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RESPONSE in Opposition re 49 MOTION to Dismiss Amended Complaint and Supporting… — Agent Fee Litigation (Dkt. 85)
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Plaintiff Sport & Wheat CPA PA’s omnibus opposition to three defendants’ motions to dismiss in Sport & Wheat CPA PA v. ServisFirst Bank Inc.; Synovus Bank; The First, A National Banking Association; and Truist Bank, Case No. 3:20-cv-5425-TKW-HTC, in the U.S. District Court for the Northern District of Florida, Pensacola Division, dated July 20, 2020. The brief responds to the motions at ECF Nos. 49, 67 and 69 and incorporates by reference the plaintiff’s opposition to the Synovus motion at ECF No. 56. It sets out the facts alleged as to each moving lender, including the hours the accounting firm says it spent preparing Paycheck Protection Program loan applications. It argues the allegations must be accepted as true and that each motion should be denied, and asks leave to replead if any motion is granted. A certificate states the brief contains 6,620 words.
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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 OMNIBUS OPPOSITION TO
THREE DEFENDANTS’ MOTION TO DISMISS
I. Introduction
Sport & Wheat responds to the motions to dismiss by ServisFirst, Truist, and
TheFirst. (ECF Nos. 49, 67, 69.) These largely overlapping motions should be
denied. In opposing these motions, Sport & Wheat also refers the Court to its
opposition to the Synovus motion to dismiss (ECF No. 56), incorporates it by
reference, and attempts not to repeat the same arguments found in that brief.
In short, these Defendants’ motions do not add much beyond what Synovus
has already argued. This brief responds to the specific factual contentions
1
applicable to each Defendant and deals with each Defendant’s specific legal
arguments.
II. Factual allegations relevant to this motion
As discussed in its opposition to the Synovus motion, Sport & Wheat is a
small, two-person accounting firm in Pace. (Compl. ¶ 26.)1 Sport & Wheat provides
general accounting and tax services to small businesses in its vicinity. Id. ¶ 74. Sport
& Wheat assisted at least one borrower with respect to each of the three moving
lenders. Id. ¶ 68. The most relevant facts in connection with each defendant are
here.
ServisFirst. Sport & Wheat assisted Borrower R, an engineering firm, with
making a PPP loan. Id. ¶¶ 81−84. Sport & Wheat spent 6.8 hours of its time
preparing, processing, and filing Borrower R’s PPP application and supporting
documents. Id. ¶ 84. During a six-day period, Sport & Wheat sent multiple versions
of the loan application and other documents, by hand delivery and e-mail, to
ServisFirst. Id. ¶ 86. ServisFirst does not dispute that it knew of Sport & Wheat’s
involvement with this loan. (ServisFirst Mot. 5−6.) And ServisFirst did not reject
Sport & Wheat’s help, ask to verify its identity, or otherwise attempt to dispel
Sport & Wheat from assisting it.
1
All citations are to the operative complaint, ECF No. 21.
2
Only after it had accepted Sport & Wheat’s work product, ServisFirst
claimed in an e-mail that “[t]he SBA guidance on charging the client fees changed
late in the game. The Bank has made a decision to not pay agents.” Id. ¶ 93.
(ServisFirst does not discuss this in its motion.)
Truist. Sport & Wheat’s client Borrower M is an HVAC company. Id. ¶ 129.
On April 1, Sport & Wheat expressly notified Truist that: “Under the guidelines
released by the Treasury yesterday, we will be acting as [Borrower M’s] agent in
this process.” Id. ¶ 130. Sport & Wheat spent four hours on its loan application,
gathering documents, uploading them, and communicating with Truist about the
loan. Id. ¶¶ 131, 133, 134, 136.
On April 6, Sport & Wheat uploaded Borrower M’s loan application, bearing
Sport & Wheat’s signature, acting as Borrower M’s agent. Id. ¶ 133.
Truist continued to affirmatively request and rely on Sport & Wheat’s help.
On April 24, Truist’s banker e-mailed the firm to say that it could sign Borrower
M’s application “as authorized representative.” Id. ¶ 134. In a second e-mail, Truist
wrote: “Jill - it might be a good idea to log into the portal and upload on your end
the PPP Worksheet.” Id.
Truist continued to work up this loan via Sport & Wheat—not even
including Borrower M on their communications of April 29 or May 1. Id.
3
¶¶ 135−36. On May 1, Truist told Sport & Wheat that the loan would be funded. Id.
¶ 136.
Sport & Wheat sought compensation on April 29, and again on May 8. Id.
