Sprint Nextel Corporation v. Wireless Buybacks Holdings ( 2019 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 18-1729
SPRINT NEXTEL CORPORATION; SPRINT COMMUNICATIONS
COMPANY L.P.,
Plaintiffs – Appellees,
v.
WIRELESS BUYBACKS HOLDINGS, LLC; WIRELESS BUYBACKS, LLC,
Defendants – Appellants,
and
SIMPLE CELL INC.; VAUGHN SOLUTIONS, LLC; HALO BRANDED
SOLUTIONS, INC.; MARSHA LAVAIGE; MELISSA LAVAIGE; KEVIN A.
LOWE; CHRISTOPHER E. METZGER; KEVIN EDWARD SALKELD;
BRENDAN T. SKELLY; SHANNON A. SKELLY; NICHOLAS F. SKELLY;
BRETT VAUGHN,
Defendants.
Appeal from the United States District Court for the District of Maryland, at Baltimore.
Catherine C. Blake, District Judge. (1:13-cv-00617-CCB)
Argued: May 9, 2019 Decided: September 5, 2019
Before DIAZ, FLOYD, and RICHARDSON, Circuit Judges.
Vacated and remanded by published opinion. Judge Richardson wrote the opinion, in
which Judge Diaz and Judge Floyd joined.
ARGUED: Charles Randolph Price, TANDEM LEGAL GROUP, LLC, Washington,
D.C., for Appellants. Jay E. Heidrick, POLSINELLI PC, Kansas City, Missouri, for
Appellees. ON BRIEF: Russell S. Jones, Jr., John M. Challis, POLSINELLI PC,
Kansas City, Missouri, for Appellees.
2
RICHARDSON, Circuit Judge:
Sprint is a cell-phone service provider. 1 Besides providing cellular service, it also
sells phones to its customers. This includes offering “upgraded” phones at steep
discounts, typically in exchange for customers renewing their contracts. The discounts
are so steep that Sprint winds up selling the phones for less than they can command on
the second-hand market. Several businesses across the country have sought to profit
from this price differential by engaging in arbitrage: they buy “upgraded” phones from
customers and then resell them at higher prices.
Sprint thinks that these arbitrageurs are interfering with its business and has
brought lawsuits across the country to stop them. This is one such case. While Sprint
brought several claims against multiple defendants, the only remaining claim on appeal is
one for tortious interference against Wireless Buybacks, one such arbitrageur. Sprint
asserts that its written contract with customers categorically prohibits them from reselling
their phones, and that Wireless Buybacks has wrongfully induced customers to do just
that. Wireless Buybacks argues that the contract is ambiguous at best regarding when
customers may sell their phones.
The district court found that the contract unambiguously barred resale and granted
partial summary judgment for Sprint. We disagree. We therefore vacate the relevant
1
For simplicity’s sake, we use “Sprint” to refer to plaintiffs Sprint Nextel
Corporation and Sprint Communications Company, L.P., and “Wireless Buybacks” to
refer to defendants Wireless Buybacks Holdings, LLC and Wireless Buybacks, LLC.
3
portion of the district court’s summary-judgment order and remand for further
proceedings.
I.
A.
Sprint, like other cell carriers, offers customers upgraded phones at heavily
discounted prices. For example, Sprint has offered new iPhones to customers for as little
as $199. See J.A. 220. This is far below what Sprint pays for the phones (much less the
retail price); it claims that these price discounts amount to over $400 per phone on
average. J.A. 725. In exchange for these discounts, Sprint requires customers to sign up
for fixed-term contracts, often lasting as long as two years. Upgraded phones thus serve
as a loss-leader: Sprint sells them at heavily discounted prices to entice new customers to
sign up and existing customers to renew their contracts. Sprint ultimately profits because
the earnings from these service contracts more than offset the discounts on the phones. In
this way, upgraded phones are like the “doorbuster” deals that brick-and-mortar retailers
use to get customers in the door.
Wireless Buybacks is one of several businesses that has tried to turn upgraded
phones into profits. Its business model was simple arbitrage: buy low and sell high.
Wireless Buybacks explained the details in a promotional video aimed at commercial
customers. These customers purchase multiple lines of cell service for use by their
employees but do not always take advantage of upgrade offers from their service
providers. Yet they are effectively paying for these unused upgrades through their
regular service charges. Wireless Buybacks offered businesses a way to “leverage”
4
unused upgrades and “turn [them] into cash.” When contacted by a business, Wireless
Buybacks did the following: (1) performed a free analysis of the business’s account with
its cell-phone carrier; (2) explained to the business how many upgrades they had
available and how much money Wireless Buybacks would pay for them; (3) gave the
business instructions on how to order the upgraded phones from the carrier; and (4) once
the phones arrived, bought them from the business, paying cash. The video said that
there was “really no catch,” except that cell carriers expect businesses to renew their
service contracts in exchange for the upgraded phones. The video also explained how
Wireless Buybacks made money: by reselling the phones at higher prices. 2
Sprint claims that it is harmed by this practice of reselling phones in several ways.
Most obviously, Sprint loses money when it sells upgraded phones to customers who
would otherwise maintain their existing service without ordering upgrades. Sprint also
advances a subtler theory of harm. Customers who use new phones with the latest
technology get better service. When customers resell their upgraded phones, that means
they are continuing to use old phones—leading to lower customer satisfaction. In some
cases, Sprint claims, customers cancel their service as a result.
2
The promotional video is filed under seal as Volume 4 of the Joint Appendix.
We take this opportunity to note that an excessive portion of the summary-judgment
record is under seal. Summary-judgment materials are subject to the public’s right of
access to judicial records under the First Amendment. Doe v. Public Citizen, 749 F.3d
246, 266–67 (4th Cir. 2014). The video is just one example of material in the record that
is under seal with no real justification, much less a compelling one as the law requires.
We hope the district court will address this issue on remand.
5
Sprint’s theory of liability is contractual. It claims that its customers promised not
to resell the phones when they agreed to Sprint’s terms and conditions of service, the
written contract here. Businesses like Wireless Buybacks, Sprint asserts, tortiously
interfered with that contractual relationship by inducing customers to resell upgraded
phones in violation of the terms and conditions.
