Arbitrability Discovery Required When Agency to Assent Is Genuinely Disputed: Third Circuit Remands in Kirkham (Sessoms) v. TaxAct

Court: United States Court of Appeals for the Third Circuit

Date: March 26, 2025

Panel: Judges Phipps, Freeman, and Chung (opinion by Judge Chung)

Disposition: Vacated and remanded for limited discovery on arbitrability; nonprecedential opinion

Introduction

This appeal arises from putative class claims brought by Matthew Sessoms (and co-plaintiff James Kirkham, not party to the appeal) alleging that TaxAct improperly shared users’ tax information with Meta and Google in violation of federal tax laws and Pennsylvania’s Wiretapping and Electronic Surveillance Control Act. TaxAct moved to compel arbitration based on its online Terms of Service and License Agreement, which contain an arbitration provision and incorporate the JAMS rules.

The wrinkle: the operative “assent” to TaxAct’s Terms was made not by Sessoms but by his spouse, Krysta. TaxAct argued that Krysta’s assent bound Sessoms under Texas agency law by actual or apparent authority. The district court denied TaxAct’s motion to compel, concluding that TaxAct failed to establish that Krysta had authority to bind Sessoms. On appeal, the Third Circuit vacated and remanded, holding that once the district court identified genuine factual disputes on agency (formation), it was required under Guidotti and Young to allow limited discovery on arbitrability before ruling. The court also rejected several alternative grounds Sessoms advanced to sustain the denial.

The decision refines Third Circuit practice at the intersection of arbitrability and agency in the online contracting context: when the evidentiary record reveals a genuine dispute about whether an agent had authority to assent to arbitration on behalf of a principal, the court must permit targeted discovery on arbitrability rather than deny a motion outright. The opinion further confirms that (i) “waiver” is a procedural question for the arbitrator when the agreement delegates arbitrability via the JAMS rules; (ii) TaxAct’s arbitration clause is not illusory under Texas law; and (iii) TaxAct’s online assent flows afford reasonably conspicuous notice and mutual assent.

Summary of the Opinion

• Vacatur and remand for limited discovery: The district court correctly identified genuine factual disputes concerning whether Krysta had actual or apparent authority to assent to TaxAct’s Terms (and thus to arbitration) on Sessoms’s behalf. Under Guidotti v. Legal Helpers Debt Resolution and Young v. Experian, that finding compelled the court to permit limited discovery on arbitrability and to evaluate the motion under a Rule 56-like standard—not to deny the motion outright.
• Illusory-arbitration argument rejected: Applying Texas law, the arbitration provision was not illusory. Even if TaxAct retained modification rights, the arbitration clause was embedded in a broader agreement supported by consideration; it was not a standalone, modifiable promise to arbitrate.
• Waiver is for the arbitrator under delegation: The Terms incorporate JAMS rules, which delegate arbitrability issues to the arbitrator. While a court must decide whether an agreement was formed, “waiver” is a procedural arbitrability question for the arbitrator if formation is found.
• Online assent sufficient: Whether characterized as clickwrap or browsewrap, TaxAct’s interface (checkboxes plus conspicuous hyperlinks to Terms at account creation and e-filing) provided reasonably conspicuous notice and manifested mutual assent. A minor textual mismatch (“Terms of Service & Terms of Use” linking to the Terms of Service and License Agreement) did not defeat assent.
• Unreached issues: Because the court remanded for discovery on agency, it did not reach TaxAct’s equitable estoppel and third-party beneficiary theories, noting those doctrines assume a non-signatory principal.

Analysis

Precedents Cited and Their Influence

Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764 (3d Cir. 2013)

Guidotti sets the framework for how district courts adjudicate motions to compel arbitration. If arbitrability is apparent from the complaint and incorporated documents, the court may decide under a Rule 12(b)(6) standard. But if the plaintiff adduces “reliable evidence” putting the agreement to arbitrate in issue—or, as here, if there is a genuine factual dispute about formation (e.g., agency)—the court must allow limited discovery and then evaluate under a Rule 56 standard. The panel found the district court identified such genuine disputes yet denied the motion outright, contrary to Guidotti’s instruction to permit discovery before deciding.

