A Greenville, S.C., jury awarded four independent cellular dealers $2.5 million each in punitive damages and actual damages totalling nearly $2 million in a lawsuit against 3607 Communications Co.
Dealer Drivfone Inc. received the highest actual damage award at $1.3 million. Hi-Tech Communications Inc. was awarded $369,454, followed by Luthi Communications Inc., which was awarded $205,227, and Tele-Mobile Communications, which was awarded $97,944 in actual damages.
According to the verdict, the jury found that 3607 committed unfair trade practices and fraudulently breached its dealer agreements with the dealers by unfairly competing with them in the area where their businesses were located.
A spokeswoman for 3607 said, “We have always believed the complaint was without merit. We acted in accordance with our contracts with the four dealers, and we believe the jury’s decision is unwarranted and that the damages are totally inappropriate.
“We plan to appeal the decision and we’re confident that it will be reversed,” she noted.
One of the plaintiffs, who spoke on the condition of anonymity, said the problems between carrier and dealers began when the carrier reduced the dealers’ commissions. The original contract contained no residuals but was attractive because of the commission structure, which paid the dealers $350 per line activation, he said. In 1993, a new contract structure was proposed that lowered the dealers’ commissions substantially. The carrier reasoned that dealers should be able to sell more because cellular technology was becoming more popular, said the plaintiff. “We had five years of investments in personnel, money and time,” he said. “Quitting was not an option. We tightened our belt.”
The situation worsened when the carrier would run promotions on certain models of phones at below cost and in turn reduce the dealers’ commissions to compensate for the loss, he said. But the lowered commissions weren’t changed in writing, which was a key factor in deciding the case, he added.
The situation, he said, forced the dealers to forgo part of their commissions and sell the phone at the advertised price, or sell the phone at regular price in order to retain their whole commission. “What choice did we have?” asked the plaintiff. Customers would walk in with an advertisement with the promotional price, and the dealers would have to sell the phone at that price or let customers go elsewhere.
In 1994, dealers were forced to begin buying phones from the carrier rather than selling straight from the carrier’s inventory, said the plaintiff. That shifted the liability of the equipment to the dealer, meaning if a customer returned a phone for any reason, including carrier mistakes, the dealers lost both their commission and the money for the phone.
“We were totally controlled by the carrier,” said the plaintiff. “The airtime was controlled by them. The equipment was controlled by them. Our commissions were controlled by them. There’s only one area where a dealer receives revenue, and that’s from the carrier. If they set the prices, then we can’t control our business.”
The dealer said his company was doing four times the business to make the same money. “You can’t do that with the same staff,” he said. “You’ve got to increase your staff. We were absolutely running as fast as we could run, and it was to the point where there was no way to survive.”
In 1995, the dealer closed his doors.
