In Heckman v. Live Nation1, the United States Court of Appeals for the Ninth Circuit addressed the enforceability of arbitration provisions in Ticketmaster's Terms of Use, particularly in the context of a mandatory arbitration system that incorporated mass arbitration protocols. The Court's decision centered on whether the delegation clause and the broader arbitration agreement were unconscionable under California law, ultimately concluding that both were unenforceable due to extreme procedural and substantive deficiencies.
Given the prominence of arbitration as a dispute resolution mechanism, and given the presence of some novel, creative arbitration features in this case, Heckman will likely be of interest to Canadian readers. While the decision is from an American court, it nevertheless touches on fundamental principles of justice—such as fairness, transparency, and the limits of contractual freedom—that are equally relevant under Canadian arbitration law.
Background
In January 2022, a putative class action was filed against Live Nation Entertainment and Ticketmaster LLC, challenging the arbitration provisions in Ticketmaster's Terms of Use. Live Nation, the largest concert promoter in the United States, and Ticketmaster, the largest ticket seller, merged in 2010, consolidating their control over the live entertainment ticketing market.
The Plaintiffs, who had purchased tickets through Ticketmaster's website, were subject to the platform's Terms which mandated arbitration under New Era ADR, an entity founded in 2020 to handle mass arbitration claims. New Era ADR introduced its consumer arbitration rules in June 2021, offering two options: (1) Standard Arbitration for complex disputes, and (2) Expedited/Mass Arbitration for cases involving shared issues. Under the mass arbitration model, claims were grouped into "batches", and binding precedents were set by a few "bellwether" cases, which applied to all other claims in the batch.2
Bellwether cases are representative cases selected from a larger group of similar claims to serve as a test or precedent for resolving shared issues within that group. In Ticketmaster's arbitration system, bellwether cases were central to New Era's mass arbitration model. When multiple claims with common legal or factual issues were grouped into a "batch," three bellwether cases were chosen: one by the plaintiffs, one by the defendants, and one by the arbitrator. These cases were resolved first, and their decisions created binding precedent for all other claims in the batch.3
Ticketmaster's arbitration agreement included the following delegation clause:
Delegation; Interpretation. The arbitrator, and not any federal, state or local court or agency, shall have exclusive authority to the extent permitted by law to resolve all disputes arising out of or relating to the interpretation, applicability, enforceability, or formation of this Agreement, including but not limited to, any claim that all or any part of this Agreement is void or voidable.4
The District Court was tasked with determining whether the delegation clause was unconscionable. The District Court determined that the delegation clause in Ticketmaster's arbitration agreement was both procedurally and substantively unconscionable and therefore unenforceable under California law, noting procedural unconscionability as being "to an extreme degree."5 Further, the Court identified four key issues rendering the clause substantively unconscionable: "(1) the application of precedent from the bellwether decisions to the claimants who had no opportunity to participate in, or even learn the content of, those decisions; (2) the lack of discovery and other procedural limitations; (3) the provisions governing the selection of arbitrators; and (4) the limited right of appeal."6
Additionally, the District Court also found the entire arbitration agreement to be unconscionable, concluding that unconscionability "permeate[d]" the agreement.7 The defendants appealed to the Ninth Circuit.8
The Ninth Circuit's Decision
To demonstrate unconscionability of the Defendants' delegation clause, the Plaintiffs were required to show that the clause is both procedurally and substantively unconscionable. In this case, the Ninth Circuit concurred with the findings of the District Court judge, and dismissed the defendant's appeal.9
Unconscionability of the Delegation Clause
Procedural unconscionability, as defined under California law, focuses on oppression and surprise. Oppression arises when there is an imbalance of bargaining power that leaves no meaningful choice for one party, while surprise "is a function of the disappointed reasonable expectations of the weaker party".10 The Ninth Circuit found that both elements were present in this case.
