StubHub Fake Ticket Lawsuit Stalls

As the fight to reign in ticket resellers like Vivid Seats and StubHub heats up in Washington, DC and state legislatures over excessive markups, fees and fake Oasis tickets, Chris Castle revisits a StubHub fake ticket lawsuit stalled in the courts.

by Chris Castle of Music Tech Solutions

The current case of Kaiser v. StubHub (No. 1:2024cv00044 (JLR) SDNY 2024) highlights the importance of arbitration clauses in online agreements. This is particularly true in the Kaiser case when the plaintiff alleges serious and complex civil law violations that might even rise to the level of a criminal indictment or certainly a grand jury investigation. Those overarching public policy goals are cut off by the retroactive application of click-through arbitration provisions and the Federal Arbitration Act. If StubHub users like the plaintiff had any idea they were going to get ripped off, they would likely never have agreed to an arbitration clause that cut off their opportunity to be heard by a court. Meritorious plaintiffs are silenced by Silicon Valley’s web of loopholes. This is the essence of violating our Constitutional rights to due process.

In a nutshell, the facts in Kaiser are that Plaintiff Kaiser allegedly bought tickets through StubHub in the US to a major soccer game in the UK (Tottenham Hotspurs vs. Liverpool FC). The plaintiff alleged that he had received several assurances from StubHub that his tickets were authentic and in reliance made travel arrangements to the UK to attend the game. On arrival at Tottenham Hotspurs’ stadium on game day, he alleges that he was told by Hotspurs employees that his tickets were fake, that StubHub was not authorized to sell Hotspurs tickets and they knew it, and that the stadium routinely rejects numerous ticket holders from StubHub with fake tickets.

Despite the blanket class action waiver in StubHub’s terms of service (or “Global User Agreement“) requiring arbitration of all claims by a user, the Plaintiff timely filed a putative class action in NY state court alleging that StubHub engaged in the sale of invalid or bogus tickets. The current StubHub terms of service has a broad disclaimer that introduces the arbitration clause which will apply to the user before the user has any idea of a potential RICO claim:

FOR ALL USERS RESIDING IN THE UNITED STATES, PLEASE BE ADVISED: CLAUSE 22 OF THIS AGREEMENT CONTAINS AN AGREEMENT TO ARBITRATE, WHICH WILL, WITH LIMITED EXCEPTIONS, REQUIRE YOU TO SUBMIT CLAIMS YOU HAVE AGAINST US TO BINDING AND FINAL ARBITRATION, UNLESS YOU OPT-OUT. UNLESS YOU OPT OUT: (1) YOU WILL ONLY BE PERMITTED TO PURSUE CLAIMS AGAINST US ON AN INDIVIDUAL BASIS, NOT AS A PLAINTIFF OR CLASS MEMBER IN ANY CLASS OR REPRESENTATIVE ACTION OR PROCEEDING, AND (2) YOU WILL ONLY BE PERMITTED TO SEEK RELIEF (INCLUDING MONETARY, INJUNCTIVE, AND DECLARATORY RELIEF) ON AN INDIVIDUAL BASIS.

What the clause does not say is “EVEN IF WE STEAL FROM YOU.” 

According to the plaintiff, StubHub knowingly facilitated the sale of tickets that it had no authorization to sell. This fraudulent activity, Kaiser argues, has caused significant financial and emotional harm to consumers who purchased these tickets, only to find out they were invalid when attempting to use the tickets.

Although Plaintiff did not bifurcate his claims, Plaintiff’s claims can potentially be divided (or “bifurcated”) into two different categories: what might be called “contract claims” arising from StubHub’s potential breach of promises in violation of state contract laws and “statutory claims” sounding in state or federal consumer protection statutes and the federal civil Racketeer Influenced and Corrupt Organizations Act (RICO). I would argue that the contract claims could be arbitrable and the statutory claims should not be decided by an arbitrator–otherwise public policy is decided by private arbitrators with no one in sight who had been elected dog catcher.

The contract claims are:

Breach of Contract: Kaiser alleges that StubHub has breached its contractual obligations to consumers. When consumers purchase tickets through StubHub, they enter into a click-through terms of service contract with the company, expecting to receive valid tickets in return for their payment. Kaiser argues that by selling invalid tickets, StubHub has failed to uphold its end of the contract, thereby breaching their agreement with consumers on a grand scale. The agreement StubHub allegedly breached includes the company’s terms of use which has an arbitration clause as do many if not substantially all online consumer agreements. That arbitration clause is broadly drafted to purport to require arbitration of all claims, even the civil RICO count.

Unjust Enrichment: The plaintiff claims that StubHub has been unjustly enriched through its fraudulent activities. By selling invalid tickets, StubHub has profited at the expense of consumers who paid for tickets they could not use. Kaiser argues that it is unjust for StubHub to retain these profits, given the fraudulent nature of the ticket sales.