¶¶ 135, 140. At no point did Truist deny Sport & Wheat’s right to compensation—
not before it performed the work and not after. Truist never sought to investigate
Sport & Wheat’s validity as an agent and never rejected its help.
In Truist’s summary of these facts, it complains that there are various
unanswered “questions” about the allegations in the complaint. (Truist Mot. 7.)
But it doesn’t deny them, and it passed up the opportunity to move for a more
definite statement under Rule 12(e). All plausibly alleged facts in the complaint
must be accepted as true and construed in the plaintiff’s favor.
TheFirst. Sport & Wheat’s dealings with TheFirst were on Borrower I’s
loan. Borrower I performs washing services. (Compl. ¶ 116.)
On April 9, Sport & Wheat prepared an application for Borrower I, signed it
in the space marked “Borrower’s Agent,” and sent it to Borrower I, who sent it to
the bank. Id. ¶ 119. On April 10, TheFirst asked Sport & Wheat to redo the
application, to provide an additional spreadsheet to show how the loan amount had
been calculated, and to remove its name from the application. Id. ¶¶ 119−21. Sport
4
& Wheat did so. Id. ¶ 122. Sport & Wheat asked TheFirst to compensate it, id.
¶ 69, but TheFirst refused to do so and still has not paid, id. ¶¶ 69, 127.
* * *
All of these borrowers will require additional help—“back-end work”—
necessary to secure loan forgiveness. The forgiveness application is five pages long,
the instructions are seven pages long, and they require preparation and consultation
of further supporting documentation.2
In sum, each Defendant:
Knew that Sport & Wheat was acting as the borrower’s agent.
Communicated with Sport & Wheat regarding loans.
Accepted Sport & Wheat’s help, at a time when Sport & Wheat
had put aside other profitable work. (Compl. ¶ 76.)
Benefited from the assistance of a professional accounting firm,
which saved effort, permitting that lender to assist some other
borrower and make more money. Id. ¶¶ 164, 174.
Did nothing to disclaim the duty to pay fees to Sport & Wheat—at
least, not before the work was performed and accepted by the
lender.
Refused to pay Sport & Wheat anything.
2
ECF No. 56-6, Paycheck Protection Program Loan Forgiveness Application (June 16, 2020);
ECF No. 56-7, Loan Forgiveness Application Instructions for Borrowers (June 16, 2020).
5
III. Legal standard applicable to a motion to dismiss
Fed. R. Civ. P. 12(b)(6) is the rule these Defendants invoke and the standard
is a familiar one. Rule 12(b)(6) tests the sufficiency of the pleading. 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)).
IV. Argument regarding Sport & Wheat’s affirmative claims in Counts 1−4
A. Counts 1 and 2: Sport & Wheat’s unjust enrichment and contract
implied in law claims are adequately pled.
Each of the Defendants challenges Sport & Wheat’s unjust enrichment and
contract implied in law claims, which Sport & Wheat discusses together because
the legal theories are so similar.
A contract implied in law 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
6
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). The Defendants agree with this basic law.
E.g., Truist Mot. 26.
ServisFirst challenges, in this formulation, prongs (1), (3), and (4). (In other
words, it does not challenge that it had knowledge of the benefit.) Truist challenges
prongs (1), (2), and (4). (Truist does not challenge that it retained a benefit; indeed
it argues that retaining the benefit is the equitable course.) TheFirst’s barebones
argument as to Counts 1 and 2 was just one paragraph on the law and one paragraph
on the facts; its position is like Truist’s in that it does not challenge that it retained
a benefit.
At the outset, it is important to note that most of the Defendants’ objections
to Counts 1 and 2 are about fact issues—they are not truly objections to the
sufficiency of the complaint. In this posture, the Court must draw all factual
inferences in Sport & Wheat’s favor. Defendants may think they have good points
for trial, but that does not carry the day on these motions.
(1) The complaint alleges that Sport & Wheat conferred a
benefit on each Defendant.
Defendants strive mightily to show that Sport & Wheat did not confer a
benefit on them. ServisFirst and TheFirst argue, in identical language, that if a
benefit was conferred on anyone, it was on their borrowers, not the banks. Truist
7
argues that if anything, Sport & Wheat injured Truist by slowing it down (a tacit
concession that agents can also help banks speed up).
These Defendants are all incorrect. The complaint plausibly alleges, as to
each Defendant, that “[w]ith respect to each loan issued, Defendants performed
less work than they would have, absent Sport & Wheat’s involvement.” (Compl.
