A federal judge will let an arbitrator decide if attorneys representing almost 50,000 Samsung users can engage in “mass arbitration” rather than pursue a class action under Illinois’ biometric privacy law.
U.S. District Judge Harry Leinenweber issued an opinion Sept. 12 granting a motion to compel arbitration, despite Samsung’s contention the maneuver is an attempt to circumvent protections in the company’s standard user agreement and force it into a larger settlement it otherwise might’ve avoided.
Earlier this year, Samsung accused Labaton Sucharow, one of America’s most influential plaintiffs’ law firms, of trying to cram potentially thousands of wrongful claims under the Illinois Biometric Information Privacy Act into mass arbitration. Samsung claimed hundreds of people, whom Labaton claimed to represent for several months cropped up on a list of plaintiffs allegedly represented by another firm, leveling nearly identical claims against the electronics maker.
Leinenweber said there are 49,986 Illinois users of Samsung devices who filed individual arbitration demands with the American Arbitration Association (AAA) on Sept. 7, 2022. The AAA invoiced those people for their portion of administrative fees, but Samsung said it wouldn’t pay its portion “because it found the claimant list included discrepancies such as deceased claimants and claimants who were not Illinois residents,” according to Leinenweber, although it did pay fees for 14 Californians.
On Oct. 31, 2022, the AAA determined the claimants met their filing requirements but said Samsung owed $4.125 million. Samsung again declined to pay, and when the claimants also said they wouldn’t pay Samsung’s portions, the AAA closed the Illinois claims without assigning an arbitrator or a location.
“Rather than designating a place of arbitration, Samsung’s Arbitration Agreement simply incorporates the AAA Rules,” Leinenweber wrote. He noted a rule providing “that if the parties do not agree to the locale for a hearing, the appointed arbitrator will determine the venue after considering the positions of the parties, dispute and AAA due process protocol. The AAA did not appoint an arbitrator, nor determine venue of any arbitration before closing its proceedings.”
That outcome, Leinenweber added, would mean federal court is not the venue for determining the next steps. However, he rejected Samsung’s argument citing the “general venue statute,” agreeing with the plaintiffs the company has sufficient evidence to identify 35,651 claimants as residents of the Northern District of Illinois, granting him the power to consider their motion to compel arbitration.
“Not so, however, for the 14,335 petitioners who admittedly do not reside in this district,” Leinenweber wrote. He dismissed the petitions regarding those claimants without prejudice.
Turning to the merits of the motion to compel for the surviving claimants, Leinenweber said “it remains undisputed that the arbitration agreement is written and enforceable against the parties that accede to it,” and rejected Samsung’s arguments the claimants didn’t show each of them entered into such an agreement, noting the company “has not identified a genuine issue of fact as to any individual petitioner” despite having customer files.
Samsung also couldn’t prove its customers’ dispute falls outside the scope of its arbitration agreement. Leinenweber said the company didn’t “meaningfully dispute” the argument its contract holds an arbitrator is the party to decide how to apply the agreement. He added that “whether the mass filings are indeed appropriate under the arbitration agreement in light of its class action waiver provision is clearly a question of scope” and said the same question applied to the “underlying BIPA claims reaches the same result.”
The judge also rejected Samsung's argument that the mass arbitration efforts amount to an attempt to sidestep the arbitration agreement's language forbidding class actions.
Leinenweber said it should be up to an arbitrator to decide that question.
"Whether the mass filings are indeed appropriate under the arbitration agreement in light of its class action waiver provision is clearly a question of scope," the judge said. "Thus, because the parties both agreed to delegate enforceability questions to the arbitrator and incorporated the AAA rules in the arbitration agreement, the question of whether Petitioners’ mass filings violate the Arbitration Agreement remains for an arbitrator, not this Court."
Leinenweber determined Samsung’s refusal to pay AAA fees is a breach of its own arbitration agreement and explained his order to compel arbitration can force Samsung to pay that money, first because the plaintiffs did not waive their rights in the arbitration proceedings and then because the AAA has discretionary authority to implement its own rules.
“The AAA, commonsensically, requires fees to perform its services,” Leinenweber wrote. “The AAA can validly refuse to conduct arbitrations without payment, as it did here. To expect it to perform its arbitral services regarding payment without payment places undue burden on a nonbreaching party, either the AAA or the claimants, to front the costs. If this court merely orders arbitration but not the payment of fees, the AAA might seek payment from petitioners with the expectation that petitioners will invoice Samsung for this payment.”
Ultimately Leinenweber said “Samsung was hoist with its own petard,” drawing a comparison to a recent case in federal court in New York in which Uber sought to avoid paying arbitration fees for almost 31,000 identical cases. Drafting an agreement seeking to preclude class claims was a business decision with this as a possible consequence, he said.
Samsung is represented in the case by attorney Randall W. Edwards, of the firm of O'Melveny & Myers, of San Francisco, and others with that firm and the firms of Donohue Brown Mathewson & Smyth and Kopecky Schumacher Rosenburg, both of Chicago, and Skadden Arps Slate Meager & Flom, of New York.