USCA4 Appeal: 23-1965 Doc: 45 Filed: 01/13/2025 Pg: 1 of 14
PUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 23-1965
MODERN PERFECTION, LLC; FRUITFUL BEAR, LLC; GRAVITY VIDEO, INC.; BEAUTE NEST, LLC; PIZZAZZ! LLC; ERIC SNIPES INC., individually and as representatives of a class of similarly situated persons,
Plaintiffs – Appellants,
and
BUZTUBR, INC.,
Plaintiff,
v.
BANK OF AMERICA, N.A.,
Defendant – Appellee.
Appeal from the United States District Court for the District of Maryland, at Baltimore. Lydia Kay Griggsby, District Judge. (1:22-cv-02103-LKG)
Argued: September 26, 2024 Decided: January 13, 2025
Before HARRIS, HEYTENS, and BERNER, Circuit Judges.
Affirmed by published opinion. Judge Heytens wrote the opinion, which Judge Harris and Judge Berner joined. USCA4 Appeal: 23-1965 Doc: 45 Filed: 01/13/2025 Pg: 2 of 14
ARGUED: Nathan C. Zipperian, MILLER SHAH LLP, Fort Lauderdale, Florida, for Appellants. Jesse Smallwood, WILLIAMS & CONNOLLY LLP, Washington, D.C., for Appellee. ON BRIEF: Kelly L. Tucker, Laina M. Herbert, GRANT & EISENHOFER P.A., Wilmington, Delaware; James C. Shah, Natalie Finkelman Bennett, Philadelphia, Pennsylvania, for Appellants. Craig Singer, Enu Mainigi, WILLIAMS & CONNOLLY LLP, Washington, D.C., for Appellee.
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TOBY HEYTENS, Circuit Judge:
Six small businesses each made two contracts with Bank of America. One contract
had an arbitration provision; the other did not. When disputes arose, the businesses sued
the bank in federal court and the bank moved to compel arbitration. The district court
declined to decide whether the disputes fell within the scope of the parties’ arbitration
agreement because it concluded the contract with the arbitration provision delegated such
disputes to the arbitrator. We affirm.
I.
Over a five-year period, the businesses each opened accounts with the bank. In
doing so, they entered into deposit agreements that governed the accounts and that the bank
periodically updated. Although each business had a different deposit agreement, the parties
agree the relevant provisions are identical in each agreement.
The deposit agreements contain a section labeled “Resolving Claims.” JA 195. That
section first defines “Claim” as “any claim, dispute or controversy . . . by either you or us
against the other . . . arising from or relating in any way to this deposit agreement (including
any renewals, extensions or modifications) or the deposit relationship between us.” Id. The
deposit agreements also include a bolded subheading labeled “How Claims on Business
Accounts will be Resolved” that says either party has “the right to compel” the other “to
resolve a Claim relating to a business account by binding arbitration.” Id. On the next page,
there is a bolded subheading labeled “Arbitration.” JA 196. The fifth paragraph under that
subheading says:
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The arbitrator, sitting alone without a jury, will decide questions of law and fact and will resolve the Claim. This includes the applicability of this Resolving Claims section and the validity of the deposit agreement, except that the arbitrator may not decide or resolve any Claim challenging the validity of the class action and jury trial waiver. The validity of the class action and jury trial waiver will be decided only by a judicial referee or a court.
Id.
During the COVID-19 pandemic’s early days, the businesses each executed
promissory notes with the bank to receive federal Paycheck Protection Program (PPP)
loans. Here too, the parties agree the promissory notes are identical in all relevant respects.
Unlike the deposit agreements, the promissory notes do not contain an arbitration
clause. They do, however, contain a paragraph labeled “Choice of Law; Jurisdiction;
Venue,” which states that the parties “agree and consent to be subject to the personal
jurisdiction of any state or federal court located in” the State of the borrower’s principal
place of business and “that trial shall only be conducted by a court in that state.” JA 450.
The promissory notes also require each business “to maintain a deposit account” with the
bank “until the Loan is either forgiven in full or the Loan is fully paid” and say the bank
will deposit “the proceeds of the Loan . . . into the Deposit Account.” JA 448.
