Court filing
Exhibit A — Agent Fee Litigation (Dkt. 181.2)
Summary
Exhibit A to Document 181-2 on the MDL No. 2950 docket, filed June 17, 2020. The exhibit reproduces the defendants' joint motion to dismiss and supporting memorandum of law, filed June 16, 2020 as Doc #: 31 in Bookmyer v. PNC Bank, N.A., Case No. 2:20-cv-02284, in the U.S. District Court for the Southern District of Ohio, Eastern Division. Brought under Federal Rule of Civil Procedure 12(b)(6) by PNC Bank, N.A., The Huntington National Bank and Fifth Third Bank, N.A., the memorandum argues that neither the CARES Act nor the Small Business Act creates a private right of action, that lenders owe no duty to pay agents absent a written compensation agreement under 13 C.F.R. § 103.5(a), and that the conversion and unjust enrichment claims fail. It cites 15 U.S.C. § 636(a)(36)(P)(i) and the agent fee limits set in 85 Fed. Reg. 20,811. The exhibit is 36 pages.
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Case MDL No. 2950 Document 181-2 Filed 06/17/20 Page 1 of 36
EXHIBIT A
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IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
:
William Bookmyer, et al., : Case No. 2:20-cv-02284
:
Plaintiffs, : Judge Edmond A. Sargus, Jr.
:
v. : Magistrate Judge Kimberly A. Jolson
:
PNC Bank, N.A., et al., :
:
Defendants. :
:
:
DEFENDANTS’ JOINT MOTION TO DISMISS
Pursuant to Federal Rule of Civil Procedure 12(b)(6), defendants PNC Bank,
N.A., The Huntington National Bank, and Fifth Third Bank, N.A. respectfully move to dismiss
Ppaintiffs’ amended complaint with prejudice.
A memorandum of law supporting this motion follows. For judicial efficiency,
defendants have combined their joint arguments in that memorandum.
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Dated: June 16, 2020
/s/ Anthony J. O’Malley
Anthony J. O’Malley
Angelyne E. Lisinski
VORYS, SATER, SEYMOUR AND PEASE LLP
200 Public Square, Suite 1400
Cleveland, OH 44144
Telephone: (216) 479-6100
E-mail: ajomalley@vorys.com
E-mail: aelisinski@vorys.com
Jonathan M. Moses (pro hac vice)
Jeohn Salone Favors (pro hac vice)
Brittany A. Fish (pro hac vice)
WACHTELL, LIPTON, ROSEN & KATZ
51 W. 52nd Street
New York, NY 10019
Telephone: (212) 403-1000
E-mail: JMMoses@wlrk.com
E-mail: JFavors@wlrk.com
E-mail: BAFish@wlrk.com
Counsel for Defendant PNC Bank, N.A.
/s/ H. Toby Schisler .
H. Toby Schisler (0068306)
DINSMORE & SHOHL LLP
255 E. Fifth Street, Suite 1900
Cincinnati, OH 45202
Telephone: (513) 977-8100
E-mail: toby.schisler@dinsmore.com
D. Michael Crites (0021333)
DINSMORE & SHOHL LLP
191 W. Nationwide Blvd., Suite 300
Columbus, OH 43215
Telephone: (614) 628-6900
E-mail: michael.crites@dinsmore.com
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Elaine Golin (pro hac vice)
Kevin M. Jonke (pro hac vice)
WACHTELL, LIPTON, ROSEN & KATZ
51 W. 52nd Street
New York, NY 10019
Telephone: (212) 403-1000
E-mail: EPGolin@wlrk.com
E-mail: KMJonke@wlrk.com
Counsel for Defendant The Huntington National
Bank
/s/ Nathaniel Lampley, Jr.
Nathaniel Lampley, Jr. (0041543)
Joseph M. Brunner (0085485)
Jeffrey A. Miller (0068815)
Wesley R. Abrams (0095746)
VORYS, SATER, SEYMOUR AND PEASE LLP
301 E. Fourth Street
Great American Tower, Suite 3500
Cincinnati, Ohio 45202
Telephone: (513) 723-4616
E-mail: nlampley@vorys.com
E-mail: jmbrunner@vorys.com
E-mail: jamiller@vorys.com
E-mail: wrabrams@vorys.com
Counsel for Defendant Fifth Third Bank, N.A.
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IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
:
William Bookmyer, et al., : Case No. 2:20-cv-02284
:
Plaintiffs, : Judge Edmond A. Sargus, Jr.
:
v. : Magistrate Judge Kimberly A. Jolson
:
PNC Bank, N.A., et al., :
:
Defendants. :
:
:
DEFENDANTS’ MEMORANDUM OF LAW
IN SUPPORT OF JOINT MOTION TO DISMISS
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PRELIMINARY STATEMENT
This action concerns the Paycheck Protection Program (“PPP”), an emergency
loan program created by the Coronavirus Aid, Relief, and Economic Security Act, Pub. L.
116–136 (the “CARES Act”). The PPP provides assistance to small businesses that have been
affected by the COVID-19 pandemic. To date, more than 4.5 million borrowers have received
over $510 billion in emergency relief. U.S. Small Business Administration (“SBA”), Paycheck
Protection Program (PPP) Report (June 12, 2020). The loans are processed and funded by
private lenders, who receive a statutorily mandated processing fee from the government for each
funded loan.
Plaintiffs are Ohio-based accountants who seek to divert “millions and perhaps
billions” of dollars in statutory PPP fees from lenders to unknown third parties. Am. Compl.
¶ 52. On behalf of all “agents,” they demand that lenders pay every person who even claims to
have helped a borrower obtain a PPP loan—regardless of whether the “agent” had any kind of
agreement with that lender. Plaintiffs’ claim is based on a flawed reading of the CARES Act and
on snippets of regulations that they never quote in full.1
The amended complaint must be dismissed for several reasons. First, although
plaintiffs seek to recover under the CARES Act and the Small Business Act (which it amends),
there is no private right of action under either statute. Plaintiffs concede as much, relying instead
on a supposed implied cause of action for which they cite no statutory basis. No such right
1
This action is one of several actions filed around the country making similar claims against different banks. In one
such action, Alliant CPA Grp., LLC v. Bank of Am. Corp., No. 1:20-cv-02026 (N.D. Ga. filed May 11, 2020),
plaintiff’s counsel has filed a petition pursuant to 28 U.S.C. § 1407 with the Judicial Panel on Multidistrict
Litigation to consolidate all such actions in the Northern District of Georgia or, alternatively, the District of Arizona.
Defendants here will be opposing that petition. Moreover, a separate plaintiff filed another similar action in the
Western Division of this District. That action, captioned Lowry, CPA, Ltd. v. U.S. Bancorp., No. 1:20-cv-00348
(S.D. Ohio filed Apr. 30, 2020), names PNC Bank, N.A., The Huntington National Bank, and Fifth Third Bank,
N.A. (all defendants here), among others, and is currently pending before Judge McFarland. Defendants have also
filed a motion to dismiss that action.
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exists, as the only court to address the question held just days after the CARES Act was passed.
And it has been settled for decades that the Small Business Act creates no private right of action—
express or implied.
Second, even if Congress had created a private right of action, lenders have no
duty to pay unauthorized agents under any statute, regulation, or at common law. The CARES
Act and related regulations merely impose limits on the fees that agents may collect if there is an
agreement with the lender to pay them. The regulations do not, and cannot, undo the clear
statutory mandate that lenders, not agents, “shall” be paid set processing fees. Nothing in the
statute or regulations requires lenders to pay customers’ agents when the lender did not agree to
pay them. On the contrary, existing SBA regulations prohibit any payment to agents absent a
written agreement among the borrower, lender, and agent. Because plaintiffs do not allege any
such agreement, payments to them are prohibited as a matter of law.
