23-7407-cv Golden Unicorn Enters., Inc. v. Audible, Inc.
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER“). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 20th day of December, two thousand twenty-four.
PRESENT: RAYMOND J. LOHIER, JR., JOSEPH F. BIANCO, ALISON J. NATHAN, Circuit Judges. ------------------------------------------------------------------ GOLDEN UNICORN ENTERPRISES, INC., on behalf of themselves and all those similarly situated, BIG DOG BOOKS, LLC, on behalf of themselves and all those similarly situated,
Plaintiffs-Appellants,
v. No. 23-7407-cv
AUDIBLE, INC.,
Defendant-Appellee. ------------------------------------------------------------------ FOR PLAINTIFFS-APPELLANTS: MARK RUSSELL SIGMON, Milberg Attorneys at Law, Raleigh, NC (Christopher R. Bagley, Law Offices of James Scott Farrin, Durham, NC, Mitchell M. Breit, Milberg Coleman Bryson Phillips Grossman, PLLC, New York, NY, on the brief)
FOR DEFENDANT-APPELLEE: JEDEDIAH WAKEFIELD, Fenwick & West LLP, San Francisco, CA (Kathryn J. Fritz, Fenwick & West LLP, San Francisco, CA, Brian D. Buckley, Deena J.G. Feit, Fenwick & West LLP, Seattle, WA, on the brief)
Appeal from a judgment of the United States District Court for the
Southern District of New York (Jesse M. Furman, Judge).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,
AND DECREED that the judgment of the District Court is AFFIRMED.
Golden Unicorn Enterprises, Inc. and Big Dog Books, LLC (collectively,
“Appellants”) appeal from the judgment of the United States District Court for
the Southern District of New York (Furman, J.) granting summary judgment in
favor of Audible, Inc. on Appellants’ claims for breach of contract and breach of
the implied covenant of good faith and fair dealing. We assume the parties’
familiarity with the underlying facts and the record of prior proceedings, to 2 which we refer only as necessary to explain our decision to affirm.
This appeal arises out of a dispute between Audible, a leading audiobook
distributor, and Appellants, the business entities of two independent authors
who self-publish audiobooks through Audible’s ACX platform. Under the ACX
license and distribution agreement (the “Agreement”), authors receive royalties
on “Net Sales,” which are defined as sales “less any . . . returns.” App’x 1487,
1490. During the period giving rise to this litigation, Audible maintained a
“Great Listen Guarantee” policy that allowed its subscribers to return or
exchange audiobooks within 365 days for any reason, even after fully listening to
them. When audiobooks were returned, Audible clawed back the royalties paid
to the authors of those titles. Appellants did not discover this practice until a
technical glitch revealed that Audible was deducting returns from their royalties.
After the ensuing outcry from authors, Audible stopped clawing back royalties
on titles returned more than seven days after purchase.
We review the District Court’s grant of summary judgment de novo,
construing the evidence in Appellants’ favor. See Kaytor v. Elec. Boat Corp., 609
F.3d 537, 546 (2d Cir. 2010). We review the District Court’s exclusion of expert
testimony for abuse of discretion and will reverse only if the exclusion was
3 “manifestly erroneous.” Amorgianos v. Nat’l R.R. Passenger Corp., 303 F.3d 256,
265 (2d Cir. 2002) (quotation marks omitted).
I. Breach of Contract
Under New York law, which governs the Agreement, “the initial
interpretation of a contract,” including “whether the terms of the contract are
ambiguous,” is “a matter of law for the court to decide.” Alexander & Alexander
Servs., Inc. v. These Certain Underwriters at Lloyd’s, 136 F.3d 82, 86 (2d Cir. 1998)
(quotation marks omitted); see also W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d
157, 162 (1990). A “written agreement that is complete, clear and unambiguous
on its face must be interpreted according to the plain meaning of its terms,
without the aid of extrinsic evidence.” Law Debenture Tr. Co. of N.Y. v. Maverick
Tube Corp., 595 F.3d 458, 467 (2d Cir. 2010) (cleaned up).
