April 11 (Reuters) - (The views expressed here are those of the author's Reuters columnist).
If you can't beat them at your own game, change the rules.
This seems to be Samsung Electronics America Inc's latest tactic. Samsung is fighting arbitration lawsuits by more than 100,000 Galaxy users who claim their mobile devices contain facial recognition software that violates Illinois' Biometric Privacy Act.
Samsung, as I told you, refused to pay hundreds of millions of dollars to initiate these arbitration cases. The plaintiffs, chiefly Labatonsucharo, Robbins Geller Rudman & Dowd and Milberg Coleman Bryson Phillips Grossman, who filed the arbitration claim, used the payments to force Samsung into an unfair settlement, the company alleges. Labaton sought at least $50 million to settle claims against a list of more than 100,000 customers, the company said in the lawsuit.
Labaton, Robbins, Geller and Milberg testified in federal court in Chicago that their clients only did what Samsung forced them to do when they filed the arbitration case. After all, it was Samsung that forced its customers into arbitration, along with thousands of other U.S. companies that require customers and employees to take class action instead of mandatory individual arbitration. Samsung abruptly abandoned the system it forced customers to accept before consumers understood how to demand mass arbitration, the plaintiff companies said.
The plaintiff companies say Samsung unilaterally breached its contract with its customers by refusing to pay their share of the fees required to initiate the American Arbitration Association case.
The plaintiffs have filed a lawsuit against Samsung in federal court in Chicago to compel the company to participate in arbitration under its customer contract. The stakes are high. Labato's motion to compel Samsung to list 50,000 of its 100,000 customers. Robbins, Geller & Milberg, filed the complaint on March 28 on behalf of only 1,030 Samsung users, but said the companies represent about 60,000 customers who plan to sue Samsung.
The plaintiffs' companies have said they are willing to pay millions of dollars to pay their clients' share of the costs of initiating arbitration. Meanwhile, Samsung has sued the companies for failing to verify tens of thousands of registered customers, some of whom were retained by Labaton and other companies. The company spent months challenging Labaton's arbitration before U.S. District Judge Harry Leinweber in Chicago. Robbins Geller and Milberg said in a statement last week that Leinweber should follow their lead.
The document also states that Samsung is not just fighting against the courts and AAA to kill consumer arbitration. According to Robins Geller & Milberg, Samsung has changed its customer contracts to make it more difficult for customers to arbitrate.
Samsung announced new rules on its website. Before users of Galaxy Mobile devices are allowed to formally seek arbitration, they must go through a 60-day dispute resolution process with Samsung representatives. In addition, this process requires customers to personally sign the dispute document and attend the settlement meeting with Samsung in person, even if the customer is represented by plaintiffs' counsel.
Samsung's new terms are designed to reduce the impact of arbitration fees by creating a new mass arbitration protocol. Under the new rules, if 50 or more customers file arbitration claims at one time, the case will be heard by 50 groups and Samsung will only pay for 50 cases at a time. (Each party chooses 25.) After every 50 arbitrations, both parties must participate in mediation to reach an international agreement. Only if the arbitration fails can the next 50 arbitrators proceed.
I spoke with Samsung representatives and outside Samsung counsel Randall Edwards and Matt Powers of O'Melveny & Myers to find out when the company adopted these new rules. They did not answer. It is unclear whether Samsung will require customers who have previously signed a contract to agree to the revised rules.
I don't know if the company will try to defend the new service agreement in the cases involving Labaton and Robbins Geller, customers whose arbitration cases were previously dismissed because Samsung refused to pay up front.
Robbins Geller Stewart Davidson declined to comment on Samsung's new rule. A representative from Labatonsucharrow did not respond to my email and phone messages. I contacted attorneys for the Keogh Act plaintiffs who brought similar biometric privacy claims in the Samsung mass arbitration in Chicago federal court to ask whether the new rules would affect class actions. . They did not answer. (Samsung dismissed the original class-action arbitration lawsuit, but Galaxy moved to dismiss the case on the grounds that its facial recognition software does not transmit biometric data.)
Samsung isn't the first company to try to change the terms of consumer contracts in a massive arbitration case. In the year In 2020, I told you about DoorDash's sudden transition from AAA to low-wage arbitration provider after thousands of delivery workers filed wage and hour arbitration claims. Last month, I wrote in support of JAMS as a new arbitration provider after learning about Ticketmaster LLC filing for antitrust arbitration in the face of a flood of consumers.
Nor is Samsung the first company to try to lock its customers into a consumer class-action lawsuit, where corporate defendants are only liable for upfront payments in arbitration. Indeed, as I mentioned earlier, the American Chamber of Commerce is actively promoting general arbitration to address the abuses faced by plaintiffs' attorneys who specialize in mass arbitration.
However, at least one trial judge has ruled that class arbitration is unfair because the lengthy process gives corporate defendants an unfair advantage.
That decision is now pending in the 9th U.S. Circuit Court of Appeals. Perhaps the new Samsung deal will be tested in District 7.
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Reporting by Alison Frankel; Edited by Lee Jones.
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Alison Frankel has covered major trade disputes as a Reuters columnist since 2011. A graduate of Dartmouth College, he is a New York journalist who has covered the legal field for more than three decades. Before joining Reuters, he was a writer and editor for American Lawyer magazine. Frankel is the author of Double Eagle. The history of the world's most valuable coin.