Filed: Sep. 14, 2020
Latest Update: Sep. 14, 2020
Summary: PRECEDENTIAL UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT _ Nos. 18-3791 & 19-3102 _ MZM CONSTRUCTION COMPANY, INC., d/b/a MZM Construction Management & Transportation v. NEW JERSEY BUILDING LABORERS STATEWIDE BENEFIT FUNDS, Appellant _ On Appeal from the United States District Court for the District of New Jersey (D.C. Civil No. 2-18-cv-16328) District Judge: Honorable Kevin McNulty _ Argued June 3, 2020 _ Before: AMBRO, HARDIMAN, and RESTREPO, Circuit Judges. (Filed: September 14, 2020
Summary: PRECEDENTIAL UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT _ Nos. 18-3791 & 19-3102 _ MZM CONSTRUCTION COMPANY, INC., d/b/a MZM Construction Management & Transportation v. NEW JERSEY BUILDING LABORERS STATEWIDE BENEFIT FUNDS, Appellant _ On Appeal from the United States District Court for the District of New Jersey (D.C. Civil No. 2-18-cv-16328) District Judge: Honorable Kevin McNulty _ Argued June 3, 2020 _ Before: AMBRO, HARDIMAN, and RESTREPO, Circuit Judges. (Filed: September 14, 2020)..
More
PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
______________
Nos. 18-3791 & 19-3102
______________
MZM CONSTRUCTION COMPANY, INC.,
d/b/a MZM Construction Management & Transportation
v.
NEW JERSEY BUILDING LABORERS STATEWIDE
BENEFIT FUNDS,
Appellant
______________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil No. 2-18-cv-16328)
District Judge: Honorable Kevin McNulty
______________
Argued June 3, 2020
______________
Before: AMBRO, HARDIMAN, and RESTREPO, Circuit
Judges.
(Filed: September 14, 2020)
Bradley M. Parsons [ARGUED]
Seth Ptasiewicz
Kroll Heineman Carton
99 Wood Avenue South
Metro Corporate Campus I, Suite 307
Iselin, NJ 08830
Counsel for Appellant
Eric Magnelli [ARGUED]
Anthony M. Rainone
Brach Eichler
101 Eisenhower Parkway
Roseland, NJ 07068
Counsel for Appellee
______________
OPINION OF THE COURT
______________
RESTREPO, Circuit Judge.
We are confronted with a “mind-bending” question that
has been dubbed “the queen of all threshold issues” in
arbitration law. David Horton, Arbitration About Arbitration,
70 Stan. L. Rev. 363, 370, 422 (2018). Who decides—a court
or an arbitrator—whether an agreement exists, when the
putative agreement includes an arbitration provision
empowering an arbitrator to decide whether an agreement
exists?
2
This seemingly circular and esoteric inquiry implicates
important concerns, from the more specific question of
whether the parties’ bargained-for forum is being enforced to
broader questions about the allocation of powers between
judges and arbitrators. In this case, the U.S. District Court for
the District of New Jersey concluded that the court had the
primary power to decide whether fraud in the execution
vitiated the formation or existence of the contract containing
the arbitration provision. The court thus enjoined arbitration
pending resolution of factual issues that bear upon that claim.
We agree. Under the Federal Arbitration Act (FAA), 9
U.S.C. § 4, questions about the “making of the agreement to
arbitrate” are for the courts to decide unless the parties have
clearly and unmistakably referred those issues to arbitration in
a written contract whose formation is not in issue. Here, the
formation of the contract containing the relevant arbitration
provision is at issue. Therefore, we will affirm.
I. BACKGROUND
A. Events Leading up to the Arbitration Dispute
In 2001, MZM Construction Company, a New Jersey
corporation, hired workers from a local labor union for a
construction project at the Newark Liberty International
Airport. The following year, MZM’s president and sole
shareholder, Marjorie Perry, signed a one-page, short-form
agreement (SFA) with the union. Work on the Newark Airport
project concluded in 2004.
The SFA states that, “in order to expand the work
opportunities of both parties,” MZM and the union “agree to
be bound by the conditions as set forth in the 1999 Building,
3
Site and General Construction Agreement, which expires April
30, 2002,” and its successor, “the 2002 Building, Site and
General Construction Agreement, which successor becomes
effective May 1, 2002.” JA64. Both agreements are
“incorporated” into the SFA “in full.” Id. The parties refer to
the agreements referenced in the SFA as collective bargaining
agreements or CBAs. The SFA does not include any other
substantive terms, nor does it indicate whether the CBAs were
attached to it.
Under the 2002 CBA, employers are required to make
contributions to the New Jersey Building Laborers’ Statewide
Benefit Funds in accordance with “the applicable trust
agreement.” JA89 (2002 CBA, art. 14.10). The 2002 CBA
was to remain in effect through April 2007, when it would
automatically self-renew on a “year-to-year” basis unless
terminated by the contracting parties.1 JA98 (2002 CBA art.
23.10).
From 2001 through 2018, MZM remitted more than
$500,000 in contributions to the Funds for work related to the
Newark Airport project, as well as several other unrelated jobs.
When making those contributions, MZM executed and
submitted remittance reports, several of which expressly
reference “Collective Bargaining Agreements” and certain
trust agreements. JA320-45, 355. Perry signed those reports
in her capacity as MZM’s president.
The 2002 CBA and related trust agreement give the
Funds the authority to audit the books of contracting employers
to validate that all required contributions have been made. In
1
There is no contention that MZM has ever attempted
to terminate any CBA.
4
2018, the Funds invoked this authority to ensure that
contributions made by MZM from October 2014 through
September 2017 “were made in accordance with collective
bargaining agreements.” JA361. MZM consented to and
participated in the audit. Following the audit, the Funds
determined that MZM owed about $230,000 in contributions
for the relevant time period.
When MZM questioned the basis for the alleged
liability, the Funds produced the SFA that Perry signed in
2002, along with an unsigned copy of the 2002 CBA.2 The
Funds further informed MZM that, absent payment, a
collection dispute would be submitted to arbitration. The trust
agreement gives the Funds the option of going to court or
“designat[ing] a permanent arbitrator to hear and determine
collection disputes.” JA290 (Trust Agreement, art. V § 4).
In addition, the 2002 CBA contains an arbitration clause
pursuant to which the contracting parties agree to arbitrate,
among other things, “questions or grievances involving the
interpretation and application of this Agreement,” i.e., the 2002
CBA. JA96-97 (2002 CBA, art. 21.20(b)); JA68 (2002 CBA
Preamble (defining the “Agreement” as “this Collective
Bargaining Agreement”)). The arbitration clause includes a
provision stating: “The Arbitrator shall have the authority to
decide whether an Agreement exists, where that is in dispute.”
JA97 (2002 CBA, art. 21.20(c)).
The Funds unilaterally scheduled arbitration to begin in
November 2018.
