Page 4
Ninth Circuit:
Ticketmaster’s Arbitration Provision Is Unconscionable
Opinion Says Mandated Use of New Expedited Mediation Protocols Creates Impermissible Terms
By a MetNews Staff Writer
An arbitration provision in Ticketmaster’s online terms is an unenforceable contract of adhesion and substantively unconscionable under California law due to the inclusion of a mass arbitration protocol providing for, among other things, severe limitations on the right to appeal and the binding of present and future claimants to decisions made as to certain “bellwether” plaintiffs, the Ninth U.S. Circuit Court of Appeal held yesterday.
The court further held that the 2011 U.S. Supreme Court decision in AT&T Mobility LLC v. Concepcion—holding that a California rule that prohibits class action waivers in consumer contracts of adhesion is preempted by the Federal Arbitration Act (“FAA”) which favors upholding arbitration agreements—does not apply because Congress never contemplated the mass-scale protocols at issue.
Since it is not preempted, the rule—announced in the 2005 California Supreme Court case of Discover Bank v. Superior Court—renders the mass arbitration provision at issue to be unconscionable as a matter of law, the court concluded.
Appealing the denial of a motion to compel arbitration are Live Nation Entertainment and Ticketmaster LLC, companies that merged in 2010; Live Nation is the largest concert promoter for major venues in the U.S. and Ticketmaster is the largest ticket seller for those events.
Plaintiffs Skot Heckman, Luis Ponce, Jeanene Popp, and Jacob Roberts filed a complaint against the companies in 2022, alleging anticompetitive practices in violation of the Sherman Act relating to the company’s practice of settling customer grievances through mass arbitration with a new dispute resolution firm, New Era ADR.
Their complaint alleges:
“New Era ADR will group their cases together for any reason it deems appropriate….The batched cases will then be assigned to a single decisionmaker...[who] will then preside over the selection and litigation of a few bellwether cases, during which all other consumers will be forced to wait with no progress on their cases, and after which the outcome of those bellwether cases will be forced on all consumers. The New Era agreement thus requires consumers to engage in a novel and one-sided process that is tailored to disadvantage consumers.”
New Firm
New Era was founded in 2020 and coordinated with attorneys at Latham & Watkins LLP—the firm representing the defendants in the present litigation—in devising a set of procedures to be followed when large numbers of similar consumer claims are brought in arbitration. On June 21, 2021, the defendants executed the firm’s first annual subscription agreement and New Era’s procedures were published later that 1day.
On July 2, 2021, Ticketmaster amended the terms on its ticket sales website to provide that any person using its website agrees to arbitrate any dispute arising out of a ticket purchase, whenever that purchase took place, and to arbitrate under New Era’s rules applicable to mass arbitrations.
Senior District Court Judge George Wu of the Central District of California denied the defendants’ motion to compel arbitration, finding that the clause delegating authority to determine the validity of the arbitration agreement to the arbitrator (the “delegation clause”) was unconscionable under California law, both procedurally and substantively.
Senior Circuit Judge William A. Fletcher authored the opinion affirming the denial.
Circuit Judge Morgan Christen joined in the opinion. Concurring in the judgment, Circuit Judge Lawrence VanDyke wrote separately to say that he would resolve the case simply on the basis of the Discovery Bank rule.
Delegation Clause
The delegation clause at issue provides that “[t]he arbitrator, and not any federal, state or local court or agency, shall have exclusive authority to the extent permitted by law to resolve all disputes arising out of or relating to the interpretation, applicability, enforceability, or formation of this Agreement, including but not limited to, any claim that all or any part of this Agreement is void or voidable….”
Fletcher noted that that plaintiffs must show that the clause is both procedurally and substantively unconscionable. As to procedural unconscionability, he said:
“In deciding procedural unconscionability, California courts ‘focus[] on the factors of oppression and surprise.’ ”
Applying the standards to the present case, he said:
“Because Ticketmaster is the exclusive ticket seller for almost all live concerts in large venues, prospective ticket buyers in most instances are faced with a choice. They can either use Ticketmaster’s website and accept its Terms, or refuse to use the website and be entirely foreclosed from purchasing tickets on the primary market….
