Callahan v. PeopleConnect Inc.

• Court: District Court, N.D. California
• Decided: May 18, 2021
• Docket: 3:20-cv-09203
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 MEREDITH CALLAHAN, et al., Case No. 20-cv-09203-EMC

8 Plaintiffs, ORDER DENYING DEFENDANT’S 9 v. MOTION TO COMPEL ARBITRATION 10 PEOPLECONNECT, INC., Docket No. 26 11 Defendant.

12 13 14 Plaintiffs Meredith Callahan and Lawrence Geoffrey Abraham have filed a class action 15 against Defendant PeopleConnect, Inc.1 According to Plaintiffs, PeopleConnect misappropriated 16 Plaintiffs’ names, photographs, and likenesses and used the same in advertising its products and 17 services, “including reprinted yearbooks and subscription memberships to the website 18 Classmates.com.” Compl. ¶ 2. Currently pending before the Court is PeopleConnect’s motion to 19 compel arbitration.2 Having considered the parties’ briefs and accompanying submissions, the 20 Court hereby DENIES the motion. 21 I. FACTUAL & PROCEDURAL BACKGROUND 22 In their complaint, Plaintiffs allege as follows. 23 PeopleConnect is a company that collects yearbooks, scans the yearbooks, and extracts 24 1 Plaintiffs initially sued three affiliated entities but, subsequently, they voluntarily dismissed two 25 of the companies, thus leaving PeopleConnect as the sole defendant.

26 2 The motion to compel arbitration is actually a part of a broader motion to dismiss and strike. See Docket No. 26 (motion to dismiss and strike). The Court informed the parties that it intended to 27 sequence the issues so that it would address first the motion to compel arbitration and then, if 1 information from the yearbooks (such as names, photographs, schools attended, and so forth) to be 2 put into a database. See Compl. ¶ 53; see also Compl. ¶ 54 (alleging that “Classmates’ Yearbook 3 Collection contains records copied from over 400 thousand yearbooks”). Through a website that it 4 owns and operates – Classmates.com – PeopleConnect “provides free access to some of the 5 personal information in its database in order to [1] drive users to purchase its two paid products 6 . . . and [2] gather registered users, from whom [they] profit by selling targeted ads.” Compl. ¶ 3. 7 PeopleConnect’s two paid products are (1) “reprinted yearbooks that retail for up to $99.95, and 8 [(2)] a monthly subscription to Classmates.com that retails for up to $3 per month. Compl. ¶ 3. 9 PeopleConnect “did not ask consent from, give[] notice to, or provide compensation to 10 [individuals] before using their names, photographs, and biographical information.” Compl. ¶ 55. 11 “By misappropriating and misusing millions of Californian’s names, photographs, and 12 likenesses without consent, [PeopleConnect] has harmed Plaintiffs and the class by denying them 13 the economic value of their likenesses, violating their legally protected rights to exclusive use of 14 their likenesses, and violating their right to seclusion. [PeopleConnect] has also earned ill-gotten 15 profits and been unjustly enriched.” Compl. ¶ 10. 16 Plaintiffs have asserted the following claim for relief: 17 (1) Violation of California Civil Code § 3344 (i.e., the right of publicity). See Cal. 18 Civ. Code § 3344(a) (providing that “[a]ny person who knowingly uses another’s 19 name, voice, signature, photograph, or likeness, in any manner, on or in products, 20 merchandise, or goods, or for purposes of advertising or selling, or soliciting 21 purchases of, products, merchandise, goods or services, without such person’s prior 22 consent . . . shall be liable”). 23 (2) Violation of California Business & Professions Code § 17200 (both the unlawful 24 and unfair prongs). 25 (3) Intrusion upon seclusion. 26 (4) Unjust enrichment. 27 /// 1 II. DISCUSSION 2 In the case at bar, PeopleConnect argues that the dispute should be compelled to 3 arbitration3 because, in investigating Plaintiffs’ case, Plaintiffs’ counsel – i.e., their agent – 4 (1) used the Classmates.com website and thus became bound by the Terms of Service 5 (“TOS”) which include an arbitration provision, see McGuane Decl. ¶ 5 (testifying 6 that “[t]he TOS is accessible to each user of Classmates.com via a hyperlink in the 7 website’s persistent footer and on the non-registered user homepage”), and 8 (2) registered for two accounts on Classmates.com and, to create these accounts, had to 9 agree to the TOS. See McGuane Decl. ¶¶ 12-14 (testifying that counsel created two 10 accounts on December 6, 2020 – about two weeks before filing the instant lawsuit – 11 using the user names “John Doe” and “John Smith”)4; McGuane Decl. ¶ 6 12 (testifying that, when a person registers for an account, “he or she sees the 13 following screen which includes the following: “By clicking Submit, you agree to 14 the Terms of Service and Privacy Policy” and “[t]he phrase ‘Terms of Service’ is 15 hyperlinked to a copy of the current TOS”); McGuane Decl. ¶ 16 (testifying that 16 certain screenshots in Plaintiffs’ complaint “could only have been accessed after 17 the [website] user agreed to the Classmates.com TOS”). 18 The TOS are attached as Exhibit 1 to the McGuane Declaration. On the first page of the 19 TOS, there is a section titled “Introduction” and then a section titled “Acceptance of Terms.” The 20 Acceptance of Terms includes the following:

