A recent Seventh Circuit decision, Wallrich v. Samsung Elecs. Am., Inc., — F.4th —-, 2024 WL 3249646 (7th Cir. July 1, 2024), will be of interest to companies facing mass arbitration demands.

In Wallrich, a group of 35,651 consumers filed arbitration demands before the AAA alleging privacy claims under Illinois law.  The Samsung defendants disputed the claims and declined to pay the $4,125,000 in administrative filing fees that AAA assessed.  In accordance with the AAA Supplementary Rules for Multiple Case Filings, AAA “offered the consumers the opportunity to advance Samsung’s fees so that the arbitration could proceed, but they declined.  The AAA then notified the parties that, unless it heard otherwise, it would close the arbitration proceedings and refund the consumers’ filing fees, allowing either party to submit the dispute to the appropriate court for resolution.”  Id. at *2.  The consumers moved to compel arbitration, and the district court “ordered Samsung to pay its administrative filing fees and proceed to arbitration.”  Id.

The Samsung defendants prevailed on appeal, with the Seventh Circuit reversing on two independent grounds.  First, it held that the consumers had not carried their burden of proving a valid arbitration agreement because they did not put forward any evidence that any of them had purchased a Samsung device.  Id. at *6-7.  Instead, they sought to rely on (1) copies of their arbitration demands made before the AAA; (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.  The Seventh Circuit reasoned that “the arbitration demands are nothing more than allegations,” and the other documents did not show that any of them had purchased a Samsung device.  Id. at *6.

Second, the Seventh Circuit held that even if the consumers had established an agreement to arbitrate, the district court exceeded its authority and the scope of the arbitration agreement by ordering Samsung to pay the AAA filing fees.  The arbitration agreement allegedly entered into between Samsung and the consumers delegated threshold arbitration fee disputes to the AAA.  The AAA exercised its discretion to terminate the proceedings after Samsung declined to pay the initiation fees and the consumers refused to advance the fees.  According to the Seventh Circuit, “[a]t 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.”  Id. at *7.

For more information on how arbitration providers have adapted their rules to address mass arbitrations, see our coverage of the AAA and JAMS mass arbitration rules.