In 2022, the businesses sued the bank in federal district court, asserting breach of
contract, fraud, and other state-law claims based on the bank’s marketing and
administration of its PPP loan program. The bank moved to compel arbitration and dismiss
the complaint. Although the businesses opposed both arbitration and dismissal, they did
not ask the district court to stay their lawsuit as an alternative to dismissal if it deemed their
disputes arbitrable.
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The district court granted the bank’s motion to compel arbitration and dismissed the
complaint. The court concluded “the parties have entered into an arbitration agreement that
contains a valid and enforceable delegation clause” and “[t]he plain language of the
delegation clause also makes clear that the parties must address threshold issues of
arbitrability before the arbitrator.” JA 723. We have appellate jurisdiction under 28 U.S.C.
§ 1291 because the district court dismissed the complaint “without providing leave to
amend.” Britt v. DeJoy, 45 F.4th 790, 796 (4th Cir. 2022) (en banc).
II.
We first must identify the types of claims the businesses are making and determine
which of those claims are properly before us. As the Supreme Court recently explained in
Coinbase, Inc. v. Suski, 602 U.S. 143 (2024), “parties can . . . have different kinds of
disputes” about the merits and what questions they have (or have not) agreed to arbitrate.
Id. at 148. A “first-order disagreement” is “[a] contest over the merits of the dispute” whose
resolution “depends on the applicable law and relevant facts.” Id. (quotation marks
removed). A “second-order dispute” involves “whether [the parties] agreed to arbitrate the
merits” of their underlying dispute. Id. (quotation marks removed). A “third-order dispute,”
in turn, involves “who should have the primary power to decide the second matter”—the
court or an arbitrator. Id. at 149 (quotation marks removed). Finally, a fourth-order
disagreement arises when the parties “have multiple agreements that conflict as to the third-
order question of who decides arbitrability.” Id. Coinbase holds that fourth-order
disagreements—those about which of “two contracts” “governs” whether a given dispute
is subject to arbitration—must be decided by a court using traditional contract principles.
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Id. at 152. Applying that framework here, we conclude the businesses have failed to
properly raise any fourth-order issues and we agree with the district court that the deposit
agreements provide that an arbitrator decides arbitrability questions.
A.
The Supreme Court had not decided Coinbase when the district court granted the
motion to compel arbitration or the parties filed their appellate briefs. In post-Coinbase
letters, the businesses gesture at what Coinbase calls a fourth-order dispute, asserting
“[t]his Court should undertake the requested analysis to determine whether the Promissory
Notes or the Deposit Agreements govern the parties’ disputes.” ECF 38 at 1–2.
We decline to consider any fourth-order issues because the businesses never raised
them in their briefs to this Court. See United States v. Ashford, 718 F.3d 377, 381 (4th Cir.
2013) (refusing to consider “new arguments couched as supplemental authorities”). A
fourth-order argument would have gone something like this: Even if the deposit agreements
contain a valid and enforceable arbitration clause that would otherwise cover the current
dispute, that does not matter because the promissory notes countermand any such
agreement. See Coinbase, 602 U.S. at 152 (describing fourth-order disputes as arising
when one contract “send[s] arbitrability disputes to arbitration, and the other either
explicitly or implicitly send[s] arbitrability disputes to the courts”).
That is not an argument the businesses made in their briefs. Instead, the businesses
argued they never agreed to arbitrate this dispute at all (a second-order argument) and that
the deposit agreements do not clearly and unmistakably instruct that the arbitrator should
decide whether a given dispute falls within the arbitration clause (a third-order argument).
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The businesses’ argument was thus that their claims fall outside the deposit agreements’
arbitration provision—not that the deposit agreements have been “superseded” by the
promissory notes. Coinbase, 602 U.S. at 149. Indeed, at oral argument—which took place
after Coinbase had been decided—the businesses could not identify any way their
arguments would be different if there were no promissory notes at all.
