Opinion ID: 6496286
Heading Depth: 4
Heading Rank: 2

Heading: Binding Effect

Text: Because of a factual dispute about the scope of Reilly’s authority, the record does not allow a determination of whether Knapke is bound to the arbitration through Reilly’s assent. Under Washington law, “[a]rbitration agreements may encompass nonsignatories under contract and agency 14 KNAPKE V. PEOPLECONNECT principles.” Romney v. Franciscan Med. Grp., 349 P.3d 32, 42 (Wash. Ct. App. 2015). Washington also recognizes various theories under which a nonsignatory may be bound by a contract, including agency. Satomi Owners Ass’n v. Satomi, LLC, 225 P.3d 213, 230 n.22 (Wash. 2009). “An agency relationship may exist, either expressly or by implication, when one party acts at the instance of and, in some material degree, under the direction and control of another.” Hewson Constr., Inc. v. Reintree Corp., 685 P.2d 1062, 1064 (Wash. 1984). And an agent may bind a principal through either actual authority (express or implied) or apparent authority. King v. Riveland, 886 P.2d 160, 165 (Wash. 1994). A principal may also be bound by contracts her agent makes without authority if the principal later ratifies the agent’s agreement. Bill McCurley Chevrolet, Inc. v. Rutz, 808 P.2d 1167, 1170 (Wash. Ct. App. 1991). “A principal ratifies an agent’s agreement if the principal (1) receives, accepts, and retains benefits from the contract; (2) remains silent or fails to repudiate the contract; or (3) otherwise exhibits conduct demonstrating adoption and recognition of the contract.” Hoglund v. Meeks, 170 P.3d 37, 46 n.7 (Wash. Ct. App. 2007). Under both implied actual authority and ratification, it is unclear if Reilly’s agreement to the arbitration provision binds Knapke, even if Reilly were Knapke’s attorney when he agreed. Knapke’s status as an undisclosed principal when Reilly was her agent does not alter the application of Washington agency law here. Nor does Reilly’s obligation under Federal Rule of Civil Procedure 11 to adequately investigate Knapke’s claim. KNAPKE V. PEOPLECONNECT 15
The parties dispute whether Reilly had implied actual authority to agree to the Classmates.com Terms of Service on Knapke’s behalf. Under Washington law, “[i]mplied authority is actual authority, circumstantially proved, which the principal is deemed to have actually intended the agent to possess.” King, 886 P.2d at 165. And “actual authority to perform certain services on a principal’s behalf results in implied authority to perform the usual and necessary acts associated with the authorized services.” Hoglund, 170 P.3d at 44. Such usual and necessary acts can include agreeing to contracts. See, e.g., Chi. Title Ins. Co. v. Wash. State Off. of Ins. Comm’r, 309 P.3d 372, 382 (Wash. 2013). Attorneys licensed in Washington also possess the same implied authority to act on behalf of their clients. See Wash. R. of Prof’l Conduct 1.2(a) (“A lawyer may take such action on behalf of the client as is impliedly authorized to carry out the representation.”). At some point, Knapke retained Reilly and his law firm to file suit against PeopleConnect based on Classmates.com’s alleged unauthorized use of her image. But the scope of both their agreement and Reilly’s corresponding authority are unclear on this record. Knapke now argues that she retained Reilly’s law firm not “to enter into the PeopleConnect Terms of Service,” but only “to investigate and file a lawsuit.” Appellee’s Br. 21. But Knapke filed no declaration, and Reilly’s declaration does not discuss this issue. Discovery could reveal, among other things, both the contours of Knapke’s agreement with Reilly’s law firm and the limits, if any, on Reilly’s authority to act on Knapke’s behalf. Knapke’s memorandum in opposition to the motion to compel stated that counsel had no discussion with Knapke 16 KNAPKE V. PEOPLECONNECT about creating an account on Classmates.com. But this statement is unsupported by any declaration. Knapke’s memorandum also states that counsel’s discussions with Knapke are protected by privilege and that counsel’s representations regarding things they did not discuss do not operate as a waiver of the privilege on any subject. The district court rejected PeopleConnect’s request for “discovery to learn about Knapke’s knowledge and acquiescence to counsel’s use of the account” because “[t]hat information ha[d] already been provided in the Opposition, rendering the requested discovery a nullity.” Knapke, 553 F. Supp. 3d at 874. But that information, if it was provided, was not provided in a declaration. PeopleConnect is entitled to discovery in these areas and need not accept at face value the statements Knapke’s counsel made in a memorandum of law. On remand, the district court should determine the contours of the attorney-client privilege and any potential waiver of that privilege. The district court should also determine the consequences, if any, of Knapke simultaneously denying an agency relationship regarding the arbitration agreement and asserting a privilege for communications that would bear directly on that issue. See 5A Karl B. Tegland, Wash. Prac., Evidence Law and Practice § 501.26 (6th ed. Aug. 2021 Update) (“A party waives the privilege by placing confidential communications at issue, i.e., by raising an issue as to whether confidential communications did or did not occur. Waivers have occasionally been found when the intent of a contract or other document was placed in issue.” (footnote omitted)); 1 Paul R. Rice et al., Attorney-Client Privilege: State Law Wash. § 9:30 (July 2020 Update) (“Consistent with federal law, Washington courts will not allow the attorney-client privilege to be used as both a sword and a KNAPKE V. PEOPLECONNECT 17 shield” and “will not permit selective disclosure of parts of privileged communications that are favorable to the client’s position and then raise the privilege to prevent disclosure of the remaining portions that give context and meaning to what the client has disclosed.”).
