4th Cir.: Modern Perfection v. Bank of America- Fourth Order Arbitration Disputes

Summary:

Several small  businesses had entered into two separate agreements with Bank of America—one for deposit accounts (which contained an arbitration clause) and one for Paycheck Protection Program (PPP) loans (which did not). When the businesses sued over handling of the PPP loans by Bank of America,it moved to compel arbitration based on the deposit agreements.

The district court ruled that the deposit agreements contained a valid delegation clause, requiring an arbitrator to decide the arbitrability of the dispute. On appeal, the Fourth Circuit rejected the businesses' arguments that the arbitration clause was unclear and that the PPP loan agreements negated arbitration. 

Under Coinbase, Inc. v. Suski, there are four orders of disputes regarding arbitration:

• A “first-order dispute” is  a contest over the merits of the dispute whose resolution depends on the applicable law and relevant facts.
• A “second-order dispute” involves whether the parties agreed to arbitrate the merits of their underlying dispute. 
• A “third-order dispute”  involves who should have the primary power to decide the second matter—the court or an arbitrator. 
• A "fourth-order dispute" arises when the parties have multiple agreements that conflict as to the third-order question of who decides arbitrability.

The Court of Appeals  ruled that the businesses had not properly raised a fourth-order dispute, which would have required the court to decide which contract governed arbitration. Instead, the businesses' arguments focused on whether their claims fell within the deposit agreement’s arbitration clause, an issue that had been properly delegated to the arbitrator.

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