The opinion of the court was delivered by: Spatt, District Judge.
FILED CLERK 9/28/2012 12:42 pm
U.S. DISTRICT COURT EASTERN DISTRICT OF NEW YORK LONG ISLAND OFFICE
MEMORANDUM OF DECISION AND ORDER
On July 17, 2009, Plaintiffs DISH Network, L.L.C. ("DISH Network"), EchoStar Technologies L.L.C. ("EchoStar"), and NagraStar L.L.C. ("NagraStar" and together with DISH Network and EchoStar, "the Plaintiffs") commenced this action against Defendants World Cable Inc., d/b/a www.worldcable.tv ("World Cable"), Premium Hosting.Net Inc. ("Premium Hosting"), Statewide Management Holding, Inc. ("Statewide"), Sajid Sohail ("Sohail"), Yasmine Malik ("Malik"), and Shahid Rasul a/k/a "Bob Rasul" ("Rasul" and collectively "the Defendants"), alleging violations of the Digital Millennium Copyright Act, 17 U.S.C. § 1201 ("DMCA"), the Communications Act of 1934, 47 U.S.C. § 605 ("the Communications Act"), and New York state law. Presently before the Court is a motion by the Defendants pursuant to Federal Rule of Civil Procedure ("Fed. R. Civ. P.") 12(b)(6) to dismiss the DMCA and Communications Act causes of action for failure to state a claim, and a motion by the Plaintiffs pursuant to Fed. R. Civ. P. 15(a) to amend the complaint. For the reasons set forth below, the Court grants the Defendants motion to dismiss the complaint. In addition, the Court grants in part, denies in part, and reserves decision in part with respect to the Plaintiffs' motion to amend.
The following facts are drawn from the Plaintiffs' proposed second amended complaint. For purposes of this motion to dismiss and motion to amend, the Court accepts all well-pleaded, nonconclusory factual allegations as true and treats them in the best light for the Plaintiffs. See Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1949--50, 173 L. Ed. 2d 868 (2009); Selevan v. N.Y. Thruway Auth., 584 F.3d 82, 88 (2d Cir. 2009).
Plaintiffs DISH Network, EchoStar, and NagraStar operate various elements of the DISH Network satellite television distribution system. DISH Network is a satellite television company that delivers hundreds of channels with movies, sports, and general entertainment services to subscribers who pay a fee to receive such services. EchoStar designs and delivers to DISH Network subscribers the equipment necessary to receive DISH Network satellite programming services, including a small satellite DISH antenna and an integrated receiver/decoder (the "EchoStar receiver"). NagraStar provides smart cards and other technology that are included in a DISH Network customer's EchoStar receiver. Through the use of the EchoStar receiver and the NagraStar smart card, DISH Network is able to control what programming subscribers can receive based on their subscriptions.
DISH Network contracts for and purchases the distribution rights for the copyrighted programming it broadcasts from a number of different outlets, including content providers from outside the United States. Relevant to the instant case, DISH Network has entered into agreements whereby it obtained the rights to distribute the content from the following twelve South Asian channels through its satellite signals to its subscribers in the United States: "ARY DIGITAL", "ARY ONE (NEWS)", "ATN BANGLA", "CHANNEL I", "DAWN NEWS", "EKHUSEY", "EXPRESS NEWS", "GEO TV", "GEO NEWS", "HUM", "PTV", and "TV ONE" (the "subject channels"). With respect to four of those channels, "ARY DIGITAL", "ARY ONE (NEWS)", "ATN BANGLA", and "GEO NEWS", DISH Network has agreements giving it the exclusive rights to broadcast the programming ("the exclusive rights channels").
DISH Network utilizes the following "conditional access system" to provide security for the DISH Network satellite signal ("the DISH signal") and therefore protect the content on the subject channels from unauthorized viewing. First, DISH Network digitally compresses and digitizes its satellite television programming and then encrypts (electronically scrambles) it before transmitting it to its customers. This encrypted DISH signal is then transmitted to satellites above the Earth; transmitted back down to customer's satellite dish antenna; and then relayed by a cable wire to the customer's EchoStar receiver. Finally, the NagraStar smart card works with the EchoStar receiver to decrypt or descramble the encrypted DISH signal. Through the use of the conditional access system, DISH Network can restrict access to its signals to its paying subscribers.