Finally, plaintiffs fail to establish either of their remaining claims for conversion
or unjust enrichment. The common law requires, at a minimum, that a plaintiff demonstrate
some right to the property at issue. Here, plaintiffs do not establish that lenders had knowledge
of their alleged role in loan applications, much less that they agreed to pay plaintiffs for their
services. To the extent plaintiffs created any value at all, those services were volunteered.
In short, unauthorized agents have no claim to the statutory fees that lenders are
paid as part of the federal pandemic response. The amended complaint should be dismissed in
its entirety.
STATEMENT OF FACTS
A. The Coronavirus Pandemic and the CARES Act
The CARES Act was enacted on March 27, 2020, just two weeks after the World
Health Organization recognized the COVID-19 pandemic. The purpose of the new law was to
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provide “emergency assistance and health care response for individuals, families, and businesses
affected by the coronavirus pandemic.” Business Loan Program Temporary Changes; Paycheck
Protection Program, 85 Fed. Reg. 20,811 (Apr. 15, 2020) (“First IFR”).
As part of that relief, Congress established the PPP to provide emergency loans to
small businesses. The PPP, like other loan programs for small businesses, was codified in
Section 7(a) of the Small Business Act. Under the PPP, the SBA guarantees 100% of loans made
by SBA-approved lenders to eligible borrowers. The SBA also reimburses lenders for the cost of
making PPP loans by paying a mandatory loan-processing fee that depends on the size of the loan.
See 15 U.S.C. § 636(a)(36)(P)(i); see also Am. Compl. ¶¶ 3–4. The statutory language is express:
“The [SBA] shall reimburse a lender authorized to make a covered loan at a rate” set by the statute.
15 U.S.C. § 636(a)(36)(P)(i) (emphasis added). Indeed, plaintiffs concede that “[l]enders are to
be reimbursed the [statutory] amounts per loan.” Am. Compl. ¶ 5 (emphasis added).
In contrast, the CARES Act does not specify if, how, or by whom agents may be
paid. The statute addresses agent fees in a single paragraph, entitled “FEE LIMITS.” 15 U.S.C.
§ 636(a)(36)(P)(ii). That provision instructs that agents “may not collect a fee in excess of the
limits established by the [SBA],” to the extent they may be paid at all. Id. Congress did not adjust
any other terms applicable to agents under the Section 7(a) loan program or direct the SBA
to do so.
B. The Regulatory Background
On April 2, 2020, hours before the PPP application window opened, the SBA
issued the First IFR to provide guidance on the operation of the program. As directed by
Congress, the SBA set clear limits on the “total amount that an agent may collect” for “assistance
in preparing an application for a PPP loan.” 85 Fed. Reg. 20,811, 20,816 (emphasis added).
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Under the First IFR, total agent fees “may not exceed” (i) 1% for loans up to $350,000, (ii) 0.5%
for loans of more than $350,000 and less than $2 million, and (iii) 0.25% for loans of at least
$2 million. Id. The First IFR also provides that agent fees, to the extent they are paid at all, will
be paid by the lender. Id.
Like the CARES Act, the First IFR does not state that lenders must pay any
person who purports to be an agent of a customer. Rather, because the PPP is an extension of the
Small Business Act’s Section 7(a) Loan Guarantee Program, it is subject to all the “same terms,
conditions, and processes” as other Section 7(a) loans—including with respect to agents—unless
those terms, conditions, or processes are expressly abrogated by the CARES Act. 15 U.S.C.
§ 636(a)(36)(B); see also 85 Fed. Reg. 20,811, 20,812 (describing the PPP as a “new 7(a)
program”). Existing SBA regulations prohibit any payment to agents absent a written
“compensation agreement” among the borrower, lender, and agent. 13 C.F.R. § 103.5(a).
C. Plaintiffs Had No Reason to Believe They Would Be Paid Agent Fees.
Plaintiffs do not allege that any of the defendants in this action ever agreed to pay
agent fees for PPP loans, much less that they would pay for unsolicited work performed by self-
declared agents. In fact, shortly after the First IFR was issued, defendants began giving notice that
they would not pay customers’ agents in connection with PPP loans. For example, plaintiffs
acknowledge that, in the first week of April, PNC Bank, N.A. “openly” stated that it would “not
pay Agents for assistance they may provide an applicant in obtaining a PPP loan.” Am. Compl.
¶¶ 10, 11.”2
2
Similarly, Bank of America stated that “[i]n the absence of a pre-loan approval written agreement between the agent
and Bank of America, Bank of America does not pay fees or other compensation to agents who represent or assist
borrowers.” BANK OF AMERICA, CARES Act Paycheck Protection Program Frequently Asked Questions,
https://about.bankofamerica.com/promo/assistance/faqs/small-business-paycheck-protection-program (last visited
June 15, 2020). And The Huntington National Bank stated that it would “not pay fees to any firm claiming to be a
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All of this is common knowledge in plaintiffs’ field. Just days after the First IFR
was published, the Association of International Certified Public Accountants (“AICPA”) warned
potential agents that neither the CARES Act nor the related guidance requires lenders to pay
agent fees absent a written agreement with the lender: “CPAs should note, that even though the
Treasury has outlined guidelines related to agency fees, there is a possibility that you will not be
paid for your services.” Ex. 1 (Small Business Loans Under the Paycheck Protection Program:
Issues Related to CPA Involvement (2020)).3 Accordingly, the AICPA recommended that
potential agents “discuss this issue with clients and the banks to ensure there is an understanding,
preferably in writing, as to how and when any fees will be paid.” Id.
D. Plaintiffs Sue More Than 100 Lenders on Behalf of All Purported Agents.
On May 5, 2020, less than a month after lenders began funding emergency loans,
plaintiff William Bookmyer filed this action against four named defendants (PNC Bank, N.A.,
The Huntington Bank, Fifth Third Bank, N.A., and CME Federal Credit Union) and 100
unnamed lenders. On June 4, Bookmyer filed an amended complaint adding Alex Boytan (and
Boytan’s firm) as named plaintiffs and naming eight additional defendants (Bank of America,
N.A., Bluevine Capital Inc., Celtic Bank, JPMorgan Chase Bank, N.A., Kabbage, Inc., Radius
Bank, TD Bank, N.A., and Telhio Credit Union).
The amended complaint seeks to recover “millions and perhaps billions” of
dollars on behalf of all purported agents “who assist applicants in preparing their PPP loan.”
Am. Compl. ¶¶ 7, 72. Although plaintiffs’ calculations are not entirely clear, the upper bound of
borrower’s agent.” HUNTINGTON, Commercial Banking Resources and Support for COVID-19,
https://www.huntington.com/coronavirus/ commercial-resources (last visited June 15, 2020).
3
Submitted herewith is the Declaration of Anthony J. O’Malley. References to “Ex. 1” refer to the O’Malley
Declaration. On a motion to dismiss, a court may take judicial notice of “reports published by industry or consumer
organizations.” In re Frito-Lay N. Am., Inc. All Nat. Litig., No. 12-MD-2413, 2013 WL 4647512, at *4 (E.D.N.Y.
