May 12, 2020 / 8:40 PM / 20 days ago

Mass consumer arbitration is on! Ed tech company hit with 15,000 data breach claims

(Reuters) - A small Baltimore law firm has filed 15,107 demands for arbitration at the American Arbitration Association on behalf of consumers who allege they were affected by a 2018 data breach at the education technology company Chegg.

The arbitration demands follow an April 27 ruling from U.S. District Judge Richard Bennett of Baltimore that customers must arbitrate their claims against Chegg instead of suing in a class action. Chegg’s lawyers at Orrick Herrington & Sutcliffe did not respond to a request for comment on the 15,107 arbitration demands, which were filed by Z Law.

Z Law’s founder, Cory Zajdel, told me his firm was girded for mass arbitration even as it opposed Chegg’s motion to compel arbitration. And he’s betting what he called a “crazy” chunk of his own money on the proposition that mass consumer arbitration can be economically viable.

That’s far from a sure thing. As you know, the highest-profile mass arbitration campaigns, against gig economy companies like Uber, DoorDash and Postmates, have involved wage-and-hour demands by employees with claims worth hundreds or thousands of dollars apiece. Consumer demands for mass arbitration have been much rarer, although I told you earlier this year about claims by 1,000 customers of the daily fantasy sports betting site FanDuel. Conventional wisdom has been that it doesn’t make sense for plaintiffs’ lawyers to lay out the money to arbitrate individual consumer claims. (The whole point of class actions, after all, is to combine claims that might not otherwise be worth pursuing.) AAA’s rules, for instance, require consumers to lay out a nonrefundable fee of $200 to launch their arbitration. If a claim isn’t worth at least $200, in other words, it’s a loser from the moment it’s filed.

Zajdel said, however, that Chegg’s consumer contract shifts the burden of filing fees onto the company if a customer demands less than $75,000 in damages. (Specifically, the contract says, “Chegg will pay all such fees unless the arbitrator finds that either the substance of your claim or the relief sought in your demand for arbitration was frivolous or was brought for an improper purpose.”) If AAA or individual arbitrators determine that his clients must pay initial fees, Zajdel said, he’s prepared to put up the money.

He also said that he made no demands for a global settlement from Chegg in advance of filing his 15,107 arbitration demands, even though AAA consumer arbitration rules require companies to pay a $300 nonrefundable fee – a total of about $4.5 million for Chegg. “I’m staying away from that,” Zajdel told me. “However the fees play out is how they play out.”

Zajdel seems to have made a study of arguments by defendants in mass arbitration campaigns in order to preempt potential attempts by Chegg to undermine his cases. Broadly speaking, his arbitration demands, like the class action complaint he filed against Chegg in state court in Maryland last September, allege that Chegg, which offers online learning and textbook rental services, failed to secure its customers’ personal data and failed to provide adequate notice to them after the data was hacked. Zajdel ran social media ads, mostly on Facebook, to encourage Chegg customers to contact him via his website.

Zajdel said his firm screened everyone who signed up. He declined to specify the percentage of purported customers for whom he filed arbitration demands but said that “a significant number” of additional clients may also have claims. Every demand he filed at AAA, he said, contains unique allegations, so Chegg cannot claim he simply asserted cookie-cutter claims, and specific identifying information about claimants, so Chegg can verify that each was a customer. (Zajdel said the boxes he sent to AAA and Chegg, containing paper versions of each individualized arbitration demand by his 15,107 clients, weighed nearly 200 pounds.)

Zajdel said that he personally bore the cost of vetting prospective Chegg clients but would not be averse to litigation funding to continue the mass arbitration campaign. “There is no monkey business,” he said.

Zajdel said he hopes Chegg decides to pay the requisite fees and begin arbitrating his clients’ cases. If not, he said, he will go back to Judge Bennett in Baltimore or to court in Chegg’s home state of California to force the company to follow the terms of its consumer contracts.

“This is what Chegg said they wanted,” he told me. “We’ll see if it’s what they really wanted.”

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