In Heckman v. Live Nation Entertainment, Inc., a panel of the Ninth Circuit affirmed a lower court decision refusing to enforce the Ticketmaster arbitration provision in a purported consumer antitrust class action brought against Ticketmaster and Live Nation. In reaching its decision, the panel concluded that the arbitration agreement in question was both procedurally and substantively unconscionable. Going further, the panel went out of its way to hold, “as an alternative and independent ground,” that the Federal Arbitration Act (FAA) does not apply to the special multi-party arbitrations contemplated for mass arbitrations by the arbitration agreement in question.
The court’s unconscionability analysis was straightforward. The panel approved the lower court’s conclusion that “the Terms on Ticketmaster’s website, and the manner in which Ticketmaster bound users to those Terms, ‘evince[] an extreme amount of procedural unconscionability far above and beyond a run-of-the-mill contract-of-adhesion case.'” The arbitration administrator’s rules were “internally inconsistent, poorly drafted, and riddled with typos.” Additionally:
Under the new Terms of Ticketmaster’s website, a person using the website agrees to Expedited/Mass Arbitration not only for any claim arising out of a current ticket purchase but also for all claims arising out of prior ticket purchases. Any updates to the Terms become “effective immediately when [Ticketmaster posts] a revised version of the Terms on the Site.” By merely “continuing to use [the Ticketmaster] Site after that date, [a consumer] agrees to the changes.” This provision is particularly disadvantageous to consumers because they often revisit the site in order to use previously purchased digital tickets. It is thus nearly impossible to avoid retroactive application of any changes Ticketmaster imposes. [Citations omitted.]
Facts supporting the panel’s finding of substantive unconscionability included: (1) the inability of claimants to participate in (or even learn the details of) bellwether arbitrations that effectively bound these non-bellwether claimants; (2) the denial of discovery rights and imposition of severe limitations on permitted briefing and other filings, which “border[ed] on the absurd” and left claimants with no effective way of vindicating their rights; (3) asymmetric appeal rights, which allowed Ticketmaster and Live Nation to appeal an award of injunctive relief but precluded their customers from appealing a denial of such relief; and (4) arbitrator selection provisions the court deemed to be problematic, which included authority of the administrator to replace the arbitrator selected by the parties (in the context of an administrator that had a stated mission to provide a “critical prophylactic” against mass arbitration risk and showed a “remarkable degree of coordination” with counsel to the defendants).
While the court’s unconscionability analysis followed traditional lines, in our view, the real importance of this case rests in the court’s “alternate and independent ground” that the FAA — and the Supreme Court’s holding in AT&T Mobility LLC v.Concepcion that the FAA preempts state laws that would invalidate class action bans in arbitration agreements — are inapplicable to the multiparty arbitrations contemplated by the Ticketmaster arbitration agreement. Thus, language in the Heckman opinions suggests that the FAA and Concepcion are focused on the traditional, bilateral arbitration agreements contemplated by Congress when it adopted the FAA in 1925 and not the very “different sort” of arbitration before the court in Heckman.
In reaching this conclusion, the court effectively elevated the original context of the FAA over the plain language of FAA § 2 that a written arbitration agreement in interstate commerce “shall be valid, irrevocable, and enforceable” save upon such grounds as exist at law or in equity for the revocation of any contract. The court failed to specify the boundary between arbitration agreements subject to the FAA and agreements deemed to fall outside that boundary “whose attributes fundamentally differ from the core attributes of bilateral arbitration envisioned by the FAA.” This alternate holding was wholly unnecessary and unduly hostile to arbitration. Intentionally or inadvertently, the inclusion of this holding as an “alternate and independent ground” may make it difficult for Ticketmaster to get Supreme Court review of this holding.
While Heckman serves to create a new line of attack against mass arbitration agreements with group arbitration terms, we do not read it as a rejection of all such agreements. On this issue, like many others, the Ticketmaster arbitration agreement was extreme, involving the potential arbitration of “thousands of claims in a single go” and effectively binding claimants who had no real ability to participate with their own counsel in the proceedings. This contrasts greatly with well-crafted modern-day agreements that provide for resolution of common issues of law or fact in arbitrations that involve relatively small groups of claimants represented by the same counsel. Heckman should not apply to such agreements.
