Court: District Court, S.D. New York; August 12, 2016; Federal District Court
Plaintiffs Michael Heskiaoff, Marc Langenhol, and Rafael Mann, New York residents, filed a putative class-action lawsuit against Sling Media, Inc., seeking over $5 million for alleged violations of California’s Unfair Competition Law (UCL), False Advertising Law (FAL), and Consumers Legal Remedies Act (CLRA), along with similar claims under the consumer-protection laws of forty-seven other jurisdictions, including New York General Business Law § 349. Sling Media has moved to dismiss the complaint entirely, and the court has granted this motion.
Sling Media, a Delaware corporation with its principal office in California, produces the "Slingbox," which allows users to stream media content from their home cable or satellite boxes to remote devices. The device's functionality relies on accompanying software, governed by an End User License Agreement (EULA) provided to consumers at the time of purchase. The plaintiffs allege that Sling Media misrepresented its product's functionality, claiming it enables users to watch all content they pay for on any Internet-connected device.
In late 2014, Sling Media began transmitting its own advertisements through the Slingbox System, increasing the advertising exposure beyond typical TV commercials. Plaintiffs contend that Sling Media did not disclose this advertising feature prior to purchase, leading to a diminished user experience and value of the product. The EULA does not mention any advertising, and the plaintiffs assert they were unaware of potential advertisements at the time of their Slingbox purchases. Each plaintiff purchased their devices in New York and claims they were not informed that their usage would include Sling Media's advertisements.
Plaintiffs allege that Sling Media violated California's consumer-protection statutes and those of forty-seven other jurisdictions by failing to disclose its intention to display unsolicited advertising through the Slingbox System. They claim that this undisclosed advertising condition infringed on consumers' rights and seek an injunction against such advertising, along with monetary damages. Defendants have moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6), arguing that the Plaintiffs must present sufficient factual content to establish a plausible claim for relief. The court must first determine the applicable substantive law, which is governed by New York principles, as the named Plaintiffs purchased their Slingbox Systems in New York and resided there at the time. Plaintiffs argue that a choice-of-law provision in the End User License Agreement (EULA) allows them to proceed under California law. However, New York law dictates that choice-of-law provisions are enforceable only if they encompass the entire relationship between the parties, and mere specification of governing law does not extend to tort claims. Thus, under New York law, claims arising from torts are typically outside the scope of such provisions unless explicitly stated.
A contractual choice-of-law provision under New York law does not apply to non-contractual causes of action. The End User License Agreement (EULA) states it is governed by California law, but plaintiffs do not claim breaches of the EULA; instead, they allege violations of California's consumer-protection statutes related to fraud. Consequently, New York law governs the plaintiffs' claims.
To establish a violation under New York General Business Law § 349, plaintiffs must demonstrate that Sling Media engaged in a materially deceptive or misleading act, caused them injury, and that the act was consumer-oriented. It is undisputed that Sling Media's conduct was consumer-oriented, affecting all Slingbox purchasers. However, Sling Media contests whether the plaintiffs have adequately alleged deceptive acts. The plaintiffs did not claim any misleading affirmative statements in Sling Media's advertising. Claims based on omissions require that the defendant possessed the relevant material information and failed to disclose it. Plaintiffs must plausibly allege that Sling Media knew of the omitted information and either failed to disclose it or actively concealed it.
A defendant cannot be held liable under § 349 for failing to disclose facts it was unaware of at the time. The plaintiffs did not present sufficient facts to infer that Sling Media knew of an advertising plan at the time they purchased Slingbox Systems, and thus did not prove that Sling Media engaged in deceptive practices. The complaint alleges Sling Media sold Slingboxes for years without advertisements but fails to specify when the plan to introduce ads was developed or when the plaintiffs made their purchases. The court cannot determine whether Sling Media had knowledge of the alleged nondisclosure, leading to inadequate pleading of a deceptive act.
Additionally, the complaint does not establish that the failure to disclose information constituted a "material" deception. For a claim under § 349 to be actionable, the deceptive act must be likely to mislead a reasonable consumer. The complaint indicates consumers buy Slingbox Systems to watch purchased programming remotely but does not detail the nature or frequency of advertisements or how they could be avoided. The plaintiffs did not assert that they expected an "ad-free experience" at the time of purchase, which undermines the claim that the ad disclosure was material.
Furthermore, the plaintiffs did not demonstrate that they suffered "actual" injury from Sling Media's actions. Actual injury, which can include various forms of harm, must be proven to recover under the statute. The plaintiffs only claimed they were subjected to unwanted ads after a specific date and did not allege any impairment of their ability to use the Slingbox or additional costs incurred.
