Marselian v. Wells Fargo and Company

Background

Congress created the Paycheck Protection Program during the COVID-19 pandemic to help eligible small businesses meet payroll and cover expenses. Seto Marselian alleged that he applied for a program loan through Wells Fargo but, at least when he filed the complaint, had not received loan proceeds. He alleged that Wells Fargo processed applications on a first-come, first-served basis, which allowed it to maximize commissions by processing larger loans first, despite representing that it would focus on nonprofits and businesses with fewer than 50 employees.

Marselian filed a proposed class action asserting claims under California Civil Code section 1710, California’s Unfair Competition Law, California’s False Advertising Law, unjust enrichment, and accounting. The proposed class consisted of individuals and small businesses that timely applied for a Paycheck Protection Program loan through Wells Fargo but whose applications were not processed or whose loans were not issued.

Wells Fargo & Company and Wells Fargo Bank, N.A. moved to compel arbitration, or alternatively to dismiss under Federal Rule of Civil Procedure 12(b)(6).

Existence of an Arbitration Agreement

The court explained that it had to determine whether a valid arbitration agreement existed and whether it covered the dispute. Under ordinary contract principles applied under California law, a party’s objective actions can show agreement even if the party did not subjectively understand or read every term.

Marselian signed a Wells Fargo Business Account Application. The application stated in bold that using a Wells Fargo Bank account, product, or service confirmed the customer’s receipt of and agreement to be bound by the applicable account agreement, including an arbitration agreement. It also stated that disputes relating to the customer’s use of a bank account, product, or service would be decided by a neutral arbitrator rather than by a judge or jury.

The court held that Marselian’s signature showed assent to the application’s terms. His statements that he did not recall reading the arbitration provision and that no one told him about arbitration did not defeat that assent. The court also found that the application clearly and unequivocally incorporated the separate account and arbitration agreements and that Wells Fargo provided evidence that the agreements were included in a new-account kit and available on its website.

Wells Fargo & Company, the holding company, was not a signatory to the arbitration agreement; Wells Fargo Bank, N.A. was the signatory. The court nevertheless held that the holding company could invoke arbitration because Marselian based his claims against the entities on the same facts and treated their conduct collectively. The court stated that claims against a parent and subsidiary may be sent to arbitration when they are inherently inseparable, even if the parent did not formally sign the arbitration agreement.

Delegation of Arbitrability

The arbitration agreement provided that disputes about the agreement’s meaning, application, or enforcement would be arbitrated. It also incorporated the American Arbitration Association’s commercial rules, which authorize an arbitrator to decide questions concerning the existence, scope, or validity of the arbitration agreement and the arbitrability of claims.

The court held that these provisions clearly and unmistakably delegated gateway questions of arbitrability to the arbitrator. “Gateway questions” are threshold questions about whether the parties agreed to arbitrate and whether a particular dispute falls within that agreement.

Marselian argued that the agreement was unenforceable under the California Supreme Court’s decision in McGill v. Citibank because it allegedly waived the right to seek public injunctive relief. The court did not decide that argument. It held that Marselian had not specifically challenged the delegation provision itself, and that the parties’ disputes about the agreement’s scope, the availability of public injunctive relief, and the effect of the McGill rule were questions delegated to the arbitrator.

Disposition

The court granted the motion to compel arbitration and stayed the case pending completion of arbitration. It directed the parties to file a joint status report about the arbitration 120 days after the order and every 120 days afterward unless the court ordered otherwise. The clerk was directed to close the case administratively.