Ninth Circuit Nixes Live Nation’s ‘Unconscionable’ Arbitration Agreement

On October 28, 2024, the Ninth Circuit affirmed the district court’s ruling in Heckman v. Live Nation, finding Live Nation’s Ticketmaster arbitration agreement unconscionable and therefore unenforceable based on their terms and their use of New Era as an arbitration provider. At the district court, Judge George H. Wu in the Central District of California denied Live Nation’s motion to compel arbitration, holding that both the delegation clause and the arbitration agreement were procedurally and substantively unconscionable under California law. The Ninth Circuit affirmed. The Ninth Circuit noted that New Era was developed in 2020 with a high degree of coordination with Live Nation’s counsel, and Live Nation was New Era’s first client. The Ninth Circuit also noted that New Era’s rules were vastly different from traditional arbitration forums like JAMS or the AAA.

The Ninth Circuit affirmed the holding that Live Nation’s delegation clause was both procedurally and substantively unconscionable.

As to procedural unconscionability, the court found:

• It was a contract of adhesion.
• Ticketmaster is the exclusive seller for almost all live concerts in large venues.
• Ticketmaster’s terms could be changed at any time and apply retroactively to customers merely by their visiting the Ticketmaster website (without making any purchase).
• Ticketmaster’s terms were affirmatively misleading (e.g., they said customers could only bring individual actions, but New Era’s rules allow arbitrators to batch similar claims).

As to substantive unconscionability, the Ninth Circuit based its findings on New Era’s rules. Specifically, the court took issue with:

• The mass arbitration protocol, including the application of precedent from the bellwether decisions to other claimants without any opportunity to participate in or opt out of those decisions
• Procedural limitations, such as the lack of a right to discovery and extremely limited briefing
• The limited right of appeal, including only the ability to appeal if an injunction is granted (not when it is denied) as injunctive relief is typically sought only by plaintiffs
• The arbitrator selection provisions, which gave New Era the unilateral right to choose arbitrators

Based on these findings, the Ninth Circuit also determined that the arbitration agreement itself was unconscionable, and that the district court did not abuse its discretion in severing the agreement from the remainder of the terms.

The Ninth Circuit further held that the Federal Arbitration Act (FAA) did not preempt this holding because the application of California unconscionability law relies on generally applicable principles that neither disfavor arbitration nor interfere with the objectives of the FAA. This is a fairly standard conclusion for decisions regarding arbitration. The Ninth Circuit further held, as an alternative and independent ground, that the FAA does not preempt California’s prohibition of class action waivers contained in contracts of adhesion in large-scale small stakes consumer cases. It held that California state law and the Discover Bank case govern, which prohibit class action waivers contained in contracts of adhesion in large-scale small stakes consumer cases: “The FAA simply does not apply to and protect the mass arbitration model set forth in Ticketmaster’s terms and New Era’s Rules. Because the FAA does not apply, the rule of Discover Bank v. Superior Court, 113 P.3d 1110 (Cal. 2005), governs the case before us.”

The court explained that “in Discover Bank, the California Supreme Court held that class action waivers in consumer contracts of adhesion are unconscionable under California law. Id. at 1110. The United States Supreme Court later held in Concepcion that the FAA preempts any application of the Discover Bank rule that poses an ‘obstacle’ to objectives of the FAA. Concepcion, 563 U.S. at 352.” The Ninth Circuit held that “as applied to the Expedited/Mass Arbitration procedures set forth in Ticketmaster’s terms and New Era’s Rules, the Discover Bank rule poses no such obstacle, because those procedures do not apply to the forms of arbitration covered by the FAA. We therefore hold under Discover Bank that the terms’ class action waiver is unconscionable and unenforceable.”

The Ninth Circuit stated that Congress did not have class-wide arbitration in mind when it passed the FAA. It explained that the FAA precedents treat bilateral arbitration as the prototype of the individualized arbitration protected by the FAA. And the Supreme Court has consistently disparaged the use of aggregation in arbitration. The Ninth Circuit held that, because New Era’s rules are not what Congress envisioned when it enacted the FAA, the application of California law to Ticketmaster’s terms and New Era’s Rules is not preempted by the FAA, and Discover Bank applied.

As a result, the Ninth Circuit found that, at least with regard to Ticketmaster’s terms and New Era’s mass arbitration rules, the FAA does not apply and the class action waiver in Ticketmaster’s customer contracts of adhesion is unconscionable under California law.

What’s Next

This decision continues to demonstrate courts’ hostility to arbitration and the steps companies take to manage mass arbitrations, particularly certain batching and bellwether provisions similar to those contained in New Era’s rules. Companies should closely evaluate the rules of any potential arbitration providers and their own terms and be wary of any procedures that could be interpreted as limiting individualized arbitration with bilateral processes and procedures. It is anticipated that Live Nation will try to appeal the decision.