Knapke v. PeopleConnect, Inc.

• Decision Date: 29 June 2022
• Docket Number: 21-35690
• Citation: 38 F.4th 824
• Parties: Barbara KNAPKE, Plaintiff-Appellee, v. PEOPLECONNECT, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

38 F.4th 824

Barbara KNAPKE, Plaintiff-Appellee,

v.PEOPLECONNECT, INC., Defendant-Appellant.

No. 21-35690

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 18, 2022 Seattle, Washington

Filed June 29, 2022

Ian Heath Gershengorn (argued) and Illyana A. Green, Jenner & Block LLP, Washington, D.C.; Clifford W. Berlow, Debbie L. Berman, and Wade A. Thomson, Jenner & Block LLP, Chicago, Illinois; Brent Caslin, Jenner & Block LLP, Los Angeles, California; for Defendant-Appellant.

Roger Perlstadt (argued), Ryan D. Andrews, and Ben Thomassen, Edelson PC, Chicago, Illinois; Philip L. Fraietta, Bursor & Fisher P.A., New York, New York; for Plaintiff-Appellee.

Before: Kim McLane Wardlaw, Ronald M. Gould, and Mark J. Bennett, Circuit Judges.

BENNETT, Circuit Judge:

Barbara Knapke claims that PeopleConnect, Inc. uses her name and likeness in its Classmates.com school yearbook database without her consent. Knapke, an Ohio resident, wanted to pursue an individual and class action right of publicity claim against PeopleConnect under Ohio law. Knapke retained an attorney, Christopher Reilly, but the record does not reflect when she retained him. Reilly created a Classmates.com account and searched for Knapke on the site. By creating the account, Reilly agreed to the site's Terms of Service, which contained an arbitration provision. Knapke eventually filed suit in the U.S. District Court for the Western District of Washington, represented by Reilly and his law firm. PeopleConnect sought to compel arbitration through a motion to dismiss¹ and alternatively asked for the right to conduct arbitration-related discovery. Applying Ohio law, the district court denied the motion, holding that there was no evidence that Knapke gave her counsel authority to bind her to the Terms of Service containing the arbitration provision. The district court also denied discovery.

The district court erred. First, Washington law, not Ohio law, governs the threshold question of arbitrability. And second, on the record before the district court, questions of fact precluded ruling on the motion to compel arbitration. These questions of fact include whether Knapke and Reilly had an agency relationship when Reilly agreed to the Terms of Service; if they did have an agency relationship, whether and how Knapke limited Reilly's authority as her agent; and whether Knapke ratified Reilly's agreement to arbitrate even if Reilly initially lacked authority to bind her to the agreement. PeopleConnect has a right to conduct discovery on these and related arbitrability issues before the district court decides the motion to compel arbitration. We have jurisdiction under 9 U.S.C. § 16(a)(1), and we vacate the district court's denial of the motion to compel arbitration and remand for further proceedings.

I. BACKGROUND

PeopleConnect, Inc., a Delaware corporation with its principal place of business in Seattle, Washington, owns and operates Classmates.com, an online library of more than 450,000 yearbooks. Although any Classmates.com user may access some of that library, a user must register for either a free or paid account to access most of it. To register, a user must agree, by clicking "Submit", to hyperlinked Terms of Service and a privacy policy. The Terms of Service contain an arbitration provision. The arbitration provision covers, with almost no exceptions, "any and all disputes that have arisen or may arise" between the user and an array of PeopleConnect entities. The Terms of Service also allow a user to "opt-out and not be bound by [the] arbitration provision by sending written notice of [the] decision to opt-out" within thirty days.

Knapke lives in Sidney, Ohio. Her class action complaint is based on Classmates.com's use of her and other Ohioans' names and likenesses to advertise its products without their consent in violation of Ohio's right to publicity statute. The complaint included screenshots from parts of Classmates.com accessible only to a user who had first agreed to the Terms of Service. Some screenshots show that a user named "Christopher" was logged into a Classmates.com account when the screens captured in the screenshots were displayed. And PeopleConnect confirmed that Christopher Reilly, Knapke's attorney, created a Classmates.com account on January 7, 2021, and purchased a three-month subscription on January 29, 2021. Reilly could not have done either without first agreeing to the Classmates.com Terms of Service.

