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Entertainment USA, Inc. v. Moorehead Communications Inc.

United States District Court, N.D. Indiana, Fort Wayne Division

August 9, 2017

ENTERTAINMENT USA, INC., Plaintiff,
v.
MOOREHEAD COMMUNICATIONS, INC., Defendant.

          OPINION AND ORDER

          Robert L. Miller, Jr. Judge, United States District Court.

         This is a breach of contract action. Entertainment USA, Inc., which (along with related companies) used the trade name One Wireless World, seeks unpaid commissions it says One Wireless World earned by finding cell phone dealers for Moorehead Communications, Inc. The case went to trial without a jury in August 2016, and the parties should have gotten a decision long before today. The assigned judge underwent two major surgeries since the trial, which might help explain, but doesn't justify, the delay in ruling.

         There is a lot to this case. It involves an agreement drafted without the benefit of legal advice. It involves plaintiff One Wireless World, which was, when the agreement was adopted in January 2006, the largest cellular dealer in central Pennsylvania, but could no longer carry the Verizon product line. It involves defendant Moorehead Communications, Inc., which agreed to pay One Wireless World for referrals of stores that didn't want to go exclusively with the Sprint product line. The case requires resolution of whether that referral agreement was for a term of years or required payments as long as any referred store was producing sales; how the agreement applied to later referrals; what transactions at the referred stores produced an obligation to pay One Wireless World a fee; how the fees to One Wireless World were to be calculated; whether One Wireless World abandoned the agreement; and whether, as an equitable matter, One Wireless World is entitled to an accounting.

         This memorandum is meant to comply with the court's obligations under Fed.R.Civ.P. 52(a)(1).

         Entertainment USA is in incorporated in, and has its principal place of business in, Pennsylvania. Moorehead Communications is incorporated in, and has its principal place of business in, Indiana. Well over $75, 000 is in controversy. The court has jurisdiction under 28 U.S.C. § 1332(a)(1).

         The parties agree that Indiana law applies in this case. When addressing claims under a contract, a court applying Indiana law looks to the contract itself to discern the parties' intent, Citimortage, Inc. v. Barabas, 975 N.E.2d 805, 813 (Ind. 2012); Zukerman v. Montgomery, 945 N.E.2d 813, 819 (Ind.Ct.App. 2011), giving the contract's terms their clear and ordinary meaning. State Farm Mut. Auto Ins. Co. v. Cox, 873 N.E.2d 124, 127 (Ind.Ct.App. 2007).

         I. History

         One Wireless World is a fictitious name registered to Entertainment USA, Inc., the plaintiff in this case. One Wireless World was once the largest cellular telephone seller in central Pennsylvania. Chau Nguyen and his brother Chinh Nguyen were equal co-owners; Chinh Nguyen served as chief operating officer. One Wireless World had several dealers in several locations, selling contracts with a variety of cellular carriers: AT&T, Singular, T-Mobile, Verizon, Nextel Partners, and Nextel Communication. Things changed dramatically in 2006, when Sprint demanded exclusivity with all of its dealers, meaning that to sell for Sprint, a dealer could sell nothing but Sprint. Verizon soon followed suit.

         One Wireless World itself chose to go with Sprint, which meant it had to sever its relationships with One Wireless World dealers who chose to go with Verizon or to go in a different direction altogether. This left One Wireless World with several associations with business entities that were valueless to One Wireless World because those entities decided not to become exclusive Sprint dealers. At the same time this was happening, Moorehead Communications was trying to expand its cellular business into central Pennsylvania. One Wireless World and Moorehead Communications addressed their problems by entering into the January 2006 agreement that underlies the parties' dispute. The agreement recited its purpose this way: “The proposed referral fee is designed to compensate [One Wireless World] for locations handoffs and offset loss incurred from adding another carrier to their Branded Store's existing lineup.” One Wireless World's Chau Nguyen and Moorehead's Larry Myers negotiated the referral agreement.