The contract allegedly prohibits reselling phones in these provisions:
• “Nature of our Service. Our rate plans, customer devices, services
and features are not for resale and are intended for reasonable and
non-continuous use by a person using a device on Sprint’s
networks.” J.A. 741.
• “Basic Definitions In this document: . . . (3) ‘Device’ means any
phone, aircard, mobile broadband device, any other device,
accessory, or other product that we provide you, we sell to you, or is
active on your account with us; and (4) ‘Service’ means Sprint-
branded or Nextel-branded offers, rate plans, options, wireless
services, billing services, applications, programs, products, or
Devices on your account with us. ‘Service(s)’ also includes any
other product or service that we offer or provide to you that
references these General Terms and Conditions of Service
(‘Ts&Cs’).” J.A. 744.
• “Restrictions On Using Services . . . . You cannot in any manner
resell the Services to another party.” J.A. 746.
The “Nature of our Service” clause, Sprint argues, unambiguously prohibits the resale of
any “customer devices,” which include phones. And so too does the “Restrictions On
Using Services” clause because the definition of “Services,” in Sprint’s view,
unambiguously includes upgraded phones. Or at least, the contract prohibits resale
during the two-year renewal period that follows an upgrade—Sprint has appeared, at
times, to advance this narrower proposition. See J.A. 894 (Sprint employee declaration
6
stating that the resale prohibition no longer applies “after the customer has completely
satisfied its financial obligations with Sprint”). Wireless Buybacks disagrees and argues
that customers who own their phones outright are free to resell them.
There are some phones, however, that both Sprint and Wireless Buybacks agree
customers cannot resell. They agree that customers cannot resell phones that are active
on Sprint’s network. They also agree that customers cannot resell phones that Sprint has
provided pursuant to lease and installment-billing agreements. The agreement governing
leased phones tells customers that they cannot resell the phones “unless and until you
exercise your purchase option.” J.A. 868. The installment-billing agreement gives Sprint
a security interest in the phones and forbids resale “while the Goods remain subject to our
security interest.” J.A. 869. The parties therefore agree that, at least until these phones
are fully owned by the customer, they cannot be resold.
B.
Sprint filed this lawsuit in 2013 against Wireless Buybacks and other companies
that bought and sold upgraded phones, as well as individuals who owned and worked for
those companies. The complaint asserted several different causes of action, including
claims for tortious interference, fraud, conversion, and trademark infringement. The
district court rejected the fraud claims on a motion to dismiss but permitted Sprint’s other
claims to go forward. Over time, many of the defendants settled with Sprint, and some
consented to permanent injunctions forbidding them from reselling Sprint phones. See,
e.g., J.A. 150–56. Wireless Buybacks did not settle.
7
After discovery, Sprint moved for partial summary judgment, 3 and the district
court granted the motion in part. As is relevant for our purposes, it held that Wireless
Buybacks was liable for tortious interference with contract. The court reasoned, first, that
Sprint’s contract with its customers unambiguously prohibited the resale of all Sprint
phones. The district court then concluded that Wireless Buybacks’ business involved
inducing Sprint customers to resell their phones, even though it knew that Sprint’s
contract prohibited resale. Finally, the court held that Sprint was harmed as a result. The
court therefore found Wireless Buybacks liable for tortious interference.
The district court’s order did not resolve the amount of Sprint’s damages, and the
parties began to prepare for a trial on that issue. They soon ran into disagreement on how
to implement the district court’s order. In Wireless Buybacks’ view, Sprint had to make
an individualized showing of unlawful inducement for each customer from whom
Wireless Buybacks had bought a Sprint phone. In Sprint’s view, it merely had to identify
how many Sprint phones Wireless Buybacks acquired and prove how much harm it
suffered as a result. The parties resolved this dispute among themselves, stipulating that,
“[t]o establish damages at trial, Sprint need only show the amount it has been damaged
and is not again required to show that [Wireless Buybacks] induced the breach of the
Terms & Conditions between Sprint and every customer.” J.A. 642.
3
Three individual defendants who were officers and employees of Wireless
Buybacks also cross-moved for partial summary judgment, seeking dismissal of certain
claims against them. Wireless Buybacks itself, however, did not file a cross-motion.
8
Ultimately, the parties decided to avoid the cost and expense of trial by way of a
stipulated judgment. The judgment explained that, “[i]n order to facilitate appeal of the
Court’s Summary Judgment Order without the need for trial, Defendants consent to
damages in the amount of $26,900,000 for Sprint’s tortious interference claim.” J.A.
678. A footnote added: “Plaintiffs and Defendants both expressly reserve all rights to
appeal the Court’s rulings regarding liability, and any prior rulings in this case. The
Parties further reserve the right, as may be allowed by law, to contest the amount of
damages in the event that Defendants’ appeal on liability is successful.” J.A. 678 n.1.
Accordingly, the judgment awarded Sprint $26.9 million in damages for tortious
interference. The judgment also (1) entered judgment for Sprint on Wireless Buybacks’
counterclaims, (2) dismissed all of Sprint’s other claims against Wireless Buybacks with
prejudice, and (3) dismissed all of Sprint’s claims against the three remaining individual
defendants (all officers and employees of Wireless Buybacks) with prejudice.
Wireless Buybacks timely appeals from the district court’s order awarding Sprint
partial summary judgment. J.A. 680.
II.
We begin by examining our appellate jurisdiction. With a few exceptions, we
generally may review district-court judgments only once they have become “final.” 28
U.S.C. § 1291. The exceptions do not apply here, and so our jurisdiction turns on
whether the stipulated judgment entered by the district court was, in fact, final. There are
various reasons why a district-court order might not be considered final; for example,
orders that dispose of only some of the claims in the lawsuit typically are not final and
9
appealable. A different set of finality problems can arise when civil actions are disposed
of by the parties’ consent. Appeals courts generally do not treat private settlements as
reviewable final judgments (again, with exceptions; for example, we sometimes review
settlements of class actions and other cases in which individual parties represent someone
other than just themselves).
Our finality concerns here arise from the fact that the parties seek appellate review
of a stipulated judgment entered at their request. While both sides agree that appellate
jurisdiction exists, we must assure ourselves of jurisdiction regardless of their wishes.
