by Jeff Sovern
So Allison Frankel reports for Reuters in a story headlined Fitbit lawyers reveal ‘ugly truth’ about arbitration, judge threatens contempt. Here are the first three paragraphs:
At a hearing Thursday in San Francisco federal court, a lawyer for the fitness tracking company Fitbit told U.S. District Judge James Donato that no rational customer would arbitrate a $162 claim against the company. The filing fee for a proceeding before the American Arbitration Association, said William Stern of Morrison & Foerster, is $750 – and that’s just to get the case started. It simply doesn’t make sense, Stern said no fewer than six times at Thursday’s hearing, to arbitrate a $162 claim.
Fitbit’s terms of service require customers to arbitrate their claims.
Quite simply, this is a Catch-22 for Fitbit customers. Fitbit imposes mandatory arbitration because it doesn’t want people who buy its fitness trackers to band together in a class action that would make their small claims economically viable. But Fitbit knows consumers, for the most part, won’t throw good money after bad to arbitrate their relatively small claims – and the company doesn’t want to lay out its money for small-dollar arbitration either.
This isn't the first time an industry lawyer has admitted that arbitration claims don't make sense or suppress claims. See here and here for other examples.
(HT: Gregory Gauthier)
The plaintiff just filed her brief with the court.
As I suspected, the demand was made using the Commercial Demand for Arbitration Form and included a $750 fee in accordance with the Standard Fee Schedule of the Commercial Arbitration Rules. On April 25, the AAA determined that the Consumer Rules applied and ordered Fitbit to pay $1,700 in administrative fees and a $2,500 arbitrator deposit by May 9. After the May 31 hearing, Fitbit decided to pay the AAA fees. McLellan obtained a stay from AAA to seek relief from Judge Donato.
It’s not clear whether the AAA reimbursed McLellan or her attorney for the $550 overpayment (the filing fee for a consumer case being $200, not $750).
Ted,
The demand is unfortunately not in the record, but perhaps the plaintiff’s upcoming filing will clarify matters.
Fitbit made a settlement offer that it argued constituted “pay[ing] the claim set forth in the demand in full” and unilaterally declared “the arbitration demand of Ms. McLellan resolved”. The settlement offer included “reimbursement of $750 in costs (in accordance with the AAA’s Standard Fee Schedule)”, suggesting that the consumer did pay $750 (the Commercial Rules filing fee); the letter to McLellan stated that it was “reimbursement of [plaintiff’s counsel’s] $750 associated with filing your demand for arbitration”. Also, the demand was described in the hearing as having the claim amount on the left side and other relief to the right of that, as well as a field for “type of business” for claimant and respondent, which is consistent with the layout of the Commercial Demand for Arbitration Form, but not the Consumer Demand for Arbitration Form. So it appears the demand was filed as a commercial case, but the AAA nonetheless routed it to the Consumer Filing Team.
McLellan rejected the offer. Fitbit then told the AAA Consumer Filing Team that the settlement offer was rejected but that “Fitbit regards this matter as concluded”, refusing to pay the filing fee. The transcript is not clear, but one can certainly read it as questioning the plaintiff’s motives in pursuing arbitration of a $162 claim by paying a (incorrectly-determined) $750 filing fee.
No, Fitbit was saying it didn’t make sense for Fitbit to arbitrate the claim. The consumer would have gotten their money back. That’s been my experience with arbitration clauses, too. The one time I needed to initiate an arbitration proceeding, the company, Booking dot com, which has an unusually onerous arbitration clause, proceeded to give me my money back. (This is why most statistics about “consumers winning arbitration claims” are bogus. Consumers win with arbitration clauses all the time, but rarely need the arbitrator to do it, and wins like mine aren’t counted in the statistics.) AAA rules wouldn’t require a $750 fee from the plaintiff for a $162 claim, so MoFo must have been referring to the AAA fee for the defendant.