Court filing
RESPONSE in Opposition re 46 MOTION to Dismiss First Amended Complaint filed by SPORT… — Agent Fee Litigation (Dkt. 56)
Summary
Plaintiff Sport & Wheat CPA PA's opposition to Synovus Bank's motion to dismiss, dated June 24, 2020, in Case No. 3:20-cv-5425-TKW-HTC in the U.S. District Court for the Northern District of Florida, Pensacola Division. The brief argues the amended complaint adequately pleads unjust enrichment and contract implied in law in Counts 1 and 2 and that the motion should be denied in full. It states the borrower's Paycheck Protection Program loan was funded in the amount of $163,303 and that Synovus is entitled to a fee of $8,165.15 from the Small Business Administration under 15 U.S.C. § 636(a)(36)(P)(iii), none of which was paid to the accounting firm. It attaches exhibits including text messages with a bank employee and the loan forgiveness application forms, and states Synovus made 20,000 loans under the program. A certificate states the brief contains 7,777 words.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
Full text
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF FLORIDA
PENSACOLA DIVISION
SPORT & WHEAT CPA PA,
a Florida corporation, individually and
on behalf of a class of similarly situated
businesses and individuals,
Plaintiff,
Case No. 3:20-cv-5425-TKW-HTC
v.
SERVISFIRST BANK INC.;
SYNOVUS BANK;
THE FIRST, A NATIONAL
BANKING ASSOCIATION; and
TRUIST BANK,
Defendants.
PLAINTIFF SPORT & WHEAT’S OPPOSITION TO
SYNOVUS BANK’S MOTION TO DISMISS
I. Introduction
Synovus’s scattershot motion to dismiss should be denied. Although
Synovus attempts to raise a number of distracting side issues, the motion does not
establish that any of Sport & Wheat’s claims fail or should be dismissed.
As the Court knows, the new coronavirus has changed everything in
America. The dramatic halt to general economic activity that was required by
public health officials to get the virus under control initially was devastating.
Businesses were at risk of going under permanently.
1
To deal with coronavirus-related economic fallout, the Congress and the
President quickly agreed on several legislative solutions, one of them being the
Paycheck Protection Program, which is part of the new “CARES Act.”1 The
Paycheck Protection Program, styled a lending program, is a mechanism by which
Congress was able to rapidly funnel money to small businesses.
By its own count, Synovus made 20,000 loans under the PPP, none of which
carry any risk at all for the bank. Sport & Wheat swung into service to assist its own
clients, and to help Synovus make some of those loans. Synovus earned a
percentage fee on each loan it made. Sport & Wheat, a professional accounting
firm, is entitled to fair compensation for its hard work because it benefited Synovus.
And such compensation is consistent with, not antagonistic to, federal law.
II. Factual allegations relevant to this motion
Sport & Wheat is a small, two-person accounting firm in Pace. (Am. Compl.
¶ 26.) Jill Sport and Tim Wheat have been accountants in the Santa Rosa area for
over 30 years each. Sport & Wheat provides general accounting and tax services to
a clientele that consists largely of small businesses in the region. Id. ¶ 74. Pace and
Milton are small towns and the business community is close-knit.
1
A helpful table of authorities appears on page 2 of the Amended Complaint. For consistency,
Sport & Wheat uses the same terms in this brief.
2
Borrower C—a pseudonym Sport & Wheat has used to protect the privacy of
this small business on the public docket—is a small medical group in nearby
Pensacola that has nine employees. (Am. Compl. ¶¶ 100−01.) Borrower C asked
Sport & Wheat to prepare an application for a loan under the Paycheck Protection
Program, which would be submitted to Synovus. Id. at ¶ 102.
Sport & Wheat carefully documents its work for each client, because it
generally bills by the hour for its time. Sport & Wheat spent 8.67 hours on
Borrower C’s application, including “preparing, processing, and filing the PPP loan
application and supporting documents.” Id. at ¶ 103 (emphasis added). (Thus
Synovus is incorrect to say “[t]here is no allegation that S&W actually submitted
this . . . to Synovus.” (Mot. at 8.))
Sport & Wheat’s activity with Borrower C was primarily during April 2020.
As the Amended Complaint alleges, “Synovus Bank knew that Sport &
Wheat was acting as Borrower C’s PPP Agent in connection with Borrower C’s
PPP loan application.” Id. at ¶ 106. (Again, Synovus’s motion is flatly wrong to state
that “S&W does not claim that Synovus had any knowledge of what work S&W was
purportedly doing.” (Mot. at 9.))
Synovus was aware of Borrower C’s designation of Sport & Wheat as its PPP
Agent as early as April 1, 2020, when Synovus asked Sport & Wheat for help in
3
resolving a name mismatch in the bank’s computer, which was causing a delay with
processing the borrower’s application. (Am. Compl. ¶ 105.)
The Amended Complaint alleges that Sport & Wheat prepared a loan
application for Borrower C, and that the application was submitted using Sport &
Wheat’s information and documentation. Id. at ¶¶ 102, 103, 109.
To add substance to the allegation that “Synovus Bank knew that Sport &
Wheat was acting as Borrower C’s PPP Agent,” Sport & Wheat will recount some
evidence of its communications with Anna Weaver, a Synovus local banker in the
Pace branch of the bank. Sport & Wheat has dozens of text messages that show the
communication between the two parties.
For example, on April 3, Sport & Wheat texted Ms. Weaver to say
that the bank’s web site was “up!” Ms. Weaver responded: “Thank
you Jesus!!!!! 🙏🙏🙏🙏” Ex. A at Text 1.2 The two parties
then exchanged screenshots of the Synovus web site for PPP loans.
Id. at Text 2.
Later that day, Sport & Wheat asked, in connection with Borrower
C’s loan, if “Telephone and cell count as utilities?” Id. at Text 4.
