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REPLY to Response to Motion re 46 MOTION to Dismiss First Amended Complaint filed by… — Agent Fee Litigation (Dkt. 65)
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Defendant Synovus Bank's reply memorandum in further support of its motion to dismiss the amended complaint in Sport & Wheat CPA PA v. ServisFirst Bank Inc., Case No. 3:20-cv-05425, in the U.S. District Court for the Northern District of Florida, dated July 2, 2020 and submitted under the court's June 30, 2020 Order (Doc. 62). Synovus argues that the amended complaint admits SBA 7(a) requirements apply to the PPP, including submission of SBA Form 159 under 13 C.F.R. § 103.5(a), and that the plaintiff does not allege it submitted that form or had a compensation agreement with Synovus. It argues the First Interim Final Rule did not displace those requirements and that the plaintiff's state-law claims depend on its reading of federal law. The reply is signed by counsel for Synovus and includes a word-limit certification of 1,513 words.
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IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF FLORIDA
PENSACOLA DIVISION
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:
SPORT & WHEAT CPA PA, a Florida :
corporation, individually and on behalf of :
Case No. 3:20-cv-05425-
a class of similarly situated businesses and :
TKW-HTC
individuals, :
:
Plaintiff, :
:
:
v. :
:
SERVISFIRST BANK INC.; SYNOVUS :
BANK; THE FIRST, A NATIONAL :
BANKING ASSOCIATION; and :
TRUIST BANK, :
:
Defendants. :
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DEFENDANT SYNOVUS BANK’S REPLY MEMORANDUM
IN FURTHER SUPPORT OF ITS
MOTION TO DISMISS THE AMENDED COMPLAINT
This Reply is submitted pursuant to the Court’s June 30, 2020 Order. Doc.
62.
BACKGROUND
S&W’s Amended Complaint necessarily concedes that S&W cannot state a
claim against Synovus. In the Amended Complaint, S&W makes the binding
judicial admission that the SBA 7(a) loan program’s general requirements apply to
the PPP and, more specifically, that “to be paid under 13 C.F.R. § 103.5(a), the
PPP Agent must submit the arrangement in writing on SBA’s Form 159.” Am.
Compl. ¶¶ 43, 45, 65. However, S&W does not and cannot allege that it submitted
SBA Form 159 or entered into any compensation agreement with Synovus.1 That
is fatal to S&W’s claims.
S&W has tried to backtrack in its response brief – to “recede[] from its
position [in the Amended Complaint] that the general Section 7(a) SBA
requirements apply,” S&W “now argues that Form 159 and other SBA formalities
are not required.” Opp. Br. 21-22, 28. That is an improper attempt to make yet
another amendment to the Complaint through an opposition brief. Federal courts
do not allow that. See Orta v. City of Orlando, 2015 WL 2365834 at *5, n.3 (M.D.
Fla. 2015).
The case S&W cites in support of its new argument that the SBA Section
7(a) requirements do not apply to the PPP holds no such thing. That bankruptcy
court decision merely assesses whether debtors in bankruptcy are eligible to
receive PPP loans. See In re Gateway Radiology Consultants, P.A., 2020 WL
3048197 (Bankr. M.D. Fla. June 8, 2020). It has nothing to do with S&W’s claims
1
During a hearing of the U.S. House Financial Services Committee on June 30,
2020, Treasury Secretary Steve Mnuchin testified that the Treasury Department
intended agent fees could be paid only when there is a “contractual relationship
between the agent and the bank.” Hearing on Treasury & Fed. Reserve Pandemic
Response Before the H. Fin. Servs. Comm. (June 30, 2020). It is undisputed that
no such contractual relationship exists between Synovus and S&W. That is exactly
what Synovus has argued. Doc. 46 at 20, 21, 28.
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to entitlement to an ‘agents fee’ despite not fulfilling any of the SBA requirements
to claim such a fee.
ARGUMENT
I. The Section 7(a) Background Regulations Apply to the PPP
S&W’s new argument that the SBA Section 7(a) background regulations do
not apply to the PPP is baseless. The SBA’s First Interim Final Rule (“First IFR”)
related to the PPP makes clear that “[t]he program requirements of the PPP
identified in this rule temporarily supersede any conflicting Loan Program
Requirement.” First IFR, 85 Fed. Reg. 20,811, 20,812 (emphasis added). Nothing
in the First IFR suspended or ‘superseded’ the program requirements (a) that a
Form 159 be submitted to the SBA if an agent is to be paid; or (b) that the agent
must certify that the information provided is accurate (S&W Ex. E, ECF No. 56-5
at 4); or (c) that “[a]ny . . . agent . . . must execute and provide to the SBA a
compensation agreement.” 13 C.F.R. § 103.5(a).
The case S&W cites proves this point. See Opp. Br. 22. Although In re
Gateway Radiology Consultants, 2020 WL 3048197, at *5 (Bankr. M.D. Fla. June
8, 2020), does not address the SBA regulations relevant to this case or the
compensation of supposed PPP agents, that decision does recognize the simple
proposition that 7(a) background regulations apply unless they conflict with the
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First IFR. Id. Again, nothing in the First IFR displaces the SBA’s agent
authorization and certification requirements.