Negligence: Kaiser contends that StubHub has been negligent in its duty to ensure the validity of the tickets sold on its platform. The plaintiff argues that StubHub has a responsibility to verify the legitimacy of the tickets it sells and to protect consumers from purchasing fraudulent tickets. By failing to do so, StubHub has acted negligently, causing harm to consumers.

The “statutory” claims are:

Consumer Protection Statutes: Kaiser asserts that StubHub has violated various consumer protection laws. The plaintiff argues that StubHub’s practices are deceptive and unfair, misleading consumers into believing they are purchasing legitimate tickets. This deception, Kaiser claims, is a clear violation of consumer rights and protection statutes designed to safeguard consumers from such fraudulent activities.

Civil Racketeering: The plaintiff claims that StubHub’s actions constitute a violation of the federal Racketeer Influenced and Corrupt Organizations Act. Kaiser argues that StubHub has been operating as a criminal enterprise by engaging in a pattern of racketeering activity. This includes the fraudulent sale of tickets and the misrepresentation of the legitimacy of these tickets to consumers. By framing StubHub’s actions within the context of rackeetering, Kaiser apparently seeks to highlight the systemic and ongoing nature of the alleged fraud by StubHub.

Injunctive Relief: In addition to seeking monetary damages, Kaiser requested injunctive relief to prevent StubHub from continuing its alleged fraudulent practices. The plaintiff argues that without court intervention, StubHub will likely continue to engage in the sale of invalid tickets, causing further harm to consumers. Kaiser contended that an injunction is necessary to protect consumers and ensure that StubHub ceases its fraudulent activities.

StubHub’s Response

StubHub’s response was to seek to remove the case to federal court, which was successful, and to assert that its clickthrough arbitration agreement in the terms of use for the StubHub site was the proper forum, not a court. StubHub argued that the arbitration clause was agreed upon by the plaintiff when using StubHub’s allegedly fraudulent services. They contended that this clause was valid and enforceable, citing to the Federal Arbitration Act which favors the enforcement of arbitration agreements, asserting that the court should compel arbitration as per the agreement. Crucially, the Federal Arbitration Act was signed into law by President Calvin Coolidge in 1925–slightly pre-Internet. More about this later.

The plaintiff Kaiser argued that application of the arbitration clause was unconscionable, meaning it was unfairly one-sided and should not be enforced. Kaiser claimed that there was no mutual agreement to arbitrate due to the manner in which the terms were presented.

Judge Rochon’s Order

The case on removal was heard before U.S. District Judge Jennifer L. Rochon in the Southern District of New York. Judge Rochon’s order in the case granted StubHub’s motion to compel arbitration but stayed the case pending the completion of arbitration proceedings. Judge Rochon’s resolution did not address the merits and turned on the enforceability of the arbitration clause under the Federal Arbitration Act (FAA). The court considered several factors:

Existence of an Agreement: The court found that there was a valid agreement between the parties, as the plaintiff had accepted StubHub’s terms of service, which included the arbitration clause.

Scope of the Arbitration Clause: The court determined that the arbitration clause covered the plaintiff’s claims, as it broadly encompassed any disputes arising out of or relating to the terms of service or the plaintiff’s use of StubHub’s services including Plaintiff’s statutory RICO claims.

Unconscionability: The court rejected the plaintiff’s argument that the arbitration clause was unconscionable. Judge Rochon noted that the clause was not overly one-sided or oppressive and that the plaintiff had the opportunity to review the terms before agreeing to them and also had the ability to opt out of the arbitration clause, but did not. The Court discussed the Plaintiff’s failure to take advantage of the “opt out” clause in some detail, which I’ll speak to later in this post. 

The court also addressed other motions filed by the parties:

StubHub’s Motion to Dismiss: StubHub’s motion to dismiss the complaint was denied without prejudice as moot, given that the case was being referred to arbitration. As I read it, this allowed the Court to retain jurisdiction of the case should the parties wish to pursue any post-arbitration litigation.

Plaintiff’s Cross-Motion to Amend: The plaintiff’s cross-motion to amend the complaint was denied. The court found that the proposed amendments would not change the outcome of the motion to compel arbitration.

Judge Rochon’s order emphasizes the enforceability of arbitration clauses in consumer agreements, provided they meet the legal requirements under the FAA. The decision underscores the importance of carefully reviewing and understanding the terms of service when using online platforms like StubHub as click through agreements are notorious traps for the unwary.

Chicken and Egg: StubHub’s Arbitration Opt Out

The “opt-out” clause in StubHub’s arbitration agreement plays a crucial role in determining the enforceability of the arbitration provision and the forum for resolving the case. Note that the opt out requires mailing a specific form. That’s right–mailing the form, as in snail mail. You know, because the Internet. The current version of the opt-out states:

Opt-Out Procedure

You can choose to reject this Agreement to Arbitrate (‘opt out’) by mailing us a written opt-out notice (‘Opt-Out Notice’). The Opt-Out Notice must be postmarked no later than 30 days after the date you accept the User Agreement for the first time. You may also opt out no later than 30 days upon receipt of notice that the arbitration provision is being updated or changed. You must mail the Opt-Out Notice to StubHub, Inc., Attn: Litigation Department, Re: Opt-Out Notice, 1209 Orange Street, Corporation Trust Center, Wilmington, DE 19801.

