Alleging violations of the Illinois Biometric Information Privacy Act (BIPA), approximately 50,000 Samsung customers filed individual arbitration demands with the American Arbitration Association (AAA) pursuant to an arbitration clause in Samsung’s customer agreement. Samsung refused to pay its share of the AAA’s administrative fees, totaling about $4 million, and the AAA closed the matters for lack of payment. The customers then petitioned the U.S. District Court for the Northern District of Illinois to compel arbitration. Although the court dismissed some of the petitioners without prejudice for improper venue, it granted the petition as to more than 35,000 petitioners and ordered Samsung to pay its share of the AAA’s administrative fees so that the petitioners could arbitrate their claims.
The court concluded that Samsung’s refusal to pay arbitration fees was a breach of its arbitration agreement. Samsung argued that the petitioners waived the right to compel arbitration because they had a choice between advancing Samsung’s share of the AAA fees themselves or allowing the arbitral cases to be closed and pursuing their claims in court. The court rejected that argument, finding that the petitioners had timely complied with their own filing and financial requirements under the arbitration agreement and the AAA rules and were “consistently aligned with their right to arbitrate.”
The court further held that it had the authority to order Samsung to pay the AAA fees because “[t]he fees are bound up in the right to arbitrate” and “the filing fee rule affects whether the parties can exercise their right to arbitrate at all. Money is the means of dispute resolution, and the way to start this process.” Paraphrasing Hamlet, the court emphasized:
Samsung was surely thinking about money when it wrote its Terms & Conditions. The company may not have expected so many would seek arbitration against it, but neither should it be allowed to “blanch at the cost of the filing fees it agreed to pay in the arbitration clause.” …. Alas, Samsung was hoist with its own petard. …. William Shakespeare, Hamlet, Act III, Scene 4. As a New York court recently stated in a mass arbitration case involving Uber, “While Uber is trying to avoid paying the arbitration fees associated with 31,000 nearly identical cases, it made the business decision to preclude class, collective, or representative claims in its arbitration agreement with its consumers, and AAA’s fees are directly attributable to that decision.” …. Samsung made the same business decision here, and for better or for worse, the time calls for Samsung to pay for it.
Those who follow our presentations on mass arbitration will recognize that this is not the first federal district court to side with the consumer plaintiffs when the defendant company refused to pay the arbitration administrator’s mass arbitration fees. In an earlier case, a California federal district court similarly criticized the defendant company for “hypocrisy” because the plaintiffs were simply seeking to pursue the individual arbitrations required by the class action waiver in the company’s arbitration clause. However, the financial services industry is fighting back hard, appellate courts are beginning to weigh in and perhaps the tide will turn. The Ninth Circuit has scheduled oral argument in the MacClelland v. Cellco Partnership appeal for November 14, 2023, and we will let you know the result. We will also be watching to see if Samsung pursues an appeal to the Seventh Circuit in this case. In the meantime, if you have not done so already, you should consider making changes to your arbitration clause that we have developed to help avoid being the target of a mass arbitration in the first instance.