9th Circuit Rejects Live Nation's Mass Arbitration Rules

The U.S. Court of Appeals for the Ninth Circuit said Monday that Live Nation Entertainment Inc.'s demand for new mass arbitration procedures was unenforceable, rejecting the company's bid to keep out of court a proposed class action lawsuit over alleged inflated ticket prices.

The federal appeals panel said Live Nation's arbitration agreement requiring claims to be handled through provider New Era ADR Inc. was “unconscionable” under California law. New Era's newly created rules for handling mass arbitration claims give the company a leg up on plaintiffs, the Ninth Circuit said.

“It is clear that it would be impossible for plaintiffs to assert their claims on an equal basis with Live Nation,” wrote Judge William Fletcher for the Ninth Circuit. “If a plaintiff is forced to accept terms that can be changed without notice, he or she must then arbitrate under New Era’s opaque and unfair rules.”

Judge Morgan Christen agreed with Fletcher in his opinion. Lawrence VanDyke wrote a concurring opinion expressing his belief that the Federal Arbitration Act “does not apply to the type of mass arbitration contemplated by Live Nation's agreements.”

More broadly, the Ninth Circuit's decision represents a loss for companies seeking to enforce class arbitration procedures in response to plaintiffs' strategy of filing hundreds or thousands of similar arbitration claims against one company to avoid the class action waiver.

Warren D. Postman of Keller Postman, who argued for the plaintiffs, said many companies have turned to mass arbitration rules similar to those used by Live Nation and New Era. The Ninth Circuit's decision shows the workaround is likely to fail, Postman said.

“For example, one of the problems (that the Ninth Circuit identified) was that they tried to apply these new rules to claims that had already accrued,” Postman said. “We see a lot of companies trying to do that. Therefore, the first paragraph (of the decision) is helpful in this regard.”

In the underlying appeal, plaintiffs Skot Heckman, Luis Ponce, Jeanene Popp and Jacob Roberts brought a putative class action against Live Nation and Ticketmaster for alleged anticompetitive practices. U.S. District Judge George H. Wu of the Central District of California denied Live Nation's request to compel arbitration, saying a “delegation clause” in the company's arbitration agreement was unreasonable.

The clause gives a New Era arbitrator the authority to determine the validity of the arbitration agreement.

The Ninth Circuit affirmed Wu's ruling, saying several aspects of New Era's procedures were substandard.

Under the rules, New Era consolidates five or more cases with similar issues and facts, and an arbitrator then decides three “lead cases.” The arbitrator's decision as to whether he or she has the authority to determine the validity of the arbitration agreement is binding on plaintiffs in all other, non-authoritative cases, even if they cannot present their views at that time, the Ninth Circuit said.

“In fact, plaintiffs in the non-governing cases will not even know the ruling in the ruling case regarding the validity of the Delegation Clause until that ruling is asserted against them,” Fletcher wrote. “It is a black law that violates basic principles of due process by binding litigants to decide cases in which they have no right to participate, let alone cases of which they have no knowledge.”

The Ninth Circuit challenged other limitations imposed by New Era, including the page limit for complaints and pleadings and the lack of right of discovery.

“New Era’s limitations on briefing border on the absurd,” Fletcher wrote. “A lead plaintiff would have to perform a miracle to successfully establish the merits of his claim, advance any arbitration arguments, and present all evidence in just 10 documents totaling 250 pages and containing 15,000 characters of 'final arguments,'” Fletcher wrote.

The Ninth Circuit held, alternatively, that the Federal Arbitration Act does not protect the batch model for mass arbitrations set forth herein.

Therefore, the panel said the case must comply with the California Supreme Court's 2005 decision Discover Bank v. Superior Court that class action waiver in consumer liability contracts is unreasonable and unenforceable under California law.

Postman said this aspect of the ruling broadly puts companies on notice that if they adopt unfair mass arbitration procedures, they risk having a court throw out the entire arbitration agreement.

“Although companies are permitted to enforce bilateral arbitrations of the type provided for in the Federal Arbitration Act, attempts by companies to enforce novel group procedures to gain tactical advantages over consumers and employees will deprive these agreements of the protections of federal law and leave them vulnerable to unscrupulousness “Challenges under state law,” Postman said.

Roman Martinez of Latham & Watkin, who spoke on behalf of Live Nation, did not immediately respond to a request for comment Monday.

The Ninth Circuit has made its decision Skot Hekman et al. v. Live Nation Entertainment Inc., No. 23-55770.