PeopleConnect moved to compel arbitration, arguing that the arbitration clause covered this dispute. PeopleConnect argued that Knapke was bound by the arbitration clause because her counsel, Reilly, had agreed to the Terms of Service (which include the arbitration provision) while acting as her agent. PeopleConnect's Associate Director of Compliance and Intellectual Property declared that users must agree to the Terms of Service before accessing the results of a Classmates.com search or registering for either a free or paid account. PeopleConnect also asserted that Reilly was Knapke's attorney and agent, but it did not offer evidence that Knapke had either retained or otherwise given authority to Reilly when he agreed to the Terms of Service. PeopleConnect stated, as well, that if the district court denied its motion, it wished to engage in limited discovery about Knapke's "knowledge of and acquiescence to counsel's use of Classmates.com on her behalf" and "the identity of the person who took the screenshots that appear in the complaint."

Knapke argued that she had no relationship with PeopleConnect and that Reilly's agreement to the Classmates.com Terms of Service did not bind her. Knapke maintained that she had never been a Classmates.com customer, had never seen the arbitration agreement, and that the "hidden" nature of the clause within the "several thousand-word" Terms of Service accessible via hyperlink rendered the clause "irrelevant" regardless. Knapke also argued that her counsel created the account to satisfy his obligations under Federal Rule of Civil Procedure 11(b) ; in her view, "the failure ... to check if a plaintiff's identity was in fact publicized by the website would likely draw ... sanctions." And Knapke claimed that PeopleConnect's attempt to bind her to the arbitration clause was "extraordinary overreach" because it would allow websites to force every plaintiff into arbitration. Knapke also argued that her counsel could not have bound her to the Terms of Service because the Terms forbid the creation of accounts on behalf of another person and that estoppel does not compel her, as a nonsignatory, to arbitrate her claims because she did not knowingly accept any benefit from PeopleConnect. And Knapke maintained that her counsel did not discuss creating a Classmates.com account with her—and that the discussions they did have were privileged.

The district court denied PeopleConnect's motion to compel arbitration.² See Knapke v. PeopleConnect Inc. , 553 F. Supp. 3d 865 (W.D. Wash. 2021). The district court applied Ohio law "because Knapke resides in Ohio and Ohio law should apply to interpreting any attorney-client relationship that she entered into from her domicile." Id. at 872. It rejected PeopleConnect's argument that Reilly's agreement to the Terms of Service bound Knapke. Id. at 872–74. The district court also found there was "no evidence that Knapke gave her counsel any authority to bind her to Classmates' terms of service." Id. at 873. It found no evidence that Reilly acted at Knapke's direction or that Classmates.com understood counsel's actions to have been undertaken on Knapke's behalf. Id. And it found both that Knapke did not discuss creating a Classmates.com account with Reilly and that the Terms of Service forbade the creation of accounts on behalf of others. Id.

The district court also found that Reilly created and used the Classmates.com account to satisfy his Rule 11 obligations. Id. And the district court rejected PeopleConnect's request for discovery because, in its view, Knapke had disclosed in her opposition both the extent of her knowledge of and acquiescence to Reilly's use of the account and the identity of the person who took the screenshots used in the complaint (Reilly). Id. at 874. PeopleConnect timely appealed.

II. STANDARD OF REVIEW

We review an order denying a motion to compel arbitration de novo, questions of arbitrability "with a healthy regard for the federal policy favoring arbitration," and any underlying factual findings for clear error. O'Connor v. Uber Techs., Inc. , 904 F.3d 1087, 1093 (9th Cir. 2018) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) ).

III. DISCUSSION

The Federal Arbitration Act ("FAA") "governs the enforceability of arbitration agreements in contracts involving interstate commerce."

Kramer v. Toyota Motor Corp. , 705 F.3d 1122, 1126 (9th Cir. 2013). Under the FAA, private agreements to arbitrate are "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. "The question whether the parties have submitted a particular dispute to arbitration, i.e. , the question of arbitrability , is an issue for judicial determination unless the parties clearly and unmistakably provide otherwise." Howsam v. Dean Witter Reynolds, Inc. , 537 U.S. 79, 83, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002) (cleaned up). "Generally, a court must determine two issues before deciding whether to compel arbitration: (1) whether there is an agreement to arbitrate between the parties; and (2) whether the agreement covers the dispute." Zoller v. GCA Advisors, LLC , 993 F.3d 1198, 1201 (9th Cir. 2021). Knapke does not dispute that the arbitration clause covers her claim. The question is thus whether Knapke agreed to arbitrate with PeopleConnect.

The FAA "supplies not simply a procedural framework applicable in federal courts; it also calls for...