On July 8, we published a blog about a landmark 7th Circuit opinion involving mass arbitration: Pauline Wallrich v. Samsung Electronics America, Incorporated. In that opinion, the Court dismissed a lawsuit against Samsung seeking an order requiring Samsung to advance AAA’s filing fees. Among other reasons, the Court held that the plaintiffs did not produce evidence documenting that they purchased Samsung devices and were subject to arbitration agreements.

I posted our blog on my LinkedIn page. Professor Adam Levitin of Georgetown Law School responded as follows to my LinkedIn post:

“This ruling reminds me of the 7th Circuit’s critical vendor ruling in the KMart bankruptcy—it’s a demand for some prima facie evidence that a vendor is “critical.” But like Kmart, the hurdle doesn’t seem too hard to overcome for attorneys with legitimate inventory: get a cookie cutter declaration as part of the retention documentation. The real shift in leverage is the change in the AAA fees.”

We strongly disagree that a cookie-cutter declaration is the answer. When a declaration is taken, it opens the door to sanctions being issued if the declaration is false. And that creates an issue for mass arbitration counsel because a lot of their inventory is not (to use Professor Levitin’s term) “legitimate”– it is the result of social media fishing and typically a fair number of the “clients” turn out not to even have accounts at the company, etc. So a cookie-cutter declaration will not relieve the mass arbitration counsel from actually doing some due diligence about the facts of each client’s alleged claim. And that means the lawyers have to actually do some individualized work with their clients, which is what they hope to avoid. Even with legitimate claims, it would take substantial time and effort to obtain documentation and/or signed declarations from each of hundreds or thousands of claimants to support those claims.

We are, however, glad to see Professor Levitin’s concession that the change in AAA fees has produced a “real shift in leverage.” In January of this year, the AAA adopted revised Mass Arbitration Supplementary Rules which sharply reduced the prior per-case filing fees (which required the company to pay huge amounts in filing fees just to get the matter started) to a flat fee of $3,125 from the consumers and $8,125 from the business regardless of the number of arbitration demands. This “initiation fee” covers an administrative review of the filing, an administrative conference call with the AAA and the appointment of a Process Arbitrator and/or a Global Mediator. This takes the sting out of the typical mass arbitration demand which threatens the company with having to pay millions in filing fees up front if it does not settle.