On this record, it is also unclear if Knapke is bound because she ratified Reilly’s agreement to the Terms of Service, even if she would not otherwise be bound. In its motion to compel arbitration, PeopleConnect noted in conditionally requesting discovery that it would ask about Knapke’s “knowledge of and acquiescence to [Reilly’s] use of Classmates.com on her behalf.” Acquiescence is one method of ratification. Barnes v. Treece, 549 P.2d 1152, 1157 (Wash. Ct. App. 1976). “Under agency law, ratification is the affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account, whereby the act, as to some or all persons, is given effect as if originally authorized by him.” Riss v. Angel, 934 P.2d 669, 683 (Wash. 1997) (cleaned up). Principals can ratify an agent’s agreement in three ways: (1) by receiving, accepting, and retaining benefits from the contract; (2) by remaining silent, acquiescing, or failing to repudiate the contract; or (3) by otherwise exhibiting conduct demonstrating adoption and recognition of the contract. Hoglund, 170 P.3d at 46 n.7; Barnes, 549 P.2d at 1157. Ratification by silence or acquiescence requires knowledge and either “acceptance of the benefits from the contract or prejudicial reliance by the other party.” Lockwood v. Wolf Corp., 629 F.2d 603, 609 (9th Cir. 1980) (citing Barnes, 549 P.2d at 1157). The record does not establish whether Knapke knew that Reilly had agreed to the Terms of Service on her behalf. 18 KNAPKE V. PEOPLECONNECT There is no evidence that Knapke knew, when she filed her complaint, that Reilly had even agreed to the Terms of Service. And were that still the state of the record following discovery, it would follow that there could be no evidence that Knapke knew that Reilly had agreed to the Terms of Service on her behalf. But the ratification inquiry looks not only to the principal’s knowledge, but also to the principal’s later actions. PeopleConnect argues that Knapke learned of Reilly’s agreement at the latest when PeopleConnect argued in its motion to compel arbitration that Reilly agreed to the Terms of Service. And as PeopleConnect notes, in her opposition, Knapke did not renounce Reilly’s agreement and employed materials that Reilly had obtained for her benefit through his agreeing to the Terms of Service. “Ratification can be inferred from the principal’s silence if the circumstances are such that, according to the ordinary experience and habits of men, one would naturally be expected to speak if he did not consent.” Smith v. Hansen, Hansen & Johnson, Inc., 818 P.2d 1127, 1135 (Wash. Ct. App. 1991) (cleaned up). But the record does not establish the facts necessary to decide this issue, including what Knapke knew and when she knew it. Knapke’s supposed silence even after PeopleConnect moved to compel arbitration does not necessitate a finding of ratification on the current record. Thus, PeopleConnect is also entitled to discovery on ratification.
Knapke’s status as a possible undisclosed principal does not alone determine whether she is bound by Reilly’s agreement. Under Washington law, “where an agent on behalf of his principal enters into a simple contract as though made for himself, and the existence of the principal is not KNAPKE V. PEOPLECONNECT 19 disclosed, the contract inures to the benefit of the principal who may appear and hold the other party to the contract made by the agent.” Dana v. Boren, 135 P.3d 963, 965 (Wash. Ct. App. 2006) (quoting Columbia Sec. Co. v. Aetna Accident & Liab. Co., 183 P. 137, 141 (Wash. 1919)). If the principal “appear[s] and claim[s] the benefit of the contract,” then the contract “becomes [her] own to the same extent as if [her] name had originally appeared as a contracting party.” Id. (quoting Columbia, 183 P. at 141). Knapke argues that Reilly did not intend to agree to the Terms of Service on her behalf, and so as an undisclosed principal, she is not bound. But “[a]n undisclosed principal only becomes a party to a contract when an agent acts on the principal’s behalf in making the contract. Thus, an undisclosed principal does not become a party to a contract when the agent does not intend to act for the principal.” Restatement (Third) of Agency § 6.03 cmt. c (2006). Cf. Kim v. Moffett, 234 P.3d 279, 284 n.10 & 287 (Wash. Ct. App. 2010) (citing § 6.03 cmts. d & e when assessing Washington law). The question is thus whether Reilly acted on Knapke’s behalf in agreeing to the Classmates.com Terms of Service, not, as Knapke argues, whether Reilly intended to bind her. Further factual development is necessary to answer this question.
Federal Rule of Civil Procedure 11 requires attorneys to make a reasonable prefiling inquiry into the facts and law supporting intended claims. See Fed. R. Civ. P. 11(b). Knapke argues that “one, if not the primary, use of the Classmates.com account by Mr. Reilly was to satisfy his obligations under Civil Rule 11.” First, nothing in Reilly’s declaration supports that proposition or even discusses Rule 11. And second, while Reilly’s motivations could 20 KNAPKE V. PEOPLECONNECT perhaps inform whether he agreed to the Terms of Service on Knapke’s behalf, that issue, while relevant, is not necessarily determinative. Moreover, Reilly’s obligation under Rule 11 to adequately investigate Knapke’s claim does not alter the application of Washington agency law. Rule 11 cannot explain Reilly’s choice not to opt out of arbitration, either. Under the Terms of Service, users may opt out of arbitration through written notice within thirty days of first using Classmates.com. Reilly could have satisfied his Rule 11 obligation by creating his Classmates.com account and then opting out of arbitration to retain the right to judicial recourse. He simply did not do so.