Aug. 29, 2013); see also In re Bear Stearns Cos., Inc. Sec., Derivative & ERISA Litig., 763 F. Supp. 2d 423, 582
(S.D.N.Y. 2011) (taking notice of industry reports).
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their estimate appears to assume that every single loan issued by every single bank involved an
agent, and that every single agent is entitled to the maximum fee allowed under the First IFR.
The rest of the amended complaint is similarly vague. Plaintiffs do not allege that
they had an agreement with any lender, that they sought authorization from any lender, or that
their actions were in fact authorized by any lender. In fact, they acknowledge that one
defendant, CME Federal Credit Union, told Bookmyer directly that it had “not employed
[Bookmyer’s] firm as an agent and [did] not have an agreement for [Bookmyer’s] services.” Id.
Ex. A at 1. Moreover, although plaintiffs claim that defendants “were aware” that plaintiffs were
“conferring a benefit upon them,” plaintiffs plead absolutely no facts in support of that
conclusion. Id. ¶ 111.
The amended complaint is also very short on details about any actual work done.
Plaintiffs allege that they “prepared and submitted” an unspecified number of loan applications
on behalf of unidentified clients, that some of those applications were approved, that lenders did
not pay plaintiffs’ claimed fees, and that plaintiffs did not even request payment from defendant
PNC Bank, N.A. Id. ¶¶ 38, 41, 54. Plaintiffs apparently believe that they may sue lenders, even
where they did not “submit[] a request for payment,” so long as their claimed fees (even those
they did not communicate to any lender) were “simply not paid.” Id. ¶¶ 75(c), 76(c).
Citing the “combined effect of the CARES Act and the [First IFR],” plaintiffs
assert that lenders “unlawfully withheld” fees from so-called agents. Id. ¶¶ 7, 9. On that basis,
plaintiffs purport to bring statutory claims for supposed violations of the CARES Act and the
Small Business Act and claims for conversion and unjust enrichment under Ohio common law.
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ARGUMENT
I. LEGAL STANDARD
“To survive a motion to dismiss, the complaint must present ‘enough facts to state
a claim to relief that is plausible on its face.’” Total Benefits Planning Agency, Inc. v. Anthem
Blue Cross & Blue Shield, 552 F.3d 430, 434 (6th Cir. 2008) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). The Court “is not required . . . to accept as true mere legal
conclusions unsupported by factual allegations.” King v. City of Columbus, No. 2:18-cv-1060,
2019 WL 6352611, at *2 (S.D. Ohio Nov. 27, 2019) (Sargus, J.) (citing Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009)). Instead, a complaint’s factual allegations “must be enough to raise a right
to relief above the speculative level.” Id. (quoting Twombly, 550 U.S. at 555).
II. PLAINTIFFS’ STATUTORY CLAIMS MUST BE DISMISSED.
A. There Is No Private Right of Action under the CARES Act or
the Small Business Act.
Plaintiffs claim that lenders violated the CARES Act and the Small Business Act
by refusing to pay unauthorized, self-declared agents. Even if lenders had such an open-ended
payment obligation (they do not, see Point II.B), plaintiffs’ statutory claims must be dismissed
because neither the CARES Act nor the Small Business Act creates a private right of action.
Plaintiffs concede that neither law does so expressly. Instead, they attempt to conjure an implied
cause of action purportedly “arising under” both statutes. Am. Compl. ¶¶ 89, 97. But as courts
have repeatedly held, no such private right exists.
“[P]rivate rights of action to enforce federal law must be created by Congress.”
Alexander v. Sandoval, 532 U.S. 275, 286 (2001). Where, as here, a plaintiff asserts only an
implied right of action, it must identify specific “rights-creating language” that is “clear and
unambiguous.” Ohlendorf v. United Food & Commercial Workers Int’l Union, Local 876, 883
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F.3d 636, 641 (6th Cir. 2018); see also Stoneridge Inv. Partners, LLC v. Sci.-Atlanta, 552 U.S.
148, 164 (2008) (“[I]t is settled that there is an implied cause of action only if the underlying
statute can be interpreted to disclose the intent to create one.”). As the Sixth Circuit has
recognized, implied rights of action are “increasingly rare creature[s]” because plaintiffs must
show that Congress “created a private right and provided for a private remedy, all without taking
the conventional route of doing so expressly.” Ohlendorf, 883 F.3d at 640.
Plaintiffs do not come close to pleading the required congressional intent. See
Stew Farm, Ltd. v. Nat. Res. Conservation Serv., 767 F.3d 554, 562 (6th Cir. 2014) (“[T]he
burden is on [the plaintiff] to demonstrate that Congress intended to make a private remedy
available”) (citation omitted). They simply claim, citing no provision of any statute, that “[t]here
is an implied cause of action arising under” the CARES Act and the Small Business Act. Am.
Compl. ¶¶ 89, 97. Such bald assertions plainly are not enough. See, e.g., Howard v. Pierce, 738
F.2d 722, 726 (6th Cir. 1984) (finding no implied cause of action “absent specific language” in
the statute).4
In any event, there is no language in either the CARES Act or the Small Business
Act that even arguably confers a private right of action. For decades, courts have consistently
held that the Small Business Act, which the CARES Act amends in limited part, creates no
private right—express or implied. See, e.g., Crandal v. Ball, Ball & Brosamer, Inc., 99 F.3d
907, 909 (9th Cir. 1996) (“[C]ircuits that have considered the question have unanimously agreed
that the Small Business Act does not create a private right of action in individuals.”); Aardwoolf
Corp. v. Nelson Capital Corp., 861 F.2d 46, 48 (2d Cir. 1988) (“[T]he Small Business Act does
4
It is not clear whether plaintiffs also mean to assert a private right of action under the First IFR. But even if the
regulation contained language purporting to creating such a right (it does not), an agency “may not create a right that
Congress has not.” Sandoval, 532 U.S. at 291. Language in a regulation may only “invoke a private right of action
that Congress through statutory text created.” Id.
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not provide [plaintiff] with a private cause of action”); Tectonics, Inc. of Fla. v. Castle Const.
Co., 753 F.2d 957, 960 (11th Cir. 1985) (“[T]here was no intent [in the Small Business Act] to
create civil rights of action in private persons”) (quoting Royal Servs., Inc. v. Maintenance, Inc.,
361 F.2d 86, 92 (5th Cir. 1966)); see also Hooven-Dayton Corp. v. Ctr. City Mesbic, Inc., 918
F. Supp. 193, 195 (S.D. Ohio 1996) (“[T]here exists no private right of action under the [Small
Business Investment] Act”).
Nothing in the CARES Act changes the analysis. Indeed, the only court to
address whether the CARES Act creates a private right of action held that it does not. See
Profiles, Inc. v. Bank of Am. Corp., No. SAG-20-0894, 2020 WL 1849710, at *7 (D. Md. Apr.
13, 2020) (“The Court is not persuaded that the language of the CARES Act evidences the
requisite congressional intent to create a private right of action.”). If the CARES Act does not
even grant a private right of action to small businesses, the statute’s intended beneficiaries, it
clearly does not confer a private right on purported agents. As noted, the only statutory
provision that addresses such agents directs the SBA to set limits on their fees. See 15 U.S.C.
