By Grace Dixon

Law360 (April 20, 2020, 8:12 PM EDT) -- An auto body repair shop, a frozen yogurt shop and a flooring company have accused Wells Fargo Bank NA and JPMorgan Chase of prioritizing larger small businesses when distributing loan relief under the Paycheck Protection Program in parallel class actions filed in California federal court.

BSJA Inc., Alexhd LLC and Outlet Tile Center accused the banks in two suits filed Sunday and Monday of reshuffling loan applications rather than approaching them on a first-come, first-served basis as required under the $349 billion coronavirus relief program in an attempt to maximize profit from the federal loan program.

"As a result of Wells Fargo's dishonest and deplorable behavior … thousands of small businesses that were entitled to loans under the PPP were left with nothing because Wells Fargo chose to maximize its loan origination fees rather than comply with the rules of the program and serve the needs of its small business customers," two businesses said in their Sunday complaint.

Under the CARES Act, Wells Fargo was tapped to distribute $10 billion and Chase $40 billion of the forgivable loan fund designated for entrepreneurs and American small businesses. The banks could make up to $17,500 for processing smaller loans under $350,000, but up to $100,000 from loans between $2 million and $10 million, according to the Treasury Department.

The suits accuse both banks of first processing high-dollar applications when the program opened on April 3 and moving to small applications just before the program ran out of money on Thursday.

Chase was the worst offender of the major banks facing suits over their handling of the Paycheck Protection Program, according to the complaint filed by Outlet Tile Center, a family-run flooring company with six employees, and its pro bono counsel.

"We determined that the average amount of the loan that Chase processed was half a million. This was twice as much as the average of the program in general and far far away from the average amount needed for a typical small business," Robert Tauler, counsel for the business, told Law360 on Monday.

The suit against Chase, unlike the one against Wells Fargo, asks that the bank return the $700 million it profited from the program and seeks to rewrite the SBA rules in a way that removes incentive for banks to prioritize larger loans.

The suit also accuses the bank of soliciting its best clients before even opening its online portal, dooming all applicants that did not have a pre-existing relationship with the bank.

"Chase knew that the online portal they opened up on April 7 would be basically a futile effort," Tauler said. "As far as I can tell, the online portal was a total sham."

BSJA Inc., a Glendale auto body repair shop, and Alexhd LLC, a Montrose frozen yogurt shop, accused Wells Fargo of front-loading high dollar applications over theirs. The companies, small enough that their filing fees were waived by the court and their counsel, allege that they have had to lay off their employees as a result.

Their suit points to data released by the U.S. Small Business Administration revealing that Wells Fargo processed smaller-dollar loan applications at twice the rate of larger loans during the final three days before the program ran out of money.

"Our clients range anywhere from asking for $10,000 just to keep them afloat and keep their employees paid to up to a couple hundred thousand dollars, and those businesses are the ones that, unfortunately, their applications have been ignored," Ji-In Houck, counsel for BSJA and Alexhd, said. "Whereas we have information about larger companies who were asking for a lot more money, millions of dollars, $10 million, those loans were processed and they were funded."

The Federal Reserve Board announced midway through the program that it would temporarily relax its $2 trillion asset size cap on Wells Fargo so the banking giant could lend more under the Paycheck Protection Program and the "Main Street" loan program.

At the time, Wells Fargo CEO Charlie Scharf had said in a statement that the Federal Reserve's decision did not and should not relieve the bank of any obligations under the consent order that imposed the asset cap.

The complaint leveled less than two weeks after the cap was lifted accuses the bank of false advertising, fraudulent concealment and several violations of the California Unfair Competition Law.

Chase is facing claims of promissory estoppel, equitable relief, intentional misrepresentation, contractual interference and unfair business practices.

Small law firms, a construction company, a San Diego restaurant group, a cybersecurity company and an optometrist represented by the same firm as BSJA and Alexhd filed nearly identical suits against US Bank, JPMorgan Chase and Bank of America over the weekend.

"All the big banks were tasked with implementing the CARES act and the SBA and the responsibility was to try to keep as many small businesses and their employees employed as possible," Houck said. "Instead of focusing on the objective of the CARES Act, the banks do what we've seen from the banks, which is they're concerned with their bottom line."

Counsel information for Wells Fargo not immediately available. Representatives for Wells Fargo declined to comment on Monday.

Counsel information for JPMorgan Chase was not immediately available. Representatives for JPMorgan Chase declined to comment on Monday.

BSJA Inc. and Alexhd LLC are represented by Dylan Ruga, Ji-In Houck and David Angeloff of Stalwart Law Group.

Outlet Tile Center is represented by Robert Tauler of Tauler Smith LLP.

The cases are BSJA, Inc. et al. v. Wells Fargo & Co et al., case number 2:20-cv-03588 and Outlet Tile Center v. JPMorgan Chase & Co. et al., case number 2:20-cv-03603, both in the U.S. District Court for the Central District of California.

--Editing by Peter Rozovsky.

For a reprint of this article, please contact reprints@law360.com.