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Column: In Live Nation case, appeals court mulls mass arbitration breakthrough

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The opinions expressed here are those of the author, a columnist for Reuters.

By Alison Frankel

June 20 (Reuters) -

A potentially seismic moment for civil litigation occurred last Friday during oral arguments in ticket seller Live Nation’s appeal of a trial court decision allowing consumers to band together to litigate antitrust claims.

This is going to take some explaining, but there is a possibility — still remote but now within the bounds of conceivability — that the Live Nation appeal could mark the beginning of the end of a decades-long campaign by U.S. corporations to evade class actions by forcing consumers to arbitrate their claims individually.

Let’s start at the beginning of the case. In 2022, several ticket purchasers filed a prospective class action alleging that Live Nation LYV.N subsidiary Ticketmaster violated federal antitrust laws to squelch competition and overcharge customers. Live Nation moved to compel the ticket purchasers to arbitrate their claims under the terms of their contract with Ticketmaster.

U.S. District Judge George Wu of Los Angeles ruled last August that the contract was so unfair that Live Nation could not enforce it.

To make a long story short, the trial judge ruled that Live Nation stepped out of bounds when it adopted new contract terms to address the risk of mass arbitration, a relatively recent phenomenon in which thousands of consumers (or employees) file substantially identical demands for arbitration. As you’re probably aware, big companies like Live Nation contend that mass arbitration allows plaintiffs' lawyers to abuse the leverage of steep arbitration fees to extort defendants into unwarranted settlements.

Live Nation sought to avert that risk by forcing consumers to file claims with a start-up arbitration provider, New Era, that imposes special rules for mass arbitration.

Plaintiffs' lawyers from Quinn Emanuel Urquhart & Sullivan and Keller Postman persuaded Wu that the New Era rules were so confusing and problematic that Live Nation's entire arbitration contract was unenforceable.

On appeal to the 9th U.S. Circuit Court of Appeals, Live Nation argued that Wu abused his discretion. The company disputed the judge’s assessment of the New Era rules. It also said that its consumer contract included a backup plan, directing claims to an alternative arbitration forum in case there was a problem with New Era. At the very least, Live Nation said, Wu should have sent the case to the alternative forum.

In response, Keller Postman and Quinn Emanuel emphasized the alleged unfairness of New Era’s “Kafkaesque” rules.

But they also put forth a moonshot theory with profound implications.

The argument: In 2005’s Discover Bank v. Superior Court, the California Supreme Court ruled that companies cannot force customers to waive the right to litigate as a group. That holding was overturned by the U.S. Supreme Court in its 2011 decision in Concepcion v. AT&T Mobility, which concluded that the Federal Arbitration Act pre-empts California’s assessment that class waivers are unenforceable. But according to Keller Postman and Quinn Emanuel — as well as an amicus brief from Vanderbilt University Law School professor Brian Fitzpatrick — the U.S. Supreme Court's Concepcion decision was premised on a traditional concept of arbitration as a simple, efficient and bilateral process.

Live Nation's mass arbitration protocols were anything but, according to the plaintiffs. So, they argued, when the company adopted rules that effectively turned mass arbitration into a complex proceeding, it lost the protection of the Federal Arbitration Act. And without that protection, the firms argued, California’s Discover Bank rule against class waivers still holds.

Under this brash theory, companies have a choice: They can either arbitrate individually with every California claimant — a process that can be ruinously expensive when thousands of consumers demand arbitration — or they can allow class proceedings. What they can’t do, according to the theory, is enforce special rules when they are socked with a wave of arbitration demands.

Live Nation’s lawyers at Latham & Watkins blasted the theory in their final brief to the 9th Circuit, calling it “wrong all the way down.”

The Supreme Court’s Federal Arbitration Act precedent, Live Nation said, is based on the idea that the law protects bilateral contracts in which the two sides agree to resolve disputes through streamlined private proceedings. Live Nation said its arbitration contract with consumers fits that criteria even if the New Era rules apply.

The Discover bank rule, Live Nation said, “is a dead letter under Supreme Court precedent.”

But during an oral argument last Friday at the 9th Circuit, Judge Lawrence VanDyke signaled that he’s not so sure about that.

Most of the argument, to be sure, focused on the nitty-gritty of New Era’s rules, which Judges William Fletcher and Morgan Christen characterized as confusing and problematic. Live Nation counsel Roman Martinez of Latham had little choice but to argue that the appeals court should still allow the company to compel arbitration under its backup plan of sending the cases to a different provider. (Live Nation did not respond to my query on VanDyke’s question.)

Near the end of the hour-long session, though, VanDyke picked up on Discover Bank rule arguments by plaintiffs' lawyer Warren Postman of Keller Postman.

Perhaps, he told Live Nation counsel Martinez, “mass arbitration just isn't really the kind of arbitration … that the FAA is trying to protect at all.”

That, of course, is the first step in plaintiffs' theory that if companies adopt special mass arbitration procedures, they’re subject to California’s rule voiding class-action waivers. VanDyke, in other words, seems to be open to the argument that companies must either stick to traditional, individualized arbitration or allow consumers to band together.

A caveat: There is absolutely no guarantee that the 9th Circuit will end up reviving the Discover Bank rule for companies that devise innovative ways to handle mass arbitration demands. Even if the appeals court decides New Era’s rules were unfair, it could simply rule that Wu acted within his discretion.

Or it could endorse Live Nation’s call to compel arbitration with its backup provider — which would be a boon to companies pushing arbitration forums to help them manage mass arbitration demands.

But if VanDyke and his colleagues decide that mass arbitration is outside the bounds of the Federal Arbitration Act, we are in for a very interesting ride.

Read more:

‘Bellwether’ arbitration takes another hit ahead of key appeal

Live Nation in consumer ticket-price lawsuit loses bid for 'mass' arbitration

Ticketmaster customers attack ‘Kafkaesque’ mass arbitration rules


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