United States District Court, D. Idaho
CLEAR WIRELESS, LLC, an Arizona limited liability company, Plaintiff,
MOUNTAIN STATE CELLULAR, INC. an Idaho corporation; and GO WIRELESS, INC., a Nevada corporation, Defendants.
MEMORANDUM DECISION AND ORDER RE: DEFENDANTS'
MOTION FOR SUMMARY JUDGMENT (DKT. 21); AND PLAINTIFF'S
MOTION FOR PARTIAL SUMMARY JUDGMENT (DKT. 22)
Honorable Candy W. Dale United States Magistrate Judge.
before the Court are two competing motions, both seeking
summary judgment on claims raised in the Complaint. (Dkt. 21,
22.) The Court heard oral argument from the parties on April
11, 2017. After review of the record, consideration of the
parties' arguments and relevant legal authorities, and
otherwise being fully advised, the Court issues the following
memorandum decision and order granting in part and denying in
part both motions.
Clear Wireless, LLC (“Clear”), and Defendant
Mountain State Cellular, Inc. (“Mountain State”),
 were sales
agents of Verizon Wireless (“Verizon”). Both
entities operated several brick and mortar locations selling
Verizon phones and service plans. In early November of 2014,
Nicasio Jones, owner of Clear, contacted Mountain State's
sole shareholder, Mark Urness, regarding the potential sale
of Clear to Mountain State. On November 18, 2014, Jones and
Urness executed an Asset Purchase Agreement
(“APA”) for Mountain State's purchase of
Clear. (Dkt. 21-7 at 9.)
the entities' status as Verizon agents, they needed
Verizon's approval of the sale. Accordingly, they
included the following provision within the APA:
4.4.2 Verizon Wireless. Verizon Wireless shall have
approved in writing and consented to the asset purchase and
sale transaction subject to this Agreement, and shall have
acknowledged its intent and consent to continue conducting
business with the Buyer and the Business.
APA, § 4.4.2 (Dkt. 21-7 at 7). On December 5, 2014,
Verizon approved the APA by executing the Verizon Agreements
Amendment (“VAA”). (Dkt. 21-7 at 47.) The VAA amended both
Mountain State's and Clear's independent agent
agreements with Verizon. In addition, pursuant to the
provisions in the VAA, Mountain State assumed specific rights
and obligations from Clear.
crux of this litigation relates to two alleged instances of
breach of contract by Mountain State regarding the terms of
the APA and VAA. To better understand the parties'
arguments, the Court will outline briefly the parties'
agency relationships with Verizon and the pertinent
provisions of the VAA and APA.
Agent Relationship with Verizon
agents purchase handset devices (i.e., cell phones and
tablets) directly through Verizon and the costs of those
devices are charged to the agent's individual Equipment
Dymax Account, a system of accounting used by Verizon that
allows its agents to order handset devices on credit. Dec.
Urness, p. 57, ll 15-19 (Dkt. 26-2 at 67). Each agent has a
maximum credit allowance with Verizon and, depending on what
the agent orders during a given month, the agent must make
monthly payments toward its Dymax Account balance.
Id. at p. 58, ll 2-4. “Iconic Devices”
are devices a Verizon agent does not have in stock and has to
order for its customer, for example, newly released Apple or
Samsung devices. (Dkt. 21-4 at 8). Iconic devices, like any
other handset device, are ordered through the agent's
Dymax Account. (Dkt. 21-4 at 6.)
agent sells a handset device and Verizon service plan to a
customer, the customer pays the agent for the device and will
pay Verizon for the service plan. If a customer finances the
purchase of the device, Verizon buys the financing plan from
central aspect to the agency relationship with Verizon is how
Verizon pays its agents for the sale of handset devices and
service plans. The commissions for these transactions are
paid by Verizon to its agents approximately one month after
activation of the service plan and consists of two
components: (1) reimbursement for the expense of the handset
device; and (2) the true commission for the sale of the
Pursuant to the agent's agreement with Verizon, to retain
the commission Verizon pays on a new customer account with
Verizon, the customer's account must remain active and
payments current for a period of time, generally 180 days. If
a customer cancels his or her service plan or fails to pay
Verizon, Verizon will chargeback the full commission against
the sales agent.
provides also financial incentives to its sales agents to
open new stores through a program called Market Development
Funds (“MDFs”). This program works as follows.
Verizon identifies a location where they want to open a store
and reaches out to an agent who is interested in opening a
new location. (Dkt. 26-2 at 10.) To entice the agent into
opening the new store, Verizon offers the agent money, MDFs,
to use to promote the new store. The amount of MDFs paid by
Verizon to its agent is based upon what Verizon anticipates
the store's annual sales will be. If the new store
location does not meet defined sales goals during its
start-up period (usually 18 months), Verizon will chargeback
a prorated portion of the MDFs it paid to the agent.
