This week, the Court address whether an employee can intervene in her co-worker’s employment suit, and orders discovery to determine whether a litigant was bound by her counsel’s agreement to arbitrate.

CALLAHAN v. BROOKDALE SENIOR LIVING COMMUNITIES

The Court rejects the attempt of an employee to intervene in another employee’s suit under California’s Labor Code Private Attorneys General Act (PAGA).

The panel: Judges M. Smith, Owens, and Robreno (E.D. Pa.), with Judge Robreno writing the opinion.

Key highlight: “Neverson also argues that she should be granted permissive intervention because her independent analysis of the value of the PAGA claims would significantly contribute to the factual development of Callahan’s case. But again, Neverson promises much and delivers little. Indeed, she provides no factual basis for her determination that Callahan miscalculated the maximum PAGA penalties. Under these circumstances, the district court did not abuse its discretion in finding that Neverson would not significantly contribute to the factual issues in the case.”

Background: Carolyn Callahan sued her employer, Brookdale Senior Living Communities, under California’s Labor Code Private Attorneys General Act (PAGA). PAGA allows employees alleging violations of the state’s Labor Code to bring an action for civil penalties on behalf of the state. Callahan and Brookdale ultimately reached a settlement of the PAGA claim, under which Brookdale would pay a total of $920,000.

Michelle Neverson, also a Brookdale employee, had filed her own PAGA action against Brookdale. She moved to intervene in the Callahan action in order to challenge the parties' settlement. The district court denied her motion and subsequently approved the settlement. Neverson appealed.

Result: The Ninth Circuit affirmed the district court’s order denying intervention and dismissed Neverson’s appeal of the order approving the settlement. First, the Court rejected Neverson’s argument that she was entitled to intervene as of right. As the Court explained, to be entitled to intervention, parties must show (among other things) that their interests are not adequately represented by the existing parties to the action. And because both Neverson and Callahan were pursuing the same ultimate goal—obtaining civil penalties under PAGA—Neverson had to “make a compelling showing to demonstrate inadequate representation.” The Court concluded that Neverson had made no such showing. While Neverson asserted that the penalties Callahan had secured were too low, that “ultimately amount[ed]” to a mere “disagreement over litigation strategy.” Nor was it sufficient that Callahan had not engaged in discovery, as she had obtained relevant information through mediation and the discovery pursued by other plaintiffs.

Next, the Court concluded the district court did not abuse its discretion in denying Neverson permissive intervention. The district court had reasoned that Neverson and Callahan both asserted the same legal rights and interests (those of the state in securing PAGA penalties), and that allowing Neverson’s intervention would not advance the factual development of the case. The Ninth Circuit rejected Neverson’s arguments that under the district court’s rationale a PAGA plaintiff could never be granted permissive intervention in another PAGA case. It also concluded that Neverson had not identified what she would have added to litigation had she intervened.

Finally, the Court dismissed Neverson’s appeal from the order approving the settlement, holding that because she was a non-party to the action, she had no right to appeal.

BARBARA KNAPKE v. PEOPLECONNECT, INC.

The Court holds that factual questions about the existence and extent of an agency relationship preclude an order denying a motion to compel arbitration where a party’s litigation counsel was the one that agreed to arbitrate.

Panel: Judges Wardlaw, Gould, and Bennett, with Judge Bennett writing the opinion.

Key Highlight: “[O]n the record before the district court, questions of fact precluded ruling on the motion to compel arbitration.”

Background: Barbara Knapke retained Christopher Reilly to sue PeopleConnect, Inc.—the owner of Classmates.com, an online compendium of yearbooks—for using Knapke’s likeness without her permission. Her complaint included screenshots from Classmates.com that could not have been taken without the user agreeing to the website’s registration terms of service, which included an optional arbitration agreement. But the same screenshots also showed that the user who accessed the site was named “Christopher,” the name of Knapke’s attorney, who had bought a subscription to the site. PeopleConnect moved to compel arbitration, arguing that Knapke was bound by her attorney agreeing to arbitrate while acting as her agent. Alternatively, PeopleConnect asked for limited discovery into whether Knapke had approved her attorney’s actions or taken the screenshots herself. The district court denied the motion. It applied Ohio law to interpret the agency relationship “because Knapke resides in Ohio,” rejected any arguments that her lawyer signing the arbitration agreement bound Knapke, and denied discovery.

Result: The Ninth Circuit vacated and remanded. First, the Court concluded, the district court erred in its choice-of-law analysis because federal courts sitting in diversity apply the choice-of-law rules of the forum state, which, in this case, was Washington. Under Washington’s choice-of-law principles, Washington law applied because there was no apparent conflict between Ohio and Washington law.

Next, the Ninth Circuit held that it was unclear whether Knapke and her attorney Reilly had an agent-principal relationship when Reilly agreed to arbitrate. Because that issue was relevant to whether Knapke could be bound by the agreement under Washington law, the Court remanded for discovery. Similar factual disputes about the scope of Reilly’s authority likewise did not yet allow for a determination of whether Knapke was bound to arbitrate through Reilly’s assent. It was unclear whether Reilly had implied consent to bind Knapke, and unclear whether Knapke later ratified Reilly’s actions. It was also possible that Knapke could be bound by the arbitration clause as an undisclosed principal if Reilly had acted on her behalf in making the agreement. All these issues warranted discovery, the Court held.

Finally, the Court concluded that Reilly’s actions could not be attributed to his obligations under Federal Rule of Civil Procedure 11 to adequately investigate Knapke’s claim. “Reilly’s obligation under Rule 11 to adequately investigate Knapke’s claim does not alter the application of Washington agency law,” the Court said. Nor could Rule 11 “explain Reilly’s choice not to opt out of arbitration, either.”