Baker-Rhett v. Aspiro AB

Citation: 324 F. Supp. 3d 407Docket: 1:16-cv-5801-GHW

Court: District Court, S.D. Illinois; June 22, 2018; Federal District Court

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Kanye West tweeted on February 15, 2016, that his album "The Life of Pablo" would only be available on Tidal and not for sale elsewhere. However, six weeks later, the album appeared on Apple and other sites, contradicting his statement. Plaintiff Mr. Baker-Rhett claims this misrepresentation by West and Aspiro, the operator of Tidal, fraudulently induced him to subscribe to Tidal for exclusive content. The court finds that West's tweet supports Baker-Rhett's fraudulent inducement claims. However, because Baker-Rhett subscribed to Tidal outside of New York, he does not meet the territoriality requirement for claims under New York's General Business Law Sections 349 and 350. As a result, the defendants' motions to dismiss are partially granted and partially denied. Tidal, launched in 2014 and acquired by Jay-Z, faced financial struggles, prompting West to announce the album's exclusive release on Tidal amidst these challenges. Despite Tidal's marketing efforts and West's significant social media influence, the platform struggled to generate revenue and was at risk of failure.

On February 15, 2016, Mr. West tweeted that his album would be exclusively available on Tidal and not for sale elsewhere, claiming he made this statement as both an artist and part-owner of Tidal. The tweet garnered media attention, significantly boosting Tidal's subscription numbers from 1 million to 3 million within ten days of the album's release. Despite the exclusivity claims, Mr. West later announced that the album would also be available on Apple Music and Spotify, contradicting his earlier statements. The complaint argues that Mr. West and Aspiro knowingly misled customers about the album's availability, benefiting from increased subscription revenue as a result of the alleged deception.

Mr. Baker-Rhett, a California resident and fan of Mr. West, subscribed to Tidal immediately after the tweet, believing the album would only be available there. He streamed the album during his first month, which was free, but was charged $9.99 for the second month before learning it would also be on other platforms. After this realization, he canceled his Tidal subscription, asserting he would not have subscribed had he known the album would not be exclusive to Tidal. He filed a lawsuit to recover the $9.99 charge.

The lawsuit was initiated in the Northern District of California against Mr. West and initially included S. Carter Enterprises, LLC. The original complaint claimed violations of California's false advertising law, unfair competition law, and common law claims of fraudulent inducement and unjust enrichment. The plaintiff amended the complaint on May 9, 2016, substituting Aspiro for S. Carter Enterprises, while maintaining the claims under California law.

Aspiro moved to transfer the venue of litigation to the Southern District of New York, which the parties subsequently agreed to. After the transfer, Aspiro filed a motion to dismiss the first amended complaint, contending that New York substantive law should govern the plaintiff's claims, leading to the dismissal of claims under California law. This argument was based on a choice of law provision in the "Terms and Conditions" of Tidal, which stated that the agreement is governed by New York law and that disputes would be under the jurisdiction of New York courts. Aspiro's analysis indicated that under California law, the claims fell within the scope of this provision, noting California's liberal approach to governing law clauses compared to New York's stricter requirements.

Aspiro further argued that New York had a substantial relationship to the claims, referencing that aspects of Tidal's operations related to the claims were managed from New York. The plaintiff chose not to contest Aspiro's motion and instead stipulated to dismiss the California claims and amend the complaint, acknowledging that his claims would be better asserted under New York law. The stipulation included the dismissal of California claims with prejudice for the plaintiff but reserved rights for the putative class. Additionally, the plaintiff agreed to dismiss claims for fraudulent inducement and unjust enrichment, the latter with prejudice for himself but not for the class. The court approved this stipulation on October 17, 2016, and the plaintiff filed a Second Amended Complaint the following day, including claims under New York’s General Business Law and for fraudulent inducement.

Both Aspiro and Mr. West have filed motions to dismiss the claims in the complaint, focusing on Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). To survive a 12(b)(6) motion, a complaint must present sufficient factual allegations that, when taken as true, state a plausible claim for relief. The courts employ a "two-pronged approach" for assessing plausibility: first, they accept the allegations as true but disregard legal conclusions and conclusory statements; second, they evaluate whether the well-pleaded factual allegations plausibly suggest entitlement to relief, drawing from judicial experience and common sense.

Claims involving fraud must meet the heightened pleading standards of Rule 9(b), which requires specificity regarding the fraudulent statements, the speaker, the context of those statements, and the reasons they are considered fraudulent. Generally, courts cannot consider materials outside the complaint during a Rule 12(b)(6) motion, except for certain documents like those attached to the complaint or legally required disclosures.

For Rule 12(b)(1), a claim must be dismissed if the plaintiff lacks standing. In such cases, all material allegations are accepted as true, and the complaint is construed favorably towards the plaintiff. However, the burden of demonstrating standing lies with the party asserting it. In class action cases, named plaintiffs must individually allege injury; they cannot rely on injuries suffered by unnamed class members. Each named defendant must have at least one named plaintiff asserting a direct claim against them to establish standing, after which the class action analysis can proceed.

Claims have been filed by the plaintiff against the defendants for violations of Sections 349 and 350 of New York's General Business Law (GBL) and for fraudulent inducement. The defendants contest the plaintiff's standing to pursue these New York statutory claims and assert that the Tweets in question cannot substantiate a fraudulent inducement claim since they were true at the time of posting. 

