Lawyer’s Agreement to Online Terms if Investigating a Claim May Bind a Client
Knapke sued PeopleConnect for alleged violations of her publicity rights under Ohio law. PeopleConnect moved to compel arbitration on the basis that Knapke’s counsel Reilly assented to the terms of service in the course of his pre-filing investigative efforts.
The district court denied the motion to compel arbitration. It said Knapke agreed to the terms of service despite Reilly’s declaration that Knapke had not authorized him to agree to the terms of service on her behalf. The district court also held that Reilly accessed the online account in question and agreed to the terms in order to satisfy his Rule 11 obligations.
The Ninth Circuit reverses. because the record is unclear regarding key facts which would bear on whether counsel could bind his client by virtue of (1) an agency relationship, whereby counsel acted within the scope of their authority by agreeing to the terms, or (2) in the absence of actual authority, whether counsel had implied authority or whether the client ratified the acts of counsel.
Agency: As to the agency relationship, the court says the record is unclear regarding when Reilly became Knapke’s attorney. The court says this “might be material” to determining whether Knapke is bound by Reilly’s actions. In general, the court says there is a factual dispute regarding the scope of Reilly’s authority.
Implied Authority and Ratification: The record is also unclear as to whether Reilly had implied authority. The “contours” of the agreement between Reilly and Knapke are unclear. Thus, the Ninth Circuit says the district court should “determine the contours of the attorney-client privilege and any potential waiver of that privilege.” The court also says the district court should consider the consequences of Knapke “simultaneously denying an agency relationship regarding the arbitration agreement and asserting a privilege for communications that bear directly on that issue.” The court also agrees with PeopleConnect that the record is unclear regarding the issue of whether Knapke ratified Reilly’s acts by (1) accepting the benefits of the agreement; (2) failing to repudiated it; OR (3) otherwise taking action which demonstrates adoption or recognition of the agreement.
The court also says that Knapke’s status as an “undisclosed principal” does not necessarily insulate her from Reilly’s actions with respect to the online terms. Nor does it buy Knapke’s argument that Rule 11 necessitated the inquiry and essentially forced Reilly to agree to the terms. As an initial matter, Reilly’s declaration was silent on Rule 11. Even if his motivations regarding entering into the terms were relevant, they are not determinative. In any event, the court says “Rule 11 cannot explain Reilly’s choice not to opt out of arbitration . . . .”
Ouch. This sounds like nightmare fuel for plaintiffs’ lawyers. It admonishes caution when agreeing to terms in the course of conducting an online investigation. I wonder what the solution is from the standpoint of plaintiffs’ lawyers. Perhaps sending a letter repudiating the agreement after the lawsuit is filed or immediately prior to filing? Spelling out in the engagement letter that the lawyer is not authorized to bind the client to arbitration? Another option is to outsource the investigation.
I also blogged a similar case from the Northern District of California. Surprisingly, in that case, where the district court also denied the motion to compel, the Ninth Circuit summarily affirmed. While I haven’t done close comparison between the laws of Washington and California regarding agency, I have to think they are similar enough that the difference in outcomes was not entirely a function of differences in state law.
Surprisingly, Knapke did not file a request for rehearing.
Case citation: Knapke v. PeopleConnect, Inc., No. 21-35690 (9th Cir. June 29, 2022)