Defendant World Cable is a New York corporation that operates a telecommunications distribution company through the website www.worldcable.tv. World Cable operates a television signal distribution business in the New York City/Long Island area, which distributes television signals through an Internet Protocol Television ("IPTV") system. Through these signals, World Cable transmits to its subscribers approximately 130 channels, many of which originate in South Asia. To obtain access to the World Cable IPTV system, subscribers pay a monthly subscription fee and purchase a set top box ("the World Cable box"). As described by the Plaintiffs:
The World Cable box is designed to make a direct-to-server internet connection with the World Cable server. Once connected to the World Cable server, the World Cable box streams the video channels from the server directly onto subscriber's television set. The subscriber can then utilize a remote control tied to the World Cable box to switch channels and watch programming in real-time, almost as if the subscriber were watching the commensurate satellite television feed for the real-time programming. (PSAC, ¶ 35.)
According to the Plaintiffs, defendant Premium Hosting, also a New York corporation, is one of the web-hosting companies that effectuates the direct-to-server connection between the World Cable boxes and the World Cable server. Defendant Shahid Rasul is the chairman or chief executive officer and the principal executive officer of World Cable and the president of Premium Hosting.
At an unspecified time, DISH Network entered into the following subscription agreements that establish DISH Network accounts with the following individual defendants, who the Plaintiffs allege were undisclosed agents or employees of World Cable ("the individual accounts"):
a commercial subscriber agreement with defendant Statewide Management Holding Inc., which authorized the receipt of DISH Network programming at a commercial location specified on the account, 1983 Marcus Avenue, North New Hyde Park, Nassau County, NY 11042 ("the Statewide account"). This address is also the business address for World Cable. In addition, defendant Sajid Sohail is the chairman or chief executive officer of Statewide. In association with this account, Statewide had five separate EchoStar receivers that were listed as active on the account, bearing serial numbers: R0080381823; R0081455994; R0078855235; R0078988218; and R0073393471. two residential subscriber agreements with Sajid Sohail. Sohail's first agreement with DISH Network authorized the receipt of DISH Network programming at the residential location specified on the account, 270 I U Willets, Road, Albertson, Nassau County, NY 11507 ("Sohail's first account") and the second agreement limited the receipt of DISH Network programming to the allegedly non-existent residential address located on the account, 270 I U, #U, Willets Road, Albertson, NY 11507 ("Sohail's second account"). Three separate Echostar receivers were associated with Sohail's first account, bearing serial numbers R0053416600; R0038531642; and R0035527026, and two separate EchoStar receivers were associated with Sohail's second account, bearing serial numbers R0064424827 and R0066742196. a residential subscriber agreement with Yasmine Malik, which authorized receipt of DISH Network programming at the residential location specified on the account, 226 Floral Avenue, Plainview, NY 11803 ("the Malik account"). According to the Plaintiffs, although her account remained active as of December 1, 2011, Malik no longer resided at the residential address listed in the agreement. Three separate EchoStar receivers were associated with the Malik account bearing serial numbers: ROI09658475; ROI09608463; and ROI09722637. a residential subscriber agreement with Shahid Rasul, which authorized the receipt of DISH programming at the allegedly non-existent address 272 I U Willets Road, Albertson, New York 11507 ("the Rasul account"). Three separate EchoStar receivers were associated with the Rasul account, bearing serial numbers: R0080504930; R0080052849; and R0083273667.
According to the Plaintiffs, in entering into these subscription agreements, Statewide, Sohail, Malik and Rasul agreed to view the programming only at the address associated with their particular account, and agreed not to re-broadcast or transmit the DISH Network signals. However, at an unspecified time, the Plaintiffs conducted an undercover investigation and allegedly determined that: (1) at least as of December 1, 2011, and for some time prior to that date, the EchoStar receivers associated with the individual accounts were not located at the addresses associated with the accounts and (2) the subject channels were being routed from the individual accounts and re-broadcast through the World Cable IPTV distribution system ("the rebroadcasting scheme"). According to the Plaintiffs, all of the EchoStar receivers were fully integrated into the World Cable system and actively being utilized to effectuate the unauthorized re-broadcasting of the Plaintiffs' subject channels. In addition, the Plaintiffs allege that certain EchoStar receivers were utilized by World Cable in the unauthorized distribution of DISH Network's exclusive rights channels.
On October 21, 2011, the Plaintiffs filed a complaint alleging that the Defendants' alleged re-broadcasting scheme violated the DMCA and the Communications Act. In addition, the Plaintiffs asserted claims under New York state law against all of the Defendants for unjust enrichment, conversion, and unfair competition, as well as claims against Statewide, Sohail, and Malik for breach of contract. In conjunction with the complaint, the Plaintiffs filed an ex parte motion for a temporary restraining order ("TRO"). On October 29, 2011, the Court granted the Plaintiffs' motion for a TRO, which included an order for the Civil Seizure of certain items including the EchoStar receivers associated with the individual accounts.
