In an opinion that feels a bit like a report from the annual meeting of arbitration nerds, the Third Circuit last week clarified when district courts must allow discovery about arbitrability.  Guidotti v. Legal Helpers Debt Resolution, LLC, ___ F.3d ___, 2013 WL 2302324 (3d Cir. May 28, 2013).  Although the standard articulated is a bit unwieldy, it at least gives district courts in that federal circuit (and the others who have not clarified this issue) some method of identifying when plaintiffs are entitled to discovery and when to apply the summary judgment standard.

In Guidotti, the plaintiff in a putative class action sued 22 parties, alleging they were supposed to help negotiate down her consumer debt but did nothing other than accept her significant monthly payments.  Thirteen defendants moved to compel arbitration, and the district court granted that motion with respect to eleven of them.  The district court refused to compel arbitration of the plaintiff’s claims against two defendants, the financial institution where plaintiff had to open a special new account (RMBT) and the process agent that transferred money to and from the account (Global Client Solutions).

The district court concluded that those defendants had not proved they had any agreement to arbitrate with the plaintiff.  It did not allow any discovery relating to the motion to compel, but relied on inferences from the face of the documents themselves.  The contract between RMBT and the plaintiff did not explicitly provide for arbitration, but instead incorporated another agreement that provided for arbitration (the “Account Agreement”).  Yet there was no proof that the defendants provided the plaintiff with the Account Agreement at the time she signed the RMBT agreement.  In particular, the RMBT agreement was electronically signed via the DocuSign process, and reflected that timing, but the Account Agreement had no similar DocuSign stamp.  The plaintiff alleged the Account Agreement was sent to her three weeks after she signed the electronic documents.

[As a side note, I do hope the Third Circuit addresses the merits of this case at some point, because it raises very interesting issues.  For example, can an arbitration agreement be formed by documents that are not available when the main document is signed?  (The Second Circuit has said no.)  And, is an arbitration enforceable if one party has no input in the selection of the arbitrator?  The Account Agreement called for binding arbitration “utilizing a qualified independent arbitrator of Global’s choosing”.]

The Third Circuit vacated the district court decision and remanded for “limited discovery” on what documents were available to the plaintiff at the time of her electronic signature and a decision under the summary judgment standard.  After acknowledging that its earlier pronouncements on whether motions to compel arbitration should be treated like motions to dismiss or motions for summary judgment were not crystal clear, the Third Circuit took the opportunity to give guidance to district court judges.  Here is the standard it set:

“[W]hen it is apparent, based on ‘the face of a complaint, and documents relied upon in the complaint,’ that certain of a party’s claims ‘are subject to an enforceable arbitration clause, a motion to compel arbitration should be considered under a Rule 12(b)(6) standard without discovery’s delay.’  But if the complaint and its supporting documents are unclear regarding the agreement to arbitrate, or if the plaintiff has responded to a motion to compel arbitration with additional facts sufficient to place the agreement to arbitrate in issue, then ‘the parties should be entitled to discovery on the question of arbitrability before a court entertains further briefing on [the] question.’  After limited discovery, the court may entertain a renewed motion to compel arbitration, this time judging the motion under a summary judgment standard.  In the event that summary judgment is not warranted because … there is ‘a genuine dispute as to the enforceabilty of the arbitration clause,’ the ‘court may then proceed summarily to a trial regarding the ‘making of the arbitration agreement.'”

(Internal citations omitted.)  Applying its standard, the Third Circuit found that the plaintiff in Guidotti raised sufficient doubt about the existence of an arbitration agreement with the financial institutions, and therefore the dispute should have been treated as one requiring discovery and a Rule 56 standard.