Court filing
Second Amended Class Action Complaint — American Video Duplicating v. Citigroup (C.D. Cal.)
Filed December 7, 2020 in American Video v. Citigroup; one of 5 filings from this case.
Record facts
| Court | UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA AMERICAN VIDEO DUPLICATING, INC., a California corporation; TUSH LA |
|---|---|
| Filed | 2020-12-07 |
UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA AMERICAN VIDEO DUPLICATING, INC., a California corporation; TUSH LA · No. 2:20-cv-03815-ODW-AGR · Doc. 132 · 2020-12-07 · Docket on CourtListener
Full text
1
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
GRAYLAW GROUP, INC.
26500 Agoura Road, #102-127
Calabasas, CA 91302
Telephone: (818) 532-2833
Facsimile: (818) 532-2834
MICHAEL E. ADLER
SBN 236115
meadler@graylawinc.com
DHILLON LAW GROUP INC.
177 Post Street, Suite 700
San Francisco, California 94108
Telephone: (415) 433-1700
Facsimile: (415) 520-6593
HARMEET K. DHILLON
SBN: 207873
harmeet@dhillonlaw.com
NITOJ P. SINGH
SBN: 265005
nsingh@dhillonlaw.com
GERAGOS & GERAGOS, PC
644 South Figueroa Street
Los Angeles, California 90017-3411
Telephone: (213) 625-3900
Facsimile: (213) 232-3255
MARK J. GERAGOS
SBN 108325
mark@geragos.com
BEN J. MEISELAS
SBN 277412
ben@geragos.com
MATTHEW M. HOESLY
SBN 289593
mhoesly@geragos.com
Attorneys for Plaintiffs and the Proposed Class
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
AMERICAN VIDEO DUPLICATING,
INC., a California corporation; TUSH
LAW
LTD.,
a
California
limited
partnership, and KENNETH M. HAHN,
a sole proprietor, DBA CAL STATE
FINANCIAL, individually and on behalf
Case No. 2:20-cv-03815-ODW-AGR
SECOND AMENDED CLASS
ACTION COMPLAINT FOR
DECLARATORY RELIEF AND
DAMAGES
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 1 of 37 Page ID #:1011
2
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
of a class of similarly situated businesses
and individuals,
Plaintiffs,
vs.
CITIBANK, N.A.; U.S. BANK, N.A.;
JPMORGAN CHASE BANK, N.A.;
WELLS FARGO BANK, N.A.; BANK
OF AMERICA N.A.; LIVE OAK
BANKING COMPANY; HARVEST
SMALL BUSINESS FINANCE,
Defendants.
Plaintiffs American Video Duplicating, Inc., Tush Law, Ltd., and Kenneth
M. Hahn, a sole proprietor, dba Cal State Financial, bring this second amended
class action complaint on behalf of themselves and those similarly situated
(hereinafter “Plaintiffs”) against Defendants Citibank N.A., U.S. Bank N.A.,
JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A.; Bank of America N.A.;
Live Oak Banking Company; and Harvest Small Business Finance (collectively,
“Defendants” or “Lenders”), to obtain fees owed to Plaintiffs as a result of their
work as agents (“Agents” or “PPP Agents” or “Borrower Agents”) who assisted
small- and medium-sized business borrowers (“Borrowers” or “Applicants”) in
obtaining federally-guaranteed loans through the Paycheck Protection Program
(“PPP”), a federal bail-out program implemented to provide businesses with loans
to combat the economic impact of COVID-19.
The Agents were not retained by Defendants, but directly by the Borrowers,
to serve as their independent representatives to assist in the process of preparing
their PPP loan applications (the “Applications”). Federal regulations require
Defendants to complete, sign, and submit to the Small Business Administration
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 2 of 37 Page ID #:1012
3
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
(“SBA”) the proper SBA forms to pay Plaintiffs and the proposed Class for their
work as the Borrowers’ Agents under the PPP in the form of agent fees (the “Agent
Fees”). The Lender has no right under the regulations to reject the involvement or
role of the Borrower Agents in the PPP process. Despite precise regulatory
requirements providing that the Agent Fees are owed to Plaintiffs, Defendants have
failed to pay Plaintiffs and the Class Members and intentionally interfered with the
Plaintiffs’ ability to collect the Agent Fees. Instead, Defendants have kept the
Agent Fees for themselves. Plaintiffs allege the following based upon their
knowledge and upon information and belief, including investigations conducted by
their attorneys.
I. PARTIES
1.
Plaintiff, American Video Duplicating, Inc. (“AVD”) is a
California corporation organized and authorized to do business and doing
business in the State of California. Among providing other services, AVD is a
business consulting firm in good standing with the State of California.
