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House of Cell Phones, Inc. v. Sprint Solutions

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


April 23, 2008

HOUSE OF CELL PHONES, INC., PLAINTIFF-RESPONDENT,
v.
SPRINT SOLUTIONS, INC., DEFENDANT-APPELLANT.

On appeal from the Superior Court of New Jersey, Law Division, Gloucester County, L-690-07.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Submitted February 14, 2008

Before Judges Wefing and R. B. Coleman.

Defendant Sprint Solutions, Inc. (Sprint) appeals from a July 9, 2007 order granting a temporary restraining order and preliminary injunction in favor of plaintiff House of Cell Phones, Inc. (HOCP). That order precluded the termination of the parties' Authorized Representative Agreement (AR Agreement) and required Sprint to continue performance thereunder until the matter is resolved in accordance with the dispute resolution exhibit attached to the AR Agreement or pending a final decision as to all issues. The order was subsequently modified by an order of this court dated July 27, 2007, that stayed the payment of residual commissions by Sprint pending the posting of a bond by HOCP. Having reviewed the record in light of the arguments advanced on appeal, we affirm the July 9, 2007 order as modified by our order of July 27, 2007.

On April 28, 2007, HOCP filed a verified complaint and an order to show cause in the Chancery Division, Gloucester County, seeking to enjoin Sprint from terminating the parties' AR Agreement. Sprint opposed HOCP's application and on June 18, 2007, oral arguments on the order to show cause were heard in the Law Division, resulting in the issuance of a July 9, 2007*fn1 order granting a preliminary injunction. More particularly, the order provided:

1. Sprint may not terminate Plaintiff for cause under the Authorized Representative Agreement executed on May 1, 2006 (the "Contract") for the reasons set forth in the April 9, 2007 termination letter (attached to the Verified Complaint as Exhibit G) unless and until Plaintiff's dispute regarding the propriety of that termination is resolved pursuant to the Dispute Resolution exhibit to the Contract;

2. The Parties are compelled to comply with the provisions of the Dispute Resolution exhibit to the Contract to address the propriety of the April 9, 2007 termination and the issues raised in the Verified Complaint;

3. During the course of the Dispute Resolution process, Sprint must continue doing business with House of Cell Phones pursuant to the provisions of the Contract (as that term is defined in the Verified Complaint) until a final decision is made as to all issues pursuant to this process.

4. Sprint's request for security pursuant to R. 4:52-4 is denied without prejudice. Sprint may seek security from the Arbitrators during the course of the Dispute Resolution process[.]

The order also denied Sprint's request for a hearing in opposition to the facts relied upon in plaintiff's application for the temporary restraining order.

Thereafter, by order dated July 20, 2007, the court denied Sprint's motion for a stay, after which Sprint moved before this court for an order granting emergent relief. Sprint requested a stay of the order that compelled it to continue doing business with HOCP while the parties complied with the provisions of the contractual dispute resolution exhibit to the contract. Alternatively, Sprint asked that HOCP be required to post a bond. We denied Sprint's motion in part and granted it in part.

By order dated July 27, 2007, we ordered that Sprint's payment of residual commissions to HOCP be stayed pending HOCP's posting of a bond "in an amount sufficient to cover the average monthly residual commissions for a six-month period[.]" The amount of the bond was to be determined by the trial court.

In the meantime, on July 17, 2007, Sprint filed its Notice of Appeal. Although the matter was and is clearly interlocutory, no motion was made by either party to dismiss and the court did not dismiss the appeal sua sponte. At this juncture, we decline to dismiss the appeal as premature because the matter has proceeded for so long as if properly filed. Instead, in the interest of prompt disposition, we hereby grant leave to appeal nunc pro tunc. Tradesoft Technologies, Inc. v. Franklin Mutual Ins. Co., 329 N.J. Super. 137, 141 (App. Div. 2000); Escalante v. Twp. of Cinnaminson, 283 N.J. Super. 244, 247 n.1 (App. Div. 1995).