The delegation clause was part of a standardized, non-negotiable contract, often referred to as a contract of adhesion. Ticketmaster's dominant market position as the exclusive ticket seller for most large venues left consumers with no real alternative; they could either accept the Terms or forgo the opportunity to purchase tickets altogether. The Ninth Circuit found that this imbalance of power alone established procedural unconscionability.11
Further, Ticketmaster's Terms allowed for unilateral modifications without prior notice, applying these changes retroactively to past disputes. This retroactive application amplified the oppression faced by consumers, as they could be bound by newly-introduced arbitration rules even for prior transactions.12
Surprise was also pervasive. The Terms were presented in a manner that bound even casual visitors merely browsing Ticketmaster's website, an approach California courts have consistently rejected for lack of adequate notice. Additionally, the Terms misleadingly assured consumers that disputes would be resolved through "individual arbitration". In reality, New Era's arbitration rules allowed (as noted above) for batching similar claims into mass arbitration, functioning more like class arbitration but without the procedural protections afforded in class actions. The process for removal from a batch was onerous, requiring a plaintiff to prove the absence of any common issues with bellwether cases, to which they lacked access due to confidentiality provisions.13
Further, the convoluted nature of New Era's arbitration rules added another layer of surprise, as the Court noted that the rules were complex to the point that even Ticketmaster's experienced appellate counsel struggled to explain them during oral argument.14 This lack of clarity made it nearly impossible for a reasonable consumer to understand their rights or the arbitration process. Together, these elements made the delegation clause procedurally unconscionable to an extreme degree.15
Moreover, the Ninth Circuit affirmed the District Court's ruling that the delegation clause in Ticketmaster's arbitration agreement was substantively unconscionable under California law. Substantive unconscionability pertains to the fairness of an agreement's actual terms and to assessments of whether they are overly harsh or one-sided.16 The District Court and the Ninth Circuit emphasized multiple elements which rendered the clause fundamentally unfair to claimants.
First, the Ninth Circuit addressed the mass arbitration protocol, which relied on bellwether cases to establish precedent for groups of claims. While this approach superficially resembled class action or multi-district litigation procedures, it lacked critical safeguards. Non-bellwether claimants were bound by decisions made in the bellwether cases, despite having no opportunity to participate in or even access those proceedings. The Court noted that this process denied claimants' basic rights to notice, representation, and an opportunity to be heard.17
Second, the Court highlighted the severe procedural limitations imposed by New Era's arbitration rules, which created significant barriers to claimants' ability to present their cases effectively. The rules eliminated discovery, capped evidence submissions, and imposed strict page and character limits. The Court compared these restrictions to the extensive briefing and evidentiary submissions required for arbitrability issues in the District Court and on appeal, concluding that such limitations effectively frustrated claimants' statutory rights and rendered the process fundamentally inadequate.18
Third, the Court identified the asymmetrical right of appeal as a further example of substantive unconscionability. Under the arbitration agreement, parties could appeal awards of injunctive relief to JAMS (a more established arbitration provider), but there was no corresponding right to appeal if injunctive relief was denied. This one-sided provision overwhelmingly favoured defendants, as claimants were more likely to seek injunctive relief. The Court characterized this arrangement as a systematic attempt to stack the arbitration process in favour of Ticketmaster and Live Nation, allowing them to appeal unfavourable outcomes while denying claimants equivalent protections.19
Finally, the Ninth Circuit agreed with the District Court which noted that the arbitrator selection Rules were inconsistent with California law, as they included the ability of New Era to override claimants' decisions to disqualify an arbitrator, limit the number of disqualifications per side (rather than per party), and assign a single arbitrator to preside over multiple cases simultaneously.20
Taken together, these elements led the Ninth Circuit to conclude that the delegation clause was both procedurally and substantively unconscionable.
Unconscionability of the Arbitration Agreement
With respect to the unconscionability of the entirety of the arbitration agreement, the Court determined that, since the delegation clause was deemed unconscionable and unenforceable, it was necessary to assess the enforceability of the arbitration agreement as a whole. Upon review, the Court concluded that the agreement was both procedurally and substantively unconscionable under California law. The provisions of the arbitration agreement and New Era's rules that invalidated the delegation clause similarly rendered the entire agreement unenforceable. Plaintiffs were required to accept terms that allowed unilateral and retroactive changes by the defendants, forcing them to arbitrate under an opaque system designed to favour the defendants. These rules created an environment that the Court described as a "systematic effort to impose arbitration [...] as an inferior forum".21
While the arbitration agreement contained severability provisions, the Court declined to sever the offending clauses. California law grants courts discretion to sever unconscionable clauses or refuse enforcement of the entire agreement based on the degree of unconscionability. Here, the Court found that the District Court did not abuse its discretion in refusing to sever the delegation clause from the entirety of the arbitration agreement.22
Ultimately, the Ninth Circuit determined that both the delegation clause and the arbitration agreement as a whole were unconscionable and therefore unenforceable.23
The concurring judgment highlighted significant concerns about bias and conflict of interest within the arbitration framework established by Ticketmaster and New Era ADR, emphasizing a clear conflict of interest. The opinion pointed out that these arbitrators faced immense pressure to uphold the arbitration system that employed them, as a ruling against the framework could jeopardize New Era's business model and their own career prospects. The judgment further noted the close coordination between New Era and Live Nation in designing the arbitration rules, which blurred the lines of impartiality. Ultimately, the concurrence underscored the inherent unfairness of requiring arbitrators to resolve disputes that directly impacted their employer's viability.24
As a result, the appeal was dismissed.
