140 Sprint's Motion for Partial Summary Judgment. Signed by Chief Judge J. Thomas Marten on 12/9/14. (mss)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
SPRINT NEXTEL CORPORATION,
Plaintiff,
v.

Case No. 12-2159-JTM

THE MIDDLE MAN, INC., and
BRIAN K. VAZQUEZ,
Defendants.

MEMORANDUM AND ORDER
Before the court is plaintiff Sprint Nextel Corporation’s (“Sprint”) Motion for
Partial Summary Judgment (Dkt. 140). This case arises out of the resale of subsidized
wireless phones purchased on customers’ Sprint accounts. Sprint filed a thirteen count
complaint against defendants The Middle Man, Inc., and Brian K. Vazquez and now
moves for summary judgment on Count I, breach of contract, and Count III, tortious
interference with a contract. As discussed below, the Motion is granted in part and
denied in part.
I. Background
Consistent with the court’s duty to view summary judgment facts in a light most
favorable to the non-moving party, the following background is based on facts
presented or admitted by defendants. (Dkt. 149). Sprint sells wireless phones to its
customers at a net loss (“subsidy”). It then relies on monthly wireless service charges to
recoup the subsidy and make profit. To ensure recovery of the subsidy, each subsidized
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phone sale is subject to standard Terms and Conditions (“Terms”) requiring each phone
to remain on the Sprint wireless network for a minimum service term of 24 months.
(Dkt. 1-1). The Terms also provide an Early Termination Fee (“ETF”) to be assessed if
the minimum term is not fulfilled. The Terms prohibit the resale of services, which
includes any subsidized phone purchased on the customer’s account. (Dkt 1-1).
Defendants are in the business of selling new wireless phones acquired from
Sprint, other wireless providers, and customers of wireless providers. They sell used
phones acquired from wireless customers and other sources. Defendants also consult
with wireless customers to provide lower monthly rates for Sprint wireless service than
are available directly from Sprint.1
On December 7, 2011, defendants purchased five subsidized iPhones on their
Sprint account. All five purchases were subject to a 24-month service contract and
required defendants to electronically assent to the Terms. Defendants transferred one of
the phones (“Phone 1”) to “Daniel Smith” on or before December 16, 2011, and another
(“Phone 2”) to “Linwood Queen” on or before December 9, 2011. Phones 1 and 2 were
then activated on Smith and Queen’s accounts. Phone 1 remained active on the Sprint
network for a total of 6.63 months; Phone 2 remained active on the Sprint network for
only 3.76 months. Defendants transferred another of the phones (“Phone 3”) to Heritage
Tractor (“Heritage”), who was already a Sprint customer, on December 12, 2011. Phone
3 was activated on Heritage’s Sprint account and remained on the Sprint network for at

The precise method defendants use to provide lower rates is unclear at this time and is not the focus of
this suit. Defendants also consult other wireless providers’ customers, but those relationships are not at
issue in this case.

