Consumers turn tables against corporate defense in compelled arbitration of information privacy claims

Image via www.vpnsrus.com by Mike MacKenzie CC BY 2.0

Consumer plaintiffs turned the usual tables on corporate defense in the fall when a federal court in Illinois ordered Samsung Electronics to pay millions of dollars in arbitration fees in a biometric privacy case.

In the underlying arbitration demand, 50,000 users of Samsung mobile devices accuse the company of violating the Illinois Biometric Information Privacy Act (BIPA). BIPA is a tough state privacy law that has made trans-Atlantic waves as it fills the gap of Congress's refusal to regulate the American Wild West of consumer privacy.

Typically of American service providers, Samsung endeavored to protect itself from tort liability through terms and conditions that divert claims from the courts to arbitration. The (private) U.S. Chamber of Commerce champions the strategy. Arbitration is reliably defense-friendly. Rumor has it that arbitrators who don't see cases corporations' way don't have long careers. And companies bask in the secrecy that shields them from public accountability. (Read more.)

Resistance to compelled arbitration has been a rallying cause of consumer advocates and the plaintiff bar. For the most part, resistance has been futile. But consumer plaintiffs appear to have a new strategy. The Chamber is not happy.

In the instant case, consumers alleging BIPA violation were aiming for arbitration. Arbitration rules, endorsed by Samsung's terms, require both sides to pay toward initial filing fees, a sum that adds up when 50,000 claims are in play. The consumers' attorneys fronted their share, but Samsung refused. The company weakly asserted that it was being scammed, because some of the claimants were deceased or not Illinois residents, both BIPA disqualifiers.

Samsung must pay its share of arbitration filing fees for living Illinois residents, the district court answered, at least those living in the court's jurisdiction. Many of those consumer claimants were identified with Samsung's own customer records. A few whom Samsung challenged, the claimants dropped from their number. Even when the court pared the list to consumers in Illinois's federal Northern District, roughly 35,000 were still standing.

"Alas, Samsung was hoist with its own petard," the court wrote, quoting Shakespeare. The court opined:

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.” Abernathy v. Doordash, Inc., 438 F.Supp. 3d 1062, 1068 (N.D. Cal. 2020) (describing the company’s refusal to pay fees associated with its own-drafted arbitration clause as “hypocrisy” and “irony upon irony”).

The American Arbitration Association, the entity with which the claimants filed pursuant to Samsung's terms, estimated Samsung's tab at $4.125 million when the number was still 50,000 claims.

Attorneys Gerald L. Maatman, Jr., Rebecca S. Bjork, and Derek Franklin for corporate defense firm DuaneMorris warned:

As corporations who employ large numbers of individuals in their workforces know, agreements to arbitrate claims related to employment-related disputes are common. They serve the important strategic function of minimizing class action litigation risks. But corporate counsel also are aware that increasingly, plaintiffs’ attorneys have come to understand that arbitration agreements can be used to create leverage points for their clients. Mass arbitrations seek to put pressure on respondents to settle claims on behalf of large numbers of people, even though not via the procedural vehicle of filing a class or collective action lawsuit. As a result, corporate counsel should carefully review arbitration agreement language with an eye towards mitigating the risks of mass arbitrations as well as class actions.

Samsung wasted no time appealing to the Seventh Circuit. The case has drawn a spate of amici with dueling briefs from the Chamber and associates, favoring Samsung, and from Public Justice, et al., favoring the consumer claimants.

The district court case is Wallrich v. Samsung Electronics America, Inc. (N.D. Ill. Sept. 12, 2023), opinion by Senior U.S. District Judge Harry D. Leinenweber. The appeal is Wallrich v. Samsung Electronics America, Inc. (7th Cir. filed Sept. 25, 2023).

Boston Bar webinar will probe privacy law latest

Coming soon, the Boston Bar Association will host a webinar on data privacy class action litigation (and related privacy stuff too).  I'm trying to get up to speed on all of the latest developments so that I will not disappoint moderator Melanie A. Conroy, attorney and CIPP/US, of Pierce Atwood LLP, who graciously if foolhardily invited me to participate.  For The National Law Review in April, Conroy wrote the authoritative rundown on the Mount Ida student class action, which treatment inspired me to write about the case for The Savory Tort.

My task is daunting; a lot happened while I was in Africa early in the year and out of the office over the summer.  Our subject matter includes the new regulations under the California Consumer Privacy Act, burgeoning lawsuits under the Illinois Biometric Information Privacy Act, and the shock waves just now hitting the United States from the "Schrems II" decision in the European Court of Justice.  (Brush-with-greatness note: Max Schrems has been in my car.  Long story.)  That's just to get the ball rolling.

Co-panelists are Matthew M.K. Stein, of Manatt, Phelps & Phillips, LLP, and Marjan Hajibandeh, of CarGurus, Inc.  Here are the program details from the BBA:

BBA Webinar: Roundtable on Recent Developments in Data Privacy Class Action Litigation
Thursday, September 24, 2020, 10:00 to 11:00 a.m.
This webinar will explore the growing prevalence of data privacy class actions through recent developments in data privacy legislation, expanded private rights of action, biometric privacy claims, consumer data suits, post-breach and cybersecurity litigation, and the increasingly complex landscape of rulings by federal courts of appeals. The presenters will discuss national trends and developments within the First Circuit and in Massachusetts. The discussion will look ahead to areas to watch and trends that may shape the development of data privacy class actions in the coming months and years.

The program is free for BBA members and $100 for non-members. Registration at least two hours before the program-start is essential to receive the Zoom link.