21 By accessing and using the Websites and Services you are agreeing to the following Terms of Service. We encourage you to review 22 these Terms of Service, along with the Privacy Policy, which is incorporated herein by reference, as they form a binding agreement 23 between us and you. If you object to anything in the Terms of Service or the Privacy Policy, do not use the Websites and Services. 24 USE OF THE WEBSITES AND/OR SERVICES REQUIRE 25

26 3 PeopleConnect asserts that the Federal Arbitration Act (“FAA”) governs the instant case; Plaintiffs do not make any argument to the contrary. 27 YOU TO ARBITRATE ALL DISPUTES ON AN INDIVIDUAL 1 BASIS, RATHER THAN JURY TRIALS OR CLASS ACTIONS, AND ALSO LIMITS THE REMEDIES 2 AVAILABLE TO YOU IN THE EVENT OF A DISPUTE (SEE SECTION 13 BELOW). 3 4 McGuane Decl., Ex. 1 (emphasis in original). 5 As indicated above, § 13 (out of 14) addresses “Mandatory Arbitration, Dispute Resolution 6 and Class Action Waiver.” (The TOS has a section titled “Index of Provisions” right after the 7 Acceptance of Terms, which lists the 14 different sections that follow.) Section 13 provides in 8 relevant part as follows:

9 PLEASE READ THIS SECTION CAREFULLY – IT MAY SIGNIFICANTLY AFFECT YOUR LEGAL RIGHTS, 10 INCLUDING YOUR RIGHT TO FILE A LAWSUIT IN COURT. YOU AND THE PEOPLECONNECT ENTITIES 11 EACH AGREE THAT ANY AND ALL DISPUTES THAT HAVE ARISEN OR MAY ARISE BETWEEN YOU AND THE 12 PEOPLECONNECT ENTITIES SHALL BE RESOLVED EXCLUSIVELY THROUGH FINAL AND BINDING 13 ARBITRATION, RATHER THAN IN COURT, EXCEPT THAT YOU MAY ASSERT CLAIMS IN SMALL CLAIMS 14 COURT, IF YOUR CLAIMS QUALIFY.

15 You and PeopleConnect and/or its parent companies, subsidiaries, affiliates, and/or any and all of their respective directors, officers, 16 employees and contractors (each a “PeopleConnect Entity” and, together, the “PeopleConnect Entities”) agree to arbitrate any and all 17 disputes and claims between them ("Dispute(s)"), except as otherwise specifically provided below. . . . 18 This agreement to arbitrate is intended to be broadly interpreted. It 19 includes, but is not limited to: (1) Disputes related in any way to the Services, billing, privacy, advertising or our communications with 20 you; (2) Disputes arising out of or relating to any aspect of the relationship between us, whether based in contract, tort, statute, 21 fraud, misrepresentation or any other legal theory; (3) Disputes that arose before your agreement to these Terms of Services or any prior 22 agreement; (4) Disputes that are currently the subject of purported class action litigation in which you are not a member of a certified 23 class; and (5) Disputes that may arise after the termination of your use of the Services. 24 . . . . 25 B. MANDATORY AND BINDING ARBITRATION 26 PROCEDURES

27 YOU UNDERSTAND THAT BY THIS PROVISION, YOU TRIAL. THE FEDERAL ARBITRATION ACT GOVERNS 1 THE INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT TO ARBITRATE. 2 i. Rules. The arbitration will be governed by the Consumer 3 Arbitration Rules of the American Arbitration Association (“AAA”), if applicable, as modified by this section. The 4 AAA’s rules and a form for initiating the proceeding are available at www.adr.org or by calling the AAA at 5 800.778.7879. The arbitration will be presided over by a single arbitrator selected in accordance with the AAA rules. 6 ii. Unless otherwise required by the AAA rules, the arbitration 7 shall be held in Seattle, Washington. . . .

