Blessing v. Sirius Xm Radio Inc.

775 F.Supp.2d 650

2011-1 Trade Cases P 77,425

Carl BLESSING et al., Plaintiffs,

v.SIRIUS XM RADIO INC., Defendant.

No. 09 CV 10035(HB).

United States District Court, S.D. New York.

March 29, 2011.

James Joseph Sabella, Jay W. Eisenhofer, Shelly L. Friedland, Mary Sikra Thomas, Grant & Eisenhofer P.A., Peter George Safirstein, Anne Kristin Fornecker, Milberg LLP, Nadeem Faruqi, Shane Thomas Rowley, Faruqi & Faruqi, LLP, Jill Sharyn Abrams, Natalie Sharon Marcus, Abbey Spanier Rodd Abrams & Paradis, LLP, Joseph Peter Guglielmo, Scott & Scott, L.L.P., New York, NY, Christopher B. Hall, Edward S. Cook, Cook, Hall & Lampros, LLP, Atlanta, GA, Reuben Guttman, Grant & Eisenhofer P.A., Washington, DC, Thomas J. O'Reardon, II, Robbins Geller Rudman & Dowd LLP, Timothy G. Blood, Blood Hurst & O'Reardon LLP, Christopher M. Burke, Hal D. Cunningham, Scott & Scott LLP, San Diego, CA, James Stuart Notis, Mark Casser Gardy, Gardy & Notis, LLP, Englewood Cliffs, NJ, Christine Craig, Shaheen & Gordon, Dover, NH, Paul F. Novak, Milberg LLP, Detroit, MI, William C. Wright, Leopold–Kuvin, P.A., Palm Beach Gardens, FL, for Plaintiffs.Todd R. Geremia, Jones Day, New York, NY, Brian Keith Grube, Thomas Demitrack, Jones Day, Cleveland, OH, John Michael Majoras, Jones Day, Washington, DC, for Defendant.

OPINION & ORDER

HAROLD BAER, JR., District Judge:

Plaintiffs in this purported class action are purchasers of satellite digital audio radio services (“SDARS”) who allege that they have suffered a number of injuries following the 2008 merger between Sirius Satellite Radio, Inc. and XM Satellite Holdings, Inc.—a merger that resulted in the formation of Defendant Sirius XM Radio Inc. (“Defendant” or “Sirius XM”). Plaintiffs bring antitrust claims pursuant to § 2 of the Sherman Act and § 7 of the Clayton Act, as well as a number of state law claims. They allege that, as the only SDARS provider in the United States, Defendant abused its monopoly power by raising prices in a deceptive and anticompetitive manner. On November 17, 2010, 756 F.Supp.2d 445, 2010 WL 4642607 (S.D.N.Y.2010), this Court granted in part and denied in part Defendant's motion to dismiss, leaving intact Plaintiffs' antitrust claims and the majority of their consumer protection claims. Defendant now moves for summary judgment on Plaintiffs' antitrust and state consumer protection claims. For the reasons that follow, the motion is DENIED in part and GRANTED in part.

Background ¹

When Sirius Satellite Radio, Inc. and XM Satellite Holdings, Inc. sought to merge, they were required to transfer their existing satellite radio licenses to the proposed combined entity, Sirius XM. In order to do so, they sought and obtained approval from the Federal Communications Commission (“FCC”). Pl's Resp. 56.1 ¶ 2. In pursuit of FCC approval, Sirius and XM made several “voluntary commitments” regarding their future services and prices. Notably, the companies promised not to raise the base monthly subscription rate of $12.95 for three years following consummation of the merger. FCC Order, Karmazin Decl. Ex. B. Due to significant increases in their royalty costs, however, the companies sought to limit the term of the price-cap to one year only for royalty-related fees. Thus, the combined entity would not raise royalty fees for one year from the date of merger, but after one year, it could “pass through cost increases incurred since the filing of the combined company's FCC merger application as a result of statutorily or contractually required payments to the music, recording and publishing industries.” Id. The voluntary price-cap commitment did not specify a dollar amount for this “pass through.” Pl's Resp. 56.1 ¶ 38. The FCC incorporated into its final order without change the language that the companies proffered in their voluntary commitment letter. Def's 56.1 ¶ 11; FCC Order ¶ 107. It also attached the voluntary commitment letter to the FCC Order as Appendix B. Id. ¶ 13.

Consistent with the voluntary price cap, the combined entity began to impose a royalty-related fee on July 29, 2009, 366 days after the companies merged. Pl's Resp. 56.1 ¶ 25. The bulk of the parties' dispute centers on this fee, which was dubbed the U.S. Music Royalty Fee (“MRF”) and is charged in addition to the base monthly subscription price. Sirius XM set the MRF at $1.98 per month for primary radios and $.97 per month for additional radios charged at the reduced subscription price of $8.99. Id. The primary radio MRF was lowered to $1.40 after December 6, 2010. Def's 56.1 ¶ 31–32.

