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Tropical Sails Corp. v. Yext, Inc.

United States District Court, S.D. New York

March 17, 2017

YEXT, INC., Defendant.

          FOR PLAINTIFF TROPICAL SAILS CORP. Joseph Henry Bates, III, Esq. James Allen Carney, Esq. David F. Slade, Esq. CARNEY BATES & PULLIAM, PLLC Thomas M. Mullaney, Esq. THE LAW OFFICES OF THOMAS M. MULLANEY

          FOR DEFENDANT YEXT, INC. Gavin J. Rooney, Esq. Naomi D. Barrowclough, Esq. LOWENSTEIN SANDLER LLP

          OPINION & ORDER

          JOHN F. KEENAN, United States District Judge.

         Plaintiff Tropical Sails Corp. (Tropical Sails) moves the Court to certify a class pursuant to Federal Rule of Civil Procedure 23(a) and (b)(3) to pursue claims of fraud and unjust enrichment against Defendant Yext, Inc. (Yext). Yext opposes this motion and moves the Court to grant summary judgment in Yext's favor pursuant to Federal Rule of Civil Procedure 56. The Court denies Tropical Sails' motion for class certification because Rule 23(b)(3)'s predominance requirement is not met and denies Yext's motion for summary judgment because genuine disputes exist as to material facts.

         I. Background

         The following summary is drawn from Yext's Local Rule 56.1 statement, the parties' supporting documentation, and from the affidavits and records filed with regards to Tropical Sails' class certification motion.[1] Unless otherwise noted, the summary is limited to the putative class period, which spans from November 2012 through July 2014.

         Tropical Sails, a Texas corporation, is a small travel agency based out of the Surprise, Arizona home of its owner and sole employee, Daniel Oppliger. (Def.'s Loc. R. 56.1 Statement ¶ 1; Compl. ¶ 7.) Its primary business concerns organizing and booking cruises and other tours. (Def.'s Loc. R. 56.1 Statement ¶ 2; Oppliger Dep. 38:2-39:18.) Tropical Sails began in 1990 under the name Tropical Adventures, and incorporated in 1998 under its current name. (Oppliger Dep. 17:1-19.) In addition to print advertising and attending vendor fairs, Tropical Sails generates business by having a good internet presence. (Id. at 32:8-33:25.) This involves listing Tropical Sails with about 500 search engines by filling out forms on the internet and optimizing its listings to appear on the first page of search engine results, so-called search engine optimization or SEO. (Id. at 33:6-35:4, 66:23-67:6, 90:6-91:4.) Tropical Sails estimates that it has spent one to two hours per week over its lifetime managing its listings on the internet. (Id. at 35:3-37:6; Def.'s Loc. R. 56.1 Statement ¶ 10.)

         Yext, a Delaware corporation headquartered in Manhattan, is an online marketing company whose primary product is its PowerListings service. (Pl.'s Mot. for Class Certification Ex. 1, at YEXT0000017; Compl. ¶¶ 8, 12.) Yext describes PowerListings as “enhanced local listings on participating local search, mobile and directory sites.” (Pl.'s Mot. for Class Certification Ex. 1, at YEXT0000017.) Essentially, PowerListings enables its subscribers to track their business listing information (e.g., business name, address, and telephone number) across a number of online business directories-or internet Yellow Pages-that partner with Yext. (Id.) Yext sees the “three primary benefits” of PowerListings to be: (1) “single point control, ” or the ability to manage, update, and edit listings on multiple directories at one time in one central location; (2) “listing content enhancement, ” or the ability to add photos, videos, and special offers to listings; and (3) “increased rank, ” or higher visibility of a subscriber's listing to its potential customers. (Id. at YEXT0000017, 31, 52, 55, 174; id. Ex. 17, at YEXT0000769.)

