By Gerald L. Maatman, Jr., Rebecca S. Bjork and Derek Franklin
Duane Morris Takeaways: Mass arbitration continues to be a formidable tool for plaintiffs’ attorneys seeking to deal with class action waivers in arbitration agreements. This trend is aptly demonstrated by a new ruling in Wallrich, et al. v. Samsung, Case No. 22-CV-5506 (N.D. Ill. Sept. 12, 2023), where Judge Harry D. Leinenweber of the U.S. District Court for the Northern District of Illinois ordered the defendants – who had been served with just shy of 50,000 arbitration demands – to pay the arbitration fees and submit to arbitrating consumers’ claims that the defendants had committed violations of the Illinois privacy laws. Those fees had been waived by the arbitration authority, as allowed by a provision in its’ supplemental rules, but the Court sided with the plaintiffs, who had moved to compel arbitration after the fees were waived, and seeking also to require the defendants to pay them.
Case Background
The Named Plaintiffs filed 49,986 arbitration claims with the American Arbitration Association (“AAA”) on September 7, 2022 on behalf of consumers who are users of Samsung mobile devices. Id. at 2, 5. They alleged that the defendants had unlawfully collected their biometric information in violation of the Illinois Biometric Information Privacy Act. The user agreement required all disputes be resolved in final, binding arbitration and it prohibited class actions. Id. at 3.
The agreement also required use of the services of the AAA and explicitly invoked the AAA’s rules, including its supplemental rules relating to arbitration fees. Id. On September 27, 2022, Samsung refused to pay its portion of the initial arbitration fees to the AAA because it believed the claimants included deceased individuals and others who did not reside in Illinois. Id. at 6. Plaintiffs responded by moving to compel arbitration on October 7, 2022. Id. at 7.
The Court’s Decision
Judge Leinenweber compelled arbitration of the claims of living, Illinois resident petitioners and ordered the respondents to pay the AAA arbitration fees. He first concluded that the arbitration agreements are valid between Samsung and those who actually are its consumers. Id. at 21-22. Second, he noted that as to the petitioners that respondents suspected were either deceased or not Illinois residents, he explained that petitioners’ counsel used Samsung’s own customer list to remove ineligible petitioners. Id. Third, he determined that the arbitration agreement left questions of arbitrability to the arbitrator, thereby declining to rule on respondents’ argument that the collective action waiver in the agreement applies to mass arbitrations, which would bar petitioners’ claims with the AAA. Id. at 25. Finally he ruled that he had the authority to construe and enforce the AAA’s rules about arbitration fees, and determined that respondents are required to pay approximately $4.13 million in fees. Id. at 30, 33-34.
Implications For Employers
As corporations who employ large numbers of individuals in their workforces know, agreements to arbitrate claims related to employment-related disputes are common. They serve the important strategic function of minimizing class action litigation risks. But corporate counsel also are aware that increasingly, plaintiffs’ attorneys have come to understand that arbitration agreements can be used to create leverage points for their clients. Mass arbitrations seek to put pressure on respondents to settle claims on behalf of large numbers of people, even though not via the procedural vehicle of filing a class or collective action lawsuit. As a result, corporate counsel should carefully review arbitration agreement language with an eye towards mitigating the risks of mass arbitrations as well as class actions.