         The agreement described Moorehead's offer as follows: “For all handoffs/referrals from OWW, dating back to Jan. 1, 2006 and any locations that are approved following that date as a direct result of an OWW referral, we will pay a referral bonus in the amount described below.” Those “locations” referred to locations with non-Sprint One Wireless World dealers that couldn't continue as One Wireless World stores after One Wireless World went exclusively with Sprint. One Wireless World would be paid if it referred a location to Moorehead, Verizon approved the location, and Moorehead signed up the location.

         Chau Nguyen gave Eric Schlesselman of Moorehead a list of One Wireless World dealers that didn't want to become exclusive Sprint dealers. That list - which One Wireless World calls the “term letter” and which Mr. Schlesselman denies receiving - consisted of these locations, which were named in the referral agreement:

• 800 Calvary Road, Suite 1, Carlisle
• 110 A West Chocolate Avenue, Hershey
• Strawberry Square, 3rd and Walnut St. (no city identified)
• 155 Furnace Hills Pike, Lilitz
• Chambersberg Mall, 3055 Block Gap Road
• 32 N. Market Street, Elizabethtown
• 400 Merkel Street, Lemoyne
• 5360 Lincoln Highway (no city identified)
• 3771 Carlisle Road, Dover
• 190 Leaders Heights Plaza.

         The referral agreement required Moorehead to pay a fee to One Wireless World for every activation. The parties no longer agree on how those fees were to be calculated. The referral agreement says this:

20$ per activation (New Activations Only) to assist with ramp up period which will remain in affect 6 months from the date this agreement is signed by both parties. After which, referral bonus will be adjusted to the appropriate tier. (See below).

         The agreement then set forth various bonus fees for 50-150 activations per month, for 151-250 activations per month, for 251-350, for 351-450, for 451-500, and for more than 500. Below those bonus fees is this: “there will be a flat fee of 10$ per 2 year upgrade in addition to items listed above.”

         Effective January 1, 2007, Chau Nguyen and Chinh Nguyen divided the remaining One Wireless World stores between them. Chau Nguyen bought out Chinh Nguyen's 50 percent interest in One Wireless World, and formed a new company called One Wireless World Consulting, Inc. Chinh Nguyen formed a new company called ChinhCo Inc. The brothers created two more new companies in 2007: Chinh Nguyen formed Wireless Advisors in May, and Chau Nguyen formed United Consulting in June. Neither of these new companies was associated with One Wireless World. Sprint terminated its relationship with One Wireless World in 2007, leaving One Wireless World with no agreements with any cell phone service provider. One Wireless World locations that had been selling Sprint products and service could continue to sell those products through someone approved by Sprint, but Sprint had disapproved One Wireless World. By January 15, 2008, One Wireless World wasn't operating any stores selling Sprint. No One Wireless World-branded stores remained.

         Chinh Nguyen emailed Moorehead in January 2008 to ask that future payments under the agreement be divided between his new company (Wireless Advisers) and Chau Nguyen's new company (United Consulting). Before providing that email in discovery, Chau Nguyen altered it to remove the names of the companies. In any event, under the terms of the email, Moorehead would send no more referral fees to One Wireless World. The trial record leaves unclear when Moorehead learned that One Wireless World had ceased to exist.

         Chinh Nguyen's role after the split is, at best, murky. He was to serve as an agent of One Wireless World and he testified that he worked as a consultant for One Wireless World. Chinh Nguyen's consulting agreement was between his company (ChinhCo) and Chau Nguyen's company (OWW Consulting). It called for payments of $50, 000 on June 1, $50, 000 on June 15, $25, 000 on July 1, $25, 000 on August 1, $35, 000 each of the first days of September, October, November, December and January, $75, 000 on February 1, then $45, 000 on each of the first days of March, April, May and June - a total of more than $800, 000. Whether One Wireless World ever actually paid Chinh Nguyen anything for work as an agent isn't clear from the trial record.

         Notwithstanding his role as a One Wireless World agent, Chinh Nguyen also tried in June 2007 to become (or for his wife to become) a Moorehead sub-dealer through a company called Wireless Advisors. Verizon demanded that Chinh Nguyen cut all ties with One Wireless World, and eventually refused to allow him to sell Verizon products. Chinh Nguyen also formed a business with Mike Kapp called “Mobile Pros, ” and tried to get a license to sell T-Mobile products.

