Within the vibrant and expansive world of live entertainment and ticketing, where the stage is set, the lights are lowered, and anticipation fills the air, a significant legal question has arisen that heralds a change to the future of consumer arbitration. This legal issue highlights the limitations of fairness and procedural protections in arbitration, as ever-evolving technology and innovation are reshaping our world. In this article, we seek to illustrate the various implications of this legal quandary, by considering its impact and consequences on the evolution of arbitration in the future.
Questioning Ticketmaster’s New Arbitration Process
New Era ADR – A Technology Driven ADR Provider
To speak briefly about New Era ADR, it is a technology startup that launched its alternative dispute resolution services in April 2021. It contacted Ticketmaster’s legal counsel in May 2021, despite having not conducted any arbitration proceedings so far and being in the process of finalizing its mass arbitration procedures. While the exact nature of the initial discussion between New Era ADR and the Ticketmaster’s legal counsel is disputed by the parties, in June 2021 New Era ADR executed a subscription agreement with Ticketmaster, securing its first subscriber, while simultaneously finalizing its arbitration rules. New Era ADR’s arbitration service appears to be an attractive alternative to traditional providers like AAA or JAMS as it offers adaptable pricing structures and procedures tailored to mass individual consumer arbitration. This arbitration process has been described in greater detail in the Appendix at the end of the article.
The Federal Arbitration Act’s Legal Standards for Arbitrations
The Federal Arbitration Act (FAA) lays down the legal standards governing domestic arbitrations conducted in the U.S. and it embodies a strong federal policy in favor of recognizing the validity of arbitration agreements. The FAA empowers either party to a valid arbitration agreement, to petition the relevant court for an order compelling arbitration in accordance with that agreement.3 In other words, the FAA imposes a duty on District Courts to direct parties to proceed to arbitration when a valid arbitration agreement exists, encompassing the dispute at hand.4 While assessing the validity of an arbitration agreement, the Federal Courts apply State-law principles governing contract formation.5 The California Supreme Court has emphasized the importance of considering the absence of meaningful choice and the reasonableness of contract terms in the examination of the validity of arbitration agreements.6
The Unconventional Landscape of New Era ADR
The plaintiffs argued that New Era ADR might be biased in favor of Ticketmaster and its counsel, citing their early interactions and New Era ADR’s initial reliance on Live Nation as its primary revenue source. The plaintiffs contended that New Era ADR was purposefully designed with a pro-business ethos, with the aim of expediting the resolution of legal disputes. They also claimed that New Era ADR actively seeks business from Ticketmaster’s counsel, making it essential for the former to appease the latter. Ticketmaster countered these allegations as being speculative, presenting evidence that their business now accounts for only a small part of New Era ADR’s revenue. The Court found that the evidence of bias was inconclusive. The emails and documents that were presented to the Court suggested Ticketmaster’s counsel’s support for New Era ADR, but they did not definitively indicate any undue influence. Despite Ticketmaster’s significant initial contributions, their current share of New Era ADR’s revenue is limited.
Additionally, the plaintiffs raised concerns about New Era ADR’s mass arbitration procedure, arguing that it operates similarly to class action lawsuits, but fails to meet the due process requirements of such actions. Specifically, they assert that it lacks provisions for non-represented parties to have their voices heard, the opportunity to opt-out, and adequate representation by the party, as required by class action standards. Ticketmaster, however, contended that the procedure resembles multidistrict litigation (“MDL”), where a common issue is determined in a bellwether case and then applied to others unless a party presents a case-specific reason for the deviation. The Court analyzed New Era ADR’s mass arbitration rules and found that they raise concerns about fairness and raise the potential for fundamental unfairness to claimants, particularly regarding the application of precedent by an arbitrator and the absence of key procedural safeguards typically present in class actions and MDLs. These issues suggest elements of substantive unconscionability in New Era ADR’s mass arbitration process.
The Court also raised other procedural concerns, including discovery limitations, page restrictions, and record constraints. In accordance with New Era ADR’s Rules, complaints are limited to 10 pages, evidence presentations are capped at a total of 10 references, and arguments are confined to approximately 5 pages or 15,000 characters. While the Court’s preliminary assessment found that these limitations alone do not reach the threshold of unconscionability under the FAA, when coupled with the other issues, they create obstacles for claimants and exacerbate the overall imbalance in fairness. To transition to a standard arbitration” with a formal discovery process, the claimants are required to pay a fee and obtain the consent of the respondent. These limitations on discovery and other procedural restrictions were brought to the forefront as concerning issues by the Court.