The facts giving rise to this appeal are as follows. For a number of years, HOCP had been a Nextel Authorized Representative, offering cell phone services, repairing cell phones and distributing cell phone equipment. In September 2005, Nextel merged with Sprint, and in May 2006, Sprint presented its AR Agreement to all of Nextel's previously authorized representatives. The AR Agreement reached between HOCP and Sprint gave HOCP the right to solicit customers for Sprint services and to sell products related to those services. It further provided that HOCP would exclusively sell, market and promote Sprint products and services.

Eventually, by a letter dated January 29, 2007, Sprint's Acting Vice President informed HOCP of the following:

It has come to our attention that now that the initial ramp period*fn2 has expired as described in Exhibit D . . . of the AR Agreement, a review of [HOCP's] sales data indicate that [HOCP's] performance is trending below the required level.

Sprint will continue to review [HOCP's] progress toward the goals established in Exhibit D. However, improvement must be shown immediately. Please be advised that pursuant to Section 13.3(C) of the AR Agreement, failure to maintain minimum performance requirements for six consecutive calendar months on a rolling average basis or for any 3 calendar quarters during the term of the AR Agreement constitutes grounds for termination of the AR Agreement for cause.

HOCP asserts that it contacted Sprint upon receipt of the letter and that Sprint stated that "everyone" received a similar letter. HOCP claims that Sprint did not contact it to discuss a strategy for improvement. Yet, in a subsequent letter dated April 9, 2007, Sprint notified HOCP that it was terminating the AR Agreement for cause pursuant to Section 13.3(C):

This letter constitutes Sprint's written notice of immediate termination for cause pursuant to Section 13.3(C) of the AR Agreement. Specifically, [HOCP] has failed to meet the minimum performance requirements set forth in Exhibit D of the AR Agreement. Therefore, the AR Agreement is immediately terminated and no longer in full force and effect as of . . . the date of this letter. All compensation, including CSAs stops as of the date of this letter pursuant to Section 14.1 of the AR Agreement. AR will receive a final payment for any unpaid activation commissions and CSAs earned by AR up to the date of termination . . . .

According to the terms of the AR Agreement, [HOCP] must immediately stop identifying itself as an authorized representative of Sprint, including removing all signs and replacing all business cards. [HOCP] must also immediately stop all sales activity on Sprint's behalf. In addition, [HOCP] must return to Sprint without keeping copies all Sprint Customers Records . . . .

In its complaint to forestall termination, HOCP contended that Sprint did not comply with the dispute resolution process set forth in Exhibit G of the AR Agreement. That exhibit, entitled "Dispute Resolution," provides in part that "All disputes under this Agreement are subject to the following dispute resolution process," which contemplates negotiation, mediation and arbitration. Further, Section 18.3 of the AR Agreement defines "Dispute" to include: "all controversies, disputes or claims of every kind and nature arising out of or in connection with the . . . validity, interpretation, performance, enforcement, operation, breach, continuance or termination of this Agreement." HOCP also argued that the harm it would suffer as a result of the declared termination was irreparable because: (1) at the time it filed the Verified Complaint, Sprint owed HOCP approximately $100,000 in commissions and fees; (2) immediate termination would put HOCP out of business because it only sold Sprint services and products; and (3) termination of the AR Agreement would prevent HOCP from paying its employees and subcontractors.

Conversely, Sprint maintained that it had a contractual right, which is beyond dispute, to terminate for cause and that HOCP never provided written notice of its intent to initiate the dispute resolution process.

After the trial court entertained extensive oral argument; it concluded that a termination of the AR Agreement constituted a "dispute" and that all disputes must be resolved in accordance with the dispute resolution process of the AR Agreement. Thus, without conducting a hearing, the court announced "I'm going to hold the parties to what they agreed to. I am going to require them to abide by the three-step process." The court emphasized that it was not making a decision on the merits of the termination issue, but it nevertheless made the following explanatory observation:

I do believe that whenever you take anyone's money away immediately -- I do not understand how one could argue that there would not be some immediate harm for anyone. If you take away the source of income to argue that it would not harm them and affect the business, and maybe be -- ultimately lead to its demise, I do not understand that argument.

