Callahan v. PeopleConnect Inc.

Background

Meredith Callahan and Lawrence Geoffrey Abraham filed a class action against PeopleConnect, Inc. They alleged that PeopleConnect collected and scanned yearbooks, extracted information such as names, photographs, and schools attended, and used that information through Classmates.com and related products and services. The complaint asserted claims under California Civil Code § 3344, California Business and Professions Code § 17200, intrusion upon seclusion, and unjust enrichment.

PeopleConnect’s motion to compel arbitration was part of a broader motion to dismiss and strike. The company argued that the plaintiffs’ counsel, acting as their agent, became bound by Classmates.com’s Terms of Service by using the website and registering two accounts. Those terms stated that disputes would be resolved through final and binding individual arbitration rather than in court, waived class proceedings and jury trials, and included an arbitration opt-out provision.

Who Decides Whether Arbitration Applies

The court held that it had to decide at least part of the motion because the issue involved contract formation—whether the plaintiffs, who did not personally sign the Terms of Service, could be bound by an agreement entered into by their lawyer. PeopleConnect agreed that contract formation was for the court to decide.

Agency and Authority

Under California law, a nonsignatory principal can sometimes be required to arbitrate based on an arbitration agreement signed by an agent, but the agency relationship must make it equitable to compel arbitration. The court found no real dispute that the plaintiffs’ counsel was their agent. The disputed issue was whether counsel had authority to enter an arbitration agreement on the plaintiffs’ behalf, and PeopleConnect had the burden of proving that authority.

The court relied on the California Supreme Court’s decision in Blanton v. Womancare, Inc. That decision recognizes that a lawyer may bind a client to arbitration if the lawyer had express actual authority or if the client later ratified the agreement. But merely hiring a lawyer to litigate does not give the lawyer implied or apparent authority to waive the client’s right to a judicial forum and move the dispute to binding arbitration.

The court found no indication that the plaintiffs expressly authorized counsel to agree to arbitration. Counsel stated at the hearing that he did not have express authorization, and PeopleConnect did not dispute that statement. The court also found no suggestion that the plaintiffs later ratified the agreement. Counsel’s website access and account registrations occurred as part of investigating and preparing the lawsuit, not as the factual basis for the plaintiffs’ claims. The court rejected PeopleConnect’s attempt to distinguish Blanton based on the timing of the account registrations and noted that the cited district court decision PeopleConnect relied on was not binding and did not address Blanton.

Disposition

The court denied the motion to compel arbitration. It also set the remaining issues raised in the motion to dismiss and strike, as well as the motion to stay, for a hearing on June 24, 2021, at 1:30 p.m. The opinion did not resolve those remaining issues.