Facing arbitration onslaught, Samsung changes the rules for consumer claims

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By Alison Frankel

April 11 (Reuters) -(The opinions expressed here are those of the author, a columnist for Reuters.)

If you can't beat 'em at your own game, change the rules.

That seems to be Samsung Electronics America Inc’s latest tactic as it combats demands for arbitration from more than 100,000 Galaxy users who allege their Samsung mobile devices contain embedded facial recognition software that violates Illinois’ biometric data privacy law.

Samsung, as I’ve told you, has refused to pay hundreds of millions of dollars in fees to allow those arbitration cases to begin. The company contends that the plaintiffs firms that filed the arbitration demands – primarily Labaton Sucharow, Robbins Geller Rudman & Dowd and Milberg Coleman Bryson Phillips Grossman – are exploiting the leverage of filing fees to try to force Samsung into an unwarranted settlement. The company claimed in a court filing that Labaton demanded no less than $50 million to resolve claims for its roster of more than 100,000 clients.

Labaton, Robbins Geller and Milberg have retorted in filings in Chicago federal court that by submitting arbitration demands, their clients were only doing what Samsung forced them to. It was Samsung, after all, that imposed arbitration on its customers, just like thousands of other U.S. companies that required consumers and employees to consent to mandatory individual arbitration in lieu of class actions. Only when consumers actually figured out how to demand arbitration en masse, the plaintiffs firms say, did Samsung suddenly balk at the very system it forced its customers to accept.

By refusing to pay its share of the requisite case initiation fees to the American Arbitration Association, the plaintiffs' firms argue, Samsung has breached the contract it unilaterally imposed on its customers.

The plaintiffs' firms have sued Samsung in Chicago federal court to compel the company to engage in the arbitration process it mandated in customer contracts. The stakes are huge: Labaton's petition to compel listed 50,000 of the firm's 100,000 Samsung clients. Robbins Geller and Milberg filed their March 28 petition on behalf of only about 1,030 Samsung users but the firms have said they represent about 60,000 additional clients who intend to seek arbitration against Samsung.

The plaintiffs' firms say they are willing to front millions of dollars to cover their clients’ share of the requisite fees to launch arbitration. Samsung, meanwhile, has accused the firms of failing to screen the tens of thousands of clients they’ve signed up, some of whom have retained both Labaton and the other firms. The company is several months into litigation before U.S. District Judge Harry Leinenweber of Chicago over Labaton’s petition to compel arbitration. Robbins Geller and Milberg said in a filing last week that Leinenweber should also oversee their petition.

That filing also disclosed that Samsung isn’t just fighting in court and at the AAA to derail customers' arbitration claims. According to Robbins Geller and Milberg, Samsung also just changed the terms of its consumer contract to make it much harder for customers to demand arbitration.

Samsung laid out the new rules on its website: Before Galaxy mobile device users are allowed to file a formal demand for arbitration, they must complete an internal, 60-day dispute resolution process with Samsung representatives. That process, moreover, requires customers personally to sign a document initiating the dispute and topersonally participate in a settlement conference with Samsung, even if the customer is represented by a plaintiffs' lawyer.

Samsung’s new terms also purport to blunt the impact of arbitration fees by establishing a new protocol for mass arbitration. If 50 or more customers coordinate to file parallel arbitration claims, the new rules say, cases will be heard in batches of 50, with Samsung only paying fees for 50 cases at a time. (Each side picks 25.) After each batch of 50 arbitrations, the two sides must participate in mediation to reach a global settlement. Only if the mediation fails can the next 50 arbitrations proceed.

I reached out to Samsung representatives and to Samsung outside counsel Randall Edwards and Matt Powers of O’Melveny & Myers to find out when the company adopted these new rules. They did not respond. It’s not clear whether Samsung has required customers who signed previous consumer contracts to agree to the revised rules.

I also don’t know whether the company will attempt to assert the new terms of service in cases involving Labaton and Robbins Geller clients whose previous arbitration cases were dismissed because Samsung refused to pay initiation fees.

Stuart Davidson of Robbins Geller declined to provide a statement about Samsung’s new rules. A spokesperson for Labaton Sucharow did not respond to my email and phone messages. I also reached out to plaintiffs' lawyers from Keogh Law, who are litigating a class action in Chicago federal court that asserts the same biometric privacy claims that are at stake in the Samsung mass arbitration, to ask whether the new rules would affect the class action. They did not respond. (Samsung dropped an early motion to compel arbitration of the class action but has moved to dismiss the case, arguing that the facial recognition software in Galaxy devices does not share biometric data.)

Samsung is not the first company to attempt to change consumer contract terms in the face of mass arbitration demands. I told you back in 2020 about DoorDash abruptly switching from AAA to an arbitration provider that charged smaller fees after thousands of delivery workers filed wage-and-hour arbitration cases. And last month I wrote about Ticketmaster LLC ditching JAMS in favor of a new arbitration provider after the company realized it was about to be socked with an avalanche of consumer demands for arbitration of antitrust claims.

Samsung also is not the first company to try to bind customers to a process that requires them to arbitrate consumer claims in batches, with corporate defendants only liable for initiation fees in the cases that are being arbitrated. In fact, as I’ve reported, the U.S. Chamber of Commerce is pushing hard for bellwether arbitration as a solution to what it insists are abuses by plaintiffs' lawyers who specialize in mass arbitration.

At least one trial judge, though, has ruled that batch arbitration is unconscionable because the drawn-out process is an unfair advantage for corporate defendants.

That ruling is now before the 9th U.S. Circuit Court of Appeals. Maybe Samsung’s new contract will wind up as a test case at the 7th Circuit.

Read more:

Mass arbitration miscue? Samsung says plaintiffs' firms double dipping client lists

Ticketmaster customers attack ‘Kafkaesque’ mass arbitration rules

Verizon appeal will be early test of corporate strategy to combat mass arbitration

Reporting By Alison Frankel; editing by Leigh Jones


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