§ 636(a)(36)(P)(ii); see also Care Choices HMO v. Engstrom, 330 F.3d 786, 789 (6th Cir. 2003)
(“[T]he statute does not confer any affirmative rights to reimbursement, much less contain an
implied private right of action.”). For that additional reason, plaintiffs’ statutory claims must be
dismissed.5
B. Agents Are Not Entitled to Fees under the CARES Act or Its Regulations.
Even if plaintiffs had a private right of action, their entire case rests on the
baseless claim that PPP lenders “are required under the CARES Act and the [First IFR] to pay
5
In addition, the Small Business Act, as modified by the CARES Act, contains a robust criminal and civil
enforcement regime. See, e.g., 15 U.S.C. §§ 645, 650. “The express provision of one method of enforcing a
substantive rule suggests that Congress intended to preclude others.” Sandoval, 532 U.S. at 290.
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agents,” even if those purported agents have no agreement with the lenders. Am. Compl. ¶ 63.
Lenders have no such payment obligation. To hold otherwise would conflict with the
unambiguous language of the CARES Act, PPP-related guidance, the broader regulatory scheme,
settled common law, and the SBA’s historical concerns about agent fraud.
1. The CARES Act Does Not Create an Entitlement to Agent Fees.
Although plaintiffs allege supposed “violations of the CARES Act,” the statute’s
plain language bars their claims. Id. ¶ 14; see Lamie v. United States Tr., 540 U.S. 526, 534
(2004) (“[W]hen the statute’s language is plain, the sole function of the courts . . . is to enforce it
according to its terms.”) (citation omitted).
The CARES Act imposes a limit on agent fees; nothing more. Congress directed
that “[a]n 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 [SBA] Administrator.” 15 U.S.C.
§ 636(a)(36)(P)(ii). That provision—defining what an agent “may not collect” and directing the
SBA to establish “limits”—is the statute’s only reference to agent fees. Plainly, a restraint on
agents cannot impose an affirmative duty on lenders. See, e.g., Reasor v. Walmart Stores E.,
L.P., No. 3:19-CV-27-CRS, 2019 WL 5597302, at *3 (W.D. Ky. Oct. 30, 2019) (law that
“prohibits” pharmacists from filling certain prescriptions “does not create an affirmative duty to
fill” other prescriptions); see also Sexton v. Panel Processing, Inc., 754 F.3d 332, 339 (6th Cir.
2014) (“When faced with ‘clear language,’ . . . a court may not ‘conclude that what Congress
omitted from the statute is nevertheless within its scope.’”) (citation omitted).
Citing nothing, plaintiffs contend that the CARES Act “specifically provided that
agents will obtain fees for assisting small businesses.” Am. Compl. ¶ 65. But the statute does
not even suggest such an entitlement, much less “specifically provide” for one. By contrast, as
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plaintiffs concede, Congress did provide that “the [SBA] Administrator . . . ‘shall reimburse a
lender’” at set rates. Am. Compl. ¶ 4 (emphasis added); see 15 U.S.C. § 636(a)(36)(P)(i). There
is a stark and purposeful difference in the statutory language concerning lenders and agents: the
SBA “shall reimburse” lender fees, but agents “may not collect” fees in excess of limits set by
the SBA. Where “Congress includes particular language in one section of a statute but omits it in
another section of the same Act, it is generally presumed that Congress acts intentionally and
purposely in the disparate inclusion or exclusion.” Russello v. U.S., 464 U.S. 16, 23 (1983). In
short, the CARES Act does not create an entitlement to fees for any agent who claims to have
assisted a PPP borrower. The amended complaint should be dismissed for that reason alone.
2. The PPP Regulations Do Not Create an Entitlement to Agent Fees.
Plaintiffs also claim that the First IFR dictates “the total amount that an agent
shall receive from the Lender.” Am. Compl. ¶ 8 (emphasis added). Not so. What the IFR
actually does, in language conspicuously absent from the amended complaint, is impose caps on
the “total amount that an agent may collect.” 85 Fed. Reg. 20,811, 20,816 (emphasis added). In
addition, to ensure that agent fees would not deplete the emergency funds that Congress intended
for borrowers, the SBA directed that “[a]gent fees will be paid by the lender out of the fees the
lender receives from the SBA” and that “[a]gents may not collect fees from the borrower or be
paid out of the PPP loan proceeds.” Id.
Nothing in the PPP regulations requires lenders to pay agent fees that they did not
authorize. Indeed, any contrary reading would run afoul of the statute, which, as noted,
mandates that lenders “shall” be reimbursed in the form of stated processing fees, while agents
“may not” be paid certain amounts. It is, of course, bedrock administrative law that regulations
cannot “conflict[] with the enabling statute.” Hachem v. Holder, 656 F.3d 430, 438 (6th Cir.
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2011); see also Lyng v. Payne, 476 U.S. 926, 937 (1986) (“[A]n agency’s power is no greater
than that delegated to it by Congress.”).6
3. Other SBA Regulations Confirm There Is
No Entitlement to Agent Fees.
Under the CARES Act, the PPP is governed by “the same terms, conditions, and
processes” as other Section 7(a) programs, except where the statute directs otherwise. 15 U.S.C.
§ 636(a)(36)(B); see also 85 Fed. Reg. 20,811, 20,815 (PPP regulations supersede only
“conflicting” Section 7(a) program requirements). The broader regulatory scheme imposes
substantial checks on the role of “agents,” including the circumstances under which an agent
may be paid. The PPP-related guidance creates additional limits—it does not remove them and
certainly does not mandate an unchecked transfer of compensation from lenders (who incurred
significant expense to make the PPP loans on an expedited basis) to purported agents.
Plaintiffs’ argument directly conflicts with this governing regulatory scheme. The
SBA does not require borrowers or lenders to use agents in connection with Section 7(a) loans.
See 13 C.F.R. § 103.2(a) (borrowers and lenders may “conduct business with SBA without a
representative”). But if agents are used, SBA regulations are clear that lenders, agents, and
applicants must execute written agreements to govern agent compensation. See 13 C.F.R.
§ 103.5(a) (“Any Applicant, Agent, or Packager must execute and provide to SBA a
compensation agreement, and any Lender Service Provider must execute and provide to SBA a
Lender Service Provider agreement. Each agreement governs the compensation charged for
services rendered or to be rendered to the Applicant or lender in any matter involving SBA
assistance.”). Nothing in the CARES Act or rules governing the PPP abrogates this requirement,
6
Plaintiffs also cite an “Information Sheet” issued by the Department of the Treasury. Am. Compl. ¶ 59 &
Ex. B. The Information Sheet merely paraphrases the statute and regulations which do not mandate the payment of
agent fees.
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and plaintiffs make no claim that any written agreements were ever executed to govern the
compensation they now demand. Indeed, plaintiffs do not allege any agreement with any lender
or, for that matter, with their purported clients.
Requiring lenders to pay unidentified agents for unauthorized and unverified work
would read this basic check out of existence and invite fraud and abuse. The SBA has recently
identified a “pattern of fraud by loan packagers and other for-fee agents in the 7(a) Loan
Program, involving hundreds of millions of dollars.” U.S. SMALL BUS. ADMIN., Off. of the
Inspector Gen., Report on the Most Serious Management and Performance Challenges Facing
the Small Business Administration in Fiscal Year 2019, at 8, 9 (Oct. 11, 2018).7 And the reason
the SBA requires a written compensation agreement is to prevent “agents” and “loan packagers”
from “charging inappropriate or unreasonable fees to applicants or lenders.” Immediate Disaster
Assistance Program, 75 Fed. Reg. 60,588, 60,594 (Oct. 1, 2010); see also SBA, Lender and
Development Company Loan Programs, Standard Operating Procedures (SOP) 50 10 5(K),
Subpart B, Ch. 3 at 170 (2019).8
Given heightened legislative and regulatory interest in preventing fraud and abuse
under the PPP, it would defy common sense to require lenders to pay agents who have no written
agreement governing their fees. Plaintiffs’ demand for relief here—demanding the maximum
fee allowed despite conceding there was no meeting of the minds to pay a fee, much less a
specified amount—illustrates the type of abuse that a written compensation agreement is
intended to prevent. And there is nothing that would prohibit multiple purported agents from
claiming fees for work purportedly performed on behalf of a single borrower.