Therefore, I am going to order that the contract remain what I call status quo, because I know there was a period of negotiation going on. I hear there have been payments still being made. I am going to hold both parties to the status quo contractual agreement between the parties pending the three-step process to determine if the termination was completed in accordance with the terms of the contract.

And that is where plaintiff's arguments -- she can freely make all those arguments during that three-step process. But I think it's premature at this point. I am not going to consider that.

So I believe that the plaintiff has proven to the Court's satisfaction that this company may suffer immediate and irreparable harm.

And, therefore, I am going to grant the preliminary injunction enjoining the defendant from terminating the contract.

Accordingly, Sprint was required to continue doing business with HOCP during the dispute resolution process until a final decision was made as to all issues. By virtue of this court's order, that requirement was modified and Sprint's obligation to pay residual commissions was conditioned on HOPC's posting of a bond in an amount sufficient to cover the average monthly residual commissions for six months.

On appeal, Sprint presents the following arguments:

THE TRIAL COURT ABUSED ITS DISCRETION AND ERRED AS A MATTER OF LAW BY RE-WRITING THE CONTRACT BETWEEN THE PARTIES THROUGH THE GRANT OF AN INJUNCTION THAT CONTAINED TERMS THAT WERE IN DIRECT CONTRAVENTION OF THE EXPRESS PROVISIONS OF THE AR AGREEMENT.

A. THE COURT ABUSED ITS DISCRETION WHEN IT ENTERED AN INJUNCTION IN FAVOR OF PLAINTIFF WHEN THE PLAINTIFF FAILED TO DEMONSTRATE A REASONABLE PROBABILITY OF SUCCESS ON THE MERITS.

B. THE COURT EXCEEDED ITS JUDICIAL AUTHORITY WHEN IT RE-WROTE THE AR AGREEMENT TO RELIEVE PLAINTIFF OF THE CONSEQUENCES OF THE CONTRACT IT ENTERED INTO WITH SPRINT.

C. THE COURT ERRED AS A MATTER OF LAW WHEN IT FOUND THAT IRREPARABLE HARM IS PRESENT SINCE THERE WERE NO FACTS BEFORE THE COURT THAT DEMONSTRATED THAT PLAINTIFF COULD NOT BE ADEQUATELY COMPENSATED BY MONETARY DAMAGES.

"An appellate court applies an abuse of discretion standard in reviewing a trial court's decision to grant or deny a preliminary injunction." Rinaldo v. RLR Inv., LLC, 387 N.J. Super. 387, 395 (App. Div. 2006). The trial court must consider the following factors when determining whether to grant a preliminary injunction: "(1) whether an injunction is 'necessary to prevent irreparable harm'; (2) whether 'the legal right underlying [the applicant's] claim is unsettled'; (3) whether the applicant has made 'a preliminary showing of a reasonable probability of ultimate success on the merits'; and (4) 'the relative hardship to the parties in granting or denying [injunctive] relief.'" Id. at 395 (quoting Crowe v. De Gioia, 90 N.J. 126, 132-34 (1982)).

In the present case, the trial court found that certain terms of the AR Agreement were "confusing or ambiguous," and contradictory in that the parties were to resolve all disputes, including disputes regarding termination, by resort to the dispute resolution process; however, at the same time, Sprint could terminate immediately for cause in the event of HOCP's failure to meet the minimum performance requirements. The court considered that, upon such a termination, all money would cease and "perhaps at some point down the road, it may well be that there was not justification for Sprint taking the termination step. And yet then the plaintiff is left with that loss of income for that period of time[,]" and more seriously with the very loss of its business. Thus, the court's objective was to maintain the viability of the contract while the dispute was resolved in the manner prescribed by the AR Agreement. From the trial court's perspective, that was a valid, fair and equitable result since the parties "[could] not say they're surprised at this action. I think it was anticipated when you purely look at the word 'dispute.'"