2
They also produced a copy of the then-active 2016
CBA, which was also unsigned.
5
B. MZM’s Action in the District Court
That same month, MZM filed a complaint against the
Funds in the District Court, seeking to enjoin arbitration. It
also sought a declaratory judgment that MZM is not a signatory
to any CBA, that MZM has no obligation to arbitrate under any
CBA, and that MZM is not liable to the Funds under any CBA.
The gravamen of the complaint is that fraud in the execution
voided the SFA and the incorporation of the CBAs, and
therefore, no agreement exists between MZM and the Funds.
In a supporting declaration submitted with the
complaint, Perry admits that she signed the SFA in 2002 but
claims she never intended to execute a “statewide [CBA]”
requiring MZM to hire union workers and pay fringe benefits
on all of its construction projects within the state. JA59 (Perry
Decl. ¶ 10); see also JA44 (Compl. ¶ 15). According to Perry,
while MZM was working on the Newark Airport project, a
local union representative, Joe Taylor, approached and asked
her to “sign a single-project agreement . . . because the union
had nothing on record for MZM for the Newark Airport job.”
JA58 (Perry Decl. ¶ 9). Taylor “confirmed” that the document
he needed her to sign “was only for the Newark Airport job.”
Id. “[A]t no time did . . . Taylor advise” Perry that he wanted
her to sign a statewide CBA.
Id. He said that if she did not
sign the SFA, the union would pull its workers from the job.
Perry “signed the one-page document to avoid any labor
interruptions on the job.”
Id.
Perry avers that she relied on Taylor’s characterization
of the SFA when signing it. Taylor “normally dealt with
[Perry] over the years,” and she contends that he knew from
their “many dealings” that MZM is an “open shop,”
id.,
meaning that MZM does not ordinarily hire workers based on
6
union affiliation and only hires union workers “from time to
time,” for instance, when directed to do so by a site owner or
general contractor for a specific project. JA57 (Perry Decl. ¶¶
5-6). Taylor was also aware that MZM “had no interest in
becoming a party to any statewide [CBA].” JA58 (Perry Decl.
¶ 9). Perry claims she never received or even saw a copy of
the 2002 CBA or any CBA until after the audit in 2018.
According to the complaint, MZM and the union’s
conduct during the sixteen years following the execution of the
2002 SFA did not accord with a statewide CBA but rather
reflected their regular course of dealing. When MZM needed
union labor because an owner or general contractor required it,
the union would provide laborers and MZM would pay wages
and fringe benefits to the Funds.
The Funds moved to dismiss the complaint and opposed
the injunction application. They asked the District Court to
refer MZM’s fraud-in-the-execution claim to the arbitrator,
along with the underlying collection dispute, in accordance
with the 2002 CBA’s arbitration provision. The Funds further
asserted that MZM had not stated a claim of fraud in the
execution but rather fraud in the inducement. They argued that
this distinction is material to whether the court or the arbitrator
decides if an enforceable contract exists. The Funds submitted
evidence about the parties’ alleged course of dealings that,
according to the Funds, demonstrated a mutual intent to be
bound by the CBAs.
In December 2018, the District Court held a hearing in
which it framed the issue as follows: “The task before us . . . is
to figure out whether this [dispute] stays here or goes to the
arbitrator.” JA422. After hearing argument, the court
expressed doubt that a valid arbitration agreement existed
7
between the parties based on MZM’s claim of fraud in the
execution and granted a preliminary injunction to preserve the
status quo while it resolved that claim. The District Court later
entered an order enjoining arbitration during the pendency of
this action. It also “denied” the motion to dismiss “because the
arbitrability issue cannot be decided without further factual
development.” JA7. The court authorized “expedited
discovery.” JA7. The Funds timely appealed from that order.
While that appeal was pending, the Funds moved the
District Court for reconsideration under Rules 54(b) and 60(b)
and for an indicative ruling under Rule 62.1, which authorizes
a district court to rule on motions that are barred pending
appeal. The Funds asked the court to indicate that, if the case
were remanded, it would enforce the arbitration agreement
based on newly discovered evidence showing that, in 1999,
Perry had signed an earlier SFA that expressly incorporated the
predecessor to the 2002 CBA. The Funds argued that this new
evidence further demonstrated that Perry understood what she
was signing in 2002 and intended to be bound by the CBA and
its arbitration provision.
In August 2019, the District Court denied the motion. It
determined that, despite the production of the 1999 SFA, there
were still “several disputed facts that suggest that the parties
did not intend to incorporate the CBA.”3 JA31. The court
elucidated its reasoning for refusing to compel arbitration,
noting that there was a presumption that issues of
“arbitrability” are for the court to decide and that to “overcome
3
The opinion is reported at MZM Constr. Co., Inc. v.
New Jersey Bldg. Laborers’ Statewide Benefit Funds, No. 18-
16328, 2019 WL 3812889 (D.N.J. Aug. 14, 2019).
8
this presumption, an arbitration clause must contain clear and
unmistakable evidence that the parties agreed to arbitrate
arbitrability.” JA21 (internal quotation marks, alterations, and
citations omitted). The court concluded that the 2002 CBA’s
arbitration provision—empowering the arbitrator to decide
whether an agreement exists—was not “sufficient to send the
matter to an arbitrator where a party legitimately disputes
whether it ever saw, heard about, or agreed to a CBA at all, and
where it even disputes the scope of the SFA that supposedly
incorporated the CBA.” JA32 (Op. 25 n.8).
The Funds timely appealed that decision, and we
consolidated both of their appeals.4
II. STANDARD OF REVIEW
The District Court treated “the injunction application”
as “the functional equivalent of an opposition to a motion to
compel arbitration by the Funds.” JA8. We agree.
4
This dispute arises out of a putative contract between
an employer and a labor union under the Labor Management
Relations Act (LMRA), 29 U.S.C § 141, et seq., pursuant to
which a contracting employer is required to make certain
contributions to benefit funds established under the
Employment Retirement Income Security Act (ERISA), 29
U.S.C. § 1001, et seq. The District Court had jurisdiction
under 28 U.S.C. § 1331, as well as under the LMRA, 29 U.S.C.
§ 185(a), and ERISA, 29 U.S.C. § 1132(e). We have
jurisdiction under 28 U.S.C. § 1292(a)(1) because the Funds
appeal from an order enjoining arbitration. Nat’l Football
League Players’ Concussion Injury Litig., 923 F.3d 96, 107 (3d
Cir. 2019).
9
The combined effect of the District Court’s decision to
enjoin arbitration, deny the motion to dismiss, and require the
Funds to litigate the arbitrability issue, i.e., the fraud-in-the-
execution claim, was to deny the Funds’ asserted right to have
that issue submitted to arbitration. See Bacon v. Avis Budget
Grp., Inc., 959 F.3d 590, 599 (3d Cir. 2020) (stating, for
jurisdictional purposes, that the FAA makes no distinction
between an order denying arbitration and final orders “that
accomplish the same end” (internal quotation marks omitted)).