Plaintiffs base their allegations on a number of factors, including changes in the way Sirius XM opted to calculate the pass through. Initially, Sirius XM planned to calculate the cost of the MRF through a rate-based approach that took into account the difference between RIAA royalty rates in certain years. Pl's 56.1 ¶ 45. They also implemented a “CRB pass-through” plan that created a catch-up pool to recover royalties paid to the music industry between 2007 and 2009. Pl's 56.1 ¶ 47. However, plaintiffs contend that instead of using this rate-based approach, Sirius XM ultimately decided to use a cost-based approach that takes into account increases in total costs attributable solely to increased subscriber volume. Pl's 56.1 ¶¶ 59–67. By using the latter approach, Sirius XM has been able to bill an allegedly inflated MRF for a longer period of time than would have otherwise been necessary under a rate-based approach. Pl's 56.1 ¶¶ 59–60.

Defendant points to various communications made with its customers regarding the MRF and the rationale for its imposition in order to counter plaintiffs' claims that Sirius XM acted deceptively in its representations. Sirius XM posted answers to FAQs about the MRF on its website, sent e-mails to customers, and included the MRF fees on the bills it sent to customers and on its website. Pl's Resp. 56.1 ¶ 29–31. However, plaintiffs contend that Sirius XM omitted or misrepresented certain facts surrounding the true nature of the MRF. Id. For instance, Sirius XM did not disclose the fact that the MRF is composed of two components: a current and prior recovery fee. Pl's 56.1 ¶ 110. Sirius XM further did not disclose that the MRF price is as high as it is partially in order to make up for the fact that not all customers pay it at the same time. Rather, as subscriptions expire, Sirius XM imposes the MRF on top of the renewed subscription prices. Pl's Resp. 56.1 ¶ 25.

In addition to the MRF, two other post-merger changes in subscription prices give rise to alleged violations: (1) Sirius XM raised the monthly charge per additional radio by nearly 30%, from $6.99 to $8.99; and (2) Sirius XM began to charge $2.99 per month for internet streaming, which was previously included in the basic subscription price. See Pl's 56.1 Statement ¶ 10.

Discussion

Summary judgment shall be granted in favor of a moving party where the “pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). The moving party bears the burden of establishing the absence of any genuine issue of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In the summary judgment context, a fact is material “if it might affect the outcome of the suit under the governing law,” and an issue of fact is genuine “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Holtz v. Rockefeller & Co., 258 F.3d 62, 69 (2d Cir.2001) (internal citation omitted). “[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.” Burt Rigid Box, Inc. v. Travelers Property Casualty Corp., 302 F.3d 83, 90 (2d Cir.2002) ( quoting Anderson, 477 U.S. at 247–48, 106 S.Ct. 2505). As the Second Circuit has explained, “[t]he party against whom summary judgment is sought ... ‘must do more than simply show that there is some metaphysical doubt as to the material facts.... [T]he nonmoving party must come forward with specific facts showing that there is a genuine issue for trial.’ ” Caldarola v. Calabrese, 298 F.3d 156, 160 (2d Cir.2002).

I. The consumer protection claims

The consumer protection claims relate only to the MRF. See Pl. Opp. 3. At the motion to dismiss stage, Plaintiffs had argued that the Defendant used the MRF to generate income in excess of its royalty-related costs—and thus that Defendant's suggestion that the fee was a kind of “pass-through” was misleading. Accepting their allegations as true, I denied the motion. Plaintiffs have not substantiated those allegations with facts; they now premise their consumer protection claims on the more narrow theory that the way Defendant explains the MRF is inconsistent with the way it calculates the MRF. While Plaintiffs invoke consumer protection statutes from numerous states, the parties agree that Plaintiffs must show misleading conduct that was material and resulted in reliance or an injury. Pl. Opp. 9–19; Def's Br. 16.

a. Misstatements

The test used to determine whether an act or practice is deceptive for consumer protection purposes is an objective one, and asks whether the conduct is “likely to mislead a reasonable consumer acting reasonably under the circumstances.” E.g., Oswego Laborers' Local 214 Pension Fund v. Marine Midland Bank, 85 N.Y.2d 20, 26, 623 N.Y.S.2d 529, 647 N.E.2d 741 (1995). There is no dispute that the amount of the MRF was accurately disclosed; the website disclosed the fee and each bill specified the precise amount charged. Pl.'s Resp. 56.1 ¶¶ 29–31. The plaintiffs instead allege that the explanation of how the MRF was calculated was...