The bank employee responded, “Hell fire and damnation. I don’t
know. It does not on usual application. . . . Let’s go to a spa I know
in San Antonio after this is over.”
On Saturday, April 4, the two parties exchanged texts about
whether the bank would be e-mailing Sport & Wheat’s clients
regarding their loan status. Id. at Text 5. The same day, Sport &
2
Some of the names in Ex. A have been redacted to protect the financial or medical privacy of
individuals.
4
Wheat asked if certain loans were being processed; Ms. Weaver
responded, “Yes they are processing.” Id. at Text 9.
On April 6, Sport & Wheat and Ms. Weaver texted further about a
mismatched name for Borrower C. Id. at Text 13. The banker asked,
“So can it be corrected?” Sport & Wheat responded: “Working on
it. Had to change the app I prepared so it’s ready if they [Borrower
C] get the next email.” Id.
On April 7, Sport & Wheat texted Ms. Weaver to say that
“[Borrower C] is submitted. Thanks for all your help!” Id. at Text
15. The banker responded: “Awesome. . . . Thank you thank
you!!!!” Sport & Wheat, referring to more than one Synovus
borrower, replied, “All my chickadees are in the coop.”
On April 16, the parties commiserated over the intense demand for
loans, and Ms. Weaver wrote: “My phone has blown up with every
customer that received an email stating funds were gone [meaning,
the PPP pool had run dry]. It’s a tough time because I’m
heartbroken for all my customers.” Id. at Text 16.
During this time period, the bank employee also repeatedly notified Sport &
Wheat that the loan process was extremely intense at the bank and that people were
working around the clock to process an avalanche of PPP loan applications. For
example, Ms. Weaver wrote on April 4 that there was a “group working all
weekend.” Id. at Text 6. On April 5, she wrote: “[Bank employees] are still working
through submissions. [An employee] was texting me at 10 last night.” Id. at Text 10.
The next day she wrote that there had been 11,000 loan applications. Id. at Text 11.
(This program had been signed into law by the President only eight days earlier, on
5
March 27.) The same day, Sport & Wheat asked: “Has your day been crazy?” Ms.
Weaver responded: “Absofreakinlutely.” Id. at Text 12.
On April 9, Sport & Wheat asked Synovus about being paid for its work as an
agent for borrowers. (Am. Compl. ¶ 107.) These communications occurred with
more than one bank employee and were conducted in writing. Bank employee Larry
Strain notified Sport & Wheat that: “At this point Synovus has taken the position,
right or wrong, that they are not paying the agent fees. Decision was made way
above my pay grade.” (Ex. B at 2.) He continued, suggesting a way around federal
law, which bars Sport & Wheat from charging its clients, “I know a lot of
acxountants who are being paid to gather the information but just not to prepare the
application. I know that it seems to be parsing but that us how many are
approaching it.” Id. at 3.
By this point, Sport & Wheat had already provided Synovus with critical help
in getting the loan for Borrower C processed and funded, and had prepared the loan
application. (Am. Compl. ¶¶ 104, 108.)
Borrower C’s loan was ultimately funded in the amount of $163,303. Id. at
¶¶ 109−10. Synovus is entitled to a fee of $8,165.15 from the Small Business
Administration, which under the statute was to have been paid to Synovus in April.
Id. at ¶ 111; 15 U.S.C. § 636(a)(36)(P)(iii).
6
Synovus never paid any portion of that fee to Sport & Wheat. Id. at ¶ 113.
Under the agreement between Sport & Wheat and Borrower C, Sport &
Wheat will continue to render services as an agent. Id. at ¶ 103. This is not
necessarily an easy task. The forgiveness application is five pages long, the
instructions are seven pages long, and they require preparation and consultation of
further supporting documentation.3 The “Paycheck Protection Program Flexibility
Act,” Pub. L. 116-142, has complicated matters even further. Failure to complete
this process successfully will cost Borrower C $163,303—the amount of the loan—
plus interest payable to Synovus. Sport & Wheat’s assistance is necessary. Id. at
¶ 103.
Complaining that this suit got filed—even after Synovus expressly refused to
pay Sport & Wheat—Synovus states that “[i]t appears S&W rushed to file suit to
position itself among other plaintiffs that have filed similar putative class action
complaints claiming entitlement to agent fees.” (Mot. at 5.) Because this motion
concerns only this action, it is a wholly irrelevant remark. It is also not true. This
case was the first filed in the United States to allege entitlement to relief on behalf
of a PPP Agent. It is correct that Synovus is now defending at least one other such
3
Ex. F, Paycheck Protection Program Loan Forgiveness Application (June 16, 2020); Ex. G,
Loan Forgiveness Application Instructions for Borrowers (June 16, 2020). Many PPP forms,
including these two, are available on the Small Business Administration’s web site at
https://www.sba.gov/document/?program=PPP.
7
action in the federal system, and that there are approximately 40 such federal
actions now on file in the putative MDL.
III. Legal standard applicable to a motion to dismiss
This is a motion to dismiss under Fed. R. Civ. P. 12(b)(6), testing the
sufficiency of the complaint. Regarding factual allegations in a pleading, Fed. R.
Civ. P. 8(a)(2) merely requires “a short and plain statement of the claim showing
that the pleader is entitled to relief.” It does not require exhaustive factual
recitations.
On this motion, the Court must accept all of the complaint’s allegations as
true and construe them in the light most favorable to the plaintiff. Pielage v.
McConnell, 516 F.3d 1282, 1284 (11th Cir. 2008). The plaintiff need not give
“detailed factual allegations,” but merely must “provide the grounds of his
entitlement to relief,” and must include more than labels or formulaic recitations of
the elements of a cause of action. Cooley v. HMR of Alabama, Inc., 747 F. App’x
805, 807 (11th Cir. 2018) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555
(2007)).
