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NTCH-WA, Inc. v. ZTE Corp.

United States District Court, E.D. Washington

September 11, 2017

NTCH-WA, INC., Plaintiff,
v.
ZTE CORPORATION, Defendant.

          ORDER ON DEFENDANT'S MOTIONS FOR SUMMARY JUDGMENT AND TO EXCLUDE EXPERT TESTIMONY

          THOMAS O. RICE, CHIEF UNITED STATES DISTRICT JUDGE.

         BEFORE THE COURT are Defendant's Motion for Final Summary Judgment (ECF No. 218), Motion for Final Summary Judgment on Additional Grounds (ECF No. 233), and Motions to Exclude Expert Testimony (ECF Nos. 231; 232; 236; 237; 239). A telephonic hearing was held on July 29, 2015. ECF No. 270. The Court has reviewed the completed briefing and the record and files herein, heard from counsel, and is fully informed.

         BACKGROUND

         Plaintiff filed a complaint on August 24, 2012, alleging causes of action against Defendant and certain unidentified parties. ECF No. 1. These claims arose from the sale of allegedly faulty switching equipment necessary for the operation of cellular phone networks. In January 2013, the Court temporarily stayed these proceedings to allow for the completion of an arbitration process in Florida. ECF No. 55. That stay was extended in July 2013 as the arbitration proceedings had not yet concluded. ECF No. 71.

         Plaintiff filed an amended complaint on December 10, 2013, alleging causes of action against Defendant only. ECF No. 93. Defendant filed a motion to dismiss the amended complaint on January 6, 2014, which the Court denied on February 27, 2014. ECF Nos. 103; 124.

         The Court granted Plaintiff leave to file a second amended complaint on October 23, 2014. ECF No. 198. Plaintiff filed its Second Amended Complaint on November 10, 2014. ECF No. 203. In its Second Amended Complaint, Plaintiff alleges six causes of action: breach of contract, tortious interference with contract, fraudulent misrepresentation, negligent misrepresentation, promissory estoppel, and unjust enrichment. Id. at ¶¶ 68-117.

         A final arbitration award was issued on February 11, 2014. ECF No. 207-1. On December 18, 2014, Defendant provided the Court with notice that NTCH-WA had been joined in a case before the United States District Court for the Middle District of Florida, PTA-FLA, Inc. v. ZTE USA, Inc., No. 3:1 l-CV-0510. ECF No. 205. The Florida District Court order indicated that the court was exercising jurisdiction over confirmation of the final arbitration award under the Federal Arbitration Act ("FAA"). ECF No. 205-1. The Florida District Court undertook to "determine in one action whether the arbitration award should be confirmed vis-avis all arbitration participants." Id. at 11-12. Briefing was scheduled to be completed by February 2015. Id. at 13.

         In the meantime, the Court ordered the parties to brief the preclusive effect the final arbitration award may have upon the matter before this Court. ECF No. 212. The Court further ordered the parties to prepare all other dispositive and Daubert motions by the deadline established in the amended scheduling order (ECF No. 173). Id. at 6.

         Defendant filed a Motion for Final Summary Judgment on June 12, 2015, arguing the Florida arbitration proceedings precluded Plaintiffs claims in this matter. ECF No. 218. Defendant filed a subsequent Motion for Final Summary Judgment on Additional Grounds on June 29, 2015, arguing for judgment on the underlying claims regardless of the preclusive effect of the arbitration proceedings. ECF No. 233. Defendant also filed motions to exclude the expert testimony of five proffered expert witnesses. ECF Nos. 231 (Adilia Aguilar); 232 (Anthony Sabatino); 236 (Keven Beierschmitt); 237 (John A. Goocher); and 239 (Glenn Ishihara). Plaintiff opposed each motion. The parties completed their briefing on these matters and a telephonic hearing was held on July 29, 2015. ECF No. 270.

         Subsequent to this hearing, the Court was informed that resolution of the Florida District Court litigation would be delayed until October 2015 at the earliest. ECF Nos. 274; 274-1. In light of the dispositive effect confirmation of the arbitration award bears upon this matter and the delayed resolution of that issue, the Court ordered on August 11, 2015, that the scheduled trial and all remaining deadlines be vacated and the case stayed pending resolution of the Florida litigation. ECF No. 275.