“Ticketmaster changed the Terms on its website on July 2, 2021, requiring all website users to agree to arbitration under New Era’s Rules. Its website provides that a person merely browsing the website without purchasing a ticket agrees to Ticketmaster’s changed Terms. Binding consumers who merely browse a website to the terms specified in the website has been ‘consistently held…to be unenforceable, as individuals do not have inquiry notice.’ ”
He continued:
“Finally, the Terms on Ticketmaster’s website are affirmatively misleading. For example, they specifically state that all claims will be resolved by ‘individual arbitration,’ and not ‘in any purported class or representative proceeding.’ This statement is flatly inconsistent with New Era’s Rules, to which the Terms bind any person even browsing the site.”
Adding that “New Era’s Rules are internally inconsistent, poorly drafted, and riddled with typos, and that Live Nation’s counsel struggled to explain the Rules at oral argument,” he concluded “we are left with no confidence that a reasonable consumer would have any hope of understanding them” and declared that the provision evinces and “extreme” amount of procedural unconscionability.
Substantive Unconscionability
Fletcher found multiple features of New Era’s arbitration protocols to be substantively unconscionable.
As to the batching rules, he reasoned:
“It is black-letter law that binding litigants to the rulings of cases in which they have no right to participate…violates basic principles of due process….Further, although the procedures set forth in New Era’s Rules for Expedited/Mass Arbitrations are superficially similar to the familiar procedures in conventional class actions, they differ in critical respects. A batched plaintiff whose case is not a bellwether case has no notice of the bellwether cases and no opportunity to be heard in those cases. Further, that plaintiff has no guarantee of adequate representation in those cases and has no right to opt out of the batched cases that will be bound by the results in the bellwether cases.”
The judge noted that “[i]n their brief to us, Defendants contend that the arbitrator’s application of ‘precedent’ from the bellwether cases is completely discretionary,” but opined that “it is obvious that anything more than an occasional failure to apply precedent established in the bellwether cases would defeat the very purpose of the mass arbitration protocol.”
As to the provisions dealing with the right to appeal, he said the terms “stack the deck” in favor of defendants saying:
“The Terms on Ticketmaster’s website provide: ‘[I]n the event that the arbitrator awards injunctive relief against either you or us, the party against whom injunctive relief was awarded may…appeal that decision to JAMS….Because only plaintiffs are likely to pursue injunctive relief, the right to appeal an award of injunctive relief to JAMS is functionally reserved for Defendants.’ ”
He agreed with Wu that the central purpose of the agreement is unconscionable and said “[t]he district court did not abuse its discretion in so finding and in declining to sever the offending provision.”
Discover Bank Case
Fletcher remarked:
“The United States Supreme Court…held in Concepcion that the FAA preempts any application of the Discover Bank rule that poses an ‘obstacle’ to objectives of the FAA…As applied to the Expedited/Mass Arbitration procedures set forth in Ticketmaster’s Terms and New Era’s Rules, the Discover Bank rule poses no such obstacle, because those procedures do not apply to the forms of arbitration covered by the FAA. We therefore hold under Discover Bank that the…class action waiver is unconscionable and unenforceable.”
VanDyke would decide the case on this ground alone, saying:
“In Discover Bank v. Superior Court…the California Supreme Court held that class action waivers in contracts of adhesion are unconscionable. While the [U.S.] Supreme Court held that this state rule is preempted by the FAA in the context of traditional, bilateral arbitration agreements,…the Court’s rationale in Concepcion does not support preemption for the very different sort of arbitration now before us…Because I think this approach provides the most simple and direct way to resolve this case, I concur in the judgment.”
The case is Heckman v. Live Nation Entertainment Inc., 23-55770.
Copyright 2024, Metropolitan News Company