On October 28, 2024, the Ninth Circuit struck a mass arbitration agreement as unconscionable and unenforceable under California law in Heckman v. Live Nation Ent., Inc., No. 23-55770. The three-judge panel affirmed the district court’s decision holding that the arbitration agreement’s delegation clause was unconscionable under California law. The panel also held that the entire agreement was unconscionable and, therefore, unenforceable, under California law.
The arbitration agreement at issue contained a delegation clause that required disputes to be decided through an expedited/mass arbitration proceeding conducted by “a newly created entity, New Era ADR, using novel and unusual expedited/mass arbitration procedures.” Unlike traditional arbitration proceedings, the expedited/mass arbitration proceedings provided that an arbitrator’s decision in three “bellwether cases” would be precedent for all cases included in the group of similar cases, known as a “batch”; complaints were subject to a 10-page limit; and there was no right to discovery.
In holding that the delegation clause was procedurally unconscionable, the Ninth Circuit found that Ticketmaster was the exclusive ticket seller for virtually all live concerts at large venues. As a result, buyers would either have to purchase tickets subject to Ticketmaster’s arbitration agreement, or resort to the ticket resale market. It also found that Ticketmaster could unilaterally modify its Terms of Use without prior notice, and that those modifications could apply retroactively.
In holding that the delegation clause was substantively unconscionable, the Ninth Circuit found that the bellwether approach violated basic principles of due process because it could bind litigants to a ruling in a case in which they did not participate. It also found that the expedited/mass arbitration proceeding to be an inadequate means for resolving disputes because of its discovery and procedural limitations and the “asymmetric appeal of injunctive relief.”
For these same reasons, the Ninth Circuit held that the entire arbitration agreement was unconscionable and unenforceable.
The Ninth Circuit also held that “based on an alternate and independent ground, that the application of California unconscionability law to the arbitration agreement at issue here [was] not preempted by the FAA.” Per the Ninth Circuit, “the FAA simply does not apply to and protect the mass arbitration model set forth in Ticketmaster’s Terms and New Era’s Rules.”
In light of the Ninth Circuit’s decision, companies should exercise caution in attempting to impose novel arbitration rules and procedures that may be deemed inconsistent with the Federal Arbitration Act.
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