Mass Arbitration in 7th Circuit: Wallrich v. Samsung

The Seventh Circuit will soon hear argument in a mass arbitration case which has attracted amicus briefs from leading organizations on each side of civil justice issues, including the U.S. Chamber of Commerce and the plaintiffs’ trial lawyers organization, the American Association for Justice. The case is Wallrich et al v. Samsung Electronics America, Inc. et al.

Mass arbitration was plaintiffs’ lawyers’ response to courts’ enforcement of agreements requiring individual arbitration instead of class actions. As arbitration organizations’ rules tend to require lower filing fees of individual claimants than responding businesses, those businesses have balked at the fees of mass individual arbitration. For instance, Amazon removed arbitration from its terms of service in 2021 “after plaintiffs’ lawyers flooded Amazon with more than 75,000 individual arbitration demands on behalf of Echo users. That move triggered a bill for tens of millions of dollars in filing fees.”

Other companies have tried to reduce the fees of mass arbitration, such as by switching arbitration organizations. For instance, Damini Mohan reports that “In 2020, Doordash changed its arbitration provider from AAA to ADRServices, Inc., which has a lower filing fee due to thousands of delivery workers initiating mass arbitration.”

Another approach is batching. For instance, Samsung’s new arbitration agreement provides:

“Both the counsel for the claimant and the counsel for Samsung must each pick 25 claims to go through individual arbitration,” all before the same arbitrator.  After these 25 arbitrations, “the parties will engage in global mediation for all the remaining claims.” Then, if claims remain unresolved, counsel for each side pick 50 more claims for individual arbitration, all before the same arbitrator (although a different arbitrator from the first 25.) And so on.

As Mohan writes, “From a business perspective, multi-staged batch arbitration helps manage mass arbitration more efficiently by reducing the upfront costs and distributing them more evenly over a period of time.” And from a business perspective, perhaps settling most of the cases after paying fees to arbitrate only a small portion of them.

Samsung’s new arbitration agreement appeared after the Wallrich case now before the Seventh Circuit.

In Wallrich, Samsung device users alleging violations of the Illinois’ Biometric Information Privacy Act (“BIPA”), 740 ILCS 14/1, et seq., filed 50,000 individual arbitration demands before the American Arbitration Association (AAA) in 2022. The AAA invoiced the consumers for their share of the initial arbitration administration fees, which the consumers paid. However, Samsung notified the AAA that it would not pay its share of the assessed initial administrative fees for the Illinois claimants because it found the claimant list included discrepancies such as deceased claimants and claimants who were not Illinois residents. Samsung agreed to pay the fees for fourteen consumers now living in California, citing California Code of Civil Procedure § 1281 et seq., which provides for sanctions in event of nonpayment.

Consumers filed a petition to compel arbitration in the U.S. District Court for the Northern District of Illinois, where Judge Harry D. Leinenweber ruled for the consumers—compelling arbitration and ordering Samsung to pay over $4 million in AAA fees.

The district court found (p.22) that Samsung and the petitioners formed arbitration agreements because “To find that each Petitioner residing in this District is a Samsung customer, the Court must accept the word of over 30,000 individuals, some of whom may have been recruited to this action by obscure social media ads.”

In contrast, Samsung’s brief to the Seventh Circuit says the district court erred in thinking it “‘must accept’ the unverified and unattested ‘word of over 30,000 individuals.’” Samsung’s brief says, “no Appellee swore under penalty of perjury that the petition’s allegations or its attachments were true. . . Appellees thus failed to convert the petition and its attachments into evidence.” Samsung’s brief says, “Appellees have not submitted any evidence that each one of them owns a Samsung device”

On the other hand, petitioner’s brief to the Seventh Circuit says of the standard to compel arbitration that “courts ‘have analogized the standard to that required of a party opposing summary judgment’”, where “Sworn testimony is not the only basis on which summary judgment may be granted.” Facts may be supported by a broad range of “materials in the record,” including “depositions, documents, electronically stored information, affidavits or declarations, stipulations … , admissions, interrogatory answers, or other materials.” Fed. R. Civ. P. 56(c)(1)(A).

The district court said:

Samsung has a customer list, against which they could compare the list of Petitioners. Samsung raised concerns about specific names to the AAA, which in

turn asked Petitioners to correct their list. Petitioners did so, and the record does not show that Samsung has raised specific concerns since. Samsung’s current rejection that all Petitioners are customers is merely “denying facts,” and this is not enough.

 Samsung’s brief replies that whether it had a customer “list is irrelevant because Appellees bore the initial burden of proof, which they did not carry.” In addition, Samsung’s brief says it “does not have a comprehensive ‘customer list.’” Petitioner’s brief refers to “Samsung’s failure to identify a single claimant—out of tens of thousands—who didn’t show up in its records” and Samsung’s “refus[al] to provide information entirely within its possession” both of which seem to continue asserting that the burden is on Samsung.

The district court’s holding that Samsung and the petitioners formed arbitration agreements was also based on the district court’s finding that “The AAA has already reviewed Petitioners’ arbitration agreements and determined that they met the filing requirements.” Addressing this, Samsung’s brief to the Seventh Circuit says:

the AAA’s filing-requirement determination says nothing about whether the parties agreed to arbitrate, because the AAA does not require claimants to establish at filing that they are bound by an arbitration agreement. It instead requires claimants to simply attach an arbitration agreement to their demand without proof that they are bound by it.

 And Samsung correctly points out that “whether the parties agreed to arbitrate at all is a question for the court (and, if necessary, a jury), not the arbitrator.” However, petitioner’s brief says the record shows

(a) each claimant had filed a demand for arbitration stating that they are the owner of a Samsung device, along with significant amounts of identifying information; (b) this information was subject to official and adversarial vetting, in which both the AAA and Samsung raised issues that the claimants addressed;

 Having found that the petitioners formed arbitration agreements with Samsung, the district court went on to hold that Samsung’s refusal to pay the AAA’s fees for each individual claimant constitutes a breach of the arbitration agreement, so the court’s order compelling arbitration also ordered Samsung to pay those fees. In contrast, Samsung’s appellate brief says “the (alleged) arbitration agreements” “provide that administrative filing fees ‘shall be determined according to AAA rules,’” which Samsung reads as “the arbitration agreements expressly commit[ting] administrative-fee issues to the AAA.” Samsung says, “the AAA, applying its own rules, decided that Samsung was not required to pay fees and closed the cases given the nonpayment by either party.” On the other hand, petitioner’s brief says the AAA “the AAA determined that the company was ‘responsible for payment of the initial administrative filing

fees totaling $4,125,000.00’” and “the AAA [closed] the arbitrations ‘due to non-payment of filing fees by the business.’” So, the “record cannot be squared with Samsung’s assertion that the AAA ‘decided that Samsung was not required to pay fees.’”

Interestingly, the district court notes that Samsung has not argued inability to pay, “but the Court has not been convinced that Petitioners are able to lend over $4,000,000 while the dispute pends.” And petitioners’ appellate brief says the cases Samsung cites are distinguishable because they “involved parties that could no longer afford their fees, which courts have consistently distinguished from a willful refusal to pay.”

While Samsung argues that “administrative fees are quintessential ‘procedural’ matters for arbitral bodies, not courts, to decide,” the district court did “not see filing fees as procedural in this case” because “The fees are bound up in the right to arbitrate that the ADR tribunal governs.” This procedural/substantive distinction may be crucial under the Supreme Court’s decision in Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002), which said, “issues of substantive arbitrability . . . are for a court to decide and issues of procedural arbitrability, i.e., whether prerequisites such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate have been met, are for the arbitrators to decide.”