Ticket platform might have to pay millions to promoter

Eventbrite might still be obligated to pay millions of dollars in advance payments to MRG Entertainment despite an agreement that it would not have to do so if MRG suffers a "material adverse change" to business operations, a federal judge tentatively ruled Friday.

Disagreeing with Eventbrite that restrictions imposed by governments to deal with the COVID-19 pandemic constitute such a change, Senior U.S. District Judge Susan Illston in San Francisco refused to dismiss MRG's lawsuit seeking to force the ticket provider to comply with the terms of their contract.

Eventbrite operates a platform through which event organizers can promote and sell tickets to their events. It's the exclusive provider of all services for MRG, which operates primarily in Canada.

Under the terms of their contract, Eventbrite agreed to regularly loan money to MRG for it to promote events.

When the pandemic began in March, MRG demanded that Eventbrite continue to pay advances to which the ticketing platform exercised its discretionary authority under their arrangement to decline if MRG experiences an adverse change in business operations that limit its ability to host events. MRG, which maintained that it remained operationally healthy and well-funded despite the pandemic, responded that it considered the refusal a breach of contract and terminated it.

Eventbrite sued its former partner in June for declining to repay the funds, which led to MRG countersuing. Eventbrite Inc. v. M.R.G. Concerts Ltd., 20-cv-04040 (N.D. Cal., filed June 17, 2020).

During the hearing on the motion to dismiss, Eventbrite claimed restrictions imposed as a result of COVID and the public being wary of large gatherings have significantly impacted MRG's business. Adam S. Cashman said his client, Eventbrite, acting under its discretionary authority, is not obligated to pay the advances to promote events since the Canadian government has prohibited them.

"Those funds are only to be used to pay for out-of-pocket costs for promoting forthcoming events, of which there are none," the Singer Cashman LLP partner said. "This industry has been particularly hard hit by the pandemic."

Responding to claims that Eventbrite prematurely chose not to pay the promotional advances since it recognized its own financial difficulties, Cashman responded that the company made no such decision. He said financial filings actually indicate that Eventbrite is "working with creators on that."

MRG attorney James H. Moon of Davis Wright Tremaine LLP replied that Eventbrite used the pandemic's devastation of the entertainment industry as a pretext to breach its contract without any consideration of MRG's finances. He cited indicators that Canada is faring much better in containing COVID-19 than America and that it can expect live events to return much sooner.

"We know the effects of COVID on their business," he said, referring to layoffs of 90% of Eventbrite's sales team. "They made the decision to deny payouts in March ... before we even asked for the advance."

The case comes down to the fact that MRG demanded money it's entitled to and that Eventbrite refused since it realized it could not afford to do so, Moon summarized. He said there was no consideration of how COVID-19 impacted MRG and that discovery is needed to "find out what did it know and when did it make decisions not to pay advances."

Cashman countered that the term "material adverse change" to business operations that allowed Eventbrite not to pay the advances should clearly be interpreted to apply to MRG's inability to host live events in Canada.

"It is not a difficult term to understand," he said, urging Illston to reverse her tentative order. "We don't need to have two years of litigation to construe those words."

Eventbrite was hit with a class action in June that accused it of refusing to issue refunds for tickets it canceled and postponed events amid the pandemic despite assuring customers they would be issued. The company has maintained it's up to event organizers to return the money.