As such, we may exercise plenary review and “affirm on any
grounds supported by the record.”5
Id. at 599 n.5.
In reviewing a district court’s refusal to compel
arbitration at the pleadings stage, we accept as true the factual
allegations in the complaint and draw all reasonable inferences
in favor of the party opposing arbitration. Guidotti v. Legal
Helpers Debt Resolution, L.L.C., 716 F.3d 764, 772 (3d Cir.
2013). In addition to the complaint, we may consider “exhibits
attached to the complaint, matters of public record, as well as
undisputedly authentic documents if the complainant’s claims
are based upon these documents[.]”
Id. (citation omitted).
III. DISCUSSION
The critical question in this appeal is who decides
MZM’s contract defense, i.e., its claim that it never intended to
execute an SFA incorporating statewide CBAs with an
5
MZM urges us to apply an abuse of discretion
standard, because the order appealed from involves an
injunction. Even if we did, our analysis would not change.
This appeal raises purely legal questions that are subject to de
novo review. Bennington Foods LLC v. St. Croix Renaissance,
Group, LLP, 528 F.3d 176, 178 (3d Cir. 2008).
10
arbitration provision but rather intended to execute a single-
project agreement with no mention of arbitration. As
explained more fully below, the answer to that question is
bound up with the determination of whether MZM’s claim
sounds in fraud in the execution, which voids a contract as if it
had never been executed, or fraud in the inducement, which
presumes the existence of a contract but renders it voidable.
The District Court has not yet ruled on the merits of
MZM’s claim. Rather, it made three antecedent rulings: (i) the
court has the primary power to decide questions about the
formation of an arbitration agreement (ii) MZM put the
formation of the relevant arbitration agreement in issue by
stating a claim of fraud in the execution, and (iii) genuine
issues of fact need to be explored in discovery before resolving
that claim. The Funds challenge all three rulings, so we
address each in turn.
A. The District Court’s Power
The threshold issue is whether the District Court has the
power to resolve questions about the formation or existence of
a contract when the putative contract includes a provision
delegating “the authority to decide whether an Agreement
exists” to the arbitrator. JA97 (2002 CBA, art. 21.20(c)).
1. The FAA’s Pro-Arbitration Policy and the
Severability Doctrine
We begin with the FAA, the federal statute that guides
our analysis of arbitration agreements in contracts governed by
11
federal labor law.6 “The FAA establishes a strong federal
policy in favor of compelling arbitration over litigation.”
Sandvik AB v. Advent Int’l Corp., 220 F.3d 99, 104 (3d Cir.
2000); see also Hall St. Assocs., L.L.C. v. Mattel, Inc.,
552 U.S.
576, 581 (2008) (noting that “Congress enacted the FAA to
replace judicial indisposition to arbitration with a national
policy favoring it” (internal quotation marks and alteration
omitted)); Circuit City Stores, Inc. v. Adams,
532 U.S. 105, 111
(2001) (explaining that “the FAA was a response to hostility of
American courts to the enforcement of arbitration
agreements”).
6
The District Court treated the CBA’s arbitration
provision as if it were governed by the FAA, a premise that the
parties accept. We proceed under the same premise. Although
the FAA applies to commercial arbitration agreements by its
own terms, it is well-accepted that labor arbitration disputes
arising under federal law should be resolved in accordance
with the FAA, even though labor arbitration agreements may
not be technically governed by the statute. See Granite Rock
Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287, 298-99 & n.6
(2010) (applying FAA cases to a CBA’s arbitration provision,
“because they employ the same rules of arbitrability that
govern labor cases”); United Paperworkers Int’l Union, AFL-
CIO v. Misco, Inc.,
484 U.S. 29, 41 (1987) (noting that “federal
courts have often looked to the [FAA] for guidance in labor
arbitration cases, especially in the wake of the holding that §
301 of the [LMRA], 29 U.S.C. § 185, empowers the federal
courts to fashion rules of federal common law to govern [s]uits
for violation of contracts between an employer and a labor
organization under the federal labor laws” (internal quotation
marks and citations omitted)(second alteration in original)).
12
Following the enactment of the FAA, the Supreme
Court has steadily advanced this policy by guarding against
unwarranted judicial interference with arbitration. See, e.g.,
Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct.
524, 529 (2019) (holding that courts cannot decide arbitrability
issues that the parties agreed to submit to arbitration even if
“the argument for arbitration is wholly groundless”); Prima
Paint Corp. v. Flood & Conklin Mfg. Co.,
388 U.S. 395, 406
(1967) (holding that arbitrators have the primary power to
decide legal issues relating to the parties’ contract absent
evidence indicating the parties intended to exclude those issues
from arbitration).
Of relevance here is the Supreme Court’s decision in
Prima Paint, which established what is known as the
“severability doctrine.” Sandvik, 220 F.3d at 105 (citing Prima
Paint, 388 U.S. at 404). After looking at the FAA’s text and
structure, in particular sections 2, 3 and 4, the Court held that
an arbitration clause is “severable” and independently
enforceable from the rest of the contract in which it is
contained. Id.; see Prima
Paint, 388 U.S. at 400, 403-04.
Under this severability rule, a party cannot avoid arbitration by
attacking the contract containing the arbitration clause as a
whole (the “container contract”). Rather, the party opposing
arbitration must challenge “the arbitration clause itself.”
Prima
Paint, 388 U.S. at 403.
For instance, a claim of fraud in the inducement of the
arbitration clause is for the court to decide, but a claim of fraud
in the inducement of the container contract is for the arbitrator.
Id. at 403-04. Because the party opposing arbitration had only
alleged fraud in the inducement of the container contract, the
Prima Paint Court referred that issue to the arbitrators in
accordance with the arbitration clause. Thus, under Prima
13
Paint, absent a specific challenge to the validity of the
arbitration clause specifically, the court must treat it as a valid
and enforceable agreement and refer any challenges to the
container contract to arbitration. Id. at 406.
2. The FAA Requires a Court to Be Satisfied that an
Agreement Was Made
Prima Paint did not address whether the severability
doctrine applies in cases where the formation of the container
contract is at issue. But the Supreme Court has made clear that
the “liberal federal policy favoring arbitration agreements,”
which underpins the severability doctrine, “is at bottom a
policy guaranteeing the enforcement of private contractual
arrangements.” Sandvik, 220 F.3d at 105 (quoting Mitsubishi
Motors Corp. v. Soler Chrysler-Plymouth, Inc.,
473 U.S. 614,
625 (1985)) (quotation marks and citation omitted). Simply
put, without an agreement to arbitrate, there can be no
arbitration.
Id. at 105, 107-08; Par-Knit Mills, Inc. v.
