{"id":1641,"date":"2024-07-09T16:03:35","date_gmt":"2024-07-09T20:03:35","guid":{"rendered":"https:\/\/blogs.duanemorris.com\/classactiondefense\/?p=1641"},"modified":"2024-07-09T16:03:35","modified_gmt":"2024-07-09T20:03:35","slug":"the-seventh-circuit-derails-mass-arbitration-tactics","status":"publish","type":"post","link":"https:\/\/blogs.duanemorris.com\/classactiondefense\/2024\/07\/09\/the-seventh-circuit-derails-mass-arbitration-tactics\/","title":{"rendered":"The Seventh Circuit Derails Mass Arbitration Tactics"},"content":{"rendered":"

\"\"<\/a>By Gerald L. Maatman, Jr., Eden E. Anderson, Rebecca S. Bjork, and Ryan T. Garippo<\/p>\n

Duane Morris Takeaways:<\/em><\/strong>\u00a0 On July 1, 2024, in Wallrich, et al. v. Samsung Electronics America, Inc., No. 23-2842, 2024 WL 3249646 (7th Cir. July, 1, 2024), the U.S. Court of Appeals for the Seventh Circuit dealt a major blow<\/a> to mass arbitrations.\u00a0 This decision strengthens protections for companies that utilize arbitration agreements as an effective way to limit their potential classwide exposure. The Seventh Circuit\u2019s opinion is required reading for any corporation utilizing arbitration programs.<\/em><\/p>\n

Case Background<\/strong><\/p>\n

Samsung Electronics, Co. Ltd. and Samsung Electronics America, Inc. (collectively \u201cSamsung\u201d) are two affiliates that manufacture and sell consumer electronics.\u00a0 \u201cWhen consumers purchase or use Samsung devices, they automatically agree to Samsung\u2019s terms and conditions.\u201d\u00a0 Id.<\/em> at *1.\u00a0 Like many other companies, Samsung\u2019s terms and conditions contain an arbitration provision, which specifies that \u201call disputes\u201d between Samsung and its customers shall be arbitrated before the American Arbitration Association (the \u201cAAA\u201d).\u00a0 Id.<\/em><\/p>\n

Pursuant to those terms and conditions, \u201c[a] group of 35,651 Illinois consumers . . . filed arbitration demands before the AAA alleging they purchased Samsung devices and that those devices unlawfully collected and stored sensitive biometric data in violation of the Illinois Biometric Information Privacy Act.\u201d\u00a0 Id.<\/em> at *2.\u00a0 This tactic \u2014 commonly known as a mass arbitration<\/em><\/strong> demand \u2014 is often used by plaintiffs\u2019 lawyers as an attempt to secure a quick settlement out of a defendant.\u00a0 The tactic is sometimes successful because a defendant is often forced to pay expensive arbitration filing fees in order to initiate an arbitration.\u00a0Often it is more cost effective for the defendant simply to settle the claims altogether rather than pay the filing fees and other expenses of litigation.\u00a0 For this reason, numerous federal courts have held that while this tactic may be permissible, \u201cmass arbitration interferes with the fundamental attributes of arbitration promoted by the [Federal Arbitration Act].\u201d\u00a0 See, e.g., Lamour v. Uber Technologies, Inc.<\/em>, No. 16-CV-21449, 2017 WL 878712, at *6 (S.D. Fla. Mar. 1, 2017) (quotations and citations omitted).<\/p>\n

Against that backdrop, counsel for the claimants in Wallrich<\/em> attempted to deploy mass arbitration tactics in this litigation.\u00a0 After the consumers filed their arbitration demands, \u201cthe AAA requested $4,125,000 from Samsung, representing Samsung\u2019s share of the initial administrative filing fees.\u201d\u00a0 Wallrich<\/em>, 2024 WL 3249646, at *2.\u00a0 The only difference between this case and others was that Samsung refused to pay the fees.\u00a0 The AAA then offered the consumers the opportunity to pay the $4,125,000.\u00a0 They also declined.\u00a0 And, as a result, the AAA terminated the proceedings and paved the way for a federal class action lawsuit.<\/p>\n

Rather than pursue a class action, the consumers then \u201cfiled a Petition to Compel Arbitration\u201d in the U.S. District Court for the Northern District of Illinois.\u00a0 Id.<\/em>\u00a0 They sought, among other things, \u201can order compelling Samsung to pay its AAA filing fees and to arbitrate the claims.\u201d\u00a0 Id.<\/em>\u00a0 In support of that petition, the consumers submitted their: (1) \u201carbitration demands before the AAA\u201d; (2) \u201ccopies of Samsung’s terms and conditions\u201d; (3) a spreadsheet containing the consumers’ names and addresses; and (4) \u201cthe AAA’s determination that the consumers had met the AAA filing requirements.\u201d\u00a0 Id.<\/em>\u00a0 The consumers did not submit any proof, however, that they were actually customers of Samsung.\u00a0 Id.<\/em> at *7.\u00a0 But regardless, the district court still entered an order compelling Samsung to pay the filing fees and to arbitrate the disputes.\u00a0 Samsung then appealed that decision.<\/p>\n

