Taming the Mass Arbitration Lion

A couple weeks ago, the Seventh Circuit US Court of Appeals issued a significant ruling involving mass arbitrations.  The case, Wallrich v. Samsung Electronics (No. 23-2842), involved the filing of almost 36,000 arbitrations with the AAA by one law firm.  The associated administrative fees that were charged to Samsung were more than $4 million.  Samsung balked at paying that, despite having arbitration agreements that provided for Samsung to pay for those fees.  The Seventh Circuit ultimately said Samsung did not need to make that payment.

The AAA closed the cases when Samsung issued its refusal and the Claimants similarly declined to pay the fees as was their option under the AAA’s Consumer Rules.  Claimants sued Samsung, seeking an order to compel arbitration and payment of the fees.  While the District Court granted the Claimants’ relief, the Seventh Circuit reversed, stating:

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.

The court held that the Claimants failed to meet their initial burden of proof by providing the existence of a valid arbitration agreement with Samsung.

Additionally, the court ruled that the order of the District Court compelling Samsung to pay the fees exceeded its authority. The court noted that the Claimants had the option to pay the fees themselves and, by refusing to do so, the arbitrations were rightfully terminated by the AAA and the Claimants could pursue their claims in court. 

While the administrative fees issue has been addressed by virtue of the revamped fees structure implemented by the AAA (written about here), the requirement that Claimants must provide proof of a valid arbitration agreement will contain significant weight going forward.