¶ 164.) The facts of how Sport & Wheat helped each specific Defendant are amply
plead:
Sport & Wheat helped Truist with paperwork and processing, id. ¶¶ 134-36,
collecting documents, filling out its loan application, id. ¶¶ 131, 133, 134, 136, and
providing a worksheet that Truist asked for, id. ¶ 134.
Sport & Wheat went back and forth with ServisFirst working on its loan
application and supporting documents, and submitting the documents into
ServisFirst’s custom loan portal. Id. ¶¶ 86, 88.
TheFirst sought a spreadsheet and further help with the loan calculations. Id.
¶ 119−21. Sport & Wheat provided it. Id.
They all benefited directly from Sport & Wheat’s help, id. ¶ 165, as well as
from being able to earn PPP fees they would not have earned had they not been able
to write all of these loans, id. ¶¶ 168−69. Finally, Sport & Wheat helped all of the
Defendants’ borrowers by becoming educated on the law and advising their
8
borrowers how to make loans. Id. ¶¶ 75−78. This lessened the burden on
Defendants and permitted them to do more business.
All players were overwhelmed by the PPP program when it started. The $349
billion began running out almost immediately, which is why Congress soon added
another $310 billion. Id. ¶¶ 2, 20. The Court has seen evidence of the crushing
strain inside Synovus, which had bankers working around the clock, 400 people
coming in from other departments just to handle PPP loans, and handled 20,000
loan applications in a matter of weeks. Sport & Wheat itself was “inundated.” Id.
¶ 78. The reasonable inference to be drawn is that every bank was like this. All
effort Sport & Wheat contributed to the Defendants’ loan-processing operations
was a benefit.
Truist, alone among all the Defendants, argues that if anything, Sport &
Wheat slowed it down by improperly uploading documentation and wasting its
time. (Truist Mot. 27−28.) It also argues that, with or without Sport & Wheat, the
loans would have been made. Id. at 29. But these are jury questions—and the Court
should draw any factual disputes in Sport & Wheat’s favor.
Prong (1) is plausibly alleged.
9
(2) The complaint alleges that each Defendant had knowledge
of the benefit.
Only Truist and TheFirst challenge that the complaint fails to allege that
they had knowledge of the benefit conferred.
It is hard to see how. As to Truist, the complaint flatly alleges that Sport &
Wheat notified it: “we will be acting as [Borrower M’s] agent in this process.”
(Compl. ¶ 130.) Truist and Sport & Wheat went back and forth on several specific
days, and asked for help finalizing the application. Id. ¶¶ 130−34. As to TheFirst,
the complaint alleges that Sport & Wheat assisted—at its request—with further
documents and a spreadsheet. Id. ¶¶ 119−21.
Plainly, each Defendant knew that Sport & Wheat was on the scene, working
on these loans, and available to confer with. Prong (2) is plausibly alleged.
(3) The complaint alleges that each Defendant accepted or
retained the benefit.
Only ServisFirst challenges this prong, ServisFirst Mot. 23−24, which
requires Sport & Wheat to plausibly allege that it accepted or retained a benefit.
ServisFirst, however, misreads the law. ServisFirst argues that Sport &
Wheat must show that the bank “accepted” the benefit. In fact, the law permits
recovery if a defendant simply “retains” a benefit. “Florida courts have made clear
that an unjust enrichment claim may be brought whether or not the parties had any
10
previous contact at all.” Tooltrend, Inc. v. CMT Utensili, SRL, 198 F.3d 802, 806
(11th Cir. 1999).
There is another reason ServisFirst is wrong about this prong. Its case, Coffee
Pot Plaza P’ship, was a review of a final judgment. As the Fourth District Court of
Appeal has commented, that case does not support dismissal of a complaint before
any evidence has been heard. Hillman Const. Corp. v. Wainer, 636 So. 2d 576, 577
(Fla. 4th DCA 1994).
Nevertheless, the complaint does allege that ServisFirst asked Sport &
Wheat for its help and specifically accepted the work product, the spreadsheet, that
it had asked for. (Compl. ¶¶ 119−22.) Prong (3) is adequately alleged.
(4) The complaint alleges that it is inequitable to retain the
benefit conferred by Sport & Wheat.
All three Defendants argue that it would not be inequitable for them to retain
the benefit conferred by Sport & Wheat. But the complaint adequately alleges
inequity, and it withstands their motions to dismiss.
The inequity of a defendant’s retaining a benefit conferred by a plaintiff is
generally a fact issue that turns on the entirety of the circumstances. In re Standard
Jury Instr., 116 So. 3d 284, 309 (Fla. 2013) (“The circumstances are such that
(defendant) should, in all fairness, be required to pay for the benefit”).