The District Court correctly determined that the Agreement
unambiguously entitled Audible to deduct all returns, rather than returns only
for technical defects or mistaken purchases, from Appellants’ royalties. As
mentioned above, Audible was required to pay royalties on gross sales “less any
. . . returns.” App’x 1487, 1490. This dispute turns on the meaning of the term
“returns.” The plain and ordinary meaning of the term, as Appellants’ own
4 expert agreed, encompasses giving back a previously purchased product in
exchange for a refund or store credit, regardless of whether a customer
immediately purchases a new title with the money or credit. Nothing in the
ordinary meaning of the term, or in the contractual language, limits returns to
unconsumed goods, technical defects, or returns made within a certain
timeframe.
Appellants argue that the District Court erred by failing to consider
extrinsic evidence supporting their interpretation. We disagree. Although
courts may consider proof of industry custom and usage to construe specialized
terms, such evidence must establish that “the language in question is fixed and
invariable in the industry in question.” Law Debenture, 595 F.3d at 466
(quotation marks omitted). Appellants’ evidence reveals inconsistent practices
across the industry and thus falls short of this requirement. As the District
Court stated, and we agree, Appellants “seek to limit the definition of ‘returns’ as
a matter of policy, not as a matter of contract interpretation.” Golden Unicorn
Enters., Inc. v. Audible, Inc., 682 F. Supp. 3d 368, 376 (S.D.N.Y. 2023). Appellants’
argument that the term “returns,” at minimum, excludes “exchanges” would
require us to read limitations into the Agreement that its terms plainly do not
5 support. Accordingly, we affirm the District Court’s grant of summary
judgment on the breach of contract claim.
II. Breach of the Implied Covenant of Good Faith and Fair Dealing
Appellants next contend that the District Court erred in rejecting their
argument that Audible breached the implied covenant of good faith and fair
dealing. Under New York law, this covenant “encompasses any promises that a
reasonable promisee would understand to be included.” N.Y. Univ. v. Cont’l Ins.
Co., 87 N.Y.2d 308, 318 (1995). “The covenant cannot be used, however, to imply
Free access — add to your briefcase to read the full text and ask questions with AI
23-7407-cv Golden Unicorn Enters., Inc. v. Audible, Inc.
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER“). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 20th day of December, two thousand twenty-four.
PRESENT: RAYMOND J. LOHIER, JR., JOSEPH F. BIANCO, ALISON J. NATHAN, Circuit Judges. ------------------------------------------------------------------ GOLDEN UNICORN ENTERPRISES, INC., on behalf of themselves and all those similarly situated, BIG DOG BOOKS, LLC, on behalf of themselves and all those similarly situated,
Plaintiffs-Appellants,
v. No. 23-7407-cv
AUDIBLE, INC.,
Defendant-Appellee. ------------------------------------------------------------------ FOR PLAINTIFFS-APPELLANTS: MARK RUSSELL SIGMON, Milberg Attorneys at Law, Raleigh, NC (Christopher R. Bagley, Law Offices of James Scott Farrin, Durham, NC, Mitchell M. Breit, Milberg Coleman Bryson Phillips Grossman, PLLC, New York, NY, on the brief)
FOR DEFENDANT-APPELLEE: JEDEDIAH WAKEFIELD, Fenwick & West LLP, San Francisco, CA (Kathryn J. Fritz, Fenwick & West LLP, San Francisco, CA, Brian D. Buckley, Deena J.G. Feit, Fenwick & West LLP, Seattle, WA, on the brief)
Appeal from a judgment of the United States District Court for the
Southern District of New York (Jesse M. Furman, Judge).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,
AND DECREED that the judgment of the District Court is AFFIRMED.
Golden Unicorn Enterprises, Inc. and Big Dog Books, LLC (collectively,
“Appellants”) appeal from the judgment of the United States District Court for
the Southern District of New York (Furman, J.) granting summary judgment in
favor of Audible, Inc. on Appellants’ claims for breach of contract and breach of
the implied covenant of good faith and fair dealing. We assume the parties’
familiarity with the underlying facts and the record of prior proceedings, to 2 which we refer only as necessary to explain our decision to affirm.
