Column: Live Nation asks U.S. appeals court for certainty after mass arbitration loss
The opinions expressed here are those of the author, a columnist for Reuters.
By Alison Frankel
Nov 14 (Reuters) -Live Nation is calling on a U.S. appeals court to undo a three-judge panel ruling last month that, in the words of the entertainment behemoth, has created “massive uncertainty” about corporate tactics to combat mass arbitration.
In a Nov. 12 petition for reconsideration by the three-judge panel or rehearing by an expanded panel of judges from the 9th U.S. Circuit Court of Appeals, Live Nation scorched the panel’s holding that the Federal Arbitration Act does not apply when companies require consumers to accede to procedures that strip them of the right to arbitrate claims individually.
Such procedures, said 9th Circuit Judges William Fletcher, Morgan Christen and Lawrence VanDyke, don’t match the federal law’s vision of arbitration as a streamlined, bilateral alternative to court proceedings.
That conclusion, in turn, led the panel to hold that Live Nation’s contract with consumers is unenforceable under a 2005 California decision known as Discover Bank, which says consumer contracts barring classwide litigation are unconscionable.
The U.S. Supreme Court, as you know, held in 2011’s AT&T Mobility v. Concepcion that the Federal Arbitration Act pre-empts California’s Discover Bank rule. But the Live Nation panel said in last month’s decision that because the Federal Arbitration Act does not apply when companies subject consumers to problematic consolidated proceedings, the California Supreme Court decision regains the force of law.
Live Nation LYV.N argued in the new petition for rehearing that the panel’s Discover Bank holding “threatens extreme consequences.”
Here’s why. As Live Nation said in its new petition, companies that require consumers to arbitrate claims instead of litigating in class actions have been blindsided in recent years by the phenomenon of mass arbitration, in which hundreds or thousands of customers file near-identical demands to arbitrate. Defendants at first balked at paying millions of dollars in fees to initiate all of those arbitration cases, but as courts insisted that they comply with the terms they imposed on their consumers, companies have devised more sophisticated strategies to counter mass arbitration campaigns.
Live Nation’s approach was to change from a traditional arbitration forum, JAMS, to a start-up provider called New Era, which offered companies special protocols for mass arbitration. Those protocols included “batching” similar cases before a single arbitrator who would then oversee three bellwether proceedings. Under New Era’s protocol, rulings in the bellwethers could, at the arbitrator’s discretion, bind plaintiffs in all of the batched cases.
In last month’s opinion, the 9th Circuit panel determined that New Era’s rules were so confusing and one-sided that Live Nation’s consumer contract was unenforceable. (Live Nation argued in its petition for rehearing that the panel was just as wrong about that conclusion as it was about its “alternate and independent” ruling that the Federal Arbitration Act did not apply to its batching-and-bellwether regimen.)
But as Live Nation’s lawyers at Latham & Watkins pointed out in the new petition, many other companies have adopted similar batching procedures to mitigate mass arbitration fees. So the panel’s holding that the Federal Arbitration Act does not extend to batch-and-bellwether proceedings, Live Nation said, “will confound courts, consumers and companies seeking to understand how the FAA applies to mass arbitration procedures.”
At the very least, Live Nation argued, the panel’s “gratuitous and wrong” holding on the applicability of the Federal Arbitration Act to mass arbitration defenses will have a chilling effect on corporate strategies to stave off these campaigns.
“The panel’s ruling here purported to follow Concepcion, but actually turned the [U.S. Supreme] Court’s reasoning on its head,” Live Nation said in the rehearing petition. “It shrinks the scope of FAA protections, constraining the parties’ choices and undermining workable arbitration.”
As evidence of the proposed confusion created by the panel decision, the company cited a post-ruling letter to the 9th Circuit from Keller Postman, the plaintiffs' firm in both the Live Nation case and a separate appeal challenging the mass arbitration protocols that streaming service Starz Entertainment has imposed on its customers.
Keller Postman told the 9th Circuit judges overseeing the Starz case that the Live Nation decision backed plaintiffs’ assertion that Starz’s protocol – consolidating nearly 7,500 cases before a single arbitrator to resolve a threshold question -- is not protected by the Federal Arbitration Act and is therefore unenforceable under California’s Discover Bank precedent.
Starz’s lawyers at DLA Piper countered in their letter to the 9th Circuit that Keller Postman is overreading the Live Nation decision. The panel opinion, Starz said, did not actually hold that every arbitration agreement calling for the consolidation of mass arbitration claims is outside of the aegis of the Federal Arbitration Act. In Starz’s reading of the Live Nation decision, the panel was focused on Live Nation’s batch-and-bellwether process, not merely consolidation.
Keller Postman’s Warren Postman did not respond to my email query on Live Nation’s petition for rehearing the panel decision.
Postman previously told me that in his interpretation of the panel ruling, “corporate attempts to impose novel group procedures to gain tactical advantages over consumers and employees will strip those agreements of the protections of federal law and leave them vulnerable to unconscionability challenges under state law.”
Live Nation appellate lawyer Roman Martinez of Latham declined to comment on the petition.
One interesting complication for Live Nation: The 9th Circuit panel, as I mentioned, offered two “alternative and independent” justifications for invalidating the company’s consumer contract. It ruled on the narrow ground that New Era’s rules were too unfair to bind consumers and on the much broader rationale that the Federal Arbitration Act does not pre-empt California precedent when arbitration protocols contravene the federal law’s vision of arbitration as a streamlined, bilateral proceeding.
Live Nation emphasized the potential consequences of the broader holding but asked the 9th Circuit to revisit both. Otherwise, there wouldn’t be much benefit to the company: If the court were to overturn only the panel’s Federal Arbitration Act analysis, the consumer contract would still be unenforceable for the alternative reason that New Era’s rules are unconscionable.
Does the 9th Circuit really want to revisit those rules? We’ll soon find out.
Read more:
Live Nation decision will force companies to rethink consumer arbitration rules
Live Nation must face consumer lawsuit over ticket prices, US appeals court rules
In Live Nation case, appeals court mulls mass arbitration breakthrough
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