211 F. Supp. 3d 628
S.D.N.Y.2016Background
- Plaintiffs (two named) sued TouchTunes alleging deceptive practices in its jukebox/App business, including skips by venue owners, lack of refunds for unplayed songs, and undisclosed expiration of purchased credits.
- Plaintiffs are out-of-state users (Montana, North Dakota); one named plaintiff (Engstrom) used cash at jukeboxes; the other (Cline) used the App and credit-card purchases in part.
- TouchTunes is based in New York, operates servers there, processes payments there for App/credit-card transactions, and its Terms of Use designate New York law and forums.
- Defendant moved to dismiss the Second Amended Class Action Complaint for failure to state claims under NY General Business Law (GBL) §§ 349 and 350 and for common-law claims (implied covenant and unjust enrichment).
- The court applied Second Circuit precedent on GBL territorial scope, distinguished App/credit-card transactions from cash transactions, and evaluated the sufficiency of specific § 349 and § 350 allegations.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Territorial reach of NY GBL (§§ 349/350): may out-of-state plaintiffs sue for transactions linked to NY? | Goshen warning should not bar out-of-state plaintiffs when the transactional connection to NY exists; transactions here involve NY servers/pay processing. | GBL applies only where the deceptive transaction/conduct occurred in NY; named plaintiffs did not transact in NY. | Applied Cruz (transactional test) to App and credit-card users: claims may proceed; dismissed claims for cash user (Engstrom) and Cline’s alleged cash transactions. |
| § 349 sufficiency — refunds for unplayed songs (failure to refund) | TouchTunes can technically refund unplayed songs; omission is deceptive. | Terms of Use deny refunds; no factual basis that consumers reasonably expected refunds. | Dismissed as not misleading: failure to refund (standing alone) is not deceptive. |
| § 349 sufficiency — venue-owner skip feature and expiration of credits | Venue skips and nondisclosure of skip-functionality and credit expiration misled reasonable consumers. | Terms of Use generally disclosed that songs might not play and that no refunds issued; not misleading. | Skip-feature allegation survives at pleading stage (could be materially misleading); allegation that Terms failed to specify credit-expiration period also survives; but plaintiffs did not plead any specific false advertising to sustain § 350. |
| Contractual and quasi-contractual claims (implied covenant; unjust enrichment) | Failure to disclose skip capability breaches implied covenant; alternatively unjust enrichment. | Express Terms of Use govern; they disclose that songs may not play and no refunds will be issued, barring implied-duty/unjust-enrichment recovery. | Both dismissed: implied covenant claim fails (no undermining of core contract purpose); unjust enrichment unavailable given valid written contract. |
Key Cases Cited
- Goshen v. Mutual Life Ins. Co. of N.Y., 98 N.Y.2d 314 (N.Y. 2002) (GBL §349 requires the deceptive transaction to occur in New York unless sufficient transactional nexus exists)
- Cruz v. FXDirectDealer, LLC, 720 F.3d 115 (2d Cir. 2013) (adopts a transaction-based territorial test for §349 and allows out-of-state plaintiffs to sue when the deceptive transaction occurs in NY)
- Oswego Laborers' Local 214 Pension Fund v. Marine Midland Bank, N.A., 85 N.Y.2d 20 (N.Y. 1995) (sets the consumer-oriented, materially misleading, and injury elements for §349)
- IDT Corp. v. Morgan Stanley Dean Witter & Co., 12 N.Y.3d 132 (N.Y. 2009) (describes unjust enrichment as unavailable where a valid written contract governs the subject matter)