         The Florida Court issued an Order Confirming the Award on October 6, 2015. ECF No. 287 at 3. The Order was affirmed on appeal to the Eleventh Circuit on December 15, 2016. ECF No. 287 at 3. The Court lifted the stay (ECF No. 285) on June 27, 2017 and now issues this order on the pending motions.

         FACTS[1]

         This matter arises from a long, complicated, and ultimately unproductive business relationship between affiliated start-up cellular telephone network companies owned and operated by Eric Steinmann, Defendant ZTE Corporation (a cellular telephone equipment manufacturer in China), and ZTE-USA, Inc. ("ZTE-USA")-Defendant's wholly-owned subsidiary doing business in the United States. See ECF Nos. 207-1 at 2, 203 at ¶¶ 2; 204 ¶ 2. The companies owned and operated by Eric Steinmann were Daredevil, Inc., a Missouri corporation; PTA-FLA, Inc., a Florida corporation; NTCH-WEST TENN, Inc., a Tennessee corporation; and Plaintiff NTCH-WA, Inc., a Washington corporation. ECF Nos. 207-1 at 2. These companies collectively operated under the brand name "ClearTalk" (the "ClearTalk entities"). ECF Nos. 207-1 at 2.

         In 2006, PTA-FLA, Inc. entered into a master service agreement with ZTE USA for the purchase of cellular telephone network equipment (the "Florida MSA"). ECF Nos. 203 at ¶ 13; 204 at ¶ 13; 207-1 at 3; 219-5, 219-6, 219-7, 219-8, 219-9. For reasons not relevant to this proceeding, PTA-FLA, Inc., ultimately sold its cellular network in 2008 and removed the equipment purchased from ZTE USA. ECF Nos. 203 at ¶ 18; 204 at ¶ 18; 207-1 at 12. Relevant to this matter are the facts that (1) part of PTA-FLA, Inc.'s purchase included a master switch through which all voice and data traffic would be routed (the "core switch"), and (2) there were a number of technical issues with the core switch which precluded its full functionality. See 207-1 at 9-11; 261-2 at ¶ 13.

         Steinmann intended to make use of the removed Florida equipment to develop cellular networks in other markets. ECF No. 261-2 at ¶¶ 42-43. As such, in July 2008, PTA-FLA, Inc., ordered two remote switches to be used to establish markets in Washington and Tennessee. ECF No. 261-2 at ¶¶ 42, 87. These remote switches would allow those networks to connect to the core switch in Florida which would provide voice and data service. ECF No. 261-2 at ¶ 43. Eventually, the core switch was moved from Florida to Jackson, Tennessee. ECF No. 261-2 at ¶ 53. In the first half of 2008, Plaintiff began acquiring and preparing buildings and towers for installation of the planned Washington cellular network. ECF No. 261-2 at ¶ 89. In the summer of 2008, Plaintiff shipped the decommissioned base stations from Florida to Washington. ECF No. 261-2 at ¶ 90.

         On September 25, 2008, Daredevil, Inc., entered a master supply agreement ("Missouri MSA") for the purchase of additional cellular telephone equipment for use in Missouri. ECF Nos. 207-1 at 3; 203 at ¶ 20; 204 at ¶ 20; 235 at ¶ l.[2] The Missouri MSA was executed after individuals representing ZTE USA[3] visited Steinmann at his home and pleaded with him to purchase equipment manufactured by Defendant rather than that manufactured by a competing Chinese manufacturer. ECF Nos. 207-1 at 3-4, 13; 261-2 at ¶ 52. The MSA indicates it is entered into between ZTE USA, Inc., and Daredevil, Inc., and is signed by Joey Jia as "General Manager" for "ZTE USA, Inc." and by Steinmann as "Development Manager" for "Daredevil, Inc. dba ClearTalk." ECF No. 235-1 at 2, 16.

