By Emilie Ruscoe

Law360 (May 7, 2020, 3:12 PM EDT) -- A small business in California launched a suit Wednesday accusing a nonbank lender of disadvantaging small-dollar applicants for federal Paycheck Protection Program loans by fast-tracking its most lucrative loan requests.

Los Angeles business Elizabeth M. Byrnes Inc. filed the proposed class action against nonbank lender Fountainhead Commercial Capital LLC on May 6, claiming the finance firm advertised that it would process loan requests on a first-come, first-served basis and then secretly shuffled its queue of PPP applicants so that it would lock down the largest lending fees first.

"As a result, plaintiff and many other class members who did not meet defendant's prioritization criteria did not receive PPP funding through defendant," the Byrnes company said Wednesday.

The case appears to be one of the first of its kind brought against a nonbank PPP lender as firms across the country scramble to access lifeline funding amid shutdown orders aiming to curb the spread of the coronavirus.

Byrnes claimed that it submitted its application for a loan of less than $25,000 to Fountainhead on March 28, the day after the Coronavirus Aid, Relief and Economic Security Act was signed into law.

Byrnes alleged that Fountainhead's advertising cast the financial firm as the largest nonbank lender handling Small Business Administration loans in the United States and that "once the CARES Act was passed, defendant FCC advertised on its website and elsewhere that it was one of the few nonbank lenders licensed to make PPP loans," the Byrnes firm said Wednesday.

The Los Angeles small business stated in its suit that it received same-day confirmation that its loan request was submitted and that it received a message the next day telling it that would get a link to upload more documentation within two days.

But that link didn't come within that 48-hour window, Byrnes said. And 11 days later, on April 9, Fountainhead sent another email with very similar language about the upload link coming in the next 48 hours. An email from Fountainhead on April. 13 again said that the links would be sent in the future, and told applicants that "should you feel the need to remove yourself from our loan queue and join another lender's list, kindly let us know."

Byrnes said Wednesday that it "is informed and believes, and on that basis alleges, that defendant FCC prioritized loans that were in the range of $100,000 to $300,000" because the bigger loans would earn Fountainhead higher origination fees.

Byrnes alleged that its loan request was never processed and that Fountainhead knew it had more loan applications than it could handle but never told its applicants that.

"Had plaintiff and class known defendant FCC was prioritizing large loans, they could have applied for a loan with a different lender," Byrnes contended.

And "the impact on small business of the coronavirus outbreak, social distancing and [California's] stay at home order was devastating," the small firm stressed in its complaint.

The suit also includes 10 Does as defendants alongside Fountainhead.

On Thursday, a notice on Fountainhead's website stated that the company had suspended PPP application submissions.

An attorney for Byrnes declined to comment, and representatives for Fountainhead did not immediately respond to requests for comment Thursday.

Byrnes and the proposed class are represented by Joshua H. Haffner and Graham G. Lambert of Haffner Law PC and Bart I. Ring of the Ring Law Firm APLC.

Counsel information for Fountainhead Commercial Capital could not be immediately determined Thursday.

The case is Elizabeth M. Byrnes Inc. v. Fountainhead Commercial Capital LLC, case number 2:20-cv-04149, in the U.S. District Court for the Central District of California.

--Editing by Gemma Horowitz.

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