Law360 (July 22, 2020, 10:14 PM EDT) -- Accounting firm M&M Consulting Group LLC on Wednesday accused JPMorgan Chase Bank NA and First Republic Bank of stiffing it and other firms on fees owed for their work assisting with Paycheck Protection Program lending, the latest in a wave of similar class action litigation against banks.
California-based M&M said in its complaint that it worked to help small businesses apply for the federal coronavirus relief loans. Federal regulations require financial institutions to pay agent fees, which the government has said are supposed to come out of the loan processing fees that it pays to PPP lenders, according to M&M's proposed class action.
"Instead, defendants have kept the agent fees for themselves," M&M said Wednesday.
The $660 billion relief program for small businesses was established in late March as part of the Coronavirus Aid, Relief, and Economic Security, or CARES, Act. The PPP, which initially started with a pot of $349 billion, is intended to provide small businesses with eight weeks of cash to cover payroll through 100% federally backed loans administered by private banks.
Under the program, a PPP agent can be an attorney, accountant or consultant, among other professionals that assist businesses with the loan applications or help lenders with distributing the loans, according to M&M's suit.
The Small Business Association also established regulations that allow for and set standards by which these agents should be paid for their work, M&M said.
"Specifically, the regulations require that PPP agents be paid from a portion of the set fees provided to SBA lenders for processing the PPP loan," it said.
Agents should get 1% of those lender fees for loans of up to $350,000, 0.5% for loans between $350,000 and $2 million, and 0.25% for loans of $2 million or more, per the complaint.
M&M said it helped one of its clients secure a Chase-distributed PPP loan of about $700,000 and another First Republic Bank-distributed loan of about $35,000.
"Plaintiff has no other means of obtaining payment for the PPP agent services it provided to its clients in securing their PPP loans," M&M said. "The SBA regulations specifically prohibit PPP agents from obtaining payment of any fees from the applicants (i.e., plaintiff's clients)," it said.
M&M is looking to represent a nationwide class of potentially hundreds of thousands of agents who assisted a business in preparing an application for a PPP loan. The firm is seeking a declaration that all the class members' agent fees are owed to the agents, unspecified damages, attorney fees and court costs.
Lenders of all sizes have been targeted in agent fee suits, which have claimed anywhere from millions to potentially billions of dollars in owed fees.
In April, Florida accounting firm Sport & Wheat CPA PA lodged a proposed class action against Georgia-based Synovus Trust Co. NA and Alabama-based ServisFirst Bank Inc. The firm said the banks had violated the federal government's intent by refusing to pay agents.
Synovus urged the court to dismiss the suit in May, arguing that the notion that banks owe agent fees is "plainly wrong." The coronavirus relief bill only directed the SBA to set a cap on agent fees, and the regulations say that in the event an agent is going to be compensated, the fees must be paid by the lender and not the borrower but do not create an entitlement to fees, Synovus said in its motion to dismiss.
Late last month, U.S. Department of the Treasury Secretary Steven Mnuchin told House lawmakers he's open to releasing more guidance to clear up "any confusion" about agent fees.
"What our guidance did say is that banks could pay agent fees out of the fees that they received," Mnuchin said at a House Financial Services Committee oversight hearing. "That was intended to be based upon a contractual relationship between the agent and the bank, and to the extent there's any confusion on that, we'll look at clarifying that."
Chase is facing an array of other PPP-related suits, although that litigation has been brought by businesses accusing the bank of misconduct related to the program. In April, cupcake decorating company Ladaga Ventures LLC claimed the bank was engaging in a "self-serving" distribution of the loans, approving only about 6% of its 300,000 smaller business banking customers.
Auto body repair shop BSJA Inc., frozen yogurt shop Alexhd LLC and flooring company Outlet Tile Center all also hit Chase with similar claims.
Chase and First Republic Bank declined to comment, and counsel for M&M Consulting didn't immediately return a request for comment Wednesday.
M&M Consulting is represented by Michael E. Adler of Graylaw Group Inc., Harmeet K. Dhillon and Nitoj P. Singh of Dhillon Law Group Inc. and Mark J. Geragos, Ben J. Meiselas and Matthew M. Hoesly of Geragos & Geragos APC.
Counsel information for Chase and First Republic Bank wasn't immediately available Wednesday.
The case is M&M Consulting Group LLC v. JPMorgan Chase Bank NA et al., case number 8:20-cv-01318, in the U.S. District Court for the Central District of California.
--Additional reporting by Jon Hill, Grace Dixon and Nathan Hale. Editing by Jay Jackson Jr.
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