Column: Live Nation decision will force companies to rethink consumer arbitration rules
The opinions expressed here are those of the author, a columnist for Reuters.
By Alison Frankel
Oct 29 (Reuters) -In a case against entertainment behemoth Live Nation LYV.N, a U.S. appeals court has rejected a common corporate tactic to combat mass consumer arbitration and has cast doubt on whether companies can force consumers into consolidated arbitration protocols.
The 9th U.S. Circuit Court of Appeals ruled on Monday that Live Nation, the parent company of Ticketmaster, cannot compel its customers to arbitrate antitrust claims because Live Nation’s mandatory arbitration provisions were too unfair to be enforceable.
As my Reuters colleague Mike Scarcella reported, the appeals court concluded that the mass arbitration protocol offered by Live Nation’s arbitration provider, New Era, featured rules that were “so dense, convoluted and internally contradictory to be borderline unintelligible.” (New Era disputed that characterization, insisting that its rules are “objective [and] easy to understand.”)
But I’m going to focus on what the 9th Circuit called "an alternate and independent ground" for refusing to compel arbitration. This "alternate" holding could have repercussions far beyond Live Nation’s case.
New Era’s mass arbitration rules, which come into play when a company is facing at least five similar demands for arbitration, call for “batching” cases before a single arbitrator whose rulings in three bellwether proceedings become precedent in all of the other batched cases. New Era’s protocol is unique in its specifics, but dozens (if not more) of companies have adopted roughly similar batching and bellwether rules to deal with mass arbitration.
The 9th Circuit panel — Judges William Fletcher, Morgan Christen and Lawrence VanDyke — held that the Federal Arbitration Act does not apply to the kind of complex, aggregate regimen that Live Nation tried to impose on its consumers.
That batching and bellwether process, the appeals court said, is simply not what Congress had in mind when it enacted the Federal Arbitration Act and is antithetical to the U.S. Supreme Court’s promotion of bilateral arbitration as a fair, efficient alternative to litigation in court.
In a concurrence, VanDyke said flatly, “The Federal Arbitration Act just does not apply to the type of mass ‘arbitration’ contemplated by Live Nation's agreements.”
That has to be a chilling sentence for companies relying on batch-and-bellwether protocols to mitigate the time and expense of defending thousands of arbitration demands.
And here's where the 9th Circuit ruling gets really interesting. Without Federal Arbitration Act preemption, the court said, California state law governs the case. California's Supreme Court ruled in a 2005 case known as Discover Bank that companies cannot require consumers to waive the right to litigate as a class. So, the 9th Circuit concluded, under Discover Bank precedent, Live Nation customers are entitled to band together in a class action.
Neither Live Nation nor lead counsel Roman Martinez of Latham & Watkins responded to my query.
Plaintiffs' lawyer Warren Postman of Keller Postman, who pushed hard at oral arguments for the court to adopt his theory that arbitration aggregation rules are outside the bounds of the Federal Arbitration Act, welcomed the 9th Circuit’s 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,” Postman said via email.
I previously hypothesized in a column about the Live Nation oral arguments that if the 9th Circuit were to hold that mass arbitration falls outside the protection of the Federal Arbitration Act, it might mark the beginning of the end of the decades-long corporate campaign to squelch class actions by forcing consumers to arbitrate their claims individually.
In interviews on Tuesday, two law professors who study mass arbitration cautioned against overreading the 9th Circuit’s ruling. Maria Glover of Georgetown University told me it’s not clear whether the 9th Circuit would conclude that all batch and bellwether protocols are outside the bounds of the Federal Arbitration Act or whether the court was troubled by particular Live Nation rules, such as binding future claimants to precedent from bellwether cases.
The 9th Circuit was obviously worried about the delay and preclusion that result from batching protocols, Glover said, but “I don’t read the decision to say that every batching provision takes you out of the FAA.”
Richard Frankel (no relation) of Drexel University, who has studied how corporations combat mass arbitration, noted that companies have devised lots of other defense tactics, such as requiring consumers to engage in informal dispute resolution processes before they can file arbitration demands.
But the law professors agreed that the Live Nation decision shows courts understand the disconnect between companies that bar consumers from bringing class actions while simultaneously imposing one-sided aggregation protocols in arbitration.
“It’s a strong statement about contractual fairness,” Glover said of the ruling. “This court [understood], on a fairly deep level, the strategic maneuvers that have been going on.”
Added Frankel: “Ultimately, the court is calling companies out.”
Live Nation told the 9th Circuit on Tuesday afternoon that it is weighing whether to petition for en banc review of the panel decision.
If it fails to persuade the 9th Circuit to overturn the panel decision, any appeal to the U.S. Supreme Court will raise some interesting questions about how the 9th Circuit framed its holdings.
Remember, the panel offered two alternative and independent rationales for allowing consumers to move forward as a class: that New Era’s specific rules make Live Nation’s consumer contract unenforceable and that the Federal Arbitration Act does not apply to Live Nation’s mass arbitration rules, so consumers are entitled to litigate under California’s Discover Bank rule.
Both holdings are binding in the 9th Circuit, which considers even dicta in appellate rulings to control lower court rulings. But if Live Nation asks the Supreme Court to reverse the 9th Circuit’s conclusion on Federal Arbitration Act pre-emption, you can be sure that Keller Postman will argue that the justices should deny review because reversing the pre-emption holding would not change the outcome of the case.
It's a good bet that lower courts in the 9th Circuit and beyond are going to spend a lot of time deciding how broadly the reasoning of the Live Nation decision should apply. In the meantime, though, if you are a company counting on a batch-and-bellwether process to protect you from a mass arbitration onslaught, you might just want to rethink your strategy.
Read more:
Live Nation must face consumer lawsuit over ticket prices, US appeals court rules
In Live Nation case, appeals court mulls mass arbitration breakthrough
Live Nation in consumer ticket-price lawsuit loses bid for 'mass' arbitration
(Reporting By Alison Frankel)
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