Stockbridge Fabrics Co.,
636 F.2d 51, 54 (3d Cir. 1980).
So, who decides whether an arbitration agreement exists
when the formation or the existence of the container contract
is disputed—the court or the arbitrator?
We answered that question in Sandvik. There, we
turned to section 4 of the FAA, which provides that a federal
court must compel arbitration “upon being satisfied that the
making of the agreement for arbitration . . . is not in issue,” 9
U.S.C. § 4, and we held that this provision “affirmatively
requires” a court to decide questions about the formation or
14
existence of an arbitration agreement, namely the element of
mutual assent.7 Sandvik, 220 F.3d at 108-09.
The court must resolve those questions even when the
answer requires passing judgment on the formation or
existence of the container contract, because “the doctrine of
severability presumes an underlying, existent, agreement.” Id.
at 106 (“[T]hough arbitration clauses are severable from their
larger contracts, the question whether the underlying contract
7
The formalities of contract formation also require
adequate consideration. We read Sandvik as being limited only
to claims that, if proven, would negate the element of mutual
assent. If mutual assent is undisputed, a claim that the
container contract alone lacks consideration would not be
enough to put the formation or existence of the arbitration
agreement in issue. The severability doctrine presumes that the
mutual promise to arbitrate is sufficient consideration to
sustain an arbitration agreement separate and apart from the
container contract. Blair v. Scott Specialty Gases, 283 F.3d
595, 603 (3d Cir. 2002) (“When both parties have agreed to be
bound by arbitration, adequate consideration exists and the
arbitration agreement should be enforced.”);
Sandvik, 220 F.3d
at 108 (citing Sauer-Getriebe KG v. White Hydraulics,
715
F.2d 348, 350 (7th Cir.1983) (“The agreement to arbitrate and
the agreement to buy and sell . . . are separate. [Plaintiff’s]
promise to arbitrate was given in exchange for [defendant’s]
promise to arbitrate and each promise was sufficient
consideration for the other.” (alterations supplied)); see also,
e.g., Allstate Ins. Co. v. Toll Bros., Inc.,
171 F. Supp. 3d 417,
422-26 (E.D. Pa. 2016).
15
contains a valid arbitration clause still precedes all others.”).8
We explained that this threshold determination is “a necessary
prerequisite” in fulfilling the court’s gatekeeping function. Id.
at 107. Otherwise, arbitrators would be allowed “to determine
their own jurisdiction, something that is not permitted in the
federal jurisprudence of arbitration[.]”
Id. at 111.
3. The Contractual Delegation of Powers to
Arbitrators
In Sandvik, we also noted that, under Supreme Court
precedent, contracting parties are free to refer arbitrability
questions to arbitration, including “disputes of the nature
before us today[.]” Id. 111. In other words, parties may
contractually bestow upon arbitrators the power to decide their
own jurisdiction
, id., a well-established arbitration principle
known as competence-competence or arbitrating arbitrability.9
8
In Par-Knit, we held that the party opposing arbitration
could not be bound by an arbitration provision before the court
determined if the signatory had authority to bind the company
to the container contract, but we did not address the
implications of the severability doctrine. 636 F.2d at 54-55.
9
The concept of “arbitrability” encompasses all sorts of
“gateway” issues regarding the parties’ obligation to arbitrate,
“such as whether the parties have agreed to arbitrate or whether
their [arbitration] agreement covers a particular controversy.”
Henry Schein, 139 S. Ct. 524, 529 (2019) (citation omitted);
see also Singh v. Uber Techs. Inc.,
939 F.3d 210, 215 (3d Cir.
2019) (“To the extent that a particular ground implicates the
threshold question of whether the parties are bound by an
agreement to arbitrate, it is referred to as a gateway question
of arbitrability.” (emphasis added)).
16
See China Minmetals Materials Imp. & Exp. Co. v. Chi Mei
Corp., 334 F.3d 274, 281, 287 (3d Cir. 2003); see also Blanton
v. Domino’s Pizza Franchising LLC,
962 F.3d 842, 849-50 (6th
Cir. 2020).
We also emphasized the Supreme Court’s admonition
that courts “should not assume that the parties agreed to
arbitrate arbitrability unless there is clea[r] and unmistakabl[e]
evidence that they did so.” Sandvik, 220 F.3d at 111 (quoting
First Options of Chicago, Inc. v. Kaplan,
514 U.S. 938, 944
(1995)) (alterations supplied); see also AT & T Techs., Inc. v.
Commc’ns Workers,
475 U.S. 643, 649 (1986) (“Unless the
parties clearly and unmistakably provide otherwise, the
question of whether the parties agreed to arbitrate is to be
decided by the court, not the arbitrator.”).
Since our decision in Sandvik, the Supreme Court has
further addressed the procedures for determining who decides
“gateway questions of arbitrability.” Rent-A-Ctr., W., Inc. v.
Jackson, 561 U.S. 63, 68-69 (2010) (internal quotation marks
and citation omitted). In Rent-A-Center, the Court recognized
that contracting parties can agree that arbitrators, not courts,
shall resolve arbitrability issues by including in the contract a
so-called “delegation provision” conferring upon the
arbitrators the “exclusive authority” to decide those gateway
matters. 561 U.S. at 68-69, 71. The Court held that, under the
FAA, a delegation provision is itself “an additional, antecedent
[arbitration] agreement.”
Id. at 70. Think of a delegation
provision as a mini-arbitration agreement within a broader
arbitration agreement within a broader contract, “something
akin to Russian nesting dolls.”
Id. at 85 (Stevens, J.,
dissenting); see 1 Domke on Com. Arb. § 15:11.50 (“The goal
of delegation is to insulate and protect the arbitration process,
17
preventing the parties from wasting time and money fighting
in court before going to arbitration.”).
The Rent-A-Center Court explained that the FAA
operates on the delegation provision as it does on any other
arbitration agreement. 561 U.S. at 70. Thus, consistent with
the severability doctrine, unless the party opposing arbitration
challenges “the delegation provision specifically,” the district
court “must treat it as valid” and “must enforce it” by sending
“any challenge to the validity” of the underlying arbitration
agreement to the arbitrator.
Id. at 72.
Even when the grounds for invalidating the delegation
provision and the underlying agreement are the same, the
arbitrability challenge must still be directed at the delegation
provision specifically to invoke a court’s power to intervene.
Id. at 71. The Court thus concluded that, because the party
opposing arbitration failed to direct its unconscionability
challenge at the delegation provision, it was for the arbitrator
to resolve that gateway issue.
Id. at 72 (observing that
“[n]owhere in his opposition” in the district court “did [the
plaintiff] even mention the delegation provision”); see
MacDonald v. CashCall, Inc.,
883 F.3d 220, 227 (3d Cir. 2018)
(“[W]ithout a specific challenge to a delegation provision, the
court must treat that provision as valid and enforce it according
to FAA § 4[.]”).
