Blessing v. Sirius Xm Radio Inc.

• Decision Date: 17 November 2010
• Docket Number: No. 09 CV 10035(HB).,09 CV 10035(HB).
• Citation: 756 F.Supp.2d 445
• Parties: Carl BLESSING et al., Plaintiffs,v.SIRIUS XM RADIO INC., Defendant.
• Court: U.S. District Court — Southern District of New York

756 F.Supp.2d 445

Carl BLESSING et al., Plaintiffs,

v.SIRIUS XM RADIO INC., Defendant.

No. 09 CV 10035(HB).

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

Nov. 17, 2010.

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, 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.

This proposed class action is based on the plaintiffs' purchase of satellite digital audio radio services (“SDARS”)—commonly known as “satellite radio”—from the defendant in various locations throughout the United States. Plaintiffs claim that the 2008 merger of Sirius Satellite Radio, Inc. with XM Satellite Holdings, Inc. created a monopoly in the surviving company, Defendant Sirius XM Radio Inc. (“Defendant” or “Sirius XM”), that violates the antitrust laws codified in the Clayton Act § 7 and the Sherman Act § 2. They also allege that, as the only satellite radio provider in the United States, Defendant abused its monopoly power by raising prices in violation of state consumer protection laws, and in violation of the agreement governing the Plaintiffs' subscription for SDARS. Defendant now moves to dismiss eleven plaintiffs, certain claims under state consumer protection laws, and the contract related claim based on breach of contract and breach of the covenant of good faith and fair dealing. Plaintiffs move to bifurcate the federal antitrust claims from the state consumer protection and contract-related claims. For the reasons that follow, Defendant's motion to dismiss is GRANTED in part and DENIED in part. Plaintiffs' motion to bifurcate is DENIED.

Factual and Procedural Background

The relevant facts reach back to April of 1997, when the Federal Communications Commission (“FCC”) auctioned off 25 megahertz of satellite bandwidth. See Second Consolidated Amended Class Action Complaint (“SCAC”) ¶ 48. The two winning bidders were XM Satellite Holdings, Inc. and Sirius Satellite Radio. Id. The companies launched their SDARS businesses in September 2001 and February 2002, respectively. SCAC ¶¶ 50, 51. On July 28, 2008 they merged to form Sirius XM. SCAC ¶ 3; Def.'s Mem. Supp. Mot. Dismiss 4. Because this merger involved transferring control of FCC licenses, the parties had applied for FCC approval of the transaction in March 2007. SCAC ¶ 61. In order to obtain FCC approval, Defendant agreed to specific limitations on the exercise of its “enhanced market power” and promised that the merger would result in increased efficiencies that would be passed to the consumer in the form of lower prices. SCAC ¶¶ 63–64.

In support of their antitrust claims, Plaintiffs allege that Sirius XM now controls 100% of the market for SDARS and that there is no economically viable alternative product that is interchangeable with that provided by Sirius XM. SCAC ¶¶ 286, 292–94. The complaint further alleges that the merger was a willful attempt to exert monopolistic control over the SDARS market since the merged companies had been the only SDARS providers, and entry into the SDARS market is prohibitively costly. SCAC ¶¶ 283, 285, 291, 294. The complaint asserts that these actions resulted in artificially inflated, noncompetitive prices, thereby harming the named plaintiffs—Sirius XM subscribers—and all others similarly situated. SCAC ¶¶ 287, 296–97.

In support of their claims for breach of contract and breach of the implied covenant of good faith and fair dealing, Plaintiffs point to the agreements that every consumer entered into with Sirius XM and under which the company agreed to provide SDARS (the “Customer Agreements”). SCAC ¶ 302. Among other things, the Customer Agreements described a U.S. Music Royalty Fee (the “Royalty Fee”) that would be charged as part of the overall subscription cost. The complaint alleges that, during the FCC approval process, Sirius XM agreed that such charge would be limited to the amount necessary to “pass through” its own increased costs of royalties paid since the merger, SCAC ¶ 132, and that the Royalty Fee is described to consumers as just that: a simple “pass through.” SCAC ¶ 153. Plaintiffs charge that, rather than imposing a “pass through” fee, the Royalty Fee as charged exceeded the amount of the Defendant's increase in royalty obligations. SCAC ¶¶ 132–33. At the heart of Plaintiffs' non-antitrust claims is the allegation that the Customer Agreements provided an inaccurate and deceptive description of the Royalty Fee. SCAC ¶¶ 149–60, 306–446.