Young v. Experian Information Solutions, Inc., 119 F.4th 314 (3d Cir. 2024)

Young refines Guidotti by emphasizing that where there is a genuine dispute as to whether a meeting of the minds occurred on the arbitration agreement, limited discovery on arbitrability is required before adjudication. The panel cited Young to confirm the necessity of discovery when formation is genuinely contested—precisely the posture here, given the agency dispute over Krysta’s authority.

MZM Construction Co., Inc. v. N.J. Building Laborers Statewide Benefit Funds, 974 F.3d 386 (3d Cir. 2020)

MZM distinguishes issues of contract formation from issues of arbitrability. Courts must decide whether an agreement was formed; arbitrators decide arbitrability when there is clear delegation. The panel applied MZM to hold that “waiver” is not a formation question and, given delegation via JAMS rules, belongs to the arbitrator once formation is established.

Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002)

Howsam holds that procedural questions like timeliness and waiver typically go to the arbitrator, not the court. The panel relied on Howsam to channel Sessoms’s waiver argument to the arbitrator if an agreement is found.

Texas agency law authorities: Lifshutz v. Lifshutz, 199 S.W.3d 9 (Tex. App. 2006) (actual authority); Reliant Energy Services, Inc. v. Cotton Valley Compression, L.L.C., 336 S.W.3d 764 (Tex. App. 2011) (actual and apparent authority; scope determined by principal’s words/conduct); Gaines v. Kelly, 235 S.W.3d 179 (Tex. 2007) (apparent authority arises from principal’s conduct inducing reasonable belief)

The court used these Texas cases (Texas law governed by the Terms) to mark the factual contours of agency: actual authority can be express or implied; apparent authority depends on the principal’s manifestations to third parties. The district court saw genuine disputes on whether Krysta had actual authority (including implied authority to do what was necessary to file taxes) and the scope of her apparent authority—triggering the need for discovery under Guidotti/Young.

Illusory arbitration under Texas law: In re Halliburton Co., 80 S.W.3d 566 (Tex. 2002); Royston, Rayzor, Vickery & Williams, LLP v. Lopez, 467 S.W.3d 494 (Tex. 2015); In re AdvancePCS Health L.P., 172 S.W.3d 603 (Tex. 2005)

Sessoms argued the arbitration clause was illusory because TaxAct could unilaterally modify the Terms. The panel, citing AdvancePCS, rejected the challenge because the arbitration clause was part of a broader agreement supported by consideration; it was not a standalone, modifiable promise to arbitrate. Royston/Halliburton do not render it illusory on these facts.

Online assent and conspicuous notice: StubHub, Inc. v. Ball, 676 S.W.3d 193 (Tex. App. 2023) (clickwrap vs browsewrap); Nguyen v. Barnes & Noble Inc., 763 F.3d 1171 (9th Cir. 2014) (constructive notice standard); Oberstein v. Live Nation Entertainment, Inc., 60 F.4th 505 (9th Cir. 2023) (enforcing conspicuous online assent); Recursion Software, Inc. v. Interactive Intelligence, Inc., 425 F. Supp. 2d 756 (N.D. Tex. 2006); RealPage, Inc. v. EPS, Inc., 560 F. Supp. 2d 539 (E.D. Tex. 2007); Wilson v. Huuuge, Inc., 944 F.3d 1212 (9th Cir. 2019); Keebaugh v. Warner Bros. Entertainment Inc., 100 F.4th 1005 (9th Cir. 2024)

The panel concluded that TaxAct’s interface manifested assent under either label: users had to check “I agree” boxes and engage with conspicuously hyperlinked Terms at account creation and e-filing stages. The court also rejected a textual mismatch argument (“Terms of Service & Terms of Use” vs. “Terms of Service and License Agreement”), finding the link destination clear and the notice reasonably conspicuous—consistent with the cited authorities.

