MZM Construction Co Inc v. NJ Building Laborers Statewide
974 F.3d 386
| 3rd Cir. | 2020Background
- In 2002 MZM Construction’s president Marjorie Perry signed a one‑page short‑form agreement (SFA) that stated it incorporated the 1999 and 2002 statewide Collective Bargaining Agreements (CBAs); the SFAs themselves were short and did not attach the CBAs.
- The 2002 CBA (incorporated by reference) included a broad arbitration clause that expressly empowered the arbitrator to decide “whether an Agreement exists.”
- Years later a benefits Funds audit asserted MZM owed contributions; the Funds produced the SFA and an unsigned copy of the 2002 CBA and scheduled arbitration; MZM sued in D.N.J. seeking to enjoin arbitration.
- MZM alleges Perry signed the SFA under a union representative’s assurance it was a single‑project agreement (not a statewide CBA), creating a claim of fraud in the execution (fraud in the factum) that, if true, would void the SFA ab initio.
- The District Court enjoined arbitration and authorized limited expedited discovery to resolve factual disputes about contract formation; the Funds appealed and the Third Circuit affirmed the court’s authority to decide formation when formation is disputed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Who decides whether an agreement exists when the contract contains a delegation provision empowering an arbitrator to decide existence? | MZM: when formation of the container contract is in dispute, the court must decide whether an agreement exists. | Funds: because the CBA delegates arbitrability to the arbitrator and MZM did not specifically challenge the delegation clause, the arbitrator should decide. | Court: Section 4 of the FAA requires the court to resolve formation/mutual‑assent questions when the contract’s formation is in dispute, even if the CBA contains a delegation provision. |
| Did MZM sufficiently plead fraud in the execution (voiding the SFA) rather than fraud in the inducement? | MZM: Perry was told the document was a single‑project agreement, felt pressure to sign, had no reasonable opportunity to learn the SFA’s terms—allegations support fraud in the execution. | Funds: MZM pled only fraud in the inducement (which would be for arbitrator) and not fraud in the execution. | Court: On the pleadings and drawing inferences for MZM, the allegations suffice to state fraud in the execution, putting formation of the arbitration agreement in issue for the court. |
| Must a delegation clause be challenged by name to avoid enforcement under Rent‑A‑Center? | MZM: Rent‑A‑Center does not apply where the formation of the entire contract is disputed. | Funds: Because MZM did not specifically attack the delegation provision, Rent‑A‑Center requires enforcement of the delegation and referral to arbitrator. | Court: Where formation of the container contract is disputed, Sandvik controls; courts retain primary power to decide formation questions and Rent‑A‑Center’s specificity requirement does not preclude judicial resolution here. |
| Standard for resolving arbitrability on the pleadings vs. discovery (Guidotti issue) | MZM: the complaint pleads facts putting formation in issue so limited discovery is appropriate before final determination. | Funds: The complaint facially shows a valid delegation; Rule 12(b)(6) required referral to arbitrator without discovery. | Court: District court properly allowed limited discovery under Guidotti because the complaint raised factual disputes about formation; after discovery the court will apply summary‑judgment or, if necessary, trial on §4 “making” issue. |
Key Cases Cited
- Sandvik AB v. Advent Int’l Corp., 220 F.3d 99 (3d Cir. 2000) (court must decide formation/mutual‑assent of arbitration agreement when that question is in dispute)
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (U.S. 1967) (severability doctrine: arbitration clause is separable from container contract absent a specific challenge to the clause)
- Rent‑A‑Center, W., Inc. v. Jackson, 561 U.S. 63 (U.S. 2010) (delegation clause is an antecedent arbitration agreement that must be specifically challenged to avoid enforcement)
- Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (U.S. 2019) (courts must enforce parties’ clear delegation of arbitrability even if argument for arbitration is frivolous)
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (U.S. 2006) (agreements to arbitrate are treated like other contracts and state‑law contract defenses apply)
- Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764 (3d Cir. 2013) (district courts may order limited discovery on arbitrability issues when formation is put in dispute; summary‑judgment or trial may follow)
- China Minmetals Materials Imp. & Exp. Co. v. Chi Mei Corp., 334 F.3d 274 (3d Cir. 2003) (an agreement that never came into existence cannot confer arbitral authority; arbitrators’ jurisdiction depends on a valid contract)
- Par‑Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51 (3d Cir. 1980) (party cannot be bound by arbitration provision until court determines signatory authority/formation)