Because the judgment below bears at least a passing similarity to one the Sixth Circuit
found insufficiently final to confer appellate jurisdiction in Board of Trustees v. Humbert,
884 F.3d 624 (6th Cir. 2018), we ordered supplemental briefing on the jurisdiction
question. Upon review, however, we conclude that this case is distinguishable from
Humbert and that we have appellate jurisdiction.
The Supreme Court recently addressed § 1291’s finality requirement in Microsoft
v. Baker, 137 S. Ct. 1702 (2017), a class action. In that case, the district court denied
class certification. The plaintiffs then voluntarily dismissed their individual claims “with
prejudice,” but with the caveat that they could resume their individual claims if the class-
certification decision were reversed. Id. at 1710–11. Emphasizing that “‘finality is to be
given a practical rather than a technical construction,’” the Court found no appellate
jurisdiction because the plaintiffs’ “dismissal device subverts the final-judgment rule.”
Id. at 1712–13 (quoting Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 171 (1974)). The
Court noted that this device “invites protracted litigation and piecemeal appeals” and
10
permits plaintiffs to turn any class-certification decision they do not like into a final,
appealable order. Id. at 1713–15. The Court also noted the “one-sidedness” of this
approach, which permits only plaintiffs, not defendants, to appeal class-certification
decisions. Id. at 1715.
In Humbert, the Sixth Circuit extended Microsoft’s reasoning to a judgment
stipulating to damages. The district court had ruled for the plaintiff at summary judgment
but had not yet determined damages. 884 F.3d at 625. The parties then agreed to a
stipulated judgment that awarded the plaintiff $45,000 in damages, while explaining that
the parties would be free to relitigate “the amount of the damages to which the Plaintiffs
are entitled to recover” if the appeals court remanded the case. Id. (quoting judgment).
The Sixth Circuit concluded that the judgment was not a final, appealable order because
it did “not even conclusively resolve the single issue that it purport[ed] to resolve”: the
plaintiff’s damages. Id. at 626. The court also observed that, as in Microsoft, it was not
enough that affirming would produce a final judgment, because “[w]hat matters is that
the ‘potential for piecemeal litigation’ remains if we do anything but affirm.” Id.
(quoting Microsoft, 137 S. Ct. at 1713).
The Sixth Circuit has since distinguished Humbert in Innovation Ventures, LLC v.
Nutrition Science Laboratories, LLC, 912 F.3d 316 (6th Cir. 2018). In that case, the
district court reached two key rulings on summary judgment: (1) the plaintiff would be
entitled to partial summary judgment on liability but for a genuine dispute over the
defendant’s laches defense, and (2) the plaintiff’s proposed damages methodology was
impermissible. Id. at 325–26. The parties then (1) stipulated that the defendant’s laches
11
defense was not a bar to a judgment for only nominal damages and (2) agreed to the entry
of a judgment awarding one dollar of nominal damages, on the understanding that the
plaintiff could prove only nominal damages without the damages methodology that had
been rejected by the district court. See id. at 326. This resolved all outstanding questions
about damages and liability, and the Sixth Circuit found the judgment final. The court
explained that the parties may “stipulate to issues or theories that they are electing not to
pursue,” provided that their stipulation remains binding on remand. Id. at 330. The Sixth
Circuit confirmed that, on remand, the parties would in fact continue to be bound by their
agreements: the defendant could not argue laches to resist a judgment for only nominal
damages, and the plaintiff could not obtain more than nominal damages unless it
prevailed on the damages methodology the district court had rejected. See id. at 332,
344. That distinguished the case from Microsoft and Humbert, which involved the
“conditional dismissal of unresolved claims [or issues], in which the party reserves the
right to reinstate those claims [or issues].” Id. at 330 (alterations in original) (quoting
Page Plus of Atlanta, Inc. v. Owl Wireless, LLC, 733 F.3d 658, 659 (6th Cir. 2013)).
The lesson of these cases is that parties may not gin up appellate jurisdiction by
entering into a stipulation that is directly conditioned on the outcome of an appeal. For
example, the parties may not “stipulate” to the amount of damages but provide that their
agreement is void on remand if the court of appeals does anything but affirm. Such an
agreement is not really a stipulation at all. A true stipulation is a conclusive resolution of
a factual issue that is binding for the rest of the litigation; it does not evaporate after
appeal. See Christian Legal Soc’y v. Martinez, 561 U.S. 661, 677–78 (2010) (“But
12
factual stipulations are formal concessions that have the effect of withdrawing a fact from
issue and dispensing wholly with the need for proof of the fact. Thus, a judicial
admission is conclusive in the case.” (cleaned up)). Courts usually let parties out of their
stipulations only under certain limited conditions. See generally 22A CHARLES ALAN
WRIGHT & KENNETH W. GRAHAM, JR., FEDERAL PRACTICE & PROCEDURE § 5194.3 (2d
ed.) (discussing circumstances where courts have relieved parties from stipulations).
But parties often enter into stipulations that, while more durable than the one in
Humbert, are rationally conditioned on some other factual or legal issue, independently of
which particular court resolves it. 4 Cases are legion where the parties stipulate to a set
amount of damages if liability is established. Of course, the real-world effect of such a
stipulation may turn indirectly on the result of an appeal: if the appellate court reverses
and the defendant is found not liable, then the stipulation ultimately has no practical
consequence. Even so, the courts of appeals have never hesitated to review district
courts’ rulings on liability in such cases. See, e.g., Marshall v. Emersons Ltd., 593 F.2d
565, 567 (4th Cir. 1979); Ardente v. Standard Fire Ins. Co., 744 F.3d 815, 817 (1st Cir.
2014); Royal & Sun All. Ins., PLC v. Int’l Mgmt. Servs. Co., 703 F.3d 604, 607 (2d Cir.
2013); Stolt Achievement, Ltd. v. Dredge B.E. LINDHOLM, 447 F.3d 360, 371 (5th Cir.
2006). That is because our justice system prizes the private resolution of disputes, either
4
The stipulation in Innovation Ventures was conditional in this sense: the
defendant stipulated that, if the judgment was for only nominal damages, then the defense
of laches was unavailable (a condition that apparently had some colorable support in
Michigan law). See 912 F.3d at 326.
13
in whole or in part. Such agreements allow the parties to manage the cost and risk of
litigation, while also reducing the strain on the courts. We therefore permit the parties to
stipulate to some issues and have the trial court resolve the rest, and we do not impose
penalties—such as loss of the right to appeal the issues the district court actually
decided—for doing so.