On December 1, 2011 the United States Marshals, with the assistance of the Plaintiffs' personnel, executed this Court's Civil Seizure order. Pursuant to the Court's order, defendant Sohail provided an agent of the Plaintiffs with: (1) all five of the EchoStar receivers associated with the Statewide account; (2) the two EchoStar receivers associated with Sohail's second account; (3) all three of the EchoStar receivers associated with the Malik account; and (4) two of the three EchoStar receivers associated with the Rasul account. According to the Plaintiffs, the third EchoStar receiver associated with the Rasul account was discovered at the address listed on Sohail's first account and was found connected to and feeding signals into an internet connection. In addition, the Plaintiffs allege that the three EchoStar receivers associated with Sohail's first account were not surrendered or recovered.
On December 7, 2011, the Plaintiffs filed their first amended complaint, which amended the complaint to correct the address of defendant Malik; to set forth the business address for World Cable; and to assert that Shahid Rasul utilized the alias "Bob Rasul".
On January 11, 2012, the Defendants moved to dismiss the DMCA and the Communications Act causes of action in the first amended complaint pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim. Specifically, the Defendants moved to dismiss the DMCA claims on the ground that the Plaintiffs had failed to adequately plead that they, or the World Cable boxes, "circumvented" any technological measure. In addition, because the Plaintiffs had only argued in conjunction with the TRO that the Defendants were liable for violating the first sentence of § 605(a) of the Communications Act, the Defendants similarly limited their motion to dismiss the Communications Act claim, arguing that, because they were not "communications personnel", they could not be held liable under the first sentence of § 605(a). Finally, the Defendants did not attack the sufficiency of the allegations underlying the state law claims directly, but rather argued that, if the Court dismissed the federal claims, the Court should decline to exercise supplemental jurisdiction over the state law claims.
On February 15, 2012, the Plaintiffs submitted opposition to the Defendants' motion. In addition to disputing that they had failed to plausibly allege causes of action under the DMCA and the first sentence of § 605(a) of the Communications Act, the Plaintiffs, for the first time, argued that they were also seeking to hold the Defendants liable under the third sentence of § 605(a) of the Communications Act. The Plaintiffs further argued that, even if the Court dismissed the federal claims, the state claims should not be dismissed because the Plaintiffs "may soon file a motion to amend the complaint which would include an allegation that this Court has diversity jurisdiction". (Pls.' Opp. at 25.) The Defendants submitted their reply brief in support of their motion to dismiss on February 29, 2012, disputing the propriety of the Plaintiffs' attempt to insert a new legal theory for the alleged violation of § 605(a) of the Communications Act, as well as the request that the Court not dismiss the state claims based on a potential future motion to amend the complaint.
The potential motion to amend became a reality a few weeks later on March 20, 2012, when the Plaintiffs filed a motion pursuant to Fed. R. Civ. P. 15(a) to amend the first amended complaint. The following facts from the above-stated case-description were new additions in the proposed second amended complaint: (1) the Court had diversity jurisdiction; (2) specific allegations with respect to which EchoStar receivers were associated with the Defendants' accounts; (3) further allegations that none of the Defendants were receiving DISH Network's signals at the only addresses authorized to receive signals and that the EchoStar receivers had been removed from the subject addresses that they were contractually associated with; (4) the Defendants' EchoStar receivers were fully integrated into the World Cable system; (5) allegations pertaining to the recovery of the EchoStar receivers pursuant to the Court's seizure order, including the allegation that one receiver from the Rasul account was seized at the address listed on Sohail's first account, where it was not authorized; (6) the Defendants are either communications entities or the agents and/or employees of communications entities; (7) the Defendants with individual accounts were undisclosed agents or employees of World Cable; and (8) certain of the channels re-broadcast by the Defendants were channels which DISH Network exclusively distributes by IPTV in the United States. (Pls.' MTA Br. at 3--4.)
The proposed second amended complaint also asserted the following new causes of action: (1) allegations that the Defendants are liable under the second through fourth sentences of § 605(a) of the Communications Act; (2) a further count against World Cable, alleging violations of 47 U.S.C. § 605(a) based upon World Cable's re-broadcast of channels as to which DISH Network has the exclusive right to distribute through IPTV in the United States; (3) further counts against defendant Rasul alleging claims based upon fraud and breach of contract under New York state law; and (4) a further count against defendant Sohail, alleging a claim based upon fraud under New York state law.
Because an analysis of the Defendants' motion to dismiss the DMCA and Communications Act claims asserted in the first amended complaint is intertwined with an analysis of the Plaintiffs' motion to amend to add factual allegations to these claims, the Court will frame its analysis around the Plaintiffs' motion to amend. Thus, the Court addresses the legal arguments asserted in the Defendants' motion to dismiss the complaint in conjunction with the motion to amend futility analysis.