         On the same day, September 25, 2008, Steinmann and Jia also executed a second document simply entitled, "Agreement." ECF Nos. 235 at ¶ 4; 261 at ¶ 1.2. The Agreement is signed by Steinmann as "Development Manager" for "Daredevil, Inc." and by Joey Jia as "General Manager" for "ZTE Inc." ECF No. 235-2 at 6.[4] The Agreement incorporated the terms of the Missouri MSA, but also laid out other specific provisions, including that "ZTE be the primary supplier of handsets to the operation of Daredevil in Saint Louis and to the other affiliated operations of Daredevil and NTCH .... In this regard and for a period of 5 years from this date ZTE agrees to these entities to match the cost of any other handsets being sold and available to the parties based on comparable features . . . ." Id. at 5. A separate, undated page in the same exhibit is signed by Steinmann on behalf of "PTA-Fla, Inc." and by Jia on behalf of "ZTE USA, Inc." ECF No. 235-2 at 7.

         Deployment of the Missouri network was time-sensitive because a rival company was also developing cellular infrastructure in the same market. ECF No. 261-2 at ¶¶ 49-50. As such, Steinmann agreed in the fall of 2008 that Daredevil would take delivery of the remote switch destined for the Washington network. ECF No. 261-2 at ¶¶ 58, 91. Without a remote switch, the Washington network could not operate and the base stations originally shipped from Florida were again redeployed, this time to Tennessee. ECF No. 261-2 at ¶¶ 87-93.

         Eventually, Daredevil sold its Missouri network to the rival company. ECF Nos. 207-1 at 13; 261-2 at ¶ 65. In April 2009, Daredevil began to decommission and remove its equipment. ECF No. 261-2 at ¶ 66.

         In June 2009, Steinman began to revive the deployment of a network in Washington and expressed a willingness to redeploy certain equipment from the Missouri network to other markets, including Washington. ECF Nos. 207-1 at 14; 261-2 at ¶ 94. On September 9, 2009, Plaintiff received a remote switch. ECF No. 261-2 at ¶ 95. However, there were continued technical problems with the core switch in Tennessee, upon which the functionality of the remote switch depended. ECF No. 261-2 at ¶ 97-98.

         Nevertheless, on December 17, 2009, Steinmann executed an "Addendum to Existing Agreement Between Daredevil and ZTE." ECF Nos. 235 at ¶ 7; 235-3. The Addendum is signed by Steinmann as "Business Development Manager" for "ClearTalk" and by Neil Kushner as "VP Sales, Division 1" for "ZTE USA, Inc." ECF No. 235-3 at 3.[5] Under the addendum, forty base stations originally ordered for the Missouri market would be redeployed to Yakima, Washington. Id. at 2. A number of base stations were sent to Washington, but the Washington network was never opened. ECF Nos. 207-1 at 14; 261-2 at ¶¶ 96, 100.

         In 2011, a series of lawsuits were filed by the various ClearTalk entities. ECF No. 219 at ¶ 30. The ClearTalk entities sued ZTE USA-but not Defendant-in Florida, Missouri, South Carolina, and Tennessee. Id. Steinmann sued both ZTE USA and Defendant in California. Id. at ¶ 31. The parties to these lawsuits agreed to consolidated arbitration. Id. at 32. The ClearTalk entities, including Plaintiff, submitted a demand for arbitration against ZTE USA, Inc., in December 2011. ECF Nos. 219 at ¶ 33; 219-12 at 2.

         The ClearTalk entities' first amended statement of claim filed with the arbitration demand asserted claims against both ZTE USA and Defendant related to transactions in Florida, Missouri, South Carolina, Tennessee, and Washington. ECF Nos. 219 at ¶ 33; 219-12 at 5-39.

         Defendant objected to the scope of arbitration, opposing any claims asserted against it and contending that only ZTE USA-not Defendant-was party to any agreements with the ClearTalk entities. ECF Nos. 219 at ¶ 33; 219-13 at 3 ¶¶ 1-2, 5. After considering Defendant's objection, the arbitrator informed the parties by email that the scope of the arbitration would be limited to "all the claims, counterclaims, and defenses that exist or may arise between and among the parties subject to the jurisdiction of the courts in the lawsuits pending at the time of the agreement to arbitrate." ECF Nos. 219-15 at 2; 246-8 at 2. As such, the arbitrator concluded the only claims ...


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