11
As Synovus conceded, a party’s reasonable expectation of being paid is no
requirement under these theories. “Quasi-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). Unjust enrichment
“acknowledges an obligation which is imposed by law regardless of the intent of the
parties.” Circle Fin. Co. v. Peacock, 399 So. 2d 81, 84 (Fla. 1st DCA 1981). See also
Tooltrend, Inc., 198 F.3d at 806 (claim can be brought even if the parties had no
contact whatsoever).
That is why, for example, Truist’s argument that it had no contract with
Sport & Wheat is irrelevant; the intent of the parties doesn’t matter. (Truist Mot.
30−31.) As a matter of Rule 12(b)(6), this complaint survives this attack; Truist can
argue at the trial that the lack of a contract makes these claims inequitable.
(Moreover, this is somewhat tortured logic; unjust enrichment and contract implied
in law are theories specifically designed to deal with the situation where there is no
enforceable contract.)
Sport & Wheat has more than plausibly alleged inequity if the Defendant
banks retain the portion of the fee that was earmarked for Sport & Wheat—and this
does not turn on the words of any federal law. In general terms, Sport & Wheat has
shown how every Defendant benefited from making the loans involving Sport &
12
Wheat’s clients, and how every Defendant saved time and energy because of the
presence of Sport & Wheat in the transaction. In this posture where the Court must
draw all facts in its favor, Sport & Wheat’s complaint is adequately drawn.
Further, as to each Defendant, there are specific facts that demonstrate
inequity. For example, Truist was specifically informed on April 1 that Sport &
Wheat would be acting as an agent. Truist remained silent and never indicated that
it would not be paying Sport & Wheat after all the work was done. This is a
sufficient allegation of inequity to permit this complaint to proceed.
ServisFirst also argues that prong (4) is not met “because ServisFirst’s
actions are not inequitable as a matter of law” (which is not the standard; Sport &
Wheat must simply allege the inequity in a plausible way, not as a matter of law).
ServisFirst’s argument regarding “reimburse[ment]” in the PPP statute does not
square with the Interim Final Rule, which states that agent fees “will be” paid by
the lender.
Its other argument, that Sport & Wheat has “no right to payment of fees
under the CARES Act and thus could not have reasonably expected that
ServisFirst, with whom it had no agreement, would pay it,” deserves more
attention. (ServisFirst Mot. 25.) First of all, as shown, the lack of an agreement is
irrelevant under Florida law. But ServisFirst’s major premise, that an agent has “no
13
right” to earn fees, is simply incorrect. Agents do have the right to earn fees. They
have always had the right to earn fees, whether under Section 7(a)’s old rules or
under the streamlined, abbreviated requirements of the PPP statute and its
regulations. ServisFirst might have a point here if there were no ability for an agent
to earn a fee. But that is not what the scheme provides. Instead, the Rule provides
that agents may earn fees, and that the only possible source is the lender. How
could it be inequitable to bring this claim?
Prong (4) is adequately alleged as to all Defendants. Counts 1 and 2 should
survive.
B. Count 3: Sport & Wheat has adequately pled a claim for
conversion.
Count 3 of the complaint states a claim for conversion. TheFirst and
ServisFirst level the same general attack as Synovus did—that money can never be
the subject of a conversion claim. Here, Sport & Wheat relies on its arguments in
its opposition to the Synovus motion, and in particular, points out that money
which is designated for a specific recipient can be the subject of a conversion claim.
Truist’s argument is different, but still not correct. Truist argues that
because “Sport & Wheat never possessed the fees” and has no right to the fees, no
conversion claim can lie. As shown, Sport & Wheat does have a right to its portion
of Truist’s fee, and so this argument fails.
14
Truist also argues that “Sport & Wheat cannot maintain a tort action for a
claim that should sound in contract.” (Truist Mot. 31−32.) This is illogical. Truist
cannot defeat a tort claim by asserting that this case is really about a contract
dispute, and then turn around and say there was no contract.
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. ServisFirst and
Truist challenge this count.
Sport & Wheat addressed Count 4 in its opposition to Synovus’s motion and
asks the Court to consider the arguments presented there. 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. (Compl.
¶¶ 63−66.)
Standing alone, Truist makes a unique but misguided argument about
declaratory relief. (Truist Mot. 9−10.) Citing Skelly Oil Co. v. Phillips Petroleum Co.,
339 U.S. 667 (1950), it argues that the Declaratory Judgment Act “does not
establish an independent cause of action.” This much is correct. Truist goes off the
15
rails, however, when it claims that Count 4 cannot stand because there must be “an
underlying cause of action for agent fees,” and there isn’t one in the complaint.