For your convenience, we are providing an Opt-Out Notice form you must complete and mail to opt out of the Agreement to Arbitrate. You must complete the Opt-Out Notice form by providing the information called for in the form, including your name, address (including street number and address, city, state, and zip code), phone number and the email address(es) used to log in to the account(s) to which the opt-out applies. You must sign the Opt-Out Notice for it to be effective. This procedure is the only way you can opt out of the Agreement to Arbitrate. If you opt out of the Agreement to Arbitrate, all other parts of the User Agreement will continue to apply. Opting out of this Agreement to Arbitrate has no effect on any previous, other, or future arbitration agreements that you may have with us.

My bet is that public policy importance of Kaiser is in the RICO claim; all the other claims seem to be an effort to satisfy the “RICO predicates,” although that’s just my view. Given that StubHub is trying to get an IPO on file, the last thing that they want is a public trial on racketeering.

Opt out clauses in arbitration agreements provides users with the option to decline the arbitration agreement within a specified period, allowing them to retain their right to pursue legal action in court. Typically, an opt out requires users to take specific actions within a certain timeframe to opt out. If users do not opt out within the given period, they are deemed to have accepted the arbitration agreement and are bound by its terms. This is what happened in Kaiser.

Of course, there is a timing issue with any opt-out clause. Before the consumer has reason to suspect that they are dealing with a racketeer, they must click through the terms of service including the arbitration clause and very likely do not understand that they are giving up valuable rights to protect themselves. More importantly, they are unlikely to understand that that the later-identified racketeer is using lawfare to protect their potentially actionable, if not criminal, operation.

If you are thinking that it does not seem fair for a private arbitrator to be making decisions about whether a defendant has violated public policy in consumer protection statutes or RICO cases that were never envisioned by legislators to be getting resolved in arbitration, you are not alone.

However unfair the result, it seems unlikely that the judge will overturn herself. What does seem likely is that a state attorney general or even a U.S. Attorney could open a RICO investigation into StubHub. A criminal investigation is unlikely to be subject to arbitration, although I feel confident that StubHub will try. You know, because the Internet.

Since the situs of the fraud was also arguably in the UK at Hotspurs World, and assuming that Hotspurs did not authorize StubHub to sell the fake tickets, it is possible that StubHub’s UK operations could also be investigated under the UK’s Proceeds of Crime Act (POCA). POCA is similar, but not identical, to RICO. POCA has some very interesting provisions such as the National Crime Agency’s ability to serve an “Unexplained Wealth Order” on someone who seems to have gotten rich all of a sudden. I’m not a UK lawyer, but it’s worth considering if a “UWO” just might apply to StubHub’s entire senior management team, who knows. The UK have this great organization called the “Serious Fraud Office” which sounds like it came from Harry Potter, but is very real, I assure you.

Now What?

It appears that the Kaiser lawsuit is going to need to go through the formalities of arbitration under the American Arbitration Association (AAA) before it can land back in Judge Rochon’s court. It is unlikely that we will hear much publicly about the proceeding. For example, the AAA Commercial Arbitration Rules do include provisions for confidentiality, but they do not mandate it for all aspects of the arbitration proceedings. Specifically, Rule R-45 requires the arbitrator to keep all matters relating to the arbitration or an award confidential. However, the rules do not impose a blanket requirement for the parties themselves to maintain confidentiality throughout the entire process unless they otherwise agree, which hopefully they will not. 

Note that this all applies to the statutory RICO claim as well as the contract claims. The Gambino Family must be envious.

However, state and federal law enforcement agencies are not bound by Internet company arbitration clauses, at least not yet–the line between Google, Amazon, Facebook and the federal government continues to blur. For example,  New York has its own version of the federal RICO Act called the Enterprise Corruption statute. This law is designed to combat organized crime by targeting the diversified illegal activities that such groups engage in. The statute makes it a Class B felony to participate in an enterprise through a pattern of criminal activity. This would likely require the District Attorney for New York County or the New York State Organized Crime Task Force to open an investigation of StubHub. It is worth noting that 33 states have these “Little RICO” acts, such as the Texas Organized Crime Statute.

Congress may also act to limit the applicability of arbitration clauses generally to exclude civil RICO claims and class action waivers, or at least allow consumer fraud claims to be heard outside of arbitration by state and federal courts. This could be a fix for the obvious due process issues present in Judge Rochon’s ruling that illustrate how a trial judge’s hands are tied absent Congressional action. It seems that this issue is so blatant in the Kaiser case that it’s at least worth a Congressional investigation and also a disclosure as a risk factor in any StubHub IPO prospectus.

Stay tuned, cats and kitties, the plot sickens.