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least 24 months. Phones 1, 2, and 3 were never activated on defendants’ Sprint account
and are the subject of Sprint’s breach of contract claim.
On September 8, 2010, Heritage allowed defendants to purchase three Blackberry
phones on Heritage’s Sprint account. Sprint subsidized the phones and shipped them to
defendants’ address. Defendants purchased the phones from Heritage with cash or inkind compensation. They purchased at least twenty-six other subsidized phones on
Heritage’s Sprint account in the same manner. These phones were never activated on
Heritage’s Sprint account and are the subject of Sprint’s claim for tortious interference
with a contract.
On February 25, 2014, the court issued an order confirming that the Terms apply
to the transactions in question and prohibit the resale of a new phone purchased on a
Sprint account. (Dkt. 118, at 6-7).
II. Summary Judgment Legal Standard
“A party may move for summary judgment, identifying each claim or defense—
or the part of each claim or defense—on which summary judgment is sought.” FED. R.
CIV. P. 56(a). Summary judgment is proper if “the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” FED. R. CIV. P. 56(a). The court must view the evidence and all
reasonable inferences in the light most favorable to the nonmoving party. LifeWise
Master Funding v. Telebank, 374 F.3d 917, 927 (10th Cir. 2004). “The movant bears the
initial burden of making a prima facie demonstration of the absence of a genuine issue
of material fact and entitlement to judgment as a matter of law.” Thom v. Bristol-Myers
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Squibb Co., 353 F.3d 848, 851 (10th Cir. 2003) (citing Celotex Corp. v. Catrett, 477 U.S. 317,
322–23 (1986)). An issue of material fact is genuine “if the evidence is such that a
reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986).
The party resisting summary judgment may not rely upon mere allegations or
denials contained in its pleadings or briefs. Id. at 256. Rather, the nonmoving party must
come forward with specific facts showing the presence of a genuine issue of material
fact for trial and significant probative evidence supporting the allegation. Id. Summary
judgment may be granted if the nonmoving party’s evidence is merely colorable or is
not significantly probative. Id. at 249–50. Once the moving party has carried its burden
under Rule 56, the party opposing summary judgment must do more than simply show
there is some metaphysical doubt as to the material facts. Matsushita Elec. Indus. Co., Ltd.
v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). “In the language of the Rule, the
nonmoving party must come forward with ‘specific facts showing that there is a genuine
issue for trial.’” Id. at 587 (quoting FED. R. CIV. P. 56(e)) (emphasis in Matsushita).
III. Analysis
A. Breach of Contract
Sprint claims that defendants entered a contract subject to the Terms when they
purchased the subsidized iPhones, then breached the Terms by reselling Phones 1-3.
Defendants argue that they did not breach the Terms because they fulfilled the 24
month service commitments for each “line,” despite “transferring title” to Phones 1-3 to

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other entities. (Dkt. 149, at 3). They contend that the contract requires only the
fulfillment of the service commitment or payment of the ETF. (Dkt. 149, at 3).
Under Kansas law, the elements of a breach of contract claim are: “(1) the
existence of a contract between the parties; (2) sufficient consideration to support the
contract; (3) the plaintiff’s performance or willingness to perform in compliance with
the contract; (4) the defendant’s breach of the contract; and (5) damages to plaintiff
caused by the breach.” Stechchulte v. Jennings, 298 P.3d 1083, 1098 (Kan. 2013).
1. A Valid Contract Exists
Defendants concede assenting to the Terms and 24-month service commitments
as part of the offer and acceptance when purchasing the five iPhones. (Dkt. 149, at 2).
No genuine dispute exists as to the validity of the contract.
2. Consideration Is Sufficient
It is undisputed that Sprint provided phones, services, and a promise to provide
services while defendants provided money and a promise to purchase services. Even in
a light most favorable to defendants, Sprint pleads a prima facie case for sufficient
consideration. Defendants do not oppose the facts presented. Rather, they argue that
Sprint failed to prove consideration in its summary judgment brief by not explicitly
arguing the element. Sprint contends that its argument for the existence of a valid
contract subsumes consideration because no valid contract can exist without proper

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consideration, and that the facts alleged support a finding of consideration. The court
agrees.2 No genuine issue of material fact exists on the issue.
3. Sprint Performed
It is undisputed that Sprint provided phones and services and was willing to
provide future services under the Terms. No genuine issue of material fact exists as to
Sprint’s performance under the contract.
4. Defendants Breached Contract
The court previously held that the Terms are breached by the sale of a device
purchased on a Sprint account. (Dkt. 118, at 6-7). The implication is that selling a
subsidized phone – prior to Sprint’s recovery of the subsidy via service fees – is a
breach of the Terms. It is undisputed that defendants purchased Phones 1-3 on their
Sprint account and sold them to Smith, Queen, and Heritage. Defendants do not
expressly deny selling the phones, and admit having “transferred title” thereto by a
“transaction.” (Dkt. 149, at 3). They also admit being in the business of selling phones.
(Dkt. 149, at 1). The court finds no reasonable inference that these “transactions” were
anything other than sales. Defendants’ exhibits show that the phones were purchased
on their Sprint account and were thus subject to the resale restriction in the Terms. (Dkt.
149-1, at 12). No genuine dispute of fact exists as to defendants’ breach by reselling
Phones 1-3.

