If a Lawyer Accepts a TOS While Investigating a Claim, Does It Bind the Client to Arbitration?

March 23, 2022 · by Venkat Balasubramani · in Licensing/Contracts, Publicity/Privacy Rights

Judge Chen (of the Northern District of California) answered this question “no”. The Ninth Circuit affirms in a memorandum opinion.

This is a putative class action lawsuit against a people search company for allegedly misusing publicity and personality rights by displaying images contained in yearbooks. Among other things, plaintiffs complained that defendant used plaintiffs’ likenesses to drive traffic and sell subscriptions to paid searches.

Defendant argued that plaintiffs were bound by the arbitration clause. In a plot twist, this argument was based on counsel for plaintiffs agreeing to the clause. Apparently counsel created two accounts, agreeing to the terms of service, and also “used” the website in question.

Judge Chen analyzed agency and authority. Under California law, where the lawyer has express authority, the client may be bound by the lawyer’s agreement to a contractual term. The client may also be bound by ratification. Finally, the client could be bound if the lawyer has “implied actual authority” or “apparent authority”. Here, there was no indication that there was express authorization. “Nor [was] there any suggestion that Plaintiffs . . . ratified the agreement to arbitrate.” Judge Chen found that the mere fact of the attorney-client relationship did not give rise to either type of authority. Finally, Judge Chen pointed out that counsel’s use of the website “was undertaken as part of the investigation—an investigation consistent with counsel’s Rule 11 obligations.”

The Ninth Circuit’s ruling largely tracks Judge Chen’s. The court clarifies that plaintiffs did not ratify the agreement by accepting the benefits or failing to repudiate the agreement. Further:

[a]t the time the complaint was filed, there was no evidence Plaintiffs knew the arbitration agreement existed, that their counsel had executed it, or that they had the right to rescind it. By the time Plaintiffs were alerted to this information, any information derived from their counsel’s use of the website had already been publicly filed and had become part of the litigation. At that stage, it was no longer possible for Plaintiffs to avoid “accepting” any of these purported “benefits”.

This case addresses the often-relevant question of whether counsel can compromise a client’s rights through use of a site or agreement to a terms of service. Judge Chen was skeptical of defendant’s argument. The Ninth Circuit appears less skeptical of it, but it’s tough to tell, given their treatment of the issue in a memo opinion. It’s always disappointing to see the Ninth Circuit take this approach when the case presents a thorny issue. The Ninth Circuit took a similar approach in a recent case (BF v. Amazon) involving whether minors who did not agree to arbitration could be forced to arbitrate their claims.

The case also raises the question of when third parties can be bound by an arbitration clause. This is increasingly relevant in the consumer context, where household items come with terms that include arbitration. See Eric’s post from late last year covering this issue in the case of Peloton exercise equipment: “Peloton Can’t Bind All Family Members To Its Arbitration Provision–SS v. Peloton”

Case Citation: Callahan v. PeopleConnect, Inc., No. 21-16040 (9th Cir. March 18, 2022)

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