Accountants' Suit Over Pandemic Loan Agent Fees Dismissed

By Nathan Hale
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Law360 (August 17, 2020, 10:56 PM EDT) -- A Florida federal judge on Monday dismissed an accounting firm's proposed class suit claiming that agents for loan recipients under the federal Paycheck Protection Program should get a portion of the processing fees received by lenders, finding the coronavirus relief bill and enacting rules create no such entitlement.

The case was apparently the first filed of at least 50 cases now pending around the country that raised the same issue of first impression about the federal government's emergency program, dubbed the CARES Act, which has doled out hundreds of billions of dollars to help small businesses weather the coronavirus pandemic. On Aug. 6, the Judicial Panel on Multidistrict Litigation denied a motion to consolidate the cases.

In Monday's order, U.S. District Judge T. Kent Wetherell II expressed skepticism that the plaintiff, Pace, Florida-based accounting firm Sport & Wheat CPA PA, will be able to successfully amend its complaint but said he would give the firm a chance to do so or alternatively enter a final judgment and let it appeal his rulings before the Eleventh Circuit, if it wishes.

"We respect the district court's decision, but we do disagree with it," Sport & Wheat counsel Bill Cash of Levin Papantonio Thomas Mitchell Rafferty & Proctor PA told Law360. "The banks directly contacted Sport & Wheat, asking our client for help and professional advice in assembling loan applications, which the banks submitted for government approval. Our clients' hard work directly benefited those banks, which received fees as high as 5% on the federal billions that passed through their hands. Congress intended that accountants would be paid for the hard work they did and under record time pressure."

In its amended class action complaint, which was challenged in motions to dismiss by defendants Synovus Bank, ServisFirst Bank Inc., Truist Bank and The First - A National Banking Association, Sport & Wheat brought counts alleging unjust enrichment, contract implied in law and conversion plus one seeking a declaration that the defendants violated federal law and an injunction imposed against them, according to the order.

Judge Wetherell focused primarily on the last of those counts, which asked him to analyze whether the CARES Act, which created the PPP in late March, and rules enacted by the Small Business Administration to administer it, created a requirement that lenders pay borrowers' agent fees, as Sport & Wheat claims.

"This assumption, however, finds no support in the plain language of the statute or the regulation," the judge said.

Sport & Wheat argued that its position that the banks should cover its customary and reasonable fees is supported by PPP rules established by language in the CARES Act that says "agents may not collect fees from the borrower or be paid out of the PPP loan proceeds" and a provision in the SBA's rules that says "agent fees will be paid by the lender out of the fees the lender receives from SBA."

But Judge Wetherwell concluded that the CARES Act does not require lenders to pay the agent fees absent an agreement to do so — and Sport & Wheat conceded it had no such agreements in place with the banks.

"Indeed, the different language used by Congress mandating payment of lenders ("shall reimburse") and limiting agent fees ("may not collect") is indicative of an intent not to require lenders to pay agent fees," the judge said.

Judge Wetherell also found that while the SBA's rules answer the question of who pays the agent fees, it does not require lenders to share their fees.

"Instead, the language simply explains that, if an agent is to be paid a fee, the fee must be paid by the lender from the fee it receives from the SBA," he said.

The judge also agreed with the banks that existing regulations require an agreement between the lender and the agent as a prerequisite to the lender paying an agent's fees.

To succeed on its conversion claim, Florida law required Sport & Wheat to have a "present or immediate right to possession of the property in question," the order said, quoting from case law.

"If the plaintiff has no right to the property in question, it has no conversion claim," Judge Wetherell said. "Here, as explained above, plaintiff had no legal right to any portion of the fee defendants received from the SBA for making the loans to the borrowers assisted by plaintiff."

The two state law counts for unjust enrichment and contract implied in law are duplicative and also failed, Judge Wetherell said, based on his conclusion that the accounting firm could not meet a first element of its claim having conferred a benefit directly on the banks.

"Here, although plaintiff's work on the borrowers' PPP loan applications directly benefitted the borrowers because it helped them get PPP loans, the benefit received by defendants for making the loans to the borrowers (i.e., loan processing fees from the SBA) was merely an incidental benefit of plaintiff's work for the borrowers," Judge Wetherell said.

In a footnote, the judge also expressed doubt that these two counts are suitable for class treatment, saying unjust enrichment claims turn on individualized facts.

Of its 200 to 250 clients that are small businesses, the firm estimated in its original April 27 complaint that it had assisted about 50 in applying for PPP loans. According to the court's order, it alleged in its amended complaint that the four banks had not paid it $4,526 in agent fees it was due under the PPP.

Counsel for Synovus said they would let the order speak for itself. Counsel for the other defendants did not immediately respond to requests for comment late Monday.

Sport & Wheat is represented by John S. Wirt and Pamela Cocalas Wirt of Wirt & Wirt PA and Bill Cash, Matt Schultz and Virginia Buchanan of Levin Papantonio Thomas Mitchell Rafferty & Proctor PA.

Synovus Bank is represented by Paul J. Nathanson and Antonio M. Haynes of Davis Polk & Wardwell LLP, James E. Butler Jr. and Ramsey B. Prather of Butler Wooten & Peak LLP and Philip A. Bates PA.

Truist is represented by Cheryl L. Haas, Meredith Laughlin Allen, Kathryn M. Barber and Emily Y. Rottmann of McGuireWoods LLP.

ServisFirst is represented Logan T. Matthews, Robert Ashby Pate and Sara Ford of Lightfoot Franklin & White LLC.

The First is represented by Christopher Allen Riley of Alston & Bird LLP.

The case is Sport & Wheat CPA PA et al. v. ServisFirst Bank Inc. et al., case number 3:20-cv-05425, in the U.S. District Court for the Northern District of Florida.

--Editing by Michael Watanabe.

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

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