4. Application to this Case: The Intersection Between
the Severability Doctrine and the Delegation of
Contract Formation Disputes
So, what happens when, as here, the container contract,
whose formation or existence is being challenged, has a
delegation provision empowering the arbitrator to decide
18
whether an agreement exists? Who decides the threshold issue
then?
The Funds point out that MZM attacked the validity of
the SFA and CBA (the container contract) and the CBA’s
arbitration provision (the broader arbitration agreement) but
failed to direct its challenge specifically at the delegation
provision (the agreement to arbitrate arbitrability). According
to the Funds, absent any allegation that the delegation
provision itself is invalid as required under Rent-A-Center and
MacDonald, the District Court was obligated to enforce it—no
questions asked.
That argument has some appeal. After all, Perry admits
that she intended to enter into some sort of agreement with the
union when she signed the SFA, which expressly incorporates
the 2002 CBA “in full.” JA64. And MZM does not argue that
the terms of the SFA alone are ineffective for incorporating the
CBAs. Thus, on the face of these documents, the delegation
provision seems to be a valid agreement to arbitrate the
existence of the CBA. Without any allegation or argument
indicating why the delegation provision itself is defective, the
court is left to connect the dots on its own, something that Rent-
A-Center seems to forbid. See Restatement (Third) of the U.S.
Law of Int’l Comm. Arb. § 2-12 & com. c (Tentative Draft No.
4, 2015) (“[T]here may be circumstances in which, pursuant to
the separability doctrine, a court finds that an arbitration
agreement came into existence even though the contract in
which it is found may not have.”); George A. Bermann, The
Supreme Court Trilogy and Its Impact on U.S. Arbitration
Law, 22 Am. Rev. Int’l Arb. 551, 557-58 (2011) (“[E]ven a
party that steadfastly insists that it is a stranger to an agreement
may, by virtue of clear and unmistakable language in the
19
contract, find itself having given a tribunal primary authority
to answer that very question.”).
MZM sees things differently. It believes that Rent-A-
Center and MacDonald apply only when a party challenges the
validity or enforceability of an existing agreement, not when,
as here, the formation or existence of the entire agreement is in
issue.
Reduced to its essence, the parties’ dispute sits at the
intersection of the severability doctrine as articulated in Rent-
A-Center, which requires that an unchallenged delegation
provision in a disputed contract be enforced as presumptively
valid, and section 4 of the FAA, which, as construed in
Sandvik, 220 F.3d at 109, “affirmatively requires” a court to
rule on the formation of the container contract.
Although the Third Circuit has not since Rent-A-Center
squarely addressed this issue, we believe that our decision in
Sandvik compels the same outcome here. Recall that, in
Sandvik, we expressly rejected the argument that the
severability doctrine applies when the threshold arbitrability
issue is whether the parties mutually assented to the container
contract. 220 F.3d at 101, 106, 108. For good reason: Lack of
assent to the container contract necessarily implicates the
status of the arbitration agreement, when the container contract
and the arbitration provision depend on the same act for their
legal effect.
Id. at 109, 111. It is thus inevitable that a court
will need to decide questions about the parties’ mutual assent
to the container contract to satisfy itself that an arbitration
agreement exists and vice versa. That is no less true when the
container contract includes or incorporates a delegation
provision. See China
Minmetals, 334 F.3d at 288 (“[A]
contract cannot give an arbitral body any power, much less the
20
power to determine its own jurisdiction, if the parties never
entered into it.”). Given that Rent-A-Center made clear that the
FAA operates on the delegation provision as it does on any
other arbitration agreement, we see no reason to deviate from
our analysis in Sandvik, and we conclude that the degree of
specificity required in Rent-A-Center does not apply here.10
We find further support for this view in the Supreme
Court’s arbitrability jurisprudence. In Rent-A-Center itself, the
Court drew a distinction between, on the one hand, questions
about the validity or enforceability of an arbitration provision
in an existing contract and, on the other hand, questions about
whether an agreement “was ever concluded” in the first place.
561 U.S. at 70 n.2 (quoting Buckeye Check Cashing, Inc. v.
Cardegna,
546 U.S. 440, 444 n.1 (2006)). The Court
emphasized that it was only addressing the former
, id., perhaps
implying that its decision did not apply to the latter. In Granite
Rock, the Court again suggested that questions about contract
formation are different, and listed arbitrability issues that a
“court must resolve” before referring a matter to arbitration,
which “always include whether the [arbitration] clause was
agreed
to.” 561 U.S. at 297 (emphases added); see also Henry
10
We note that MZM directed its fraud in the execution
challenge at the SFA incorporating the CBAs and, on that
basis, disputed any agreement to arbitrate under the CBA’s
arbitration provision. It never mentioned the “delegation
provision” specifically by name or even cited the relevant
subpart. Though this was enough to put the Funds on notice
that MZM was challenging the formation or existence of any
arbitration agreement predicated on the execution of the SFA,
we think it prudent for parties to always be as precise as
possible when stating their claim to avoid any pitfalls.
21
Schein, 139 S. Ct. at 530 (“[B]efore referring a dispute to an
arbitrator, the court determines whether a valid arbitration
agreement exists.”).
To be sure, none of those cases, or any other Supreme
Court case for that matter, dealt with a contract-formation
dispute involving a delegation provision assigning that task to
the arbitrator, so this precise situation remains an open
question. While in this Court we are bound by Sandvik, we do
not follow it blindly. Whether and how Sandvik applies here
is a thorny issue post-Rent-A-Center, and one that could
reasonably go either way depending on how one weighs the
FAA’s competing policies.
No matter how this question is resolved, there is a risk
that one of the parties will be denied the full benefit of its
bargain or the forum to which it is entitled. If the court were
allowed to intervene at the outset and ultimately conclude that
a validly formed agreement exists, the Funds will have been
theoretically denied the contractual right to have that issue
resolved by the arbitrator in the first instance and will have
been subjected to litigation inconveniences that they were
seeking to avoid by bargaining for a delegation provision.
Inversely, if the court enforces the delegation provision
without first considering the existence of the container
contract, and the arbitrator later concludes that no agreement
ever existed, then MZM will have been compelled to arbitrate
a matter it never agreed to and will have been denied a judicial
forum in the process.
We weighed those concerns in Sandvik, 220 F.3d at 111,
and we weigh them today in light of Rent-A-Center and its
progeny. Consistent with the Supreme Court’s repeated
admonition that, at its core, “arbitration is a matter of contract,”
22
Rent-A-Center, 561 U.S. at 67, 69, we believe that the text of
section 4 of the FAA—mandating that the court be “satisfied”
that an arbitration agreement exists—tilts the scale in favor of
a judicial forum when a party rightfully resists arbitration on
grounds that it never agreed to arbitrate at all. Indeed, it can
hardly be said that contracting parties clearly and unmistakably
agreed to have an arbitrator decide the existence of an
arbitration agreement when one of the parties has put the
existence of that very agreement in dispute. See Rent-A-
Center, 561 U.S. at 69 n.1 (noting that the “‘clear and
unmistakable’ requirement . . . pertains to the
parties’ manifestation of intent”) (citation omitted)).