We see no reason why a valid stipulation on damages cannot turn on the scope, as
opposed to the bare existence, of liability. Such stipulations are quite sensible as a matter
of legal doctrine and practice. As a doctrinal matter, the amount of damages will almost
always turn on the scope of liability. 5 And as a practical matter, stipulating to what
damages would be if the scope of liability is broad may avoid protracted, complex
proceedings to calculate damages. Cf. Microsoft, 137 S. Ct. at 1712 (recognizing that
finality under Section 1291 is to be given a practical construction). The point is that such
a stipulation must be a binding one, not one that vanishes as soon as we vacate the district
court’s order on liability.
We conclude that the parties here entered into a valid stipulation providing a
damages amount predicated on the scope of liability.
5
We would be more skeptical if the stipulation did not make sense as a doctrinal
matter. For example, the plaintiff in Microsoft surely could not get around the Supreme
Court’s holding by “stipulating” that its individual claims failed if class certification was
denied. Such a condition would make no sense: the legal viability of an individual claim
does not turn on class certification (although the opposite is sometimes true). But we do
not have that problem here, because it is perfectly logical—indeed, virtually inevitable—
that the amount of damages will turn on the scope of liability.
14
The stipulated final judgment stated that “Defendants consent to damages in the
amount of $26,900,000 for Sprint’s tortious interference claim.” J.A. 678. A footnote
added: “Plaintiffs and Defendants both expressly reserve all rights to appeal the Court’s
rulings regarding liability, and any prior rulings in this case. The Parties further reserve
the right, as may be allowed by law, to contest the amount of damages in the event that
Defendants’ appeal on liability is successful.” J.A. 678 n.1.
We asked for supplemental briefing because the judgment seems to say that the
parties’ damages stipulation, like the one in Humbert, is conditioned on the outcome of
this appeal. In their briefs, both parties disavow such an interpretation of the judgment.
They agree that the qualifying phrase “as may be allowed by law” means that they cannot
escape from their stipulation simply because we reverse or vacate the district court’s
ruling on liability. While the parties may not create appellate jurisdiction by consent, we
may of course defer to their shared understanding of the stipulated judgment. Here, the
phrase “as may be allowed by law” is arguably ambiguous: it clearly contemplates that
the parties can escape their agreement on damages under some circumstances, leaving
open what those circumstances are. Deferring to the parties, we will interpret “as may be
allowed by law” to contemplate only those narrow circumstances when a party can be
relieved from a stipulation. Cf. Waugh Chapel South, LLC v. United Food &
Commercial Workers Union Local 27, 728 F.3d 354, 359 (4th Cir. 2013) (reinterpreting
voluntary dismissal “without prejudice to refiling in any other proceeding” as a dismissal
15
with prejudice, in order to “police[] the boundaries of our appellate jurisdiction without
punishing the litigants in this appeal”). 6
The parties thus agree that the judgment reflects a damages stipulation that will
remain binding on remand. They less clearly agree on the content of this stipulation.
Sprint has asserted that the damages stipulation turns only on the bare fact of liability,
meaning that Wireless Buybacks is on the hook for the full $26.9 million once any
liability for tortious interference is established. In context, however, we think the
judgment is best interpreted to reflect a stipulation of what Sprint’s damages are if
Wireless Buybacks’ scope of liability is as the district court determined on summary
judgment.
This case is about four categories of phones: (1) leased phones, where those
customers had not exercised their purchase option; (2) installment-purchase phones,
where the customers had not paid off the phones in full; (3) other phones that were active
on Sprint’s network; and (4) phones that customers had bought outright from Sprint but
that were not active on Sprint’s network. Sprint argues that its customers were forbidden
by contract from reselling all four categories of phones. Both before the district court and
on appeal, Wireless Buybacks has conceded the point for categories (1), (2), and (3). It
disagrees with Sprint on category (4), insisting that customers had the contractual right to
resell such phones.
6
Admittedly, we might reach a different result without the parties’ agreement on
this point. Litigants would do well to take greater care in crafting such judgments.
16
The district court ruled for Sprint on the category (4) phones. The parties then
prepared for a trial on damages. The key questions at such a trial would naturally be how
many phones Wireless Buybacks wrongfully induced customers to sell (a number Sprint
claims is well over 100,000) and how much harm Sprint suffered as a result. Sprint
would bear the burden of proof on these issues, which would presumably require expert
testimony. And Wireless Buybacks would have to counter this evidence, likely through
its own experts. All that would have been an expensive task for both sides and consumed
significant judicial resources. The parties could relieve themselves and the court from
these burdens by agreeing what the damages would be if Wireless Buybacks were, in fact,
liable for inducing the resale of all four categories of phones. And we think the judgment
is best interpreted to reflect just such a stipulation, at least once we have set aside the
interpretation both parties have disavowed.
This stipulation is real and will remain binding on remand (unless, as noted above,
there is some lawful basis for relieving the parties from the stipulation). If Wireless
Buybacks is ultimately found liable for all four categories of phones, then damages will
be at the stipulated amount. This effectively caps Sprint’s damages. It also limits certain
arguments Wireless Buybacks wants to make. Wireless Buybacks argues that Sprint has
improperly sought damages for phones that were not directly obtained from Sprint
customers, but bought from reputable wholesalers. Yet the district court did not address
such phones in its summary-judgment order; it only considered phones that Wireless
Buybacks induced Sprint customers to sell. While Wireless Buybacks had the right to
contest whether Sprint had correctly identified these phones as falling within the scope of
17
the district court’s liability ruling, it gave up that right by stipulating to damages.
Wireless Buybacks can revisit that issue only if it is ultimately found not liable for the
category (4) phones.
Sprint claimed at oral argument that it should get the full stipulated damages
amount even if Wireless Buybacks is found liable for phones in categories (1) through (3)
but not (4). This reading of the stipulation simply is not reasonable in the context of this
litigation. The primary issue at summary judgment—both before the district court and
before us—concerns the category (4) phones. Sprint’s interpretation would effectively
leave Wireless Buybacks unable to appeal the district court’s liability ruling, rendering
the parties’ stipulation nonsensical. We therefore reject this argument.
III.