This appeal arises out of a dispute between Audible, a leading audiobook
distributor, and Appellants, the business entities of two independent authors
who self-publish audiobooks through Audible’s ACX platform. Under the ACX
license and distribution agreement (the “Agreement”), authors receive royalties
on “Net Sales,” which are defined as sales “less any . . . returns.” App’x 1487,
1490. During the period giving rise to this litigation, Audible maintained a
“Great Listen Guarantee” policy that allowed its subscribers to return or
exchange audiobooks within 365 days for any reason, even after fully listening to
them. When audiobooks were returned, Audible clawed back the royalties paid
to the authors of those titles. Appellants did not discover this practice until a
technical glitch revealed that Audible was deducting returns from their royalties.
After the ensuing outcry from authors, Audible stopped clawing back royalties
on titles returned more than seven days after purchase.
We review the District Court’s grant of summary judgment de novo,
construing the evidence in Appellants’ favor. See Kaytor v. Elec. Boat Corp., 609
F.3d 537, 546 (2d Cir. 2010). We review the District Court’s exclusion of expert
testimony for abuse of discretion and will reverse only if the exclusion was
3 “manifestly erroneous.” Amorgianos v. Nat’l R.R. Passenger Corp., 303 F.3d 256,
265 (2d Cir. 2002) (quotation marks omitted).
I. Breach of Contract
Under New York law, which governs the Agreement, “the initial
interpretation of a contract,” including “whether the terms of the contract are
ambiguous,” is “a matter of law for the court to decide.” Alexander & Alexander
Servs., Inc. v. These Certain Underwriters at Lloyd’s, 136 F.3d 82, 86 (2d Cir. 1998)
(quotation marks omitted); see also W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d
157, 162 (1990). A “written agreement that is complete, clear and unambiguous
on its face must be interpreted according to the plain meaning of its terms,
without the aid of extrinsic evidence.” Law Debenture Tr. Co. of N.Y. v. Maverick
Tube Corp., 595 F.3d 458, 467 (2d Cir. 2010) (cleaned up).
The District Court correctly determined that the Agreement
unambiguously entitled Audible to deduct all returns, rather than returns only
for technical defects or mistaken purchases, from Appellants’ royalties. As
mentioned above, Audible was required to pay royalties on gross sales “less any
. . . returns.” App’x 1487, 1490. This dispute turns on the meaning of the term
“returns.” The plain and ordinary meaning of the term, as Appellants’ own
4 expert agreed, encompasses giving back a previously purchased product in
exchange for a refund or store credit, regardless of whether a customer
immediately purchases a new title with the money or credit. Nothing in the
ordinary meaning of the term, or in the contractual language, limits returns to
unconsumed goods, technical defects, or returns made within a certain
timeframe.
Appellants argue that the District Court erred by failing to consider
extrinsic evidence supporting their interpretation. We disagree. Although
courts may consider proof of industry custom and usage to construe specialized
terms, such evidence must establish that “the language in question is fixed and
invariable in the industry in question.” Law Debenture, 595 F.3d at 466
(quotation marks omitted). Appellants’ evidence reveals inconsistent practices
across the industry and thus falls short of this requirement. As the District
Court stated, and we agree, Appellants “seek to limit the definition of ‘returns’ as
a matter of policy, not as a matter of contract interpretation.” Golden Unicorn
Enters., Inc. v. Audible, Inc., 682 F. Supp. 3d 368, 376 (S.D.N.Y. 2023). Appellants’
argument that the term “returns,” at minimum, excludes “exchanges” would
require us to read limitations into the Agreement that its terms plainly do not
5 support. Accordingly, we affirm the District Court’s grant of summary
judgment on the breach of contract claim.
II. Breach of the Implied Covenant of Good Faith and Fair Dealing
Appellants next contend that the District Court erred in rejecting their
argument that Audible breached the implied covenant of good faith and fair
dealing. Under New York law, this covenant “encompasses any promises that a
reasonable promisee would understand to be included.” N.Y. Univ. v. Cont’l Ins.
Co., 87 N.Y.2d 308, 318 (1995). “The covenant cannot be used, however, to imply
an obligation inconsistent with other terms of a contractual relationship.” Gaia
House Mezz LLC v. State St. Bank & Tr. Co., 720 F.3d 84, 93 (2d Cir. 2013); see also
Dalton v. Educ. Testing Serv., 87 N.Y.2d 384, 389 (1995).
