Sprint - Nextel 2010 Annual Report Download - page 121

losses on a quarterly basis to reflect the impact of any developments in the matters in which we are involved. Legal
proceedings are inherently unpredictable, and the matters in which we are involved often present complex legal and factual
issues. We vigorously pursue defenses in legal proceedings and engage in discussions where possible to resolve these matters
on terms favorable to us. It is possible, however, that our business, financial condition and results of operations in future
periods could be materially and adversely affected by increased litigation expense, significant settlement costs and/or
unfavorable damage awards.
On April 22, 2009, a purported class action lawsuit was filed against Clearwire U.S. LLC in Superior Court in King
County, Washington by a group of five plaintiffs from Hawaii, Minnesota, North Carolina and Washington (Chad Minnick, et
al.). The lawsuit generally alleges that we disseminated false advertising about the quality and reliability of our services;
imposed an unlawful early termination fee, which we refer to as ETF; and invoked unconscionable provisions of our Terms of
Service to the detriment of subscribers. Among other things, the lawsuit seeks a determination that the alleged claims may be
asserted on a class-wide basis; an order declaring certain provisions of our Terms of Service, including the ETF provision, void
and unenforceable; an injunction prohibiting us from collecting ETFs and further false advertising; restitution of any early
termination fees paid by our subscribers; equitable relief; and an award of unspecified damages and attorneys’ fees. On May 27,
2009, an amended complaint was filed and served, adding seven additional plaintiffs, including individuals from New Mexico,
Virginia and Wisconsin. On June 2, 2009, plaintiffs served the amended complaint. We removed the action to the United States
District Court for the Western District of Washington. On July 23, 2009, we filed a motion to dismiss the amended complaint.
The Court stayed discovery pending its ruling on the motion. The Court granted our motion to dismiss in its entirety on
February 2, 2010. Plaintiffs filed a notice of appeal to the Ninth Circuit Court of Appeals. Oral argument before the Ninth
Circuit Court of Appeals took place on November 3, 2010. The Court has not yet ruled on the appeal. This case is in the early
stages of litigation, its outcome is unknown and an estimate of any potential loss cannot be made at this time.
On September 1, 2009, we were served with a purported class action lawsuit filed in King County Superior Court,
brought by representative plaintiff Rosa Kwan. The complaint alleges we placed unlawful telephone calls using automatic
dialing and announcing devices and engaged in unlawful collection practices. It seeks declaratory, injunctive, and/or equitable
relief and actual and statutory damages under federal and state law. On October 1, 2009, we removed the case to the United
States District Court for the Western District of Washington. On October 22, 2009, the Court issued a stipulated order granting
plaintiff until October 29, 2009 to file an Amended Complaint. The parties further stipulated to allow a Second Amended
Complaint, which plaintiffs filed on December 23, 2009. We then filed a motion to dismiss that was fully briefed on
January 15, 2010. On February 22, 2010 the Court granted our motion to dismiss in part, dismissing certain claims with
prejudice and granting plaintiff leave to further amend the complaint. Plaintiff filed a Third Amended Complaint adding
additional state law claims and joining Bureau of Recovery, which we refer to as BOR, a purported collection agency, as a co-
defendant. The parties have stipulated that plaintiff may file a Fourth Amended Complaint adding two new class
representatives. Clearwire’s response to the Fourth Amended Complaint is due March 3, 2011. Plaintiffs’ motion for class
certification is due April 7, 2011. This case is in the early stages of litigation, its outcome is unknown and an estimate of any
potential loss cannot be made at this time.
We have been engaged in ongoing negotiations with Sprint to resolve issues related to wholesale pricing for Sprint 4G
smartphone usage under our commercial agreements with Sprint. On October 29, 2010, we received a notice from Sprint
initiating an arbitration process to resolve these issues. On November 22, 2010, in response to the notice, we commenced an
arbitration action against Sprint with the American Arbitration Association, which we refer to as AAA. The primary dispute
between the parties relates to the pricing to be paid to us for smartphone usage by Sprint and Sprint’s subscribers over our 4G
network. In particular, the parties are disputing the proper interpretation and enforceability of the 4G MVNO Agreement with
respect to the options for such smartphone pricing. We filed our Statement of Claim against Sprint on December 14, 2010. On
January 21, 2011, Sprint answered the Statement of Claim and asserted counterclaims seeking related relief under the 4G
MVNO Agreement. On February 7, 2011, Clearwire filed its reply to Sprint’s counterclaims, denying all material allegations in
Sprint’s response and counterclaims and asserting various affirmative defenses. The action will
Table of Contents CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)
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