Tuesday, June 26, 2018

Lie of Pablo: Churchillian tweet gets Kanye West in trouble

Baker-Rhett v. Aspiro AB, 2018 WL 3094921, No. 16-cv-5801-GHW (S.D.N.Y. Jun. 22, 2018)

“On February 15, 2016, Kanye West tweeted that his new album—The Life of Pablo—‘will never never never be on Apple. And it will never be for sale ... You can only get it on Tidal.’ Six weeks later, the album was on Apple, and was for sale on sites other than Tidal, the online streaming service operated by defendant Aspiro.”  [Should have left in some caveats for "honour and good sense," Churchill might have told him.] Aspiro launched in 2014, but struggled for survival despite its backing from its artist-owners such as West.  West’s 26 million Twitter followers were exposed to his tweet, and the official Tidal account also tweeted “It’s streaming exclusively on TIDAL.com.” Within the first ten days of the release of The Life of Pablo, Tidal’s subscription numbers tripled from 1 million to 3 million, and  West boasted to his Twitter followers about their impact.

Baker-Rhett allegedly relied on West’s tweet, and lost $9.99 as a result (he cancelled after learning that the album would be available on Spotify, to which he already subscribed).  He sued on behalf of a putative class. The court found that he lacked standing to assert NY GBL claims because the challenged transactions didn’t happen in New York (Baker-Rhett is Californian) and the NY choice of law provisions in the Tidal terms & conditions didn’t cover all aspects of his dealings with defendants, but that fraudulent inducement was plausibly pled.

Fraudulent inducement under New York law “requires a showing that ‘(1) the defendant made a material false representation, (2) the defendant intended to defraud the plaintiff thereby, (3) the plaintiff reasonably relied upon the representation, and (4) the plaintiff suffered damage as a result of such reliance.’ ”  West argued that his tweet was true, because the album was “updated and remixed numerous times, with different vocals, lyrics, and arrangements,” and that only those “ ‘newly updated, remixed and remastered version[s]’ of The Life of Pablo have been made available for purchase or streaming on platforms other than Tidal.” This “tenuous” argument certainly wasn’t enough on a motion to dismiss, given reasonable inferences about what an “album” is.  The complaint also plausibly alleged that West was Aspiro’s agent for these purposes.

For scienter, a plaintiff must “allege facts giving rise to ‘a strong inference of fraudulent intent,’ ” which requires either (a) alleging facts to show that the defendants had both motive and opportunity to commit fraud, or (b) alleging facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness.  Here, the complaint satisfied (b) by describing in detail the dire financial condition of both Aspiro and West at the time of the album release of his album and the tangible benefits of an increase in Tidal’s subscriber base for both of them, and alleging that both knew at the time of the tweet that the album soon would be available elsewhere. Combined with the fact that the album was available elsewhere a “mere” six weeks later, that was strong circumstantial evidence of conscious misbehavior.

By contrast, Aspiro’s tweet and silence alone weren’t enough. Baker-Rhett pled reliance on West’s tweet, not on Tidal’s. The press stories touting the exclusivity of Tidal’s platform focused on the content of West’s Tweet; also the Tidal tweet didn’t contain an express commitment that the album would be available exclusively on Tidal in the future. Instead, Tidal made its exclusivity claim in the present tense, which was true at the time. A claim of fraudulent inducement can be based on a material omission as well as a material misstatement, but Baker-Rhett alleged no special relationship or fiduciary obligation requiring a duty of full and complete disclosure by Aspiro to its prospective customers.

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