Judges aren't sold on COVID-19 refund cases, bumping most to arbitration
A year after the COVID-19 pandemic shut down everything, federal judges overwhelmingly have sent the cases to arbitration, including those against Major League Baseball, Ticketmaster and LA Fitness. The rulings come as lawmakers in both houses of Congress have introduced legislation that would ban forced arbitration, which is prevalent in consumer cases.
When the COVID-19 pandemic first shut everything down, consumers who purchased tickets for sporting events, concerts and trips, or had annual gym memberships, immediately filed class actions over unpaid refunds.
Nearly a year later, judges overwhelmingly have sent the cases to arbitration, according to a review of decisions in federal cases, including those against Major League Baseball, Ticketmaster and LA Fitness. Arbitration motions are pending in several other lawsuits by companies such as StubHub and Airbnb, citing the Federal Arbitration Act.
The rulings come as lawmakers in both houses of Congress, on Feb. 11 and March 1, introduced the FAIR Act, which stands for “Forced Arbitration Injustice Repeal.” The legislation would ban forced arbitration, which are agreements signed prior to a dispute. They are prevalent in consumer cases, such as those brought over purchases of event tickets and gym memberships.
“By and large, the case law is that if an arbitration agreement exists, that the case or claim is sent to arbitration,” said Sarah Rooney, senior director of federal affairs at the American Association for Justice, which has long supported a ban on forced arbitration. “It very much speaks to why we think the legislation is necessary.”
The consumer cases differ from other COVID-19 refund cases in which arbitration agreements have not come up, such as those brought against airlines, which involved the Airline Deregulation Act, as well as against universities over tuition refunds for the spring 2020 semester.
“There is a prohibition of forced arbitration in passenger airline tickets, and there’s regulatory requirements now that colleges cannot use forced arbitration against students,” Rooney said. “However, in these consumer goods and services cases, forced arbitration clauses are much more widespread.”
Online Ticket Resellers
“That’s what you expect from an arbitration agreement in a consumer contract, or any other contract: Did the consumer have reasonable notice of these terms?” said Stephen Ware, a professor at the University of Kansas School of Law. “They held yes, the consumer did assent.”
Many involved sign-in wrap agreements where, instead of a consumer pushing “I agree,” like a clip-wrap agreement, the website asks whether a consumer agrees to the terms of service, Ware said.
In California, a series of rulings involving online ticket resellers has carved out some case law involving arbitration agreements in COVID-19 refund lawsuits.
On Dec. 11, U.S. District Judge Edward Chen of the Northern District of California, citing the same Ninth Circuit decision, sent a separate class action against Ticketmaster to arbitration. In that case, the plaintiff had purchased tickets for two Rage Against the Machine concerts that were canceled due to COVID-19.
Tim O’Mara, a San Francisco partner at Latham & Watkins, who represented Ticketmaster in both cases, did not respond to a request for comment.
As to StubHub, Fischer, in a separate Sept. 14 ruling, sent the claims to arbitration. StubHub had changed its policy from full refunds to 120% site credit once an event was canceled, but Fischer found “language and structure similar” to that in two prior Ninth Circuit decisions, including the one involving Ticketmaster.
On Feb. 12, StubHub cited Fischer’s decision to support its motion to compel arbitration of a consolidated class action in the multidistrict litigation before U.S. District Judge Haywood Gilliam of the Northern District of California.
“The very same user agreement and arbitration provision at issue in this action has been enforced and upheld in an almost identical scenario in the past few months,” wrote StubHub attorney Bill Donovan, co-chair for the class action group at McDermott Will & Emery in Los Angeles.
In her StubHub ruling, Fischer also disagreed with plaintiffs who cited the California Supreme Court’s 2017 ruling in McGill v. Citibank N.A., which prohibited arbitration provisions that waived one’s right to seek injunctive relief on behalf of the public.
“This is a dispute between the StubHub defendants and a limited group of people—those who purchased tickets for the 2020 MLB regular season from StubHub or LMT,” she wrote, referring to StubHub subsidiary Last Minute Transactions. The purchases also were limited in time. “There is no reason, then, for plaintiffs’ fashioning of purported public injunctive relief other than to escape arbitration.”
Plaintiffs in the StubHub multidistrict litigation, represented by Tina Wolfson, of Ahdoot & Wolfson, and Tiasha Palikovic, of Wittels McInturff Palikovic, are due to respond March 19. Donovan, anticipating plaintiffs to cite McGill, referenced Fischer’s decision in his arbitration motion.
“Because there’s now a loophole in California to enforcement of arbitration clauses, plaintiffs are understandably trying to have their cases fit into the loophole,” Ware said. “Courts say, ‘you’re asking for refunds, you’re not asking for a change in future practices that would benefit the public.’”
Donovan did not respond to a request for comment, and Wolfson declined to comment.
In one of the few rulings for the plaintiff, U.S. District Judge William Orrick of the Northern District of California, refused to grant Eventbrite’s arbitration motion Oct. 19. He found that Eventbrite’s evidence did not match the time frames during which the plaintiffs purchased tickets on its site.
“That seems like kind of an odd factual scenario where the judge says Eventbrite appears to have submitted misleading evidence,” Ware said. “That may be an issue of Eventbrite and the lawyering in these cases.”
Gym Memberships, Travel Sites
Consumers suing over prorated refunds of annual memberships to gyms and fitness centers also have faced arbitration challenges.
In a Southern District of Florida case, LA Fitness successfully got a class action brought by a member of a Fort Lauderdale gym sent to arbitration. In an Aug. 25 decision, U.S. District Judge William Dimitrouleas of the Southern District of Florida had adopted a special master’s finding that looked to the personal training agreement in granting arbitration.
Then, on Dec. 30, U.S. District Judge Katherine Failla of the Southern District of New York, granted an arbitration motion brought by Blink Fitness, concluding that the provision contained a class action waiver.
In the travel sector, U.S. District Judge Michael Baylson of the Eastern District of Pennsylvania, granted arbitration Oct. 20 to Grand Circle in a class action brought by a plaintiff who paid $9,000 in tickets for a cruise to Africa.
Airbnb, on Jan. 21, moved to arbitrate a class action brought by a host alleging the travel site denied refunds after guests canceled their reservations. Airbnb, represented by Munger, Tolles & Olson co-managing partner Hailyn Chen, argued that the plaintiff had withdrawn his claims from arbitration. The plaintiff, who is seeking $1,000 in damages, insisted that Airbnb was in default because it had not made the requisite payments to an arbitrator in accordance with a 2019 law in California, according to a Feb. 18 response by the plaintiff.
“Whether a party has defaulted in arbitration for purposes of the FAA is a question of fact for the court,” wrote plaintiff’s attorney Michael Schrag, of Gibbs Law Group in Oakland, California.