Patreon has lost several high profile creators including Sam Harris, Dave Rubin, and Jordan Peterson due to Patreon’s decision to begin censoring creators for ideological reasons.
The belief is that Patreon can ban anyone they want to. Is this true under California law?
“Private companies can do whatever they want,” is an old canard repeated by people who aren’t lawyers or aren’t very good lawyers. But a new legal remedy is available under California’s arbitration law, especially with the adoption of SB-707.
There’s an economic relationship between Creators and their Backers.
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.
Backers can demand to have the disruption of this relationship sent to arbitration.
Patreon, under California law, must pay the arbitration fees in advance. These fees can be upward of $10,000 per case.
If 500 backers demanded arbitration, Patreon would need to put up five million dollars in advance in filing fees alone. Legal fees will ramp those fees up by a factor of ten.
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.”
Patreon has tried writing itself out of this legal requirement with amended Terms of Service, which took effect on January 3, 2020:
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.
This provision is unlawful and unenforceable, because Patreon demands all users abide by JAMS Streamlined Arbitration Rules and Procedures:
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. This arbitration must be administered by JAMS under the JAMS Streamlined Arbitration Rules and Procedures, except as expressly provided below. Judgment on the arbitration entered in any court with jurisdiction. Arbitrations may only take place on an individual basis. No class arbitrations or other 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.
Under California law, a consumer cannot be forced to pay costs and fees under a mandatory arbitration clause. California law is clear:
For matters involving consumers, the consumer is only required to pay $250. See JAMS Policy on Consumer Arbitrations Pursuant to Pre-Dispute Clauses. For matters based on a clause or agreement that is required as a condition of employment, the employee is only required to pay $400. See JAMS Policy on Employment Arbitrations, Minimum Standards of Fairness.
In other words, if Patreon bans a Creator, and the Backers want to file arbitration claims, Patreon will have to be millions of dollars of fees.
SB 707 applies to employment or consumer arbitration agreements and requires that the drafting party pay any fees and costs that might be due before the arbitration can proceed within 30 days after the due date. The failure by the drafting party to pay will mean that the drafting party is in material breach of the arbitration agreement, is in default of the arbitration and will waive its right to compel arbitration
There is no exception to this law, and Patreon cannot draft its way out of California law with a Terms of Service update. Again, California law provides:
With respect to the cost of the arbitration, when a consumer initiates arbitration against the company, the only fee required to be paid by the consumer is $250, which is approximately equivalent to current Court filing fees. All other costs must be borne by the company, including any remaining JAMS Case Management Fee and all professional fees for the arbitrator’s services. When the company is the claiming party initiating an arbitration against the consumer, the company will be required to pay all costs associated with the arbitration.
Patreon may win on the grounds that its Terms of Service as of January 2020 apply to all creators banned in 2020 or beyond. It’s unlikely they will, because courts look unfavorably on parties who demand arbitration while seeking to opt-out of rules they don’t like.
My best guess is that if a Creator or Backer sued Patreon to have the fee-shifting provision struck from the Terms of Service, then that party would prevail.
Any Patreon creator banned before 2020 will have favorable procedural rules, and Backers bringing claims will not be required to pay more than $250.
The same rules would also apply to PayPal and other companies with mandatory arbitration provisions.