Sprint cites the same Kansas case as the court and defendants for the elements of breach of contract
claim, under which there are five elements, but skips the second element altogether, numbering its
elements as (1), (3), (4), and (5).
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Defendants attempt to dissociate the 24-month service commitments from the
phones themselves to argue that no breach occurred. The argument runs as follows.
Defendants obtained title to the phones and Sprint received a promise that defendants
would buy 24 months of service. Thus, transferring title to the phones does not breach
the Terms, because defendants purchased 24 months of service on the service lines
ordered contemporaneous with Phones 1-3. Whether Phones 1-3 or other phones were
used on those lines is irrelevant because the commitments were fulfilled. Therefore,
according to defendants, no breach occurred. However, by arguing what conduct
constitutes breach, rather than what conduct occurred, they argue a legal question – one
already answered by the court’s order interpreting the Terms. (Dkt. 118). Thus,
defendants do not raise a genuine issue of fact regarding breach.
No genuine dispute of material fact exists as to elements (1)-(4) of Sprint’s breach
of contract claim. Summary judgment in favor of Sprint is proper as to liability on
Count I for breach of contract.
5. Damages
“One who claims damages on account of a breach of contract must not only show
the injury sustained, but must also show with reasonable certainty the amount of
damage suffered as a result.” Venable v. Import Volkswagen, Inc., 519 P.2d 667, 674 (Kan.
1974). “The basic principle of contract damages is to make a party whole by putting it in
as good a position as the party would have been had the contract been performed.”
State ex rel. Stovall v. Reliance Ins. Co., 107 P.3d 1219, 1228 (Kan. 2005). Contract damages
are limited to those “which may fairly be considered as arising in the usual course of
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things, from the breach itself, or as may reasonably be assumed to have been within the
contemplation of both parties as the probable result of the breach.” Kansas State Bank v.
Overseas Motorsport, Inc., 563 P.2d 414, 415 (Kan. 1977). A party may recover as general
damages those that “are the natural, direct, and proximate result of the breach,” and as
consequential damages those that were foreseeable consequences of the breach at the
time of contracting. Spencer v. Agnew, 210 P. 485, 486 (Kan. 1922); accord MLK, Inc. v.
University of Kan., 940 P.2d 1158, 1164 (Kan. Ct. App. 1997); see also 24 WILLISTON

