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Nessi v. XM Satellite Radio Holdings

September 26, 2008


The opinion of the court was delivered by: Sheridan, U.S.D.J.


This matter comes before the Court on Defendants', XM Satellite Radio Holdings, Inc. and XM Satellite Radio, Inc. ("XM"), motion to dismiss Plaintiffs' complaint pursuant to Fed. R. Civ. P. 12(b)(1) and 12(b)(6) and Plaintiffs' motion for leave to file a second amended class action complaint under Federal Rule 15(a). On September 2, 2008, the Court converted Plaintiffs' motion into a motion for summary judgment and gave the parties two weeks to submit additional briefs.

XM experienced an interruption of service*fn1 for a 24-hour period on May 21-22, 2007. XM has two satellites which orbit over the United States and from which radio signals are received and then beamed back to subscribers. Plaintiffs describes the system as:

a network consisting of high-power satellites and uplink facility and ground-based repeaters primarily in dense urban areas to provide coverage where a transmitted satellite signal is obstructed. The transmission coverage areas, or footprints, of the satellites encompass the forty-eight (48) continuous states, nearby coastal waters and the densely populated regions of Canada. XM has tailored these footprints to provide nearly uniform availability in the United States and to minimize transmission spillage across the United States' borders into Mexico. The satellites are monitored by telemetry, tracking and control stations and are controlled by a space craft control station. (Plaintiffs' Statement of Material Facts ¶8(a) (citation omitted) (emphasis in original)).

During installation of some software, one of the satellites spun out of control, causing it to face into space rather than toward earth, disrupting service. The XM engineers and scientists took a day to right the satellite. The affected satellite was one of two satellites that broadcast the primary XM signal. As a result of one satellite's facing the wrong way, a percentage, but not all, of XM subscribers were without service.

As opposed to terrestrial, or FM and AM radio, which is freely available to anyone, XM service is available to pre-paying subscribers only. Individuals may purchase a subscription to XM in various ways, such as by ordering on-line, at retail locations, over the phone, or by signing up with XM at the time of purchase of a new vehicle. Generally, subscribers pre-authorize a credit card payment each month. Non-commercial subscribers pay a basic monthly subscription fee of $12.95.*fn2 Defendants claim that the relationship between XM and all subscribers is governed by a Customer Service Agreement ("CSA"). Plaintiffs dispute this, and the record is not clear whether XM subscribers have signed, or even seen, the CSA.

The named plaintiffs are three New Jersey residents who were pre-paid XM subscribers during the service interruption. Paul Von Nessi and Lainie Geary certify that they "experienced a signal outage" on May 21-22, 2007, while Jeffrey Mershkin does not address the issue. The plaintiffs aver that they never agreed to or received a signed CSA and that a subscriber is not required to acknowledge reading or accepting the terms of the CSA prior to accepting XM services. The CSA is available for review on XM's website.

At the time of the interruption, XM quickly responded. It apologized to its subscribers affected by the disruption, and it offered a $1 credit. This is the equivalent of more than two days of the pro rata monthly cost of service. To obtain the credit, subscribers were required to call a toll-free number and confirm that they experienced a service interruption. The credit remains available today, and the notification is currently posted on XM's website.*fn3 At the time, XM advertised the refund in national newspapers and also on its website. None of the three named plaintiffs has requested the credit. In fact, only about 800 subscribers have taken advantage of the offer.

Within XM's CSA there is a provision concerning service interruptions. In a nearly identical class action law suit, Taylor v. XM Satellite Radio, Inc., 533 F. Supp. 2d 1151 (N.D. Ala. 2007), Judge Bowdre concluded that "All subscribers to XM's services execute a Customer Agreement . . . ." 533 F. Supp. 2dat 1152.Plaintiffs distinguish this case by contesting this one issue which underpins Judge Bowdre's decision. As noted above, Plaintiffs declare that they never read, acknowledged, or signed a CSA.

Plaintiffs argue in the complaint alternatively that (a) there was a breach of the CSA; (b) no contract exists between the parties because the plaintiffs never received, acknowledged, or signed the CSA; and (c) the CSA is a contract of adhesion that cannot be enforced. Under each of these theories, Plaintiffs seek return of the pro rata monthly cost of the service related to the interruption. In addition to the above claims, Plaintiffs contend that XM retained an unjust enrichment in violation of the quasi-contractual duty it owed to it subscribers. The requested relief is damages, restitution via injunctive relief, and a declaratory judgment compelling XM to disgorge its unjust enrichment. Additionally, Plaintiffs seek a declaratory judgment that (1) Plaintiffs' relationship with XM is not governed by the CSA, (2) Plaintiffs are exempt from arbitrating this matter, as required by the CSA, and (3) Defendants must compensate Plaintiffs for their injuries. Each claim is addressed below.

Defendants move for summary judgment to dismiss Plaintiffs' claims in their entirety. Summary judgment is appropriate under Fed. R. Civ. P. 56(c) when the moving party demonstrates that there is no genuine issue of material fact and the evidence establishes the moving party's entitlement to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). A factual dispute is genuine if a reasonable jury could return a verdict for the non-movant, and it is material if, under the substantive law, it would affect the outcome of the suit. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). "In considering a motion for summary judgment, a district court may not make credibility determinations or engage in any weighing of the evidence; instead, the non-moving party's evidence 'is to be believed and all justifiable inferences are to be drawn in his favor.'" Marino v. Industrial Crating Co., 358 F.3d 241, 247 (3d Cir. 2004) (quoting Anderson, 477 U.S. at 255).

I. Plaintiffs' Contractual Claims

A. Breach of Contract

Although Plaintiffs argue throughout their submissions that the CSA is invalid and does not govern subscribers' relationship with XM, in Count I, Plaintiffs contend that due to the service interruption, XM "breached its non-commercial and commercial subscription contracts with its subscribers . . . ." (First Amended Complaint ("FAC"), Count I ¶ 14). The Court disagrees. There is no obligation in the CSA requiring XM to provide perfect service, i.e., continuous, uninterrupted service as the Plaintiffs contend.*fn4 In fact, the CSA limits XM's liability. The Court relies on Taylor, which is based on the same facts and the same CSA. In Taylor, the Court held that the CSA "undisputedly" governed the parties' ...

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