T-Mobile Misled 'Sub-Dealers' About Post-Merger Store Expansion: Complaint
T-Mobile misled its wireless “sub-dealers” when it announced that “hundreds of stores” would be opened after its 2020 Sprint buy, alleged five such sub-dealer plaintiffs in a class action Wednesday (docket 1:23-cv-1582) in U.S. District Court for Eastern New York in Brooklyn. T-Mobile instead embarked on a "concealed and undisclosed corporate strategy" to eliminate the sub-dealers nationally, alleged the plaintiffs.
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The plaintiffs said they're "a tiny fraction" of the mostly minority-owned businesses that were "betrayed" by defendant T-Mobile and its so-called "master dealers." T-Mobile incentivized its master dealers, including Arch Telecom, to take over well-performing stores such as those owned by the five plaintiffs, said the complaint. T-Mobile and Arch Telecom “deliberately, intentionally and willfully withheld information” about their plans to close the plaintiffs’ stores, it said.
T-Mobile played a “dirty game of ‘squeeze and buy,’” alleged the complaint, asserting T-Mobile knew the initial terms of agreements it had with the plaintiffs lasted until June 2024, but it conspired with its Arch Telecom to create an earlier March 2023 termination date. Over a period of months, T-Mobile allowed and is still allowing Arch Telecom to contact the plaintiffs to “work them over,” said the complaint. The named plaintiffs are: Digital Land Wireless, in Brooklyn; Perfect Wireless Two, in Milford, Ohio; Kal Electronics, in Nacogdoches, Texas; Reemas Fashion, in New Castle, Pennsylvania; and Texas Mobile Solutions, in Crosby, Texas.-
Thomas Salvato, a director of Arch Telecom who acted “directly and indirectly" as an agent of T-Mobile through another master dealer defendant, Portables Choice Group (PCG) and its predecessor companies, called the plaintiffs and offered to buy their “viable and profitable stores for little to nothing,” the complaint said. “Wherever it can, Arch Telecom attempts to close the Plaintiff’s stores for absolutely zero compensation,” depriving them of their livelihood, it said.
PCG, which claimed to operate over 284 T-Mobile stores, entered into contractual relationships with each plaintiff in or around June 2021 for a three-year term, the complaint said. Arch Telecom bought PCG in August the following year and announced to sub-dealers in a public statement: “Your experience will be business as usual,” with agreements and guaranty obligations transferred to Arch Telecom. Arch Telecom says it’s the third-largest T-Mobile retailer with over 400 stores in 32 states.
The plaintiffs assert that with master dealer status, PCG and Arch Telecom owed their sub-dealers a duty to warn them of any events or changes that could affect their earnings, store operations and livelihood. Though Sprint and T-Mobile CEOs said when they announced the merger that they planned to open “hundreds” of stores, T-Mobile never informed sub-dealers, before the merger was approved, that it planned to close stores, such as the plaintiffs’ operations. The “concealment of fact” continued through fall 2022, they said.
T-Mobile and Arch Telecom continued to pretend “business as usual,” including urging sub-dealers to renovate and renew existing leases for up to five years, the complaint said. The plaintiffs incurred “significant renovation costs” and took out loans during the pandemic to ensure their businesses would continue to grow. Digital Land spent $150,000 on a remodel and furniture to raise the level of the Brooklyn store “to T-Mobile standards,” the complaint said.
In November, within two months of the acquisition announcement of Arch Telecom’s buy of PCG, Arch sent the plaintiffs a termination notice, saying the sub-dealers had to cease operations and close each location by March. Within days of the notifications, Salvato contacted the plaintiffs, telling them Arch would be willing to buy their stores “for a negligible amount of money," the complaint said. The amount “did not begin to compensate the Plaintiffs for the cost of renovation (required and approved by T-Mobile), let alone the loss of commissions, investment and profits,” they said.
The claims asserted against T-Mobile, Arch Telecom and PCG include fraud, promissory estoppel, negligence, negligent misrepresentation and violation of the New York State Franchise Sales Act. They claim breach of contract and implied covenant against PCG and Arch Telecom and tortious interference with contracts individually against T-Mobile and Arch Telecom, plus civil conspiracy. They seek a judgment of $100 million in compensatory damages and $1 billion in punitive damages, plus attorneys’ fees and legal costs.