We now turn to Sprint’s tortious-interference claim. The main issue in this appeal
is whether Sprint’s contract with its customers forbade them from reselling phones owned
by customers outright but not active on Sprint’s network. The parties agree that this issue
is governed by Maryland law, which follows an “objective” approach to contract
interpretation. Dumbarton Improvement Ass’n v. Druid Ridge Cemetery Co., 73 A.3d
224, 232 (Md. 2013). Under this approach, the court must first look to the written
language of the contract to determine whether it is “susceptible of a clear, unambiguous
and definite understanding.” Id. (quoting Wells v. Chevy Chase Bank, F.S.B., 768 A.2d
620, 630 (Md. 2001)). In making this determination, the court must consider the contract
“in its entirety and, if reasonably possible, effect must be given to each clause so that a
court will not find an interpretation which casts out or disregards a meaningful part of the
18
language of the writing unless no other course can be sensibly and reasonably followed.”
Id. at 233 (quoting Sagner v. Glenangus Farms, Inc., 198 A.2d 277, 283 (Md. 1964)). If
the contract is unambiguous, then the court construes it as a matter of law. Id. at 232. If
the contract is ambiguous—that is, “susceptible to multiple interpretations by a
reasonable person”—the court turns to extrinsic evidence to discern what the parties
intended in adopting the contract. Id. at 233–34.
The district court agreed with Sprint that, based on several terms of the contract, it
unambiguously prohibited Sprint customers from reselling all Sprint phones. Wireless
Buybacks argues that the contract is ambiguous, relying on the Tenth Circuit’s decision
in Sprint Nextel Corp. v. Middle Man, Inc., 822 F.3d 524 (10th Cir. 2016), which
interpreted the same contractual language before us. Whether the contract is ambiguous
presents an issue of law that we review de novo. Based on our review, we agree with
Wireless Buybacks that the contract is ambiguous.
A.
Sprint first relies on the “Nature of our Service” clause, which states: “Our rate
plans, customer devices, services and features are not for resale and are intended for
reasonable and non-continuous use by a person using a device on Sprint’s networks.”
J.A. 741. We think that this language, read in context, is susceptible of a clear and
definite interpretation: it is a background statement of intent, not an enforceable promise
not to resell Sprint phones.
Contracts often contain recitals: provisions that do not make binding promises but
merely recite background information about factual context or the parties’ intentions.
19
Maryland law recognizes the general principle that such recitals are not binding and,
while they may aid the court in interpreting the contract’s operative terms, cannot
displace or supplement operative terms that are clear. See Pulaski v. Riland, 86 A.2d
907, 910 (Md. 1952); Cty. Comm’rs of Charles Cty. v. Panda-Brandywine, L.P., 663 F.
Supp. 2d 424, 430 (D. Md. 2009), aff’d, 401 F. App’x 831 (4th Cir. 2010). While such
recitals are often set forth at the beginning of the agreement in “whereas” clauses, that is
not always the case. See, e.g., Aramony v. United Way of America, 254 F.3d 403, 406,
413 (2d Cir. 2001) (concluding section titled “Purpose of the Plan” in ERISA plan
document consisted of nonbinding recitals).
Here, several factors convince us that the “Nature of the Service” clause is a
recital providing background information about the parties’ intent. The first is its
language. The clause says that Sprint’s devices “are not for resale” and “are intended for
reasonable and non-continuous use.” J.A. 741 (emphases added). This is the language of
description, not promise. The clause states as a factual matter what the parties’ intent is,
not as a contractual matter what either party must do. Cf. Pulaski, 86 A.2d at 910
(holding a recital stating that the parties “have determined herewith to settle their
property rights” was not binding and that “we must look to the operative part of the
agreement to find out what the parties actually did”). By contrast, other provisions in the
contract do impose obligations on customers. See, e.g., J.A. 746 (“You cannot in any
manner resell the Services to another party.”) (emphasis added).
The second relevant feature is the caption, “Nature of our Service,” which
suggests that this clause is descriptive.
20
Third, as the Tenth Circuit has observed, disclaimers about a product’s intended
purpose abound but are not generally thought of as contractual promises. A board game
might be marked “not for children under 8 years of age,” but that does not create a
contractual promise not to let young children play it. Middle Man, 822 F.3d at 533. Of
course, context matters: the “Nature of our Service” clause is part of a binding contract,
not on product packaging. Yet this clause resembles nonbinding statements of intent that
are typically not thought of as binding promises.
Finally, the subject matter of the clause also suggests that it is a disclaimer rather
than a binding contractual promise. Whether an item is “for resale” can have regulatory
consequences. For example, under federal wage-and-hour laws, certain retail employees
paid on commission are exempt from overtime requirements, 29 U.S.C. § 207(i), and
regulations identify retail establishments based on the percentage of goods and services
“not for resale,” 29 C.F.R. § 779.411. This tends to suggest the clause is not a promise,
but just a statement of intent designed to ensure that Sprint is treated as a retailer, not a
wholesaler, for regulatory and other purposes.
Putting all this together, we conclude this clause is a background recital. That
does not mean that this term is irrelevant: it may help interpret the contract’s operative
terms if they are unclear. But it is not a contractual promise.
21
B.
Next, Sprint relies on a provision of the contract stating: “You cannot in any
manner resell the Services to another party.” J.A. 746, 751. 7 This provision, in and of
itself, is not ambiguous: everyone agrees that it prohibits reselling “Services.” The
ambiguity arises when we try to discern the meaning of “Services,” a term that the
contract defines to include various things:
“Service” means Sprint-branded or Nextel-branded offers,
rate plans, options, wireless services, billing services,
applications, programs, products, or Devices on your account
with us. “Service(s)” also includes any other product or
service that we offer or provide to you that references these
General Terms and Conditions of Service (“Ts&Cs”).
J.A. 744.
Sprint has two theories for why “Services” unambiguously include all upgraded
phones, even ones that are not active on Sprint’s network. First, it argues, all phones sold
by Sprint are “Devices on your account with us.” 8 Second, each phone is a “product . . .
that references” the terms and conditions. We conclude that neither theory supports
summary judgment for Sprint.
7
For whatever reason, this exact same language appears in two places in the
contract.
8
Sprint must also show, to invoke this provision of the contract, that the phones
are “Sprint-branded or Nextel-branded.” At least here, Wireless Buybacks concedes that
they are.