That’s not the case, plainly; Counts 1, 2, and 3 are in the complaint. More
fundamentally, Truist just misreads the rule of Skelly Oil, which is to keep out so-
called “federal defense” cases. In such cases, the plaintiff has no basis to seek
affirmative relief that supports federal jurisdiction, but argues that an anticipated
federal-law defense to a declaratory count supplies the necessary jurisdiction. E.g.,
Hudson Ins. Co. v. Am. Elec. Corp., 957 F.2d 826, 828−29 (11th Cir. 1992) (“[t]hese
possible federal defenses are insufficient to confer jurisdiction”). In this suit, Sport
& Wheat presents a federal question in Counts 1, 2, and 3, and Section 1331
supplies the necessary grant of jurisdiction.
Count 4, and Sport & Wheat’s prayers for declaratory and injunctive relief,
should not be dismissed.
V. Argument regarding Defendants’ position on federal law
Defendants make several arguments about the fit between the PPP statute
(Section 1102 of the CARES Act) and the PPP Interim Final Rule (85 Fed. Reg.
20811). Sport & Wheat directs the Court to that section of its brief submitted in
connection with the Synovus motion to dismiss. However, to respond to the moving
Defendants’ argument, some repetition from that brief is regrettably necessary.
16
A. The “no private right of action” argument is irrelevant.
Each of the Defendants argues that there is “no private right of action”
under the CARES Act. Sport & Wheat does not argue that there is, meaning that
Sport & Wheat concedes nothing in the CARES Act creates a specific and direct
federal cause of action that did not exist. This is, for the reasons in the Synovus
opposition, beside the point. The PPP statute and the PPP Interim Final Rule are
federal laws that do bind both Sport & Wheat and the Defendants. No party is free
to violate these laws. Just because there is not an express cause of action in the
statute to enforce these laws, does not mean the banks can ignore them.
The relevance of these federal provisions is that they are not preemptive.
State law provides Sport & Wheat’s causes of action, and these federal laws are not
to the contrary, nor do they preempt the state-law claims.
B. The PPP statute and the PPP Interim Final Rule fit together and
express a common Congressional design.
The SBA’s Interim Final Rule implemented the PPP statute. This enactment
was lawful and a valid exercise of rulemaking authority on agent fees.
As shown in Sport & Wheat’s brief opposing the Synovus motion, the PPP
statute expressly discusses and allows for the payment of agent fees. It would not
make any sense to mention them in 15 U.S.C. § 636(a)(36)(P)(ii) if not.
All of Section 636(a)(36)(P) is worth close examination:
17
(P) Reimbursement for processing.—
(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.
(iii) Timing.— . . .
(iv) Sense of the senate.—
It is the sense of the Senate that the Administrator
should issue guidance to lenders and agents to ensure
that the processing and disbursement of covered loans
prioritizes small business concerns and entities in
underserved and rural markets, including veterans and
members of the military community, small business
concerns owned and controlled by socially and
economically disadvantaged individuals . . . , women,
and businesses in operation for less than 2 years.
This statute is instructive, for several reasons. First, this is not just a
“lender’s subsection”—the title, “(P) Reimbursement for processing,” applies to
both lenders and agents. Subsection (i) refers to lenders but subsection (ii) refers to
agents, and subsection (iv) refers to both. The Defendants’ argument, that
subsection (P) money belongs to them alone, does not have a strong statutory
18
tether. Subsection (i), the “lender” part, is stated “in general,” but it must be read
in conjunction with subsection (ii). And “Reimbursement for processing” applies
to both lenders and borrowers’ agents.
This is why the Interim Final Rule is an appropriate use of rulemaking
authority that fits within the statute: the Rule implements the division of fees that is
inherent in this statute.
The PPP Interim Final Rule was promulgated under the statutory rulemaking
authority of 15 U.S.C. § 9012. The SBA was granted “emergency,” plenary
authority in that section, which says “the Administrator shall issue regulations to
carry out this title and the amendments made by this title.” The SBA’s general
rulemaking authority, 15 U.S.C. § 634(b)(6), is also broad, permitting the
Administrator to “make such rules and regulations as he deems necessary to carry
out the authority vested in him by or pursuant to this chapter.” E.g., Roberts Constr.