Reflections on the Ticketmaster Case
This case emphasizes the need for arbitration providers to continually evaluate and update their procedures to meet evolving standards of fairness, transparency, efficacy, and process. This throws light on the importance of ensuring the arbitration provider’s independence and neutrality, as any questions of bias can erode trust in the arbitration process. Furthermore, the case highlights the importance of rethinking the arbitration process overall, particularly in mass arbitration cases. Incorporating additional procedural safeguards can enhance the credibility and trustworthiness of an arbitration services provider. Lastly, the issue raised in the case concerning discovery limitation and procedural constraints should encourage all arbitration providers to ensure that their procedures strike the right balance between providing cost-effective proceedings and guaranteeing that the parties have an opportunity to present their case in a fair and adequate manner.
Since cases like this one are often appealed to higher courts, leading to additional rounds of scrutiny by the judiciary, arbitration providers should anticipate the ongoing dialogue about reforms to the arbitration procedures. Regardless of the eventual outcome, this case serves as a reminder that the arbitration industry must be prepared to adapt and evolve, ensuring that the services provided remain aligned with the highest standards of fairness, equity, and effective procedural guarantees to the disputing parties.
Appendix: Ticketmaster’s Dispute Resolution Process through New Era ADR
This dispute resolution process is structured through a series of mandatory steps that a User must follow. The first step requires the User to resolve their dispute through an informal process prior to any arbitration proceedings or going to a Small Claims Court. This involves an online negotiation between the User and Ticketmaster. Ticketmaster has ensured the secrecy of this process by requiring that, “All offers, promises, conduct, and statements…” made during this process are confidential and not admissible in any subsequent proceeding, which naturally includes the mandatory arbitration proceeding that follows.
The second step involves mandatory arbitration and commences if the User and Ticketmaster are not able to come to a negotiated settlement through step one. Ticketmaster has partnered with a technology startup called New Era ADR, an online arbitration and mediation services provider, to run this mandatory arbitration process.
The arbitration process can be commenced by either Ticketmaster or the User by submitting a “Demand for Arbitration” and is governed by the Virtual Expedited Arbitration Rules and Procedures (“VEA Rules”) and General Rules and Procedures which can be found here. Ticketmaster’s Terms also specify that the arbitrator is to be selected as per New Era ADR’s standard rank and strike process. Furthermore, this arbitration proceeding and all the records related to it are to be strictly confidential.
As a backup provision, in case New Era ADR is unable to administer this arbitration, Ticketmaster has delegated the arbitration to another technology start up called “Fairclaims”, as per its FastTrack Rules & Procedures. For good measure, if Fairclaims is unable to administer the arbitration as well, then the User and Ticketmaster may mutually select an alternative provider.
Regarding the fees and costs of this arbitration process through New ERA ADR, an initiating User is required to pay a filing fee of $300 but is not responsible for paying any other fees associated with the arbitration, as these are covered by Ticketmaster, in line with generally accepted consumer arbitration standards/practices. In case a User is unable to pay the filing fee as per a determination made by New Era ADR, Ticketmaster becomes responsible for the covering filing fee on the former’s behalf. The User and Ticketmaster however, must pay their own attorney fees
The Arbitrator appointed to adjudicate this process has been empowered with the exclusive authority to resolve any disputes between the User and Ticketmaster, and the jurisdiction of any relevant court is excluded, except to determine a question of which version of the Terms were agreed to.
With respect to any appellate proceedings, Either party’s Right of Appeal is limited to the options available under the FAA. The Terms also provide a limited right to appeal the arbitrator’s decision to a Panel of JAMS arbitrators. This appeal must be conducted as per the rules of the JAMS Optional Arbitration Appeal Procedure which are available here. The JAMS appeal panel will conduct a de novo review of the arbitrator’s decision and there is no further right of appeal from the panel’s finding, barring anything provided in the FAA.
A review of this mandatory arbitration-centric dispute resolution process makes it evident that it has been designed to limit options available to a User to pursue claims against Ticketmaster. The User forgoes the right to pursue individual or class action claims before the Courts and is subject to an arbitration process developed by the third-party technology start-up, New Era ADR. It should not come as a surprise that this process was challenged before the Court and found to be inadequate in terms of procedural fairness, equity and in ensuring an adequate opportunity for a disputing party to present its case.
This article first appeared on the Financial Institutions Law Alert, here. Congressional rumblings about outlawing mandatory arbitration clauses are relatively common, but they have not been successful. Ever since a...By Joseph Calabrese
In this episode of the Arbitration Conversation Amy interviews Arbitrator Katherine Haennicke from the American Arbitration Association about pro se parties in arbitration. https://youtu.be/vYmj9pTWh1IBy Katherine Haennicke, Amy Schmitz
In this episode of the Arbitration Conversation Amy interviews Prof. David Horton of the University of California - Davis School of Law about infinite arbitration clauses. https://youtu.be/SI2f3ubCytcBy David Horton, Amy Schmitz