22
1.
We start with the phrase “on your account with us.” Here, the word “account”
appears to be used in the sense of a “detailed statement of the debits and credits between
parties to a contract or to a fiduciary relationship; a reckoning of monetary dealings.”
Account, BLACK’S LAW DICTIONARY (10th ed. 2014).
In everyday language, there are at least two senses in which a phone can be “on” a
customer’s “account.” The first sense includes any historical transaction associated with
the account. If a customer purchases a phone from Sprint, the purchase of the phone is a
historical fact that will remain “on” his account statement no matter if the phone is ever
connected to Sprint’s network. Yet common sense suggests that if a phone can be placed
“on” the account, then it can also be taken “off.” Reflecting this intuition, there is a
second sense in which something is “on” a customer’s account only so long as he has
some outstanding obligation with respect to it. A phone would remain “on” a Sprint
customer’s account if, for example, the phone is not fully paid for or is still being used to
access Sprint’s services. But the phone would come “off” the account once the customer
owns the phone outright and it is disconnected from Sprint’s network, ending the
customer’s obligations to Sprint with respect to that phone.
Thus, the phrase “on your account” is susceptible to two readings, at least when
viewed in isolation. That does not end our analysis, because Maryland law requires us to
examine the phrase in context before holding it ambiguous. See, e.g., Weichert Co. of
Maryland v. Faust, 19 A.3d 393, 404–06 (Md. 2011); Ocean Petroleum, Co. v. Yanek, 5
A.3d 683, 691–93 (Md. 2010). Yet context also pulls us in different directions.
23
The contextual clue offering the best support for Sprint’s interpretation comes
from the canon against surplusage. 9 Under Maryland law, we must avoid redundancies,
giving meaning to each word and clause in the contract if we reasonably can. E.g., Orkin
v. Jacobson, 332 A.2d 901, 904 (Md. 1975). Wireless Buybacks’ interpretation of the
definition of “Services” arguably creates a redundancy in the definition of “Devices.”
“Devices” include all phones “active on your account with us.” The word “active” thus
appears to be redundant if Wireless Buybacks is correct that “on your account with us” is
already limited to activated phones.
Yet this surplusage argument is hardly a slam dunk. First, it is not clear that there
is a redundancy. Under the narrower interpretation, a phone could be “on” the
customer’s account because the customer still has not fully paid for it, even if it is not
active on Sprint’s network. Moreover, even if there is a redundancy, the canon against
surplusage is not absolute, and Maryland law will tolerate redundancies if “no other
course can be sensibly and reasonably followed.” Dumbarton, 73 A.3d at 233 (quoting
Sagner, 198 A.2d at 283). Other contextual clues support an argument that Sprint’s
interpretation cannot, in fact, be reasonably followed.
9
At first glance, the “Nature of our Service” clause also supports Sprint’s
argument that customers were forbidden from reselling their phone. But on further
examination, this clause is not so helpful to Sprint because the relevant ambiguity lies in
the definition of “Services,” not in the resale prohibition itself. And in one sense, the
“Nature of our Service” clause is unhelpful to Sprint because it treats “customer devices”
and “services” as separate terms.
24
The strongest clue working in Wireless Buybacks’ favor is the term being defined:
“Services.” When a definition is unclear, “the usual criteria of interpretation . . . are
brought to bear. Far and away the most important of those is the contextual factor of the
word actually being defined.” ANTONIN SCALIA & BRYAN A. GARNER, READING LAW
§ 36, at 228 (2012). And when a customer buys a product outright, we usually consider
the product a “good,” not a “service.” This common-sense understanding suggests that
the phones at issue are not “Services.” Of course, one can see why phones that are
actively connected to Sprint’s network would still be considered “Services” under the
contract: such phones represent the gateway through which customers access the
network. Thus, if I resell my activated phone to my neighbor, I am effectively reselling
my cell service as well. But such reasoning does not apply to phones disconnected from
the network.
The way that “Services” is used in the contract bolsters this argument. For
example, a customer “can terminate Services at any time by calling us and requesting that
we deactivate all Services.” J.A. 745. It is hard to see how Sprint could “terminate” or
“deactivate” a phone that is already disconnected from its network. Similarly, Sprint
“may at any time require a deposit as a guarantee of payment for you to establish or
maintain Service.” Id. Yet there is no sense in which a customer can “establish or
maintain” a phone that is disconnected from the network, nor would it make sense for
Sprint to require a deposit so that the customer can continue to have something he owns.
Sprint’s interpretation would also create tension between the written terms and
conditions that apply to all Sprint phones and the separate agreements specific to phones
25
that are leased or billed on an installment basis. Those separate agreements provide that
customers cannot resell phones until they are fully paid for. Under Sprint’s
interpretation, the broad resale prohibition in the terms and conditions of service would
swallow up the more limited resale prohibitions in these agreements, continuing to
prohibit the resale of these phones even after they are fully paid for.
For these reasons, we join the Tenth Circuit in concluding that “on your account
with us” is ambiguous. See Middle Man, 822 F.3d at 532–33. Indeed, we note that
Sprint and its agents have not adopted a consistent understanding of what it means for a
phone to be “on your account with us.” For example, one of Sprint’s employees has
taken the view that an upgraded phone is no longer subject to the resale prohibition “after
the customer has completely satisfied its financial obligations with Sprint” (which seems
to mean after the two-year renewal period following the upgrade). J.A. 894. This
narrower view makes economic sense, but we have trouble seeing how it emerges from
the language of the contract. Thus, Sprint adopted a broader view at oral argument,
suggesting that a phone would remain “on” the customer’s account so long as there is any
reference to the phone in Sprint’s internal records. Yet this broad interpretation—which
makes the scope of “Services” depend on the vagaries of Sprint’s record-keeping
practices—hardly seems compelling. 10 Indeed, under this view, customers would
10
Wireless Buybacks argues that such a broad prohibition on resale would violate
the common law rule against restraints on alienation. Cf. Hoffman v. L & M Arts, 838
F.3d 568, 582–83 (5th Cir. 2016) (interpreting contract to avoid promissory restraint on
resale of painting, which would be disfavored under Texas law). It is unclear whether
Wireless Buybacks adequately preserved this issue for appeal: it raised the issue in a
(Continued)
26
apparently be banned from reselling not just phones, but also accessories like chargers
and cases, for years. Cf. Ramlall v. MobilePro Corp., 30 A.3d 1003, 1016 (Md. Ct. Spec.
