Live Nation-Ticketmaster’s Online Mass Arbitration Program Is Tossed by the Ninth Circuit
The Ninth U.S. Circuit Court of Appeals Monday denied Live Nation Entertainment’s attempt to enforce its mass arbitration procedures for resolving customers’ disputes with the company’s Ticketmaster unit, allowing, for now, the ticket-buying customers to go to court and push for class-action status.
The decision eviscerates the online mass arbitration system set up for Live Nation by New Era ADR, an online conflict resolution provider. The sweeping opinion heavily relies on and backs a district court decision in finding substantive and procedural unconscionability to invalidate the Ticketmaster arbitration agreement, along the way eliminating severability provisions and more.
A concurrence says that the nature of the mass arbitration program sets the arbitrators up for a profound conflict of interest, referring to the case’s district court opinion noting that the bulk of New Era’s first-year revenue—the company was formed in 2020--came from the Live Nation.
The result in Heckman v. Live Nation Entm't, No. 23-55770 (9th Cir. Oct. 28) (available at https://bit.ly/48tIewN) calls into question the viability of mass arbitration systems, designed to deal with situations where multiple repetitive complaints—sometimes numbering in the tens of thousands—are filed demanding arbitration under mandatory consumer and employment ADR provisions.
The U.S. Supreme Court hasn’t spoken yet on mass arbitration programs, which mostly have been blessed by courts. See, e.g., Maximilian Zorn, “The Response: Divergent Approaches to Mass Arbitration, and the Effect on Practice in State and Federal Courts,” 41 Alternatives to the High Cost of Litigation 87 (June 2023). But the extent of the Ninth Circuit’s disapproval is sure to send corporate users back to review their terms, and providers back to survey their rules.
The decision runs opposite to the most recent mass arbitration decision to come out of the nation’s federal courts, Wallrich v. Samsung Electronics America Inc., No. 23-2842 (7th Cir. July 1) (available at https://bit.ly/4eV1Lcw), which reaffirmed the American Arbitration Association’s use of its mass arbitration rules, ironically, in a case where the nation’s largest ADR provider decided to shut down a process. (For more details, see Sarah Boxer, “Seventh Circuit Decision: Samsung Prevails in Mass Arbitration Dispute,” CPR Speaks (July 10) (available at https://bit.ly/48p0S9l).)
Arbitration court watchers expect a Heckman appeal. An email to Live Nation’s counsel, who argued the case before the Ninth Circuit, Washington, D.C., Latham & Watkins partner Roman Martinez, asking about whether the company would request a rehearing before the full Ninth Circuit or file a certiorari petition to the U.S. Supreme Court, was not answered as this post was prepared and posted. [This post will be updated for comments.]
The opinion, written by Senior Circuit Judge William A. Fletcher, finds that the frequent mass arbitration scheme in which test cases are chosen to help provide guidance for the group of subsequent cases is unfair and doesn’t qualify for the protections of the Federal Arbitration Act—that is, at least under the New Era procedures.
The three plaintiffs originally sought class-action status for their suits against Live Nation, the nation’s largest concert and live events promoter and ticket seller, alleging damages for anti-competitive practices under the Sherman Act.
The U.S. District Court’s denial of the defense move to compel arbitration was a direct shot at the New Era’s arbitration provision’s delegation clause—the much-litigated issue of “Who decides?” whether a case is arbitrated. The court held that the delegation clause was unconscionable under California law. Heckman v. Live Nation Ent. Inc., 686 F.Supp.3d 939, 967 (C.D. Cal. 2023) (available at https://bit.ly/3xeD2ir).
In Monday’s opinion affirming the district court, Senior Circuit Judge Fletcher, joined by Circuit Judges Morgan Christen and Lawrence VanDyke, dissected the components of an unconscionability finding--procedural and substantive unconscionability--in striking Ticketmaster’s arbitration contract.
Furthermore, the appellate panel held that applying California’s unconscionability took the case out of the orbit of the Federal Arbitration Act. That, in turn, allowed the panel to rule “as an alternative and independent ground” that the state’s judicial rule prohibiting waivers of class actions—the Ticketmaster agreement requires customers to waiver court collective processes—applied.