         To attract customers, Yext offers a free online business scan, which it describes as its “primary hook that shows businesses where they are listed incorrectly.” (Id. Ex. 2, at YEXT0001440; Def.'s Loc. R. 56.1 Statement ¶ 6.) The PowerListings scan asks a potential customer to input its business name and telephone number and, during the putative class period, purported to return results including a total of “Location Data Errors Detected” followed by an itemization of each online business directory's listing and the supposed “error, ” if any, that the scan detected. (Compl. ¶¶ 13-14; Shaw Dep. 13:9-19, 20:4-24:7.) The “Location Data Errors Detected” total tallied errors specified in the itemized list below it, which consisted of six columns: (1) the online directory displaying the listing (e.g., Yahoo!, Facebook, Bing, etc.) with a hyperlink to the business' listing on the online directory; (2) the potential customer's business name; (3) its business address; (4) its business telephone number; (5) a “Special Offer” column; and (6) a “Status” column. (Compl. ¶ 14; Shaw Dep. at 13:9-19; Makhani Dep. 36:6-38:25.) For customers not already subscribed to Yext's PowerListings service, the PowerListings scan reported “not standing out” under the “Special Offer” column and “unverified listing” under the “Status” column for every single online directory in the list. (Makhani Dep. 37:19-39:6; Shaw Dep. 21:18-24:3.) In addition to totaling any entry missing entirely from a directory and any discrepancy in the business name, address, or telephone number as an error, the PowerListings scan counted each “not standing out” and “unverified listing” as an error. (Makhani Dep. 37:19-39:6; Shaw Dep. 21:18-24:3.) The PowerListings scan contained between forty and sixty online directories, meaning that for all customers not subscribed to PowerListings at the time they ran the PowerListings scan, by design, the scan showed at least eighty to 120 errors. (Makhani Dep. 38:10-39:25.) The PowerListings scan encouraged potential customers to “Click here to fix all [number] errors.” (Compl. ¶ 16; see also Shaw Dep. 57:1-7.) If customers did not subscribe to PowerListings through the link, a Yext sales associate would use the telephone number entered into the scan to place a sales call. (Pl.'s Mot. for Class Certification Ex. 12, at YEXT0000625.) Yext offers four pricing plans for its PowerListings service. (Pl.'s Mot. for Class Certification Ex. 34.) It encourages potential customers to “[c]hoose a PowerListings package to correct your listings across the internet.” (Id.) These packages range from $199 per year for the emerging package, which provides subscribers listings management with thirty-two unspecified emerging sites, to $999 per year for the premium package, which offers subscribers listings management with all of Yext's partner directories as well as enhanced content, review monitoring, a training session, and tracking analytics. (Id.) According to Yext's marketing materials, its most popular subscription is the complete package, which costs $499 per year and provides subscribers listings management with all of Yext's partner directories and enhanced content. (Id.)

         Tropical Sails ran the PowerListings scan a total of twenty-two times on sixteen different days. (Pl.'s Mot. for Class Certification Ex. 16, at YEXT0000569.) Prior to subscribing to PowerListings, Tropical Sails ran the scan approximately eight times during the putative class period. (Id.; Oppliger Dep. 63:23-64:18; Def.'s Loc. R. 56.1 Statement ¶¶ 7, 14.) After running these scans, Tropical Sails would click through the hyperlinks on the PowerListings scan's results page and manually edit its listing on the online business directory. (Oppliger Dep. 64:3-18; Def.'s Loc. R. 56.1 Statement ¶¶ 8-9.) Tropical Sails then re-ran the PowerListings scan to verify that the corrections appeared, but they did not. (Oppliger Dep. 64:12-65:11.)

         On January 14, 2014, Tropical Sails again ran the PowerListings scan without subscribing to the PowerListings service. (Id. at 65:12-17.) This time, however, Tropical Sails subscribed to the PowerListings service after receiving a follow-up sales call from a Yext sales associate. (Id. at 63:15-22, 65:3-17, 66:5-68:2; Def.'s Loc. R. 56.1 Statement ¶ 15.) Yext deposed Oppliger on December 1, 2015, and as best as he could recall, on the sales calls following his January 14, 2014 scan, Yext's sales associate advised Oppliger that the PowerListings service “would update [his listings] across all platforms. You would get, like, pictures and photos across all platforms. People are using these directories. A little video would be spread across some platforms. I could keep [the listings] updated with an app on my phone.” (Oppliger Dep. 66:14-20.) The sales associate also told Oppliger that the PowerListings service would help with Tropical Sails' search engine optimization because his “listings will be correct. You'll have the pictures, and the description will have more weight than just a plain [one].” (Id. at 66:21-67:6; accord Id. 67:19-22; Def.'s Loc. R. 56.1 Statement ¶ 17.) Finally, the sales associate told Oppliger that PowerListings would add Tropical Sails to “several directories that have an audience people use, without having to have a contract . . ., without having to call and have a deal with Yelp or with Four Square.” (Oppliger Dep. at 67:7-13.) In other words, PowerListings would substitute for the several hours per week Tropical Sails spent manually managing its listings. (Id. at 67:14-18.)