8 . . . .

9 C. CLASS ACTION WAIVER.

10 ANY PROCEEDINGS WILL BE CONDUCTED ONLY ON AN INDIVIDUAL BASIS AND NOT IN A CLASS OR 11 REPRESENTATIVE ACTION. NEITHER PARTY SHALL BE A MEMBER IN A CLASS, CONSOLIDATED, OR 12 REPRESENTATIVE ACTION OR PROCEEDING, AND THE ARBITRATOR MAY AWARD RELIEF ONLY IN FAVOR OF 13 THE INDIVIDUAL PARTY SEEKING RELIEF AND ONLY TO THE EXTENT NECESSARY TO PROVIDE RELIEF 14 WARRANTED BY THAT PARTY'S INDIVIDUAL DISPUTE OR CLAIM. UNLESS THE PARTIES AGREE OTHERWISE, 15 THE ARBITRATOR MAY NOT CONSOLIDATE MORE THAN ONE PERSON'S DISPUTES, AND MAY NOT 16 OTHERWISE PRESIDE OVER ANY FORM OF A REPRESENTATIVE OR CLASS PROCEEDING. THE 17 PEOPLECONNECT ENTITIES DO NOT CONSENT TO CLASS ARBITRATION. THE PARTIES HEREBY WAIVE 18 ANY RIGHT TO A JURY TRIAL.

19 D. ARBITRATION OPT-OUT. You have the right to opt-out and not be bound by this arbitration provision by sending written 20 notice of your decision to opt-out to: PeopleConnect Arbitration Opt-Out, 1501 Fourth Avenue, Suite 400, Seattle, WA 98101. This 21 notice must be sent within thirty (30) days of your first use of the Services or, if you are already a user of the Services upon initial 22 release of this arbitration provision, within thirty (30) days of our email notice to you of that initial release. 23 The opt-out notice must state that you do not agree to this agreement 24 to arbitrate and must include your name, address, phone number and email address(es) used to register with or use the Services. You 25 must sign the opt-out notice for it be effective. Any opt-out not received within the applicable thirty (30) day period set forth above 26 will not be valid.

27 If you opt-out of the agreement to arbitrate, you and the consent to the jurisdiction and venue of such court. 1 E. SMALL CLAIMS. You may choose to pursue your 2 Dispute in small claims court (rather than arbitration) where jurisdiction and venue over the applicable PeopleConnect Entity and 3 you are proper, and where your claim does not include a request for any type of equitable relief, and so long as the matter advances on 4 an individual (non-class) basis. 5 McGuane Decl., Ex. 1. 6 A. Who Decides Motion to Compel Arbitration: Court or Arbitrator 7 As an initial matter, the Court must consider whether it or an arbitrator should decide the 8 issues raised in PeopleConnect’s motion to compel arbitration. The Court is required to decide at 9 least part of the motion. Specifically, one of the issues raised in the motion is whether a principal 10 who does not enter into an arbitration agreement himself or herself – i.e., a nonsignatory to the 11 agreement – can still be compelled to arbitrate if an agent of the principal (such as an attorney) 12 was a signatory to the arbitration agreement. This is a contract formation issue and, as such, 13 should be decided by the Court. See Kum Tat Ltd. v. Linden Ox Pasture, LLC, 845 F.3d 979 (9th 14 Cir. 2017) (stating that, "[a]lthough challenges to the validity of a contract with an arbitration 15 clause are to be decided by the arbitrator [based on a delegation clause], challenges to the very 16 existence of the contract are, in general, properly directed to the court"); see also Kramer v. 17 Toyota Motor Corp., 705 F.3d 1122, 1126-27 (9th Cir. 2013) (in addressing whether a 18 nonsignatory to certain purchase agreements could compel plaintiffs to arbitrate, stating that 19 “whether parties have agreed to submi[t] a particular dispute to arbitration is typically an issue for 20 judicial determination” and that, “where the dispute at issue concerns contract formation, the 21 dispute is generally for courts to decide”) (internal quotation marks omitted). PeopleConnect 22 agrees that contract formation is a decision for this Court to address. See Reply at 3. 23 B. Nonsignatory-Principal and Signatory-Agent 24 A nonsignatory-principal can be compelled to arbitrate based on the agreement to arbitrate 25 made by a signatory-agent, but

