Mass Arbitration
Wallrich v. Samsung Electronics America Inc.
Date: July 1, 2024
Issue: Whether the district court erred in ordering Samsung to pay $4 million in individual arbitration fees on behalf of 35,651 consumers for improperly collecting biometric data.
Case Summary: In a 3-0 decision, a Seventh Circuit panel reversed an Illinois federal court judgment that required Samsung to arbitrate 35,651 consumer claims and pay $4 million in individual arbitration fees.
Mass arbitration typically involves thousands of coordinated, but individual, arbitration demands filed against the same party, with those claimants usually represented by the same counsel. Because many arbitration providers immediately charge more than a thousand dollars in administrative fees for each arbitration demand, companies requiring arbitration to resolve disputes typically pay millions of dollars upfront, regardless of the merits of the individual claims.
In 2022, nearly 50,000 claimants filed individual arbitration demands against Samsung for privacy violations with the American Arbitration Association (AAA). The AAA invoiced Samsung its share of arbitration fees totaling more than $4 million. Samsung declined to pay, initially citing discrepancies in the arbitration demands, but the AAA administratively closed the arbitrations for nonpayment. The claimants then sued in federal court to compel Samsung to arbitrate and pay the fees, which the court granted.
The American Bankers Association filed a coalition amicus brief urging the Seventh Circuit to reverse the district court’s decision. ABA argued the district court wrongly assumed arbitration agreements existed rather than requiring the claimants to prove they had agreed to arbitrate. ABA also argued the district court’s decision facilitated the abusive use of mass arbitrations to obtain unjustified settlements. Finally, ABA highlighted the problems with mass arbitration. Multiple studies confirm that consumers who arbitrate fare at least as well, if not better, than ones who litigate in court. ABA explained arbitration reduces the cost of dispute resolution, and in turn, a company’s overall cost of doing business is also reduced.
The Seventh Circuit reversed the district court’s decision. The panel declared a party seeking to compel arbitration under the Federal Arbitration Act (FAA) must show three elements: an enforceable written agreement to arbitrate; a dispute within the scope of the arbitration agreement; and a refusal to arbitrate. Samsung disputed the first and third elements.
The panel ruled the district court erred in concluding the claimants adequately proved the existence of arbitration agreements with Samsung. The court noted that under the “summary judgment standard” for motions to compel arbitration, the claimants had an initial “burden of producing a valid arbitration agreement with Samsung.” The claimants submitted copies of their arbitration demands made before the AAA. However, the panel explained these unsigned demands were insufficient because no claimant submitted any declaration. The claimants also submitted a spreadsheet containing their names, addresses, and copies of Samsung’s terms and conditions. However, the panel determined these materials did not show they were Samsung customers. Finally, the claimants submitted the AAA’s determination that the consumers had met the AAA filing requirements. The panel concluded this does not serve as evidence of an arbitration agreement because the filing requirements involve no substantive determinations.
In the panel’s view, the consumers “could have submitted receipts, order numbers or confirmation numbers from their purchases of Samsung devices”—or even “declarations attesting to the allegations in their arbitration demands”—to meet their initial burden of proof. Yet the claimants, according to the panel, “offered nothing of the sort.” The panel also rejected the claimants’ request for a remand to present additional evidence. The panel declared: “at the summary judgment stage, which our posture is akin to, does not allow second chances.”
In addition, the panel ruled the district court “exceeded its authority and the scope of the arbitration agreements by ordering Samsung to pay the AAA filing fees.” By incorporating the AAA rules, the panel explained the claimants’ arbitration agreement delegated threshold arbitration fee disputes to the AAA. The panel then explained the AAA acted within its discretion by terminating the arbitrations after the claimants declined to advance Samsung’s share of the fees.
Bottom Line: There has been no indication of whether the customers will appeal the Seventh Circuit’s decision.
Documents: Opinion