Non-signatory doctrines reserved: In re Kellogg Brown & Root, Inc., 166 S.W.3d 732 (Tex. 2005) (direct-benefits estoppel); Jody James Farms, JV v. Altman Group, Inc., 547 S.W.3d 624 (Tex. 2018) (third-party beneficiaries); Community Health Systems Professional Services Corp. v. Hansen, 525 S.W.3d 671 (Tex. 2017) (effect of agency on principal’s obligations)

Because agency, if proven, would render Sessoms a party to the contract, the court rightly deferred estoppel and third-party beneficiary theories—doctrines that presuppose non-signatory status—until after discovery clarifies the agency question.

Forfeiture and cross-appeal practice: John Wyeth & Bro. Ltd. v. CIGNA International Corp., 119 F.3d 1070, 1076 n.6 (3d Cir. 1997) (forfeiture for inadequate briefing); Jennings v. Stephens, 574 U.S. 271 (2015) (no cross-appeal needed to defend judgment on alternative grounds, but cannot enlarge rights)

Sessoms’s undeveloped claim that incorporation of arbitral rules does not clearly delegate arbitrability was deemed forfeited. The panel also noted that although Sessoms did not cross-appeal, he could brief alternative grounds to affirm without expanding rights.

Legal Reasoning

The Third Circuit proceeded in three steps. First, it addressed formation via agency under Texas law. The district court found genuine disputes on two formation questions: whether Krysta had actual authority to bind Sessoms, and the scope of any apparent authority. Sessoms’s declaration asserted he authorized only preparation of returns, not entering agreements or waiving a jury/class right, but TaxAct pointed to the breadth of tasks necessary to file taxes online and sought depositions of Sessoms and Krysta. These are quintessential factual disputes about the principal’s words, conduct, and limitations imposed (or not) on the agent—squarely within the province of limited discovery under Guidotti and Young. Once the district court identified those disputes, it was required to allow targeted discovery on arbitrability before resolving the motion. Its denial was therefore premature.

Second, the court addressed who decides a contested “waiver” defense. Under MZM, courts decide formation; under Howsam, procedural arbitrability issues (like waiver) are reserved for arbitrators. Here, the Terms incorporated JAMS rules, which expressly delegate arbitrability to the arbitrator. Thus, if formation is later established (after discovery), the question whether TaxAct waived arbitration must be decided by the arbitrator, not the court.

Third, the court evaluated mutual assent in the online interface and the illusory contract claim. It found TaxAct’s user flows required affirmative “I agree” checkboxes, presented conspicuous hyperlinks to the Terms at multiple stages, and conditioned e-filing on assent—satisfying the consensus standards for online notice and assent. The panel also rejected the illusory argument on Texas-law grounds because the arbitration clause was not a standalone, unbounded promise devoid of consideration; it was part of a larger, bilateral exchange of promises and obligations.

Finally, because agency, if proven, would make Sessoms a party to the contract, the court declined to reach non-signatory doctrines (direct benefits estoppel and third-party beneficiary) and expressly left those issues for possible consideration after discovery as needed.

Impact

Procedural posture in arbitration motions: The opinion reinforces—particularly for district courts within the Third Circuit—the Guidotti/Young sequencing in contested formation cases. When the evidentiary submissions raise a genuine dispute about agency or other formation issues, courts should not deny a motion to compel outright but must allow limited discovery targeted to arbitrability and then decide under a summary-judgment-like standard. Practitioners should expect targeted depositions and document discovery on authority, assent, and related formation facts before any Rule 56-stage decision on compelling arbitration.

Delegation and waiver: The court’s application of Howsam and MZM underscores that once delegation is established (here, via incorporation of JAMS rules), “waiver” arguments go to the arbitrator. Litigants should focus district court briefing on formation; attempts to have the court decide waiver are likely to be rejected where delegation exists.

Online contracting design: The court’s endorsement of TaxAct’s assent flow (checkbox confirmation plus conspicuous hyperlinks at multiple touchpoints) offers a practical compliance roadmap for online platforms. Minor label discrepancies between link text and document title are not fatal where the destination is clear and overall notice is reasonably conspicuous. Companies should nevertheless strive for consistent terminology and conspicuous formatting to minimize litigation risk.

