The collection world is no stranger to arbitration – it's a common dispute resolution mechanism now, and it's a thorn in the side of creditors.
Creditors file suit, then find that the consumer has filed a motion to compel arbitration based on some fine print in an agreement or contract. More recently, creditors who have attempted to enforce their arbitration clauses have found Courts reluctant to agree. The recent case of Heckman v. Live Nation Entm't, Inc., 2023 U.S . Dist. LEXIS 145793 provides valuable insights into arbitration trends, illustrating where Live Nation went wrong, and what stakeholders should watch out for when dealing with arbitration language in their contracts.
Live Nation's Mistakes
Insufficient Notification of Significant Changes
First, Live Nation updated its TOU without providing sufficient notice to existing customers that the terms were significantly changing.
The Court found that the lack of notice undermined the transparency and fairness of the arbitration process. The defendants argued that the TOU explicitly states that they reserve the right to change the TOU at any time but the Court stated that “[t]he implicit protections of the covenant of good faith and fair dealing will not save a unilateral contract modification in such situations.”
The new arbitration provider was not found to be explicitly biased, but their procedures were found to be unconscionable. This includes the arbitration processes’ lack of opportunity for discovery, limited ability to appeal, limitations on choice of arbitrator, and use of mass arbitration. In mass arbitration, the provider will group individual cases together and will litigate a select few cases from that group. The outcome of those cases will apply to the entire group and, importantly, there was no ability to opt out of mass arbitration. The Court stated that “the mass arbitration protocol creates a process that poses a serious risk of being fundamentally unfair to claimants, and therefore evinces elements of substantive unconscionability.”
Lessons For Creditors
Based on Heckman v. Live Nation, it is essential for creditors to pay close attention to the arbitration language in their contracts. Here are some key things to consider:
1 - Notice and Transparency
Ensure that consumers have proper notice and understanding of the arbitration provisions in the contract. Ambiguous language, hidden clauses, unilateral changes, or lack of sufficient notice may be deemed unconscionable.
2 - Due Diligence in Selecting Arbitration Provider
When selecting an arbitration provider, be sure to research factors such as the provider’s reputation, neutrality, and experience in handling consumer disputes as well as the specific procedures the arbitration provider employs. Evidence of bias or unfairness can undermine the enforceability of the arbitration agreement.
3 - Impartiality of Arbitration
It is crucial to demonstrate that the arbitration process is fair, unbiased, and consumer friendly. Courts are already likely to see the creditor as the party with more power in the contractual relationship so provisions that disadvantage consumers should be carefully evaluated and potentially revised.
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