This is not simply a matter of semantics—it involves the nature of the claim the
businesses are making and the basis on which they ask us to reverse the district court’s
judgment. We do not fault the businesses for failing to anticipate terminology the Supreme
Court only later introduced in Coinbase. But we rarely consider arguments that were not
raised in an appellant’s opening brief, see, e.g., Grayson O Co. v. Agadir Int’l LLC,
856 F.3d 307, 316 (4th Cir. 2017), and the businesses identify no basis for doing so here.
In fact, in their reply brief, the businesses do not challenge—or even mention—the bank’s
assertion that the businesses have not made what Coinbase calls a fourth-order argument
because they “do not argue that the Promissory Note’s venue provision superseded or
narrowed the Deposit Agreement’s arbitration provision.” Bank Br. 36. 1
B.
We are also unpersuaded by the arguments that are properly before us.
The businesses describe the district court as concluding “there was an enforceable
1 A single sentence in the businesses’ opening brief asserted that they argued to the district court “that the inclusion of an integration clause” in the promissory notes had “clearly negated the enforceability of the delegation clause” in the deposit agreements. Bus. Br. 41. That type of “passing shot” is not enough to raise an issue for our review. Grayson O Co., 856 F.3d at 316 (quotation marks removed).
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agreement to arbitrate [the businesses’] claims” against the bank. Bus. Br. 1. In Coinbase’s
terminology, that would be a second-order holding. But the district court made no such
holding. Instead, the court made a third-order holding, ruling that the deposit agreements’
arbitration provision “contains a valid and enforceable delegation clause” that requires the
parties to “address threshold issues of arbitrability before the arbitrator.” JA 723.
Reviewing that decision de novo, see, e.g., Gibbs v. Haynes Investments, LLC, 967 F.3d
332, 337 (4th Cir. 2020), we see no error.
It is common ground “that parties can agree to arbitrate gateway questions of
arbitrability,” including “whether their agreement [to arbitrate] covers a particular
controversy.” Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 68–69 (2010) (quotation
marks removed). The Federal Arbitration Act says agreements to arbitrate are enforceable,
see 9 U.S.C. § 2, and “[a]n agreement to arbitrate a gateway issue is simply an additional,
antecedent agreement the party seeking arbitration asks the federal court to enforce,”
Rent-A-Center, 561 U.S. at 70.
At the same time, “[c]ourts should not assume that the parties agreed to arbitrate
arbitrability unless there is clear and unmistakable evidence that they did so.” First Options
of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (alterations and quotation marks
removed). A court must first determine for itself that “the parties have a contract that
provides for arbitration of some issues.” Id. at 945 (emphasis added); accord Henry Schein,
Inc. v. Archer & White Sales, Inc., 586 U.S. 63, 69 (2019) (“[B]efore referring a dispute to
an arbitrator,” a court must “determine[] whether a valid arbitration agreement exists.”). If
so, the court must next determine whether that contract includes a “delegation clause” that
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tasks the arbitrator with determining whether a particular controversy is covered by the
parties’ agreement to arbitrate. Hengle v. Treppa, 19 F.4th 324, 335 (4th Cir. 2021). “The
clear and unmistakable standard is exacting, and the presence of an expansive arbitration
clause, without more, will not suffice” to show a valid delegation. Peabody Holding Co.,
LLC v. United Mine Workers of Am., Int’l Union, 665 F.3d 96, 102 (4th Cir. 2012)
(quotation marks removed).
“If . . . the parties did not agree to submit the arbitrability question itself to
arbitration, then the court should decide that question just as it would decide any other
question that the parties did not submit to arbitration, namely, independently.” First
Options, 514 U.S. at 943. But if there is a valid delegation clause, “a court may not decide
an arbitrability question that the parties have delegated to an arbitrator” “even if the court
thinks that the argument that the arbitration agreement applies to a particular dispute is
wholly groundless.” Henry Schein, 586 U.S. at 68, 69.