Notice pleading “does not require a plaintiff to specifically plead every
element of his cause of action,” just sufficient information regarding the elements
8
of a cause of action “to support recovery under some viable legal theory.” AFL-
CIO v. City of Miami, 637 F.3d 1178, 1186 (11th Cir. 2011).
Where a party presents matters outside the pleadings to a district court, and
such matters are not excluded by the court, the court must convert the motion to a
motion for summary judgment under Rule 56. Fed. R. Civ. P. 12(d). “Conversion
. . . should be exercised with great caution and attention to the parties’ procedural
rights.” Tackett v. M & G Polymers, USA, LLC, 561 F.3d 478, 487 (6th Cir. 2009).
In this instance, because Synovus’s treatment of the facts is so inconsistent
with its own knowledge of those facts; and so as to present additional context, Sport
& Wheat does present additional matters to the Court for consideration in the form
of the attached exhibits. Sport & Wheat believes its complaint stands on its own,
however, and is sufficient to withstand Synovus’s attack without any extrinsic
evidence. Sport & Wheat does not seek conversion to a Rule 56 motion.
IV. Argument regarding Sport & Wheat’s affirmative claims in Counts 1−4
This section addresses the real core of Synovus’s motion—its direct attack
on those claims Sport & Wheat has brought in Counts 1 through 4. (Section V, the
next section, responds to Synovus’s arguments regarding the overall structure
CARES Act, its regulation, and their relevance to this action.)
9
A. Counts 1 and 2: Sport & Wheat’s unjust enrichment and contract
implied in law claims are adequately pled.
Count 1 of the Amended Complaint states a claim for unjust enrichment.
Count 2 states a claim for “contract implied in law (restitution/quasi-contract).”
These claims, which are closely related, are fully supported by the facts and the law.
A contract implied in law, or quasi contract, has four elements: (1) the
plaintiff has conferred a benefit on the defendant; (2) the defendant has knowledge
of the benefit; (3) the defendant has accepted or retained the benefit; and (4) the
circumstances are such that it would be inequitable for the defendant to retain the
benefit without paying fair value for it. Commerce P’ship 8098 Ltd. P’ship v. Equity
Contracting Co., Inc., 695 So. 2d 383, 386 (Fla. 4th DCA 1997). Synovus agrees with
this read of the law. (Mot. at 25.)
According to some commentators, to recover for unjust enrichment, the
same elements must be proved, plus there must be a “lack of adequate remedy at
law.” H. Hugh McConnell, Distingushing Quantum Merit and Unjust Enrichment in
the Construction Setting, 71 Fla. Bar J. 88, 89 (Mar. 1997). Other authorities use both
“unjust enrichment” and “contract implied in law” to describe the same theory.
Sport & Wheat has no express contract with Synovus, so has no adequate remedy at
law, so Sport & Wheat can prevail under both theories. This brief will discuss them
together.
10
Importantly, the basis for recovery on either such claim “does not turn on the
finding of an enforceable agreement,” so recovery may be had “even where the
parties had no dealings at all with each other.” Commerce, 695 So. 2d at 386.
“Florida courts have made clear that an unjust enrichment claim may be brought
whether or not the parties had any previous contact at all.” Tooltrend, Inc. v. CMT
Utensili, SRL, 198 F.3d 802, 806 (11th Cir. 1999). See also 14th & Heinberg, LLC v.
Terhaar & Cronley Gen. Contractors, Inc., 43 So. 3d 877, 880 (Fla. 1st DCA 2010)
(unjust enrichment claim can lie “even though the parties to such an implied
contract never indicated by deed or word that an agreement existed between
them”); Circle Fin. Co. v. Peacock, 399 So. 2d 81, 84 (Fla. 1st DCA 1981) (unjust
enrichment “acknowledges an obligation which is imposed by law regardless of the
intent of the parties”).
For these reasons, as Synovus acknowledges, a party’s reasonable
expectation of payment is not an element of the claim. Instead, “[q]uasi-contracts
are based primarily upon a benefit flowing to the person sought to be charged.”
Variety Children’s Hosp., Inc. v. Vigliotti, 385 So. 2d 1052, 1053 (Fla. 3d DCA 1980).
The theory is intended to correct a wrong.
The following table reviews each of the four common legal elements of these
two claims, and the factual allegations that support that particular element.
11
Element Facts supporting the element
Did Sport & Wheat Yes. Sport & Wheat assisted Synovus by taking work
confer a benefit off of the overtaxed bank employees and putting it onto its
on Synovus? own shoulders. This permitted Synovus to process more
loans, and make more money using its own workforce.
(Am. Compl. ¶¶ 164, 174.)
As discussed in the Amended Complaint, demand for
PPP funds was extremely high. The entire initial $349
billion was depleted in just fourteen days. (Am. Compl.
¶ 57.) The financial community as a whole knew that the
funds would run out fast. Id. at ¶ 76. Sport & Wheat was
“inundated” with requests—which it passed on to
lenders including Synovus. Id. at ¶ 78.
Sport & Wheat specifically assisted Synovus by
preparing, processing, and submitting Borrower C’s loan
application, and its supporting documents. Id. at ¶ 103.
That conferred a benefit on Synovus in at least these ways:
First, Sport & Wheat brought business to Synovus and
enabled it to make the loan, earning its statutory fee.
Second, Sport & Wheat assisted Synovus by making it
easier for Synovus to process Borrower C’s application.
By accepting Sport & Wheat’s help, Synovus was able to
save its own labor and process another borrower’s loan—
rather than dealing directly with Borrower C.
Third, Sport & Wheat assisted Synovus with its name
mismatch computer problem, so that Synovus could make
the loan. Id. at ¶ 105. Again, the delay here could have
cost Synovus access to the limited PPP pool, since
Synovus was competing with other lenders for the right to
make loans.
Fourth, as alleged, Borrower C is not the only
borrower with whom Sport & Wheat worked. Synovus
12
Element Facts supporting the element
benefited from other work by Sport & Wheat as well. Id. at
¶ 114.