Co. v. U.S. Small Bus. Admin., 657 F. Supp. 418, 422 (D. Colo. 1987) (authority is
“broad”).3
In turn, the SBA expressly authorized the payment of agent fees—following
the statutory directive—and stated where they must come from, “the lender[,] out
3
Section 634(b)(6) appears to be cited on Westlaw 39 times. In three other decisions, the courts
construe this grant as “broad.” Very little other guidance on the scope of this rulemaking grant is
available in caselaw. Sport & Wheat submits that its breadth is evident.
19
of the fees the lender receives from SBA.” 85 Fed. Reg. at 20816. The Rule also
holds that the fee amounts “are reasonable,” specifically when taking into account
the statutory fees to lenders. Further, the Rule expressly wipes out any pre-existing
regulation to the contrary: “The program requirements of the PPP identified in this
rule temporarily supersede any conflicting Loan Program Requirement (as defined
in 13 CFR 120.10).”
There are many differences between the old Section 7(a) lending program
and the new PPP and, but perhaps the most obvious is the new statutory
disbursement itself: whereas in normal loans, Section 636(a)(18) mandates the
collection of guaranty fees from lenders, the PPP law, Section 636(a)(36)(P),
mandates the payment of “reimbursement for processing” fees to lenders and
agents. This new statutory grant, plus the PPP’s statutory provisions on agent fees,
plus the SBA’s rulemaking authorities, equal the conclusion that the SBA clearly
had the power to implement the limits on agent fees and to allocate agent fees as
between the Defendants and borrowers’ agents. The SBA is not “taking money
away” from the banks; it is providing them with slightly less (new) money than they
want and providing agents with the funds they are also entitled to collect. It does
not make sense to read this scheme any other way. In light of the PPP’s stated
20
intent to get as much money into the hands of borrowers as possible, as fast as
possible, this is the only reasonable conclusion.
Recognizing that the Interim Final Rule requires it to pay borrowers, Truist
in particular is strident about challenging the validity of the rule itself. Truist says
the rule exceeds the SBA’s authority. The District of Maryland has considered
whether the Interim Final Rule exceeds that authority in another context—whether
the SBA can bar bankruptcy debtors from receiving PPP funds, despite the statute’s
silence on the subject. Tradeways, Ltd. v. United States Dep’t of Treas., No. ELH-20-
1324, 2020 WL 3447767 (D. Md. June 24, 2020). Employing Chevron deference,
the Tradeways court determined that the SBA’s rule was a permissible construction
of the PPP statute.
The court also found that the SBA’s Interim Final Rule “enjoys a
presumption of validity,” and that it could not overturn the bankruptcy requirement
in the Interim Final Rule. Id. at 15. In particular, the court found that what the
plaintiff “considers arbitrary agency action is simply the SBA filling in the gaps
Congress left in the CARES Act so that it could nimbly respond to a complex,
rapidly-evolving crisis.” Id. at *16.
21
While the Treasury was a direct defendant in that case, the logic and
substance holds: the SBA possesses broad discretion to swiftly enact a rule that
deals with this pandemic.4
C. The PPP statute and the PPP Interim Final Rule do displace
former elements of the general Section 7(a) lending program.
To reiterate from its brief opposing Synovus’s motion to dismiss: Sport &
Wheat recedes from its position that certain requirements previously imposed by
Section 7(a) and its regulations apply. The better read of the Interim Final Rule is
that the Rule did displace some of the requirements that Synovus argued for. What
is new, on these motions to dismiss, is that both Truist and ServisFirst have
conceded this point as well.
The Section 7(a) lending program is seven decades old. While the PPP is
nested within the Section 7(a) statute, there are dramatic differences between the
PPP’s design and Section 7(a). The moving Defendants rely on some provisions of
the generally applicable Section 7(a) program and its regulations as a basis to deny
Sport & Wheat the fees it has earned. An examination of the provisions they cite
shows that the provisions have been displaced.
4
Sport & Wheat acknowledges a broad diversity of views on the interplay of the Bankruptcy
Code and the CARES Act. In re Springfield Hospital, Inc., ___ B.R. ____, 2020 WL 3422335, at
*8−11 (D. Vt. June 22, 2020) (collecting dozens of cases).
22
Title 13, Section 103.1(a)(2) defines a “packager” as “an Agent who prepares
the Applicant’s application for financial assistance and is employed and
compensated by the Applicant.” Sport & Wheat does not fit this definition because
its borrowers did not compensate it. Section 103.1(a) defines two other types of
“Agent,” but none of these definitions fits Sport & Wheat either.
Section 103.5(a) permits an “Agent” to charge a fee to a borrower—in an
amount higher than the PPP Interim Final Rule allows.
