Carovillano v. Sirius XM Radio Inc., 2024 WL 450040, No. 23 Civ. 4723 (PAE) (S.D.N.Y. Feb. 6, 2024)
Among other things,
this opinion features very effective use of images from this case and others!
Plaintiffs alleged
that Sirius XM promises its telephonic subscribers a particular monthly price,
only to charge them an undisclosed 21.4% fee (the “U.S. Royalty Fee”) on top,
in violation of NY GBL §§ 349 and 350 (along with breach of the implied
covenant of good faith and fair dealing and unjust enrichment). Sirius
responded that it clearly disclosed the fee and that no reasonable consumer
would be confused. The court declined to grant the motion to dismiss except as
to unjust enrichment (duplicative) and the request for injunctive relief (lack
of standing).
As alleged:
Sirius XM satellite radios are pre-installed in 84% of all new
automobiles, with each buyer automatically provided a free trial. These free
trials are critical to Sirius XM’s business model, which “relies on converting
these millions of vehicle buyers from free trial users into paid subscribers of
automatically renewing music plans.”
Once the car-buyer’s
free trial ends, Sirius offers a lot of plans, often at a promotional price
(for instance, “3 mos. for $1 then $23.99/mo.”). However, the advertised rates
don’t include the “U.S. Music Royalty Fee,” a flat-rate charge imposed at
Sirius XM’s sole discretion that has increased over time. Right now, it’s a
“uniform additional 21.4% charge.” So, a customer promised “3 mos. for $1”
will, in fact, pay $1.21 per month, and then $29.12 per month.) The Fee is a
key profit center for Sirius XM, responsible for $1.36 billion in revenue—122%
of Sirius XM’s net profits for the year.
The complaint
alleged that Sirius XM didn’t adequately disclose the Fee in its ads, such as
this one:
mailer
The promotional rate
is prominently displayed, but there’s no express reference to the Fee. At the
end of the mailer, the paragraph beginning “OFFER DETAILS” says “[f]ees and
taxes apply.” That paragraph also says in bold: “Please see our Customer
Agreement at www.siriusxm.com for complete terms.”
The customer
agreement then says, in relevant part “We may charge you one or more of the
following fees, all of which are subject to change without notice: … Packages
which include music channels may be charged a U.S. Music Royalty Fee. See www.siriusxm.com/usmusicroyalty.”
That page says “The
current U.S. Music Royalty Fee is 21.4% of the price of satellite plans* that
include music channels. … based on the entire subscription price of the plan
you purchase that includes musical performances.”
Like its mailers, Sirius
XM’s promotional materials also don’t expressly refer to the Fee. The email
shown in the complaint doesn’t mention fees at all; “See Offer Details”
(rendered in white text against a pink backdrop [ed. note: bad practice!]) is a
hyperlink that goes to a webpage that also doesn’t expressly
refer to the fee, though it does state that
“Fees & taxes apply,” and it directs customers to “our Customer Agreement,”
as quoted above.
 |
 |
| webpage to which email links |
For subscribers who
sign up by phone, the complaint alleges, Sirius XM never “disclose[s] ..., at
any time before or when they signed up, that it [will] charge them a U.S. Music
Royalty Fee in addition to the advertised and promised price.” “At most, agents
may say the cost is the advertised or quoted price plus unspecified ‘fees and
taxes.’ ”
New subscribers
receive a confirmation email, which is allegedly the sole billing document that
mentions the Fee. Because Sirius XM does not send any “periodic billing notices
or invoices to its subscribers,” plaintiffs alleged that its subscribers often
learn of Sirius XM’s hidden fees by inspecting their bank or credit card
billing statement. Sirius XM customer-service agents are allegedly instructed
to tell those subscribers who do find out about the Fee “that the Fee is a
government-related fee and/or that [it] is outside of Sirius XM’s control.”
Whether an act is
“materially misleading” under New York law is an objective inquiry, and “generally
a question of fact not suited for resolution at the motion to dismiss stage.”
