United States District Court, D. Maryland
L. HOLLANDER, UNITED STATES DISTRICT JUDGE
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). Focus seeks monetary and
injunctive relief, in addition to attorneys' fees and
costs. Id. at 25.
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 of plaintiff'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.
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
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.
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. ¶
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 related services.”
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.
are typically agreed upon as a percentage of gross or net
revenues derived from the use of an asset. The music industry
relies on royalties generated by the licensing of copyrighted
songs and recordings as a primary form of payment for
musicians.” Id. ¶ 18.
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
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
summer of 2017, Focus and Streamify entered into the
Agreement. Id. ¶ 24. Focus claims that it
“engaged Streamify to act as its music streaming agency
between summer 2017 and late 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.
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.
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 was responsible 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.
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.
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.
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.
plaintiff alleges: “Streamify failed to disclose
problems with the inventory it purchased because it knew that
Focus would have stopped purchases from the implicated
networks and 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.
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.
fraud' refers to a scheme where networks or playlists
seek credit for organic installations and for installations
actually attributable to other media sources. Attribution
fraud occurs when networks or playlists insert false
information into [Streambeet's] attribution
algorithm.” Id. ¶ 52. Forms of
attribution fraud include the following, id. ¶
a. “‘Stream Spamming' is where a network or
playlist fraudulently generates or reports Streams for users
without those Streams actually having occurred. Stream
spammers report . . . fake Streams so that when an end user
organically installs the streaming service, it will appear as
if the installation was attributable to a fraudulently
reported stream, thus qualifying for payment. . . .”
b. “‘Fake or Malicious Sites' refers to a
scheme where a network or playlist reports (and seeks payment
for) significant numbers of streaming service installs as
attributable to streams made on fake or malicious website
URLs. . . .”
c. “‘Stacked Ads' or ‘Ad-stacking'
refers to the schemes where a single inventory placement is
filled with several streaming advertisements, even though
only one advertisement is visible. When the viewer Streams on
a stacked ad, several Streams are sent to [Streambeet], of
which only one reflects legitimate user interest in a
streaming advertisement. . . .”
to the Complaint, Streamify failed to identify and remedy
various forms of fraud in the Streamify Campaign.
Id. ¶¶ 54, 56-57. According to plaintiff,
beginning in the summer of 2017, Streamify “likely
provided Focus with fraud [transparency] reports.”
Id. ¶ 59. Plaintiff maintains that
“Streamify provided transparency reports to Focus and
represented that such reports accurately reflected”
Focus's “streaming experience” in the
Streamify Campaign. Id. ¶ 47. The purpose of
the transparency reports was “to facilitate the review
of playlist validity and performance and to authenticate
legitimate streams, so that Streamify could optimize
Focus' music streaming.” Id. ¶ 60.
“Because networks and playlists self-report[ed]
data” included in the transparency reports, Focus
asserts that it “relied on Streamify to police the
quality and accuracy of that data . . . .” Id.
Based on Streamify's representations in the transparency
reports, “Focus' monthly music streaming spending
on the Streamify Campaign grew from a couple hundred dollars
to thousands of dollars.” Id. ¶ 49.
addition, plaintiff alleges: “Streamify allowed
networks and playlists to falsify streaming
experiences.” Id. ¶ 66. For example, even
“after a playlist was caught” stream spamming,
“Streamify would reward the bad actor with additional
volume and opportunities to report fake Streams.”
Id. ¶ 75. In addition, Streamify “misused
its position as a marketplace leader and as Focus'
streaming agency, to solicit improper ‘rebate'
payments from networks and playlists in exchange for
purchasing streaming inventories during the Streamify
Campaign and failed to pass such discounts back to
Focus.” Id. ¶ 76.
plaintiff contends that Streamify “failed to enforce
Focus' prohibition against rebrokering, ” in which
“networks or playlists take advertising offers and
re-broker them to third parties to obtain a greater volume of
streams.” Id. ¶ 77. Focus asserts:
“Rebrokering is against the terms approved by Focus for
use in the Streamify Campaign and also leads to a loss of
control by the music streaming agency over the quality of the
streaming and the amount of fraud.” Id.
Furthermore, plaintiff asserts that Streamify “failed
to disclose material conflicts of interest to Focus.”
Id. ¶ 78. Because “Streamify purchased
inventory during the Streamify Campaign from a third party
source, ” Streamify was “dis-incentivized to
police fraud committed by itself.” Id.