Section 103.5(a) also requires that an “Agent” must execute and submit a
compensation agreement to the SBA. Form 159 is the SBA’s designated
compensation agreement.
As discussed in Sport & Wheat’s brief opposing Synovus, on its face, Form
159 cannot be signed by an agent like Sport & Wheat. It reads:
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.
23
ECF No. 56-5, at 1 (emphasis added). Signing is a legal impossibility under the PPP,
because agents sign only when paid by the borrower, and under the Interim Final
Rule, the borrower is not permitted to pay.
Accordingly, Form 159 cannot be a requirement; Section 103.5(a)’s statement
that “SBA provides the form of compensation agreement” cannot apply; and
Section 103.1(a) contains no pigeonhole for Sport & Wheat to fit into either.
What is the upshot of all this? It is plain that these older, conflicting rules,
designed for a traditional lending program like Section 7(a) must give way to the
PPP Interim Final Rule, which implements a grant program. The Rule itself
expressly says that it supersedes any conflicting rule. More to the point, the Rule is
more recent and was written to implement a narrower, newer federal statute—the
CARES Act. Whatever is connected to Section 7(a) and stands in conflict with the
PPP Interim Final Rule is displaced.
Defendants lean on the parts of these old rules which favor them. E.g., Truist
argues that a written compensation agreement must be signed by the agent under
Section 103.5(a). (Truist Mot. 4.) ServisFirst insists that it must certify that it found
the agent’s services and fee reasonable on Form 159. (ServisFirst Mot. 11.) Truist
does not follow ServisFirst this far—it concedes that Form 159 is inapplicable in
24
PPP loans. (Truist Mot. 22.) None of the Defendants adequately explains how
these general rules survive the PPP Interim Final Rule, because they don’t.
ServisFirst even tries to have it both ways—standing on Form 159 and
Section 103.5(a) of the old rules, but then admitting that the PPP Interim Final Rule
“varies that rule” by barring agents from being compensated by borrowers.
(ServisFirst Mot. 10.) ServisFirst’s position is internally inconsistent. There is a
much more straightforward way to harmonize the PPP Interim Final Rule with
Section 7(a)’s backdrop: honor the PPP rule’s express superseding clause, and
displace the old rules to the contrary.
D. Defendants’ “fraud and abuse” arguments show the error of their
regulatory analyses.
Further undercutting the Defendants’ arguments is their reliance on
hypothetical “fraud and abuse” arguments. Truist, for example, argues that SBA’s
Form 159 permits lenders to “know agents’ identities and . . . comply with their
obligations” to avoid disbarred agents. (Truist Mot. 21−22.) Truist also argues that
if Sport & Wheat’s claim stands, “there would be no mechanism for lenders to
verify agents’ identities,” and no way to stop “multiple purported agents from
claiming fees.” Id. at 22−23.
For its part, ServisFirst argues that the old Section 7(a) rules, including Form
159, also permitted the lender to investigate the parties it sought to do business
25
with, and should still apply here. (ServisFirst Mot. 13−14.) ServisFirst’s argument
is a little overblown, suggesting that Sport & Wheat demands that “lenders must
simply accept and compensate any demand for payment by anyone who claims to
have been an agent.” Id. at 14. Obviously, evidence will back up such claims.
These “fraud and abuse” arguments do not support their general contention
that the Interim Final Rule retains the former SBA regulatory scheme. Indeed, they
actually go to show that the applicable regulations have been altered, undercutting
their arguments.
First off, the risk of fraud can play no role here on motion to dismiss. Sport &
Wheat is a legitimate, professional accounting firm and has documents to back up
its work—some of which were transmitted directly to the Defendants, which none
of them deny. The suggestion of any hypothetical fraud is no basis to dismiss this
action on legal grounds, and there are other obvious ways for the Court to deal with
fraud.
Second, the “lender” in a PPP loan (really—a grant) is situated differently
from a lender making a traditional Section 7(a) loan. Under traditional Section 7(a)
lending, SBA assumes the risk of default, but only up to 75% or 85% of the loan
amount. 15 U.S.C. § 636(a)(2)(A); 13 CFR § 120.210. But in a PPP loan, the lender
has zero skin in the game—SBA carries 100% of the risk of default. 15 U.S.C.
26
§ 636(a)(2)(F). The lender’s incentive to defend itself from fraud does not exist in
the PPP context. Again, the lender simply does not have to do anything with a PPP
loan except confirm receipt of numbers, review a form, and follow the Bank Secrecy
Act. In re Gateway Radiology Consultants, P.A., ___ B.R. ____, 2020 WL 3048197,
at *5 (Bankr. M.D. Fla. June 8, 2020). It has no duty to verify the accuracy of the
borrower’s numbers.
