I don’t know of anyone who would proclaim a love of Ticketmaster, so a ruling against them is likely to be viewed positively by everyone, but the identity of the defendant aside, there are ramifications in this ruling related to how arbitration clauses are worded and enforced — at least within the Ninth Circuit.
The Court of Appeals for the Ninth Circuit has affirmed a lower court’s ruling that denied the defendant’s motion to compel arbitration in a putative antitrust class action. While the case involves allegations of anticompetitive practices in online ticket sales, it’s the arbitration clause of the agreement that the defendant required the plaintiffs to agree to that was the source of the problem.
The background: The plaintiffs purchased tickets for live events through the defendant’s website, which required agreeing to its Terms of Use. These terms included a clause mandating that all disputes be resolved through arbitration. The arbitration agreement also included a “delegation clause,” which gave an arbitrator the exclusive authority to determine the validity of the arbitration agreement.
- The dispute arose because the defendant amended its Terms of Use to include arbitration under a newly created arbitration entity, New Era ADR, which used expedited and mass arbitration procedures.
- The plaintiff argued that the changes to the arbitration process were unconscionable, both procedurally and substantively, and therefore unenforceable.
The ruling: The Ninth Circuit upheld the lower court’s decision, agreeing that the delegation clause and the arbitration agreement as a whole were unconscionable under California law. The court identified several key reasons for its decision:
- Procedural Unconscionability: The court found that the delegation clause was part of a contract of adhesion, meaning it was presented on a take-it-or-leave-it basis with no opportunity for negotiation. Moreover, the arbitration terms were amended unilaterally by the defendant and applied retroactively, binding consumers to the new rules even for prior purchases. This retroactive application was deemed highly oppressive and procedurally unfair.
- Substantive Unconscionability: The court noted several substantive issues with the arbitration procedures. The delegation clause required that disputes be decided by an arbitrator affiliated with New Era ADR, which utilized novel and restrictive procedures, such as a lack of discovery rights, limitations on appeals, and a mass arbitration protocol. The court concluded that these procedures unfairly limited the plaintiff’s ability to present their case and were heavily biased in favor of the defendant.
The Ninth Circuit also addressed the defendant’s argument that California’s application of unconscionability law was preempted by the Federal Arbitration Act (FAA). The court held that the application of California law in this instance was not preempted because it relied on generally applicable contract principles that did not disfavor arbitration or conflict with the objectives of the FAA.
