Focus Music Entm't, LLC v. Streamify, LLC
| Decision Date | 05 December 2018 |
| Docket Number | Civil Action No. ELH-18-1241 |
| Parties | FOCUS MUSIC ENTERTAINMENT, LLC Plaintiff, v. STREAMIFY, LLC, Defendant. |
| Court | U.S. District Court — District of Maryland |
Plaintiff Focus Music Entertainment, LLC ("Focus") filed suit against defendant Streamify, LLC ("Streamify"), a music streaming company. ECF 1 (the "Complaint"). Focus alleges, inter alia, that Streamify failed to deliver music streaming services pursuant to the terms of a services agreement (the "Agreement"). Id. The Complaint contains ten claims: "Breach of Contract" (Count I); "Breach of the Covenant of Good Faith and Fair Dealing" (Count II); "Intentional Breach of Fiduciary Duty" (Count III); "Constructive Fraud" (Count IV); "Fraud" (Count V); "Negligent Misrepresentation" (Count VI); "Professional Negligence" (Count VII); "Negligence" (Count VIII); "Unfair Competition" (Count IX); and "Unjust Enrichment" (Count X).1 Focus seeks monetary and injunctive relief, in addition to attorneys' fees and costs. Id. at 25.
Streamify has filed a "Motion to Dismiss, or in the Alternative, to Stay and to Compel Arbitration," pursuant to Fed. R. Civ. P. 12(b)(1), 12(b)(3), and 12(b)(6). ECF 11. It is supported by a memorandum of law (ECF 11-1) (collectively, the "Motion"), and two exhibits. ECF 11-2 - ECF 11-3. Streamify contends that the Agreement's arbitration provision requires arbitration ofplaintiff's claims and, therefore, the action is subject to dismissal. ECF 11-1 at 3. It moves to dismiss the Complaint for lack of subject matter jurisdiction pursuant to Fed. R. Civ. P. 12(b)(1); for improper venue, pursuant to Fed. R. Civ. P. 12(b)(3); and for failure to state a claim, under Fed. R. Civ. P. 12(b)(6). Alternatively, Streamify moves, pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq., to stay the proceedings pending arbitration. Id. at 4.
Focus filed an opposition to the Motion (ECF 12), accompanied by a memorandum of law (ECF 12-1) (collectively, the "Opposition"). It challenges the validity and enforceability of the arbitration provision as unconscionable. Streamify has replied. ECF 13 (the "Reply").
The Motion is fully briefed, and no hearing is necessary to resolve it. See Local Rule 105.6. For the reasons that follow, I will deny the Motion and transfer this case to the U.S. District Court for the Southern District of Texas.
Focus is a Baltimore-based music, entertainment, and technology company that "has several artists who[] make music and seek to distribute [their music] on the internet . . . ." ECF 1, ¶ 11. "Focus gains new listeners . . . through 'organic' downloads and use of various music streaming services (e.g., Spotify, Apple Music and Tidal)." Id. ¶ 12. "'Music Streaming' refers to a way of delivering sound - including music - without requiring the listener to download files from the internet." Id. ¶ 13.2
Streamify is a Texas music streaming agency based in Houston. Id. ¶ 6. "'Music Streaming Agencies' are companies that specialize in the digital placement" of songs on streaming services "to increase engagement with their clients' brands, acquire new users for their clients, and relatedservices." Id. ¶ 17. "An agency will contract to increase their client[s'] plays because in turn, that will increase" their clients' popularity, fan base, play count, and royalties. Id.
"'Spotify' is the leading music streaming service with over 75 million users" and "over 20 million subscribers" in 58 countries. ECF 1, ¶ 16. It "offers an interactive user experience to paying subscribers" and "a non-interactive user experience to free users . . . ." Id. "Interactive Streaming" provides listeners the choice of "which song plays next" and "usually pay[s] higher royalties. Id. ¶ 14. Conversely, "Non-interactive Streaming" is a streaming service that picks the next song based on listeners' preferences. Id. "Freemium" is the non-interactive streaming model used by Spotify, "where there is no charge to set up an account, but listeners hear ads between sets to help pay the cost to license the songs played." Id. ¶ 15. Listeners of Spotify's Freemium service "receive non-interactive playlists based on chosen preferences." Id. "However, Spotify desktop [F]reemium users can use the service interactively." Id.