Gateway Radiology points out that a lender has an extremely streamlined duty
to certify borrowers’ applications. “In deciding whether to approve a PPP Loan,
SBA lenders need only consider two criteria: (1) Was the borrower operating on
February 15, 2020?; and (2) Did the employer have employees for whom it paid
salaries and payroll taxes . . . ?” Id. at *4 (citing 15 U.S.C. § 636(a)(36)(F)(ii)(II)).
Given the lender’s extremely narrow obligations, any “Form 159 duty” to certify
the reasonable nature of an agent’s work, or its fee, is displaced by statute. Again,
this points to the statutory and regulatory displacement of the generally applicable
Section 7(a) laws. Federal law does not stand in the way of an agent like Sport &
Wheat asserting a claim under the PPP statute or rule.
Finally, ServisFirst argues that because it might become the subject of a
clawback by SBA, it would be “inequitable” to pay out any portion of the fee Sport
& Wheat has earned. (ServisFirst Mot. 12.) Plainly, the equity lies with Sport &
27
Wheat. Both ServisFirst and the SBA have adequate civil remedies to recover any
wrongfully paid fees, which would be rare at most. It is not equitable to deny 100%
of Sport & Wheat’s fees because of a small, X% chance that some other agent may
commit fraud.
* * *
All four Defendants argue mightily that federal law bars Sport & Wheat’s
state-law claims. But the PPP statute and its enabling rule do no such thing. Instead,
the Interim Final Rule expressly requires the payment of fees by lenders like the
Defendants. That is why Truist and ServisFirst (but not Synovus or TheFirst)
maintain their backup argument that the SBA exceeded its authority in
promulgating the rule.
Federal law does not pose an obstacle to Sport & Wheat’s claims. The federal
policy to be vindicated is the payment of Sport & Wheat for its hard work
performed in service of the PPP’s goals.
VI. The Defendants’ other miscellaneous arguments also fail.
TheFirst argues that this case is inappropriate for class action treatment.
(TheFirst Mot. 9−11.) Sport & Wheat responded to this argument when Synovus
made it; a motion to dismiss is the wrong vehicle to defeat a class action. Moreover,
this is not a reason to dismiss Sport & Wheat’s individual claim.
28
ServisFirst offers an argument relating to the common law of contract,
arguing, essentially, that a breach of contract claim can only succeed if the parties
agreed to make a contract. (ServisFirst Mot. 14−16.) It also argues that the Court
must proceed carefully if it intends to construe a statute in a manner that abrogates
common law. Id. at 15−16. These legal truisms are entirely beside the point. This is
not a breach-of-contract suit; the causes of action asserted exist under state law
when there is no contract.
Truist argues that this suit conflicts with important federal objectives.
(Truist Mot. 25−26.) Truist—America’s fourth-busiest PPP lender, with at least
79,219 loans5—claims that having to divide its fee with Sport & Wheat “would
lessen incentives to participate” in the program and collide with the goal of
supporting small businesses. In reality, Sport & Wheat is one of the small
businesses Truist champions. This suit will not disincentivize Truist from doing
anything (and, again, there was no shortage of competition among banks and
borrowers for these free federal billions).
If Sport & Wheat is not compensated for work it has already performed,
however, that will conflict with this same important federal objective. Why?
5
U.S. Small Business Administration, Paycheck Protection Program (PPP) Report (Jul. 10, 2020)
at 7, available at https://www.sba.gov/sites/default/files/2020-07/PPP_Report%20-%202020-
07-1945-508.pdf.
29
Because in many cases, Sport & Wheat and accounting firms like it are the only
source of the information small businesses have to make these PPP applications.
The smallest of businesses do not have in-house accountants. (Compl. ¶ 19.) Sport
& Wheat is not some random “packager” off the street, but these businesses’ sole
accounting firm. And the Rule makes clear that Sport & Wheat can’t bill these
clients like it normally would. Barring Sport & Wheat from recovering any
compensation means these small businesses would have nowhere to turn for
assistance, and that is counter to the PPP’s intent.
VII. Conclusion
Each motion to dismiss should be denied. Sport & Wheat seeks leave to
replead its complaint in the event the Court grants any of the four pending motions
to dismiss.
30
Dated: July 20, 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
31
CERTIFICATE OF WORD COUNT UNDER LOC. R. 7.1(F)
I certify that the core of this brief contains 6,620 words, including headers,
footnotes, and quotations.
/s/ William F. Cash III
32
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