All the foregoing, found solely in the Amended
Complaint, is sufficient to support this element of unjust
enrichment. But looking outside the complaint, there is
even additional evidence that readily bears out that
Synovus was snowed under with work, and was benefited
by Sport & Wheat. The text messages from Ms. Weaver,
the local banker, show that people at the bank were
working around the clock and heavily overloaded. Her
references to needing a spa break are an example. Ex. A at
Text 4.
The deposition of Synovus under Rule 30(b)(6) was
begun last week. It provides additional context for Sport &
Wheat having conferred a benefit on Synovus. The
company’s representative testified that employees were
brought together from across the bank to deal with PPP
loans. (Ex. C at 52:3−24.)
Synovus assigned 400 people, just in customer-facing
jobs, to handle PPP loans—with more presumably behind
the scenes. Id. at 49:24−50:8. Some of these people were
working formal overtime hours. Id. at 50:9−13. In fact, a
local bank vice president in Pensacola wrote to bank
customers that the process was “stressful” and that
bankers were “talking on the phone at 11:00 and 12:00 at
night” with customers. 44:3−46:11. The corporate
representative testified that this meant “tension and
stress” for the bank. Id.
The deponent also testified that the bank would
benefit from receiving a “clean” PPP application, versus
one with errors. Id. at 61:12−62:13. He agreed that this
“would have freed up some labor resources to work on a
different application, which would allow the bank to do
13
Element Facts supporting the element
more business.” Id. at 62:14−23.
Did Synovus have Yes, for the same reasons discussed above. Synovus
knowledge of the was aware that Sport & Wheat was serving as an agent and
benefit Sport & providing it with a benefit. The Amended Complaint
Wheat conferred makes this plain. Synovus knew that Sport & Wheat had
on it? signed Borrower C’s application “as its PPP Agent.” (Am.
Compl. ¶ 104.) Synovus was in constant contact with
Sport & Wheat about the application. Id. at ¶ 105. And
most significantly, “Synovus Bank knew that Sport &
Wheat was acting as Borrower C’s PPP Agent.” Id. at
¶ 106.
Moreover, even if we look outside the complaint,
there is even more evidence that Synovus knew about
Sport & Wheat’s help. The text messages showing the
screenshots of the bank’s web site are good evidence of
that. And the April 7 text message from the bank, which
read “Thank you thank you!!!!”, Ex. A at Text 15, is clear
evidence that Synovus not only knew about the benefit
Sport & Wheat conferred on it, but welcomed it.
Did Synovus accept Yes, plainly. The Amended Complaint alleges that
or retain the benefit Synovus repeatedly and directly communicated with
conferred on it? Sport & Wheat to smooth the way for multiple loan
applications to go through. (Am. Compl. ¶¶ 104, 105, 106,
114.)
And even if evidence outside the complaint is
necessary to establish this element, Sport & Wheat can do
that by referring again to the text messages.
Indeed, the corporate representative deponent also
agreed with that obvious read of the messages. E.g., “It
would indicate that this Ms. Sport is, you know, doing
something in the process, you know, submitting
14
Element Facts supporting the element
information it appears on behalf of the customer.” Ex. C
at 122:16−20.
Are the Yes, the Amended Complaint alleges this as well. First
circumstances of all, all of the facts above establish that Synovus
such that it would be benefited from Sport & Wheat’s work and encouraged it.
inequitable for Where Synovus took advantage of Sport & Wheat’s
Synovus to retain the services, it is equitable for Synovus to pay.
benefit without
paying fair value for Further, from Sport & Wheat’s perspective, it has
it? suffered a loss as a result of these transactions. To assist
Synovus with making money on its PPP loans, “Sport &
Wheat employees put considerable time” into researching
the law, and “set aside other opportunities for profitable
work” of their own. (Am. Compl. ¶ 76.) In particular, this
was late March: income tax season.
Sport & Wheat will have suffered a loss, and Synovus
a windfall, if Synovus is not ordered to make restitution in
unjust enrichment.
Synovus claims that it put “notices on its PPP
application portal making clear it would not be paying
applicant agents’ fees.” (Mot. at 9.) The Court must
disregard that allegation, because it does not appear in the
Amended Complaint. But even if it did, the contradictory
conduct of the bank—welcoming and encouraging Sport &
Wheat’s help—is strong evidence that it would be
inequitable for Synovus to retain the benefit. In any event,
this element has been adequately pleaded.
Taken as a whole, Counts 1 and 2 of the Amended Complaint survive
scrutiny under Rule 12(b)(6), particularly when construed in Sport & Wheat’s
favor. These counts must not be dismissed.
15
Some minor points remain to respond to from Synovus’s motion.
1. Synovus claims that Sport & Wheat did not allege it conferred a
benefit on Synovus. It misconstrues the “purported benefit that Synovus will
receive” as “origination fees from the SBA,” and it goes on to call Sport & Wheat’s
allegations “attenuated.” (Mot. at 26−27.) Synovus says Sport & Wheat’s help did
not directly lead to fees for Synovus.
Sport & Wheat disagrees. Construing the complaint in its favor, it brought
Synovus the transaction, and that would not have happened without its help. But
this is not Sport & Wheat’s entire theory of the claims.
Sport & Wheat conferred a benefit directly on Synovus: Sport & Wheat
provided material assistance, directly to the bank as well as its borrower, in the form
of professional accounting services. As alleged in Count 1, Synovus “performed
less work than [it] would have, absent Sport & Wheat’s involvement”; in Count 2,
Sport & Wheat “[made] it easier and faster for [Synovus] to process loans.” (Am.
Compl. ¶¶ 164, 174.) These allegations are sufficient to support the claim. The facts
are, Synovus conserved time and energy—which it badly needed—because of
Sport & Wheat.
