Today a trial court denied Patreon’s motion for a preliminary injunction. Patreon lost their lawsuit in court and must not proceed to arbitration. (Read the Court’s order here.)
Patreon, a platform popular with podcasts, journalists, and comedian faces significant legal peril due a fascinating quirk of California law that no one seemed to have noticed.
- Summary: Patreon banned Owen Benjamin. Owen Benjamin’s backers moved for arbitration, alleging various causes of action. Under the arbitration procedures spelled out in Patreon’s Terms of Service, Patreon must pay the filing fees, which could total millions of dollars. Patreon cannot collect those fees back, even if Patreon wins the arbitrations.
Tech companies face almost total protection from lawsuits due to a law created by Congress to encourage freedom of speech on the web. Because of this, companies have gotten sloppy with the Terms of Service.
Patreon’s Terms of Service, like nearly every other tech companies, provide that anyone who wants to use Patreon must do so in arbitration. Patreon’s TOS also ban class actions or any joint actions.
Patreon’s TOS mandate arbitration and ban class actions because individual consumers who suffer small harms aren’t able to find a lawyer to take their case. Again, all tech companies do this. Let’s not single out Patreon. Here is Amazon:
- Any dispute or claim relating in any way to your use of any Amazon Service, or to any products or services sold or distributed by Amazon or through Amazon.com will be resolved by binding arbitration, rather than in court, except that you may assert claims in small claims court if your claims qualify.
Here is PayPal:
- By opening and using a PayPal account, you agree to comply with all of the terms and conditions in this user agreement. The terms include an agreement to resolve disputes by arbitration on an individual basis.
Owen Benjamin Gets Banned. Dozens of his backers individual claims for arbitration.
Patreon, by banning a Creator, disrupts the economic relationship between Creator and Backer. In legal terms this is called tortious interference with a business relationship.
Patreon, under California law, must pay the arbitration fees in advance. These fees can be upward of $10,000 per case.
If dozens of backers move for individual arbitration against Patreon, you can start doing the math.
Benjamins’ Backers Put Patreon on Notice; Patreon Unilaterally Amends its TOS to Bar the Claims the Parties were Going to Bring.
In early December, numerous defendants told Patreon that they intended to move for individual arbitration.
Patreon’s TOS suggest that contacting them before seeking arbitration is required, although this provision could be read as a request rather than a demand.
- We encourage you to contact us if you have an issue. If a dispute does arise out of these terms or related to your use of Patreon, and it cannot be resolved after you talk with us, then it must be resolved by arbitration.
Because Patreon wrote the TOS, the terms will be resolved against Patreon. In law this is known as contra proferentem. Any ambiguous language will be read in favor of the party who did not draft it.
The TOS, to me and many others, looks like a pre-filing demand. Others may claim the terms read otherwise. Contra proferentem applies.
Two or three weeks later, Patreon unilaterally altered the Terms of Service by adding this clause:
- You may not bring a claim against us for suspending or terminating another person’s account, and you agree you will not bring such a claim. If you try to bring such a claim, you are responsible for the damages caused, including attorneys fees and costs. These terms remain in effect even if you no longer have an account.
Patreon claimed that its unilateral change to the TOS “remain in effect even if you no longer have an account.”
Yes, Patreon literally changed its TOS after it was contacted by arbitration claimants, who were required to contact Patreon before moving for arbitration.
Patreon filed a Mass Action against the Arbitration Claimants.
Patreon lost several procedural motions before arbitrations. After losing these motions, they sued the arbitration claimants in California State Court.
Realizing that the arbitration fees would be in the millions of dollars range, Patreon filed a group action against all 72 arbitration claimants. Patreon sought an injunction, that is, they want the Court to order the arbitrations to be stopped.
Here is what Patreon’s TOS says about group actions:
- Arbitrations may only take place on an individual basis. No class arbitrations or other grouping of parties is allowed. By agreeing to these terms you are waiving your right to trial by jury or to participate in a class action or representative proceeding; we are also waiving these rights.
To drop my lawyer’s latin again, contra proferentem. Patreon can’t claim that when they said that “other groupings of parties is allowed,” applies only to arbitrations. That provision is subject to an ambiguous reading at best.
How can Patreon file a group action against 72 defendants when Patreon barred group actions? They can’t.
The Patreon Hearing.
The 72 defendants were represented by well-known First Amendment lawyer Marc Randazza.
The Court issued a tentative (not final) order denying the injunctions.
During the hearing, Patreon’s counsel brought up additional cases that it claimed applied to the lawsuit.
The Court suggested that Randazza file a supplemental motion addressing those new cases Patreon’s counsel cited.
Reporting live from a major legal action involving Patreon and several former patrons of Owen Benjamin.
Several former patrons of Benjamin filed arbitration actions against Patreon after Benjamin was banned.
Patreon then sued those former backers in California state court.
— Cernovich (@Cernovich) July 13, 2020
Under the Court's preliminary ruling,
ANY LARGE CREATOR banned by Patreon
can have his or her backers move for arbitration.
Patreon will have to pay millions of dollars in legal fees upfront.
This is a HUGE workaround for Big Tech censorship.
— Cernovich (@Cernovich) July 13, 2020
The judge is seeking further briefing on a procedural legal issue and will take the matter under submission.
The tentative ruling went against Patreon, but the Court is going to ask for further briefing.
We will have to wait a couple of weeks for a formal judgment!
*Suspense*
— Cernovich (@Cernovich) July 13, 2020
Patreon will probably lose, and should lose, its State Court action.
Patreon’s TOS required parties to use arbitration. Group actions were banned. The parties complied with the TOS, first by putting Patreon on notice as to their claims.
Once the parties put Patreon on notice of their claim, Patreon was barred by well-established law from amending the TOS in a way that would foreclose those claims.
The Implications?
If a popular creator were banned from PayPal, could he or she have her backers move for arbitration as well?
That’s a specific question that many lawyers are looking at now.
Patreon, like Door Dash before it, banned class actions before decision that group actions are in fact an inefficient way of resolving cases.
Here is what a federal judge told one tech company who complained about a “loophole” being used by the parties:
DoorDash Ordered to Pay $9.5M to Arbitrate 5,000 Labor Disputes:
SAN FRANCISCO (CN) – Rejecting claims that the legal process it forced on workers is unfair, a federal judge Monday ordered food-delivery service DoorDash to pay $9.5 million in arbitration fees for 5,010 delivery drivers’ labor demands against the company.
“You’re going to pay that money,” U.S. District Judge William Alsup said in court. “You don’t want to pay millions of dollars, but that’s what you bargained to do and you’re going to do it.”
Of course anything can happen in a court of law, and the judge will be issuing a final ruling in a few weeks from now.