While thousands of Illinois companies face potentially "annihilative liability" under class actions accusing them of violating the state's stringent biometrics privacy law, recent court decisions show they also shouldn't consider arbitration clauses inserted in user agreements as any kind of escape hatch, either.
The issue was brought front and center most recently when a federal judge forced smartphone and appliance making giant Samsung shell out more than $4 million in fees to allow more than 50,000 plaintiffs to all move forward simultaneously with so-called "mass arbitration" claims that the company had violated their rights under the Illinois Biometric Information Privacy Act.
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 BIPA law 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, in a ploy to get a heftier settlement than what Samsung's standard user agreement would otherwise allow.
Eric Weiss
| Perkins Coie
In September, a federal judge, however, said the arbitration clause Samsung had inserted into its user agreement - ostensibly, to avoid facing disastrous class actions in court - mean the company must now allow arbitrators to decide if the claims can move forward. And so the judge said companies like Samsung must still pay millions of dollars to cover its share of the fees due to the American Arbitration Association.
Despite the inherent risks of mass arbitration, attorney Eric J. Weiss, a partner at the firm of Perkins Coie in Seattle, who represents companies accused in commercial class actions, said this legal avenue can still benefit both consumers and companies in some cases, compared to class action lawsuits.
“For many, if not most, routine disputes, arbitration remains a cost effective and faster means of resolving those disputes,” he said. “Many disputes between customers and companies are unique to only one or a handful of customers, which is not conducive to class litigation.”
Amid this evolving legal landscape, he recommended that companies scrutinize both routes before deciding how they will handle consumer issues in the future.
It’s a mistake, he said, to consider mass arbitration a back-door class action suit, although Samsung seemed to think so. He concedes that both routes to resolving consumer complaints share “similar financial risks for companies.” But mass arbitration can be associated with expensive arbitration fees as with Samsung, and this money does not go to consumers.
Additionally, “there is no class wide relief with mass arbitration because those consumer disputes are arbitrated and resolved individually,” Weiss said. He clarified that “class action is a representative action where one or a few named plaintiffs can represent thousands or more unrepresented customers.” Conversely, in mass arbitration, he said, “each of those customers has to pursue their claims individually with essentially hundreds or thousands of mini trials.”
Both ways of resolving complaints have inherent risks, he said, but “some companies might prefer to accept the risk of a class action because there are benefits with known and enforced rules of civil procedure and evidence.”
There is generally also an opportunity to appeal adverse decisions with class action, but seldom with the streamlined and “often ambiguous” rules of mass arbitration, he said.
The decision requiring Samsung to pay over $4 million in arbitration fees is consistent with the lack of sympathy the courts have shown companies in similar cases, according to Weiss.
In explaining the court outcome, Weiss said: “The judge first concluded that there was a valid agreement to arbitrate, even though some of the claimants may have been recruited by obscure social media ads.”
The judge also determined this agreement called for “final and binding” arbitration of all disputes with those customers, Weiss said.
“He reasoned that Samsung made a business decision to arbitrate disputes of customers rather than litigate class actions and for better or for worse the time calls for Samsung to pay for it," Weiss added.
As the trend toward mass arbitration continues, Weiss said that companies should engage legal counsel to review their arbitration agreements, so they can avoid surprises in court.
“Companies may not be able to rely exclusively on class waivers in their terms of service and arbitration provisions to avoid costly, time-consuming and often distracting litigation,” he said.
Jonathan Bilyk contributed to this report