7
Available at https://www.sba.gov/sites/default/files/2019-08/SBA-OIG-Report-19-012.pdf.
8
Available at https://www.sba.gov/document/sop-50-10-5-lender-development-company-loan-programs.
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4. The Common Law Confirms There Is No Entitlement to Agent Fees.
Mandating payment of claimed agent fees would also upend settled common law.
By requiring a written agreement, the SBA makes agent compensation a question of contract. It
is well-established that “[t]here can be no contract without the mutual assent of the parties.”
Utley v. Donaldson, 94 U.S. 29, 47 (1876); see also Restatement (Second) of Contracts § 17
(“[T]he formation of a contract requires a bargain in which there is a manifestation of mutual
assent to the exchange and a consideration.”). The agreement is what creates the payment
obligation: “it is inferred that a person promises to pay for services which he requests or permits
another to perform for him as his agent.” Restatement (Second) of Agency § 441 (emphasis
added).
By contrast, “one has no duty to pay for services officiously rendered without
request although resulting in benefit to him.” Id.; accord Restatement (First) of Restitution § 2.
“A person is not required to deal with another unless he so desires.” Restatement (First) of
Restitution § 2(a). And, “ordinarily, a person should not be required to become an obligor unless
he so desires.” Id.
The SBA’s pre-existing regulations reflect these common law principles. The
SBA generally recognizes three kinds of agents: (i) lender service providers, who work for and
are paid by the lender; (ii) “[p]ackagers,” who are “employed and compensated by the
Applicant”; and (iii) referral agents, who “may be employed and compensated by either the
Applicant or the SBA Lender.” 13 C.F.R. § 103.1.9 In each case, the payor requests or agrees to
the agent’s services. The amended complaint does not identify any SBA regulation to the
contrary.
9
The CARES Act rescinded certain amendments to 13 C.F.R. § 103.1. See Pub. L. 116–136, § 1102(e).
Accordingly, the controlling version of that regulation is the version effective prior to March 11, 2020.
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The CARES Act does not displace these common law rules. The Supreme Court
has required that “[i]n order to abrogate a common-law principle, the statute must ‘speak
directly’ to the question addressed by the common law.” United States v. Texas, 507 U.S. 529,
534 (1993) (citation omitted). Even then, courts “construe statutes in derogation of the common
law strictly and narrowly.” Portalatin v. Blatt, Hasenmiller, Leibsker & Moore, LLC, 900 F.3d
377, 385 (7th Cir. 2018). Plaintiffs do not quote any statutory language that “speaks directly” to
common law rules. Nor could they. The statute simply directs the SBA to establish “limits” on
agent fees. 15 U.S.C. § 636(a)(36)(P)(ii). And the regulations, for their part, merely provide that
PPP agents will be paid, if at all, by lenders.
In short, in recognition of these common law (and common sense) principles, the
statute and regulations leave it to the lender and the agent to agree as to whether a fee will be
paid and, if so, what that fee will be (subject to the regulatory cap). The amended complaint
ignores these governing principles by demanding potentially billions of dollars without any such
agreement. Plaintiffs’ claims thus fail as a matter of law and must be dismissed.
III. PLAINTIFFS’ COMMON-LAW CLAIMS MUST BE DISMISSED.
A. Plaintiffs Fail to Plead Conversion.
Plaintiffs’ conversion claim fails because they cannot establish a legal entitlement
to agent fees from any defendant. Under Ohio law, the “elements of a conversion cause of action
are (1) plaintiff’s ownership or right to possession of the property at the time of the conversion;
(2) defendant’s conversion by a wrongful act or disposition of plaintiff’s property rights; and
(3) damages.” Lee v. Ohio Educ. Ass’n, 951 F.3d 386, 393 (6th Cir. 2020). As detailed above,
plaintiffs have no right to compensation in connection with PPP loans, absent an agreement with a
lender. Because they do not allege any such agreement, their conversion claim must be dismissed.
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Moreover, “[i]n Ohio, as in most jurisdictions, the standard for proving
conversion of money is an exacting one.” In re McWeeney, 255 B.R. 3, 5 (Bankr. S.D. Ohio
2000). “A claim for conversion will lie only when the money at issue is ‘earmarked’ or is . . .
capable of identification, e.g., money in a bag, coins or notes that have been entrusted to
defendant’s care, or funds that have been otherwise sequestered, and where there is an
obligation to keep intact and deliver this specific money rather than merely deliver a certain
sum.” Smith v. Boston Mut. Life Ins. Co., No. C-12-668, 2013 WL 3148719, at *3 (Ohio Ct.
App. June 19, 2013) (emphasis added) (internal quotation marks omitted) (citation omitted); see
also Haul Transp. of Va., Inc. v. Morgan, No. 14859, 1995 WL 328995, at *4 (Ohio Ct. App.
June 2, 1995) (finding no conversion as a matter of law when defending party was not required
by agreement to return specific funds and, instead, could fulfill its obligations by paying a sum
certain of money generally).
Plaintiffs fail to allege any facts to satisfy the “exacting” standard necessary to
assert a claim for conversion of money. Even if defendants were obligated to pay plaintiffs (they
are not), plaintiffs do not—because they cannot—allege that the money they are purportedly
owed is “earmarked” or otherwise “capable of identification.” At most, plaintiffs could receive
an undetermined sum, which is insufficient to state a conversion claim.
B. Plaintiffs Fail To Plead Unjust Enrichment.
The only remaining claim is for unjust enrichment under Ohio law. Unjust
enrichment occurs when a person “has and retains money or benefits which in justice and equity
belong to another.” Johnson v. Microsoft Corp., 834 N.E.2d 791, 799 (Ohio 2005). Plaintiffs
therefore cannot establish an unjust enrichment claim unless they allege: “(1) a benefit conferred
by a plaintiff upon a defendant; (2) knowledge by the defendant of the benefit; and (3) retention
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of the benefit by the defendant under circumstances where it would be unjust to do so without
payment.” Id. The amended complaint does not meet this standard.
Plaintiffs do not allege any facts that would establish that any defendant was
aware of their work or knowingly acquired any benefit from it. They assert (without any factual
support) that “Defendants were aware” that plaintiffs were “conferring a benefit upon them.”
Am. Compl. ¶ 111. But that is precisely the kind of “formulaic recitation of the elements of a
cause of action” that “will not do” under Rule 8(a)(2). Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(citation omitted). Plaintiffs plead no “factual content that allows the court to draw the
reasonable inference” that defendants had any idea what they were doing. Id.; see Ohio Edison
Co. v. Direct Energy Bus., LLC, No. 5:17-cv-746, 2017 WL 3174347, at *4 (N.D. Ohio July 26,
2017) (dismissing unjust enrichment claim where plaintiffs baldly alleged that defendant “knew
that it was obliged to pay”). Indeed, the only alleged communications between plaintiffs and
lenders took place after the purported work was done. Am. Compl. ¶¶ 40–43, 51–52; see In re
Gregg, 409 B.R. 464, 467 (Bankr. S.D. Ohio 2009) (no unjust enrichment where defendants
were not aware of plaintiff’s conduct “at the time that [plaintiff] was . . . conferring the benefit”).
