ARBITRATION-UNCONSCIONABILITY-PHARMACIES

Robert D. Mabe, Inc. v. OptumRX, 2022 U.S. App. LEXIS 21547 (3^rd Cir. August 4, 2022) (Smith, C.J.)  Over 400 pharmacies joined forces in a lawsuit against OptumRX (Optum), a pharmacy benefits manager, alleging breaches of contract and breaches of duties of good faith and fair dealing, together with violations of certain state statutes. Pointing to arbitration agreements found in various contracts covering almost all of those pharmacies, Optum moved to compel arbitration. The pharmacies opposed the motion, arguing that compelling arbitration would be unconscionable. The District Court agreed with the pharmacies, and Optum timely appealed. We conclude that the District Court erred by applying the wrong standard in ruling on Optum’s motion. Per Guidotti v. Legal Helpers Debt Resolution, LLC, 716 F.3d 764 (3d Cir. 2013), the District Court—after concluding the pharmacies brought forth sufficient facts to place the arbitration agreements in question—should have allowed discovery limited to the question of arbitrability and then provided Optum an opportunity to renew its motion. It did neither. We will therefore vacate in part the District Court’s order denying Optum’s motion to compel arbitration and remand with instructions. Without providing for discovery as to arbitrability and without allowing Optum to bring a Rule 56-styled motion to compel arbitration, the District Court proceeded to judge Optum’s motion by the Rule 56 standard. Guidotti explains that the appropriate procedure for converting motions brought under the Rule 12 standard to motions brought under the Rule 56 standard “mirrors the process provided by Rule 12(d).” 716 F.3d at 775 n.6. That rule says “that ‘if, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Rule 56,’ and ‘all parties must be given a reasonable opportunity to present all the material that is pertinent to the motion.'” Id. (alterations omitted) (quoting Fed. R. Civ. P. 12(d)). This means that “[o]nce the motion is converted to a motion for summary judgment, reasonable allowance must be made for the parties to obtain discovery. Otherwise, weighing the new factual assertions against the facts pleaded in the complaint would ‘invite courts to consider facts and evidence that have not been tested in formal discovery.'” Id. (citations and alterations omitted) (quoting Pfeil v. State St. Bank & Trust Co., 671 F.3d 585, 594 (6th Cir. 2012), abrogated on other grounds by Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409, 134 S. Ct. 2459, 189 L. Ed. 2d 457 (2014)). This formal discovery, limited to the question of arbitrability, may then be followed by a renewed motion to compel arbitration wherein both the moving and nonmoving parties’ arguments can be supported by a developed record. Id. at 776. To proceed otherwise would plainly disadvantage moving parties because they would be limited to the complaint, exhibits attached to the complaint, matters of public record, and undisputedly authentic documents relied upon by the complaint, even when non-moving parties introduced and relied on other evidence in opposition. Id. at 772. Guidotti, then, requires a district court to allow discovery on the question of arbitrability after it has denied a motion to compel arbitration under the Rule 12(b)(6) standard. Id. at 776. The District Court noted Guidotti’s requirement but nevertheless declared that “the parties have already engaged in discovery and have submitted supplemental filings with the court in relation to the issue of arbitrability.” It was, therefore, the District Court’s view that adhering to Guidotti was a waste of time. That was error, so we will vacate the District Court’s order in part and remand to allow the parties to conduct discovery limited to the issue of arbitrability. After the conclusion of such discovery, Optum will then have an opportunity to file a new motion under the appropriate standard.  For the foregoing reasons, we will vacate in part and remand to the District Court for further proceedings consistent with this opinion.