Plaintiffs filed several class action lawsuits against Sirius XM, which were joined in a consolidated amended complaint filed March 22, 2010 (the “CAC”). On May 3, 2010, Plaintiffs filed the SCAC, which added eleven new plaintiffs. Defendants now move to dismiss under Fed.R.Civ.P. 12(b)(6), arguing that (1) the eleven plaintiffs first named in the SCAC were added after the Court's deadline for joinder of new parties and should be dismissed, (2) Plaintiffs do not have standing to bring claims under the consumer protection statutes of states in which no plaintiff resides, (3) Plaintiffs fail to state claims for relief under either New York, California, or Massachusetts law, and (4) Plaintiffs fail to state claims for either breach of contract or breach of the covenant of good faith and fair dealing. Defendant does not challenge the antitrust claims.

Discussion

A. Legal Standard

A complaint will be dismissed if there is a “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). To survive a motion to dismiss on this ground, a plaintiff must “plead enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A facially plausible claim is one where “the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, ––– U.S. ––––, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009). Where the court finds well-pleaded factual allegations, it should assume their veracity and determine whether they “plausibly give rise to an entitlement to relief.” Id. at 1950. A court may consider “undisputed documents, such as a written contract attached to, or incorporated by reference in, the complaint.” Chapman v. New York State Div. for Youth, 546 F.3d 230, 234 (2d Cir.2008).

B. Standing to bring state law claims

Defendant asserts that the existing Plaintiffs lack standing to bring their consumer protection claims under the laws of states in which they do not reside, and while this may be so it would dismiss the state law claims for all but nine of the states under whose laws claims are brought. See Def.'s Mem., at 8. The better course at this junction is to let the claims go forward and see what happens on the motion for class certification. This is consistent with a broad array of precedent and persuasive authority.

“In essence the question of standing is whether the litigant is entitled to have the court decide the merits of the dispute or of particular issues.” Warth v. Seldin, 422 U.S. 490, 498, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975). It requires that a plaintiff make out “a ‘case or controversy’ between himself and the defendant within the meaning of Article III.” Fallick v. Nationwide Mut. Ins. Co., 162 F.3d 410, 422–23 (6th Cir.1998) (quoting Warth v. Seldin, 422 U.S. at 498, 95 S.Ct. 2197 (emphasis added)). What is crucial at this stage is that “each of the named plaintiffs has standing to bring at least some claims.” In re Buspirone Patent Litigation, 185 F.Supp.2d 363, 377 (S.D.N.Y.2002).

While it is true that standing is generally treated as a threshold issue, the Supreme Court has articulated an exception whereby federal courts may address class certification prior to standing in cases where the certification issues are “logically antecedent to Article III concerns.” Ortiz v. Fibreboard Corp., 527 U.S. 815, 831, 119 S.Ct. 2295, 144 L.Ed.2d 715 (1999). Unsurprisingly, this engendered some disagreement among federal courts as to when certification issues are “logically antecedent” to standing. See, e.g., Linda S. Mullenix, Standing and Other Dispositive Motions after Amchem and Ortiz: The Problem of “Logically Antecedent” Inquiries, 2004 Mich. St. L.Rev. 703, 729 (2004). While the Second Circuit has not directly addressed the issue, there has been a growing consensus among district courts that class certification is “logically antecedent,” where its outcome will affect the Article III standing determination, and the weight of authority holds that in general class certification should come first. See, e.g., In re Grand Theft Auto Video Game Consumer Litig. (No. II), No. 06 MD 1739(SWK), 2006 WL 3039993, *2 (S.D.N.Y. Oct. 25, 2006) (examining the “emerging split” in lower court authority and determining that “the better interpretation is to treat class certification as logically antecedent to standing where class certification is the source of the potential...