An Arbitration Clause Not Enforced and Quibbles from Sale of a Bentley. Quarterly Insights Vol. X:

Photo by Haberdoedas Photography

All Is Fair in Contract Law, except when It’s Not.

Modern life in America often leaves the consumer feeling like they are merely being processed by corporate giants. Sometimes it’s resort fees. Or onerous terms. Or a termination process that feels like a Rube Goldberg drawing. For me recently, it was a credit card dispute. The bank in question allowed me to upload the documents related to the dispute on its website. Except, when they deemed the submission incomplete, the second submission had to be made by U.S. mail. The intention wasn’t to serve me, but to dissuade me from continuing.

It was refreshing then for me to review Heckman v. Live Nation Ent., Inc., 120 F.4th 670 (9th Cir. 2024), which was decided in the 4^th quarter of 2024. Previously a lot of corporate America has turned to arbitration to avoid class action disputes with consumers. That often seemed to work until, in some cases, the plaintiff’s bar realized that bringing dozens of small, parallel arbitrations on the same issues had its own way of gumming up the system and running up costs. Foreseeing this issue, Live Nation partnered up with a provider of arbitration service, New Era.^[1] In July of 2021, Live Nation the owner of Ticketmaster, had amended the terms on its ticket sales website to require that any person using its website agree to arbitrate any dispute arising out of a ticket purchase, whenever that purchase took place, and to arbitrate under New Era's Rules applicable to Expedited/Mass Arbitrations. Id. at 677. The Plaintiffs brought an antitrust class action under the Sherman Act, alleging anticompetitive practices in online ticket sales. Naturally, Live Nation sought a motion in the district court to compel arbitration under the terms of service. The district court denied the motion to compel arbitration finding that the clause delegating to the arbitrator the authority to determine the validity of the arbitration agreement—the "delegation clause"—was unconscionable under California law, both procedurally and substantively. Id. at 676. The Ninth Circuit affirmed the district court’s denial of the motion to compel. It is difficult to ascertain the long-term importance of this case. On the one hand, I suspect practitioners hoping to avoid a motion to compel arbitration will find something useful in it for years to come. Chiefly, the Ninth Circuit reviews several provisions in the Live Nation (Ticketmaster) terms of service and explains how each is unfair to consumers. Examples include provisions which claimed to apply new terms of service on past customers who merely visited the Ticketmaster site after the publication of the new terms. Next, Ticketmaster had claimed the ability to change terms without notice. To the extent these one-sided provisions appear in the terms of service on a lot of websites, it's a reminder that pigs get fed and hogs get slaughtered. A notice period – even a short one – before the implementation of new terms may not be strictly necessary, but why not provide it?  On the other hand, the New Era arbitration rules had several rules which deviated from traditional arbitration and to the extent that fact pattern does not appear again, the case may be limited. Under the New Era rules the arbitrator had the power to “batch” cases and this determination of whether the cases were similar was at the sole discretion of New Era. No discovery was permitted, there was an odd classification of “bellweather” cases and the arbitrator it seems had a lot of discretion on whether to apply precedent. In fact, my view is the terms of service had provisions which are often upheld (even though arguably one-sided), but because the arbitration provisions were so unusual it caused further scrutiny on the terms of service.

Corporate Owners and Their Alter Egos: Are the Owner and the Corporation One?

In previous blog articles (here and here) I have written on the subject of judgments being amended to include individual business owners. Avoiding the possibility of personal liability related to a business is one of the essential reasons to form company entities. Therefore, cases where the owner ends up liable are of particular interest to me. After reviewing the appellate law it starts to feel that there’s a bias in the courts towards amending the judgment to include the owner of the business. However, I think that’s a little like assuming massive amounts of violence exists in every corner of a city after watching the evening news. Stacy v. Whittington Motors Sports, Inc., No. 2:23-cv-03700-SSC, 2024 U.S. Dist. LEXIS 238132 (C.D. Cal. Dec. 5, 2024), decided in the fourth quarter of 2024, at least stands for the proposition that the separateness of entities is alive and well.

At issue in the case was the title to a Bentley. The Plaintiff had purchased the Bently from a dealership and the defendant dealership had failed to timely deliver clear title and registration of a 2020 Bentley. At trial, Plaintiff had obtained a judgment against the Defendant dealership, but the jury had absolved the owner of the dealership of any liability.

In the appellate opinion, the appellant had first attempted to obtain a judgment as a matter of law against the owner of the dealership (i.e. the appellant attempted to overturn the jury’s verdict), which the appellate court denied. Next, the appellant attempted to amend the judgment against the dealership to include the owner of the dealership. On the issue of amending the judgment, the court stated that to add a judgment debtor it needed to be demonstrated that the additional judgement debtor was the alter ego of the original judgment debtor. To add a judgment-debtor under this theory, a plaintiff must show by a preponderance of the evidence that: (1) the party to be added satisfies the alter ego criteria, and (2) the added party had control of the litigation and occasion to conduct it with a diligence corresponding to the risk of personal liability involved. Id. at *15.

Since the owner of the dealership had been a party to the litigation, neither party denied that the second prong of the test had been met. Ergo, the discussion was limited to the first issue of whether the owner of the dealership had actually been an alter ego of the dealership. On the alter ego question, the appellant had to show: (1) there is a unity of interest and ownership such that the corporation and individual no longer separately exist, and (2) the corporate form must be disregarded to avoid inequity.

On whether the owner of the dealership had been an alter ego of the dealership, the appellant had, in the opinion of the court and of this author, made only conclusory allegations. Notably, the appellant did provide testimony from a Certified Public Accountant that demonstrated sloppy accounting. But the appellant did not provide evidence of insolvency and there had been no post judgment discovery on the issue of whether the entity was actually undercapitalized. The appellant did cite (and this author has tremendous empathy with appellant on this point) a news article describing an arrest of the owner of the dealership for allegedly similar conduct to issues in this case.