Verizon Agreements Amendment
provided its written approval and consent to the APA by
executing the VAA on December 5, 2014. (Dkt. 21-7 at 47.)
Essentially, the VAA is one document that amends two
independent agent agreements: (1) the Verizon agent agreement
between Verizon and Mountain State; and (2) the Verizon agent
agreement between Verizon and Clear. The intent of the parties is
expressed in the VAA as follows:
(i) transfer the Clear Locations as approved Locations to
[Mountain State]; (ii) assign the Clear Customer Base and
Clear [Customer Base Account Maintenance Fees (“CB
AMF”)] to [Mountain State]; (iii) retain responsibility
for the Clear Dymax Debt payment obligations to [Verizon];
(iv) and transfer of Clear's [Marked Development Fund
(“MDF”)] risk to [Mountain State]; and (v)
terminate the Clear Agreement as of midnight of the day prior
to the Amendment Effective Date ….
VAA, Recitals (Dkt. 21-7 at 48).
to the terms of the VAA, Mountain State assumed specific
rights and obligations from Clear, including liabilities for
chargebacks for customer deactivations and cancellations and
MDFs. Specifically, regarding customer deactivations and
cancellations, the VAA provides:
[Mountain State] and Clear hereby agree, acknowledge, confirm
and ratify that the rights and obligations with regard to the
Clear Customer Base and the Clear CB AMF are assigned by
Clear to [Mountain State] and are assumed from Clear by
[Mountain State], effective as of the Amendment Effective
Date, including but not limited to all Chargebacks and other
offsets applicable to the Clear CB AMF paid or payable on the
Clear Customer Base assigned and assumed hereunder, [Verizon]
hereby consents to such assignment and assumption and, unless
expressly stated herein, releases Clear from its obligations
under the Clear Agreement for the Clear Customer Base. All
terms and conditions of the [Mountain State] Agreement will
apply to the Clear Customer Base, including without
limitation (i) the payment of AMF thereon at the rate set
forth in Section D.3., below, and (ii) the customer service
obligations set forth therein. …
VAA, § D (Dkt. 21-7 at 50). Regarding transfer of
Clear's MDF risk, the VAA provides:
Transfer of Clear MDF Risk to [Mountain State].
1. For the four (4) Clear Locations identified below,
[Verizon] previously paid to Clear MDF in the amount of $35,
000 for each Location. [Mountain State] agrees to accept
potential deduction/ recoupment risks of these MDF monies, as
follows. [Mountain State] agrees that in order to avoid a
deduction/recoupment of all or a portion of the $35, 000 for
each Clear Location, it assumes the obligation that Clear
undertook to achieve or exceed sales of 1, 800 Gross
Activations … during a defined 18-month Period
2. If [Mountain State] does not achieve the above Minimum
Attainment Level at one or more of the above Clear Locations,
then any deduction/recoupment of monies for each Clear
Location shall be done pursuant to the MDF terms and
conditions in Exhibit B of the [Mountain State] Agent
VAA, § E (Dkt. 21-7 at 50).
result of the VAA, Clear's agent agreement with Verizon
was terminated as of December 5, 2014. Essentially, the above
VAA provisions permitted Verizon to apply chargebacks for
customer deactivations and MDFs that originated from
Clear's business against Mountain State's commission
account. With regard to Clear's Dymax Account balance,
Clear agreed to “zero-out” its account prior to
the termination of its agent agreement with Verizon, which it
did on November 28, 2014.
to the VAA, Verizon applied chargebacks against Mountain
State commissions in the amount of $55, 553.47, for customer
deactivations or cancellations of service plans that
originated from Clear stores prior to closing. Specifically, these
customers had activated their accounts through Clear prior to
closing on December 1, 2014, and Clear was paid a commission
on these activations. These deactivations and cancelations
occurred and were applied by Verizon for the six months of
December 2014 through May 2015. In addition, after closing,
Verizon applied two chargebacks against Mountain State
related to MDFs accepted by two of Clear's locations in
the amounts of $17, 500.00 and $4, 919.00. The total amount
of Verizon chargebacks for customer deactivations and
cancellations and MDFs was $77, 972.47.
Asset Purchase Agreement
December 1, 2014, Clear and Mountain State closed on Mountain
State's purchase of Clear's business. Both Clear and
Mountain State agree the APA is a valid and enforceable
to the APA, Mountain State agreed to purchase Clear for $2,
500, 00.00, plus the value of new and marketable inventory.