President, David M. Wohl (“Wohl”), has been a business consultant since 1996.
In the 1980s, Wohl passed all four parts of the CPA Exam. Wohl has been
licensed as a CPA since December 2010. AVD is located in Valley Village,
California. Although AVD assisted its clients with preparing their
application(s) for a PPP loan from the Defendants, Defendants have failed to
pay AVD the agent fees Defendants owe AVD for AVD’s work in securing the
PPP loans. AVD fully complied with all applicable PPP regulations required to
earn AVD its Agent Fee.
2.
Plaintiff, Tush Law Ltd., (“TLL”) is a California limited
partnership authorized to do business and doing business in the State of
California. TLL is a law firm in good standing with the State of California.
President, Alan S. Turlington (“Turlington”) received his JD from Georgetown
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 3 of 37 Page ID #:1013
4
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
University Law Center and became a licensed California attorney on December
3, 2013. Turlington founded TLL on January 3, 2018. TLL is located in Santa
Ana, California. Although TLL assisted its clients with preparing their
application(s) for a PPP loan from the Defendants, Defendants have failed to
pay TLL the agent fees Defendants owe TLL for TLL’s work in securing the
PPP loans. TLL fully complied with all applicable PPP regulations required to
earn TLL its Agent Fee.
3.
Plaintiff, Kenneth M. Hahn, DBA Cal State Financial (“CSF”), is
a sole proprietorship organized and authorized to do business and doing business
in the State of California. CSF has been in business for approximately twenty-
nine (29) years, and Hahn has been a Registered Tax Preparer in good standing
with the State of California for seven (7) years. CSF is located in Torrance,
California. Although CSF assisted its clients with preparing their application(s)
for a PPP loan from the Defendants, Defendants have failed to pay CSF the agent
fees Defendants owe CSF for CSF’s work in securing the PPP loans. CSF fully
complied with all applicable PPP regulations required to earn CSF its Agent Fee.
DEFENDANTS, THE SERIES OF PPP TRANSACTIONS AND/OR
OCCURRENCES, AND THE COMMON QUESTIONS OF LAW
4.
As recently observed by the United States Judicial Panel on
Multidistrict Litigation (JPML) concerning this action and similar actions around
the country, the case against the defendants “….allege similar policies and
practices by the defendant banks – specifically, that defendants failed to pay fees
to agents who assisted small businesses in applying for and obtaining PPP loans,
contrary to the provisions of the CARES Act and federal regulation.” (See Order
Denying Transfer at 1, IN RE: Paycheck Protection Program (PPP) Agent Fees
Litigation, MDL 2950, ECF No. 365.)
5.
Each claim against each Defendant involves a single loan product
(PPP loans) that was created under a single Congressional act (the Coronavirus
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 4 of 37 Page ID #:1014
5
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Aid, Relief, and Economic Security Act (CARES) Act (P.L. 116-136) (“CARES
Act”), administered by a single government agency, the SBA, and is governed by
the SBA Regulations (as defined below).
6.
Plaintiffs served as the Borrowers’ Agent for PPP loan Borrowers
and allege entitlement of mandatory Agent Fees to which Plaintiffs are entitled as
a result of the assistance provided to Borrowers in preparing their Applications that
were submitted to a given Defendant – and ultimately funded by that Defendant –
under and pursuant to the CARES Act and SBA Regulations.
7.
In addition, almost all the facts at issue here are common to
Defendants. That is because there is a single loan product at issue here—the
federally funded PPP loan—not multiple proprietary loan products created by
different defendants. To participate as PPP Lenders, “Lenders must comply with
the applicable lender obligations set forth in [the SBA Regulations].”1
8.
As alleged, all Defendants treated the program the same way:
Defendants were paid millions of dollars in PPP lender fees (“Lender Fees”) by the
federal government, or in the case of Chase, BofA, Wells, and Citibank, hundreds
of millions of dollars in Lender Fees.
9.
Each Defendant has refused to recognize the statutory role and
participation of the Borrower Agents in the PPP and refused to pay them the
required Agent Fees out of the PPP Lender Fees received.
10.
The common practice addressed here is Defendants’ willing
participation in the PPP and receipt of federal funds in the form of the PPP Lender
Fees and subsequent failure to remit to the Class the Agent Fees as required by the
SBA Regulations.
11.
Fundamentally, there is a common core legal issue present against
all Defendants: Whether Agents who assisted Borrowers in applying for PPP loans
are entitled to the statutory Agent Fees the federal government entrusted to
1 85 FR 20812 (1) (emphasis added).
