Uniden awaits penalty in dispute over phone deal
"There’s a theme here, a repeated theme that Uniden makes a deal, reaches an understanding, and then unilaterally or secretly changes it in its own favor or ignores the deal that it made," said attorney Jeffrey Crockett, who represented Topp for the Coffey Burlington firm in Miami, during closing arguments on March 10. Paul Schwiep and David Zack of the firm also represented Topp. Daily Business Review (March 20, 2008)

Contract Law
Uniden awaits penalty in dispute over phone deal
March 20, 2008
By: John Pacenti, Daily Business Review

When it comes to electronics, consumers can be a fickle bunch.

Industry estimates are that 6 percent to 10 percent of all electronic items purchased are returned. Most items have nothing wrong with them. Customers have buyer's remorse or they don’t like the colors or reject them as unwanted gifts.

But returns for electronics are big business, a Miami federal jury recently learned. Jurors found the U.S. subsidiary of Japanese electronics maker Uniden liable in a dispute with a Miami company over refurbished phones.

Now, Uniden could end up paying millions to Topp, the defunct company that refurbished returned Uniden cordless telephones and sold them in the United States, Latin America and the Caribbean.

Fort Worth, Texas-based Uniden America and Topp signed an $8 million exclusive agreement in 2003 allowing Topp to collect, refurbish and resell all cordless phones returned to Wal-Mart and other retailers — otherwise known as "B-stock."

Topp made money on the phones that are returned for reasons other than defects. They lose money on phones that require extensive repairs.

The Miami federal jury concluded March 11 that Uniden America violated an exclusive agreement by skimming the better phones and passing the more defective products on to Topp.

"There's a theme here, a repeated theme that Uniden makes a deal, reaches an understanding, and then unilaterally or secretly changes it in its own favor or ignores the deal that it made," said attorney Jeffrey Crockett, who represented Topp for the Coffey Burlington firm in Miami, during closing arguments on March 10. Paul Schwiep and David Zack of the firm also represented Topp.

In court, Crockett said Uniden stood to make three or four times as much money by keeping the good phones. “It was a temptation too great for a company motivated by greed,” the attorney told the jury.

It was not all good news for the Miami company, though.

The jury also found after a six-day trial that Topp violated its contract with Uniden by not paying $2.2 million for phones it had received during the dispute.

Topp plans to seek compensatory damages in the $10 million range, and its lawyers plan to file a motion to allow the jury to consider punitive damages as well.

The compensatory damage segment of the breach of contract case is scheduled to start April 8 before Chief U.S. District Judge Federico Moreno.

"The result of Uniden"s actions has been that Topp was forced out of business and that the entire value of Topp as a going concern has been destroyed," according to a second amended complaint filed last April.

Topp was a privately owned electronics subsidiary that opened for business in 1988 and was part of the Topp Group, which operates other subsidiaries in the global positioning and cargo markets.

Company CEO Robert Rubin said there's "not much I can say until the damage portion of the trial is over, but we are pleased with the jury's verdict. I will have plenty to say when damages are determined."

Attorneys in the case declined to comment on the verdict because of the pending damages portion of the lawsuit.

Uniden is represented by Stanley Wakshlag and Amanda McGovern of Kenny Nachwalter in Miami, as well as lawyers from the firm of Alston & Bird in Atlanta. Wakshlag said the defense had no comment.

Uniden America’s parent, which is publicly traded on the Tokyo Stock Exchange, had 2006 revenue of $729 million. Uniden did not return a call for comment before deadline.

In many ways, the lawsuit between the two companies resembles a messy divorce.

Uniden and Topp became partners in the early 1990s when Topp became the Japanese company’s sole sales representative for new products in Latin America and the Caribbean, according to the complaint.

Topp sold new Uniden phones in Mexican locations of Wal-Mart, Sam’s Club and Costco until 2004 when the exclusive agreement was terminated.

Uniden then started selling new products directly to Topp’s customers and to third parties at substantially lower prices, Topp alleges in court documents.

Under a separate 2003 contract, Topp agreed to buy Uniden’s "as is" products returned to U.S. stores to refurbish them for resale. Topp paid about 30 cents on the dollar for the returns.

The contract called for Uniden to hand over all of its returned cordless phones except those used for Uniden’s customer repair, customer service and consumer direct sales.

Topp maintained Uniden's holdbacks under the refurnishing agreement "substantially reduced the price differential between new and refurbished products."

The Miami company also claimed the quality of the returned phones changed over time. At first some required minimal work to be sold, while others required extensive remanufacturing.

"Over the years, Topp had become familiar with the percentages of returned items for various types of products and their condition,” the lawsuit said. “Approximately one third were almost new."

Topp maintained its profit relied on receiving all of Uniden’s returned phones.

The jury also found Uniden wrongfully demanded Canadian firm Lectron terminate its relationship with Topp. The company had bought millions of dollars worth of refurbished Uniden phones from Topp.

"Lectron was vulnerable to this threat because it purchased products other than cordless phones from Uniden," the complaint reads.

Topp estimated it lost $400,000 in pending sales due to the alleged interference with Lectron.

Attorney Perry D. Smith said Topp filed its lawsuit in June 2005 and stopped payment on both new and returned phones it received from Uniden. He said Topp had credit problems and tried to manipulate the contracts in order to get phones that weren’t considered B-stock.

"Topp cannot take $2.2 million in phones and not pay for those phones any more than I can walk into the corner grocery store and walk out the front door with a loaf of bread and a half a gallon of milk and not pay for it," Smith said in closing arguments. "You can’t take a product and then not pay for it. It’s called stealing."

John Pacenti can be reached at jpacenti@alm.com or at (305) 347-6638.

The complaint filed in this case can be found here.