We previously wrote about an Illinois federal district court order requiring Samsung to pay about $4 million in arbitration fees in connection with 35,000 individual arbitration demands filed as part of a “mass arbitration” and the Seventh Circuit’s subsequent stay of that order after Samsung appealed. The Seventh Circuit has now decided the appeal—in favor of Samsung—an important ruling that may help level a mass arbitration playing field that heretofore has been tilted heavily in favor of the consumers.
The appeals court first determined that a summary judgment evidentiary standard applies in deciding a motion to compel arbitration. It found that the consumer claimants, as the moving parties, failed to carry their burden of establishing that they had valid arbitration agreements with Samsung. Under the circumstances of this case, they could have established the existence of such agreements by presenting evidence that they were in fact Samsung customers, but they failed to do so because their arbitration demands generically alleged that they “owned a Samsung Galaxy device” and were not supported by sworn declarations from the claimants or any concrete evidence. The court explained:
To support their petition to compel arbitration, the consumers relied on the following: (1) copies of their arbitration demands made before the AAA [American Arbitration Association]; (2) a spreadsheet containing their names and addresses; (3) copies of Samsung’s terms and conditions; and (4) the AAA’s determination that the consumers had met the AAA filing requirements. That was not enough.
First, the arbitration demands are nothing more than allegations, much like a complaint filed in a district court …. But like a complaint, the demand is only signed by counsel. No claimant submitted any declaration or otherwise attested under the penalty of perjury to the facts alleged in the arbitration demands. “[A] plaintiff must do more than simply point to the allegations in his complaint,” or in this case, the allegations in an arbitration demand, to defeat summary judgment ….
The copies of Samsung’s terms and conditions and the spreadsheet containing the consumers’ names and addresses are also insufficient. Again, Samsung does not dispute that its terms and conditions bind its customers to arbitration agreements. The terms and conditions the consumers identify are simply copies found in any Samsung device or on Samsung’s website, not terms and conditions reviewed and received by specific consumers. Without more, those copies do nothing to show that any of the consumers purchased a Samsung device. And a spreadsheet of only names and addresses likewise fails to show that any of those named were Samsung customers. Identifying a generic arbitration agreement and then independently listing the names and addresses of alleged consumers without doing anything to link those consumers to the agreement does not satisfy the “existence of an arbitration agreement” element—like any agreement, the element requires a showing of assent between the relevant parties ….
Finally, the AAA’s determination that the consumers had met the filing requirements under the AAA rules also does not serve as evidence of an arbitration agreement between the consumers and Samsung. The AAA’s filing requirements involve no substantive determinations. Rather, a claimant only needs to explain the dispute, list the names and addresses of the consumers, specify the amount in dispute, identify a location for the hearing, state the relief sought, and attach a copy of the alleged arbitration agreement. Once those boxes are checked, the AAA concludes that filing requirements have been met. At no point in this initial process does the AAA determine whether the claimants entered into an arbitration agreement with the business or even whether the claimants were customers of the business.
The consumers could have submitted almost anything to meet their burden of proving the existence of an arbitration agreement. For example, they could have submitted receipts, order numbers, or confirmation numbers from their purchases of Samsung devices. Or even more directly, they could have submitted declarations attesting to the allegations in their arbitration demands. They did not. Without adducing any evidence aside from their allegations, the consumers failed to meet their initial burden of proving the existence of a valid arbitration agreement with Samsung.
The Seventh Circuit further held that even if the consumers had met their evidentiary burden of establishing valid arbitration agreements with Samsung, the district court “exceeded its authority and the scope of the arbitration agreement by ordering Samsung to pay the AAA filing fees.” The court reasoned:
The arbitration agreement allegedly entered into between Samsung and the consumers delegated threshold arbitration fee disputes to the AAA. The parties thus bargained for the AAA’s discretion over the payment of administrative filing fees, including the consequences that would stem from a party’s refusal to pay those fees. After Samsung refused to pay its fees, the AAA, in line with its rules (which it applies in its discretion), allowed the consumers to advance Samsung’s fees. If the consumers had advanced the fees, Samsung would have arbitrated the merits of the consumers’ claims. However, the consumers declined. The AAA then could have stayed the arbitration, as requested by the consumers, but it chose not to. Instead, it terminated the proceedings, opening the door for the consumers to pursue their claims in district court. Rather than take this route, the consumers sought an order compelling Samsung to arbitrate and to pay the required fees. But this request was outside the district court’s authority. Samsung and the consumers’ arbitration proceeded in line with their agreement. The AAA considered the dispute and terminated the arbitration within its discretion. At that point, arbitration was complete, and the district court did not have the authority to flout the parties’ agreement and disturb the AAA’s judgment.
The Seventh Circuit rejected the consumers’ argument that this result was unjust. It emphasized that “we are here because they invoked their alleged agreement with Samsung; they cannot now complain of that agreement’s terms.” Moreover, according to the court, “the consumers were not left without recourse. They could have advanced Samsung’s fees and continued with arbitration, or they can now pursue their claims on the merits in district court.”
The Seventh Circuit’s decision is the latest in a series of developments suggesting that the mass arbitration tsunami which has engulfed financial services and other companies over the past several years may eventually begin to subside. In January of this year, the AAA adopted revised Mass Arbitration Supplementary Rules which sharply reduced the prior per-case filing fees to a flat fee of $3,125 from the consumers and $8,125 from the business regardless of the number of arbitration demands. This “initiation fee” covers an administrative review of the filing, an administrative conference call with the AAA and the appointment of a Process Arbitrator and/or a Global Mediator. In May, JAMS adopted Mass Arbitration Procedures and Guidelines. Under those rules, the filing fee is $7,500, regardless of the number of cases. In consumer cases brought against a company, the most that the consumers, in the aggregate, can be required to pay is $2,500. These rules should ultimately take the “sting” out of mass arbitration demands since they prevent claimants’ counsel from threatening companies with exorbitant and potentially crippling filing fee demands.
The consumer advocacy group Public Citizen has already criticized the Seventh Circuit’s decision as “driv[ing] a truck through the ‘mutuality’ of arbitration agreements, meaning a corporate defendant can effectively choose between an arbitration and court proceedings by simply deciding not to play ball with arbitral rules.” We think that criticism is totally unjustified since it fails to address the Seventh Circuit’s detailed and well-reasoned explication of the legal foundation for its decision. Nevertheless, we expect that mass arbitration counsel will be working hard to try to develop new strategies to deal with these developments, and we will continue to keep you updated.