The court was not persuaded by Sirius XM’s (terrible) argument that it “fully
disclosed” the Fee. “New York courts have rejected the argument that a
generalized disclaimer as to ‘additional fees’ bars claims asserting the
non-disclosure of fees that a reasonable consumer would not expect” (collecting
cases). Its “shorthand and inconspicuous
disclosure” that “fees and taxes apply” couldn’t suffice on a motion to
dismiss.
Some cases dismiss
claims where defendants gave plaintiffs the tools “necessary to understand” a
challenged fee, but those cases involved fees “so commonplace or small that the
reviewing court held that a reasonable consumer would not have been surprised
to first learn of them by reviewing the final receipt,” such as sales tax or
other government-imposed fees.
The court also
pointed to Second Circuit decisions addressing, in contract law, when a party
can be found to have been on inquiry notice of claimed terms during contract
formation. That court has found that reasonable consumers would not be on
notice of terms where the “small-print disclaimer” was “dwarfed by the
surrounding colorful text and imagery.”
E.g., the ad in Soliman
v. Subway Franchisee Advertising Fund Trust, Ltd., 999 F.3d 828 (2d Cir. 2021):
One reason the
Second Circuit found Subway’s disclaimer inconspicuous was its “mixed-media
incorporation of contractual terms” requiring a consumer to go from a print
advertisement to a website. “[W]hen a consumer must type in a
thirty-seven-character URL to their cellphone or computer, it is more difficult
to navigate to the terms of use in order to confirm” just what she has been
asked to agree to. Id
Subway ad
Nicosia v.
Amazon.com, Inc., 834 F.3d 220 (2d Cir. 2016), involved an order page like
this:
Amazon ad
Whether Amazon
provided sufficient notice, the Second Circuit held, could not be resolved as a
matter of law. The key “message itself—‘By placing your order, you agree to
Amazon.com’s ... conditions of use’—is not bold, capitalized, or conspicuous in
light of the whole webpage.” The webpage’s many links, in “different colors,
fonts, and locations,” “generally obscure” the notification that Amazon’s terms
and conditions apply to the transaction. “Given the breadth of the range of
technological savvy of online purchasers,” the Circuit stated, “consumers
cannot be expected to ferret out hyperlinks to terms and conditions to which
they have no reason to suspect they will be bound.”
On the pleadings, it
was plausible that Sirius XM’s “mixed-media incorporation of contractual terms”
in its mailer—requiring a prospective customer to “type in” a “URL to their
cellphone or computer” and then navigate through at least three webpages to
determine the amount of the additional fee—“obscure[d] th[at] message” so as
not to give a reasonably prudent consumer notice of it, and that the disclaimer
about other “[f]ees & taxes” was “not bold, capitalized, or conspicuous in
light of the whole” mailer, and was “generally obscure[d]” by other
“distracting” elements such as the prominently touted sticker price of
“$5/month.” The “duty to read” terms properly “called to [a consumer’s]
attention” does not imply a “duty to ferret out contract provisions ...
contained in inconspicuous hyperlinks.” And, under Mantikas v. Kellogg Co., 910
F.3d 633, 637 (2d Cir. 2018), a reasonable consumer is not “expected to look
beyond misleading representations” in one part of an advertisement “to discover
the truth ... in small print” online.
It was also
plausible that, had they known of the Fee, plaintiffs “would not have been
willing to pay as much for their music plans” or “would not have purchased
music plans at all.” A price premium-like theory was plausible given the
allegations that, had Sirius XM revealed the all-in price of its subscriptions,
it would have faced downward price pressure from competitors, such as “Apple
Music, Spotify, Amazon Music, [and] Google Play Music,” all of which offer
similar music-streaming services but do not “charge any separate music royalty
fee.”
The claim for breach
of the implied covenant of good faith and fair dealing also survived, because
Sirius XM’s argument that the contract allowed it to charge the Fee “assumes a
disputed conclusion: that there is a binding enforceable contract between
Sirius XM and the plaintiffs that encompasses a customer obligation to pay the
U.S. Royalty Fee.”
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