S.D. Texas Compels Wireless Telephone Franchise Dispute to Arbitration

The Southern District of Texas has compelled a contract dispute over the operation of a number of wireless telephone stores to arbitration.  In Rouf v. Cricket Communications, Inc., No. H-13-2778 (S.D. Texas – Houston Division, November 19, 2013), Pervez Rouf, in his capacity as President of PNK Wireless Communications (“PNK”),  signed a Premier Dealer Agreement (“Agreement”) with Cricket Communications to sell the company’s products from several store locations in Houston and San Antonio.  Last August, Cricket notified PNK that it was terminating the Agreement due to PNK’s purported breach of the contract’s terms.  The following month, Rouf filed an anticipatory breach of contract lawsuit against Cricket in a Texas state court.  PNK also sought an injunction from the court to prevent Cricket from denying the company access to specific computer programs required in order to operate a Cricket franchise.  Cricket promptly removed the case to federal court based on diversity of citizenship and filed a motion to compel arbitration pursuant to the parties’ Agreement.

After Cricket sought arbitration, Rouf filed an amended complaint that listed two Texas residents as co-defendants.  According to Rouf, the two men induced Cricket to terminate its agreement with PNK.  Rouf also asked the court to remand the case back to state court for lack of diversity.  After stating that diversity of citizenship is determined at the time a case is filed and Rouf may not amend his complaint in a clear effort to destroy diversity, the Southern District of Texas reviewed Rouf’s challenges to Cricket’s motion to compel arbitration.

First, the federal court addressed whether a valid agreement to arbitrate existed between the parties.  Because the agreement stated it was subject to Tennessee law, the court said,

In Tennessee, there is a presumption “in favor of the validity and regularity of a written instrument, and the person asserting its invalidity has the burden of proving his allegations by clear and satisfactory evidence.” Estate of Acuff v. O’Linger, 56 S.W.3d 527, 531 (Tenn. Ct. App. 2001).

Next, the Southern District of Texas addressed Rouf’s allegation that the Agreement was an unconscionable contract of adhesion.  According to the court,

Plaintiff Pervez Rouf (“Rouf”), on behalf of PNK, has not shown that he was in a weaker bargaining position or that he did not have a meaningful choice as to whether to enter into the Agreement. Rouf owns and operates several business entities. Dkt. 1, Ex. A. Specifically, under this Agreement alone, Rouf appears to be a competent business man involved in the operation of 12 wireless phone store locations in Houston and San Antonio. Id. He voluntarily entered into this Agreement with Cricket as a dealer of Cricket’s products and services and has been operating under the terms of this Agreement since 2011. Id. Rouf was not required to enter into this transaction on a take-it-or-leave-it basis. There is no evidence that this was not anything more than an arms-length business negotiation between two business parties for the operation of 12 commercial retail stores.

The court also dismissed Rouf’s argument that the agreement was unfair because he is not a native English speaker nor is he an attorney by stating,

…Rouf’s business experience belies any argument he was unable to read or understand the arbitration provision in the Agreement. The arbitration provision is clearly labeled and underlined. Dkt. 15 at ¶ 11(h). Rouf is not illiterate and does not need to be an attorney to understand the arbitration provision.

After that, the federal court addressed Rouf’s claim that there was inadequate consideration for the arbitration provision by stating that Tennessee law considers mutuality of promises sufficient consideration for a contract.  The court also disagreed with Rouf’s claim that there was no meeting of the minds with regard to the arbitral agreement,

If a person “fails to read the contract or otherwise learn its contents, he signs the same at his peril and is estopped to deny his obligations, will be conclusively presumed to know the contents of the contract, and must suffer the consequences of his own negligence.” Giles v. Allstate Ins. Co., Inc., 871 S.W.2d 154, 156 (Tenn. Ct. App. 1993). Plaintiffs cannot now claim they lacked awareness or understanding of the arbitration provision in an attempt to avoid the consequences of the terms of the Agreement.

Finally, the Southern District of Texas dismissed Rouf’s argument that his claims did not fall within the scope of the parties’ agreement to arbitrate.   According to the court,

The arbitration provision, however, is clear. It states that “all disputes arising out of this Agreement shall be” decided by arbitration, “[e]xcept with respect to a breach of the obligations of confidentiality, collection matters, non-competition, use of Marks and actions detrimental to the business of Cricket, as to which Cricket shall have the right to seek injunctive remedy or other equitable remedies it deems reasonable and appropriate.” Dkt. 15 at ¶ 11(h) (emphasis added). As reflected in the original complaint, plaintiffs’ claims for anticipatory breach of contract and promissory estoppel stem entirely from Cricket’s termination of the Agreement. Rouf maintains he has “performed his obligations under the contract” and “[d]efendant’s nonperformance is a breach of the parties’ contract.” Dkt. 1, Ex. A at 3. The claims strictly fall within the purview of the arbitration clause and not within any of its exceptions. While the court has no doubt that plaintiffs’ claims fall within the arbitration provision, the court must resolve any doubts concerning the scope of arbitration in favor of arbitration. See 9 U.S.C. § 2; Mouton v. Metro. Life Ins. Co., 147 F.3d 453, 456 (5th Cir. 1998).

Because Rouf failed to demonstrate the arbitration agreement was invalid or that the parties’ dispute did not fall within its scope, the Southern District of Texas granted Cricket’s motion to compel arbitration.