The parties agreed Mountain State would structure its
payments to Clear pursuant to the following schedule:
Prepayment on November 28, 2014
Due at closing, December 1, 2014 (less inventory)
$1, 500, 000.00
*Due June 1, 2015
*Due December 1, 2015
*Mountain State Cellular, Inc. corporately
guarantees all remaining amounts due. A 5% annual
interest rate on funds not paid at closing….
APA, Schedule 1.1 (Dkt. 21-7 at 29).
State paid $1, 500, 000.00 to Clear on or before the December
1, 2014 closing date. (Dkt. 21-8.) Mountain State made an
inventory payment to Clear on December 3, 2014, in the amount
of $396, 000.00. (Id.) On June 1, 2015, Mountain
State paid Clear $394, 832.32. (Dkt. 21-8 at 6, 19.) The June
1, 2015 payment consisted of the scheduled payment due of
$500, 000.00 plus interest of $24, 931.51 and less: $74,
Verizon chargebacks and $55, 863.22 for inventory
“true-up, ” which included credit for iconic
device gross profit.
issues in dispute relate to whether Mountain State was
permitted, pursuant to the APA, to offset chargebacks from
its June 1, 2015 payment to Clear and whether Mountain State
was permitted to set-off from the same payment its inventory
reconciliation. The parties dispute also whether the June
1, 2015 payment included full payment for iconic devices.
Verizon Wireless Chargebacks
expressly identifies “Customer Returns” and
“Verizon Wireless Chargebacks” as
“Seller's Retained Liabilities.” APA, §
2.12 (Dkt. 21-7 at 12). With respect to “Customer
Returns” the APA provides:
2.12.4 Customer Returns. All of Seller's
Customer's returned goods and services including, without
limitation, cellular telephone units, cellular telephone
service contracts cancellations, and related cellular
telephone merchandise, goods, accessories and equipment
arising out of or in connection with Seller's ownership,
possession, operation and management of the Business prior to
through closing-; and as more particularly provided in
paragraph 2.12.7 below, Seller shall be liable for one
hundred percent (100%) of all Verizon Wireless chargeback
costs and risk incurred by seller and arising out of or in
connection with Seller's ownership, possession, operation
and management of the Business prior to and through closing.
(Id. at 13.) With regard to “Verizon Wireless
Chargebacks, ” the APA provides:
2.12.7 Verizon Wireless Chargebacks. Seller shall be
liable for one hundred percent (100%) of all Verizon Wireless
chargeback costs and risk incurred by Seller and arising out
of or in connection with Seller's ownership, possession,
operation and management of the Business prior to and through
closing date -. All chargeback costs shall be documented and
invoiced from Buyer to Seller and paid by Seller, at the rate
of one hundred percent (100%), to Buyer within ten (10)
business days of Seller's receipt of such invoice. Buyer
shall be entitled to offset the amount of any invoice for
Verizon Wireless chargeback costs not paid by Seller within
ten (10) days against payment of the Purchase Price.
to the APA, Mountain State agreed to purchase Clear's
new, current, and marketable Verizon phone units and
accessory inventory as of the December 1, 2014 closing date.
Specifically, “Article 2 Transfer of Assets” of
the APA provides:
2.4 Inventory. Buyer will purchase from Seller at
pricing commensurate with-current Indirect Pricing, all new,
current and marketable Verizon Wireless cellular telephone
units, merchandise, goods, equipment & accessories for
future sale, in the ordinary course of business - on the
closing date of December 1, 2014 or earlier.
APA, § 2.4 (Dkt. 21-7 at 11). Pursuant to the APA,
“Inventory” did not include certain
“Obsolete Inventory; Returned and Warranty
2.12.8 Obsolete Inventory; Returned and Warranty
Items. All obsolete, defective or returned inventory
owned by Seller prior to closing date shall be identified and
separated from current marketable inventory….
APA, § 2.12.8 (Dkt. 21-7 at 14).
3-Purchase Price and Additional Consideration” of the
APA set forth a process for valuing Clear's current and
3.2 Inventory. Subject to the provisions of
paragraphs 2.12.6 and 1.12.7 above, all phone & accessory
inventory will be deemed marketable & appropriate by
buyer & shall be preliminarily valued cooperatively
between Buyer and Seller within 3 business days prior to
closing. After closing and within 3 business days thereafter,
Buyer will pay Seller for all inventory, separate from
purchase price above.
APA, § 3.2 (Dkt. 21-7 at 14). In addition, the APA
included a representation and warranty from Clear to Mountain
12.1.16 All Due Diligence Materials and other data and
information regarding the Business provided by Seller and
disclosed to Buyer shall be and is certified and confirmed by
Seller to be true, accurate and correct, without exception,
as of the Effective Date and as of the Closing Date.
APA, § 12.1.16 (Dkt. 21-7 at 22).
Schedule 1.1 of the APA, under the headline “Inventory