We are not alone in reaching this conclusion. After
Rent-A-Center, several sister circuits have confronted this
same threshold question and have declined to enforce
delegation provisions when the formation or existence of the
container contract was at issue. See In re: Auto. Parts Antitrust
Litig., 951 F.3d 377, 385-86 (6th Cir. 2020); Berkeley Cty. Sch.
Dist. v. Hub Int’l Ltd.,
944 F.3d 225, 234 (4th Cir. 2019);
Lloyd’s Syndicate 457 v. FloaTEC, L.L.C.,
921 F.3d 508, 515
(5th Cir. 2019); Nebraska Mach. Co. v. Cargotec Sols., LLC,
762 F.3d 737, 741 & n.2 (8th Cir. 2014).11 We join these
circuits in adopting the view that, under section 4 of the FAA,
courts retain the primary power to decide questions of whether
the parties mutually assented to a contract containing or
incorporating a delegation provision.
11
District courts in the Seventh Circuit have adopted
this position as well. See, e.g., CCC Info. Servs. Inc. v.
Tractable Inc., No. 18 C 7246, 2019 WL 2011092, at *2 (N.D.
Ill. May 7, 2019), appeal pending, No. 19-1997 (7th Cir.).
23
We conclude our analysis of this threshold question by
echoing Sandvik’s disclaimer that nothing in our decision
today precludes parties from delegating issues of contract
formation like the one before us. 220 F.3d at 111. But we
caution that the legal effect of the delegation must come from
an “independent source” outside the contract whose formation
or existence is being disputed.
Id. at 108. For instance, parties
can enter into pre-negotiation contracts in which they agree to
arbitrate all arbitrability issues pertaining to future contracts
between them. See
id. at 111-12. Or, once a dispute has arisen,
they can agree by stipulation to submit their entire dispute to
arbitration, including any gateway issues regarding the
formation of the original contract containing the delegation
provision. See Restatement (Third) of the U.S. Law of Int’l
Comm. Arb. § 2-12(b) & com. d (Tentative Draft No. 4, 2015).
Even then, the arbitrators’ determination as to whether the
parties agreed to arbitrate in the first place will be reviewable
de novo by a court of competent jurisdiction on the backend if
the arbitrators render an award in the absence of a validly
existing arbitration agreement over a party’s objection. China
Minmetals, 334 F.3d at 288-89.
In brief, we reaffirm our decision in Sandvik and hold
that, unless the parties clearly and unmistakably agreed to
arbitrate questions of contract formation in a contract whose
formation is not in issue, those gateway questions are for the
courts to decide.
B. Fraud in the Execution
The next question then is whether MZM has put the
formation of the arbitration agreement “in issue” by stating a
claim of fraud in the execution. To state a claim, MZM must
plead specific factual matter in line with that legal standard.
24
Under the FAA, agreements to arbitrate must be treated
like “all other contracts.” Buckeye Check Cashing, 546 U.S. at
443. When determining whether an arbitration agreement
exists, we “apply ordinary state-law principles” governing
contract formation. James v. Glob. TelLink Corp,
852 F.3d
262, 265 (3d Cir. 2017) (quoting First
Options, 514 U.S. at
944). The District Court applied New Jersey law, and the
parties do not dispute that decision.
Under New Jersey law, “[a]n agreement to arbitrate,
like any other contract, must be the product of mutual assent,
as determined under customary principles of contract law.” Id.
at 265 (quoting Atalese v. U.S. Legal Servs. Grp., L.P.,
99 A.3d
306, 312-13 (N.J. 2014) (internal quotation marks omitted)).
Here, the existence of an arbitration agreement comes into play
because the SFA purports to incorporate the full terms of an
unattached and unsigned CBA with an arbitration provision.
New Jersey law allows unsigned documents to be
incorporated by reference. However, for the incorporation to
be effective, “the separate document must be described in such
terms that its identity may be ascertained beyond doubt and . . .
the party to be bound by the terms must have had knowledge
of and assented to the incorporated terms.” Bacon, 959 F.3d at
600 (quoting Alpert, Goldberg, Butler, Norton & Weiss, P.C.
v. Quinn,
983 A.2d 604, 617 (N.J. Sup. Ct. 2009)) (internal
quotation marks omitted). It is undisputed that the SFA
describes the incorporated agreements with enough detail to
identify them as the CBAs. The point of contention is whether
Perry had “knowledge of and assented to” the essential terms
in those documents.
Id.
“It is the general rule that where a party affixes [her]
signature to a written instrument, . . . a conclusive presumption
25
arises that [she] read, understood and assented to its terms and
[she] will not be heard to complain that [she] did not
comprehend the effect of [her] act in signing.” Peter W. Kero,
Inc. v. Terminal Const. Corp., 78 A.2d 814, 817 (N.J. 1951);
see Morales v. Sun Constructors, Inc.,
541 F.3d 218, 221 (3d
Cir. 2008) (“It will not do for a man to enter into a contract,
and, when called upon to respond to its obligations, to say that
he did not read it when he signed it, or did not know what it
contained.” (quoting Upton v. Tribilcock,
91 U.S. 45, 50
(1875))). Indeed, if all it took to avoid a signed contract was
to claim ignorance of its content or legal effect, “contracts
would not be worth the paper on which they are written.”
Upton, 91 U.S. at 50; see Novitsky v. Am. Consulting
Engineers, L.L.C.,
196 F.3d 699, 702 (7th Cir. 1999).
It is undisputed that Perry signed the SFA in 2002. Her
signature thus creates a presumption that she “read,
understood, and assented to” the terms of that document. Kero,
78 A.2d at 817. Considering that the single sentence in the
SFA does nothing more than incorporate the longer-form
CBAs, it is difficult to conceive how Perry would not have
understood that all the essential terms of her agreement with
the union were to be found in the separately incorporated
documents and that, by virtue of signing the SFA, she was
agreeing to be bound by those terms. However, Perry avers
that she signed the SFA “without knowledge or a reasonable
opportunity to obtain knowledge of its character or its essential
terms.” JA53 (Compl. ¶ 87).
Perry never asked to see the incorporated agreements.
