Big Banks Say Agents Aren't Entitled To Fees In PPP Suit

By Rachel O'Brien
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Law360 (September 16, 2020, 8:39 PM EDT) -- Some of the nation's biggest banks being sued by agents claiming they're owed filing fees under the federal Paycheck Protection Program asked a California federal judge Tuesday to toss the proposed class action because the COVID-19 pandemic program doesn't require them to pay fees.

JPMorgan Chase Bank, Wells Fargo Bank, Bank of America, U.S. Bank National Association, Live Oak Banking Company and Harvest Small Business Finance filed a motion to dismiss arguing that the Coronavirus Aid, Relief, and Economic Security Act — CARES Act — which provides $659 billion in loans to small businesses for their payroll and to cover other expenses during the COVID-19 pandemic, doesn't back up the agents' claims.

"The CARES Act nowhere mandates that a lender pay fees to an agent for assisting a borrower in applying for a [Paycheck Protection Program] loan," the motion said.

American Video Duplicating, Inc., Tush Law Ltd. and Kenneth M. Hahn, which provide consulting, legal and tax preparation services, filed the proposed class action on April 27, saying that as agents of borrowers, they're entitled to a percentage of the fees set aside for lenders of the Paycheck Protection Program, or PPP.

The Small Business Administration oversees the program and banks disperse the loans — which are forgivable — to those who apply and qualify.

The plaintiffs argue that the Small Business Administration's April 2 interim final rule to implement the PPP created an automatic entitlement to agent fees.

But the banks — including Citibank N.A. and Citigroup Inc., which filed a separate motion to dismiss in May — counter that Congress only set limits to how much the SBA could pay an agent, but didn't require that agents be paid automatically.

Noting that this case is similar to dozens filed across the country, the banks said that "each action raises the same dispositive question: are agents entitled to payment from lenders when the lenders never promised or agreed to pay them? As the only court to rule on this issue to date has concluded: The short answer is no."

In August, a Florida federal judge hearing similar claims from an accounting firm's proposed class action found that the CARES Act and rules enacted by the Small Business Administration to administer the PPP, didn't require lenders to pay borrowers' agent fees.

While the agents claim they helped prepare PPP loan applications for unidentified small businesses and are entitled to fees, they never allege that these specific banks gave loans to those small businesses, Tuesday's motion to dismiss argued.

"Such conclusory allegations fail to show that plaintiffs suffered any injuries-in-fact traceable to any defendant's conduct, a requirement for plaintiffs to sue," the banks said.

To counter agents' claims of entitlement to fees, the banks pointed to testimony from Secretary of the Treasury Steven Mnuchin before Congress that said banks could pay agent fees out of SBA funds if there was a contractual relationship between the agent and the bank.

"Plaintiffs here allege no 'contractual relationship' with any defendant," the motion said.

The plaintiffs don't identify any specific borrower, application or loan from the banks named in the suit "let alone any agreement by a defendant to pay them," the banks argued.

"We anticipate a favorable ruling for the plaintiff in the first [motion to dismiss] before Judge Otis D. Wright, II as well as in this second [motion to dismiss]," Michael E. Adler of GrayLaw Group, one of the lawyers for the plaintiffs, told Law360 Wednesday. "We remain very optimistic in the outcome of all our cases filed against the banks for non-payment of agent fees."

Counsel for Harvest Small Business Finance LLC declined to comment Wednesday.

Counsel for the other parties didn't immediately respond to requests for comment Wednesday.

American Video Duplicating, Inc., Tush Law Ltd., and Kenneth M. Hahn are represented by Mark J. Geragos, Ben J. Meiselas and Matthew M. Hoesly of Geragos & Geragos, Michael E. Adler of GrayLaw Group Inc., and Harmeet K. Dhillon and Nitoj P. Singh of Dhillon Law Group Inc.

Citibank N.A. and Citigroup Inc. are represented by Bronwyn F. Pollock, Lucia Nale, Thomas V. Panoff, Christopher S. Comstock and Andrew J. Spadafora of Mayer Brown LLP.

Wells Fargo Bank, N.A. is represented by Brendan P. Cullen and Sverker K. Hogberg of Sullivan & Cromwell LLP, and David C. Powell, Carolee A. Hoover and Jamie D. Wells of McGuire Woods LLP.

JPMorgan Chase Bank, N.A. is represented by Robert J. Herrington and Karin Bohmholdt of Greenberg Traurig LLP.

Bank of America, N.A. is represented by Enu A. Mainigi, Kenneth C. Smurzynski, Craig D. Singer and Jesse T. Smallwood of Williams & Connolly LLP, and Janice P. Brown and Arlene R. Yang of Brown Law Group.

U.S. Bank National Association is represented by J. Warren Rissier, Megan A. Suehiro, Brianna R. Howard and Michael S. Kraut of Morgan Lewis & Bockius LLP.

Live Oak Banking Company is represented by Kevin M. Lally and Henry L. Kitchin, Jr. of McGuire Woods LLP.

Harvest Small Business Finance LLC is represented by Nina Huerta, Casey B. Howard and Andrew Braunstein of Locke Lord LLP.

The case is American Video Duplicating Inc. et al, v. Citibank N.A., et al, case number 2:20-cv-03815, in the U.S. District Court for the Central District of California.

--Editing by Amy Rowe.

Update: This story has been updated with additional counsel information. 

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