ON

CONTRACTS § 64:12 (4th ed. 1993 & Supp. 2014). Lost profits are recoverable as
consequential damages if they (1) were “contemplated at the time of contracting,” (2)
are the proximate result of the breach of contract, and (3) are “shown with a reasonable
degree of certainty.” MLK, 940 P.2d at 1164. “Damages claimed which were not the
proximate result of the breach of contract and those which are remote, contingent, and
speculative in character cannot serve to support a judgment.” Id. at 1165 (quoting
Apperson v. Security State Bank, 528 P.2d 1211 (Kan. 1974)). Contract damages must not
result in a windfall for the plaintiff. Reliance Ins. Co., 107 P.3d at 1229.
Factual disputes exist as to causation and certainty of damages. Sprint claims the
sales caused $2,864.29 in damages – revenue it would have collected had Phones 1 and 2
remained on the Sprint network for the duration of their contracts. Defendants argue
the sales did not cause damages because they did not sell the phones out of the Sprint
network, and the phones were activated on the network shortly after resale. Further, the
record does not indicate that defendants caused the new owners of Phones 1 and 2 to
terminate their service. These facts are material because Sprint must prove the damages
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were caused by the breach. The dispute is genuine because, in light of the evidence, a
reasonable jury could find that the damages alleged were not proximately caused by the
sale, but by the independent decisions of the phones’ new owners. It may also be
reasonably determined that the amount of damages sought is uncertain and speculative
because Sprint had no guarantee that the contracts would be fulfilled in light of the
existence of an ETF. Defendants also argue that Sprint suffered no damage because the
full 24-month service commitments originally associated with the purchase were
fulfilled. A reasonable jury could conclude from this fact that Sprint has already been
made whole for the breach and has thus suffered no damage.
Genuine disputes of material fact exist as to damages. Accordingly, Sprint is not
entitled to damages for breach of contract on summary judgment.
B. Tortious Interference with a Contract.
Sprint raises the claim of “Tortious Interference with a Contract” for the first time
on summary judgment. (Dkt. 141, at 14). Count III of the Complaint asserts “Tortious
Interference with Business Relationships and Prospective Advantage.” (Dkt. 1, at 14).
While related, Kansas law recognizes the two claims as distinct. See Turner v. Halliburton
Co., 722 P.2d 1106, 1115 (Kan. 1986). The Tenth Circuit has treated a new issue or claim
raised at summary judgment as a motion for leave to amend the pleadings. See Martinez
v. Potter, 347 F.3d 1208, 1211-12 (10th Cir. 2003); Evans v. McDonald’s Corp., 936 F.2d
1087, 1090-91 (10th Cir. 1991). The court does so here.
The Federal Rules of Civil Procedure set forth the procedure for amending a
pleading:
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A party may amend its pleading once as a matter of course within: (A) 21
days of serving it, or (B) if the pleading is one to which a responsive
pleading is required, 21 days after service of a responsive pleading or 21
days after service of a motion under Rule 12(b), (e), or (f), whichever is
earlier.
FED. R. CIV. P. 15(a)(1). After the 21 days, a party may amended the pleading “only with
the opposing party’s written consent or the court’s leave.” FED. R. CIV. P. 15(a)(2).
Courts should freely grant leave when justice so requires. Id.
The Supreme Court has determined that district courts should withhold leave to
amend only for reasons such as “undue delay, bad faith or dilatory motive on the part
of the movant, repeated failure to cure deficiencies by amendments previously allowed,
undue prejudice to the opposing party by virtue of allowance of the amendment, or
futility of the amendment.” Foman v. Davis, 371 U.S. 178, 182 (1962). Denial for undue
delay is appropriate “when the party filing the motion has no adequate explanation for
the delay” and the delay results in prejudice to the nonmoving party. Minter v. Prime
Equip. Co., 451 F.3d 1196, 1206 (10th Cir. 2006) (quotation omitted) (denying leave to
amend in a multi-year litigation where plaintiff learned of stipulations on which
amendment was based more than six months prior to seeking leave); accord Federal Ins.
Co. v. Gates Learjet Corp., 823 F.2d 383, 387 (10th Cir. 1987). Leave to amend should be
denied where the amendment raises new theories late in the litigation or plaintiff is
“using Rule 15 to make the complaint ‘a moving target.’” Zokari v. Gates, 561 F.3d 1076,
1086 (10th Cir. 2009) (quoting Viernow v. Euphrides Dev. Corp., 157 F.3d 785, 800 (10th
Cir. 1998)). Absent prejudice to the nonmoving party, “[i]f the underlying facts or

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circumstances relied upon by a plaintiff may be a proper subject of relief, he ought to be
afforded an opportunity to test his claim on the merits.” Foman, 371 U.S. at 182.
Here, there is no indication that Sprint has acted in bad faith or attempts to create
a “moving target” complaint. The original and proposed claims are related, and
discovery for both would overlap to some degree. However, this litigation is more than
two and a half years old, and discovery is now closed. Sprint offers no explanation for
the late change of Count III. Defendants have not conducted discovery with the
proposed claim in mind and will likely be prejudiced without further discovery. At this
late stage of litigation, the amendment creates a danger of disadvantaging defendants at
Sprint’s benefit. The implied request for leave to amend the complaint is denied.
Accordingly, Sprint’s motion for summary judgment on proposed Count III is DENIED
as moot.
IT IS ACCORDINGLY ORDERED this 9th day of December, 2014, that Sprint’s
Motion for Partial Summary Judgment (Dkt. 140) is GRANTED to the extent that
defendants are liable for breach of contract, and DENIED as to damages for breach of
contract and leave to amend the pleadings.
s/ J. Thomas Marten
J. THOMAS MARTEN, JUDGE

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