Small Businesses Press For Chase Virus Relief Loans MDL

By Jon Hill
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Law360 (July 30, 2020, 11:29 PM EDT) -- Small businesses that have sought coronavirus relief loans through the Paycheck Protection Program urged a federal judicial panel on Thursday to consolidate their lawsuits accusing JPMorgan Chase Bank NA of mishandling their applications, cases the bank countered are dwindling in number and too distinct to combine.

At a U.S. Judicial Panel on Multidistrict Litigation hearing, attorneys appearing for several small business plaintiffs lobbied for centralizing their proposed class actions against the bank in California's Southern District or Illinois' Northern District, arguing their cases are united around common claims that Chase failed to process PPP loan applications on a first-come, first-serve basis as allegedly required.

"Coordination and consolidation is warranted for quick and consistent rulings on legal issues the defendants themselves have identified in their opposition papers," said Robert Shelquist of Lockridge Grindal Nauen PLLP, arguing for plaintiffs including the California-based Hyde-Edwards Salon & Spa.

"Does the first-come, first-serve rule apply? If it does, is there a private cause of action, or can it support a state cause of action? And whether the violations are actionable or classable," Shelquist continued, adding that consolidation is further supported by the overlap in factual issues between the cases, such as whether the bank processed loan applications in the order of their receipt.

Benjamin Richman of Edelson PC, appearing for the Illinois-based Sha-Poppin Gourmet Popcorn LLC, which has also accused Chase of improperly prioritizing some PPP applications over others, agreed that these commonalities cut in favor of centralizing the cases to promote efficiency.

"If there is to be centralization, it would make sense to have a nationwide MDL with bank-specific tracks or bank-specific MDLs," Richman said. "We think that's the best way to avoid the complexities that might arise if you're trying to do ... bank-specific discovery all together at once."

While Shelquist suggested California or Illinois as the venue for such an MDL, Richman favored the Illinois option, citing in part the "experience of the judiciary" in the state's Northern District and Chicago's relatively central placement within the country.

Hyde-Edwards and Sha-Poppin are among a slew of plaintiffs that have accused Chase, the largest PPP lender, of misconduct related to the $660 billion coronavirus relief initiative, which has enlisted banks to offer forgivable loans for small businesses to use on payroll and other overhead costs while much of the U.S. economy is shut down during the COVID-19 crisis.

Their suits allege Chase unfairly and improperly played favorites in its processing of PPP loan applications, giving greater priority to larger and more lucrative borrowers while smaller, less-resourced businesses such as the plaintiffs encountered stalling, delays and other difficulties that left them unable to get the funding they needed when they needed it.

Other big banks offering PPP loans have also been sued, and the lawsuits have spanned a range of issues related to the program's implementation, including whether banks were allowed to craft more stringent eligibility criteria to manage application flow and whether third-party "agents" that helped borrowers apply are entitled to cuts of the loan origination fees that banks earn from the government.

But Chase's counsel Gregory Ostfeld of Greenberg Traurig LLP painted the Hyde-Edwards and Sha-Poppin cases as part of an early wave of PPP litigation that's already begun to recede, rendering an MDL unwarranted.

"When a majority of these cases were filed, it was due to a shortage of funds in the first round of PPP funding," Ostfeld said. "Today, anyone eligible for a PPP loan who wanted one has had ample opportunity to apply for and get one, including nearly all of the named plaintiffs in this case."

According to Ostfeld, there initially were as many as 13 lawsuits that Hyde-Edwards and others wanted the panel to consolidate, and no new similar cases have been filed against the bank since May. But two of the 13 cases have now been voluntarily dismissed and one was dropped from consolidation consideration, and yet another case is on track to be voluntarily dismissed in the coming days, Ostfeld said.

Ostfeld also noted that the program still has more than $100 billion of lending capacity left in it, has had its application deadline extended into next month and has seen its restrictions on borrowers' timing and use of funds relaxed.

"So what plaintiffs does that leave? A tiny subset who are claiming they've still somehow sustained an injury notwithstanding these changes and improvements to [the] program," Ostfeld said. "Respectfully, an MDL makes no sense for these outlier claims."

Changes to the loan program aside, the Chase attorney said the cases up for consolidation raise "distinct grievances" about everything from application prioritization to applicant eligibility criteria that make them inappropriate for an MDL, saying the suits have been "shoehorned together without commonality."

Still, if the panel were to back centralization, Ostfeld said Chase would support having the MDL hosted in Colorado federal court, in part because the state is "doing better than most" with managing the spread of the coronavirus.

But Shelquist called it "conjecture" for Chase to oppose the creation of an MDL on grounds that the cases are a dying breed, saying that there are additional claims potentially out there but those litigants are waiting to see what happens with consolidation first.

Shelquist also argued that the bank's effort to distinguish between the cases elides over its "core violation" of the loan program's first-come, first-serve mandate to focus on issues that speak more to damages. And regardless of whether plaintiffs later did or still could get PPP loans, Shelquist said they still can claim damages if they weren't given first-come, first-serve service.

"Some of them closed, some of them furloughed or laid off workers thinking that they weren't going to get the money, and it's not easy to restart operations and get back employees with enhanced unemployment benefits," Shelquist said.

The Hyde-Edwards Salon & Spa, KPA Promotion & Awards Inc. and Above & Beyond Preschool LLC are represented by Robert K. Shelquist of Lockridge Grindal Nauen PLLP.

Sha-Poppin Gourmet Popcorn is represented by Benjamin Richman of Edelson PC.

Chase is represented by Gregory E. Ostfeld of Greenberg Traurig LLP.

The case is In re: JPMorgan Chase Paycheck Protection Program Litigation, MDL number 2944, before the U.S. Judicial Panel on Multidistrict Litigation.

--Editing by Jay Jackson Jr.

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Case Title

IN RE: JPMorgan Chase Paycheck Protection Program Litigation

Case Number



Judicial Panel on Multidistrict Litigation

Nature of Suit

Date Filed

May 01, 2020

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