Samsung’s Chutzpah Rewarded in the Seventh Circuit

We blogged about the District Court ruling in this case, in one of our first ventures into the realm of mass arbitration.  The relevant facts, which have nothing to do with the merits of plaintiffs’ claims, are pretty straightforward.  Paula Wallrich and thousands of others filed arbitrations claims against Samsung with the American Arbitration Association (AAA).  For what it’s worth, they alleged that they had purchased Samsung devices and that those devices unlawfully collected and stored sensitive biometric data in violation of the Illinois Biometric Information Privacy Act, 740 ILCS 14/1 et seq.   While plaintiffs paid their arbitration fees, Samsung refused to pay its $4,1250,000 arbitration fees.  The AAA gave plaintiffs the option of fronting Samsung’s fees.  When plaintiffs refused, the AAA responded by terminating the arbitration proceedings.  In a role reversal, plaintiffs went to the District Court seeking an order compelling arbitration.  The District Court granted that motion and then stayed the case pending arbitration.

Having rejected Samsung’s challenges to its jurisdiction, the District Court addressed Samsung’s remaining claims, as we discussed in the following terms:

Samsung’s remaining arguments smack of chutzpah.  Having prevented the arbitrations mandated by its terms of service from taking place by refusing to pay fees, Samsung now argues that the federal courts lack the authority to compel it to arbitrate or to pay the fees.  No problem, Samsung insists, either because the plaintiffs can now just proceed in court, or better still, plaintiffs cannot proceed either in arbitration or in court because the federal courts lack the power to second-guess the AAA’s refusal to reopen the arbitration proceedings.

In Wallrich v. Samsung Electronics America, Inc., the Seventh Circuit agreed with Samsung.  The court first found that plaintiffs had not met their burden of proving the existence of an arbitration agreement.  Moreover, even if there were an agreement, it would be governed by the AAA, which empowers arbiters, not courts, to determine fee disputes.  

The court first addressed some jurisdictional issues.  Plaintiffs claimed that the Seventh Circuit could not hear an interlocutory challenge to stay a proceeding pending arbitration under §§ 16(a)(3) and 16(b)(1) of the Federal Arbitration Act (FAA).  The court pointed out that the limitation on appellate courts’ jurisdiction to review interlocutory orders relates to orders under Section 3 of the FAA, but the challenged order relates to Section 4.  This may be a fair reading of the statue and is consistent with the holdings of two other Circuit Courts, or it may be yet another instance of the federal courts’ new-found formalism.  It’s not clear why the FAA would prohibit interlocutory appeals from Section 3 motions to compel but not Section 4.

Turning to the merits, the Seventh Circuit held that plaintiffs had not met their burden to establish an enforceable arbitration agreement.  Why?

• Plaintiffs’ arbitrations demands, attesting to the fact that they bought Samsung products were signed by plaintiffs’ counsel and not by plaintiffs themselves;
• Samsung’s terms and conditions, which clearly create an arbitration agreement are not evidence of an arbitration agreement between Samsung and the class members — anybody could have pulled those terms off the Web; and 
• The AAA’s determination that plaintiffs had met the AAA’s filing requirements also does not prove that they agreed to arbitrate 

Okay.  Fine.  The AAA was satisfied.  The District Court was satisfied.  Let’s remand and give plaintiffs another show to supplement the record. As the court acknowledges, anything will do — receipts, order numbers, confirmation numbers, declarations signed by the plaintiffs, anything.  Nope.  Too late.  Plaintiffs got their bite at the apple, and they blew it. 

Samsung, however, gets multiple bites at the apple. The District Court took a very different approach.  Plaintiffs attorneys compiled a list of claimants.  Samsung compared that list to its own list of consumers and challenged some of the names.  Plaintiffs lawyers removed some names from the list and Samsung made no further challenges.  The District Court treated that failure as a concession that the remaining claimants were indeed Samsung customers subject to Samsung’s arbitration agreement.

In any case, even if plaintiffs could prove an arbitration agreement, the parties agreed to play by the AAA’s rules.  Those rules grant the AAA discretion over fee disputes.  Plaintiffs had the option to arbitrate by paying millions of dollars in fees up front.  Why on earth did they refuse to do so? [sarcasm]

Judge Easterbrook (right) was on the panel.  I owe Judge Easterbrook an apology.  Reflecting on Judge Easterbrook’s decision in Campbell, I accused him of inaugurating a regime of “Arbitration for All,” including an employee subject to an arbitration agreement permeated with unconscionability.  I concede that I misjudged Judge Easterbrook.  He does not favor arbitration for all in situations when Bartleby’s defense is available to a well-resourced defendant.

Hat tip to Tamar Meshel for alerting me to the case and for additional engagement.