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Judge: Popcorn seller's PPP loans lawsuit vs JPMorgan Chase belongs in arbitration, not in court

COOK COUNTY RECORD

Sunday, December 22, 2024

Judge: Popcorn seller's PPP loans lawsuit vs JPMorgan Chase belongs in arbitration, not in court

Lawsuits
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CHICAGO — A west suburban popcorn seller wont be allowed to continue to sue JPMorgan Chase for allegedly steering COVID-19 recovery funds away from small businesses, and to the bank's preferred customers, as the judge determined the claims belong in arbitration, not in court.

Sha-Poppin Gourmet Popcorn filed a complaint in April 2020 in Chicago against JPMorgan Chase and two of its larger clients, Ruth’s Chris Steakhouse and Phunware, alleging efforts to cheat it “and countless small businesses out of their right to apply for and receive” federal aid through the $349 billion Paycheck Protection Program.

Westchester-based Sha-Poppin, with five employees, has a Chase Business Banking account, but accused the bank of prioritizing its “favored clients” by working to “make sure their loan applications were submitted quickly, accurately and without a hitch. Everyone else, meanwhile, would have to try to submit an application through a non-functional web portal — or look elsewhere.”


Paul Ferak | Greenberg Traurig

Ajira, a Lisle technology company with four employees, joined the complaint as a plaintiff. Formal claims include negligence, fraudulent concealment, tortious interference with prospective economic advantage, unjust enrichment and violation of the Illinois Consumer Fraud and Deceptive Business Practices Act.

In an opinion issued Aug. 10, U.S. District Judge Joan Gottschall said the bank’s deposit account agreement contains language dictating the dispute be resolved through arbitration. Both Stacy Hawkins-Armstrong, the founder and manager of Sha-Poppin, and Ajira CEO Sandeep Mehta acknowledged signing up for Chase’s online services but neither recalled that procedure or if they assented to a specific agreement.

Hawkins-Armstrong and Mehta argued Chase didn’t prove they agreed to online or digital services agreements, and also that their claims concern administration of the PPP loan program, which are beyond the scope of any user agreements. However, Gottschall said such a determination isn’t required because the arbitration clause in the deposit account agreement is enough to grant the bank’s motion to compel arbitration, and both businesses clearly accepted the agreement.

Chase argued, according to Gottschall, that its “arbitration clause clearly and unmistakably delegated arbitrability by incorporating the rules of the American Arbitration Association and JAMS Mediation, Arbitration and ADR Services.” She further said 12 of 13 federal appeals courts have found that incorporation of AAA rules, or even those similarly worded, deliver unmistakable, clear evidence that the parties agreed to arbitration, including questions of what disputes are subject to arbitration.

“The Seventh Circuit appears to be the only circuit that has not ruled on this question,” Gottschall wrote. “Although the opinions of other circuits are not binding on this court, such a broad consensus carries considerable persuasive weight.”

In at least two other lawsuits challenging Chase’s PPP administration the bank has convinced a judge to compel arbitration. One, in the Southern District of New York, agreed incorporation of AAA and JAMS rules was sufficient. The other, in the Southern District of California, “found it unnecessary to reach the question but added in a footnote that it would likely reach the same conclusion under the clear and unmistakable standard,” Gottschall wrote.

The businesses also tried to argue they are legally “unsophisticated” enterprises and so the incorporation of AAA rules isn’t a determinative factor. But Gottschall said there is no record in either the Federal Arbitration Act or its judicial history of that distinction being relevant.

Finally, Sha-Poppin and Ajira said the agreement’s arbitration clause is ambiguous because it gives a choice between JAMS and AAA rules. But those systems aren’t in conflict, Gottschall said.

“The text and history of the AAA rule, as well as judicial decisions interpreting it, confirm that the rule vests the arbitrator with exclusive jurisdiction to decide arbitrability issues,” she wrote.

Sha Poppin is represented in the matter by attorneys Benjamin S. Thomassen, Jay Edelson, Benjamin H. Richman, Christopher L. Dore, Ari J Scharg and Daniel J. Schneider, of the firm of Edelson P.C., of Chicago.

JPMorgan Chase is represented by attorneys Paul Ferak, Jonathan H. Claydon and Thomas J. Sotos, of the firm of Greenberg Traurig, of Chicago. 

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