Texas law on illusory arbitration: Parties relying on Texas law can take some comfort that arbitration provisions embedded in broader, bilateral Terms will not lightly be deemed illusory solely due to unilateral modification clauses, absent stand-alone, unconstrained promises to arbitrate without reciprocal consideration.

Non-signatory theories deferred where agency is plausible: When agency is seriously in play, courts may postpone consideration of non-signatory theories such as direct benefits estoppel and third-party beneficiaries. This sequencing avoids deciding doctrines premised on non-party status before the factual record clarifies whether the principal is in fact a party through agency.

Privacy and pixel-tracking litigation: In consumer data-sharing suits—like those involving analytics pixels—defendants relying on online Terms with arbitration clauses will likely secure limited discovery where a genuine formation dispute exists (e.g., a spouse or tax preparer clicked “I agree”). Plaintiffs should be prepared for discovery on the scope of authority conferred to those who assisted with account creation or e-filing.

Nonprecedential but instructive: Though the opinion is not precedential under Third Circuit I.O.P. 5.7, it is a clear application of Guidotti/Young and provides practical guidance on arbitrability discovery in agency-disputed online contracting cases.

Complex Concepts Simplified

• Arbitrability: Questions about whether a dispute should be resolved in arbitration rather than court. Substantive arbitrability (who decides what) can be delegated to the arbitrator; procedural arbitrability (e.g., waiver, timeliness) typically is for the arbitrator.
• Delegation clause: A provision (often via incorporating arbitral rules like JAMS or AAA) stating that the arbitrator—not the court—decides threshold issues like the validity, scope, or enforceability of the arbitration agreement. Courts must still decide contract formation unless the parties clearly and unmistakably delegate even formation, which is rare.
• Actual authority (Texas law): Authority a principal gives an agent, expressly or by implication. If a principal authorizes an agent to perform a task (e.g., file taxes), actual authority can include the necessary steps to accomplish that task (e.g., agreeing to Terms required to e-file), depending on the facts.
• Apparent authority (Texas law): When a principal’s conduct leads a reasonable third party to believe an agent has authority, even if the principal did not grant actual authority. It turns on the principal’s manifestations to the third party, not the agent’s say-so.
• Clickwrap vs. browsewrap: Clickwrap requires users to click “I agree” to terms presented or hyperlinked; courts routinely enforce it. Browsewrap simply posts terms on a site and binds users through use; enforceability depends on whether the site gave reasonably conspicuous notice and whether the user had actual or constructive knowledge.
• Illusory arbitration: Under Texas law, an arbitration promise is illusory if one party can unilaterally avoid it altogether (e.g., by retroactively terminating). When arbitration is part of a broader agreement supported by consideration, and modification rights are constrained or applied prospectively, courts generally do not deem the arbitration promise illusory.
• Direct benefits estoppel: A non-signatory who knowingly seeks a contract’s benefits can be estopped from avoiding its burdens, including arbitration.
• Third-party beneficiary: A non-party may enforce (or be bound by) a contract if the contracting parties clearly intended to confer a direct benefit on that non-party.
• Guidotti/Young sequencing: If the complaint and its attachments plainly show arbitrability, the court can decide under Rule 12(b)(6). If the plaintiff offers reliable evidence creating a genuine dispute about the agreement (e.g., agency/assent), the court must allow limited discovery and then decide under a Rule 56-like standard.

Conclusion

Kirkham (Sessoms) v. TaxAct offers a crisp, practice-oriented reaffirmation of Third Circuit procedure in arbitration disputes: where formation turns on genuinely contested agency facts, the court must permit targeted discovery on arbitrability before ruling on a motion to compel. The panel also clarifies the division of labor forged by MZM and Howsam—formation for courts; delegated procedural issues like waiver for arbitrators—and rejects illusory-arbitration and deficient-online-notice defenses on this record. While nonprecedential, the opinion provides concrete guidance for litigants and courts confronting online assent disputes, especially in consumer-technology cases where spouses or third parties may have clicked “I agree” as part of a multi-step digital workflow.