Reseller Sued by Sprint Nabs Favorable Rulings
ATLANTA (CN) - A CEO who invoked his Fifth Amendment rights during deposition for Sprint's lawsuit did not open the company up to sanctions, a federal judge ruled.
Sprint claims that Ace Wholesale, a mobile telephone reseller with stores in Michigan, Illinois and Georgia, bought large amounts of its phones and unlocked them for use on competing wireless networks.
The alleged "bulk handset trafficking scheme" has allegedly cost Sprint millions of dollars because it makes profits only from subscriptions to its wireless network, not from the sales of the phones, which Ace had sold under Sprint's brand names.
Federal officers raided Ace's Troy, Mich., headquarters in August 2012, seized its property, and began a criminal investigation into Ace's business practices.
Sprint's attorney, Gail Podolsky with Carlton Fields Jorden Burt, called Ace "one of the biggest traffickers we have come across."
"We were happy to see the government shut them down," Podolsky said in an interview.
Podolsky, who works in the firm's Atlanta office, and James Baldinger, a Florida-based attorney with Carlton Fields, said Sprint has filed 42 similar lawsuits against 152 defendants, collecting $92.4 million in judgments.
"This is one of hundreds of cases that our firm has filed on behalf of wireless providers, asserting similar claims," Podolsky said. "It is part of a concerted effort that Sprint has undertaken to stop phone trafficking, a massive problem leading to street crime."
A Huffington Post article on the raid described allegations by police that Ace was a key broker in the underground trade of stolen phones, connecting street thieves in American cities and buyers as far away as Hong Kong and Peru.
U.S. Magistrate Judge Gerrilyn Brill refused to sanction Ace on Friday, finding it had cooperated with Sprint's request for deposition.
Ace President Jason Floarea had appeared for Sprint's deposition, but refused to testify, invoking his Fifth Amendment privileges against self-incrimination, according to Brill's final report.
Ace had been late in responding to Sprint's interrogatories and producing some documents, but it should not be sanctioned based on its president's refusal to testify or its inability to find another qualified witness, Brill concluded.
Fernando Bobadilla, a Florida attorney for the defendants, applauded denial of the "baseless" motion.
Though Sprint sued Ace and several of its employees in Atlanta, three Ace workers who never lived in Georgia said the claims against them should be dismissed for lack of minimum contacts with the state.
Dominick Lanore and Jose Genel managed Ace's stores in Taylor, Mich., and Chicago, respectively, while Eric Mandreger was a former sales department manager at Ace's headquarters.
The Taylor and Chicago managers had never even visited the Atlanta location, but Mandreger had spent four days there in 2011, helping another Ace manager set it up . He argued however that he had not bought or sold any phones and had no contact with customers during his stay in Georgia.
As for Lanore and Genel, their only contact with Georgia had been in the form of periodic conference calls that involved Atlanta employees and Craigslist ads that Georgia web users could access online.
Sprint argued that Genel had sent "two large packages" to the Atlanta store, but Genel claimed he had no role in shipping those packages, and that other employees at the Troy office had pre-printed the FedEx labels with his name, without his knowledge.
U.S. District Judge Julie Carnes found that Lanore and Genel's contacts with Georgia were random and only distantly related to Sprint's causes of action, and thus did not support jurisdiction over them.
Even if Genel had shipped the two packages to Atlanta himself, there is no evidence that the mailing had any connection to Sprint's claims, the Feb. 21 opinion states.
Sprint also failed to prove that Mandreger's work assignment in Atlanta, which fell outside of his normal duties, was related to the alleged scheme, the judge found.
"Even if defendants Mandreger, Lanore and Genel have caused injuries in Georgia by their out-of-state tortious acts, the facts do not indicate that any of the three does regular business in Georgia, engages in any persistent course of conduct in Georgia, or derives substantial revenue from goods used or services rendered in Georgia," Carnes wrote. "The occasional conference calls involving Lanore and Genel, Mandreger's visit, and Genel's mailings are all too episodic and isolated to be regular business or a persistent course of conduct."
There is no evidence that the three participated in any agreement to carry out the alleged scheme in Georgia, according to the ruling.
And since Sprint could not prove minimum contacts with the state, it would be unfair to drag the out-of-state defendants into a Georgia court, the judge concluded.
Bobadilla, the defense attorney, also applauded the rulings favoring Mandreger, Lanore and Genel.
"My remaining clients will continue to defend Sprint's baseless claims aggressively," Bobadilla added.
The attorney said he could not comment any further because of the pending criminal charges against Floarea.
Podolsky meanwhile said Sprint may file new lawsuits against the dismissed defendants in other jurisdictions.
"Sprint is committed to this effort to shut down phone trafficking," Podolsky said. "Ace was a huge player in this, and these three employees were instrumental in the scheme, so I don't think Sprint is going to let this go."