16
2. Synovus claims, Mot. at 26, that Sport & Wheat failed to allege that
Synovus had any knowledge of the scope of Sport & Wheat’s services. As discussed
in the table above, this is not true. These allegations are present.
3. Synovus claims, Mot. at 27−28, that Sport & Wheat could have no
reasonable expectation of being paid for its work. But Synovus concedes—as it
must—that this is not an element of the cause of action. Id. at 28 (citing Tooltrend,
198 F.3d at 807−08 & n.5). Thus, this argument cannot support Synovus’s motion
to dismiss. At best, it’s a fact dispute to be resolved by the jury that relates—as
Synovus concedes—to the “inequity prong” of the causes of action. Moreover,
Synovus totally fails to mention that Sport & Wheat performed significant work
before being informed on April 9 that it could not be paid. (Am. Compl. ¶¶ 107−08.)
4. Synovus argues in passing that there is no allegation it “affirmatively
requested further assistance from Sport & Wheat in connection with various
transactions,” which is an allegation Sport & Wheat made against all Defendants in
Count 2. (Am. Compl. ¶ 175.) This is wrong, because Sport & Wheat did allege that
Synovus sought its assistance: it asked Sport & Wheat to intervene in correcting the
name mismatch on April 1. (Am. Compl. ¶ 105.) Although the complaint is enough,
the text messages further support this allegation, because Synovus returned to the
17
subject on April 6 in a text message: “So can it be corrected?” Sport & Wheat
replied: “Working on it.” The bank responded: “Good !” Ex. A at Text 13.
At this stage—on a motion to dismiss—it is not for Synovus to argue
contrary facts, nor must Sport & Wheat prove its entire case today. Sport & Wheat
has more than amply stated its claims for unjust enrichment and for contract
implied in law.
B. Count 3: Sport & Wheat has adequately pled a claim for
conversion.
Count 3 of the Amended Complaint states a claim for state-law conversion.
This count too is adequate to withstand attack.
Under Florida law, the elements of conversion are “(1) an act of dominion
wrongfully asserted; (2) over another’s property; and (3) inconsistent with his
ownership therein.” Joe Hand Promotions, Inc. v. Creative Enter., LLC, 978 F. Supp.
2d 1236, 1241 (M.D. Fla. 2013); see also Cty. of Monroe, Fla. v. Priceline.com, Inc., 265
F.R.D. 659, 668 n.8 (S.D. Fla. 2010) (“Under Florida law, ‘conversion is an
unauthorized act which deprives another of his property permanently or for an
indefinite time.’”) (quoting Mayo v. Allen, 973 So. 2d 1257, 1258–59 (Fla. 1st DCA
2008).
18
And Sport & Wheat has alleged conversion: Synovus has taken money which
belongs to Sport & Wheat, which is earmarked to pay Sport & Wheat under the
PPP Interim Final Rule, and retained it for itself.
Synovus flatly argues that there can never be a conversion claim for money.
(Mot. at 29−30.) But that is not true. Conversion has been successfully alleged
against banks who reordered processing fees on debit card transactions, resulting in
excessive fees. In re Checking Account Overdraft Litig., 830 F. Supp. 2d 1330 (S.D.
Fla. 2011) (approving agreed settlement). See also Cty. of Monroe, Fla. v.
Priceline.com, Inc., 265 F.R.D. 659, 668 (S.D. Fla. 2010) (certifying class including
claims for conversion and unjust enrichment).
A different decision in the same case is instructive. Cty. of Monroe, Fla. v.
Priceline.com, Inc., No. 09-10004, 2009 WL 4890664, at *5 (S.D. Fla. Dec. 17,
2009). There the court examined other precedent that “money is generally the
proper subject of a conversion claim [only] where it exists as ‘a specific fund capable
of separate identification.’” Id. (citing Bankest Imports, Inc. v. ISCA Corp., 717 F.
Supp. 1537, 1542 (S.D. Fla. 1989)). The court continued, however, that “this
general rule is an expression of the principle that an action in tort is inappropriate
where the claim is based on a breach of contract.” Id. (citation and punctuation
omitted). In Priceline, the disputed funds were not the subject of any contractual
19
relationship—thus, the conversion claim withstood a motion to dismiss. Such is the
case here.
Finally, in fact, the funds Synovus received from the SBA in connection with
Borrower C’s loan are “specific funds, capable of separate identification.” In a
notice to lenders dated May 21, 2020, SBA stated that it “will make a payment for
each loan on an individual basis so that Lenders will be able to match the received
payment with the corresponding loan.” (Ex. D at 7.)
Synovus also argues that Sport & Wheat cannot show a “present or
immediate right of possession” to its fee because Synovus does not have the fee yet.
(Mot. at 30.) This is a deft argument, but on this motion, the Court cannot simply
take Synovus’s word that it does not yet have the fee. Moreover, the statute
requires the Small Business Administration to pay Synovus its fee within five days
of disbursing the loan. 15 U.S.C. § 636(a)(36)(P)(iii). By now, Synovus has been
paid. This argument fails.
In short, appropriating money intended for another is a conversion and a
theft. As one court put it: “As is apparent on the face of this lamentable case,
Auerbach and his partners and associates simply gained possession of money they
knew belonged, was meant for, and should have been paid to their brain damaged
minor client. . . . [S]uch conduct in itself involves a conversion or, not to mince
20
words, a theft of Selser’s property which the miscreants were properly required to
return.” Auerbach v. McKinney, 549 So. 2d 1022, 1031 (Fla. 3d DCA 1989).
Count 3, Sport & Wheat’s claim for conversion, should not be dismissed.
C. Count 4: Synovus mischaracterizes Sport & Wheat’s claim for
declaratory relief.
Sport & Wheat’s Count 4 is for declaratory relief. Paragraph (a) of its prayer
for relief also seeks declaratory relief, along with injunctive relief.