The class action waiver in tandem with a mandatory arbitration clause in consumer agreements was backed by the U.S. Supreme Court in the landmark AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (available at https://bit.ly/4h2wfud) case, which had invalidated the class waivers ban that accompany most consumer mandatory arbitration contracts in Discover Bank v. Superior Court, 113 P.3d 1110 (Cal. 2005) (available at https://bit.ly/4899bG4).
But on Monday, because of the “independently unconscionable” Ticketmaster terms and New Era rules, the panel concluded that the FAA preemption to California’s Discover Bank-backed prohibition on class waivers didn’t apply.
Circuit Judge VanDyke agreed, but added a concurrence that went even further, concluding that the FAA doesn’t apply to mass arbitrations as contemplated by the Live Nation agreement.
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In analyzing the New Era ADR rules (the latest version can be found here), the circuit court’s unconscionability analysis should put arbitration practitioners and clause drafters on high alert. “[W]e note at the outset,” writes Senior Circuit Judge Fletcher for the unanimous panel, “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.”
[For more background and resources, and details on the oral argument, see Jayden Solomon, “Ninth Circuit Hears Live Nation-Ticketmaster Appeal on Its Rejected Mass Arbitration,” CPR Speaks (June 18) (available at https://bit.ly/3YGaJEp).]
The opinion also blasted the Ticketmaster terms, and the New Era rules, because:
- Updates to the program were immediately effective when posted to the Ticketmaster website, and applied as soon as customers returned to the site to use previously purchased electronic tickets, making it “nearly impossible to avoid retroactive application of any changes Ticketmaster imposes.”
- New Era has sole unilateral ability to “batch similar cases,” allowing it to group the cases without plaintiffs lawyers’ input, and the lawyers representing the plaintiffs can’t be identified until the batching . . . and the plaintiffs lawyers are needed to choose the arbitrators.
- Similarly, in the selection process, the plaintiffs’ input is “undermined by the fact that the neutral may be replaced at New Era’s sole discretion.”
- The application of the precedential bellwether cases becomes binding on parties who had no chance to participate in the arbitration “and who are ignorant of the decision until it is invoked against them,” emphasizing that effect on plaintiffs.
- Of the potential limits on evidence and hearings documents, including the defense’s advantageous access to bellwether cases’ information against post-bellwether plaintiffs.
- Ticketmaster’s terms “provides a right of appeal if the plaintiff's request for an injunction is granted, but denies a right of appeal if the plaintiff's request is denied.”
But those overview points were a preliminary analysis to the opinion’s discussion in support of the District Court decision finding the elements of unconscionability were satisfied.
First, the Ninth Circuit stated that the “that the delegation clause is procedurally unconscionable ‘to an extreme degree,’” quoting the lower court, based on “four elements of New Era's model that rendered the delegation clause substantively unconscionable:
(1) the application of precedent from the bellwether decisions to the claimants who had no opportunity to participate in, or even learn the content of, those decisions;
(2) the lack of discovery and other procedural limitations;
(3) the provisions governing the selection of arbitrators; and
(4) the limited right of appeal.”
The bulk of the opinion goes on to analyze and declare the delegation clause’s procedurally and substantively unconscionable under those factors. It provides the Ticketmaster delegation clause:
Delegation; Interpretation. The 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.
The Ninth Circuit panel agreed with the district court on procedural unconscionability. In addition to the surprise element related to updates, the Ninth Circuit noted,
The district court wrote, with respect to oppression, "[I]t is hard to imagine a relationship with a greater power imbalance than that between Defendants and its consumers, given Defendants' market dominance in the ticket services industries." . . . 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.
(Citations omitted.)
The procedural unconscionability section goes further:
[T]he 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.
On substantive unconscionability regarding the delegation clause, the Fletcher Ninth Circuit opinion backed the district court again, noting that the lower court “held that four features of New Era's Rules support a finding of substantive unconscionability of the delegation clause: (1) the mass arbitration protocol, including the application of precedent from the bellwether decisions to other claimants; (2) procedural limitations, such as the lack of a right to discovery; (3) the limited right of appeal; and (4 the arbitrator selection provisions.”
Noting that the non-bellwether case have no rights to participate in decisions to which they can be bound, the Ninth Circuit noted, “It is black-letter law that binding litigants to the rulings of cases in which they have no right to participate--let alone case of which they have no knowledge--violates basic principles of due process.” (Citation omitted.)
