The Court of Appeals for the Seventh Circuit issued a ruling this week on the topic of arbitration that at least one published report claims will allow defendants to effectively choose between court proceedings or arbitration hearings by doing nothing more than refusing to arbitration fees.
The Background: A group of 35,651 consumers from Illinois filed arbitration claims against the defendant. The claims alleged that the defendant’s electronic devices unlawfully collected and stored sensitive biometric data in violation of Illinois law. According to the terms and conditions agreed upon by consumers when purchasing or using the defendant’s devices, any disputes arising from the sale or use of these devices were to be resolved exclusively through arbitration under American Arbitration Association rules.
- The AAA determined that the consumers had met the filing requirements and requested the defendant pay $4.125 million in administrative fees. The defendant, however, refused to pay these fees, leading the AAA to terminate the arbitration proceedings and suggest that the parties resolve their disputes in federal court.
- A district court judge ruled in favor of the plaintiffs, ordering the defendant to pay the AAA fees and proceed with arbitration. The defendant appealed, disputing the existence of a valid arbitration agreement and the court’s authority to mandate the payment of fees.
The Ruling: The Appeals Court found that the plaintiffs failed to provide sufficient evidence to prove that they had entered into valid arbitration agreements with the defendant. The evidence presented, which included copies of arbitration demands, a spreadsheet of names and addresses, and the defendant’s terms and conditions, was deemed inadequate. The court emphasized that concrete proof, such as receipts or order numbers, was necessary to establish the consumers’ status as the defendant’s customers.
- The court emphasized that procedural issues, including the payment of arbitration fees, fall under the jurisdiction of the AAA according to its rules. Since the AAA had already exercised its discretion by terminating the proceedings due to non-payment of fees by the defendant, the arbitration process was considered complete, according to the Appeals Court.