App. 2011) (“A contract should not be construed to produce a result that is absurd,
commercially unreasonable or contrary to the reasonable expectations of the parties.”).
Sprint’s own difficulty articulating what “on your account with us” means confirms our
conclusion that it is ambiguous.
2.
Sprint alternatively argues that phones qualify as “Services” because they are “any
other product or service that we offer or provide to you that references these General
Terms and Conditions of Service.” J.A. 744. While the district court did not pass on this
theory, we conclude that it cannot support the district court’s grant of summary judgment
in Sprint’s favor.
Sprint’s only evidence that its phones “reference” the contract consists of a single
sentence in an employee declaration, which states that the written terms and conditions
“are set forth in printed inserts that are included with the purchase of every Sprint
Phone.” J.A. 721. But this statement is too vague to support a grant of summary
judgment in Sprint’s favor. Does the printed insert come in the same box as the phone?
Or is it provided in a separate envelope along with other details about cellular service?
footnote in its summary judgment brief, and obliquely at that. In any event, the district
court did not address this issue, and we decline to do so in the first instance.
27
Are other products and devices provided at the same time? Such details might matter in
applying the contract, but Sprint has not provided them.
Even if the facts were clearer, in order to obtain summary judgment, Sprint would
also need to explain why the language of the contract—“references these General Terms
and Conditions”—is unambiguously satisfied by a printed insert. One can imagine
clearer ways for a phone to “reference” the contract. For example, perhaps the phone’s
screen could display the terms and conditions when it starts up for the first time. In light
of such considerations, we do not think Sprint has adequately explained how the contract
unambiguously supports its interpretation.
Even so, we find it unnecessary to conclude whether this part of the definition of
Services is ambiguous. We hold simply that the record evidence before us is too thin to
support a grant of summary judgment in Sprint’s favor.
C.
Sprint also argues that it is entitled to summary judgment even if the contract is
ambiguous. It claims that Wireless Buybacks has introduced no extrinsic evidence
showing that Sprint customers interpreted the contract to permit them to resell their
phones, meaning there is no genuine issue of material fact to present to a jury. Here too,
we find Sprint’s argument uncompelling.
As we have explained, it is possible for a contractual ambiguity to be resolved at
summary judgment based on extrinsic evidence:
Even where a court . . . determines as a matter of law that the
contract is ambiguous, it may yet examine evidence extrinsic
to the contract that is included in the summary judgment
28
materials, and, if the evidence is, as a matter of law,
dispositive of the interpretative issue, grant summary
judgment on that basis. If, however, resort to extrinsic
evidence in the summary judgment materials leaves genuine
issues of fact respecting the contract’s proper interpretation,
summary judgment must of course be refused and
interpretation left to the trier of fact.
Washington Metro. Area Transit Auth. v. Potomac Inv. Properties, Inc., 476 F.3d 231,
235 (4th Cir. 2007) (quoting Goodman v. Resolution Trust Corp., 7 F.3d 1123, 1126 (4th
Cir. 1993)).
The problem for Sprint is that its burden is higher than it thinks. Maryland courts
apply the contra proferentem rule: if the contract remains ambiguous even after
examining all available extrinsic evidence, then the ambiguity is resolved against the
drafter. See, e.g., John L. Mattingly Constr. Co. v. Hartford Underwriters Ins. Co., 999
A.2d 1066, 1078 (Md. 2010); N. River Ins. Co. v. Mayor & City Council of Baltimore,
680 A.2d 480, 483 (Md. 1996). 11 It is undisputed that Sprint is the drafter of its terms
and conditions; indeed, this is a classic contract of adhesion that Sprint presents to its
customers on a take-it-or-leave-it basis. Thus, if the extrinsic evidence is a push, Sprint
does not win; Wireless Buybacks does.
Moreover, not just any extrinsic evidence will do: under Maryland law, it must
tend to show what ambiguous language in the contract meant at the time it was entered
11
While nearly all Maryland cases applying the contra proferentem rule concern
insurance agreements, they explain that the rule reflects “general principles of contract
construction.” Empire Fire & Marine Ins. Co. v. Liberty Mut. Ins. Co., 699 A.2d 482,
494 (Md. Ct. Spec. App. 1997).
29
into. “Even when the use of extrinsic evidence is appropriate, it should first be directed
at resolving the ambiguity in the language, and the clarified language should, in turn, be
used to ascertain intent.” Dumbarton, 73 A.3d at 236 (citation omitted). That is,
extrinsic evidence must be directed to the relevant ambiguity in the contractual language:
the definition of “Services.” Subjective beliefs about the ultimate issue—whether the
contract forbids customers from reselling phones—are not especially helpful when
untethered to the contractual language. The evidence must also have some bearing on the
parties’ intent at the time of contracting. See, e.g., id. at 237 (explaining that evidence of
how parties interpreted a restrictive covenant years after it was agreed to did “little to
resolve” the ambiguity in question).
Looking at the record before us, we do not see any extrinsic evidence so clear that
a reasonable jury would have to resolve the ambiguous definition of “Services” in
Sprint’s favor. We therefore cannot affirm the district court’s grant of summary
judgment on this basis.
IV.
So much for the alleged promise not to resell Sprint phones. Sprint also seeks to
invoke a different promise: it claims that Sprint customers agreed to activate their
upgraded phones on Sprint’s network. Customers allegedly violated this promise when
they sold the phones to Wireless Buybacks without activating them.
Sprint’s challenge lies in proving that customers ever made such a promise.
According to a declaration submitted by one of Sprint’s employees, this promise appears
in Sprint’s written contract. J.A. 721. But the declaration is patently wrong: the contract
30
contains no such promise. 12 Instead, this promise appears to come from communications
between Sprint employees and customers during the upgrade process. In one email, a
Sprint employee explained that, in exchange for the discounted phones, it expected
“device activation on the same business account that the device was ordered within 60
days from original shipment date.” J.A. 771.
