Every football fan dreams of watching his or her favorite team play in the Super Bowl. Attending that Super Bowl is an even bigger dream. As a Detroit Lions fan, I am not holding out much hope that I will ever have my dream fulfilled. However, this past year, numerous Seattle Seahawks fans thought that their big dream would become a reality. They went online, purchased tickets for Super Bowl XLIX between the New England Patriots and their beloved Seahawks, and traveled to Arizona to attend the game. Yet, the online ticket retailer crushed their dream when, only hours before kickoff, it admitted to not having their "guaranteed" tickets.
The Lawsuits
The State of Washington recently filed a lawsuit against that online ticket retailer, SBTickets.com, for violations of its Consumer Protection Act.[1] A Seattle-based law firm filed a similar lawsuit in Arizona as a class action for violations of the Arizona Consumer Fraud Act, breach of contract, promissory estoppel, unjust enrichment, and fraud.[2] Whether or not they are ultimately successful, the lawsuits provide lessons for both consumers and businesses.
The lawsuits make the same basic allegations. SBTickets.com is in the business of selling sporting tickets and markets itself as "The leading Big Game Ticket Hospitality Company." Its website said: "As Always Our Orders are 100% Guaranteed, No tricks or gimmicks, For the unforeseen circumstances, you will get your tickets one way or another, Guaranteed!" However, according to the State of Washington, "[t]his was a ruse." In reality, SBTickets.com was engaging in short selling: selling an item that the seller does not own at the time of the sale; before delivery to the buyer is required, the short seller purchases the item from a third party. Washington alleges that SBTickets.com sold Super Bowl tickets that it did not actually possess at the time of the sale, with the hope of purchasing the tickets from third parties at a later date for a lower price. Washington considered this a futures contract. SBTickets.com would (theoretically) profit on the difference between its sales price for the ticket and the amount it subsequently would pay to purchase that ticket.
However, the market did not behave as SBTickets.com had expected. Super Bowl ticket prices actually increased in the days before the game, in contrast to prior years when online ticket brokers made a lot of money through short selling. SBTickets.com was then left with the proposition of either spending a small fortune to get possession of the tickets and fulfill its promises to customers, or renege on its promises. The lawsuits allege that, for many customers, SBTickets.com opted for the latter. Washington claims that, despite eventually giving some customers a refund, SBTickets.com did not pay them the fair market value of the tickets or any of the travel or lodging costs incurred by the customers in expectation of attending the game. SBTickets.com had informed these customers only hours before the game started that they would not be receiving their purchased tickets.
Washington claims that SBTickets.com violated its consumer protection act by: misrepresenting that persons were guaranteed to get a ticket when that was not true; selling a futures contract without clearly and conspicuously disclosing that the tickets purchased may not be available; and offering to fulfill the futures contract only if it benefitted the seller. The lawsuits, combined, seek compensatory damages, consequential damages, punitive damages, injunctive relief, restitution or other equitable relief, costs, attorneys' fees, pre- and post-judgment interest, and civil penalties.
Lessons For Consumers and Businesses
The alleged conduct by SBTickets.com is another reminder of the old adage "buyer beware," especially with Internet companies. Although the (alleged) bad business has been sued and may be held liable for its actions, there is no guarantee that the fans will recover much, if any, of their expenses. This is especially true with Internet companies, which ordinarily have fewer assets than brick-and-mortar companies. Small Internet companies may not be able to pay a judgment, and piercing the corporate veil to go after the owner(s) is usually difficult and may not gain much more in terms of recovery for the victims.
SBTickets.com's business decision had obvious negative consequences: unhappy customers (some of whom had allegedly traveled thousands of miles to have their dreams shattered), two lawsuits, and bad publicity. It is telling that the large, established Internet ticket retailer StubHub reportedly paid $2.3 million to make sure that all of its customers received tickets.[3] StubHub presumably took a large loss to make sure that it satisfied its customers (and avoided the costs of a similar lawsuit). However, that is not always an option for small Internet retailers.
Thus, the lawsuits demonstrate that companies need to be careful about what they promise and even more careful about short selling. Also, if a company does business on the Internet, then it may be subject to the laws of any state in which it sells a product and possibly be sued in that state. (SBTickets.com is a New York limited liability company that has now been sued in Washington and Arizona under each state's respective consumer protection laws.) Even though a company might successfully argue for a change of venue or that it is not subject to a particular state's laws, there are still expenses involved in simply being sued and success is not guaranteed. SBTickets.com should have prominently included a choice of law and choice of venue provision on its website and on any transaction documents. (Faruki Ireland & Cox P.L.L. has experience with choice of law and venue issues, consumer fraud lawsuits, and Internet transaction disputes.)
The lawsuits are also a good example of how business decisions that involve taking losses versus avoiding losses should consider factors such as customer relations and potential litigation costs, including attorneys' fees, costs, and possible consequential and punitive damages. It will likely be very hard for SBTickets.com to survive these lawsuits, even if it prevails. Its dreams have probably been crushed too.
[1] State of Washington v. SBTickets.com LLC (filed March 11, 2015 in King County Superior Court in the State of Washington).
[2] Iacovelli et al. v. SBTickets.com LLC et al., Case No. CV 2015-001459 (filed March 4, 2015 in Maricopa County Superior Court in the State of Arizona).
[3] http://espn.go.com/nfl/story/_/id/12437041/first-class-action-lawsuit-filed-super-bowl-xlix-ticket-shortage (last visited on March 20, 2015).