This count is present because of arguments Sport & Wheat anticipated, that
because Sport & Wheat’s name did not appear on certain SBA paperwork created
or filed by Synovus, it may not be entitled to be paid. (Am. Compl. ¶¶ 63−66.)
In conventional Section 7(a) loans—outside the context of the PPP—the
SBA has required that agents be named and disclosed on SBA “Form 159.” Because
Synovus has controlled access to SBA documents, Am. Compl. ¶ 71, Synovus may
have kept Sport & Wheat’s name from appearing on those documents. If Form 159
is required on a PPP loan, Count 4 seeks an order that Sport & Wheat is a rightful
recipient of agent fees, and seeks a declaration that Synovus has wrongfully
manipulated the form. Id. at ¶ 190. Sport & Wheat thus would seek declaratory and
injunctive relief ordering Synovus to redress these paperwork problems.
Since filing its Amended Complaint, and the issuance of recent caselaw,
Sport & Wheat has reconsidered its position and now argues that Form 159 and
21
other SBA formalities are not required. The basis for this argument is to be found in
the PPP Interim Final Rule, 85 Fed. Reg. 20811, 20812. The SBA announced there
that if there are conflicts between the PPP rule and the usual Section 7(a) lending
rules, the PPP rule controls: “The program requirements of the PPP identified in
this rule temporarily supersede any conflicting Loan Program Requirement (as
defined in 13 CFR 120.10).” See also id. (“for loans made under the PPP, SBA will
not require the lenders to comply with section 120.150 ‘What are SBA’s lending
criteria?’”).
Synovus misreads Count 4 as a “concession” that the CARES Act “does not
expressly provide a private right of action.” (Mot. at 12.) That is not Sport &
Wheat’s theory or intent with Count 4; Count 4 is present in the event the Court
finds that declaratory or injunctive relief is necessary in order to direct Synovus to
take an action to legally pay Sport & Wheat’s fees.
Count 4, and Sport & Wheat’s prayers for declaratory and injunctive relief,
should not be dismissed.
V. Argument regarding Synovus’s position on federal law
Synovus’s lead argument, Mot. 12−16, is that the CARES Act provides no
private right of action. Synovus defensively spends several pages pressing this
point. Sport & Wheat is somewhat mystified by the argument, because as Synovus
22
correctly argues, Sport & Wheat does not allege such a right, even an “implied”
right of action. (Mot. at 13.) In short, Sport & Wheat does not argue that the
CARES Act directly creates a cause of action under which it can sue Synovus.
However, the CARES Act, and the PPP Interim Final Rule, are binding
expressions of federal law which do bind Synovus and Sport & Wheat. They are
expressions of the Congressional design of the PPP, and express Congress’s clear
intent to provide money for PPP Agents like Sport & Wheat within the billions they
channeled to lenders. These laws are clear evidence that Congress intended PPP
Agents to participate in PPP transactions and to help inject badly needed financial
oil into America’s economic engine.
A. The statutory and regulatory scheme show that Congress expected
that PPP Agents would be part of PPP loan transactions and
provided money for their work.
The PPP statute and its enabling regulation fit together. The statute gives the
Small Business Administration the duty of determining how and how much agents
can be paid; and the regulation directs that lenders who accept fees under the PPP
must share those fees with any agents who have assisted the borrower in connection
with the transaction.
23
As for the statute, the CARES Act, Pub. L. No. 116-136, it was signed into
law on March 27, 2020. Section 1102 of the CARES Act is the Paycheck Protection
Program, and that is codified at 15 U.S.C. § 636(a)(36).
When it comes to this case, 15 U.S.C. § 636(a)(36)(P)(i) and (ii) are the
relevant provisions:
(i) In general.—
The Administrator shall reimburse a lender authorized to
make a covered loan at a rate, based on the balance of the
financing outstanding at the time of disbursement of the
covered loan, of--
(I) 5 percent for loans of not more than $350,000;
(II) 3 percent for loans of more than $350,000 and less
than $2,000,000; and
(III) 1 percent for loans of not less than $2,000,000.
(ii) Fee limits.—
An agent that assists an eligible recipient to prepare an
application for a covered loan may not collect a fee in
excess of the limits established by the Administrator.
Accordingly, the statute expressly allows for agent fees. It would not make
sense to discuss them in § 636(a)(36)(P)(ii) if they could not be paid out.
The Small Business Administration was ordered to issue emergency
regulations “to carry out this title” within 15 days. 15 U.S.C. § 9012. The SBA
issued its “PPP Interim Final Rule,” 85 Fed. Reg. 20811, on April 2, 2020. In
relevant part, the Rule provides:
24
c. Who pays the fee to an agent who assists a borrower?
Agent fees will be paid by the lender out of the fees
the lender receives from SBA. Agents may not collect
fees from the borrower or be paid out of the PPP loan
proceeds. The total amount that an agent may collect
from the lender for assistance in preparing an application
for a PPP loan (including referral to the lender) may not
exceed:
i. One (1) percent for loans of not more than
$350,000;
ii. 0.50 percent for loans of more than $350,000 and
less than $2 million; and
iii. 0.25 percent for loans of at least $2 million.
The Act authorizes the Administrator to establish
limits on agent fees. The Administrator, in consultation
with the Secretary, determined that the agent fee
limits set forth above are reasonable based upon the
application requirements and the fees that lenders
receive for making PPP loans.
85 Fed. Reg. 20811, 20816 (emphasis added).
Thus, the PPP Interim Final Rule also expressly authorizes payment of agent
fees and directs where they must come from: “the lender[,] out of the fees the
lender receives from SBA.” The last sentence of the Rule is important, too: it
shows that these fee amounts “are reasonable,” specifically taking into account
what the statutory fees to the lenders are.
