Adding to its woes, investors claim losses because Live Nation did not disclose anticompetitive conduct.
Live Nation and its subsidiary, Ticketmaster (“Live Nation”) have successfully used mandatory arbitration clauses to shield them against consumer class actions, but a change in their purchasing terms has brought an end to that winning streak. A federal judge found a newly inserted mandatory mass arbitration clause unfair to ticket-buying consumers and denied Live Nation’s motion to compel arbitration of an antitrust action.
In the same federal court, the Central District of California, Live Nation investors sued it for hiding anticompetitive practices, saying each revelation of such conduct immediately damaged stock prices.
News of these developments join recent reports that the Department of Justice is on the verge of suing Live Nation and Ticketmaster for abusing their power in the live music and ticketing markets. The DOJ reportedly will seek to split up the two, which merged in 2010. The investors included the precipitous drop in stock prices following this news in their list of stock-damaging revelations. Live Nation’s conduct has been criticized for years now by consumers, regulators, legislators, and others. They were operating under a 10-year consent decree, which was extended due to evidence of violations.
Ticket-Buyers Avoid Arbitration
In the ticket-buyer case, Skot Heckman v. Live Nation Entertainment (No. CV 22-0047-GW-GJSx, C.D. Calif.) plaintiffs objected to being forced into starting the adjudication of their antitrust claims via mass arbitration bellwether trials. In his August 10 ruling, U.S. District Judge George H. Wu discussed many ways the specific clause was unfair to consumers, noting how it differed from clauses enforced by courts in similar cases. In Oberstein v. Live Nation, for example, the Ninth Circuit affirmed rulings sending a case brought by Taylor Swift fans to arbitration, writing that Ticketmaster’s terms of use were clear. But the arbitration clause in Oberstein was different from that in Heckman, language Judge Wu found too confusing and incomplete for consumers. Oberstein v. Live Nation Ent., Inc., No. 2:20-cv-03888-GW-(GJSx), 2021 WL 4772885 (C.D. Cal. Sept. 20, 2021), aff’d, 60 F.4th 505 (9th Cir. 2023).
Live Nation changed the Ticketmaster terms of use while Oberstein was pending. They did so when they switched from the JAMS arbitration company to New Era ADR – which offers standardized mass arbitrations. With the change in arbitration services came a change in the terms of use.
After examining the New Era clause, Judge Wu said the language delegating claims to an arbitrator in mass arbitration posed a “serious risk of being fundamentally unfair to claimants,” showing elements of “substantive unconscionability.”
Live Nation’s method of making the switch was a concern, too. The judge said it displayed “an extreme amount of procedural unconscionability far above and beyond a run-of-the-mill contract-of-adhesion case.” He commented that the terms were changed: “(1) to bring about a significant change in the parties’ agreement (from individual, bilateral arbitration to mass arbitration); (2) unilaterally; (3) in the midst of ongoing litigation; (4) to be applied retroactively to already accrued claims; (5) without giving any notice to existing customers about this major change and (6) while burying the true nature of this change in New Era’s difficult-to-parse Rules.”
Unfair Surprise, Untenable Expectations
Making the change without notice was an “unfair surprise” to the customers. “[B]ecause it would seem trivially easy to provide customers with such notice, Defendants’ failure to do so suggests a degree of intentionality and/or oppression,” wrote Judge Wu. He added, though, that even if ticket purchasers were to review the terms “it is doubtful that they would understand that they were agreeing to resolve their claims in a novel mass arbitration procedure.” The language doesn’t even mention mass arbitration. Expecting ticket purchasers to navigate the complex multi-step process and conduct analysis to avoid mass arbitration was “untenable,” he determined.
Due Process and Precedent
Plaintiffs said New Era’s mass arbitration procedures operate like Federal Rule of Civil Procedure 23(b)(3) regarding representative class actions, but without due process. The procedure requires a neutral to apply precedent from the bellwether proceedings to all cases in mass arbitration, they say, binding claimants to rulings regardless of when their case was filed. Live Nation countered that absentee claimants would not be bound by earlier arbitration proceedings as they would be in a class action. Live Nation said New Era’s mass arbitration was more like an MDL, in which parties can depart from bellwether rulings. The term “precedent” means applying a ruling is discretionary, the company said.
While finding the rules do not necessarily require a neutral to apply precedent across the board without discretion, Judge Wu said use of “precedent” in mass arbitrations “raises a host of issues.” Even if a neutral can exercise discretion, the rules do not provide any guidance, he wrote, but they do say a neutral has “sole discretion” to batch cases by category for mass arbitration. This also concerned Judge Wu. “This unchecked power on the part of the neutral, combined with the ambiguity contained in the Rules, is uniquely problematic when considering that Precedent could be applied to thousands of claims at once,” Judge Wu wrote. The defendants cited a case finding mass arbitration protocol fair. Judge Wu pointed out, though, that claimants in that matter could opt out – the ticket purchasers cannot.
Coupling his finding that the mass arbitration protocol may be fundamentally unfair to the plaintiffs with his criticism of a lack of discovery rights, the arbitrator-selection provisions, and the limited rights of appeal afforded by the protocol, Judge Wu denied Live Nation’s motion to compel arbitration.
“Materially False and Misleading Statements”
On August 4, in the same court in Los Angeles, investors filed a proposed class action citing numerous instances in which Live Nation failed to disclose allegedly anti-competitive business practices, conduct that caused investors significant losses. In addition to Live Nation and Ticketmaster, the investors named Live Nation’s CEO and CFO as defendants. Donley, et al. v. Live Nation, et al., No. 2:23-cv-06343-RGK-AS, C.D. Calif.
The suit was filed under the Securities Exchange Act on behalf of anyone who purchased or acquired Live Nation securities between Feb. 23, 2022, and July 28, 2023. Throughout that period, Live Nation made “materially false and/or misleading statements” and failed to disclose important adverse information, the complaint reads. Live Nation failed to disclose that it engaged in anticompetitive conduct, including charging supra-competitive fees and demanding talent commit to extended contracts. The investors say the defendants also retaliated against venues that didn’t use Ticketmaster.
During this time Live Nation could have been investigated and penalized by regulators for such conduct (which reports say may happen this year), damaging their reputation (and stock value) in the process. Live Nation’s “positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis,” the suit says. “As a result of Defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the Company’s securities, Plaintiff and other Class members have suffered significant losses and damages.”
Further, the complaint says the statutory safe harbor that applies to companies’ forward-looking statements to the SEC and investors does not protect these defendants. The false statements were not characterized as forward-looking and were not delivered with cautionary language, plaintiffs say. Alternatively, if safe harbor is applied, defendants are liable for them because all of the statements were written by people who knew they were false or misleading, or they weren’t run by an executive who would have known they were false, the investors maintain. The plaintiffs seek compensatory damages, costs, and a jury trial.