Even though Wells Fargo has admitted that bank employees opened millions of fraudulent, unauthorized accounts in customers’ names, the bank has avoided or delayed class-action lawsuits over this fake account fiasco by citing terms in customer contracts that prevent account-holders from bringing lawsuits against Wells. However, one group of customers is arguing that the bank can’t use these contracts to shield itself from being held liable for illegal activity.

On Dec. 13, a federal court judge in Utah pressed pause on a potential class action against Wells while the court weighed whether or not to shunt the dispute out of the courtroom and into private arbitration.

Like most major banks — and telecom/cable companies, online retailers, nursing homes, for-profit educators, and just about everything else — Wells Fargo’s customer contracts usually include a clause that allow either party to force any legal dispute with the bank out of the courtroom and into arbitration.

The clauses also generally prohibit customers from joining together with other wronged customers in a class action, even through arbitration. That means each of the more than two million Wells account holders would need to go through this process, rather than being represented in court as part of a class.

If all of the customers who had fake accounts opened in their name were to enter into arbitration, that could be a logistical nightmare for the bank, which would have to deal with hundreds of thousands — potentially millions — of arbitration cases, but research shows that very few people know about this process, and so only a small number of individuals ever go the arbitration route.

The plaintiffs in the Utah case recently filed their objections [PDF] to the bank’s motion to compel arbitration, arguing that the bank can’t use a contract to conduct illegal activity.

The plaintiffs contend that if Wells Fargo intended the Consumer Account Agreements (CAA) to allow the bank to act illegally, that “would void the contract on numerous grounds.” And if these contracts are not intended to cover illegal bank actions, then the arbitration clause can’t be used to shield the bank from liability for fraud.

“In either scenario the arbitration provision in the CAA does not extend to cover the illegal, fraudulent actions of Wells Fargo in the present case,” reads the court filing.

The plaintiff customers point out that the fraud in this case is not in doubt. The bank has not only been hit with a $185 million penalty from state and federal regulators, but since-retired Wells CEO John Stumpf admitted before Congress that his employees opened these fake accounts, and that he learned about them back in 2013.

The arbitration clause should only apply to disputes over actual issues of banking, contend the plaintiffs, who argue that fraud falls outside that umbrella.

“The arbitration clause is not applicable because of the fraudulent, criminal activities engaged in by Wells Fargo, which constitutes a breach of contract, and removes, in toto, the arbitration clause,” say the plaintiffs.

“Wells Fargo is attempting to… deflect the real issues before the court from the identity theft, illegal conduct, collecting illegal fees, sending fake accounts to collection, illegally making false and fraudulent reports to credit reporting agencies,” concludes the filing. “These egregious breaches of the law manifest that Wells Fargo’s waiving the arbitration agreement provisions is clearly an attempt to divert the Court’s attention.”

It’s now up to the court to decide whether or not Wells will be able to avoid legal liability for these fake accounts, or whether the class action will be allowed to move forward. Of course, it’s likely that whichever side loses that debate will appeal the judge’s decision.

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