Likewise, any benefit conferred by plaintiffs was to their alleged clients, not
defendants, which is insufficient to state a unjust enrichment claim under Ohio law. See, e.g.,
Three-C Body Shops, Inc. v. Nationwide Mut. Fire Ins. Co., 81 N.E.3d 499, 506 (Ohio Ct. App.
April 20, 2017) (holding that a benefit to a third party was too indirect to constitute a “benefit
conferred” on the defendant); LIZard Apparel & Promotions, LLC v. Impact Design, LLC, No.
3:16-cv-238, 2017 WL 2061404, at *5 (S.D. Ohio May 11, 2017) (“Plaintiffs cite to no caselaw
suggesting that this indirect benefit can form the basis for an unjust enrichment claim”).
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For example, in Three-C Body Shops, the plaintiff body shop argued that it
“properly pled a claim for unjust enrichment when it alleged that it had conferred a benefit on
[the defendant insurer] by performing repair work that restored the [insured customer’s] vehicle
to its pre-accident condition, as such repairs fulfilled [the defendant’s] obligation to its insured to
restore and insure the vehicle.” 81 N.E.3d at 506. The court rejected the claim because the
plaintiff body shop had conferred no direct benefit on the defendant insurer. See id. at 507.
The same is true here. Plaintiffs allege that they “assisted each of [their clients] in
gathering and analyzing documents, making the necessary calculations, and preparing and
submitting [PPP] applications.” Am. Compl. ¶¶ 46, 55. As in Three-C Body Shops, plaintiffs
base their unjust enrichment claim against defendants on the alleged benefit they conferred on
their clients. See Am. Compl. ¶¶ 110. This alleged indirect benefit is insufficient as matter of
law, and plaintiffs’ unjust enrichment claim should be dismissed.
There is also nothing “unjust” about defendants’ retention of a potential benefit
here. That standard is exacting: plaintiffs must “show that under the circumstances they have a
superior equity so that as against them it would be unconscionable for the defendants to retain
the benefit.” Liberty Mut. Ins. Co. v. Three-C Body Shop, Inc., No. 19-AP-775, 2020 WL
2042916, at *2 (Ohio Ct. App. Apr. 28, 2020) (emphasis added). The amended complaint does
not meet that high bar.
As noted, plaintiffs are not entitled to fees under the CARES Act or the SBA
regulations, and they knew or should have known that before performing any work. Although
plaintiffs claim that they and other agents “assist[ed] applicants in preparing their PPP loan,”
they do not allege that anyone promised to pay for their services. Am. Compl. ¶ 7. Where, as
here, plaintiffs “volunteer to do something without some kind of an agreement as to who’s going
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to do what and who’s going to pay,” those plaintiffs have “made a gift of” their services. HAD
Enters. v. Galloway, 948 N.E.2d 473, 480 (2011). “Restitution is the remedy for the unjust
enrichment of one party at the expense of another,” Barrow v. Village of New Miami, 104 N.E.3d
814, 818 (Ohio Ct. App. 2018), and “one who officiously confers a benefit upon another is not
entitled to restitution,” Props. Dev., Ltd. v. Sto-Kent Lanes, Inc., No. 17059, 1995 WL 314679,
at *3 (Ohio Ct. App. May 24, 1995) (citing Wendover Rd. Prop. Owners Ass’n v. Kornicks, 502
N.E.2d 226, 220 (Ohio Ct. App. 1985)); see also Restatement (First) of Restitution § 2.
In any event, it is not “unconscionable” for defendants to refuse to pay fees that
they said they would not pay or never agreed to pay (and that are statutorily due to them). For
example, as plaintiffs acknowledge, PNC “openly” stated in no uncertain terms that it “will not
pay” PPP agent fees. Am. Compl. ¶ 10. And plaintiffs, as certified public accountants, should
have been aware of the AICPA’s advice that potential agents “discuss this issue with clients and the
banks to ensure there is an understanding, preferably in writing, as to how and when any fees will be
paid.” Ex. 1. Plaintiffs apparently did not heed these warnings and chose to perform anyway.10
Thus, even if defendants “enjoyed a windfall,” the unjust enrichment claim fails because
defendants expressly “did not consent.” Wendover, 502 N.E.2d at 230–31.
CONCLUSION
For the foregoing reasons, defendants respectfully request that the Court dismiss
the amended complaint with prejudice under Rule 12(b)(6) of the Federal Rules of Civil
Procedure.
10
Indeed, because plaintiffs’ purported injuries were self-inflicted, there are serious questions about plaintiffs’
standing to bring any claims at all. See, e.g., Buchholz v. Meyer Njus Tanick, PA, 946 F.3d 855, 866
(6th Cir. 2020) (dismissing complaint for lack of standing because a “self-inflicted injury, by definition, is not
traceable to anyone but the plaintiff”).
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Dated: June 16, 2020
/s/ Anthony J. O’Malley
Anthony J. O’Malley
Angelyne E. Lisinski
VORYS, SATER, SEYMOUR AND PEASE LLP
200 Public Square, Suite 1400
Cleveland, OH 44144
Telephone: (216) 479-6100
E-mail: ajomalley@vorys.com
E-mail: aelisinski@vorys.com
Jonathan M. Moses (pro hac vice)
Jeohn Salone Favors (pro hac vice)
Brittany A. Fish (pro hac vice)
WACHTELL, LIPTON, ROSEN & KATZ
51 W. 52nd Street
New York, NY 10019
Telephone: (212) 403-1000
E-mail: JMMoses@wlrk.com
E-mail: JFavors@wlrk.com
E-mail: BAFish@wlrk.com
Counsel for Defendant PNC Bank, N.A.
/s/ H. Toby Schisler
H. Toby Schisler (0068306)
DINSMORE & SHOHL LLP
255 E. Fifth Street, Suite 1900
Cincinnati, OH 45202
Telephone: (513) 977-8100
E-mail: toby.schisler@dinsmore.com
D. Michael Crites (0021333)
DINSMORE & SHOHL LLP
191 W. Nationwide Blvd, Suite 300
Columbus, OH 43215
Telephone: (614) 628-6900
E-mail: michael.crites@dinsmore.com
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Elaine Golin (pro hac vice)
Kevin M. Jonke (pro hac vice)
WACHTELL, LIPTON, ROSEN & KATZ
51 W. 52nd Street
New York, NY 10019
Telephone: (212) 403-1000
E-mail: EPGolin@wlrk.com
E-mail: KMJonke@wlrk.com
Counsel for Defendant The Huntington National
Bank
/s/ Nathaniel Lampley, Jr.
Nathaniel Lampley, Jr. (0041543)
Joseph M. Brunner (0085485)
Jeffrey A. Miller (0068815)
Wesley R. Abrams (0095746)
VORYS, SATER, SEYMOUR AND PEASE LLP
301 E. Fourth Street
Great American Tower, Suite 3500
Cincinnati, Ohio 45202
Telephone: (513) 723-4616
E-mail: nlampley@vorys.com
E-mail: jmbrunner@vorys.com
E-mail: jamiller@vorys.com
E-mail: wrabrams@vorys.com
Counsel for Defendant Fifth Third Bank, N.A.
CERTIFICATE OF SERVICE
The undersigned hereby certifies that on the 16th day of June, 2020 a true and accurate
copy of the foregoing Joint Motion to Dismiss was sent to counsel of record via the Court’s ECF
system.