The district court followed those rules here. The court noted the parties conceded
“that they have entered into the Deposit Agreement and that this agreement contains an
arbitration provision.” JA 724. The court next determined the arbitration provision
“contains a delegation clause that clearly and unmistakably delegates the question of
arbitrability to the arbitrator.” JA 726. As support for that view, the court pointed to the
language stating that “[t]he arbitrator . . . will decide questions of law and fact,”
“includ[ing] the applicability of this Resolving Claims Section and the validity of the
deposit agreement.” Id. And because the parties had agreed that an arbitrator would resolve
“at least, the gateway issue of the arbitrability of [the businesses’] claims,” the court
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properly declined to decide whether the claims were in fact arbitrable and granted the
bank’s motion to compel arbitration. JA 728.
On appeal, the businesses offer two challenges to the district court’s reasoning. We
are not convinced by either one.
First, the businesses assert the deposit agreements’ language is insufficiently clear
to delegate arbitrability questions to the arbitrator. 2 Every court to have interpreted this
exact provision has disagreed with that assertion, 3 and that streak will not end with us.
Both the Supreme Court and this one have treated similarly worded provisions as
delegation clauses. In Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010), for
example, the Supreme Court concluded the parties had delegated arbitrability where their
contract said the arbitrator “shall have exclusive authority to resolve any dispute relating
to the interpretation, applicability, enforceability or formation of this Agreement.” Id. at
66. This Court has reached the same conclusion about clauses that tasked arbitrators with
resolving “all disputes, including the scope and validity of this Arbitration Provision,” “any
2 The parties disagree about whether the businesses ever made this argument before the district court. We need not resolve that dispute because the fact that “the district court ruled on the question” means it is properly before us. Billard v. Charlotte Cath. High Sch., 101 F.4th 316, 327 (4th Cir. 2024). 3 See Happy Puppy LA, Inc. v. Bank of Am., N.A., No. 2:23-CV-01354-JLS-PD, 2023 WL 6192702, at *5 (C.D. Cal. June 30, 2023); T.M.B. Assocs., LLC v. Bank of Am., N.A., No. H-23-3937, 2024 WL 466802, at *2 (S.D. Tex. Jan. 2, 2024); Informatech Consulting, Inc. v. Bank of Am. Corp., No. 20-CV-02892-VC, 2021 WL 242888, at *2 (N.D. Cal. Jan. 25, 2021); Flint v. Bank of Am., N. A., No. 15-13006, 2016 WL 1444505, at *1, *5 (E.D. Mich. Apr. 13, 2016). At oral argument, the businesses could not identify any case holding that the language in the bank’s deposit agreement was insufficient to delegate arbitrability questions. See Oral Arg. 16:45–17:12. 10 USCA4 Appeal: 23-1965 Doc: 45 Filed: 01/13/2025 Pg: 11 of 14
issue concerning the validity, enforceability, or scope of this Agreement or this Agreement
to Arbitrate,” or “[a]ll disputes . . . relating in any way to . . . the execution and delivery,
construction or enforceability of this Agreement.” Hengle, 19 F.4th at 332 (quotation
marks removed) (first quote); Gibbs, 966 F.3d at 290 (quotation marks removed) (second
quote); Minnieland Priv. Day Sch., Inc. v. Applied Underwriters Captive Risk Assurance
Co., 867 F.3d 449, 452 (4th Cir. 2017) (quotation marks removed) (third quote).
The language here is not meaningfully different. Indeed, as in Rent-A-Center, the
clause at issue says the arbitrator will resolve disputes about “the applicability of ” the
portion of the deposit agreements containing the arbitration provision. JA 196 (emphasis
added). In contrast, the decisions the businesses rely on in arguing that the deposit
agreements do not delegate arbitrability involved “broad” and “general” clauses that
contained no language giving arbitrators authority to determine the applicability or validity
of the arbitration provisions. Carson v. Giant Food, Inc., 175 F.3d 325, 330 (4th Cir. 1999);
see Peabody Holding Co., 665 F.3d at 103. We thus agree with the district court’s
conclusion that the deposit agreements contain a delegation clause.