26 [n]ot every agency relationship . . . will bind a nonsignatory to an arbitration agreement. “Every California case finding 27 nonsignatories to be bound to arbitrate is based on facts that the agency relationship between the nonsignatory and the signatory 1 must make it “‘equitable to compel the nonsignatory’” to arbitrate. 2 Cohen v. TNP 2008 Participating Notes Program, LLC, 31 Cal. App. 5th 840, 859-60 (2019); see 3 also id. at 861 (noting that the issue of “whether an arbitration agreement signed by an agent also 4 binds the agent’s nonsignatory principal[] is less commonly litigated”). 5 In the instant case, there is no real dispute that Plaintiffs’ counsel is, in fact, their agent. 6 However, the scope of counsel’s authority is contested – i.e., did counsel have the authority to 7 enter into the arbitration agreement on Plaintiffs’ behalf? It is PeopleConnect’s burden to prove 8 the scope of counsel’s authority. See Inglewood Teachers Ass'n v. Pub. Emp't Relations Bd., 227 9 Cal. App. 3d 767, 780 (1991). 10 Although the extent of an agent’s authority is often a question of fact, see id., the 11 California Supreme Court has addressed the specific issue of when a lawyer, as agent, can bind a 12 client to an arbitration agreement – i.e., waive the right to a judicial forum. See Blanton v. 13 Womancare, Inc., 38 Cal. 3d 396 (1985). In Blanton, the California Supreme Court indicated that, 14 if the lawyer had express actual authority to enter into an arbitration agreement, then the client 15 would be bound. The Court also indicated that, if the lawyer entered into an arbitration agreement 16 without authorization, but the client subsequently ratified the act, the client would be bound as 17 well. See id. at 403. 18 This left the Court with the question of whether a lawyer has implied actual authority or 19 apparent authority to enter into an arbitration agreement. Regarding actions taken by a lawyer 20 with respect to representation in connection with litigation, the lawyer has apparent authority “to 21 do that which attorneys are normally authorized to do in the course of litigation manifested by the 22 client’s act of hiring an attorney.” Id. at 404. Also, a lawyer has implied actual authority on 23 certain procedural matters (efficiency driven) and tactical decisions (such as whether to call 24 particular witness) that are a “necessary incident to the function he is engaged to perform.” Id. 25 But an attorney is not authorized,

26 merely by virtue of his retention in litigation, to "impair the client's substantial rights or the cause of action itself.” For example, "the 27 law is well settled that an attorney must be specifically authorized to client to a compromise settlement of pending litigation." Similarly, 1 an attorney may not "stipulate to a matter which would eliminate an essential defense. He may not agree to the entry of a default 2 judgment, may not . . . stipulate that only nominal damages may be awarded and he cannot agree to an increase in the amount of the 3 judgment against his client. Likewise, an attorney is without authority to waive findings so that no appeal can be made . . . ." 4 Such decisions differ from the routine and tactical decisions which have been called "procedural" both in the degree to which they 5 affect the client's interest, and in the degree to which they involve matters of judgment which extend beyond technical competence so 6 that any client would be expected to share in the making of them. 7 Id. at 404-05; cf. New York v. Hill, 528 U.S. 110, 114 (2000) (indicating that "[w]hat suffices for 8 waiver depends on the nature of the right at issue" and that, "[f]or certain fundamental rights, the 9 defendant must personally make an informed waiver") (emphasis added); Winters v. Cook, 489 10 F.2d 174, 179 (5th Cir. 1973) (noting that personal fundamental rights that can be waived by a 11 defendant only and not waived by an attorney include the right to plead guilty, the right to waive 12 trial by jury, the right to waive appellate review, and the right to testify personally). 13 The Blanton Court went on to recognize that a client has substantial rights where the issue 14 is whether the client waives a judicial forum in favor of binding arbitration. See Blanton, 38 Cal. 15 3d at 407 (noting that binding arbitration “entail[ed] a waiver of all but minimal judicial review”; 16 adding that the arbitration provision at issue also had other significant terms – e.g., “unilateral 17 selection of the arbitrator by the defendant's attorney, from among attorneys whose practice 18 consists primarily in defending medical malpractice actions” and “waive[r] [of] any right to 19 recovery beyond $ 15,000”). Thus, “‘[a]bsent express authority, it is established that an attorney 20 does not have implied plenary authority to enter into contracts on behalf of his client.’” Id. at 407 21 (emphasis added).