         At some point after the brothers split, Chau Nguyen sold T-Mobile products through another company. In February, 2008, Chau Nguyen contacted Moorehead and proposed that Moorehead enter into a new referral agreement with his new company, United Consulting. Moorehead declined that proposal.

         Moorehead paid One Wireless World a total of $70, 979.50 in referral fees under the agreement. One Wireless World claims entitlement to another $2, 211, 752.50, plus upgrades for the claimed locations through May 2013, the last month for which it has information. Moorehead sent One Wireless World two payments after suit was filed. In May 2012, Moorehead sent $45, 770 (which included interest at 8 percent per annum) on the Elizabethtown store (which did business as “Etown”) for April 2008 through July 2011, when the store relocated. In September 2012, after another One Wireless World demand, Moorehead sent another $6, 503.24 for referral fees relative to the Elizabethtown store for the first quarter of 2008.

         II. The Issues Needing Resolution

         At the summary judgment stage, the court held that the agreement's use of the term “location” unambiguously limits the agreement to referrals of places, rather than people. Trial was needed to resolve these questions: (1) When (if ever) did the referral agreement terminate? (2) What locations were “referred” within the meaning of the referral agreement? (3) What is an “activation” warranting payment of a referral fee? (4) Did One Wireless World abandon the referral agreement? (5) What damages, if any, are due One Wireless World? (6) Is One Wireless World entitled to an accounting?

         A court construing a contract under Indiana law ordinarily is limited to the plain language within the four corners of the contract. John M. Abbott, LLC v. Lake City Bank, 14 N.E.3d 53, 56 (Ind.Ct.App. 2014). Construction of an unambiguous contract is a matter of law. TW Gen. Contracting Servs., Inc. v. First Farmers Bank & Trust, 904 N.E.2d 1285, 1287-88 (Ind.Ct.App. 2009). But if reasonable people could come to different conclusions about a contract's meaning, it is ambiguous, and its meaning becomes a fact question. Univ. of S. Ind. Found. v. Baker, 843 N.E.2d 528, 532 (Ind. 2006); Town of Plainfield v. Paden Eng'g Co., 943 N.E.2d 904, 909 (Ind.Ct.App. 2011). At the summary judgment stage, the court found the referral agreement between One Wireless World and Moorehead unambiguous with respect to “referrals” and activations with non-Sprint service providers, but ambiguous with respect to “referred locations, ” “activations, ” the duration of the referral agreement, abandonment, damages, and the equitable claim for an accounting. Entertainment USA, Inc. v. Moorehead Commc'ns, Inc., 93 F.Supp.3d 915 (N.D. Ind. 2015).

         Extrinsic evidence -- evidence outside the four corners of the contract-- is admissible to prove meaning of an ambiguous contract term. Shorter v. Shorter, 851 N.E.2d 378, 383 (Ind.Ct.App. 2006). The court's job is to discern the parties' intent at the time they made the agreement. Citimortgage, Inc. v. Barabas, 975 N.E.2d 805, 813 (Ind. 2012). When construing an ambiguous contractual provision, a court may consider extrinsic evidence such as usage in the business to which the contract relates. Ecorp, Inc. v. Rooksby, 746 N.E.2d 128, 131 (Ind.Ct.App. 2001); Clark Advert. Agency, Inc. v. Avco Broad. Corp., 383 N.E.2d 353, 356 (Ind.Ct.App. 1978).

         First, some general comments on the trial evidence that affect credibility and weight. Conduct of both Chinh Nguyen and Chau Nguyen gives rise to concerns about credibility. Chau Nguyen doctored an important email. Chinh Nguyen (while purportedly serving as a very highly compensated consultant for whatever remained of One Wireless World) tried mere months into the referral agreement to get a Verizon franchise with Moorehead after learning that Verizon demanded that he have no association whatsoever with One Wireless World. Beyond basic credibility issues, their testimony was hard to follow at trial; many answers quickly moved from the topic of the question to self-laudatory narrative, especially with Chinh Nguyen. Chinh Nguyen also displayed a troubling fogginess on dates during cross examination, while Chau Nguyen showed barely less fogginess on dates even during direct examination.

