By Jon Hill

Law360 (April 23, 2020, 9:03 PM EDT) -- A pair of small-business owners asked a Texas federal judge on Wednesday to block Wells Fargo from limiting eligibility for its federal coronavirus relief lending, seeking an emergency court order against the bank similar to one that Bank of America avoided last week.

Plaintiffs Edward Scherer of Texas and Donald Kowall of California urged U.S. District Judge David Hittner to issue a temporary restraining order that would suspend Wells Fargo NA's policy of allowing only its preexisting business checking clients to apply for a Paycheck Protection Program loan from the bank.

The program, which is poised for an infusion of more than $300 billion in additional funds, is intended to provide stop-gap financing for small businesses to keep paying their employees during the pandemic, but the plaintiffs argued the bank's "gating" policy improperly restricts access to the program and threatens to shut them and others out from desperately needed aid they otherwise qualify for.  

"Wells Fargo's unlawful barriers to PPP loan eligibility must be removed immediately to prevent irreparable harm to the eligible businesses that the [Coronavirus Aid, Relief and Economic Security] Act was designed to save," the plaintiffs said in a motion, referring to the legislation that authorized the program last month.

Scherer and Kowall have alleged in a proposed class action against Wells Fargo that the bank's gating policy violates the CARES Act by giving preexisting clients preferential access to the relief loans, which are being distributed on a first-come, first-serve basis and have been in such high demand that the program exhausted its initial $349 billion lending capacity in just two weeks.

According to the suit, the coronavirus relief bill doesn't permit banks to institute their own eligibility criteria beyond what is spelled out in the law and the loan program's implementing regulations, but Wells Fargo added the business checking account requirement anyway so as to give its customers priority for the aid and, in turn, help support the other loans many of them have with the bank.

"In this time of critical and severe national need that the U.S. government recognized and immediately acted upon, Wells Fargo's discriminatory practices can only be described as corporate greed, highly offensive and illegal," Scherer and Kowall said in their latest complaint.

But Wednesday's bid for immediate court action against Wells Fargo comes after a Maryland federal judge rejected a similar request from a group of small businesses suing Bank of America over its gating policy for the relief loan program.

Their proposed class action, which predates the Wells Fargo case, alleges that Bank of America is also unlawfully restricting access to the loan program by requiring applicants to be existing small business checking clients that either are already borrowers at the bank or aren't borrowers elsewhere.

Yet when the businesses sought a temporary restraining order earlier this month to preemptively block Bank of America's policy, U.S. District Judge Stephanie Gallagher ruled that the CARES Act doesn't prohibit banks from setting additional eligibility criteria of their own. The judge also found the law contains no private right of action that would permit the suit against the bank.

Wednesday's motion in the Wells Fargo case does not address this April 13 decision, which the businesses suing Bank of America are now appealing to the Fourth Circuit.

But in an email to Law360, counsel for Scherer and Kowall said that Judge Gallagher's ruling, although "well-thought out," is not the final word and stressed the need for a more flexible view of the CARES Act's private enforceability in light of the COVID-19 crisis.

"Our courts must be pliable enough in their rulings and opinions to accommodate our harsh present reality, one that the legislature and President [Donald] Trump recognized and acted upon immediately," said Salar Ali Ahmed of Ali S. Ahmed PC, attorney for the plaintiffs.

"If the federal courts are unwilling to step in as the ultimate referees and arbiters of fairness for the largest class imaginable (that is — millions of American small businesses), in a time when they are desperately needed, justice would be denied in a wholesale manner and the big banks would benefit at the expense of millions in our country that need help," Ahmed added.

In a statement to Law360, a spokesperson for Wells Fargo declined to comment on the suit but said the bank "is working as quickly as possible to assist small business customers with the Paycheck Protection Program in compliance with the regulations and guidance provided by U.S. Treasury and the [Small Business Administration]," which are overseeing the program.  

"We have mobilized thousands of employees and launched new technology to better assist customers seeking assistance via the Paycheck Protection Program," the bank's spokesperson added.

The cases against Wells Fargo and Bank of America are part of a wave of class action litigation that has sprung up over banks' PPP lending practices. Earlier this week, for example, Wells Fargo and JPMorgan Chase were hit with separate lawsuits accusing them of "reshuffling" PPP loan applications so larger dollar-amount requests would get processed first and net the banks larger origination fees.

Scherer and Kowall are represented by Salar Ali Ahmed of Ali S. Ahmed PC.

Wells Fargo is represented by Charles B. Hampton of McGuireWoods LLP and Christopher M. Viapiano, Nicolas Bourtin and Sverker K. Högberg of Sullivan & Cromwell LLP.

The case is Scherer et al. v. Wells Fargo Bank NA, case number 4:20-cv-01295, in the U.S. District Court for the Southern District of Texas.

--Editing by Jay Jackson Jr.

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