Nothing in this Rule says that lenders can opt out of it and decline to pay PPP
Agents. Nothing in this Rule says that lenders can pick and choose which PPP
25
Agents they want to pay. Nothing in the Rule requires compliance with other,
“general” Section 7(a) requirements, like SBA’s Form 159, which Synovus argues is
mandatory.
Looking at Section 1102 and the PPP Interim Final Rule together, it is
important to consider the context. The CARES Act placed the Paycheck Protection
Program within the framework of a longtime, existing SBA lending program, known
as “Section 7(a)” after the section in the original SBA Act. (Am. Compl. ¶¶.
41−43.)
But in doing so, the CARES Act made massive changes to the structure of
the program, compared with what is usual under Section 7(a)—because the CARES
Act’s real goal is not lending, but a grant. The design of the PPP can’t be examined
in isolation from the other changes the PPP makes in Section 7(a). There are several
important distinctions between the PPP and Section 7(a) that demonstrate the
distinctive nature of the PPP:
Paycheck Protection
Section 7(a) program Program
Maximum amount $5 million. $10 million
13 CFR § 120.151. 15 U.S.C. §
636(a)(36)(E)(ii).
26
Paycheck Protection
Section 7(a) program Program
Interest rate Varies based on size, 1%
5.0%−8.0% + prime.
Source: see footnote.5
Source: see footnote.4
Guaranty fee payable to Yes, generally from No.
SBA by lender? 0.25%−3.75%
PPP Interim Final Rule.
13 CFR § 120.220(a)(1).
In short, the PPP is quite different from Section 7(a). And the PPP Interim
Final Rule acknowledges that: “The program requirements of the PPP identified in
this rule temporarily supersede any conflicting Loan Program Requirement (as
defined in 13 CFR 120.10).” See also id. (“for loans made under the PPP, SBA will
not require the lenders to comply with section 120.150 ‘What are SBA’s lending
criteria?’”).
In short: if there is a conflict between the PPP and Section 7(a)’s older
requirements, the PPP controls.
4
Small Business Administration, “Terms, conditions, and eligibility,” available at
https://www.sba.gov/partners/lenders/7a-loan-program/terms-conditions-eligibility#section-
header-5.
5
U.S. Treasury, Paycheck Protection Program (PPP) Fact Sheet, available at
https://home.treasury.gov/system/files/136/PPP--Fact-Sheet.pdf.
27
In another context, a sister Florida court has summarized the brief and
streamlined requirements of the PPP, compared with Section 7(a)’s more robust
review:
[L]enders need only do five things to underwrite a PPP
Loan:
(1) confirm receipt of the borrower’s certifications;
(2) confirm receipt of information showing that a
borrower had employees for whom the employer paid
salaries and payroll taxes;
(3) confirm the dollar amount of the business’ average
monthly payroll costs;
(4) follow Bank Secrecy Act requirements; and
(5) review the “Paycheck Protection Application Form.”
That’s it.
In re Gateway Radiology Consultants, P.A., ___ B.R. ____, 2020 WL 3048197, at *5
(Bankr. M.D. Fla. June 8, 2020) (emphasis and line breaks added). This is very
different from the general Section 7(a) provisions that Synovus leans on.
In re Gateway Radiology is extremely recent authority—sixteen days old—and
it post-dates the filing of Sport & Wheat’s Amended Complaint. Upon further
review of the law, and in light of this and other PPP decisions, Sport & Wheat now
recedes from its position that the general Section 7(a) SBA requirements apply.
This means Synovus is incorrect to rely on superseded aspects of the Section 7(a)
regulations.
28
For example, Synovus argues, Mot. at 20−21, that 13 CFR § 103.1(a) requires
that a PPP Agent must be an “authorized” representative. Here, Sport & Wheat
was authorized—by Borrower C. But even if Synovus is right and Section 103.1(a)
requires Synovus to also approve a borrower’s hiring of a PPP Agent, that conflicts
with the PPP Interim Final Rule, and the language stating that PPP-specific
requirements “temporarily supersede” Section 7(a) means that the general rule
gives way.
Similarly, Synovus argues that only PPP Agents disclosed on SBA’s Form 159
can be compensated, and that Form requires the lender to make certain
certifications about the PPP Agent, which Synovus has not done (or refuses to do).
(Mot. at 21.)
But Form 159, Ex. E, appears to be another of the general Section 7(a)
requirements that does not appear to apply to PPP loans. Form 159 states:
Who must complete this form?: This form must be
completed and signed by the SBA Lender and the
Applicant whenever an Agent is paid by either the
Applicant or the SBA Lender in connection with the SBA
loan application. Each Agent paid by the Applicant to
assist it in connection with its application must also
complete and sign the form. When an Agent is paid by
the SBA Lender, the SBA Lender must complete this
form and the SBA Lender and Applicant must both sign
the form.
29
Ex. E at 1 (emphasis added). These instructions set up a legal impossibility under
the PPP, because the only time the Agent signs the form is if the borrower pays the
Agent. But under the PPP Interim Final Rule, Agents are prohibited from collecting
a fee from borrowers. So by its terms, an Agent can never properly sign Form 159.
Moreover, elsewhere on Form 159, the instructions state that “[t]he SBA
does not allow contingency fees (fees paid only if the loan is approved),” which is
exactly what the fees for Agents designated in the PPP Interim Final Rule are. An
Agent like Sport & Wheat could easily work on an application that, due to the
limited PPP pool, does not get funded; the Agent only gets paid if the loan does
fund. Again—there’s a conflict between the PPP and the background Section 7(a)
regulations. The PPP rules control. It does not make sense that Form 159, a part of
the general Section 7(a) background, has anything to do with this case. Form 159 is
a red herring.
At bottom, Synovus’s attempt to use the general Section 7(a) rules as a
weapon really is an argument by Synovus that it has the power to determine which
PPP Agents borrowers may and may not use, and which PPP Agents will and won’t
be paid. Synovus has no right to do this, particularly because the PPP Agent has
been selected and designated by the borrower. The PPP Interim Final Rule says
30
borrowers can select the agent of their choice, and the “[a]gent fees will be paid by
the lender.”