         Moorehead's understanding of the contract has, to be kind, evolved over time, at least with respect to the term of the contract. Larry Myers thought when he wrote it that there was no time limitation. In January 2008, Moorehead decided there was a 2-year limitation. Moorehead's Rule 30(b)(6) witness testified in his deposition testimony that there was no time limit, then testified at trial that there was a 2-year limit. These shifting interpretations require a grain of salt to accompany the taking of Moorehead's litigation position at trial.

         Next, One Wireless World objected to two portions of Michael Trimble's testimony, and the court told the parties it would rule on those objections in the final ruling. The first objection addresses Mr. Trimble's answer at lines 3-10 on page 44 when asked about the Nguyen brothers' reputation in the industry. Moorehead says One Wireless World put its (and the Nguyen brothers') reputation in issue by testifying about One Wireless World dominating the central Pennsylvania market. The court sustains One Wireless World's objection to that answer. Their testimony was very often self-laudatory, but never reached the point of placing their own reputations in issue. The next objection addresses Mr. Trimble's answer, from line 8 on page 147 through line 3 on page 148, responding to whether he knew whether something Chau Nguyen had told him had been communicated to One Wireless World dealers. The court overrules that objection. Mr. Trimble began his answer with, “I believe not, ” but went on to relate the facts of which he had personal knowledge that led him to believe that the information hadn't been communicated. The court overrules that objection.

         A. Duration of the Agreement

         The referral agreement doesn't specify a termination date, so its duration is a reasonable period of time. City of Chicago, Ind. v. E. Chicago Second Century, Inc., 908 N.E.2d 611, 623 (Ind. 2009); Int'l Union, United Auto., Aerospace & Agr. Implement Workers of Am., U.A.W. v. Randall Div. of Textron, Inc., 5 F.3d 224, 229-230 (7th Cir. 1993). What time is reasonable turns on the contract's subject matter and the contracting parties' conduct and situation. Fraternal Order of Police Lodge No. 52 v. Civil City of Elkhart, 551 N.E.2d 469, 472 (Ind.Ct.App. 1990). The parties disagree on what is reasonable.

         Moorehead says the agreement expired two years after its execution, in early 2008. One Wireless World contends the agreement was to continue as long as any referred location continued to produce activations.

         The industry provides no meaningful guidance as to the term of this agreement. When the referral agreement was created, cell phone contracts were for one year or two years, Moorehead's contract with Verizon was for two years, Moorehead's contracts with dealers were for two years, but Moorehead also had other referral agreements for one year each, and residual payments from carriers to agents usually were paid over a three-year span. But this isn't a dealer contract or a customer contract. Nobody has been able to identify any comparable agreement in the industry.

         To suggest that this agreement would last into perpetuity would be unreasonable, but that isn't really what One Wireless World contends. Chau Nguyen and Larry Myers, who negotiated the agreement for Moorehead, both testified that the agreement called for continuing payments as long as a referred location still was producing activations (whatever that term might mean) for Moorehead. Nothing in the agreement is inconsistent with that understanding.

         But while the referral agreement can be read to live on if a dealer is still standing, its language doesn't require such a reading. And so we turn to the parties' contemporaneous dealings.

         Moorehead's conduct at the time is, like its later shifting statements about the agreement's duration, conflicting. Moorehead made few monthly payments under the referral agreement after 2007. In early 2008, Mr. Myers asked why the referral fees weren't still being paid. Moorehead stopped payments to One Wireless World in mid-2008 because Moorehead's Chief Strategy Officer believed that the Referral Agreement had expired and that the locations qualifying for referral fees no longer existed. In July 2008, Chinh Nguyen asked Moorehead's Mike Kapp why Moorehead wasn't paying referral fees; Mr. Kapp responded that the referral agreement terminated in early 2008.

         Much of Chinh Nguyen's conduct was inconsistent with an understanding that the agreement expired in early 2008: he kept finding people to refer to Moorehead. It also appears that Chinh Nguyen might have been willing to work against his brother's interest: he tried to become a Verizon dealer, with full understanding that Verizon would demand that he cut all ties with One Wireless World, even as he was working under a substantial consulting agreement with One Wireless World. But it was Chau Nguyen, not Chinh, who negotiated the referral agreement, and this record provides no reason to believe Chinh Nguyen knew much of anything about the agreement's duration.