22 [S]imilarly, an attorney, merely by virtue of his employment as such, has no apparent authority to bind his client to an agreement 23 for arbitration. We find no reason in logic, or policy, for holding his apparent authority in that respect is enlarged by reason of the fact 24 that he has been retained to engage in litigation. When a client engages an attorney to litigate in a judicial forum, the client has a 25 right to be consulted, and his consent obtained, before the dispute is shifted to another, and quite different, forum, particularly where the 26 transfer entails the sort of substantial consequences present here. 27 Id. at 407-08 (emphasis added). 1 agreement by virtue of the attorney-client relationship alone. Blanton is binding on this Court 2 because the issue of whether a lawyer (signatory-agent) can bind a client (nonsignatory-principal) 3 to an arbitration agreement is a matter of state law. See Nguyen v. Barnes & Noble Inc., 763 F.3d 4 1171, 1175 (9th Cir. 2014) (stating that, “[i]n determining whether a valid arbitration agreement 5 exists, federal courts ‘apply ordinary state-law principles that govern the formation of contracts’”). 6 That holding is consistent with federal law, which requires a knowing waiver of the right to a 7 judicial forum. See Kummetz v. Tech Mold, 152 F.3d 1153, 1155 (9th Cir. 1998) (in ADA 8 employment case, asking whether employee knowingly waived right to judicial forum and agreed 9 to arbitrate). Here, there is no indication that Plaintiffs expressly authorized their counsel to enter 10 into the arbitration agreement. In fact, at the hearing, counsel stated that he did not have express 11 authorization; PeopleConnect did not dispute such. Nor is there any suggestion that Plaintiffs, 12 after the fact, ratified the agreement to arbitrate. This leaves implied actual authority and apparent 13 authority. Under Blanton, the mere fact of the attorney-client relationship does not give rise to 14 either authority with respect to any agreement to arbitrate. PeopleConnect’s attempts to 15 distinguish Blanton (e.g., that the client there had expressly told the lawyer not to agree to 16 arbitrate, that the agreement to arbitrate took place during the litigation rather than before) are not 17 persuasive. Counsel’s action in accessing the Classmates.com website and registering for two 18 accounts just before filing suit were clearly done in the course of counsel’s representation of 19 Plaintiffs for and in anticipation of litigation. The distinction PeopleConnect seeks to draw as to 20 the precise timing of the registration has no logical basis. 21 Although PeopleConnect has cited authority to support its general position on agency, 22 Independent Living Resource Center San Francisco v. Uber Technologies, Inc., No. 18-cv-06503- 23 RS, 2019 U.S. Dist. LEXIS 127072 (N.D. Cal. July 30, 2019) [hereinafter “Uber”], Uber is not 24 binding. Significantly, Uber did not address Blanton or the concerns raised therein. 25 As a final point, it is worth noting that the actions of Plaintiffs’ counsel here do not serve 26 as the basis of Plaintiffs’ claims – i.e., counsel’s use of the Classmates.com website is not the 27 factual predicate for Plaintiffs’ claims. Rather, counsel’s use of the website was undertaken as 1 R. Civ. P. 11, and Plaintiffs’ duty to plead with specificity a plausible claim under Ashcroft v. 2 Iqbal, 556 U.S. 662 (2009), and Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) – into 3 whether Plaintiffs did, in fact, have claims against PeopleConnect. The Court is troubled by 4 PeopleConnect’s suggestion that a plaintiff’s access to a judicial forum may be cut off simply 5 because counsel for the plaintiff fulfilled a duty under Rules 11 and 12 to investigate prior to filing 6 suit. Under PeopleConnect’s position, Plaintiffs here would either file suit without doing the 7 necessary pre-suit investigation, raising serious concerns, or would waive the right to a judicial 8 forum, a right protected under the First Amendment. See White v. Lee, 227 F.3d 1214, 1227 (9th 9 Cir. 2000) (stating that “[t]he First Amendment . . . guarantees the right ‘to petition the 10 Government for a redress of grievances’”). Whether one calls this being on the horns of a 11 dilemma, Hobson’s choice, stuck between a rock and a hard place, or caught between Scylla and 12 Charybdis, the resulting policy dilemma created by PeopleConnect’s position underscores the 13 aptness of Blanton’s holding. 14 III. CONCLUSION 15 For the foregoing reasons, the Court denies the motion to compel arbitration. The Court 16 further sets the remaining issues raised in the motion to dismiss and strike and motion to stay 17 (Docket Nos. 26 and 28) for hearing on June 24, 2021, at 1:30 p.m. 18 19 IT IS SO ORDERED. 20 21 Dated: May 18, 2021 22 23 ______________________________________ EDWARD M. CHEN 24 United States District Judge 25 26 27