The court finds that Mr. Baker-Rhett lacks standing under Sections 349 and 350 because these sections require that deceptive acts occur within New York. The plaintiff has not alleged that he encountered the allegedly deceptive Tweets or subscribed to the Tidal service in New York; rather, he likely did so in California, where he resides. The only connection to New York cited by Mr. Baker-Rhett is a choice of law provision in the "Terms and Conditions," which does not sufficiently extend New York law to all aspects of his relationship with Aspiro. Under New York law, a choice-of-law provision must be broadly worded to cover tort claims related to the contract, which this provision is not. 

Additionally, the choice of venue provision does not establish the occurrence of a transaction in New York. The defendants' reliance on judicial estoppel to argue against Mr. Baker-Rhett's standing is insufficient, as it does not negate the territorial limitations of the GBL claims.

Judicial estoppel does not apply in this case because the Court did not act on Aspiro's arguments. The doctrine aims to maintain the integrity of the judicial process by prohibiting parties from shifting positions in a way that undermines prior court proceedings. Key factors for its application include: 1) the later position must be clearly inconsistent with the earlier one; 2) the earlier position must have been adopted by a court; and 3) asserting the inconsistent position must create an unfair advantage or detriment. The Second Circuit limits judicial estoppel to cases where a party has taken an inconsistent position that was accepted by the tribunal. A settlement does not meet this requirement, as it does not imply judicial endorsement of the claims. In this instance, the Court did not adopt Aspiro's arguments but merely "So Ordered" the voluntary Stipulation of Dismissal, which functions like a settlement. Therefore, judicial estoppel is not applicable.

Additionally, claims by Mr. Baker-Rhett under New York's General Business Law are dismissed without prejudice due to insufficient connection to New York. Conversely, the plaintiff has adequately pleaded a fraudulent inducement claim against Mr. West, based on his Tweet asserting that The Life of Pablo would "never, never, never" be available on Apple Music. Elements of fraudulent inducement under New York law include a material false representation, intent to defraud, reasonable reliance by the plaintiff, and resultant damages. Mr. West contends that his statement was true at the time; however, since the album was released on Apple Music shortly after, the truth of the statement is contested. Mr. West claims that only updated versions of the album were released elsewhere, which complicates the truthfulness of his original assertion.

Mr. West argues that his Tweet claiming his album would "never never never" be available on Apple Music was not false, but this argument is weak and does not withstand scrutiny during the motion to dismiss phase. The Court infers that Mr. West's blanket statement regarding his album's availability was indeed false, as the album was released on Apple Music shortly after his Tweet. The complaint also alleges that Mr. West acted as an agent for Aspiro, which lends credibility to the claim that his statements were made within the scope of that agency. Mr. West's ownership stake in Aspiro was tied to producing exclusive content for Tidal and promoting the platform via social media, making his Tweet a reaffirmation of Tidal's exclusivity.

The complaint sufficiently establishes a strong inference of fraudulent intent against both defendants by outlining their financial struggles and the benefits of increasing Tidal's subscriber base. Notably, it alleges that both defendants were aware that the album would soon be available on Apple Music when Mr. West made his statement.

However, the fraudulent inducement claim against Aspiro based solely on its February 14, 2015 Tweet is inadequately pleaded. The plaintiff fails to demonstrate reliance on that Tweet alone, as the decision to subscribe to Tidal was primarily based on Mr. West's subsequent announcement. The complaint indicates that Mr. Baker-Rhett subscribed after being influenced by both Mr. West's statements and Tidal's representations, rather than relying solely on Aspiro's Tweet, which did not explicitly promise the album's exclusivity on Tidal.

Tidal's Tweet, which announced that Kanye West's album "#TLOP" was streaming exclusively on TIDAL.com, was factually accurate at the time of its publication. The Tweet did not imply a future commitment for exclusivity beyond the initial streaming period of six weeks. Aspiro's defense highlighted that the statement could not be deemed fraudulent because it was true when made. The plaintiff, however, shifted the argument, claiming fraudulent inducement based on the omission of information regarding the limited duration of exclusivity rather than a direct misrepresentation. For a fraudulent concealment claim to succeed, there must be a duty to disclose, which the plaintiff failed to establish since no special relationship or fiduciary duty was alleged. Consequently, the plaintiff's claims based on fraudulent concealment were dismissed. The court typically allows plaintiffs to amend their complaints when dismissals occur without prejudice, and thus, the plaintiff was granted 30 days to replead the dismissed claims. The court's ruling resulted in partial granting and denial of the defendant's motions to dismiss, specifically dismissing claims under New York's General Business Law and those based on fraudulent inducement related to the Tweet, while allowing claims based on a misrepresentation in a subsequent Tweet to proceed.

The Clerk of Court is instructed to terminate the motions at ECF Nos. 96 and 99. For the purposes of this motion, the facts from the complaint are accepted as true, but legal conclusions are not subject to this presumption. Aspiro's argument misinterprets the choice of law provision, which specifies that New York law governs the Agreement itself, not all disputes regarding the services. Consequently, the plaintiff's argument is flawed, negating the need for the Court to assess whether Aspiro's position was inconsistent. Aspiro indicated in its motion to dismiss that it was applying California law, which differs from New York law. Although the plaintiff may have anticipated that accepting Aspiro's argument would facilitate a nationwide class action under New York law, the foundation for this motion was laid during Aspiro's initial dismissal attempt. Additionally, the Court is cautious about extending New York's General Business Law protections nationwide based solely on judicial estoppel claims. The analysis applies New York law, as all parties have assumed its applicability without contesting the choice of law in their briefs, which implies consent to this governing law. While New York law is applied for this motion, further examination of the choice of law may be necessary for the fraudulent inducement claims related to the plaintiff and the putative class.