The Court of Appeals for the Third Circuit has clarified its standard for determining when ordering discovery into whether a suit has been arbitrated by granting a defendant’s appeal in a Fair Credit Reporting Act case that originally went in favor of the plaintiff.
The background: The case originated when the plaintiff was denied a mortgage loan due to an erroneous credit report prepared by the defendant, a major credit reporting agency. The report falsely indicated that foreclosure proceedings had been initiated against the plaintiff, despite the fact that she had paid off her home loan in full nearly two years earlier.
- The plaintiff subsequently filed a lawsuit against the defendant for violations of the FCRA. In response, the defendant moved to compel arbitration based on an agreement the plaintiff had signed when enrolling in a credit monitoring service operated by the defendant’s affiliate.
- The district court initially denied the motion to compel arbitration without prejudice and granted a 53-day period for limited discovery on the issue of arbitrability. The court relied on the Third Circuit’s 2013 decision in Guidotti v. Legal Helpers Debt Resolution, L.L.C., which outlined two standards for considering motions to compel arbitration. The district court applied the summary judgment standard from Guidotti, reasoning that the existence of a valid arbitration agreement was not apparent from the face of the complaint.
The ruling: On appeal, the Third Circuit vacated the district court’s order and remanded the case. The appeals court clarified that while Guidotti encourages limited discovery when warranted, such discovery is unnecessary when there is no factual dispute about the existence or scope of the arbitration agreement.
- The court emphasized that in this case, there was no dispute about the existence of the agreement to arbitrate. The plaintiff acknowledged entering into the agreement with the credit monitoring service. The only dispute concerned the scope and enforceability of the agreement, which the terms explicitly delegated to an arbitrator to decide.
- Importantly, the Third Circuit noted that when parties delegate arbitrability questions to an arbitrator, courts have no power to decide the issue unless the delegation provision itself is specifically challenged. Since the plaintiff did not directly challenge the delegation clause, the court found that there were no judicially resolvable challenges to the motion to compel arbitration.