/s/ Angelyne E. Lisinski
Angelyne E. Lisinski (0089699)
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IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
:
William Bookmyer, et al., :
: Case No. 2:20-cv-02284
Plaintiffs, :
: Judge Edmond A. Sargus, Jr.
v. :
: Magistrate Judge Kimberly A. Jolson
PNC Bank, N.A., et al., :
:
Defendants. :
:
:
DECLARATION OF ANTHONY J. O’MALLEY IN SUPPORT OF DEFENDANTS’
JOINT MOTION TO DISMISS
I, ANTHONY J. O’MALLEY, declare under the penalty of perjury and state as follows:
1. I am a partner at the law firm Vorys, Sater, Seymour and Pease, LLP and am
counsel for defendant PNC Bank, N.A. (“PNC”) in the above-captioned matter. I am over the
age of eighteen, have personal knowledge of the facts set forth herein, and if called as a witness
under oath, I could and would competently testify thereto. I submit this Declaration in support of
Defendants’ Joint Motion to Dismiss.
2. I attach to this Declaration a true and accurate copy of a document referenced in
Defendants’ Joint Motion to Dismiss.
3. Specifically, attached hereto as Exhibit 1 is a true and accurate copy of the April
22, 2020 Special Report published by American Institute of Certified Public Accountants
(“AICPA”) entitled, Small Business Loans Under the Paycheck Protection Program: Issues
Related to CPA Involvement.
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Pursuant to 28 U.S.C. § 1746, I declare under penalty of perjury that the foregoing is true
and correct. Executed on this 16th day of June, 2020 in Cleveland, Ohio.
/s/ Anthony J. O’Malley
Anthony J. O’Malley
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EXHIBIT 1
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Special Report
April 22, 2020
Center for Plain English Accounting
AICPA’s National A&A Resource Center
Small Business Loans Under the Payroll Protection Program
Issues Related to CPA Involvement
By: Kristy Illuzzi and Jim Brackens
The CPEA has received several questions regarding CPAs assisting clients with
applications, including working as Agents under the definition of the CARES Act and the
Paycheck Protection Program (PPP), which provides forgivable loans to help small
businesses cover fees including payroll, mortgage expenses, rent, and utilities.
We know there is frustration around providing services to small business clients as they
apply for PPP loans being issued through the Small Business Administration (SBA). The
AICPA’s Private Companies Practice Section (PCPS) has been adding developments
daily to their webpages, but we wanted to cover some of the more commonly asked
questions and complexities that we have been hearing from members, including those
related to acting as agents and whether performing certain services in association with
these PPP loans would violate independence, create a conflict of interest, or result in
receipt of a contingent fee.
First Things First: See the Bigger Picture and Advise Clients
Before we begin with the common issues surrounding the PPP loans, we want to offer
this counsel to our members:
As clients deal with a cauldron of pandemic-imposed problems and uncertainties, and as
they attempt to navigate a sea of government relief programs, CPAs must act as a trusted
source of advice and guidance. Providing advice and guidance during challenging times
is nothing new for CPAs. Businesses and organizations have deep relationships with their
CPAs and normally look to them for assistance and reassurance. CPAs should step back
and consider the best course of action for each client. Not every relief program or every
course to maneuver through the arduous effects of the pandemic will fit every client. CPAs
should take a thoughtful approach in helping each client find the financial assistance, loan
and tax credit relief programs, and other solutions that make the most sense for each
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client’s unique circumstances. We encourage CPAs to provide these advisory services
which are deemed to be outside the scope of loan processing application assistance as
referred to within this report.
Acting as Agents and Agent Fees
One of the hottest topics related to these PPP loans is exactly what is intended by the
term “agent” as used on the loan application. According to a Q&A document issued by
the Treasury, an agent is an authorized representative and can be:
• An attorney
• An accountant
• A consultant
• Someone who prepares an applicant’s application for financial assistance and is
employed and compensated by the applicant
• Someone who assists a lender with originating, disbursing, servicing, liquidating,
or litigating SBA loans
• A loan broker
• Any other individual or entity representing an applicant by conducting business
with the SBA
There has been a lot of confusion as to whether CPA firms can act as agents for attest
clients, and what acting as agents really entail. One of the key issues points to the fact
that the Treasury defines an agent as an “authorized representative,” which could imply
that an agent is taking on a level of management responsibility.
There has been much discussion about whether acting as an agent for purposes of PPP
loans was intended to meet a legal definition of agent (acting on behalf of another) or was
meant to be a broader definition that would scope in CPAs providing nonattest services
to clients. The AICPA ethics division has been carefully monitoring developments and
continues to answer questions, and the Professional Ethics Executive Committee (PEEC)
was recently asked to weigh in on the issue from an independence perspective.
As posted in an update on April 13, 2020, the AICPA made the following statement (in
part):
“While the AICPA understands that a fee paid by a lender is referred to as an ‘agent
fee’, we don’t believe this should be an impediment to allowing CPAs to fulfill the
intent of the CARES Act. Rather, the AICPA’s Professional Ethics Executive
Committee (PEEC) believes members may advise and assist their attest clients in
understanding the information required to be submitted and in the determination
of amounts to be included on the application, provided the member does not
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prepare or sign the application form itself or perform other management
responsibilities on behalf of the applicant.”
Practice Note: CPAs should note, that even though the Treasury has outlined guidelines
related to agency fees, there is a possibility that you will not be paid for your services,
even when noting you are an agent to the application. Every bank seems to understand
the rules regarding agents and fees a bit differently, and some are agreeing to pay CPAs
for assisting while others are not agreeing to pay CPAs for assisting. It is important to
discuss this issue with clients and the banks to ensure there is an understanding,
preferably in writing, as to how and when any fees will be paid.
It is our understanding that many firms do not intend to charge clients for the PPP
application process for several reasons:
• It is in the firm’s interest that clients weather the economic crisis caused by the
pandemic. Helping clients get any assistance possible will strengthen long-term
relationship with clients.
• The application itself is fairly straight forward and can be completed by the small
business. The only challenge is determining the average monthly payroll cost.
• Average payroll costs can easily be derived by any third-party payroll provider, plus
any benefits the small business pays that comes from the general ledger. Payroll
companies are not charging customers for this work.
• The PPP asks for a self-certification from the business and not any type of
certification from the CPA, as may be the case in other loan packages. CPAs
should not be providing any certification, as it isn’t required according to the
guidelines.
CPEA Observation: An additional complication is whether banks, in agreeing to pay
CPAs for services, infer that CPAs are taking on certain client representations that could
result in placing CPAs at risk. Some banks are agreeing to pay CPAs without requiring
them to sign as authorized representatives (i.e., agents under the Code of Federal
Regulations definition). However, it’s possible those banks may assume CPAs are taking
on certain client representations. The AICPA is working with the SBA, the American
Bankers Association, and other key stakeholders to clarify this issue. However, in the
interim, CPAs could be putting themselves at risk as some banks could make an
assumption that paying CPA firms agent fees means they are acting as “authorized
agents” or “authorized representatives” of attest clients. CPAs are encouraged to consult
with professional liability carriers or legal counsel to understand any legal implications.
