Column: Epson’s unusual mass arbitration defense: Sue your (alleged) customers

SEIKO EPSON

25/01/2024 22:51

By Alison Frankel
       Jan 25 (Reuters) - For years, corporations targeted in
mass arbitration campaigns have complained that plaintiffs'
lawyers don’t adequately screen their clients before filing
demands. It’s increasingly easy, after all, to sign up clients
through internet advertising. And for plaintiffs' lawyers waging
mass arbitration campaigns, volume is leverage.
    Printer company Epson didn't just complain about inadequate
vetting when it was slammed with 13,000 arbitration demands. It
escalated things to a whole new level: suing its own customers.
    The story began in the summer of 2022, when Epson  6724.T 
received a notification that the plaintiffs' firm Labaton
Sucharow planned to file arbitration demands for 6,570 Epson
customers who alleged that they were unable to use non-Epson ink
cartridges with their Epson printers. Epson and its lawyers at
Quinn Emanuel Urquhart & Sullivan said they needed more
information to assess the validity of the claims. Epson asked
Labaton to supply a serial number or proof of purchase for each
purported Epson customer.
    Labaton instead informed Epson that it represented an
additional 6,800 Epson customers who also intended to demand
arbitration.
    Labaton eventually supplied Epson with serial numbers for
more than 2,000 of its clients. After weeks of wrangling over
the terms of Epson's consumer contract, the two sides went to
mediation in early 2023. They failed to reach any agreement.
    On March 1, 2023, Labaton filed about 4,000 arbitration
claims at JAMS.
    Three days later, Epson responded by suing nearly 4,000 of
Labaton’s clients in Orange County Superior Court.
    Quinn Emanuel filed two different declaratory judgment
lawsuits against Epson customers. One complaint named Labaton
clients who appeared to be Epson customers. That suit contends
that the defendants -- who are all individually named – did not
comply with Epson’s contractually mandated pre-arbitration
dispute resolution procedures and filed their arbitration claims
in the wrong forum. (Epson said they should have filed at
FedArb, not JAMS.)
    Epson said it was suing its own customers only as a last
resort, because they seemed to have “been roped into a frivolous
mass arbitration scheme by their counsel (Labaton Sucharow) that
seeks to extort a large settlement based not on the merits of
any consumer grievance against Epson but rather on the threat of
having to pay tens of millions of dollars in individual
arbitration filing fees.”
    The other Epson complaint is against Labaton clients who,
according to the company, do not appear to have purchased any
Epson products. In that lawsuit, Epson said it has no intention
of paying upwards of $20 million in arbitration fees to initiate
cases brought by people who aren’t even customers.
    Both suits call for the dismissal of the JAMS cases and fees
for Epson’s lawyers.
    Epson is certainly not the first mass arbitration defendant
to criticize plaintiffs' lawyers for filing supposedly
unwarranted claims. That’s de rigueur in these cases. But it is
one of the only arbitration targets that has gone on the
offensive against thousands of individual claimants.
    Intuit tried a similar tactic a few years ago, suing nearly
10,000 arbitration claimants in state court in Los Angeles in an
attempt to enjoin their cases at the American Arbitration
Association and force them into small claims court. Intuit's
ploy flopped: In 2021, a California appeals court affirmed a
trial court’s refusal to grant the injunction.
    The Epson claimants-cum-defendants are represented by
Labaton and Scott + Scott, which have moved in each case for
certification of a class of defendants. Labaton and Scott +
Scott have called Epson’s lawsuits a “contrived attempt to stall
the arbitration process,” accusing the company of disregarding
its own contractual obligation to arbitrate with claimants who
have satisfied Epson’s own preconditions – which did not include
a requirement that customers provide the company with serial
numbers and proof of purchase.
    By suing the arbitration claimants, wrote Labaton and Scott
+ Scott, Epson veered beyond ordinary defense tactics and “into
outright harassment.”
    Lawyers on both sides declined to comment.
    Orange County Superior Court Judge Lon Hurwitz, who is
presiding over both of Epson’s suits, ruled last fall that the
first issue to be decided is whether Labaton’s clients complied
with Epson’s mandatory “informal” dispute resolution process
before filing their arbitration claims at JAMS.
    Hurwitz had scheduled a limited trial for next week, but the
two sides agreed this week that the issue could be resolved
based on their filings. In a nutshell, Epson contends that
Labaton and its clients never engaged in a good-faith effort to
comply with the informal pre-arbitration dispute resolution
process, which requires, among other things, an explanation of
the facts underlying the customer’s demand. The plaintiffs' firm
“instead wielded the sheer size of the claimant group like a
cudgel, invoking the threat of arbitration fees to try extorting
an unwarranted windfall,” Epson asserted.
    Labaton, on the other hand, insists that it is Epson that
has acted in bad faith. In 2020 and 2021, Labaton said, the
company moved to compel arbitration when customers filed class
actions with claims similar to those asserted by Labaton’s
clients. But, in Labaton's telling, when its clients notified
Epson that they intended to arbitrate, as Epson requires, the
company changed its own rules, demanding information beyond what
its consumer contract specifies and attempting to switch
arbitration forums.
    Broadly speaking, courts have not been sympathetic when
companies complain that mass arbitration is an abuse of the
process they have imposed on consumers. We’ll have to see if
Epson’s tactic of suing thousands of individual claimants proves
more effective than merely criticizing plaintiffs' lawyers.
    If so, mass arbitration could become a more expensive
proposition for plaintiffs' firms.
    
    Read more:
    Verizon’s $100 million settlement gets thumbs down from
lawyers for 10,000 customers
    Mass arbitration target Valve accuses law firm, litigation
funder of ‘extortion’
    Samsung ordered to pay arbitration fees for 36,000 biometric
privacy plaintiffs

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