S&W’s argument that the First IFR conflicts with the 7(a) loan program’s
agent certification requirements is plainly incorrect. Form 159 states that the
lender must certify that the agent’s services are “reasonable and satisfactory.”
S&W Ex. E, ECF. No. 56-5, at 4. 13 C.F.R. § 103.5(a) requires that that “[a]ny
Applicant, Agent, or Packager must execute and provide to SBA a compensation
agreement.”2 Again, none of those requirements were eliminated by the First IFR.
S&W does not allege that it has satisfied any of those prerequisites to getting a
fee.3
The requirement that a supposed agent have an agreement with the lender
was reaffirmed this week, by the Secretary of the Treasury:
[Treasury] guidance [said] that banks could pay agent fees
out of the fees that they received. That was intended to be
based upon a contractual relationship between the agent
and the bank, and to the extent there’s any confusion on
that, we’ll look at clarifying that.
2
S&W argues that 13 CFR § 103.1(a), which requires a PPP Agent to be an
“authorized” representative, “conflicts” with the First IFR. S&W, however,
completely fails to explain why that is so. It is not so.
3
If, as S&W contends, Form 159 is not required, the SBA would have no way of
knowing that an agent was even involved in the loan. It certainly could not
“recoup” clawed back fees “directly . . . from PPP agents.” Opp. Br. 33. More
importantly, neither Congress nor the SBA expressed any intent to do away with
basic loan application requirements meant to guard against fraud.
4
Hearing on Treasury & Fed. Reserve Pandemic Response Before the H. Fin. Servs.
Comm. (June 30, 2020) (emphasis added). Simply put, there is no authority for
S&W’s bold contention that “borrowers can select the agent of their choice, and
the ‘[a]gent fees will be paid by the lender,’” despite the absence of any agreement
between the agent and the lender. Opp. Br. 31.
II. S&W’s Flawed Interpretation of Federal Law Dooms All Its Claims
S&W admits that it has no federal cause of action. Opp. Br. 23 (“Sport &
Wheat does not allege such a right, even an ‘implied’ right of action.”). But its
state law claims are based entirely upon its erroneous presumption of entitlement
to an agent fee under federal law. S&W concedes “there is simply no daylight
between Sport & Wheat’s state-law claims and the obligations of federal law.”
Opp. Br. 32. Synovus is not sure exactly what S&W meant by that, but it is
certainly true that S&W’s federal law claim assumes that S&W is absolutely
entitled to an “agents fee” without having complied with any of the SBA
requirements to get such a fee, and S&W’s state law claims are premised on that
alleged entitlement under federal law. Because S&W’s assumptions about federal
law are wrong, all of S&W’s claims are without merit. For example, S&W’s
unjust enrichment, quasi-contract, and conversion claims all depend upon the
presumption of entitlement to an agent fee under federal law – the notion that
Synovus has money that belongs to S&W. Am. Compl. ¶¶ 169-170, 183. S&W’s
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theory of what federal law requires is incompatible with the existing regulatory
scheme, and for that reason, as well as those explained in Synovus’s opening brief,
all of S&W’s claims should be dismissed.
Dated: Washington, D.C.
July 2, 2020
By: /s/ Paul J. Nathanson
Paul J. Nathanson (pro hac vice)
District of Columbia Bar #982269
DAVIS POLK & WARDWELL LLP
901 15th Street, N.W.
Washington, D.C. 20005
paul.nathanson@davispolk.com
(202) 962-7000
Antonio M. Haynes (pro hac vice)
New York Bar #5151816
DAVIS POLK & WARDWELL LLP
450 Lexington Ave.
New York, NY 10017
antonio.haynes@davispolk.com
(212) 450-4000
James E. Butler, Jr. (pro hac vice)
Georgia Bar #099625
Ramsey B. Prather (pro hac vice)
Georgia Bar #658395
BUTLER WOOTEN & PEAK LLP
105 Thirteenth Street
P.O. Box 2766
Columbus, GA 31902
jim@butlerwooten.com
ramsey@butlerwooten.com
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(404) 321-1700
Philip A. Bates
Florida Bar #228354
PHILIP A. BATES, P.A.
25 West Cedar Street, Suite 550 (32502)
Post Office Box 1390
Pensacola, FL 32591
pbates@philipbates.net
(850) 470-0091
Attorneys for Defendant
Synovus Bank
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LOCAL RULE 7.1(F) WORD LIMIT CERTIFICATION
Pursuant to Northern District of Florida Local Rule 7.1(F), I certify that this
Motion to Dismiss the Amended Complaint and Memorandum of Law in Support
Thereof is in compliance with the Court’s word limit. According to the word
processing program used to prepare this motion and memorandum, the document
contains 1,513 words.
By: /s/ Paul J. Nathanson
Paul J. Nathanson (pro hac vice)
District of Columbia Bar #982269
DAVIS POLK & WARDWELL LLP
901 15th Street, N.W.
Washington, D.C. 20005
paul.nathanson@davispolk.com
(202) 962-7000
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