A. Legal Standard on a Motion to Amend
A motion to amend is governed by Fed. R. Civ. P. Rule 15(a), which states that leave to amend "shall be freely given when justice so requires." A court should deny leave to amend only upon "undue delay, bad faith or dilatory motive on the part of the [moving party], repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the [non-moving party,] ... [or] futility." Foman v. Davis, 371 U.S. 178, 182, 83 S. Ct. 227, 9 L.Ed.2d 222 (1962); see also Aetna Cas. & Sur. Co. v. Aniero Concrete Co., Inc., 404 F.3d 566, 603--04 (2d Cir. 2005). Amendments are generally favored because "they tend to facilitate a proper decision on the merits." Blaskiewicz v. Cnty. of Suffolk, 29 F. Supp. 2d 134, 137 (E.D.N.Y. 1998). However, it is ultimately "within the sound discretion of the court whether to grant leave to amend." John Hancock Mut. Life Ins. Co. v. Amerford Int'l Corp., 22 F.3d 458, 462 (2d Cir. 1994) (citing Foman, 371 U.S. at 182, 83 S. Ct. 227).
In determining whether leave to amend should be granted, among the "most important" issues to consider is prejudice to the opposing party. AEP Energy Services Gas Holding Co. v. Bank of America, N.A., 626 F.3d 699, 725 (2d Cir.2010) (internal quotations omitted). "Mere delay, however, absent a showing of bad faith or undue prejudice, does not provide a basis for a district court to deny the right to amend." State Teachers Ret. Bd. v. Fluor Corp., 654 F.2d 843, 856 (2d Cir.1981) (granting leave to amend after discovery was closed, where there was no undue prejudice to the defendants and "no trial date had been set by the court and no motion for summary judgment had yet been filed by the defendants"); accord Block v. First Blood Assocs., 988 F.2d 344, 350 (2d Cir.1993).
B. Motion to Dismiss and Futility
The Defendants have moved to dismiss the DMCA and Communications Act causes of action in the first amended complaint pursuant to Fed. R. Civ. P. 12(b)(6) ("Rule 12(b)(6)") for failure to state a claim and seek the denial of the Plaintiffs' motion to amend these claims as futile. A proposed amendment is futile if the proposed claim could not withstand a Rule 12(b)(6) motion to dismiss. Lucente v. IBM Corp., 310 F.3d 243, 258 (2d Cir. 2002). The Court therefore applies the Rule 12(b)(6) standard in deciding the Defendants' motion to dismiss and in assessing the futility of the DMCA and Communications Act causes of action in the proposed second amended complaint.
Under the now well-established Twombly standard, a complaint should be dismissed only if it does not contain enough allegations of fact to state a claim for relief that is "plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 1974 (2007). The Second Circuit has explained that, after Twombly, the Court's inquiry under Rule 12(b)(6) is guided by two principles. Harris v. Mills, 572 F.3d 66 (2d Cir. 2009) (citing Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1949 (2009)).
"First, although 'a court must accept as true all of the allegations contained in a complaint,' that 'tenet' 'is inapplicable to legal conclusions,' and '[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.'" Id. (quoting Iqbal, 129 S. Ct. at 1949). "'Second, only a complaint that states a plausible claim for relief survives a motion to dismiss' and '[d]etermining whether a complaint states a plausible claim for relief will ... be a context--specific task that requires the reviewing court to draw on its judicial experience and common sense.'" Id. (quoting Iqbal, 129 S. Ct. at 1950). Thus, "[w]hen there are well-pleaded factual allegations, a court should assume their veracity and ... determine whether they plausibly give rise to an entitlement of relief." Iqbal, 129 S. Ct. at 1950.
In considering a motion to dismiss, this Court accepts as true the factual allegations set forth in the complaint and draws all reasonable inferences in the Plaintiffs' favor. Zinermon v. Burch, 494 U.S. 113, 118, 110 S. Ct. 975, 979, 108 L. Ed. 2d 100 (1990); In re NYSE Specialists Secs. Litig., 503 F.3d 89, 91 (2d Cir.2007). Only if this Court is satisfied that "the complaint cannot state any set of facts that would entitle the plaintiff to relief" will it grant dismissal pursuant to Fed. R. Civ. P. 12(b)(6). Hertz Corp. v. City of New York, 1 F.3d 121, 125 (2d Cir. 1993). The issue on a motion to dismiss is "not whether a plaintiff will ultimately prevail but whether the claimant is entitled to ...