Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—N.D. Ill.: Purchasers of Samsung Galaxy S4 phones must arbitrate their claims, (Nov 4, 2014)

By Peter Reap, J.D., LL.M.

Purported class representatives of consumers who purchased Samsung Galaxy S4 smartphones were required to arbitrate their claims that the phone’s battery failed to live up to industry standards and the product’s own specifications, the federal district court in Chicago has decided (McNamara v. Samsung Telecommunications America, LLC, November 3, 2014, Leinenweber, H.). Specifically, the plaintiffs asserted that the phone’s continuous usage was far shorter than what Samsung claimed and they brought claims under the Illinois Consumer Fraud and Deceptive Business Practices Act and the Magnuson-Moss Warranty Act.

Samsung moved to compel arbitration on an individual, non-class basis because of arbitration agreements contained in the Standard Limited Warranty which was located in the respective manuals provided in the packaging. The arbitration agreement reads as follows:

ALL DISPUTES WITH SAMSUNG ARISING IN ANY WAY

FROM THIS LIMITED WARRANTY OR THE SALE,

CONDITION, OR PERFORMANCE OF THE PRODUCTS

SHALL BE RESOLVED EXCLUSIVELY THROUGH FINAL

AND BINDING ARBITRATION, AND NOT BY A COURT OR

JURY.

It also provided that any dispute “shall not under any circumstances proceed as part of a class action.” In addition it stated in bold lettering that a consumer could opt out within 30 calendar days by providing notice to Samsung.

In the so-called “shrink wrap” cases, the Seventh Circuit held that a party can manifest agreement to an arbitration clause even where the party does not become aware of the terms and conditions of such an agreement until after the purchase, the court noted. Hill v. Gateway 2000, Inc., 105 F.3d 1147, 1148 (7th Cir. 1997). In Hill, the plaintiff ordered a computer which came in a box that contained a list of terms that govern unless the customer returned the computer within 30 days. Among the terms was an arbitration clause. The trial judge, at the request of plaintiff, refused to enforce the arbitration provision based on what the judge concluded was inadequate notice. The Seventh Circuit reversed holding that such provisions contained within the packaging were valid under the law of contracts provided there is an ability to reject.

Here, the plaintiffs argued that they were not warned about the legal consequences of the arbitration provision and were not given a meaningful opportunity to reject. However, a review of the Samsung Health and Safety Warranty Guide showed that it did provide a meaningful opportunity to reject the arbitration provision, the court held.

With regard to the arbitration provision, the consumer was advised that he had 30 calendar days after purchase to reject the arbitration provision, the court noted. Further, if the purchaser felt the End User License Agreement to be onerous, it could return the product for a refund or credit.

The plaintiffs also disputed the arbitration provision’s location in the warranty section but that was precisely where it belonged as least as far as the plaintiffs were concerned, the court reasoned. What they were seeking to do was prove a breach of the warranty. Moreover, the location of the arbitration provision in a large document was reasonable, according to the court. Here, we are dealing with so-called “smart phones” which by their nature are extremely complicated and provide for a multitude of activities, the court observed. Thus, the contract provided reasonable notice of the arbitration clause.

The plaintiffs’ argument that the arbitration provision was unconscionable under Illinois law was rejected. The provision in question was neither procedurally nor substantively unconscionable. There were no penalties associated with opting out and opting out did not affect the warranty coverage, the court noted. The provision also provided limitation on fees and allowed the arbitrator to assess attorneys’ fees on small claims.

The plaintiffs’ final argument, that the arbitration provision was inconsistent with AAA rules and for this further reason was unconscionable, was also without merit. The plaintiffs did not cite any case that holds that failure to abide by the AAA rules renders a provision unconscionable.

Attorneys: Matthew D. Savin (Siprut PC) and Katrina Carroll (Lite DePalma Greenberg LLC) for John McNamara. Emily Newhouse Dillingham (Paul Hastings LLP) for Samsung Telecommunications America, LLC and Samsung Electronics Co., Ltd.

Companies: Samsung Telecommunications America, LLC; Samsung Electronics Co., Ltd.

Cases: StateUnfairTradePractices Advertising IllinoisNews