Appellants first assert that Audible breached the implied covenant by
concealing the number of audiobook returns from Appellants. But the
Agreement expressly provided that Audible pay royalties only on net sales
receipts and required Audible to provide Appellants with monthly royalty
statements reporting on a “net 30 day basis.” App’x 1487, 1490–91. Because
the Agreement expressly permitted Audible to report only net sales, which
Audible’s royalties reporting did, and because the Agreement did not require the
6 disclosure of the volume of returns and exchanges, we conclude there was no
breach. See JN Contemp. Art LLC v. Phillips Auctioneers LLC, 29 F.4th 118, 128 (2d
Cir. 2022).
Appellants also claim that Audible breached the implied covenant of good
faith by actively encouraging returns through its Great Listen Guarantee. That
claim fares no better because Appellants failed to adduce proof of damages
attributable to Audible’s alleged encouragement — an essential element of a
claim for breach of the implied covenant. See Process Am., Inc. v. Cynergy
Holdings, LLC, 839 F.3d 125, 141 (2d Cir. 2016); RXR WWP Owner LLC v. WWP
Sponsor, LLC, 17 N.Y.S. 3d 698, 700 (1st Dep’t 2015); see also Tractebel Energy Mktg.
Inc. v. AEP Power Mktg., Inc., 487 F.3d 89, 110 (2d Cir. 2007) (damages “must be
reasonably certain and such only as actually follow or may follow from the
breach” (quotation marks omitted)).
In particular, Appellants failed to distinguish between returns actively
encouraged by Audible and returns that would have occurred regardless. They
also failed to adduce evidence connecting Audible’s encouragement to any
specific returns or, conversely, connecting the cessation of Audible’s
encouragement to increased royalties. While uncertainty in the amount of
7 damages does not necessarily preclude recovery, Appellants have failed to
establish even the existence of any non-speculative damages caused by the
breach. See Tractebel, 487 F.3d at 110; Kenford Co. v. Erie County, 67 N.Y.2d 257,
261 (1986). Accordingly, we affirm the District Court’s grant of summary
judgment on this claim.
III. Expert Witness
Finally, Appellants challenge the District Court’s decision to exclude the
expert testimony of their damages expert, Joseph Egan. The District Court
excluded Egan’s testimony under Federal Rule of Evidence 702 and Daubert v.
Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), on two primary grounds:
(1) Egan’s damages calculations did not correspond to Appellants’ theory of
liability and (2) Egan’s proposed testimony did not involve expertise. Based on
our review, we identify no error.
First, because Appellants would be entitled to damages resulting only
from their theory of injury, “a model purporting to serve as evidence of damages
. . . must measure only those damages attributable to that theory.” Roach v. T.L.
Cannon Corp., 778 F.3d 401, 407 (2d Cir. 2015) (quotation marks omitted). Here,
Appellants’ theory of liability distinguished between returns of audiobooks in
8 exchange for other titles and returns due to a technical defect or mistaken
purchase. But Egan’s calculations added up the royalties for all returns without
any exclusions. Appellants explain that Egan merely proposed methodologies
rather than final calculations. But even proposed methodologies must show “a
valid scientific connection to the pertinent inquiry.” Daubert, 509 U.S. at 592.
Here, Appellants failed even to establish how Egan’s calculations could comport
with their theory of liability.
Second, Egan simply replicated calculations that already appeared in a
Microsoft Excel spreadsheet produced by Audible and used the “sum” function
in Excel to add up the total amount of royalties deducted. The District Court
concluded that these calculations involved “simple arithmetic, not expert
analysis.” Golden Unicorn, 682 F. Supp. 3d at 379. Although Appellants
contend that lack of analytical complexity is not a proper basis for exclusion, we
have held that testimony “directed solely to lay matters which a jury is capable of
understanding and deciding without the expert’s help . . . is properly
excludable.” United States v. Castillo, 924 F.2d 1227, 1232 (2d Cir. 1991)
(quotation marks omitted). Accordingly, we conclude that the District Court’s
exclusion of Egan’s testimony was not manifestly erroneous.
9 CONCLUSION
We have considered Appellants’ remaining arguments and conclude that
they are without merit. For the foregoing reasons, the judgment of the District
Court is AFFIRMED.
FOR THE COURT: Catherine O’Hagan Wolfe, Clerk of Court