Second, the businesses insist the delegation clause is unenforceable because “they
never agreed to arbitrate claims arising out of the Promissory Notes.” Bus. Br. 42. But that
is an argument about the scope of the arbitration provision—not the validity of the
delegation clause—and the Supreme Court’s decision in Rent-A-Center shuts down that
sort of argument. Yes, a party who challenges a delegation clause’s validity has a right to
have a court decide that question, because arbitration is a creature of contract and a
challenge to a delegation clause is a claim that the parties never validly agreed to have the
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arbitrator decide arbitrability questions. See Rent-A-Center, 561 U.S. at 67–72. But Rent-
A-Center makes clear that parties resisting arbitration cannot get out from under a
delegation clause by attacking “the rest of the agreement to arbitrate” and instead must
challenge “the validity of the delegation provision in particular.” Id. at 71, 74. This rule
“does not require that a party challenge only the . . . delegation provision,” Coinbase,
602 U.S. at 151, and a party who “specifically challenge[s] a delegation clause . . . may
rely on the same arguments that it employs to contest the enforceability of other arbitration
agreement provisions,” Gibbs, 966 F.3d at 338 (alterations and quotation marks removed).
At the same time, a party seeking to evade a delegation clause’s application must assert—
and ultimately prove—that there is some defect that “render[s] that provision” illegal or
otherwise unenforceable. Rent-A-Center, 561 U.S. at 74.
The businesses err in asserting that this rule is limited to situations where “the
underlying contract” that contained the delegation clause is “in its entirety, an arbitration
agreement.” Bus. Br. 40. The Supreme Court disavowed any such distinction in Rent-A-
Center by stating it “makes no difference” whether “the arbitration provisions” that include
a delegation provision are “contained in contracts unrelated to arbitration” or are simply a
freestanding arbitration agreement. 561 U.S. at 72. It is thus unsurprising that this Court
has already applied Rent-A-Center’s rule to contracts that contain more than just an
agreement to arbitrate. See Minnieland Priv. Day Sch., 867 F.4th at 451, 455–56.
The businesses’ briefs contain no argument that the delegation provision contained
in the deposit agreements is itself unlawful or unenforceable. See Rent-A-Center, 561 U.S.
at 74 (giving an example of what such a claim might look like). Instead, the relevant
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sections of the businesses’ briefs: (1) repeat arguments we have already rejected (that this
provision is insufficiently clear and unmistakable to be a delegation clause and that it is
enough that the businesses’ challenge is specific to the arbitration clause as a whole); and
(2) assert that the district court erred in concluding the businesses had not “specifically
challenge[d] the validity of the delegation clause” before that court, JA 726 n.6. The same
was true at oral argument, where the businesses could not identify any basis for challenging
the validity of the delegation clause itself. See Oral Arg. 15:59–16:45. Because the
businesses failed to mount a specific challenge to the delegation clause, we must—like the
district court—treat that clause as controlling and “may not decide the arbitrability issue”
ourselves. Henry Schein, 586 U.S. at 69.
III.
The businesses also argue the district court committed legal error by dismissing their
complaint rather than staying the suit pending arbitration. But the businesses never
requested a stay here, and (subject-matter jurisdiction issues aside) we rarely reverse
district court decisions for failing to do something the appealing party did not ask the court
to do. See, e.g., United States v. Ravenell, 66 F.4th 472, 494 (4th Cir. 2023).
The businesses invoke the Supreme Court’s recent decision in Smith v. Spizzirri,
601 U.S. 472 (2024), but that case does not help them. In Smith, the Court held that “[w]hen
a federal court finds that a dispute is subject to arbitration, and a party has requested a stay
of the court proceeding pending arbitration, the court does not have discretion to dismiss
the suit on the basis that all the claims are subject to arbitration.” Id. at 475–76 (emphasis
added). Smith says nothing about what happens when the appealing party never requests a
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stay. We agree with the Seventh Circuit that Smith “does not require” an appellate court to
vacate a “district court’s dismissal order” under such circumstances. National Cas. Co. v.
Continental Ins., 121 F.4th 1151, 1153 (7th Cir. 2024).
* * *
The district court’s judgment is
AFFIRMED.