Monday, October 03, 2016

Failure to disclose expiration date when existence of expiration is disclosed isn't misleading

Cline v. TouchTunes Music Corp., 2016 WL 5478432, No. 14 Civ. 4744 (S.D.N.Y. Sept. 29, 2016)

A couple of general points from this state law class action over a music service: GBL Section 349 makes unlawful “[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state,” and GBL Section 350 has similar wording for false advertising.  Neither named plaintiff resided in New York or alleged that she accessed TouchTunes’ services or used a TouchTunes jukebox in New York. 

The New York Court of Appeals has held that the transaction in which consumer is deceived must occur in New York for these provisions to apply. But the court’s analysis didn’t turn on residency “because the statute neither was intended to police out-of-state transactions by New York companies nor to bar out-of-state plaintiffs with claims based on New York transactions.”  The Second Circuit has subsequently focused on where the relevant transaction took place, since there’s no per se bar on out-of-state plaintiffs.

For app and credit card users, TouchTunes processes customer payments in New York, where it’s based. Plaintiffs also alleged that TouchTunes’ music servers were in New York. The TouchTunes Terms of Use Agreement provides that “any dispute between [the user] and TouchTunes will be governed by the law of the State of New York” and that those disputes must be brought in New York state or federal courts.  It was a fair inference that the users’ music selections were transmitted electronically to TouchTunes’ New York servers. Thus, the court would consider New York claims based on use of the TouchTunes App and the purchase of credits at jukeboxes by use of credit cards, but not to cash users of TouchTunes jukeboxes.  For cash users, “the ultimate recipient of their out-of-state payments, a governing law-choice of forum provision in a “click-wrap” agreement on out-of-state electronic jukeboxes, and the location of TouchTunes’ servers” weren’t enough to justify the application of New York law.

Under §349, plaintiffs brought claims of three separate misleading acts: that (1) App users were not refunded for unplayed songs even though TouchTunes has the technical capability to do so, (2) TouchTunes failed to disclose that venue owners were able to skip paid-for songs and that the Terms of Use were misleading as to this fact, and (3) TouchTunes misled App users by failing to disclose the expiration dates of credits purchased through the App.

(1) failed because a refusal to refund credits wasn’t in and of itself misleading; plaintiffs didn’t allege facts to suggest that they reasonably expected such a refund, and TouchTunes Terms of Use stated that refunds wouldn’t be issued for unplayed songs “under any circumstances.” That might be distasteful, but it wasn’t deceptive or misleading.

(2), however, was a legitimate claim.  Although the complaint alleged that plaintiffs witnessed bartenders or managers at TouchTunes-equipped venues skip songs in the TouchTunes queue, that fact doesn’t mean that a reasonable consumer would be well aware that their songs might be skipped. The Terms of Use disclosed generally that songs may not play and that consumers will not receive a refund “under any circumstances.”  But that disclosure didn’t indicate that venue owners could deliberately skip songs, instead stating that songs might not play due to “factors, including the inherent unreliability of the Internet” or the “inaccessibility or technical failure of my TouchTunes.” This language could plausibly have led reasonable consumers to believe that the only reason songs wouldn’t play was because of technical failures beyond any party’s volitional control.

(3) also failed because the Terms of Use didn’t say or suggest anything about the expiration time period was, just that expired credits wouldn’t be usable.  “Where customers were made aware of the fact that credits will expire but were given no indication of the length of the expiration period, they cannot claim to have been misled.”

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