Column: Could 23andMe $30 million data breach settlement get derailed by mass arbitration?

Chrome Holding Co

30/09/2024 20:53

(The opinions expressed here are those of the author, a
columnist for Reuters.)
    By Alison Frankel
       Sept 30 (Reuters) - A law firm representing about 5,000
23andMe customers who demanded arbitration after hackers
obtained sensitive data from the genetic testing company told a
California federal judge last week that it has serious qualms
about a proposed $30 million class action settlement.
    Milberg Coleman Bryson Phillips Grossman moved to intervene
in consolidated data breach litigation against 23andMe, arguing
that the company’s proposed settlement agreement improperly
compromises the contractual rights of about 5,000 23andMe
customers who have demanded to arbitrate their privacy claims.
    In an accompanying brief opposing the tentative settlement,
Milberg homed in on a proposed preliminary injunction that would
bar its clients from proceeding with arbitrations they have
already initiated while the court weighs approval of the
classwide deal.
    The plaintiffs firm accused 23andMe of forcing customers to
sign contracts mandating arbitration in order to limit the
company’s exposure to class action litigation – but then using a
class action settlement to try to shut down the very arbitration
it had imposed on its customers.
    “Make no mistake about it: If enforcing arbitration would
benefit 23andMe, it would have utilized that clause to kill the
lawsuits filed in this court,” Milberg told U.S. District Judge
Edward Chen of San Francisco. “But because arbitration no longer
serves to benefit 23andMe, they are seeking to disavow their
contractual obligation to the detriment of the claimants."
    The company, Milberg argued, "cannot ‘have its cake and eat
it too.’”
    23andMe lawyers from Greenberg Traurig did not respond to my
query on the Milberg filings, but in a Sept. 13 brief supporting
the settlement, the company defended the proposed injunction to
halt state-court class actions and mass arbitration.
    Mass arbitration firms pounced after 23andMe disclosed that
it was nearing a deal with class counsel, Greenberg Traurig
argued in the Sept. 13 filing. (The filing did not name these
allegedly opportunistic plaintiffs firms. An accompanying
declaration by Rebecca Guyon of Greenberg is redacted to hide
the mass arbitration firms' names.)
    Their firms' strategy, Greenberg Traurig said, is to use the
leverage of arbitration fees to demand lucrative side
settlements with their clients, to the detriment of millions of
other class members.
    With 23andMe in precarious financial shape, Greenberg
Traurig said, a preliminary injunction to freeze these
arbitrations will protect the interests of the class.
    Class counsel from Keller Rohrback; Casey Gerry Schenk
Francavilla Blatt & Penfield; and Stueve Siegel Hanson said in
an email statement that the Milberg filing contains “several
material misrepresentations that we will respond to in due
course.” Their response brief is due on Oct. 9.
    Alex Straus of Milberg declined to comment, aside from
noting via email that his firm plans to file an amended motion
“in the next day or two.”
    Chen has already signaled his own concerns about the
proposed preliminary injunction. In a Sept. 25 order calling on
23andMe and class counsel to provide additional information
about several aspects of the proposed settlement, the judge
asked, among many other things, whether the company and class
counsel had consulted with lawyers representing arbitration
claimants before proposing an injunction to halt their cases.
The judge also asked whether 23andMe and class counsel expect a
significant number of class members to opt out of the settlement
to pursue arbitration.
    Milberg, as counsel to plaintiffs seeking to intervene, was
not subject to the judge’s order but told Chen in its filings
last week that the company and class counsel gave the firm no
heads up about the proposed injunction. Milberg also argued that
the proposed settlement will make it very difficult for its
clients to opt out. Milberg criticized, in particular, a
prohibition on en masse opt-outs by class members who have their
own counsel. The proposed settlement instead requires each class
member to sign individual opt-out documents.
    The 23andMe settlement is not the first time we’ve seen
lawyers representing arbitration claimants protest a proposed
class action settlement. A couple of years ago, you may recall,
U.S. District Judge Charles Breyer of San Francisco refused to
approve Intuit’s proposed settlement of claims that it duped
customers into paying for tax preparation services after mass
arbitration lawyers from Keller Postman accused the company of
attempting to squelch their clients' cases. Breyer said he would
not countenance any deal with overly onerous opt-out
requirements. (For what it’s worth, the opt-out rules in the
proposed 23andMe settlement seem to be less stringent than those
Breyer rejected.)
    And earlier this year, lawyers for thousands of Verizon
customers who had demanded arbitration of “junk fee” claims
moved to intervene in the company’s $100 million classwide
settlement, arguing that they must have an opportunity to opt
out of the deal. That settlement was subsequently approved by a
New Jersey state court judge, with many arbitration claimants
opting out.
    Based on the first round of briefs in the 23andMe case,
though, there’s surprisingly little precedent in the mass
arbitration era on whether arbitration can be halted during
consideration of a proposed class settlement. In 23andMe’s Sept.
13 brief, Greenberg Traurig cited a 2021 order from Chen in a
class action against AT&T Mobility. Chen granted preliminary
approval of a settlement agreement that barred class members
from arbitrating claims pending final approval of the classwide
deal.
    Milberg noted that Chen’s order in the AT&T case made no
mention of already-launched arbitration, so that precedent is
“unpersuasive at best and irrelevant at worst.” It pointed
instead to Breyer’s ruling in the Intuit case, arguing that
Breyer correctly described a preliminary injunction to halt
arbitration during the class settlement approval process as “an
extraordinary measure best reserved for extraordinary
circumstances.”
    I’m sure 23andMe and the class action lawyers who have
proposed the $30 million settlement will contend in response
briefs next month that this case is extraordinary because of the
company’s uncertain financial future.
    A hearing on the proposed settlement is scheduled for Oct.
29.
    Read more:
    23andMe settles data breach lawsuit for $30 million
    
    Verizon’s $100 million settlement gets thumbs down from
lawyers for 10,000 customers
    
    Breyer balks at 'onerous' opt-out requirements in Intuit
opinion
    

 (Reporting By Alison Frankel)
 ((alison.frankel@thomsonreuters.com; 646-223-6491 (o)
917-848-7493 (c);))