Commentary
Notwithstanding that Heckman is an American case, it will nevertheless be of interest to Canadian readers given the prevalence of arbitration and the unusual arbitration framework at issue. Such a system would be highly unlikely in the construction context (but perhaps possible in the context of grouping subcontractor claims into a class proceeding, much like how lien actions are treated); nevertheless, it may be particularly relevant for businesses that use standardized contracts of adhesion, as they engage many issues raised in Heckman – including unilateral modifications, mass arbitration protocols, and procedural restrictions.
A central feature in this case was the enforceability of standardized arbitration agreements where the drafter of the agreement holds overwhelming market dominance. In Heckman, this monopoly-like power stripped consumers of meaningful choice, as the "take-it-or-leave-it" nature of Ticketmaster's Terms effectively negated any autonomy. This power imbalance was aggravated by fundamental procedural and substantive imbalances, including Ticketmaster's ability to unilaterally and retroactively modify terms without notice, along with overly restrictive and convoluted procedural requirements (including a total lack of discovery, strict limits on submissions, and asymmetrical appeal rights). In the circumstances, and although such features might have better withstood scrutiny in a non-consumer context, it therefore appears appropriate that the Court would be concerned by the manner in which arbitration was structured.
That being said, the novel features of Live Nation and Ticketmaster's arbitration system do raise interesting food for thought, particularly as it pertains to the idea of precedent within an arbitral framework, and the extent to which parties could consent to asymmetrical procedural rights.
On the first point, and as we have written about elsewhere, cases in the context of long-term contractual agreements have considered (but have not fully resolved) the question of whether an issue raised in one arbitration is binding in subsequent arbitrations between the same parties as a result of issue estoppel. This, however, is not the same as binding precedent, insofar as the rationale for precedent (predictability, economy and efficiency, fairness, etc.) is slightly different from the rationale for issue estoppel (finality, consistency, abuse of process).
In that regard, it is open for debate regarding the extent to which the rationale for precedent is applicable in the context of an arbitration system open to multiple claimants (who, as the Ninth Circuit observed, had no awareness of and no opportunity to participant in the prior decisions). This is particularly true in circumstances where, unusually, each party and the arbitrator were permitted to select which cases would serve as precedent, including on plaintiffs later added to the batch (who would have no say over the precedent selected prior to their introduction); in that regard, it is debatable whether that constitutes "precedent" at all, strictly understood.
On the second point, it again seems intuitively correct that it would be unfair for consumers to forgo all rights of discovery, forgo the ability to disqualify an arbitrator, and grant their counterparties much broader procedural rights. However, in circumstances where the parties are not at a power imbalance, then it would seem that at least some of these compromises would be unobjectionable. On the one hand, it is unlikely that an agreement to confer unequal procedural rights would be valid, insofar as it would contravene non-waivable statutory provisions which require that the parties be treated equally.25 On the other hand, to the extent both parties were to forgo a procedural right – for example, by both parties forgoing discovery – this would presumably be valid.
The more interesting example, perhaps, is where the parties agree to delegate procedural rights to a third party such as the arbitrator (or perhaps an administering institution or appointing authority), such as the claimants in Heckman agreed to grant New Era the ability to override arbitrator disqualifications by the claimants. Again, this would presumably be valid to the extent that it does not contravene any non-waivable statutory provisions (or other agreed-to rules) and to the extent that the third party agrees to assume such a right.