The court found that the Consolidated Amended Complaint (CAC) did not adequately allege how an alteration by Sling Media caused the plaintiffs any "actual injury" as defined under GBL § 349, which is essential for a valid claim. Consequently, the court granted the defendants' motion to dismiss the CAC. The court instructed the Clerk to close the relevant motion docket and allowed the plaintiffs thirty days to seek permission to amend their complaint if it would not be futile. The CAC cited various state consumer protection statutes and indicated it brought claims under the laws of the District of Columbia and all states except Alabama, Iowa, and Mississippi. Clarifications were made regarding the title of the document referenced as the "Sling Player Software License Agreement and Warranty," which was actually titled "Sling-Player (Universal Edition) Software License Agreement and Warranty."
The parties discussed two types of Sling Media advertisements: video advertisements that can be skipped after a few seconds and banner advertisements that do not contain audio or video and disappear when content is viewed in full screen. Users have the option to purchase an application for an ad-free experience. The court noted that it may consider written instruments incorporated by reference in the complaint during a motion to dismiss. The choice-of-law rules of New York apply, which dictate that the law of the state where the consumer purchased the product governs claims, with an emphasis on the jurisdiction where the injury occurred. The court highlighted that states generally lack interest in applying their consumer protection laws to out-of-state buyers whose purchases also occur out of state, leading to the dismissal of claims based on New York and New Jersey statutes when the plaintiff only purchased in California.
Plaintiffs have not asserted a breach of the implied covenant of good faith and fair dealing, which could potentially relate to the End User License Agreement (EULA)’s choice-of-law provision. Under New York choice-of-law rules, such a breach is treated as a breach of the underlying contract for the purpose of applying choice of law. Even if plaintiffs had claimed breach of contract or the implied covenant, if California law applied to those claims, New York law would still govern their statutory consumer protection claims. A choice-of-law clause applies only to common law contract claims, not fraud claims, as established in prior case law. The complaint inadequately describes alleged misrepresentations related to advertising, failing to provide specific misleading statements necessary to survive a motion to dismiss.
Sling Media contends that plaintiffs lack Article III standing, as they did not allege purchasing after the advertising plan was formed but before it was evident. However, due to the plaintiffs' failure to state a claim under New York General Business Law (GBL) § 349, the court does not need to assess the standing argument further. Notably, reliance on misleading acts is not a requisite for a GBL § 349 claim. Additionally, Slingbox users can opt for an app for an ad-free experience, which raises questions about whether the “ad-free experience” was part of the bargain. Plaintiffs allege that had Sling Media disclosed its advertising plans, they would not have purchased the devices or would have been unwilling to pay the price. Nonetheless, this claim does not sufficiently demonstrate the "actual injury" required under GBL § 349, as the mere assertion of purchasing a product that one would not have bought absent deceptive conduct does not constitute injury. The cases cited by plaintiffs reflect specific types of alleged harm, including pecuniary loss and impairment of legal rights established by contract.
In Emilio v. Robinson Oil Corp., 28 A.D.3d 417, 418, 813 N.Y.S.2d 465 (2d Dep’t 2006), and similar cases such as People v. Wilco Energy Corp., 284 A.D.2d 469, 471, 728 N.Y.S.2d 471 (2d Dep’t 2001), and Negrin v. Norwest Mortg, Inc., 263 A.D.2d 39, 51, 700 N.Y.S.2d 184 (2d Dep’t 1999), the concept of pecuniary harm is addressed. In Relativity Travel, Ltd. v. JP Morgan Chase Bank, 13 Misc.3d 1221A, at *3, 831 N.Y.S.2d 349 (N.Y. Sup. Ct. New York County 2006), and Anonymous v. CVS Corp., 188 Misc.2d 616, 625, 728 N.Y.S.2d 333 (N.Y. Sup. Ct. New York County 2001), the focus is on the impairment of legal rights. In Perez v. Hempstead Motor Sales, 173 Misc.2d 710, 662 N.Y.S.2d 184 (Nassau County Dist. Ct. 1st Dep’t 1997), pecuniary harm is again emphasized. The plaintiffs claim an injury based on the impairment of a contractual legal right but have not sufficiently alleged such an injury, failing to assert a breach of contract or specify any contractual benefits not received. The End User License Agreement (EULA) lacks any reference to advertising, and it clarifies that the plaintiffs licensed, rather than purchased, the software, which Sling Media can modify as it retains ownership.