This would be a “fun” case to review in a law school class. Inevitably, the students would focus on the minutiae of the alter ego test. But, at some point the professor would remove their glasses and screech – folks, we are arguing about a case that began over the title to a $263,085 Bentley!

We see that here. In my opinion, the sloppy accounting alleged here may have been enough in some cases for a judge to find alter ego between the owner of the dealership and the dealership. But, three things I think came together that made this the right decision. First, the owner of the dealership had been a named defendant in the case and less than five months prior to the appellate decision had been cleared of liability by the jury. Second, while I have tremendous empathy for the appellant on their conclusory stance that the corporate defendant is insolvent, the failure to do post judgement discovery here, in my opinion, was fatal to their cause. I have read dozens and dozens of cases over the years about amending a judgment against a company entity to include the personal owner of the entity. Very often, in the cases where the judgment debtor successfully obtains the amendment to the judgment, one could imagine a meme of a man crawling across the desert, battered but finally nearing the oasis. In other words, amending the judgment I think is something courts naturally feel more comfortable doing after the judgment debtor has demonstrated their efforts at collecting on the judgment have been unsuccessful. Third, I do think the optics of a Bentley being at the center of the case more easily allowed the court to assert the general rule that alter ego theory is a limited doctrine and the injustice that allows a corporate veil to be pierced is not a general notion of injustice; rather, it is the injustice that results only when corporate separateness is illusory. Id. at *17.

Copyrights and Wide Dissemination, Not Great for the Pro Se Litigant

The third case under review from the 4^th quarter of 2024 is a basic copyright infringement case. I doubt it will have much influence over time. But it’s a good case to review since many readers might ask the question: when is my work being copyrighted?

In Sandy v. Paramount Pictures Corp., No. 2:24-cv-04403-RGK-RAO, 2024 U.S. Dist. LEXIS 240637, (C.D. Cal. Dec. 13, 2024), we have a David v Goliath scenario. In 2002, the Plaintiff authored The Link: The Third Millennium ("The Link"), a historical science fiction novel about a protagonist with the ability to recall memories from his past lives who battles a villain with the same ability' bent on world domination. The Plaintiff sold his novel through the now-defunct bookstore Borders, as well as online through Amazon. To further promote his book, Plaintiff gave free copies to producers, writers, and directors that he met on film sets, in 2011. Relevant to the decision here, plaintiff alleged specifically he had given away copies on the set Cirque Du Soleil: Worlds Away 3D.

In 2021, Paramount released Infinite, a film about a protagonist with a similar ability to recall memories from his past lives who also battles a villain with the same ability. According to promotional materials, the film was based off The Reincarnationist Papers ("TRP"), a 2009 novel with the same premise. However, TRP, and by extension. Infinite, stole numerous concepts, characters, and details from The Link. For instance, in both Infinite and The Link, the protagonist is male, unmarried, [*3]  childless, adopted, has two professions, and is initially unable to recall his past lives. Infinite's Blu-Ray cover also shares similarities with artwork from The Link, as both depict a man in the middle, a skyscraper on one side, and a pyramid-shape on the other.

The Plaintiff then was making a copyright infringement case against Paramount.  To plead copyright infringement, a plaintiff must plausibly allege: (1) that he owns a valid copyright in a work: and (2) that the defendant copied protected aspects of the work substantially similar and that [the defendant] had access to the plaintiff's work. Id. at *8.

Here, the court essentially sided with the Defendant for three reasons. First the court found that the allegations of distribution to individuals on the set of Cirque Du Soleil: Worlds Away 3D were threadbare. The court noted that the Plaintiff did not identify who he gave the copies to or explain how those copies made then way to anyone who worked on or had creative input on Infinite.

Next, the court reasoned that Plaintiff had not provided sufficient allegations to establish wide dissemination. The author had not included any sales figures and the court noted in the past even sales to 2,000 persons per year had been deemed insufficient by the 9^th Circuit.

Finally, the appellate court found Plaintiff had not established that the works were "strikingly similar" such that access may be directly inferred. While Plaintiff listed countless alleged similarities, it appears that most, if not all, were so general as to not qualify as protectable expression. For instance, Plaintiff had alleged that The Link and Infinite both featured a protagonist that is male, unmarried, childless, adopted, had two professions, and is initially unable to recall his past lives. The court found these traits were not "especially distinctive" and were more akin to that of "a stock character," to which no copyright protection is afforded. 

So, it’s not enough that the movie or book has similarity to stock character aspects of the original work. The party alleging copyright infringement must also demonstrate the alleged infringer had access to the work or that the work had been widely disseminated (leading presumably to the inference the alleged infringer had access). Failing to show either of these, the party alleging copyright must show that the works are “strikingly similar” such that access can be inferred.

Probably, the court got it right. As a practice point, the saying of course is that justice is blind. But I doubt it helped the Plaintiff that the Plaintiff represented himself in the proceedings. Courts do typically go out of the way to help self-represented parties, but one of the actual elements is whether the work is widely disseminated. And how many authors flush with cash from their widely disseminated work choose to represent themselves in court?

Final note: this review is published so late it is embarrassing, but the act of periodically reviewing case law is vital to maintaining active fluency on legal developments.  And, I want consistency over time in the blog. Look for more quarters soon as I catch up on work after a very busy period.

[1] Personally, I hate drab corporate culture. But the court did cite New Era’s mission to provide a "critical prophylactic measure for client's mass arbitration risk.” Heckman

v. Live Nation Ent., Inc., 120 F.4th 670, 677. I don’t think this colorful language helped their cause.