The United States Court of Appeals for the Seventh Circuit has joined the Fifth and Ninth Circuits in holding that a federal court does not have authority to order a party not only to arbitrate a dispute, but also to pay the associated fees for the filed arbitration. The Court found that, where the plaintiffs filed a demand for arbitration, the defendant refused to pay its portion of the filing fees, and the arbitrators terminated the arbitration for non-payment of fees, the parties had “proceeded through arbitration in the manner provided for in their agreement…all that was required.” Wallrich v. Samsung Electronics America, Inc.
In this case, plaintiff Paula Wallrich, along with tens-of-thousands of other alleged consumers, filed arbitration claims with the American Arbitration Association (“AAA”) alleging that Samsung Electronics Company, Ltd. and Samsung Electronics America, Inc. (“Samsung”) violated Illinois law in collecting biometric data through their personal electronic devices. “Skeptical of the consumers’ litigation tactics” and the legitimacy of their claims, Samsung flagged problems and deficiencies in the plaintiffs’ filings to the AAA, including missing contact information and other mistakes. When those technical deficiencies were corrected to the AAA’s satisfaction, Samsung continued to doubt the merits of the claims, or even the claimants’ alleged status as Samsung customers, and refused to pay its over $4 million share of the administrative filing fees. In accordance with its rules, the AAA offered the plaintiffs the opportunity to pay those fees to allow the arbitrations to proceed. After the plaintiffs declined to do so, the AAA terminated the arbitration proceedings pursuant to its rules.
The plaintiffs filed a Petition to Compel Arbitration pursuant to Section 4 of the Federal Arbitration Act, seeking only to compel Samsung to pay its AAA administrative fees and to arbitrate the claims. The District Court ordered Samsung to do both, and Samsung appealed. The Seventh Circuit reversed the District Court on two separate grounds. First, the Court appeared to credit Samsung’s suspicion regarding the veracity of the claimants’ alleged status as Samsung customers, noting that the customers failed to put forth any evidence to meet their burden of proving that they and Samsung were subject to Samsung’s standard arbitration agreement.
Moreover, the Court found that, even had the consumers met their evidentiary burden, the District Court had no authority to order Samsung to pay the AAA administrative fees. Under the Samsung arbitration agreement, disputes about threshold arbitration fees were delegated to the AAA. When the AAA determined that, to proceed forward, the claimants would need to advance Samsung’s share of the fees, the claimants declined to do so. Pursuant to its rules, the AAA told the parties it would terminate the arbitrations, refund the claimants’ filing fees, and the parties could then resolve their disputes in the appropriate court or courts. The Seventh Circuit noted, the “AAA considered the dispute and terminated the arbitration within its discretion…the arbitration was complete…and the district court did not have the authority to flout the parties’ agreement and disturb the AAA’s judgment.” In so doing, the Court joined the Fifth Circuit’s holding that payment of administrative fees are “conditions precedent to arbitration” and “procedural issues left to the discretion of the arbitrators” (see Dealer Computer Services, Inc. v Old Colony Motors, Inc.) and the Ninth Circuit’s finding that, while “not an ideal solution to the problem of a party’s failure to pay its share of the fees…,” “it is well within the discretion of the arbitrators” to allow an arbitration to proceed on the condition that the claimants advance the respondent’s fees, and the arbitration therefore “proceeded pursuant to the parties’ agreement and the rules they incorporated.” (see Lifescan, Inc. v. Premier Diabetic Services, Inc.).
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