Recently, the Ninth Circuit struck down Ticketmaster’s mass arbitration provisions—holding that they are unconscionable, and thus unenforceable.  See Heckman v. Live Nation Entertainment, Inc., No. 23-55770, 120 F. 4th 670 (9th Cir. 2024).  The case was a test of how far companies can go to shape mass arbitration procedures, with important implications for drafting enforceable arbitration terms to address recent trends in mass action litigation.

We’ve written about how some plaintiff firms have responded to class action waivers by pursuing a mass arbitration strategy (you can read more here and here).  Most arbitration providers charge companies a per-claimant fee to administer arbitrations. These fees are small for individual claimants; however, savvy plaintiff firms will amass thousands of claimants and use the exorbitant administrative fees charged by arbitration providers—reaching the millions—as settlement leverage.  In response, companies like Ticketmaster have updated their terms of service to include mass arbitration protocols that mitigate against this risk—e.g., by requiring “batching” or “bellwether” procedures that only allow a limited number of arbitrations to proceed at a time.

But Ticketmaster, according to the Ninth Circuit, went too far. Back in 2021, in a different lawsuit (Oberstein v. Live Nation), Ticketmaster moved to compel individual arbitration of claims by ticket purchasers.  While that motion was pending, Ticketmaster foresaw that if its motion to compel were granted, it would “be faced with a large number of parallel individual claims by ticket purchasers.”  The administrative fees, as well as the burden of litigating thousands of individual claims, would be substantial.  In anticipation of these claims, Ticketmaster turned to New Era, a newly-formed arbitration company, to collaborate on devising a set of mass arbitration procedures that would protect Ticketmaster against these risks. Ticketmaster then amended its website terms of service to require that all disputes arising out of a ticket purchase be arbitrated under New Era’s new mass arbitration rules, which Ticketmaster had helped to draft.

These facts surely gave the Ninth Circuit pause before even reviewing the mass arbitration protocols.  The old adage that bad facts make bad law comes to mind.  Ticketmaster had foisted one-sided rules on all users, which it had helped to draft, in anticipation of a mass arbitration. 

But the problem was not limited to the context in which Ticketmaster amended its terms.  The Ninth Circuit also held that New Era’s mass arbitration protocols themselves were substantively and procedurally unconscionable. 

Specifically, the Ninth Circuit took issue with the following elements in the Ticketmaster/New Era rules: (1) the application of precedent from three bellwether cases to all other claimants, who had no opportunity to participate in or even learn the contents of those cases; (2) the lack of discovery and limitations on briefing; (3) the procedures for selecting arbitrators; (4) the limited right of appeal; and (5) the fact that Ticketmaster’s terms could be changed unilaterally without notice, and those changes would apply retroactively.  All these issues led the Ninth Circuit to a blunt conclusion: Ticketmaster’s arbitration agreement is “so overly harsh or one-sided as to unequivocally represent a systematic effort to impose arbitration as an inferior forum designed to work to [Ticketmaster’s] advantage.”

The Ninth Circuit could have stopped there.  But it reached an “alternative and independent” ground for invalidating Ticketmaster’s arbitration agreement—that it is unconscionable under California’s Discover Bank rule, which provides that class action waivers in consumer contracts of adhesion are unenforceable.  However, back in 2010, the U.S. Supreme Court rejected the Discover Bank rule, holding that it was preempted by the Federal Arbitration Act (“FAA”).  See AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 352 (2011).  To get around this, the Ninth Circuit held that “the FAA simply does not apply to and protect the mass arbitration model set forth in Ticketmaster’s Terms and New Era’s Rules.” 

There is no question that this decision sets up a direct conflict between the Ninth Circuit and the U.S. Supreme Court.  But where does this leave things in the interim?  Under California law, can an enforceable arbitration provision have any mass arbitration protocols? 

The Ticketmaster/New Era rules were extreme, and provided for bellwether arbitration proceedings that strongly resembled a class action.  Three bellwether cases would be binding on all claimants.  However, the non-bellwether claimants would have none of the protections or benefits of a class action.  The bellwether cases would be confidential, and non-bellwether claimants could not participate in them.  Indeed, non-bellwether claimants would be ignorant of the bellwether decisions until they were invoked against them.  The Ninth Circuit found that this method of dispute resolution was “unworthy even of the name of arbitration.”  According to the court, Ticketmaster/New Era rules were denying users the right to participate in a class action while simultaneously forcing users into a confidential, representative proceeding with an arbitration provider of its own choosing utilizing overly one-sided procedures. 

However, not all mass arbitration protocols are this extreme.  Some merely use streamlined batching procedures to minimize the fee burden on both claimants and businesses.  Claimants retain the right to participate in their own, bilateral—as opposed to representative—proceedings.  Protocols like this should be enforceable and within the purview of the FAA.  But this will be an issue we watch closely, as courts begin to grapple with how to apply the Heckman decision.