Senior Circuit Judge Fletcher adds later, “Indeed, it is implausible to the point of near impossibility that an arbitrator, absent some compelling reason, would fail to apply the precedent established in the bellwether cases.”
On the lack of discovery and procedural limitations in the Ticketmaster terms and the New Era rules, the opinion notes, “New Era's Rules are inadequate vehicles for the vindication of plaintiffs' claims,” and the “restrictions on briefing border on the absurd.”
The opinion section on the delegation clause ends by noting,
[W]e conclude that the delegation clause is procedurally unconscionable to an extreme degree and substantively unconscionable to a substantial degree. Taken in combination, this procedural and substantive unconscionability is fatal to the delegation clause contained in Ticketmaster's Terms.
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Once the delegation clause was found to be unconscionable, the Ninth Circuit, like the U.S. District Court, found the overall agreement unconscionable and unenforceable. It backed the lower court’s refusal to sever “the offending provision” in the terms and rules, and rejected the argument that the Federal Arbitration Act preempted California’s unconscionability law.
That led to a concluding section upholding a post-AT&T Mobility analysis that preserves California’s class action waiver view. The opinion notes:
Arbitration, as understood by Congress when it enacted the FAA, was designed to be a fair and efficient alternative to bilateral judicial proceedings. It may not be too much to say that this method of dispute resolution contemplated by New Era's Rules is "unworthy even of the name of arbitration." . . . It is certainly beyond dispute that it is not arbitration as envisioned by the FAA in 1925. . . . Accordingly, we hold that the application of California law to Ticketmaster's Terms and New Era's Rules is not preempted by the FAA. Discover Bank therefore applies.
The opinion’s final words: “We also hold, as an alternate and independent ground, that the FAA does not preempt California's Discover Bank rule as it applies to mass arbitration.”
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Circuit Judge Lawrence VanDyke’s concurrence is far simpler, yet goes much farther.
“I agree with the majority that we should affirm the decision in this case,” he began, “But I would resolve this case by simply concluding that the [FAA] just does not apply to the type of mass "arbitration" contemplated by Live Nation's agreements.”
He explained that “a threshold issue in analyzing FAA obstacle preemption has to be whether the arbitration agreement under consideration is one that shares the attributes of bilateral arbitration as understood in 1925--the only form of arbitration conceived of by Congress at the time.”
He immediately added, “Simply labeling something as ‘arbitration” does not automatically bring it within the ambit of the FAA's protection.”
The concurrence states that the Ticketmaster-New Era mass arbitration program seeks “to avoid individual, bilateral adjudication of claims—exactly the attributes of arbitration the Supreme Court in [AT&T Mobility] recognized that the FAA protects.” Therefore, the FAA has no preemptive effect on the Discover Bank rule banning class action waivers in the case, VanDyke writes.
But he saves a big issue for his closing, writing, “There is one more massive elephant in the room that cries out for acknowledgement.” Because, states VanDyke, the unconscionability issues apply to the delegation clause, and the terms and rules apply decisions on unconscionability to the arbitrator, the scheme creates an unavoidable conflict of interest.
If an arbitrator decided that a mass arbitration clause was unenforceable under the Live Nation delegation terms, writes VanDyke,
That single arbitrator would face quite a practical dilemma. If the arbitrator issued that ruling, he wouldn't just be dismissing the case before him. He would literally be ruling against his employer's--New Era's--entire business model. He would be destroying New Era, and of course his own job along with it. And after the dust settled from the nuke he just dropped on his own employer, he would know with absolute certainty that no other arbitration provider or business would ever touch him with a ten-foot pole.
Citing district court findings that Live Nation “provided nearly all of New Era’s revenue during its first year,” and coordination between Live Nation counsel and New Era on the rules, VanDyke noted, “It seems to me that the circumstances in this case create more than merely an inference of bias--they create a strong and inescapable perception of bias.”
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Circuit Judge VanDyke is the newest Ninth Circuit appointee on the panel, having joined after being nominated by President Donald J. Trump in 2020. Circuit Judge Christen is a 2012 President Barack Obama appointee, and majority opinion writer Senior Circuit Court Judge Fletcher is a 1998 President Bill Clinton appointee.
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The author writes and edits Alternatives to the High Cost of Litigation for publisher CPR. Alternatives will feature a cover story updating the state of the law on mass arbitration in the December 2024 issue.
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