Golden Unicorn Enterprises, Inc. v. Audible, Inc.

Background

Golden Unicorn Enterprises, Inc. and Big Dog Books, LLC are companies run by independent, self-published authors. Through Audible’s ACX program, the companies produced and published audiobooks under Audible’s Audiobook License and Distribution Agreement. The Agreement defined royalty-bearing “net sales” as sales after deductions including customer returns.

Beginning in 2012, Audible allowed customers to return audiobooks within 365 days of purchase, whether or not they had finished listening. Under the “Great Listen Guarantee,” customers could receive money or subscriber credits in exchange for returned titles. Audible also notified customers who completed a title and rated it one or two stars that they could exchange it for another title.

In October 2020, a technical problem allowed authors to see gross rather than net sales on their account statements. Plaintiffs say they then learned that Audible had deducted many returns from their royalties. Audible later announced that, beginning in January 2021, it would stop taking back royalties on titles returned more than seven days after purchase and changed how it marketed the return benefit.

Earlier rulings

After discovery, two claims remained: breach of contract and breach of the implied covenant of good faith and fair dealing, which is an implied promise that a party will not unfairly deprive the other party of the contract’s benefits. Plaintiffs advanced two implied-covenant theories: that Audible encouraged customers to return titles through the Great Listen Guarantee, and that Audible secretly deducted royalties by reporting net rather than gross sales.

In an earlier opinion, the court granted Audible summary judgment on the contract claim. It held that the Agreement clearly allowed Audible to deduct royalties for returns. The court also granted Audible summary judgment on the theory involving supposedly secret deductions because the Agreement expressly allowed Audible to report net sales on royalty statements, and conduct allowed by the contract could not support an implied-covenant claim.

The court also excluded testimony from Plaintiffs’ damages expert, Joseph Egan. The court found that his calculations involved simple arithmetic rather than expert analysis, appeared to repeat calculations already made by Audible, and counted all returns rather than only returns allegedly caused by Audible’s encouragement. The court reserved judgment on the remaining implied-covenant theory and ordered supplemental briefing on whether Plaintiffs could show a non-speculative basis for calculating damages from encouraged returns.

Summary judgment on the remaining claim

Summary judgment is a decision without a trial when the evidence shows no genuine dispute over a material fact and the moving party is entitled to judgment as a matter of law. Applying New York law, the court explained that damages are an essential part of an implied-covenant claim. Damages must be reasonably certain, actually follow from the breach, and be supported by evidence that the alleged breach caused them.

The court granted the rest of Audible’s motion for summary judgment. Plaintiffs pointed to losses of $38,701 for Golden Unicorn and $43,929 for Big Dog Books from all returns, but the court had already determined that Audible was contractually entitled to deduct royalties for returns. Plaintiffs therefore needed a way to distinguish returns actively encouraged by Audible from other returns, such as returns for defects, mistaken purchases, or customer dissatisfaction.

The court found that Plaintiffs did not provide that means or identify evidence that Audible’s alleged encouragement caused even one audiobook to be returned. Plaintiffs relied on increased author royalties after Audible changed its policy and on Audible research indicating that some customers returned books for reasons other than technical defects or mistaken purchases. The court found that these facts showed neither causation nor damages attributable to Audible’s alleged encouragement. It also rejected the assumption that every return made more than seven days after purchase, or every return for a reason other than a defect or mistaken purchase, resulted from Audible’s encouragement.

Because Plaintiffs lacked evidence from which a jury could determine that the alleged breach caused damages or could reasonably estimate those damages, the court concluded that Audible was entitled to summary judgment on the remaining implied-covenant theory.

Other motions and disposition

The court denied as moot the parties’ other pending substantive motions, including motions concerning Audible’s affirmative defenses, expert testimony, alleged destruction of evidence, and Plaintiffs’ request for class certification. The court did not decide the class-certification issues of predominance, commonality, or constitutional standing.

The court approved most requests to seal or redact portions of motion papers and exhibits to protect privacy interests and confidential business or client information. It identified two exceptions: three lines in an exhibit to Plaintiffs’ class-certification motion and Paragraphs 123 and 125 of Plaintiffs’ counterstatement of undisputed facts. The court found the three lines too vague to qualify as confidential strategy information. It found the other material highly relevant to the ruling, at least partly quasi-public, or testimony about how Audible’s policy was implemented rather than a confidential Audible policy.

The court ordered Audible, within two weeks, to show cause in writing why specified portions of four filings should not be refiled without the disputed redactions. If Audible failed to do so, it was required to file the documents with those contents unredacted. Otherwise, the parties’ requests to keep the documents sealed or redacted were granted without prejudice to a future request for reconsideration as to a particular document.

Final order

The court granted the rest of Audible’s motion for summary judgment, denied the parties’ other pending substantive motions as moot, directed the Clerk to enter judgment for Audible consistent with this opinion and the earlier opinions and orders, and directed that the case be closed.