         The strongest piece of evidence to support Moorehead's 2-year contention is that in February 2008, shortly after Moorehead contends the referral agreement ran out, Chau Nguyen tried to negotiate a new agreement, this one for his new United Consulting. That act was inconsistent with his asserted understanding: if he still had a referral agreement with Moorehead as a partner in One Wireless World, it would seem pointless to negotiate a new agreement for his post-One Wireless World company.

         But Chau Nguyen's February 2008 conduct is only part of the evidence, and an attempt to take over the referrals to Chinh Nguyen's exclusion is of a piece with Chinh Nguyen's efforts to get a Verizon dealership, which would have required Chinh Nguyen to cut all ties with One Wireless World and his consulting agreement.

         Substantial evidence supports both positions; the drafters' testimony tips the balance for the court. In light of the testimony of Chau Nguyen and Larry Myers, the court finds that Moorehead and One Wireless World intended an agreement that would live on as long as any referred location was producing activations. It remains to decide what a “referred location” is, and what an “activation” is.

         B. Referred Locations

         At the summary judgment stage, the court held the referral agreement unambiguously applied only to direct referral of locations, not to referral of dealers. Relocated locations and additional locations opened by dealers who occupied referred locations earned fees only if One Wireless World directly referred them to Moorehead. The referral agreement says that One Wireless World would be paid a referral fee for any locations that Verizon approved after January 1, 2006, as a “direct result” of a One Wireless World referral. Moorehead contends that only then-operating One Wireless World stores could be “referred” within the meaning of the agreement.

         1. Which Locations Were Referred?

         The parties agree that One Wireless World referred seven locations to Moorehead (six of which were named in the referral agreement itself):

• 32 N. Market Street, Elizabethtown (called “Etown”);
• 5380 Lincoln Highway, Gap (“Wireless Extreme”);
• 132 Strawberry Square, Harrisburg (“Smithmeyer Network”;
• 3517 Walnut Street, Harrisburg (“Street Kicks”);
• 155 (or 555) Furnace Hills Pike, Lititz (”ZHY Wireless”);
• 180 Leaders Heights Plaza, York; and
• 1910 Fruitville Pike, Lancaster (“Lancaster Wireless”).

         Each of these locations closed years ago. Four remained open at the outset of 2007; only two remained open through the end of 2007. Moorehead made referral payments on the Elizabethtown location through July 2011.

         One Wireless World contends, and Moorehead disagrees, that referral fees are due and unpaid for ten other locations.

         a. 625 (also 623) Lombard Road, Red Lion.

         This location was listed in the “Annibali email” (Plaintiff's Exhibit 11) to Moorehead, which set forth OWW locations as of December 21, 2006. Moorehead's Mr. Schlesselman returned that list, annotated by colors to reflect Verizon's decision process, 6 days later. The Red Lion was highlighted in yellow on the list Mr. Schlesselman returned, meaning that Verizon had approved the location.

         The Red Lion store didn't open in December 2006; post-agreement sales activity didn't begin there until December 2007. It also appears that this wasn't a One Wireless World store before Moorehead took over; it had been a store operated by Better Deal Cellular, a competitor of One Wireless World.

         In sum, One Wireless World referred the Red Lion location to Moorehead, but it wasn't operating as a One Wireless World store when it was referred.

         b. 582 Shrewsbury Commons, Shrewsbury.

         This location, too, was listed in the Annibali email, and highlighted in yellow (meaning Verizon had approved it) in Mr. Schlesselman's return email. Chinh Nguyen testified that he helped negotiate the lease for this location, but according to Plaintiff's Exhibit 38, apparently did so in June 2007. John Forsyth testified that this store wasn't open in December 2006. Moorehead contends that before December 2006, this location was a Better Deal Cellular store, not a One Wireless World store.

         One Wireless World referred the Shrewsbury store to Moorehead. The Shrewsbury store wasn't operating as a One Wireless World store when it was referred.

         c. 5201 Sprint Road, Shermansdale ...


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