By Jon Hill

Law360 (April 13, 2020, 12:59 PM EDT) -- A Maryland federal judge on Monday declined to issue an emergency order blocking eligibility restrictions that Bank of America has placed on its lending under the $349 billion Paycheck Protection Program, dealing a blow to several small businesses that say the restrictions are illegal and about to drive them under.

In a 23-page decision, U.S. District Judge Stephanie Gallagher denied the businesses' request for a temporary restraining order in their proposed class action against the bank, which has been accused of unlawfully limiting access to the federal coronavirus relief loan program that launched this month.

The small-business plaintiffs, which are depository clients of the bank, want to force Bank of America to suspend its policy of taking PPP loan applications only from small-business checking customers that either are already borrowers at the bank or aren't borrowers at any other bank. The plaintiffs say the policy goes too far and threatens to shut them out from critically needed funds they're otherwise eligible for.

But Judge Gallagher said Monday that this gating policy "does not run afoul of the CARES Act," the federal legislation enacted late last month that established the loan program as a way to help small businesses during the widespread shutdowns and disruptions of the COVID-19 pandemic.

Although the CARES Act does lay out certain eligibility criteria for the loans, it "does not constrain banks such that they are prohibited from considering other information when deciding from whom to accept applications, or in what order to process applications it accepts," Judge Gallagher wrote.

Even if it did, the judge concluded that the small-business plaintiffs still wouldn't be able to bring their case, finding that private parties don't have a right to enforce the coronavirus relief law in court.

Judge Gallagher also was not persuaded that the plaintiffs would face catastrophe without immediate court intervention. Although she said that she "does not doubt" their businesses have suffered as a result of the pandemic, the judge said Bank of America's gating policy didn't stop the plaintiffs from going elsewhere for a PPP loan.

"Since the evidence on the current record shows that there are thousands of institutions participating in PPP, and several that accept loans from new customers, BofA, by definition, has not denied plaintiffs access to the PPP," the judge wrote.

And while Judge Gallagher acknowledged that the bank's gating policy has "undoubtedly made it materially harder for some small businesses to access the PPP," she expressed concern that a temporary restraining order could more broadly hamper the loan program by discouraging other banks from participating.

Indeed, some other lenders involved with the program have restricted eligibility to existing customers or have otherwise instituted policies that give preference to certain classes of potential applicants.

"This court is reluctant to impose liability, particularly in the form of a 'mandatory' TRO, where doing so may undermine Congress's goal to maximize relief for American small businesses," the judge wrote.

Bank of America has also said its gating policy works to the loan program's advantage by allowing the bank to prioritize the customers whose information it already knows and whose applications can therefore be processed more quickly, an argument Judge Gallagher called "compelling."

"Certainly, plaintiffs' experiences demonstrate a significant flaw, from their perspective and that of many other small businesses, in the implementation of the massive and complex PPP program," the judge wrote.

"However, given the competing policy interests, the need to balance the desire to assist the widest swath of small businesses with the need to incentivize lender participation, and the overall fluidity of this epidemic, Congress is better positioned to remedy any defects in the CARES Act, and to pass the supplemental legislation it believes best aimed at ameliorating the effects of the COVID-19 crisis," she added.

In a statement to Law360, Alan M. Rifkin of Rifkin Weiner Livingston LLC, counsel for the small-business plaintiffs, said his side isn't giving up after the ruling.

"Plaintiffs will appeal the court's decision and continue to press their right to seek these critical funds," Rifkin said. "During the pendency of the appeal, we call upon Congress, Bank of America and all other banks throughout America to do what is right and open the PPP process to any small business that otherwise qualifies for federal funds under the PPP program."

Bank of America, meanwhile, pledged to keep moving forward.

"We remain focused on processing the more than 300,000 applications we've received so far, seeking more than $45 billion in loans," a bank representative said in a statement to Law360.

The small-business plaintiffs are represented by M. Celeste Bruce, Charles S. Fax, Alan M. Rifkin, Liesel J. Schopler and Barry L. Gogel of Rifkin Weiner Livingston LLC.

Bank of America is represented by Enu Mainigi, Kenneth C. Smurzynski, Craig D. Singer and Beth A. Stewart of Williams & Connolly LLP.

The case is Profiles Inc. v. Bank of America Corp. et al., case number 1:20-cv-00894, in the U.S. District Court for the District of Maryland.

--Editing by Orlando Lorenzo.

Update: This story has been updated with additional details and comment from the parties.

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