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