Nor does she contend that, had she asked, she would have been
refused. Had Perry requested and studied those documents, she
could have easily identified the alleged error, and “this entire
dispute could have been averted.” Central Pennsylvania
26
Teamsters Pension Fund v. McCormick Dray Line, Inc., 85
F.3d 1098, 1108 (3d Cir. 1996) (rejecting fraud-in-the-
execution claim where employer failed to read the contract
despite having opportunities to do so). Her failure to read is
not by itself sufficient to avoid the legal effects of her
signature, especially given her extensive business training and
nearly thirty-year experience running a construction company
for high-profile projects. See Sheet Metal Workers Int’l. Ass’n
Local Union No.27, AFL-CIO v. E.P. Donnelly, Inc., 673 F.
Supp. 2d 313, 328 & n.23 (D.N.J. 2009) (“Walking blindfolded
through one’s business affairs does not excuse the ensuing
collision.” (citing
Novitsky, 196 F.3d at 702)).
But that is not the end of the inquiry. There is an
exception to this general rule when a party’s “signature is
obtained by fraud or imposition in the execution of the
instrument.” Kero, 78 A.2d at 817 (citations omitted). Fraud
in the execution (or fraud in the factum) occurs when a party is
compelled to sign the instrument “by reason of a
misrepresentation intended to deceive [her] as to its purport or
content[.]”
Id. at 817-18. Because this rule is intended to
protect both “the unwary and foolish as well as the vigilant,”
the signer’s negligence in failing to read the instrument or “in
trusting a representation” does not excuse the other party’s
intentional fraudulent act.
Id. at 818. “This is particularly true
where a relation of natural trust and confidence, though not
strictly a fiduciary relation, exists between the [contracting]
parties.”
Id. at 818 (citing 5 Williston on Contracts § 1516
(rev. ed. 1937)).
Fraud in the execution may also be present “when a
party executes an agreement with neither knowledge nor
reasonable opportunity to obtain knowledge of its character or
its essential terms” by reason of “excusable ignorance.”
27
Connors v. Fawn Min. Corp., 30 F.3d 483, 490, 491 (3d Cir.
1994) (applying the Uniform Commercial Code in a labor case
arising out of the LMRA and ERISA) (quotation marks
omitted); see also Restatement (Second) of Contracts § 163
(1981). Although excusable ignorance does not require an
affirmative intent to defraud, it typically involves some sort of
misconduct or imposition that cuts off the signer’s opportunity
to read, such as “significant time pressure” and reliance on an
erroneous “assurance” that the parties’ oral understanding had
been or would be accurately memorialized in an instrument.
Connors, 30 F.3d at 488, 492-93. In short, “[f]ailing to read a
contract does not excuse performance unless fraud or
misconduct by the other party prevented one from reading.”
New Gold Equities Corp. v. Jaffe Spindler Co.,
181 A.3d 1050,
1064 (N.J. Super. Ct. 2018) (citation omitted).
The complaint does not explicitly allege an intent to
defraud or mislead. And at oral argument, MZM disavowed
that it was asserting a claim of willful fraud or “bait and
switch.” Oral Arg. Audio 43:45-44:45. Rather, MZM claims
that Perry signed the SFA incorporating statewide CBAs with
an arbitration provision in reliance on Taylor’s assurance that
it was a single-project agreement without any mention of
arbitration. Contracting parties have a right to trust each other
to draw up paperwork that accurately memorializes “the oral
understanding between them,” and the “presentation of the
paper for signature is in itself a representation that the terms of
such oral agreement have been or will be embodied in the
writing.” Kero, 78 A.2d at 818; see also
Connors, 30 F.3d at
493 (concluding that fraud in the execution occurs where a
party “surreptitiously substitutes a materially different
contract” before or after the counterparty signs).
28
According to Perry, Taylor “confirmed” that the
document he needed her to sign “was only for the Newark
Airport job,” and “at no time did . . . Taylor advise her” that he
wanted her to agree to statewide CBAs. JA58 (Perry Decl. ¶
9). And there is no indication that they discussed arbitration.
We can infer from these allegations that Perry and Taylor
reached an oral understanding on a single-project agreement
with no mention of an arbitration provision and that Taylor
assured Perry that the SFA reflected that understanding. Yet
Taylor presented her with an SFA that was “materially
different” insofar as it incorporated statewide, self-renewing
CBAs with an arbitration provision. Connors, 30 F.3d at 493.
Perry alleges that Taylor never provided her copies of
the incorporated agreements. Nor did she ask for them. These
facts cut both ways, because they can suggest an effort on the
part of Taylor to keep those documents from Perry or
something less nefarious such as the parties’ common failure
to act diligently. We view these allegations in favor of MZM,
as we must at this stage. Moreover, Perry alleges that she had
good reason to trust and rely on Taylor’s representation
because, after having dealt with him for many years, he knew
and understood that MZM was an open shop and was not
interested in entering into any statewide CBA with or without
an arbitration provision.
It bears noting that the complaint seems to allege that
the union did not intend to enter into statewide CBAs. If so,
this could be a simple case of mutual mistake. But that is not
the only plausible reading of the complaint. Viewed in the light
most favorable to MZM, the allegations also raise a reasonable
suspicion that this was something more than an innocent
mistake. Perry alleges that she felt a sense of urgency to sign
the SFA because Taylor came to the work site and indicated
29
that the union would pull workers from the job if she refused
to sign.
The threat of halting construction could heighten a
reasonable person’s sense of urgency to sign the SFA on the
spot, as any disruptions on a project that had been underway
for more than a year could lead to unwanted delays and higher
costs. Indeed, Perry claims she signed the SFA “to avoid any
labor interruptions on the job.” JA58 (Perry Decl. ¶ 9). We
can infer from these allegations that Taylor intentionally
pressured Perry or created an undue imposition that, combined
with Perry’s reasonable reliance in his assurance, effectively
foreclosed any opportunity to review the incorporated
agreements before signing the SFA. And once it was signed,
everyone went about their business.
These allegations are enough to state a claim for fraud
in the execution of the SFA by reason of excusable ignorance.
Without a validly executed SFA, there could be no
incorporation of the CBAs, and without validly incorporated
CBAs, there could be no arbitration agreement.
The Funds concede that fraud in the execution negates
mutual assent, Connors, 30 F.3d at 493, and that such a claim
belongs in court under Sandvik. To avoid that outcome, the
Funds astutely argue that MZM has not pleaded fraud in the
execution but rather fraud in the inducement.12
12
The Funds also raise this argument to dispute that
MZM has mounted a proper defense under ERISA. That issue
goes to the merits of the underlying dispute, which is not
currently before us. At this stage, our concern is only whether
MZM has put the agreement to arbitrate in issue. See AT & T,
30
Fraud in the inducement occurs when someone signs the
document they intended to sign, but their assent was induced
by a material misrepresentation about facts external to that
document. See Sandvik, 220 F.3d at 109; 37 Am. Jur. 2d Fraud
and Deceit § 2 (2020). For example, if a party misrepresents
that the price of cheese will increase to induce someone into
signing a contract to buy milk in bulk, that is fraud in the
inducement. But if a party assures its counterparty that it is
signing a contract for cheese when it is in fact a contract for
milk, that is fraud in the execution. See
Connors, 30 F.3d at
490 (“[Fraud in the inducement] induces a party to assent to
something he otherwise would not have; [fraud in the
execution] induces a party to believe the nature of his act is
something entirely different than it actually is.” (quoting
Southwest Adm’r, Inc. v. Rozay’s Transfer,
791 F.2d 769, 774
(9th Cir. 1986)).
