By Katie Buehler

Law360 (December 18, 2020, 7:57 PM EST) -- A Texas federal judge ruled Friday that Houston-based general contractor DNM must submit to an arbitrator its putative class action claims that Wells Fargo gave preferential treatment to bigger borrowers for Paycheck Protection Program loans.

U.S. District Judge Alfred H. Bennett found that, under an arbitration agreement that DNM Contracting Inc. signed with Wells Fargo to open a business checking account in 2015, the arbitrability of the contractor's claims must be decided by a neutral arbitrator and not the court.

"The account application contains a provision stating that plaintiff agrees to be bound by defendant's 'account agreement that includes the arbitration agreement under which any dispute between [plaintiff] and [defendant] relating to [plaintiff's] use of any bank deposit account, product or service will be decided in an arbitration proceeding before a neutral arbitrator as described in the arbitration agreement,'" Judge Bennet said.

Wells Fargo had asked the judge in late August to rule that DNM shouldn't be allowed to proceed with the case because of the arbitration provision. But DNM contested that in a September filing, arguing the arbitration agreement doesn't extend to its fraud claims.

Judge Bennet said in his order that the arbitrability of the claims and whether the arbitration agreement applies to DNM's putative class action must be decided by an arbitrator.

In its claims, DNM argues Wells Fargo shafted many of its small-business customers earlier this year by prioritizing larger, more lucrative borrowers over smaller ones when processing applications for the coronavirus relief loan program. Wells Fargo removed DNM's suit from state to federal court in May, and on Aug. 28 asked the judge to dismiss the case and compel arbitration.

Wells Fargo argued that DNM failed to point to a concrete injury that would demonstrate standing, noting the business didn't allege it has been altogether shut out from getting funding through the loan program, which had more than $130 billion in lending capacity left over when it stopped taking new applications in early August.

The bank further contended that no legal mandate to process PPP loan applications on a first-come, first-served basis has been shown to exist the way DNM claimed, nor did DNM even plausibly allege Wells Fargo had indeed prioritized larger PPP loan applications over smaller ones.

On the contrary, statistics released by the government show Wells Fargo's average PPP loan amount of $54,501 was the second-smallest of the top 15 biggest lenders in the program and half of the programwide average loan amount, the bank said.

On Sept. 17, DNM said Wells Fargo only began to quickly process applications after it filed the present lawsuit in an attempt to make up for damages.

The contractor said enforcing arbitration to its PPP claims would stretch the dispute resolution clause beyond the scope of what was intended to cover any and all disputes between itself and the bank, as well as to issues unrelated to the use of its account and banking services.

Counsel for both parties didn't immediately respond to requests for comment Friday.

DNM is represented by Alfonso Kennard Jr. of Kennard Law PC.

Wells Fargo is represented by Brendan Cullen and Christopher Viapianoof of Sullivan & Cromwell LLP and Charles B. Hampton of McGuireWoods LLP.

The case is DNM Contracting Inc. v. Wells Fargo Bank NA, case number 4:20-cv-01790, in the U.S. District Court for the Southern District of Texas.

--Additional reporting by McCord Pagan and Jon Hill. Editing by Philip Shea.

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