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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