On April 8, 2021, the United States District Court for the Southern District of New York granted a national bank’s motion to compel arbitration in a Paycheck Protection Program ("PPP") class action, finding that the issue of arbitrability must be decided by an arbitrator pursuant to the terms of the bank’s Deposit Account Agreement and Online Service Agreement. See KPA Promotion & Awards, Inc. et al v. JPMorgan Chase & Co. et al, 2021 WL 1317163 (S.D.N.Y. Apr. 8, 2021). In JPMorgan Chase & Co., plaintiffs KPA Promotions & Awards, Inc. ("KPA") and Above & Beyond Preschool, LLC ("A&B") applied for PPP loans from the defendant bank (the "Bank"). Although KPA’s application was approved, the Bank backdated the deposited funds, thereby allegedly limiting the amount of time by which KPA could use the funds. A&B submitted two applications, which were both denied. As a result, plaintiffs brought a putative class action alleging that, in violation of the PPP Loan Program Requirements that required processing applications on a first-come, first-served basis, the Bank favored commercial and private banking clients over its small business banking customers. Specifically, plaintiffs alleged that small business banking customers were required to apply for loans through the Bank’s online portal and wait for further assistance from a representative, while private or commercial banking customers "were assigned to employees who provided them with 'concierge treatment,' allowing them to bypass the queue set up for small banking customers."
The Bank moved to compel arbitration and stay the action based on arbitration provisions in its Online Service Agreement and Deposit Account Agreement (the "DAA"). Specifically, the DAA provided that the parties "agree that upon the election of either [party], any dispute relating in any way to your account or transactions will be resolved by binding arbitration as discussed below, and not through litigation in any court (except for matters in small claims court)." The DAA further explained that "[c]laims are subject to arbitration, regardless of what theory they are based on or whether they seek legal or equitable remedies." Like the DAA, the Online Service Agreement also contained an agreement to arbitrate and an express class action waiver. Nonetheless, the DAA contained a right to opt out of arbitration if the Bank was notified within 60 days of the opening of the account, but neither plaintiff exercised that option.
The Court granted the Bank’s motion to compel arbitration and stay the action. The Court first noted that when determining whether a claim falls within the scope of a mandatory arbitration clause, there is a general presumption that courts, not arbitrators, decide issues of arbitrability. However, "this presumption is rebutted with 'clear and unmistakable evidence from the arbitration agreement, as construed by the relevant state law, that the parties intended that the question of arbitrability shall be decided by the arbitrator.'" Here, the Court found that the Bank had established that plaintiffs agreed to the terms of the DAA and Online Service Agreement when plaintiffs opened accounts with the Bank. The DAA and the Online Service Agreement both provided that a party must submit its claims to either the Judicial Arbitration and Mediation Services or the American Arbitration Association, whose procedures were to apply. Further, the Online Service Agreement explicitly provided that "any claim ‘regarding the applicability of this arbitration clause’ is subject to arbitration[.]" Thus, the Court found that the issue of arbitrability must be decided by an arbitrator “because here, there [was] 'clear and unmistakable evidence . . . that the parties intended that the question of arbitrability shall be decided by the arbitrator.'" Given the foregoing, the Court granted the Bank’s motion to compel arbitration and stay the action.
JPMorgan Chase & Co. highlights the strength of a well-drafted arbitration provision. This case, however, is far from over. An appeal will probably be filed on the District Court’s decision. Moreover, it is important to note that an arbitrator may still find that claims arising from the Bank’s PPP lending practices fall outside of the scope of the arbitration provisions.
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