On April 14, 2020, DNM Contracting, a general contractor in Houston, submitted an application for a Paycheck Protection Plan (PPP) loan with Wells Fargo. Two days later, with its loan not funded, DNM learned that all the funds for the PPP program had been exhausted.  Shortly afterwards, DNM filed suit against Wells Fargo, seeking class action certification, arguing that Wells Fargo violated the PPP regulations by not paying on a “first come, first serve basis” and by favoring larger borrowers.

Since the case was filed, a series of procedural maneuvers have kept the parties from addressing the merits.  Most recently, Wells Fargo has filed a motion to compel arbitration and dismiss DNM’s claims.  The motion, premised in part on an arbitration clause in DNM’s business account application with bank, begs the question of, how broad is broad?  Does an account application that has seemingly nothing (or in Wells Fargo’s eyes, everything) to do with a PPP application apply to the PPP dispute?

For the uninitiated, arbitration is a private trial using a paid arbitrator instead of a judge.  It is a creature of contract, allowed typically when the parties have agreed to use it to resolve disputes. Offsetting the higher cost of arbitration and limited grounds for appealing an arbitration award is the promise of a quicker “trial” date (in the COVID-19 era, almost any alternative to the court system is quicker) and a decision maker who has experience and deeper knowledgeable of the issues.

Wells Fargo’s request that the dispute be sent to binding arbitration is premised on a 2015 business account application that DNM signed.  That application contained an arbitration provision that required any dispute “relating to” DNM’s use of “any Wells Fargo bank deposit account, product or service” to be arbitrated.  But is a PPP loan an account or service related to DMN’s business account?

Wells Fargo argues a clear relationship exists, stating that it limited its PPP loans to customers with business checking accounts at the bank.  As expected, DMN argues that Wells Fargo was never intending to follow the PPP regulations to process applications on a “first come, first serve basis”, taking the claim outside the arbitration clause.

The stakes for keeping the case in federal court or having it compelled to arbitration are high, perhaps higher than in most construction-related matters.  Allowing DNM to maintain the action in court would provide a means for potentially obtaining class action status, increasing the judgment and settlement value of the case.  Having the dispute arbitrated would almost certainly mean that DNM’s claim, alone, would be considered, decreasing the value.  These are likely the true motivations of the parties in the arbitration skirmish.

The breadth of arbitration clauses is a frequently litigated matter in construction disputes. And while the Wells Fargo dispute only tangentially relates to construction—a general contractor is the lead plaintiff—it does remind us arbitration clauses come in many varieties, with some that are very broad and other very narrow.  The consequences of how the clause is written can have an outsized impact on the judgment or settlement value of the dispute.

When determining whether an arbitration clause is broad enough to cover a specific dispute, it is always prudent to consult with legal counsel. The attorneys in our Austin and Dallas offices are available to answer any questions you may have.

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