Law360 (October 6, 2020, 6:51 PM EDT) -- JPMorgan Chase urged an Illinois federal judge Monday to send to arbitration a "meritless" proposed class action that alleges the major bank cheated small businesses out of federal stimulus funds from the Paycheck Protection Program in favor of funding larger businesses.
Sha-Poppin Gourmet Popcorn LLC alleges Chase didn't properly process its application for a loan under the Paycheck Protection Program — PPP — instead "prioritizing its favored customers." But Chase argued Monday that when opening its business checking account in March 2018, Sha-Poppin consented to the arbitration provision in the account agreement, and again later in the digital services agreement when Sha-Poppin tried to apply for the PPP loan.
"Sha-Poppin's claims lack merit, but that point aside, these claims do not belong in court because Sha-Poppin agreed to arbitrate them," Chase said Monday.
Congress passed the Coronavirus Aid, Relief, and Economic Security Act — CARES Act — which provided $659 billion in loans from the PPP for small business payroll and other expenses during the COVID-19 pandemic.
The Small Business Administration oversaw the program and banks dispersed the forgivable loans to those who applied and qualified.
The small Illinois-based popcorn seller filed the April lawsuit against Chase, as well as Ruth's Chris Steak House owner RCSH Operations LLC and software company Phunware, businesses that got PPP loans through Chase.
The lawsuit accused Chase of giving "special assistance" in helping "favored clients" apply quickly and cheated "plaintiff and countless small businesses out of their right to apply for and receive federal stimulus funding in a moment of national crisis."
Sha-Poppin and other small businesses "would have to try to submit an application through a non-functional web portal — or look elsewhere," the complaint said.
The popcorn seller "was impeded in applying for a PPP loan through Chase, at one point implicitly encouraged to seek a loan elsewhere, and ultimately, received a far smaller loan than it would have otherwise received if Chase had allowed it to apply on April 3, 2020 (as it tried to do)," the business said.
About 6% of Chase's 300,000 business banking customers that tried to apply for PPP loans were successful, like Sha-Poppin, while almost 100% of Chase's Commercial Banking clients were approved, according to the complaint.
Chase showed "elite favoritism" in processing PPP loan applications for big names but not smaller businesses, the complaint alleged.
Sha-Poppin brought claims against Chase for negligence, fraudulent concealment, tortious interference with prospective economic advantage, unjust enrichment, and deceptive practices under the Illinois Consumer Fraud and Deceptive Practices Act.
The popcorn company seeks to represent other class members who held Chase business banking accounts, met the criteria for receiving a PPP loan, and applied for or attempted to apply for a PPP loan through Chase, but whose applications were allegedly not processed on a first-come, first-served basis.
On Monday, the bank argued both the account opening agreement and digital agreement when applying for the loan made clear that Sha-Poppin would not be permitted to take its claims to court.
"Both agreements require Sha-Poppin to individually arbitrate its claims. The agreements further delegate any scope and enforceability questions to the arbitrator," the bank's motion said.
Sha-Poppin could have chosen to opt out of arbitration within 60 days of opening its account but chose not to, Chase said, and its "meritless" claims should be stayed pending arbitration.
Sha-Poppin alleges "in conclusory and unsupported fashion" that it wasn't able to get a PPP loan because "Chase Bank had made the decision, internally, to prioritize the submission of PPP applications for its bigger and longstanding business clients over small businesses like, Sha-Poppin," the motion said.
Pending before the court are motions to dismiss filed by Phunware and RCSH over claims of unjust enrichment against the two businesses.
Phunware filed its motion in May, arguing lack of subject matter jurisdiction and personal jurisdiction and that Sha-Poppin failed to plead the connection between it suffering the result of a small PPP loan and Phunware's receipt of a larger $3 million PPP loan.
RCSH filed its motion in June, saying "Sha-Poppin includes in its lawsuit a frivolous claim against Ruth's Chris to capitalize on the negative publicity related to Ruth's Chris's initial receipt of and decision to return a Payment Protection Program loan."
The company noted that Sha-Poppin included in its complaint that Ruth's Chris had announced it would return the two PPP loans totaling $20 million before the complaint was filed.
Sha-Poppin is among several small businesses that in June sought consolidation of their proposed class actions against Chase in either California's Southern District or Illinois' Northern District.
In August, the U.S. Judicial Panel on Multidistrict Litigation denied the requests, saying "centralization will not serve the convenience of the parties and witnesses or further the just and efficient conduct of the litigation."
Counsel for RCSH declined to comment Tuesday.
Counsel for the other parties didn't immediately respond to requests for comment Tuesday.
Sha-Poppin is represented by Jay Edelson Ari J. Scharg, Benjamin H. Richman, Benjamin S. Thomassen, Christopher L. Dore, Daniel J. Schneider of Edelson PC.
JPMorgan Chase is represented by Paul J. Ferak, Jonathan H. Claydon and Thomas J. Sotos of Greenberg Traurig LLP.
RCSH is represented by Martin L. Roth and Katie R. Lencioni of Kirkland & Ellis LLP.
Phunware is represented by Daniel T. Graham, Timothy R. Herman and Maureen J. Moody of Clark Hill PLC.
The case is Sha-Poppin Gourmet Popcorn, LLC, et al, v. JPMorgan Chase Bank N.A.et al, case number 1:20-cv-2523, in the U.S. District Court for the Northern District of Illinois.
--Additional reporting by Jon Hill. Editing by Amy Rowe.
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