B. The effect of the CARES Act’s Section 1102 and the PPP Interim
Final Rule.
Plainly, Section 1102 creates a new benefit for participating lenders: loan
origination fees of 1%, 3%, or 5%. What Section 1102 awards, the PPP Interim Final
Rule apportions.
The Rule’s command that “[a]gent fees will be paid by the lender” out of the
brand-new lender fees authorized by Section 1102 is directory.
Synovus argues that the Rule must be construed consistently within the
statutory authority granted by the CARES Act. (Mot. at 24.) Sport & Wheat agrees
with this basic point of law. But tellingly, Synovus does not argue that the Rule itself
is invalid or was improperly promulgated. The directory language is binding on
Synovus; Synovus does not argue that it is somehow exempt.
Synovus is just left arguing that the CARES Act affords Sport & Wheat no
direct right of action. But that is beside the point, because as shown in the section
above, there are viable state-law claims for Sport & Wheat—like unjust
enrichment—which can be enforced whether or not the Rule exists or has the
directory language. And enforcement of these state-law claims is entirely consistent
with and not counter to the federal laws at issue, the CARES Act and the PPP
31
Interim Final Rule. Indeed, in the design of those federal laws, Congress both
contemplated and encouraged agent compensation as a means of speeding funds to
ailing businesses.
The Rule also mandates that PPP Agents cannot charge borrowers anything
for their services. Again, while Section 1102 contemplates that agents may collect
fees, the Rule tells where the fees come from. These laws are compatible with each
other. It would be a nonsensical result to hold that PPP Agents cannot charge
borrowers for their services and also that lenders can evade any obligation to fund
those services at their option, keeping the SBA’s money for themselves—but that is
what Synovus claims.
For similar reasons, Synovus is wrong in overreaching and arguing that
“Congress deliberately rejected” the payment of fees by lenders to PPP Agents.
(Mot. at 17−18.) There is nothing at all in Congress’s statute that “deliberately”
denies Sport & Wheat’s claims. Indeed, Congress sought to have PPP Agents be
part of the process, subject to rules written by the SBA Administrator.
In conclusion, there is simply no daylight between Sport & Wheat’s state-law
claims and the obligations of federal law. The PPP statute and regulation are
harmonious with those claims.
32
VI. Synovus’s other miscellaneous arguments also fail
Synovus’s motion also contains a number of other miscellaneous arguments
which intend to pour cold water on this case but which do not belong in a motion to
dismiss and do not stand up.
Without expressly arguing that it is a reason to dismiss any particular count
(in other words, making another argument not connected to or seeking anything in
particular), Synovus complains that Sport & Wheat’s claims would open it up to
fraud or abuse. (Mot. 22−23.) But Sport & Wheat’s claims would be subject to
scrutiny like those of any other plaintiff. And a hypothetical risk of fraud is not a
reason for Synovus to avoid payment of its known legitimate obligations.
Similarly, Synovus suggests that because it might be subject to a “clawback”
of its own processing fee if an ineligible loan is inadvertently funded, it would be
“inequitable” to have to divide any part of any processing fee with a PPP Agent.
(Mot. at 22 (citing 85 Fed. Reg. 33010).)
This is a straw-man argument. Synovus claims that it would have to refund,
to the SBA, the PPP Agent’s part of the fee out of its own pocket. Id. There is no
authority whatsoever for this in the regulation Synovus cites. The SBA has its own
right of action to recoup directly fees from PPP Agents who have committed fraud
on the SBA, and in an instance where the PPP Agent is the party that has
33
committed fraud, SBA would have the discretionary authority not to seek
recoupment from the lender at all.
Finally, Synovus’s entire section V, regarding the suitability of this case for
class treatment, should also be disregarded. (Mot. 31−33.) The motion to dismiss
stage is no time to argue the merits of class certification, and Synovus again injects
“facts” that the Court cannot accept as true; the Court is bound to construe all
well-pleaded allegations in favor of the plaintiff. Moreover, whether the case will
ultimately be certified as a class action has nothing to do with the merits of Sport &
Wheat’s own claims against Synovus today. With due respect to Synovus, section V
is just puffery; it does not even ask the Court to do anything specific.
VII. Conclusion
Synovus’s motion to dismiss should be denied in full.
34
Dated: June 24, 2020 Respectfully submitted,
/s/ William F. Cash III
Virginia M. Buchanan
(Fla. Bar No. 793116)
Matthew D. Schultz (Fla. Bar No. 640328)
William F. Cash III (Fla. Bar No. 68443)
LEVIN, PAPANTONIO, THOMAS,
MITCHELL, RAFFERTY & PROCTOR,
P.A.
316 South Baylen Street, Suite 600
Pensacola, FL 32502
Phone: 850-435-7059
Email: bcash@levinlaw.com
/s/ John S. Wirt
John S. Wirt, Esq. (Fla. Bar No. 117640)
Pamela Cocalas Wirt, Esq. (Fla. Bar No.
109576)
WIRT & WIRT, P.A.
5 Calhoun Ave, Suite 306
Destin, FL 32541
Tel: 847-323-4082
Fax: 314-431-6920
jwirt@wirtlawfirm.com
Attorneys for the Plaintiff
35
CERTIFICATE OF WORD COUNT UNDER LOC. R. 7.1(F)
I certify that the core of this brief contains 7,777 words, including headers,
footnotes, and quotations.
/s/ William F. Cash III
36
File and source
- File
- gov.uscourts.flnd.190491.56.0.pdf
- Size
- 294,160 bytes
- SHA-256
- 94e3f75463daa2916abff62db8a4356e18aa8536ecdf8ae74e30e230515e7b7b
- Original
- No public link identified.