N. D. of Texas Refuses to Grant Nonsignatory Samsung’s Motion to Compel Arbitration in Mobile Phone Litigation

The Northern District of Texas has refused to grant mobile telephone maker Samsung’s motion to compel arbitration in a putative class-action lawsuit brought by a number of unsatisfied Sprint and Verizon wireless customers.  In Galitsky, et al. v. Samsung Telecommunications America LLC, No. 3:12-CV-04782, (N. D. Tex., Dec. 5, 2013), California residents Shane Galitsky, Richard Taliaferro, and Brian Newbold purchased allegedly defective Samsung Galaxy S wireless telephones through their respective wireless service providers.  According to the plaintiffs, the mobile phones at issue were essentially inoperable as a result of numerous manufacturing defects irrespective of which wireless service provider sold them.

Both Sprint and Verizon require all new customers, including the plaintiffs, to sign a service contract that includes a binding arbitration agreement prior to beginning service.  After the plaintiffs unsuccessfully sought to resolve the purported Galaxy S telephone defects through their respective wireless service providers, the men filed a putative class action lawsuit for breach of express warranty, breach of implied warranty, and a number of other claims against phone manufacturer Samsung in a California federal court.  Samsung successfully transferred the case to the Northern District of Texas and filed a motion to compel arbitration as a third-party nonsignatory to the wireless carrier service agreements.  In the alternative, Samsung asked the court to dismiss the case.

First, the Texas federal court examined Samsung’s argument that the company should be allowed to compel arbitration under the terms of the wireless service contracts using the doctrine of equitable estoppel “because plaintiffs’ complaint raises allegations of substantially interdependent and concerted misconduct by Samsung, Sprint, and Verizon.”  According to Samsung, the plaintiffs sought “to hold Samsung responsible for the conduct of Sprint and Verizon, and it is impossible to consider their claims against Samsung without considering the alleged failures of Sprint and Verizon to repair their phones.”  Additionally, Samsung argued that the plaintiffs were suing the phone manufacturer in an attempt to avoid the binding arbitration agreement that each signed.

Applying California law, the Northern District of Texas stated a nonsignatory to an arbitration agreement “may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims when the causes of action against the nonsignatory are intimately founded in and intertwined with the underlying contract obligations.”  The court continued,

When a nonsignatory seeks to enforce an arbitration clause, the doctrine of equitable estoppel applies in two circumstances: (1) “when the signatory to a written agreement containing an arbitration clause must rely on the terms of the written agreement in asserting [its] claims against the nonsignatory,” and (2) when the signatory alleges interdependent and concerted misconduct by the nonsignatory and another signatory and “the allegations of interdependent misconduct [are] founded in or intimately connected with the obligations of the underlying agreement.” Goldman, 92 Cal.Rptr.3d at 541 (citations and internal quotation marks omitted).

Next, the Texas court held “Samsung cannot rely on the doctrine of equitable estoppel to compel plaintiffs to arbitrate their claims.”  According to the federal court,

It is not necessary for plaintiffs to rely on the terms of their service agreements with Sprint and Verizon to assert their claims against Samsung, and plaintiffs’ claims are not intimately founded in and intertwined with these contracts. Further, assuming that plaintiffs allege substantially interdependent and concerted misconduct by Samsung, Sprint, and Verizon, the allegations of interdependent misconduct are not founded in or intimately connected with the obligations of the service agreements.

Finally, the Northern District of Texas said,

Stated simply, even assuming that plaintiffs are relying on the conduct of Sprint and Verizon to establish Samsung’s liability, they are doing so to establish Samsung’s liability by contract, by statute, or under common law; they are not relying on the Sprint and Verizon agreements to establish that liability. As in Goldman, plaintiffs “are not relying in any way on the [Sprint and Verizon agreements] to make their claims against [Samsung], while at the same [time] avoiding the arbitration clauses of those agreements—and, at bottom, that is the only basis upon which they may be equitably stopped from refusing to arbitrate when they have not agreed to do so.”  Goldman, 92 Cal.Rptr.3d at 553.

Accordingly, Samsung’s motion to compel arbitration is denied.

The court also granted Samsung’s motion to dismiss the plaintiffs’ breach of express warranty, Song-Beverly Consumer Warranty Act, and quasi-contract claims, but refused to dismiss the breach of implied warranty, Magnuson-Moss Warranty Act, California Consumers Legal Remedies Act, and California Unfair Competition Law claims brought against the company.