We note that at the commencement of the proceeding on the return date of the order to show cause, both counsel acknowledged that disputes concerning termination were subject to the dispute resolution process of the AR Agreement. They contended, however, that such dispute resolution should proceed under different conditions. More specifically, HOCP was willing to resort to the three-step process "as long as we can continue selling Sprint cell phones and continue getting paid during that resolution process." HOCP argued that it would be harmed irreparably if it were terminated immediately, with no sales and repair and no money coming in. HOCP further argued that even if it won, it could still be out of business. By contrast, Sprint indicated it was prepared to go forward with negotiation, mediation and arbitration so long as its termination was immediately effective and there was no injunction. Alternatively, Sprint requested that a bond be posted for security for the return of money it might pay under the AR Agreement in the event that HOCP should not succeed on the merits of its challenge to the termination for cause.

The trial court agreed with HOCP that it was the goal of the parties, as reflected in the AR Agreement, "that those three steps should take place first." At one point, the court remarked, "the only way that we can determine whether or not [the termination] is valid is to put it through that three-step process, which I believe does, in fact, protect everyone." In that context, the court concluded that HOCP had proven to the court's satisfaction that HOCP would suffer immediate and irreparable harm without a preliminary injunction.

Although the trial court refused to require HOCP to post a bond, that requirement was imposed by this court. With that modification, we are satisfied that the trial court's discretion was properly exercised to balance and to preserve the rights in controversy pending completion of the dispute resolution process contemplated by the parties' agreement. The propriety of that determination is reinforced by Chancellor Egan's persuasively articulated principles in the court's opinion in Russell v. Russell, 127 N.J. Eq. 555, 562-64 (Ch. 1940), which in turn quotes extensively from Harriman v. N. Sec. Co., 132 F. 464, 475 (C.C.D.N.J. 1904), rev'd on other grounds, 134 F. 331 (3d Cir. 1905), as follows:

The granting or refusal of a preliminary injunction whether mandatory or preventive, calls for the exercise of a sound judicial discretion in view of all the circumstances of the particular case. Regard should be had to the nature of the controversy, the object for which the injunction is sought, and the comparative hardship or convenience to the respective parties involved in the awarding or denial of the injunction. The legitimate object of a preliminary injunction, preventive in its nature, is the preservation of the property or rights in controversy until the decision of the case on a full and final hearing upon the merits, or the dismissal of the bill for want of jurisdiction or other sufficient cause. The injunction is merely provisional. It does not, in a legal sense, finally conclude the rights of parties, whatever may be its practical operation under exceptional circumstances. In a doubtful case, where the granting of the injunction would, on the assumption that the defendant ultimately will prevail, cause greater detriment to him than would, on the contrary assumption, be suffered by the complainant through its refusal, the injunction usually should be denied. But where, in a doubtful case, the denial of the injunction would, on the assumption that the complainant ultimately will prevail, result in greater detriment to him than would, on the contrary assumption, be sustained by the defendant through its allowance, the injunction usually should be granted. The balance of convenience or hardship ordinarily is a factor of controlling importance in cases of substantial doubt existing at the time of granting or refusing the preliminary injunction. Such doubt may relate either to the facts or to the law of the case, or to both. It may equally attach to, or widely vary in degree as between, the showing of the complainant and that of the defendant, without necessarily being determinative of the propriety of allowing or denying the injunction. Where, for instance, the effect of the injunction would be disastrous to an established and legitimate business through its destruction or interruption in whole or in part, strong and convincing proof of right on the part of the complainant and of the urgency of his case is necessary to justify an exercise of the injunctive power.

Where, however, the sole object for which an injunction is sought, is the preservation of a fund in controversy, or the maintenance of the status quo, until the question of right between the parties can be decided on final hearing, the injunction properly may be allowed, although there may be serious doubt of the ultimate success of the complainant.

Its allowance in the latter case is a provisional measure, of suspensive effect and in aid of such relief, if any, as may finally be decreed to the complainant.

We find that reasoning persuasive when applied to the facts and circumstances of this case. Therefore, we affirm the July 9, 2007 order of the trial court as modified by this court's order dated July 27, 2007. As the matter is interlocutory, it is remanded to the Law Division. We do not retain jurisdiction.

Affirmed.


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