         Oppliger testified that he waited to subscribe to the PowerListings service until he received a sales call because he had questions about the PowerListings scan's results page and he wanted an explanation from a Yext sales associate of the benefits of PowerListings and how he would “be on all these platforms that a lot of people use that I'm not aware of.” (Id. at 98:10-25.) Oppliger asked the sales associate why his manual corrections did not show up on the PowerListings scan, and the sales associate told him that there are “delays in corrections.” (Id. at 65:3-7.) Ultimately, Oppliger testified that seeing the errors in the PowerListings scan's results page induced him to subscribe to PowerListings service. (Id. at 98:22-25.)

         Oppliger also testified that he subscribed to the PowerListings service because

I liked the fact that I get the pictures across all these directories, and I was led to believe these directories had an audience that I wasn't reaching. . . . It would save me time. . . . [g]oing into hundreds of directories and entering all the data. There are 500 directories. I forget how many directories Yext has.”

(Id. at 69:6-14; accord Def.'s Loc. R. 56.1 Statement ¶ 18.) Oppliger could not recall seeing the sum of location data errors detected, (Oppliger Dep. 61:2-5, 66:1-4; Def.'s Loc. R. 56.1 Statement ¶ 13), but he did remember manually checking some of the listings and seeing the “Special Offer” and “Status” columns showing errors. (Oppliger Dep. 61:6-11, 99:11-100:5.)

         Oppliger took advantage of the services that PowerListings offered. (Def.'s Loc. R. 56.1 Statement ¶ 20.) First, he had a training session with Yext to learn how to use the PowerListings service. (Oppliger Dep. at 71:2-22.) He added biographies of Tropical Sails, himself, and his two daughters who sometimes helped in the business. (Id. at 71:12-20.) He posted about forty pictures when he first created his PowerListings profile. (Id. at 71:23-72:23.) He downloaded the Yext app for his phone and used it to post pictures from the vendor fairs he attended. (Id. at 73:6-74:6.) He put up special offers like a free airport shuttle coupon with qualifying purchase. (Id. at 74:7-75:8.) He monitored customer reviews of Tropical Sails and used Yext to spread customer reviews across multiple directories. (Id. at 77:6-78:2.) He posted a short video about Tropical Sails. (Id. at 84:20-85:15.) And, finally, Tropical Sails appeared on new directories. (Id. at 79:2-82:8, 85:16-86:17.)

         In some senses, the PowerListings service worked: Tropical Sails' pictures appeared on all of Yext's partner directories and it saved Oppliger time manually entering listings data (Oppliger Dep. 75:14-76:1.) But, the PowerListings service generated “zero calls, zero inquiries, or zero leads from all these directories.” (Id. at 76:2-4; accord Def.'s Loc. R. 56.1 Statement ¶ 21.) In subscribing to PowerListings, Oppliger planned to get listed on additional directories and see if it generated more leads. (Oppliger Dep. at 83:10-18; Def.'s Loc. R. 56.1 Statement ¶ 23.) Oppliger admitted that Yext's sales associate did not promise new leads, but that he indicated that many directories have an audience that Tropical Sails was not reaching. (Oppliger Dep. 86:8-87:7; Def.'s Loc. R. 56.1 Statement ¶ 22.) Oppliger contends that many of the directories that the PowerListings service added Tropical Sails to failed to benefit Tropical Sails “[b]ecause those directories [are] not where the traffic comes from, ” so he declined to renew Tropical Sails' subscription to PowerListings in April 2014. (Oppliger Dep. at 76:20-22, 82:9-15, 83:15-18.) Even though he decided not to renew the subscription early on, he did not seek a refund for the remainder of his already purchased one-year subscription. (Id. at 76:11-77:5.)

         Yext's PowerListings Terms and Conditions include a choice-of-law provision and forum selection clause:

This Agreement, and any disputes arising directly or indirectly from this Agreement, shall be governed and construed in accordance with the laws of the State of New York, without regard to its choice of law provisions. Each of the Parties hereby irrevocably consents and submits to the exclusive jurisdiction of the state and federal courts located in New York County, New York for any such disputes, and hereby irrevocably waives any objections to the laying of venue in such courts.

(Pl.'s Mot. for Class Certification Ex. 33 ¶ 9.8.)

         II. Procedural History

         Tropical Sails filed a class action complaint against Yext on September 18, 2014, invoking this Court's jurisdiction under the Class Action Fairness Act of 2005 (CAFA), 28 U.S.C. § 1332(d). (Compl. ¶ 9.) In its complaint, Tropical Sails seeks to recover against Yext for fraud/fraudulent inducement, unjust enrichment, and violations of N.Y. General Business Law §§ 349-50. Yext moved to dismiss all four counts. On May 18, 2015, this Court granted Yext's motion to dismiss in part, dismissing Tropical Sails' counts for violations of N.Y. General Business Law §§ 349-50 for failure to state a claim on which relief can be granted. (Op. & Order, ECF No. 24 (filed May 18, 2015).)