Ultimately, Heckman underscores the risks of implementing arbitration systems with novel features and potentially asymmetrical procedural rights. Unsurprisingly, courts will scrutinize such systems for compliance with fundamental principles of equality and fairness. Consequently, parties seeking to streamline dispute resolution would be well advised to maintain adequate safeguards, such as meaningful notice, the opportunity to participate, and fair representation for all parties.
Footnotes
1. Heckman v. Live Nation Entertainment, Inc. No. 23-55770 (9th Cir. Oct. 28, 2024)
2. Heckman v. Live Nation Entertainment, Inc. No. 23-55770 (9th Cir. Oct. 28, 2024) at pages 2-13, 21-24.
3. Heckman v. Live Nation Entertainment, Inc. No. 23-55770 (9th Cir. Oct. 28, 2024) at pages 2, 9-13.
4. Heckman v. Live Nation Entertainment, Inc. No. 23-55770 (9th Cir. Oct. 28, 2024) at pages 15-16.
5. Heckman v. Live Nation Entertainment, Inc. No. 23-55770 (9th Cir. Oct. 28, 2024) at page 13.
6. Heckman v. Live Nation Entertainment, Inc. No. 23-55770 (9th Cir. Oct. 28, 2024) at page 13.
7. Heckman v. Live Nation Entertainment, Inc. No. 23-55770 (9th Cir. Oct. 28, 2024) at page 13 and 14.
8. Heckman v. Live Nation Entertainment, Inc. No. 23-55770 (9th Cir. Oct. 28, 2024) at pages 13 and 14.
9. The Ninth Circuit also addressed the issue of pre-emption under the Federal Arbitration Act (the "FAA"). The Court held that the application of California's unconscionability law to Ticketmaster's arbitration agreement was not preempted by the FAA, as it was based on generally applicable contract principles that neither disfavoured arbitration nor interfered with the objectives of the FAA. In a concurring judgment, Judge VanDyke offered an alternate, independent ground, stating that the FAA does not apply to mass arbitration protocols like those employed by New Era, and thus California's prohibition of class action waivers under the Discover Bank case applied.
10. Heckman v. Live Nation Entertainment, Inc. No. 23-55770 (9th Cir. Oct. 28, 2024) at page 17.
11. Heckman v. Live Nation Entertainment, Inc. No. 23-55770 (9th Cir. Oct. 28, 2024) at pages 16-20.
12. Heckman v. Live Nation Entertainment, Inc. No. 23-55770 (9th Cir. Oct. 28, 2024) at pages 16-20.
13. Heckman v. Live Nation Entertainment, Inc. No. 23-55770 (9th Cir. Oct. 28, 2024) at pages 16-20.
14. Heckman v. Live Nation Entertainment, Inc. No. 23-55770 (9th Cir. Oct. 28, 2024) at page 8.
15. Heckman v. Live Nation Entertainment, Inc. No. 23-55770 (9th Cir. Oct. 28, 2024) at page 20.
16. Heckman v. Live Nation Entertainment, Inc. No. 23-55770 (9th Cir. Oct. 28, 2024) at page 20.
17. Heckman v. Live Nation Entertainment, Inc. No. 23-55770 (9th Cir. Oct. 28, 2024) at page 21-23.
18. Heckman v. Live Nation Entertainment, Inc. No. 23-55770 (9th Cir. Oct. 28, 2024) at pages 23-24.
19. Heckman v. Live Nation Entertainment, Inc. No. 23-55770 (9th Cir. Oct. 28, 2024) at pages 24-26.
20. Heckman v. Live Nation Entertainment, Inc. No. 23-55770 (9th Cir. Oct. 28, 2024) at pages 27-28.
21. Heckman v. Live Nation Entertainment, Inc. No. 23-55770 (9th Cir. Oct. 28, 2024) at pages 29-31.
22. Heckman v. Live Nation Entertainment, Inc. No. 23-55770 (9th Cir. Oct. 28, 2024) at page 31.
23. Heckman v. Live Nation Entertainment, Inc. No. 23-55770 (9th Cir. Oct. 28, 2024) at page 34.
24. Heckman v. Live Nation Entertainment, Inc. No. 23-55770 (9th Cir. Oct. 28, 2024) at page 41-44.
25. For example, s. 19 of the Arbitration Act, 1991, SO 1991, c 17 and Article 18 of the Model Law.
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