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Contingent Fee Question Clarified
Some have asked whether fees set by Treasury to be paid to agents could be considered
contingency fees under ET section 302 of the AICPA’s Code of Professional Conduct. As
a refresher, paragraph .01 of ET section 302 indicates the following:
“A contingent fee is a fee established for the performance of any service pursuant
to an arrangement in which no fee will be charged unless a specified finding or
result is attained, or in which the amount of the fee is otherwise dependent upon
the finding or result of such service. Solely for purposes of this rule, fees are not
regarded as being contingent if fixed by courts or other public authorities, or, in tax
matters, if determined based on the results of judicial proceedings or the findings
of governmental agencies.”
The AICPA made a statement on April 13, 2020, that they believe, considering substance
over form, the fee paid by lenders is not a contingent fee. The amount of the loan is an
objective mathematical calculation (based on payroll) with the amount of the fee set by
the CARES Act. In addition, it is Congress’ intent that all loans will be funded, so there is
no need for any advocacy by anyone assisting the attest client to convince the lender to
make the loan.
CPEA Observation: While the AICPA has indicated they do not believe the fee paid by
lenders would be considered a contingent fee, some state boards of accountancy could
believe otherwise. We encourage CPAs to check with state boards before agreeing to
accept agent fees to ensure there is agreement with the AICPA position.
Additional Independence Considerations
As noted earlier, CPAs may advise and assist attest clients in gathering information for
the attest clients to prepare and submit loan applications to lenders without impairing
independence. Additionally, if lenders pay CPAs “agent fees” for those services, CPAs
are not, simply by nature of receiving fees, agents – nor does receipt of these fees
constitute contingent fees.
PEEC believes that, simply advising or assisting attest clients in understanding the
information gathering and lending application process under the PPP, even if “agent fees”
are paid by lenders, would not constitute performing management responsibilities for
purposes of applying the AICPA Code of Professional Conduct if CPAs do not in fact
assume management responsibilities. In other words, assisting attest clients with COVID-
19 PPP loan applications is a nonattest service. If CPAs comply with the interpretations
of the Nonattest Services subtopic, independence will not be impaired.
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Special Considerations Related to Assisting Attest Clients
As noted earlier, for attest clients, we suggest not signing as authorized representatives
on PPP loan applications. Also, make no certifications as to the information the small
business is providing with the application (this is covered in more detail in the “Other
Requests of CPAs” section of this report). However, advising clients is totally appropriate,
and we encourage it.
For opportunities to receive “agent fees” from banks for performing nonattest services
related to client loan applications, we suggest considering contacting lenders before
embarking on engagements and getting a written agreement related to the fees. There
should be a conflict waiver in the agreement with the lender, just like there is in the loan
assistance engagement letter with the client. Disclose these arrangements with clients as
well.
The majority of the certifications and authorizations contained in the “Representations,
Authorizations and Certifications” section of the PPP loan application are management
responsibilities; the signature required on page 2 of the application should be made by
the company applying for the loan or its authorized representative.
As noted earlier, signing as a client’s authorized representative will impair independence
because ability to exercise authority on behalf of a client has been accepted. This is a
management responsibility.
Special Considerations Related to Nonattest Clients
For situations where CPAs choose to act as authorized representatives and receive agent
fees from banks for nonattest clients, we suggest considering the following:
• Contact lenders before embarking on engagements and get written agreements
related to the fees. There should be a conflict waiver in the agreement with the
lender, just like there is in the loan assistance engagement letter with the client.
Disclose these arrangements with clients as well.
• Generally, firms do not sign client loan applications. In instances where firms sign
these applications, hold harmless/indemnification agreements from the clients
related to client-provided information should be obtained, and should indicate the
firm is not making or joining the client in making any of the client’s certifications in
the application. Many professional liability insurance carriers have examples of this
language.
• Whether clients later may ask for attest services to be performed in conjunction
with these PPP loans. See the practice note in the “Loan Reporting
Considerations” section for additional information.
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Practice Note: Before signing PPP loan applications for nonattest clients, firms may want
to consult with professional liability carriers or legal counsel to understand any legal
implications there might be for signing these applications. Some professional liability
insurance carriers have even developed sample engagement letters related to these
services that include indemnification clauses.
CPA Firms Applying for PPP Loans
It should be noted that CPA firms may be eligible to apply for PPP loans if all of the SBA
requirements are met, whereby a CPA might be preparing and signing the loan
application on behalf of the firm. As long as the bank is not an attest client of the firm, this
would not result in an independence violation under the Code of Professional Conduct.
Other Requests of CPAs
A small number of banks are requesting some form of third-party verification related to
the PPP loan applications when CPAs are involved. In circumstances where PPP lenders
request this type of service of CPAs, reference should be made to the AICPA’s Third-
Party Verification Toolkit for CPAs.
Loan Forgiveness Considerations
Additional guidance is expected to be provided by Treasury to correctly determine the
information required to substantiate that funds dispersed under these PPP loans were
used in accordance with the SBA guidelines.
It is possible that entities will engage CPA firms to assist on the back end with the
application for loan forgiveness as well, especially in cases where the CPAs assisted in
some way with the initial application.
It could be that clients simply would engage CPAs to perform nonattest services, similar
to how many of the loan applications are being done. However, when nonattest services
are performed for attest clients (for example, an audit client), CPAs would need to follow
Section 1.295, of the AICPA Code of Professional Conduct to not impair independence
for purposes of attest engagements. If CPAs are not engaged to perform nonattest
services, another option for service to attest clients would be to perform Agreed Upon
Procedures (AUP) engagements in accordance with AT-C section 215.
For audits of financial statements for periods during which PPP loan transactions
occurred, it goes without saying that those transactions should be audited and the
auditor’s risk assessment may likely identify heightened fraud risk in this area.
Practice Note: One thing to consider when performing services in association with loan
applications is whether clients would expect any attest services on the back end when
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reporting to the bank. CPAs should be aware, if they choose to perform certain services
related to these loan applications that would impair independence, they would not be
permitted to perform any attest services on the back end with regard to reporting on how
the loan proceeds were spent and whether that spending was in accordance with the SBA
guidelines.
Conclusion and Additional Resources
The CPEA will continue to monitor issues and questions related to the A&A impacts of
COVID-19 and stand ready to issue additional guidance as new developments arise. The
AICPA also has a Coronavirus Resource Center to keep the profession up-to-date on
this issue, including information on business continuation, economic impact, workforce
issues and other resources to help members serve their clients. View a list of all available
resources.
As always, the CPEA technical inquiry service is available for all CPEA members to
answer inquiries on this topic as well as most other accounting and assurance topics. The
inquiry service can be accessed on our website. For non-CPEA members, call the AICPA
technical hotline at 1-888-777-7077. Questions related to auditor independence (which
certainly could arise in the current environment) should be directed to the AICPA Ethics
Hotline at 1-888-777-7077 (select option 2, then 3) or ethics@aicpa.org. CPEA refers all
independence questions to the independence hotline.
Center for Plain English Accounting │ aicpa.org/CPEA │ cpea@aicpa.org
The CPEA provides non-authoritative guidance on accounting, auditing, attestation, and SSARS standards.
Official AICPA positions are determined through certain specific committee procedures, due process and
extensive deliberation. The views expressed by CPEA staff in this report are expressed for the purposes of
providing member services and other purposes, but not for the purposes of providing accounting services or
practicing public accounting. The CPEA makes no warranties or representations concerning the accuracy of
any reports issued.
© 2020 Association of International Certified Professional Accountants. All rights reserved. For information
about the procedure for requesting permission to make copies of any part of this work, please e-mail
cpea@aicpa.org with your request. Otherwise, requests should be written and mailed to the Center for Plain
English Accounting, AICPA, 220 Leigh Farm Road, Durham, NC 27707-8110.
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