Third Circuit Reconciles Split Over The Standard For Deciding Motions To Compel Arbitration And Clarifies When Discovery Is Allowed On The Arbitrability Issue


In Guidotti v. Legal Helpers Debt Resolution, LLC, the United States Court of Appeals for the Third Circuit reconciled a split on which standards apply to motions to compel arbitration, concluding that the Rule 12(b)(6) motion-to-dismiss standard applies when arbitrability is apparent from the face of the complaint and documents relied upon in it, and the Rule 56 summary judgment standard applies, following limited discovery on the issue, when the complaint is unclear or a party presents evidence that no arbitration agreement exists.

In Guidotti, the plaintiff alleged 22 defendants defrauded her when she participated in a debt-reduction program to avoid bankruptcy. Several defendants moved to compel arbitration, and the district court granted the motion with respect to all but two of the defendants, Rocky Mountain Bank and Trust (RMBT), the bank where the plaintiff was required to open a special account, and Global Client Solutions (Global), the agent that processed automatic payments to and from the RMBT account. The application the plaintiff signed to open the RMBT account did not explicitly provide for arbitration, but incorporated an account agreement that did. There was no proof, however, that the defendants provided the plaintiff with the account agreement when she signed the application. The district court did not permit discovery on the issue, and found that RMBT and Global failed to prove they had an arbitration agreement with the plaintiff.

On appeal, the Third Circuit acknowledged “[o]ur precedents are not entirely clear on the standard” that applies to motions to compel arbitration, as some courts treat them as Rule 12(b)(6) motions to dismiss, and others treat them as summary judgment motions pursuant to Rule 56. The difference is significant in that under Rule 12(b)(6), a defendant need only show that the complaint fails to state a claim, while under Rule 56, the moving party bears the burden of establishing that the non-movant has failed to establish an element of its claim and may cite to the discovery record. The Third Circuit concluded:

“[W]hen it is apparent, based on ‘the face of a 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 ... [is] 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 ...’ [and] the court may entertain a renewed motion to compel arbitration ... under a summary judgment standard. In the event that summary judgment is not warranted because … there is ‘a genuine dispute as to the enforceability of the arbitration clause,’ the ‘court may then proceed summarily to a trial regarding the ‘making of the arbitration agreement ... or the failure ... to perform the same.’”

In applying its holding to the facts of Guidotti, the Third Circuit found the relevant documents to be unclear, and remanded the case for limited discovery.

Guidotti is particularly instructive for entities that seek to avoid traditional litigation and prefer to arbitrate their disputes. To avoid the delay and expense associated with discovery on the issue of arbitrability, a party would be wise to expressly include the arbitration provision it seeks to enforce in the operative contract, or otherwise provide the arbitration terms it incorporates by reference to the contracting parties at the time it executes the operative agreement.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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