We see two hurdles Sprint must overcome to prove this theory. First, it must show
how this promise is compatible with the contract’s integration clause: “The Agreement
and the documents it incorporates make up the entire agreement between us and replaces
all prior written or spoken agreements—you can’t rely on any contradictory documents or
statements by sales or service representatives.” J.A. 751. At first blush, the email quoted
above is just such a “prior written or spoken agreement[].” Indeed, the email
contemplated that the customer would enter into a “new 2-year Service Agreement,” J.A.
771, which would then “replace” anything the email said, J.A. 751.
To be sure, Sprint might be able to find a way around this first obstacle. For
example, the contract incorporates by reference “transaction materials that we provide or
refer you to during the sales transaction.” J.A. 744. Perhaps Sprint could show that
emails from its employees are “transaction materials” incorporated into the contract. Yet
this seems hard to square with the contract’s disavowal of all “prior written or spoken
12
Of course, when an affidavit attaches a document and misdescribes its contents,
it is the document itself, not the description in the affidavit, that controls. See Smith v.
Ozmint, 578 F.3d 246, 254 (4th Cir. 2009) (testimony “blatantly contradicted by the
record” does not create a genuine issue of material fact (quoting Scott v. Harris, 550 U.S.
372, 380 (2007)).
31
agreements,” particularly those with “sales or service representatives.” J.A. 751.
Alternatively, the contract contemplates that “[a]dditional terms will apply when you use
certain applications, programs, Devices, and services, and these terms will be provided to
you prior to your use of the items.” J.A. 744. But this too is an awkward fit: the promise
to activate the device is not a term that applies “when [customers] use” upgraded phones,
but rather a promise to use upgraded phones.
We need not decide whether Sprint can overcome that first hurdle, because it does
not clear the second: it fails to show that Wireless Buybacks bought phones from Sprint
customers who accepted this term. There is no record evidence that all Sprint customers
made this promise during their communications with Sprint employees. Rather, the only
evidence appears to be the lone email quoted above. This email does not show that the
customer who received it ultimately agreed to receive an upgraded phone, much less that
Wireless Buybacks induced the customer to resell it. Therefore, this theory cannot
support an award of summary judgment in Sprint’s favor.
V.
Finally, we will briefly address the parties’ remaining arguments. First, Wireless
Buybacks argues that there was a genuine issue of material fact about its intent, because
there was evidence showing it had a good-faith belief that the contract permitted
customers to resell their phones. But we find no reversible error in this part of the district
court’s order because, for Sprint to prevail on its tortious-interference claim, it need not
show that Wireless Buybacks subjectively believed that reselling phones was prohibited
by the contract. As Maryland courts have explained:
32
[I]t is not necessary that the actor appreciate the legal
significance of the facts which give rise to the contractual
duty. If he knows those facts, he is subject to liability even
though he is mistaken as to their legal significance and
believes that there is no contract or that the contract means
something other than what it is judicially held to mean.
Daugherty v. Kessler, 286 A.2d 95, 98–99 (Md. 1972) (quoting Stannard v. McCool, 84
A.2d 862, 867 (Md. 1951) (quoting Restatement of Torts § 766 cmt. d (Am. Law Inst.
1939))); see also Restatement (Second) of Torts § 766 cmt. i (Am. Law Inst. 1979)
(similar). Here, undisputed evidence shows that Wireless Buybacks (1) knew that Sprint
had a contract with its customers, (2) knew the terms of that contract (or at least, could
easily have discovered them—the contract was on Sprint’s website), and (3) intentionally
induced at least some Sprint customers to resell their phones. While Sprint must prove
that its ambiguous contract in fact prohibited resale of the phones, it need not show that
Wireless Buybacks believed as much.
Next, Wireless Buybacks takes aim at the district court’s damages ruling. The
court found that Wireless Buybacks had raised genuine questions about the amount of
harm Sprint had suffered, but not the fact that Sprint was harmed to some degree.
Wireless Buybacks argues the district court got this wrong. We find this argument hard
to square with Wireless Buybacks’ stipulation that, if it in fact committed tortious
interference with respect to all of the phones at issue, then Sprint suffered $26.9 million
in damages. We therefore conclude this argument is not properly presented in this
appeal.
33
There is a similar flaw in Wireless Buybacks’ third argument. Wireless Buybacks
asserts that the district court erroneously held it liable for phones that it did not induce
customers to sell. But the district court’s summary-judgment order did no such thing—it
merely held that Wireless Buybacks was liable for inducing at least some customers to
resell their phones, leaving open the number of times that happened. Sprint necessarily
retained the burden, at the damages stage, to show how many phones Wireless Buybacks
induced Sprint customers to resell. Rather than hold Sprint to that burden, Wireless
Buybacks chose to stipulate to the scope of the district court’s order and, ultimately, to
damages. Therefore, as we have already explained in our jurisdictional analysis, this
issue is also not before us.
Finally, Sprint argues that Wireless Buybacks should be held liable even if the
written contract does not prohibit the resale of phones. That is because Wireless
Buybacks’ business practices allegedly led some customers to cancel their contracts.
And it is true that, under Maryland law, liability for tortious interference can arise even
without a breach of contract if the defendant maliciously or wrongfully causes the
“destruction of the [plaintiff’s] business relationship,” for example by inducing a third
party to terminate its contract with the plaintiff. Kaser v. Fin. Prot. Mktg., Inc., 831 A.2d
49, 54 (Md. 2003) (quoting Med. Mutual Liability Soc’y of Maryland v. B. Dixon
Evander & Assocs., Inc., 660 A.2d 433, 439 (Md. 1995)). But Maryland courts have
further explained that tortious interference “is characterized by the defendant’s specific
purpose to interfere, and . . . acts which incidentally affect another’s business
relationships are not a sufficient basis for the tort.” Alexander & Alexander Inc. v. B.
34
Dixon Evander & Assocs., Inc., 650 A.2d 260, 270 (Md. 1994). We have our doubts that
Sprint has shown, in the absence of a breach of contract, that Wireless Buybacks acted
with the intent to disrupt Sprint’s relationship with its customers. Still, we decline to
decide the issue, which was not addressed by the district court.
VI.
In sum, Sprint’s terms and conditions do not unambiguously prohibit customers
from reselling their phones, and so Sprint was not entitled to judgment as a matter of law.
We therefore vacate the district court’s summary-judgment order insofar as it found
Wireless Buybacks liable for tortious interference and remand for further proceedings
consistent with this opinion.
VACATED AND REMANDED
35