682 F.Supp.3d 368
S.D.N.Y.2023Background
- Plaintiffs Golden Unicorn Enterprises, Inc. and Big Dog Books, LLC are independent authors who licensed audiobooks to Audible via ACX and agreed to an ACX License & Distribution Agreement that paid royalties on “net sales,” defined to exclude “returns.”
- Audible historically allowed customers to return/exchange audiobooks within 365 days (the “Great Listen Guarantee”), refunding money or credits; royalty statements reflected net (not gross) sales.
- A 2020 technical glitch displayed gross sales, revealing to authors that Audible had been deducting royalties for returned titles (including some returns after purchase and full listening).
- Audible changed its royalty/return practice on November 24, 2020, limiting clawbacks for returns made more than seven days after purchase and altered customer marketing language; authors’ royalties increased thereafter.
- Procedural posture: after discovery, Audible moved for summary judgment on breach of contract and implied covenant claims; both sides moved to exclude experts; Audible moved for spoliation sanctions; Plaintiffs moved for class certification.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Agreement’s term “returns” excludes exchanges or only covers defective/mistaken purchases | “Returns” should be limited to defects/mistakes and should not include customer "exchanges" or swaps | “Returns” plainly means giving a product back for a refund/credit; a return occurs even if customer immediately repurchases | Court: term is unambiguous; “returns” includes any audiobook given back for refund or credit → summary judgment for Audible on contract claim |
| Whether implied covenant claim can be based on Audible’s reporting of net (not gross) sales — i.e., “surreptitious” deductions | Reporting net sales masked deductions and thus breached implied covenant | Contract expressly allowed reporting net sales and deducting returns; conduct permitted by contract cannot form implied covenant breach | Court: claim based on surreptitious deductions fails as a matter of law; summary judgment for Audible on that theory |
| Whether Audible breached implied covenant by encouraging returns via the Great Listen Guarantee and whether damages are provable | Audible’s marketing and generous return/exchange policy drove exchanges and deprived authors of royalties; damages are classwide | Plaintiffs lack a non-speculative damages model tying injury to that conduct; many returns may be legitimate; predominance/standing issues | Court: reserved judgment — plaintiffs given leave for targeted supplemental briefs on non-speculative damages, Rule 23 predominance/commonality, and Article III standing |
| Admissibility of Plaintiffs’ damages expert (Egan) and defendant’s rebuttal (Saitz) | Egan can calculate individual and classwide damages from Audible data | Egan’s work is simple arithmetic, replicates Audible’s calculations, and does not isolate returns attributable to plaintiffs’ implied-covenant theory; testimony unreliable and irrelevant | Court: excluded Egan (and thus Saitz as moot) — Egan’s methods not expert analysis and his damages do not fit plaintiffs’ remaining theory |
Key Cases Cited
- Daubert v. Merrell Dow Pharm., 509 U.S. 579 (1993) (district court gatekeeping; expert testimony must rest on reliable foundation)
- Gen. Elec. Co. v. Joiner, 522 U.S. 136 (1997) (expert conclusions must be linked to data, not ipse dixit)
- Anderson v. Liberty Lobby, 477 U.S. 242 (1986) (summary judgment standard; genuine issue for trial)
- Celotex Corp. v. Catrett, 477 U.S. 317 (1986) (moving party may show absence of evidence for essential element)
- Topps Co. v. Cadbury Stani S.A.I.C., 526 F.3d 63 (2d Cir. 2008) (summary judgment on contract interpretation only when language is wholly unambiguous)
- Law Debenture Tr. Co. v. Maverick Tube Corp., 595 F.3d 458 (2d Cir. 2010) (contract ambiguous only if reasonably susceptible to more than one meaning)
- Lockheed Martin Corp. v. Retail Holdings, 639 F.3d 63 (2d Cir. 2011) (unambiguous contract language has definite meaning)
- Tractebel Energy Mktg. Inc. v. AEP Power Mktg., 487 F.3d 89 (2d Cir. 2007) (damages must be reasonably certain, not speculative)
- Process Am., Inc. v. Cynergy Holdings, 839 F.3d 125 (2d Cir. 2016) (proof of damages is essential to implied covenant claim)
- Comcast Corp. v. Behrend, 569 U.S. 27 (2013) (class certification requires a damages model that measures damages from the theory of liability)