The Third Circuit recently clarified when court-ordered discovery is necessary to determine whether a dispute should be subject to arbitration.  In Young v. Experian Information Solutions Inc., — F.3rd —, 2024 WL 4509767, at *4 (3d Cir. Oct. 17, 2024), plaintiff sued the consumer reporting agency for violations of the Fair Credit Reporting Act after Experian issued an erroneous credit report.  Experian filed a motion to compel arbitration based on a later-signed agreement that plaintiff had with an Experian affiliate.  The district court denied Experian’s motion without prejudice, and granted leave for Experian to re-file a motion to compel arbitration after the parties engaged in limited discovery on the issue of arbitrability.  Experian appealed.

In vacating and remanding the district court’s order, the Third Circuit clarified how its previous ruling in Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764 (3d Cir. 2013) should be applied in cases where the existence and validity of the arbitration agreement is not at issue, and any disputes over enforcement or arbitrability are delegated to the arbitrator.  The Third Circuit reiterated the two distinct paths for district courts to follow when faced with a motion to compel arbitration:  (i) consider the motion under a Rule 12(b)(6) motion-to-dismiss standard if the existence of a valid arbitration agreement is clear from the face of the complaint, or (ii) consider the motion under a Rule 56 summary judgment standard if the agreement is unclear or plaintiff has presented sufficient additional facts to place the agreement in dispute.

There was no dispute over the district court’s decision to consider Experian’s motion to compel under the Rule 56 standard because no valid arbitration agreement was shown on the face of the complaint.  However, the panel concluded that the district court engaged in a “misstep” caused by the Guidotti ruling when it denied the motion to compel and ordered limited discovery into the existence of an arbitration agreement.  The panel clarified that Guidotti’s call for limited discovery into arbitrability is in fact limited, and should only be adhered to if factual discovery is warranted.  In other words, because plaintiff did not dispute the existence or validity of the later-signed arbitration agreement with Experian’s affiliate, there was no need to further develop the factual record before ruling on the motion to compel, rendering discovery unnecessary.  Although plaintiff did challenge the scope and enforceability of the arbitration agreement with Experian’s affiliate, those issues were delegated to the arbitrator per the terms of the agreement.  Thus, plaintiff’s challenge to the applicability of the agreement to her claims against Experian was fatal to her argument. 

This decision underscores how including a broad delegation provision in arbitration agreements can further be used to protect companies from arbitration-related discovery in court proceedings.