Streamify offers the following services to clients, id. ¶ 19 (emphasis in original):
Streamify delivers plays to your tracks. Ordering plays takes a minute and then you can sit back and Streamify takes care of the rest. Our large partner network can deliver huge amounts of plays in short time. Totally unique users will play your tracks. All plays are absolutely real and eligible for royalties.
In the summer of 2017, Focus and Streamify entered into the Agreement. Id. ¶ 24.3 Focus claims that it "engaged Streamify to act as its music streaming agency between summer 2017 andlate 2017 (the 'Streamify Campaign') based on Streamify's representations of its expertise as a music streaming agency and provider of music streaming services." Id. ¶ 20 (emphasis omitted). Specifically, "Focus relied on Streamify's expertise to recommend and engage networks and playlists best suited to encourage new listeners to stream its song 'Get to the Money' on Spotify." Id. ¶ 22. Focus maintains that it "entered into the Agreement based on Streamify's continued representations that it had the resources available to acquire real music streams, and provide the relevant insight, support, and services required to meet Focus' goal of acquiring new listeners in both existing and new markets." Id. ¶ 28.
According to the Complaint, it was "Streamify's role," as Focus's music streaming agency, "to select networks and supervise their conduct in order to cause legitimate music streaming and ultimately acquire royalties for Focus." Id. ¶ 23. Through the Streamify Campaign, Focus "wished to gain more listeners & streams, and, ultimately, royalties." Id. ¶ 22. And, pursuant to the Agreement, "Streamify promised to perform and deliver services and to provide 'absolutely real' plays." Id. ¶ 25.
"During the Streamify Campaign, Streamify purchased inventory on behalf of Focus and its affiliates in a number of jurisdictions." Id. ¶ 29. For music streaming in the United States, "Streamify purchased inventory from its networks on an 'agent-principal' basis," i.e., "Streamify purchased inventory on Focus's behalf as Focus' representative in each transaction with networks and playlists." Id. ¶ 30. For music streaming outside the United States, "Streamify purchased inventory from networks and playlists on its own principal behalf." Id. ¶ 31. For all music streaming, whether on an agent-principal or principal basis, Focus asserts: "Streamify wasresponsible for the day-to-day oversight of networks and the vetting of playlists for qualify and fraud prevention, in accordance with the Agreement . . . ." Id. ¶ 32.
"As part of managing the Streamify Campaign," asserts Focus, "Streamify was supposed to pay networks and playlists for real listeners to stream the song 'Get to the Money.'" Id. ¶ 41. To track which network, playlist, or application generated streams of the song, "Streamify and Focus utilized a third-party streaming analytics and performance marketing platform," called Streambeet, Inc. ("Streambeet"). Id. ¶ 42. Streambeet's tracking service "collect[s] information about music streaming impressions." Id. ¶ 43. Then, Streambeet "awards credit to the playlist, network, or music streaming agency" that generated the streams. Id.
To optimize Focus's music streams, "Streamify require[d] networks and playlists participating in the Streamify Campaign to identify all streams running Focus advertisements." Id. ¶ 44. Focus asserts: "Streamify was responsible for ensuring that the networks and playlists that it engaged reported accurate and legitimate information to [Streambeet]." Id. According to the Complaint, Streambeet "does not believe that it received accurate information from Streamify." Id. ¶ 46.
Focus asserts that in late 2017, it "became aware of the pervasive fraud in the Streamify Campaign, when Spotify removed its music from their website." Id. ¶ 72. Plaintiff contends that during the Streamify Campaign, "Streamify willfully ignored indicia of fraud in order to keep collecting payments from Focus." Id. at 12. In Focus's words, "Streamify sat idly by," as "thousands of Focus' dollars were squandered on nonexistent, nonviewable, and/or fraudulent music streaming." Id. ¶ 66.
Further, plaintiff alleges: "Streamify failed to disclose problems with the inventory it purchased because it knew that Focus would have stopped purchases from the implicated networksand playlists, would have insisted on remediation for fraudulent streaming, and would not have paid." Id. ¶ 67. In addition, "Streamify's omissions and misstatements induced Focus to continue its relationship with Streamify" and "to increase spending on music streaming to thousands of dollars." Id. ¶ 71.
The Complaint explains: "Paying networks and playlists based on streams is a standard method of compensation in the music streaming industry." Id. ¶ 50. However, "in the absence of monitoring by the music streaming agency . . . the model can invite fraud." Id. Generally, there are two broad categories of "fraud" in the music streaming industry: "fraudulent installations" and "attribution fraud." Id. ¶ 51.
Id. ¶ 52. Forms of...
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