Again, the difference between those claims matters
because, unlike fraud in the execution, which renders the entire
agreement “void ab initio” as if it never existed, fraud in the
inducement only renders the contract “voidable,” giving the
defrauded party the option of rescinding the contract or
claiming damages for deceit. See Sandvik, 220 F.3d at 107,
109-10. Thus, unless MZM were alleging fraud in the
inducement of the delegation provision, the District Court
would be required to submit the claim to the arbitrator
pursuant
475 U.S. at 649 (“[I]n deciding whether the parties have agreed
to submit a particular grievance to arbitration, a court is not to
rule on the potential merits of the underlying claims.”).
31
to the 2002 CBA’s arbitration provision under Sandvik and
Rent-A-Center.13
MZM does not claim fraud in the inducement. Nowhere
does the complaint allege that Perry intended to assent to a
statewide CBA with an arbitration provision. It alleges the
opposite. See JA48 (Compl. ¶ 47) (“The only conceivable
basis for the Funds to compel MZM to arbitrate any dispute
would be for MZM to have agreed to a New Jersey statewide
[CBA] with an arbitration provision, which MZM never did.”
(emphasis added)). Contrary to the Funds’ assertion, Perry
does not allege that Taylor “offered assurances that, whatever
the document might say, the parties had actually entered into a
more limited agreement.” Appellant’s Br. 45 (emphasis
added). MZM’s contention is that Perry relied on Taylor’s
confirmation that the documents reflected their oral
understanding when in fact it was something “radically
different.” JA50, 53 (Compl. ¶¶ 58, 88).
Because MZM stated a claim of fraud in the execution
of the container contract, MZM put the formation of the
delegation provision in issue and thus triggered the District
Court’s power to adjudicate that claim.
13
The complaint does not contest the Funds’ contractual
right to invoke the terms of the 2002 CBA’s arbitration
provision if it were binding on the parties, even though the
Funds did not sign the CBA and it provides that “[o]nly the
Union or the Association may submit a dispute to arbitration”
under that agreement. JA97 (2002 CBA art. 21.20(b)). MZM
raised this issue for the first time at oral argument before this
Court—too late for us to consider it. That argument is thus
forfeited.
32
C. Standard of Review Applied by the District Court
The final question is whether the District Court erred by
ordering limited discovery rather than compelling arbitration
of the arbitrability issue on the face of the complaint.
Under our decision in Guidotti, when it is clear on the
face of the complaint that a validly formed and enforceable
arbitration agreement exists and a party’s claim is subject to
that agreement, a district court must compel arbitration under
a Rule 12(b)(6) pleading standard “without discovery’s delay.”
716 F.3d at 776 (quotation marks and citation omitted). But if
the complaint states a claim or the parties come forward with
facts that put the formation of the arbitration agreement in
issue, the court may authorize “limited discovery” to resolve
that narrow issue for purposes of deciding whether to submit
the matter to arbitration.
Id. After discovery, the court may
consider the question anew, using a summary judgment
standard under Rule 56.
Id. If a genuine issue of material fact
remains, the court must proceed summarily to trial on “the
making of the arbitration agreement.”
Id. (citing 9 U.S.C. § 4).
In following these procedures, courts must balance the FAA’s
competing interests in moving arbitrable claims speedily and
efficiently into arbitration and in ensuring that the parties have
in fact agreed to arbitrate. See
id. at 773.
The Funds contend that the District Court erred in
applying a Rule 56 summary judgment standard, rather than a
Rule 12(b)(6) standard, when it refused to compel arbitration
of the gateway arbitrability issue, i.e., the claim of fraud in the
execution. They believe that if the District Court had applied
a Rule 12(b)(6) standard, the court would have been required
33
to enforce the delegation provision as valid on its face and
submit that claim to the arbitrator.14 Not so.
While the District Court did not specify the standard
that it applied when it decided to deny arbitration of the
arbitrability issue, there is enough in the record to deduce that
it complied with the procedures and standards set forth in
Guidotti. At the injunction hearing, the court noted that,
following discovery, the arbitrability issue would be resolved
“on a summary judgment standard” or tried if necessary.
JA459. In its subsequent opinion denying the motion for
reconsideration, the District Court elaborated on its earlier
decision, stating that the preliminary injunction “consist[ed] of
little more than obedience to the Third Circuit’s command that
arbitration cannot be ordered unless and until antecedent
questions of fact are resolved.” JA8-9 (citing Guidotti, 716
F.3d at 771). The court also stated that “[w]hen the issue of
arbitrability is not apparent on the face of the complaint,” a
court may authorize discovery. JA22.
We understand the District Court to mean that it
reviewed the arbitrability issue “on the face of the complaint,”
i.e., under a Rule 12(b)(6) standard, before denying the motion
to dismiss and subjecting the parties to limited discovery.
Otherwise, by its own logic, there would have been no reason
to subject the parties to discovery. We also take the District
14
The Funds take issue with the District Court’s
decision to consider extrinsic evidence in determining whether
the SFA and CBA were validly formed. We see no error.
Under New Jersey law, parol evidence is admissible to show
fraud in the execution. Kero, 78 A.2d at 818; see also
Connors,
30 F.3d at 493-94.
34
Court at its word that it will apply a summary judgment
standard after limited discovery is complete, not that it has
already applied that standard. At that time, all relevant
evidence that the parties have submitted to date, including the
1999 SFA, as well as any additional evidence gathered through
expedited discovery, may be put forward on a motion for
summary judgment.
While it would have been preferable for the District
Court to have explicitly reviewed the sufficiency of the
pleadings on the record before refusing to compel arbitration
on the arbitrability issue, that omission was harmless. As
explained in section III.B above, MZM has sufficiently alleged
fraud in the execution of the container contract, putting the
formation of the arbitration agreement in issue. Therefore, the
Funds were not entitled to have that gateway arbitrability claim
submitted to arbitration on the face of the complaint.15
IV. CONCLUSION
For these reasons, we will affirm the District Court
decision.
15
Given the FAA’s interests in resolving arbitrability
issues speedily and efficiently, we have undertaken to review
the sufficiency of the pleadings ourselves rather than remand
for that purpose. See Moses H. Cone Mem’l Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 29 (1983). Furthermore, we would
not be able to meaningfully review and affirm the District
Court’s refusal to compel arbitration of the arbitrability issue
without satisfying ourselves that MZM stated a claim of fraud
in the execution, not fraud in the inducement.
35
