Joshua Silfee v. Automatic Data Processing Inc , 696 F. App'x 576 ( 2017 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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No. 16-3725
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JOSHUA SILFEE, Individually and on
behalf of all others similarly situated
v.
AUTOMATIC DATA PROCESSING, INC.;
ERG STAFFING SERVICE, LLP,
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On Appeal from the United States District Court
for the Middle District of Pennsylvania
(D.C. No. 3-15-cv-00023)
District Judge: Honorable A. Richard Caputo
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Submitted Under Third Circuit L.A.R. 34.1(a)
May 26, 2017
Before: HARDIMAN, ROTH, and FISHER, Circuit Judges
(Filed: June 13, 2017)
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OPINION*
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*
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does
not constitute binding precedent.
HARDIMAN, Circuit Judge
ERG Staffing Services, Inc. appeals the District Court’s order denying its motions
to compel arbitration and to dismiss. Because the District Court erroneously ruled on
ERG’s motion to dismiss before resolving its motion to compel arbitration, we will
vacate and remand.
I
Appellee Joshua Silfee sued ERG, his former employer, alleging that ERG’s
payroll practices violated Pennsylvania law. ERG filed a motion to compel arbitration
pursuant to Section 4 of the Federal Arbitration Act (FAA), arguing that the arbitration
agreement between Silfee and ERG’s payroll vendor precluded Silfee’s suit against ERG.
The District Court opted to “delay ruling” on ERG’s motion to compel arbitration, App.
9, and proceeded to deny ERG’s separately filed motion to dismiss based on the merits of
Silfee’s state law claim. ERG appealed.
II1
The Federal Arbitration Act manifests a “liberal federal policy favoring arbitration
agreements” and was passed with the purpose of moving litigants “out of court and into
arbitration as quickly and easily as possible.” Moses H. Cone Mem’l Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 22–24 (1983). Section 4 of the FAA provides that “[a] party
1
The District Court had jurisdiction under 28 U.S.C. § 1332(d). We have
jurisdiction under 9 U.S.C. § 16(a)(1). “We exercise plenary review over questions
regarding the validity and enforceability of an agreement to arbitrate.” Puleo v. Chase
Bank USA, N.A., 605 F.3d 172, 177 (3d Cir. 2010).
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aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written
agreement for arbitration may petition any United States district court . . . for an order
directing that such arbitration proceed in the manner provided for in such agreement.” 9
U.S.C. § 4. Because “arbitration is a matter of contract . . . [and is] predicated upon the
parties’ consent,” a court ruling on a motion to compel under § 4 must first determine if
the parties intended to arbitrate the dispute. Guidotti v. Legal Helpers Debt Resolution,
L.L.C., 716 F.3d 764, 771 (3d Cir. 2013) (citations and alterations omitted).
The District Court erred in bypassing this § 4 inquiry to rule on ERG’s motion to
dismiss. Arbitrability is a “gateway” issue, so “a court should address the arbitrability of
the plaintiff’s claim at the outset of the litigation.” Reyna v. Int’l Bank of Commerce, 839
F.3d 373, 378 (5th Cir. 2016) (emphasis added). In deciding a motion to compel
arbitration, the role of the court “is strictly limited to determining arbitrability and
enforcing agreements to arbitrate, leaving the merits of the claim and any defenses to the
arbitrator.” Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469, 478 (9th Cir.
1991). Thus, after a motion to compel arbitration has been filed, the court must “refrain
from further action” until it determines arbitrability. Sharif v. Wellness Int’l Network,
Ltd., 376 F.3d 720, 726 (7th Cir. 2004) (citation omitted). District courts may not alter
this sequencing: “By its terms, the [FAA] leaves no place for the exercise of discretion by
a district court, but instead mandates that district courts shall direct the parties to proceed
to arbitration on issues as to which an arbitration agreement has been signed.” Dean
Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985).
3
The seeds of the District Court’s confusion may have been sown by our decision
in Guidotti, where we described “the standard for district courts to apply” when assessing
motions to compel arbitration. 716 F.3d at 771. In Guidotti, we explained that a district
court should apply one of two standards, depending on the circumstances. “[W]hen 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, a motion
to compel arbitration should be considered under a Rule 12(b)(6) standard without
discovery’s delay.” Id. at 776 (alterations and citation omitted). “But 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,” the district court may order limited briefing
and discovery on the issue of arbitrability, then assess the question under the summary
judgment standard. Id.
The District Court did not think that Guidotti provided “a clearly-articulated
standard of review” for this case. App. 9. It reasoned that “a disposition of a motion to
compel arbitration under the summary judgment standard would be premature in this
case,” but also thought that using “the 12(b)(6) standard would . . . run afoul of Guidotti
because such a standard is to be applied only in cases where a party does not question the
arbitrability or applicability of the arbitration agreement.” Id. Considering itself caught
between a rock and a hard place, the District Court opted to “delay ruling on [ERG’s]
motions to compel arbitration until a summary judgment stage when discovery is
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underway.” Id.
The District Court committed two errors in this regard. First, it did not recognize
that the standards laid out in Guidotti are truly dichotomous. Because either the Rule
12(b)(6) or the Rule 56 standard will apply, there are no circumstances in which Guidotti
does not provide a “clearly-articulated standard of review.” App. 9. Second, the District
Court misstated the applicability of the Rule 12(b)(6) standard, reasoning that it “is to be
applied only in cases where a party does not question the arbitrability or applicability of
the arbitration agreement.” Id. But that interpretation would render the Rule 12(b)(6)
standard a nullity; if a party has filed a motion to compel arbitration, then the other party
necessarily questioned arbitrability. See 9 U.S.C. § 4 (explaining that a motion to compel
is filed after “the failure, neglect, or refusal of another to arbitrate”). Rather, if a party
moves to compel arbitration based on an authentic arbitration agreement that is attached
to the complaint, the Rule 12(b)(6) standard is appropriate unless “the plaintiff has
responded to a motion to compel arbitration with additional facts sufficient to place the
agreement to arbitrate in issue.” Guidotti, 716 F.3d at 776.
Having clarified our holding in Guidotti, we now turn to the facts of this appeal. In
his complaint, Silfee alleged that ERG violated Pennsylvania law by paying his wages
through a debit card system that imposed various fees. ERG then submitted the terms and
conditions that Silfee received from the payroll vendor along with that card, which
included the arbitration clause at issue in this case. With a concededly authentic
arbitration agreement attached to the complaint, the Rule 12(b)(6) standard was
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appropriate unless Silfee produced “additional facts sufficient to place the agreement to
arbitrate in issue.” Guidotti, 716 F.3d at 776. He did not do so. Silfee neither denied
receipt of and assent to the terms and conditions, nor did he seek discovery. Instead, he
argued that the arbitration agreement was unenforceable by ERG for “pure legal”
reasons. Silfee Br. 4. Those legal questions—based entirely on documents attached to the
complaint—do not require additional discovery. Guidotti, 716 F.3d at 776. Thus, the
District Court should have applied the Rule 12(b)(6) standard and should do so on
remand.
III
Though both Silfee and ERG urge us to rule on arbitrability, we think it imprudent
to do so. “It is the general rule, of course, that a federal appellate court does not consider
an issue not passed upon below.” Singleton v. Wulff, 428 U.S. 106, 120 (1976). Here, the
District Court did not identify—much less analyze—any of the parties’ competing
arguments regarding arbitrability. Accordingly, we will remand to the District Court for
consideration of ERG’s motion to compel arbitration in the first instance.
* * *
For the foregoing reasons, we will vacate the order of the District Court and
remand for further proceedings consistent with this opinion.
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