By Jon Hill

Law360 (August 31, 2020, 9:33 PM EDT ) Wells Fargo on Monday urged a Texas federal judge to throw out a proposed class action accusing the bank of having given improper preferential treatment to bigger borrowers seeking Paycheck Protection Program loans, arguing the customer behind the suit can't slip past a prior arbitration agreement with the bank.

Plaintiff DNM Contracting Inc., a Houston-based general contractor, alleges in a lawsuit filed this spring that Wells Fargo Bank NA shafted many of its small-business customers earlier this year by prioritizing larger, more lucrative borrowers over smaller borrowers when processing applications for the coronavirus relief loan program.

But Wells Fargo told U.S. District Judge Alfred H. Bennett that DNM shouldn't be allowed to proceed with the case because of the arbitration provision it agreed to as part of a 2015 business account application it signed with the bank.

"All of plaintiff's claims should be dismissed because plaintiff made a binding contractual commitment to arbitrate any dispute 'arising out of or relating in any way to' its Wells Fargo account or services," the bank said in a motion. "The dispute here is entirely about plaintiff's application to Wells Fargo for a loan that it could obtain only as a Wells Fargo business checking account customer."

Wells Fargo argued that DNM also 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.

"Nor could [DNM] — such an allegation would be facially implausible in view of the more than 5,000 lenders other than Wells Fargo who offered PPP loans, which remained available to eligible small businesses for four months after plaintiff applied to Wells Fargo," the bank said. "Any failure to obtain a loan could therefore only be caused by plaintiff's conscious inaction."

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 that 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 program-wide average loan amount, the bank said.

"All of plaintiff's allegations regarding Wells Fargo's alleged prioritization of larger customers are entirely conclusory, lacking in specific facts, and insufficient to plead a plausible claim," the bank said.

Monday's bid to sink the DNM suit, which was originally brought in Texas state court, echoed Wells Fargo's efforts just a few days before in California federal court, where the bank moved for arbitration and dismissal of another PPP-related proposed class action.

That case, filed by California-based pet groomer Karen's Custom Grooming LLC, similarly accuses Wells Fargo of improper prioritization of PPP loan applications, but the bank argued in court filings on Friday that the claims are subject to arbitration under the terms of the plaintiff's business account agreement signed in 2018.

Both DNM and Karen's Custom Grooming have already refused arbitration demands that were served on them in early August, according to Wells Fargo.

The cases are among a number of proposed class actions that have accused banks of misconduct related to their participation in the Paycheck Protection Program, which launched in April. The program was originally authorized to provide $350 billion in forgivable coronavirus relief loans to struggling small businesses, but that amount was later boosted to $660 billion in the wake of high initial demand.

Alfonso Kennard Jr. of Kennard Law PC, which is representing DNM, told Law360 on Monday that his side views Wells Fargo's attempt to bring up arbitration as "overreach."

"This is not something that they had raised during the multidistrict litigation panel proceedings," Kennard said, referring to Wells Fargo's opposition to calls from DNM and another small-business plaintiff to consolidate and centralize their PPP lawsuits against the bank.

Those calls were declined in early August by the federal judicial panel that hears such requests, largely on account of concerns that the cases involved too many individualized fact issues to make centralization worthwhile.

"Suddenly it's something they pulled out and think that it has merit as it pertains to how they profited from distributing federal government monies," Kennard said of Wells Fargo's arbitration bids. "We think any judge would not look favorably upon these requests and filings."

Counsel for Karen's Custom Grooming did not immediately return a request for comment on Monday. A spokesperson for Wells Fargo declined to comment beyond the bank's filings.  

DNM is represented by Alfonso Kennard Jr. and Kevin T. Kennedy of Kennard Law PC.

Karen's Custom Grooming is represented by Alreen Haeggquist, Kathleen A. Herkenhoff and Ian Pike of Haeggquist & Eck LLP.

Wells Fargo is represented in both cases by Brendan P. Cullen of Sullivan & Cromwell LLP, as well as Christopher M. Viapiano of Sullivan & Cromwell and Charles B. Hampton of McGuireWoods LLP in the DNM case and Sverker K. Hogberg of Sullivan & Cromwell in the Karen's Custom Grooming case.

The cases are 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 and Karen's Custom Grooming LLC v. Wells Fargo Bank NA et al., case number 3:20-cv-00956, in the U.S. District Court for the Southern District of California.

--Editing by Janice Carter Brown.

For a reprint of this article, please contact reprints@law360.com.