“more than $21, 000 [Focus] paid for music streaming
managed by Streamify, ” plaintiff avers, “a
material percentage of that amount was used by Streamify to
purchase nonexistent, nonviewable, and/or fraudulent
inventory from networks and playlists who [sic] Streamify
knew or should have known were perpetuating fraud.”
Id. ¶ 79. Focus maintains that had it
“known of the extent of fraud in the Streamify Campaign
earlier, it would have taken steps to mitigate its harm,
including . . . denying approval for Streamify to purchase
inventory from networks and playlists perpetuating fraud;
obtaining remediation for fraudulent streaming and/or
reporting; and/or terminating its relationship with Streamify
and the networks and playlists it engaged for the Streamify
Campaign.” Id. ¶ 81.
Streamify Campaign, Focus paid $21, 000 “up
front.” Id. ¶¶ 34-35.
“Beginning in Fall 2017, [Focus] also agreed to pay
additional monies to Streamify.” Id.
¶ 37. In October 2017, “Streamify and Focus
concluded business.” Id. ¶ 38.
relevance here, Section 10 of the parties' Agreement,
titled “Governing Law and Dispute Resolution, ”
provides, in pertinent part, ECF 11-2:
This Agreement shall be governed in all respects by the laws
of the State of Texas as if this agreement was entered into
and to be performed entirely within Texas between Texas
residents. Any controversy or claim arising out of or
relating to this Agreement, the use of this Website, or
otherwise related to the parties' business relationship
shall be settled by binding arbitration in accordance with
the commercial arbitration rules of the American Arbitration
Association. Any such controversy or claim shall be
arbitrated on an individual basis, and shall not be
consolidated in any arbitration with any claim or controversy
or any other party. The arbitration shall be conducted in
Houston, Texas, and judgment on the arbitration award may be
entered by any court having jurisdiction thereof. . . .
facts are included in the Discussion.
The Federal Arbitration Act
moves to dismiss. Alternatively, under the Federal
Arbitration Act, Streamify moves to stay proceedings and
FAA, which was enacted in 1925, “provides for the
enforceability of arbitration agreements and specifies
procedures for conducting arbitrations and enforcing
arbitration awards . . . .” McCormick v. Am.
Online, Inc., ___ F.3d ___, 2018 WL 6204888, at *1 (4th
Cir. Nov. 29, 2018). Under § 2 of the FAA, an
arbitration contract is “valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in
equity for the revocation of any contract.” Thus,
“the FAA elevates the arbitration of claims as a
favored alternative to litigation when the parties agree in
writing to arbitration.” McCormick, 2018 WL
6204888, at *2 (citing Moses H. Cone Mem'l Hosp. v.
Mercury Constr. Corp., 460 U.S. 1, 24 (1983)).
Adkins v. Labor Ready, Inc., 303 F.3d 496, 500-01
(4th Cir. 2002) (quoting Whiteside v. Teltech
Corp., 940 F.2d 99, 102 (4th Cir. 1991)), the Fourth
In the Fourth Circuit, a litigant can compel arbitration
under the FAA if he can demonstrate “(1) the existence
of a dispute between the parties, (2) a written agreement
that includes an arbitration provision which purports to
cover the dispute, (3) the relationship of the transaction,
which is evidenced by the agreement, to interstate or foreign
commerce, and (4) the failure, neglect or refusal of the
defendant to arbitrate the dispute.”
Adkins, the Court also said, 303 F.3d at 500:
“A district court . . . has no choice but to grant a
motion to compel arbitration where a valid arbitration
agreement exists and the issues in a case fall within its
purview.” Accordingly, a court must “engage in a
limited review to ensure that the dispute is
arbitrable-i.e., that a valid agreement exists
between the parties and that the specific dispute falls
within the substantive scope of that agreement.”
Murray v. United Food and Commercial Workers Int'l
Union, 289 F.3d 297, 302 (4th Cir. 2002).
there must be an “independent jurisdictional
basis” for suit in federal court. Hall St. Assocs.,
LLC v. Mattel, Inc., 552 U.S. 576, 581-82
(2008). Of significance here, “diversity jurisdiction
would authorize a federal court to resolve disputes
concerning the arbitration process. . . .”
McCormick, 2018 WL 6204888, at *3.
3 of the FAA is also relevant. It provides, 9 U.S.C. §
If any suit or proceeding be brought in any of the courts of
the United States upon any issue referable to arbitration
under an agreement in writing for such arbitration, the court
in which such suit is pending, upon being satisfied that the
issue involved in such suit or proceeding is referable to
arbitration under such an agreement, shall on application of
one of the parties stay the trial of the action until such
arbitration has been had in accordance with the ...