We previously wrote about a Ninth Circuit appeal dealing with the use of bellwether procedures to resolve mass arbitration claims brought by thousands of customers against Verizon Wireless.  That appeal remains pending and is scheduled for oral argument in September.  In the meantime, however, a California federal district court has denied Ticketmaster’s motion to compel arbitration of Sherman Act antitrust claims based in large part on the bellwether procedures for mass arbitration claims set forth in the company’s arbitration clause.

The arbitration clause in Heckman v. Live Nation Entertainment named New Era ADR as the arbitration administrator.  Under New Era’s rules, if a matter qualifies for mass arbitration treatment, three bellwether arbitrations are selected—one by each side and one selected by the neutral.  If no settlement is reached, one of the bellwethers can potentially become “Precedent” for resolving common issues of law and fact in subsequent cases.  The court determined that “the application of Precedent in mass arbitrations … raises a host of issues.” 

Among other things, according to the court, New Era’s rules granted the neutral “unfettered discretion” in determining whether and how to apply Precedent to cases, which “could be the difference between a fair arbitration process where each claimant is provided a sufficient opportunity to be heard, and a mechanical process for summarily disposing of an entire class of claimants based on an earlier proceeding to which they were not a party.”  The court concluded that “the potential due process concerns associated with adjudicating thousands of claims on the basis of vague ‘Precedent’ at the sole discretion of the neutral” supported a finding of substantive unconscionability when combined with other “procedural limitations” in the New Era rules, including the lack of a right to discovery, the arbitrator selection procedures and a limited right of appeal that “stacked the deck” in favor of the company.

The court did reject the plaintiffs’ argument that the arbitration agreement was invalid because it contained a class action waiver.  In AT&T Mobility LLC v, Concepcion, the U.S. Supreme Court upheld the validity and enforceability of class action waivers in consumer arbitration agreements.  Nevertheless, the plaintiffs in Ticketmaster argued that Concepcion does not apply in mass arbitration situations because its reasoning was premised on the notion that California law “interfered with the [Federal Arbitration Act’s] purpose to facilitate bilateral arbitration ….”  The court concluded otherwise, finding that “there is no clear indication that once the Supreme Court considers the creation and use of mass arbitrations, it will reconsider its ruling that the FAA prohibits States from conditioning the enforceability of certain arbitration agreements on the availability of class-wide arbitration procedures.” 

According to a report published yesterday by Reuters, Ticketmaster intends to appeal the court’s decision, and New Era plans  “to ‘improve’ its mass arbitration protocols in response to the ‘useful roadmap’” the court provided in its opinion.  In another case against Live Nation Entertainment involving New Era’s arbitration rules that was decided a few days before Heckman, a different California federal district court judge granted the defendant’s motion to compel arbitration and enforced the arbitration agreement’s class action waiver, but that case did not involve mass arbitration issues.

We will keep you apprised of any further developments concerning arbitration in this case, including any appeal by Ticketmaster, as well as the pending Ninth Circuit appeal in Verizon Wireless.  For more information on mass arbitrations, please listen to our recent podcast episodes which address numerous aspects of this important topic (here, here, and here.)