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

(Reuters) - Among critics of the phenomenon known as mass arbitration, Samsung Electronics America Inc is regarded as a prime example of a company victimized by plaintiffs' lawyers attempting to use the leverage of arbitration fees to extract gigantic settlements.

Plaintiffs' firms have signed up more than 160,000 Samsung cellphone owners who contend that their devices violate Illinois’ biometric privacy laws. Not all of those Samsung customers have filed formal demands to arbitrate their claims before the American Arbitration Association, but the company has said in court filings that demands from just one of the firms, Labaton Sucharow, would impose fees of more than $400 million on the company.

Samsung has refused to pay the AAA fees, arguing, among other things, that Labaton failed to vet its sprawling client list of more than 100,000 purported Samsung customers. According to the company, Labaton’s roster includes dead people, people who never owned a Samsung device and people with obviously made-up names or addresses, including one claimant who listed their address as "Q" and another whose listed address was “This Fi Dhkhj.”

Labaton didn’t bother to screen its would-be clients carefully, Samsung has said, because it only cared about maximizing the pressure on Samsung from thousands of dollars in fees for every case, however shady the claimant.

Labaton has retorted that Samsung keeps making these accusations without providing any specifics. AAA, the firm says, checked Labaton's client spreadsheet and ultimately determined that almost all of the cases could commence, (The screwy addresses were apparently identified by AAA and were corrected.)

But a new Samsung filing offers what seems to be strong evidence to back the company’s assertions of inadequate client vetting: Samsung contends that at least 241 of Labaton’s purported clients have also signed up as clients of Robbins Geller Rudman & Dowd and Milberg Coleman Bryson Phillips Grossman.

Those firms, which say they represent about 60,000 Samsung device users, brought a March 28 petition to compel Samsung to arbitrate demands by about 1,030 of those clients. But in its March 30 filing, Samsung said that nearly a quarter of the claimants listed by Robbins Geller and Milberg are already petitioners in Labaton's ongoing case to compel Samsung to pay arbitration fees for 50,000 Labaton clients.

Samsung’s new filing is nominally a request for the Robbins and Labaton cases to be heard before the same judge, U.S. District Judge Harry Leinenweber of Chicago. But you can be sure that mass arbitration critics, who have already highlighted Samsung’s accusations about sloppy due diligence, will seize on this new detail about overlapping clients as they push arguments that companies should not be required to advance millions of dollars in fees for unvetted claims.

In an email statement, Melissa Nafash of Labaton accused Samsung of tactical gamesmanship.

“Samsung knew about this issue for almost a year but waited until now to identify the claimants so it could accuse well-respected firms of unethical practices before a federal judge,” Nafash said. “As Samsung knows, the typical practice is to send notice to firms who dually represent a claimant and let the firms resolve it." Nafash said Labaton would ensure that none of its clients recovered more than once on a Samsung claim.

Robbins Geller and Milberg did not respond to my query. Samsung lawyers Randall Edwards and Matt Powers of O’Melveny & Myers also did not respond. Samsung has asserted that the underlying data privacy claims are unwarranted because its devices do not transmit biometric information to the company or any other outsider.

The Samsung mass arbitration dispute is exceptionally complex. The saga began in late 2021 when an Illinois plaintiffs' firm, Keogh Law, brought a biometric data privacy class action alleging that Samsung devices used facial recognition technology to sort photos. The company initially moved to compel arbitration but subsequently made a strategic choice to drop that motion.

After the class action was filed, Labaton’s mass arbitration practice began to seek out claimants via the firm's website and Facebook advertisements, as well as direct email outreach to clients in unrelated cases. Labaton amassed a client base that now tops 100,000.

Before filing any arbitration cases, according to Samsung, Labaton demanded a $50 million settlement, citing the hundreds of millions Samsung would owe in arbitration fees. When Samsung refused to pay, the company says, Labaton filed 50,000 arbitration demands. (Labaton has not denied Samsung’s account but its filings have chided the company for throwing a “tantrum” and for attacking the plaintiffs' firm.)

Samsung and Labaton dispute whether Samsung was required to pay AAA fees, which, according to Samsung, could have been advanced by Labaton. They also disagree about the implications of Labaton’s decision not to advance Samsung’s share of the fees. But to make a long story short, Labaton filed a petition last October to compel arbitration.

Samsung opposed the petition, which it also moved to dismiss. In addition to criticizing Labaton’s client accumulation tactics and arguing that the underlying claims are bogus, the company insisted that it would have been willing to arbitrate if Labaton had advanced Samsung's fees to AAA. Otherwise, the company said, Labaton’s clients can litigate their claims in the pending class action, which Samsung opted not to send to arbitration.

Labaton has responded that it’s not up to Samsung to choose the forum for Labaton’s clients. Samsung required its customers to accede to arbitration in its consumer contracts, Labaton said. By demanding arbitration, the firm argued, its clients are only trying to hold the company to the contract it imposed. (Labaton has also said that the AAA’s advance fee-shifting is not intended for multibillion-dollar corporations but for financially strapped businesses.)

We still don’t know much about the Robbins Geller and Milberg campaign against Samsung. In their petition to compel arbitration, the firms accused the company of making “veiled threats,” including threats of sanctions, if the firms proceeded with arbitration demands.

I had wondered last year if litigation over mass arbitration was dying down. Looks like the answer to that question is a resounding no.

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