Arbitrator slams cell phone firms

Case results in $2.05 million award

Several cell phone stores across the Front Range have abruptly closed, apparently the result of a legal dispute between the owner of a wireless distribution firm and two cell phone retailers.

An arbitrator’s judgment in the case, handed down Jan. 24, ordered the two defendants to pay $2.05 million in damages to the owner of Advantage Wireless Inc.

Since Jan. 24, Wireless Depot stores — operating as Phone Connections– in Fort Collins, Longmont, Westminster and Colorado Springs have closed.

The awards are against Craig Auer and his Fort Collins-based business, Wireless Depot Inc.; and Rami Merheb and three of his Boulder-based companies, Corporate Plus Inc., Phones Plus Inc. and Wireless Choices Inc.

The three Merheb entities own more than 20 stores along the Front Range, while Wireless Depot operated seven stores.

The suit was filed by Victor Mitchell and his Englewood-based companies, Advantage Advisory Services Inc. and Advantage Wireless Inc.

The Denver-based arbitrator’s award confirmed allegations of breach of contract, civil conspiracy and conversion, a legal term for theft. The award also includes attorney’s fees and costs and nearly $500,000 in punitive damages.

“In my experience over 47 years, it’s very rare for arbitrators to award punitive damages,´ said Fort Collins attorney Gene Fischer, speaking as a member of the Colorado Trial Lawyers Association. “The facts of the situation would have to be quite egregious.”

The history of the case dates back to November 2000 when two former employees of a bankrupt company, Phone Connections, borrowed $375,000 from Advantage and its owner Victor Mitchell.

The men — Craig Auer and David Miller — used the funds to purchase the bankrupt company’s leases at several prime retail locations. As new business partners, Auer and Miller began operating the stores as Wireless Depot Inc. (but the signs at the stores still read Phone Connections).

Under conditions of the loan, the new corporation entered three-year exclusive subdealer contracts to provide AT&T, Verizon and Cricket wireless services through Advantage. If Wireless Depot defaulted on the loan, it would have to turn the assets and leases of the stores over to Advantage.

The parties then entered a restructuring agreement where Auer agreed to buy Miller’s interest in the company, pay off the loan and sign over the leases to Advantage, which would then be sub-leased back to Auer. But Auer never followed through with any of the contractual agreements, according to court documents.

Meanwhile, Merheb had established an exclusive subdealer agreement with Advantage. The deal allowed Corporate Plus Inc., one of Merheb’s three companies, to provide Cricket phone services through Advantage. Merheb also owns Phones Plus Inc. and Wireless Choices Inc.

The arbitrator’s award supported Advantage’s claim of civil conspiracy and conversion. The suit claimed Merheb and Auer struck a deal that would assign Corporate Plus as a managing entity of Wireless Depot. Auer began operating the stores under a new name and hired new employees.

By the beginning of March 2002, Auer’s stores stopped selling services through Advantage and began to use a competitor; and Corporate Plus stopped providing Cricket services through Advantage and also began selling them through a competitor, according to court documents. Both acts were found by the arbitrator to breach the noncompete clauses.

Advantage filed a suit against Auer, Merheb and their companies in mid-March 2002 seeking injunctive relief. But by the end of May, Advantage withdrew its motion and requested that the case be sent to binding arbitration, precluding any rights to appeal.

Dated Jan. 24, the arbitrator’s decision stated that Auer and his company, Wireless Depot, should pay $581,998 to Mitchell. Merheb and Auer — along with their companies — are jointly liable for another $1.5 million, according to the arbitrator’s decision.

Auer, Merheb and Miller all declined to comment on the case pending a Larimer County District Court judge’s confirmation of the award.

“To date there has been zero effort and zero monies paid by any of the parties since the judgment,” Mitchell said, declining to make any further comments.

Fort Collins attorney Gene Fischer said that arbitration cases are not usually sent back to a judge for confirmation unless the prevailing party needs help in enforcing the award.

In the week following the arbitrator’s decision, Auer’s stores in Fort Collins, Longmont, Westminster and Colorado Springs closed, but it appears they will re-open as Phones Plus stores.

Jim Croker, mall manager at Twin Peaks Mall in Longmont, said on Jan. 31 that Auer told him that the store would reopen. An employee at Phone Connections in the Greeley Mall said that the store there would close on Feb. 3 and reopen as a Phones Plus store.

Several separate suits have been filed in Larimer County against Auer, including one by Advantage seeking to foreclose on Auer’s Fort Collins house, and another by Poudre Valley Bank against Auer and Wireless Depot for failure to repay a loan.

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