The Seventh Circuit\u2019s Opinion<\/strong><\/p>\n

On appeal, the Seventh Circuit dealt a major blow to mass arbitration tactics and reversed the order of the district court.\u00a0 The Seventh Circuit held, in a unanimous opinion, that \u201cthe consumers effectively needed to present evidence that they were in fact Samsung customers\u201d in order to arbitrate the dispute. \u00a0Id.<\/em> at *6.\u00a0 It also held that the consumers had not met their burden of doing so.<\/p>\n

The Seventh Circuit explained that \u201carbitration demands are nothing more than allegations, much like a complaint filed in a district court.\u201d\u00a0 Id.<\/em>\u00a0 As such, they are not proof that the consumers were actually Samsung customers.\u00a0 Similarly, copies of the terms and conditions \u201cdo nothing to show that any of the consumers purchased a Samsung device\u201d nor did the AAA\u2019s determination as to the filing requirements make such a showing either.\u00a0 Id.\u00a0 And last, the Seventh Circuit explained that the \u201cspreadsheet of only names and addresses likewise fails to show that any of those named were Samsung customers.\u201d\u00a0 Id. \u00a0<\/em>Accordingly, none of the \u201cevidence\u201d submitted by the consumers was sufficient to address their burden.<\/p>\n

Further, the Seventh Circuit noted that the \u201cconsumers could have submitted almost anything to meet their burden of proving the existence of an arbitration agreement.\u00a0 For example, they could have submitted receipts, order numbers, or confirmation numbers from their purchases of Samsung devices.\u00a0 Or even more directly, they could have submitted declarations attesting to the allegations in their arbitration demands.\u00a0 They did not.\u201d\u00a0 Id.<\/em> at *7.\u00a0 The major difference, however, was that all 35,651 consumers would have needed to submit such proof.\u00a0 In the absence of such evidence in the record, the Seventh Circuit was left with no choice but to reverse the district court.<\/p>\n

The Seventh Circuit concluded that a motion to compel arbitration is akin to a motion for summary judgment and, therefore, \u201cdoes not allow second chances.\u201d\u00a0 Id.<\/em>\u00a0 \u201cThe consumers had the opportunity to present their evidence, and they failed to do so.\u201d\u00a0 Id.<\/em>\u00a0 Consequently, the mass arbitration tactics on display here seem to have been permanently halted.<\/p>\n

Implications For Companies<\/strong><\/p>\n

The importance of Wallrich, et al. v. Samsung Electronics America, Inc<\/em>. cannot be understated.\u00a0 Companies faced with mass arbitration threats can now force each and every purported claimant to submit proof that his claim is subject to an arbitration agreement.\u00a0 If a claimant does not come forward with such proof, the company may be able to refuse to pay any filing fees and avoid mass arbitration altogether.\u00a0 As a result, corporate counsel can rest easy knowing that it is more difficult for their arbitration agreements to be weaponized against them.<\/p>\n

That said, the importance of arbitration agreements also must be emphasized.\u00a0 The Illinois Biometric Information Privacy Act (\u201cBIPA\u201d) is one of plaintiff\u2019s counsel\u2019s favorite litigation targets.\u00a0 When utilized on a class-wide basis, claims under the BIPA are defined by its \u201cdraconian exposure\u201d and its \u201cjob-destroying liability.\u201d\u00a0 Cothron v. White Castle System, Inc.<\/em>, 216 N.E. 3d 918, 940 (Ill. 2023) (Overstreet, J., dissenting).\u00a0 However, if each BIPA plaintiff is required to arbitrate his claims individually, a company\u2019s exposure becomes significantly less and, in some circumstances, even de minimis<\/em>.\u00a0 Accordingly, corporate counsel should also consider this factor as one of the benefits to implementing an arbitration program as an effective strategy to limit classwide relief.<\/p>\n","protected":false},"excerpt":{"rendered":"

By Gerald L. Maatman, Jr., Eden E. Anderson, Rebecca S. Bjork, and Ryan T. Garippo Duane Morris Takeaways:\u00a0 On July 1, 2024, in Wallrich, et al. v. Samsung Electronics America, Inc., No. 23-2842, 2024 WL 3249646 (7th Cir. July, 1, 2024), the U.S. Court of Appeals for the Seventh Circuit dealt a major blow to … <\/p>\n

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