Slow Down You’re Moving Too Fast: Third Circuit Directs District Court to Resolve Motion to Compel Arbitration Before Motion to Dismiss

In a recent decision, the Third Circuit made it abundantly clear that a motion to compel arbitration must be decided before a Rule 12(b)(6) motion to dismiss.

Joshua Silfee filed a lawsuit against ERG Staffing Service, his former employer, in the Middle District of Pennsylvania, claiming the company’s payroll policies violated state law because workers were required to use a fee-carrying debit card. ERG filed a motion to compel arbitration pursuant to Section 4 of the Federal Arbitration Act, asserting that the arbitration agreement between Silfee and ERG’s payroll vendor precluded the suit against ERG. ERG also filed a Rule 12(b)(6) motion to dismiss Silfee’s complaint based on the merits of his state law claims against the company. The district court decided to delay consideration of ERG’s motion to compel arbitration and denied the company’s motion to dismiss the case. ERG appealed.

The Third Circuit concluded that the district judge erred in delaying the arbitrability inquiry, explaining that arbitrability is a “gateway” issue and that, after a motion to compel arbitration is filed, a court “must refrain from further action until it determines arbitrability.”

The Third Circuit noted that “[t]he seeds of the District Court’s confusion may have been sown by our decision in Guidotti,” where the court explained that a motion to compel arbitration should be considered under a Rule 12(b)(6) standard when “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” and under a summary judgment standard, after limited briefing and discovery, “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.”

Turning to the relevant facts in Silfee, the Third Circuit noted that the Rule 12(b)(6) standard should have been applied because “a concededly authentic arbitration agreement” was attached to the complaint. While Silfee challenged the enforceability of the arbitration agreement due to “pure legal” reasons, he did not deny that he received and/or assented to the agreement, nor did he seek discovery. Accordingly, the Third Circuit found that the district court should have applied the Rule 12(b)(6) standard and remanded to the district court to resolve ERG’s motion to compel arbitration.