         At base, Tropical Sails' surviving counts of fraud/fraudulent inducement and unjust enrichment assert that Yext's PowerListings scan's results page misleadingly inflates the total number of “Location Data Errors Detected” for a business by counting the “not standing out” and “unverified business” categories as “errors” and multiplying these errors across a legion of insignificant online business directories.

         The parties commenced discovery focused on matters relevant to Tropical Sails' motion for class certification. (Case Management Order #1, ECF No. 33 (filed June 15, 2015).)

         Tropical Sails moved under Federal Rule of Civil Procedure 23(a) and (b)(3) for class certification on December 15, 2015. It seeks to certify a class defined as:

All persons residing in the United States that purchased Yext's PowerListings service after running the PowerListings Scan during the time period of:
(a) November 7, 2012 and July 3, 2014, for those businesses that accessed the PowerListings Scan through paid advertising, and
(b) November 30, 2012 and July 3, 2014, for those businesses that accessed the PowerListings Scan through organic contacts to

(Pl.'s Mot. for Class Certification 10.) The putative class excludes “Yext and its parents, subsidiaries, affiliates, officers and directors; counsel for the putative class; and all judges assigned to hear any aspect of this litigation, as well as their immediate family members.” (Id. at 10 n.4.)

         On January 22, 2016, Yext moved for summary judgment under Federal Rule of Civil Procedure 56. (Def.'s Mot. for Summ. J., ECF No. 66 (filed Mar. 11, 2016).)

         Both motions were fully briefed on March 11, 2016.

         III. Discussion

         Tropical Sails moves the Court to certify a class under Federal Rule of Civil Procedure 23(b)(3). Yext opposes class certification and moves the Court for summary judgment under Rule 56 because Tropical Sails cannot establish reliance on the alleged misrepresentation, the alleged misrepresentation did not cause Tropical Sails' loss, and Tropical Sails seeks an impossible remedy.

         A. Yext's Motion for Summary Judgment

         Yext moves the Court to grant summary judgment on three grounds. First, it argues that Tropical Sails cannot establish reliance because, in his deposition, Oppliger could not recall seeing the total “Location Data Errors Detected” on the PowerListings scan results page and he provided reasons other than correcting errors for subscribing to PowerListings. Second, Yext argues that Tropical Sails' reliance on the misleading total of “Location Data Errors Detected” did not proximately cause Tropical Sails' loss because it did not cancel its subscription upon discovering the inflated errors. Rather, it canceled the subscription because it failed to generate new leads. Finally, Yext characterizes the recovery Tropical Sails seeks as rescission and argues that the parties cannot be restored to the status quo ante. The Court denies Yext's motion for summary judgment.

         1. Applicable Law

         A court shall grant summary judgment “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A material fact is one that “might affect the outcome of the suit under the governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine dispute exists when the record evidence would permit a reasonable jury to decide in the nonmovant's favor. Dean v. Univ. at Buffalo Sch. Of Med. & Biomedical Scis., 804 F.3d 178, 186 (2d Cir. 2015). A court ruling on a motion for summary judgment must construe the evidence in the light most favorable to the nonmoving party. Curry v. City of Syracuse, 316 F.3d 324, 329 (2d Cir. 2003).

         The parties do not dispute that New York law applies to Tropical Sails' individual claims. (See Def.'s Mem. of L. in Support of Mot. for Summ. J. 8 n.1.) A federal court sitting in diversity in New York applies New York state's choice-of-law rules. Thea v. Kleinhandler, 807 F.3d 492, 497 (2d Cir. 2015). “The first step in any case presenting a potential choice of law issue is to determine whether there is an actual conflict between the laws of the jurisdictions involved.” In re Allstate Ins. Co., 81 N.Y.2d 219, 223 (1993). The law that may apply to Tropical Sails' individual claims could be either New York law, supplied by the PowerListings Terms and Conditions, or Arizona law, where Tropical Sails purchased its subscription. The law governing fraud claims in these states does not conflict.

         In New York, a plaintiff must establish the five elements of a fraud claim through clear and convincing evidence: “(1) a material misrepresentation or omission of fact (2) made by defendant with knowledge of its falsity (3) and intent to defraud; (4) reasonable reliance on the part of the plaintiff; and (5) resulting damage to the plaintiff.” Crigger v. Fahnestock & Co., 443 F.3d 230, 234 (2d Cir. 2006).

         A plaintiff who brings a fraud claim under Arizona law bears the same burden, although the ...

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