T-Mobile hit with dealer lawsuit over post-merger closures

SANTA ANA, Calif. (CN) — Cellphone retailer HIT Mobile has hit telecom giant T-Mobile with a $60 million lawsuit claiming a pattern of "predatory business practices that destroyed HIT Mobile’s business."

The suit, filed in Orange County Superior Court on Friday, claims that T-Mobile set up a "preferred retailer Latino program" in 2009 that incentivizing certain authorized dealers in Latino communities with "generous business terms, as well as capital, support, and training." But, HIT Mobile claims, "those promises — and T-Mobile’s commitment to the Latino community — proved hollow."

As part of its partnership with T-Mobile, HIT Mobile ambitiously expanded its business, taking on $21 million in debt. But the company claims after T-Mobile merged with Sprint in 2020, the new corporation forced HIT Mobile into a series of unfavorable contracts and "forced HIT Mobile to close some of its most profitable locations," according to the lawsuit.

HIT Mobile contends its stores were closed so as not to compete with T-Mobile's corporate-owned stores.

"The closures were designed to benefit T-Mobile’s corporate stores at the expense of its dealer-owned stores," HIT Mobile says in its complaint. "When T-Mobile decided to close HIT Mobile’s high-performing store in Long Beach, California, HIT Mobile asked its account manager for justification. The account manager sent HIT Mobile a text message from his superior showing the ring of T-Mobile corporate stores around HIT Mobile’s store, explaining that T-Mobile was closing stores to move traffic to its core, corporate-owned stores."

Eventually, HIT Mobile's owners sold their business at a valuation of $35 million — far less than the $90 million it was once worth, according to the company's complaint.

"HIT Mobile was forced to sell its devalued, remaining business to one of T-Mobile’s preferred dealers in November 2021 at a significant discount, resulting in losses over $60 million," the company claims.

T-Mobile's press team did not respond to an email requesting a comment. HIT Mobile's attorneys did not return a phone call requesting an interview.

HIT Mobile's suit comes on the heels of at least four similar complaints, filed in courts all over the country, against Sprint Mobile by independent dealers. Adam Wold, president of the National Wireless Independent Dealer Association, explained that before the merger, Sprint and T-Mobile dealers were often located near each other. The merger led to the closure of thousands of Sprint stores.

"These guys were at very least led to believe their businesses would be OK," Wolf said in an interview. "Sprint was telling these guys, 'Go open as many stores as possible.' When the deal went through, T-Mobile went, 'Ehhhh, not so much.'"

The problem, Wolf said, lies in the relationship between the telecom corporations and the independent dealers, who effectively operate as franchises — though they are technically not franchises, and therefore ineligible for certain legal protections afforded to, say, a McDonald's franchise.

"HIT Mobile was in a mislabeled and fraudulently disclaimed franchise relationship with T-Mobile, who unlawfully terminated that franchise relationship," HIT Mobile says in its complaint.

The company seeks actual, punitive and treble damages plus attorney's fees. It is represented by Vincent Parrett and Sarah Glendon of Kilpatrick Townsend & Stockton in San Francisco.

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