Silicon Valley Bank Beats CARES Act Referral Fees Suit

By Rachel O'Brien
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Law360 (December 16, 2020, 9:35 PM EST) -- Silicon Valley Bank won a court battle Wednesday when an Arizona federal judge joined other courts in ruling that lenders are not required to pay processing fees to agents who helped borrowers apply for loans through the federal Paycheck Protection Program.

In its June lawsuit, Scottsdale, Arizona-based Radix Law PLC claimed that language in the statute governing the PPP requires Silicon Valley Bank to pay the firm processing fees.

"To date, every court to have addressed this question has concluded that no such obligation exists," U.S. District Judge Dominic W. Lanza said Wednesday, citing several cases in which judges ruled in favor of the lender.

The Coronavirus Aid, Relief and Economic Security — CARES — Act provided $659 billion through the PPP to help businesses struggling to make ends meet during the COVID-19 pandemic.

Borrowers could apply directly to a private lender for the forgivable loans backed by the federal government, with the Small Business Administration reimbursing the lender.

Congress established a schedule of processing fees that lenders would be paid for making PPP loans.

Radix Law's suit was one of many filed around the country by agents — lawyers, accountants and others — alleging banks owed them fees for their work helping businesses file loan applications.

Radix Law argued its work in helping a borrower apply for a $291,149.59 loan from Silicon Valley Bank in April 2020 means it can collect an agent fee that's 1% of the loan, $2,911.50.

The bank rejected the demand for payment, and on Wednesday, Judge Lanza agreed that the bank was right to do so.

The text codifying the PPP "undermines, rather than supports, plaintiff's position," the judge said.

While "the statute affirmatively obligates the SBA administrator to pay processing fees to lenders that make PPP loans … it does not create an affirmative obligation on the part of the SBA administrator, or anybody else, to pay a fee to agents who assist borrowers in applying for PPP loans," he said.

Instead, it sets caps on such fees for agents who "may not collect a fee in excess of the limits established by the administrator" — if the fees are collected.

"This is hardly proof that Congress intended to mandate the payment of fees to agents in all cases," Judge Lanza said in granting the Sept. 7 motion to dismiss. "Plaintiff's arguments to the contrary are unpersuasive."

The suit was originally filed in Maricopa County Superior Court in June and removed to Arizona District Court in July.

Jonathan B. Frutkin of Radix Law told Law360 in a statement Wednesday, "This case is a good opportunity for the Ninth Circuit to decide the fundamental question: Do law firms and accountants get paid for their work on the PPP or did they do it pro bono for the banks to make billions?"

Radix Law also sued JPMorgan Chase Bank NA in Arizona federal court to try to collect agents fees.

That case is still pending, with Chase filing a motion to dismiss in October that Radix Law said in November "ignores clear and unambiguous language requiring lenders to compensate borrowers' agents."

In November, a California federal judge tossed another suit against Wells Fargo, JPMorgan Chase, Bank of America and other big banks similarly alleging they owed agents fees. The judge gave them leave to amend and the plaintiffs, American Video Duplicating Inc., which provides businesses with consulting, legal and tax preparation services, filed an amended complaint on Dec. 7.

Another suit against JPMorgan Chase and First Republic Bank has a November motion to dismiss pending, saying the suit "recycles the same flawed claims asserted in actions around the country."

In September, U.S. District Judge Jed S. Rakoff tossed six cases from accountants that alleged JPMorgan Chase, Citibank, Signature Bank and Union Bank owed them agent fees.

He consolidated the six lawsuts and ruled that "absent an agreement between agent and lender, defendant banks are not required to pay agent fees under the text of the CARES Act or its implementing regulations."

Counsel for Silicon Valley Bank didn't immediately respond to a request for comment Wednesday.

Radix Law is represented by in-house attorneys Jonathan B. Frutkin and Robert N. Mann.

Silicon Valley Bank is represented by Matthew J. Porpora, Leonid Traps and Jessica R. Ecker of Sullivan & Cromwell LLP; and Keith Beauchamp and Shelley Tolman of Coppersmith Brockelman PLC.

The case is Radix Law PLC v. Silicon Valley Bank, case number 2:20-cv-01304, in the U.S. District Court for the District of Arizona.

--Additional reporting by Kevin Penton, J. Edward Moreno and Dorothy Atkins. Editing by Rebecca Flanagan.

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