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 5 of 37 Page ID #:1015
6
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Defendants for the benefit of Agents, such as Plaintiffs and the proposed Class
Members (as defined below).
INDIVIDUAL DEFENDANTS’ ALLEGATIONS
12.
Defendant Citibank, N.A. (“Citibank”), is a national bank. Its
principal place of business is Sioux Falls, South Dakota. Citibank conducts
substantial business in this District. TLL and CSF acted in the statutorily defined
role of the Borrower’s Agent in securing PPP loans for two Applicants of Citibank
in an amount of $75,000. Applicants’ PPP loans were funded by Citibank. Based
on information and belief, Citibank has taken custody of the money owed to
Plaintiffs from the Federal Government, yet, prior to filing this suit, when Citibank
was sent several emails requesting payment of the Agent Fee, Citibank failed to
respond. Having taken custody from the SBA of the approximately $739.00 in
Agent Fees owed to Plaintiffs, Citibank has failed to comply with the SBA
Regulations and submit to the SBA Form 159, thereby allowing Defendant to pay
Plaintiffs the statutorily-required fees that Plaintiffs are owed.
13.
Defendant U.S. Bank National Association (“U.S. Bank”) is a
national bank. Its principal place of business is Cincinnati, Ohio. U.S. Bank
conducts substantial business in this District. AVD acted in the statutorily defined
role of the Borrower’s Agent in securing a PPP loan for one Applicant of U.S.
Bank in an amount of $45,000. Applicant’s PPP loan was funded by U.S. Bank.
Based on information and belief, U.S. Bank has taken custody of the money owed
to Plaintiff from the Federal Government, yet, prior to filing this suit, when U.S.
Bank was sent an email requesting payment of the Agent Fee, Defendant responded
that they were not paying Borrowers’ Agents Agent Fees. Additionally, U.S.
Bank’s online application system did not allow the Borrower or Agent to submit
any information identifying the Agent. Having taken custody from the SBA of the
$447.00 in Agent Fees owed to AVD, U.S. Bank has failed to comply with the
SBA Regulations and submit to the SBA Form 159, thereby allowing Defendant
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 6 of 37 Page ID #:1016
7
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
to pay Plaintiff the statutorily-required fees that Plaintiff is owed.
14.
Defendant JPMorgan Chase Bank, N.A. (“Chase”), is a national
bank. Its principal place of business is New York, New York. Chase conducts
substantial business in this District. CSF acted in the statutorily defined role of the
Borrower’s Agent in securing PPP loans for five Applicants of Chase in an amount
of approximately $1,132,000. These Borrowers’ PPP loans were funded, and
Chase has been paid its Lender Fees by the federal government under the PPP,
which by definition, includes the $5,880.00 owed to CSF. Prior to the filing of this
suit, Chase took the public position that it is not paying Agent Fees, and its online
application system did not allow the Borrower or Agent to submit any information
identifying the Agent. Having taken custody from the SBA of the Agent Fees owed
to Plaintiffs, Chase has failed to comply with the SBA Regulations and submit to
the SBA Form 159, thereby allowing Defendant to pay Plaintiffs the statutorily-
required fees that Plaintiffs are owed.
15.
Defendant Wells Fargo Bank, N.A. (“Wells”), is a national bank. Its
principal place of business is Sioux Falls, South Dakota. Wells conducts substantial
business in this District. CSF acted in the statutorily defined role of the Borrower’s
Agent in securing a PPP loan for one Applicant of Wells in an amount of
approximately $50,500. This Borrower’s PPP loan was funded, and Wells has been
paid its Lender Fees by the federal government under the PPP, which by definition,
includes Plaintiff’s. Prior to the filing of this suit, Wells took the public position
that it is not paying Agent Fees, and its online application system did not allow the
Borrower or Agent to submit any information identifying the Agent. Having taken
custody from the SBA of the $502.00 in Agent Fees owed to CSF, Wells has failed
to comply with the SBA Regulations and submit to the SBA Form 159, thereby
allowing Defendant to pay Plaintiff the statutorily-required fees that Plaintiff is
owed. Instead, almost three months after the first of the PPP lawsuits for non-
payment of Agent Fees was filed, “Wells Fargo says it collected $400 million in
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 7 of 37 Page ID #:1017
8
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
processing fees for making Paycheck Protection Program loans. Now the San
Francisco-based bank has pledged to donate all those fees to nonprofit
organizations that are trying to help small businesses recover from the coronavirus
pandemic.”2
16.
Defendant Bank of America, N.A. (“BofA”), is a national bank. Its
principal place of business is Charlotte, North Carolina. BofA conducts substantial
business in this District. CSF acted in the statutorily defined role of the Borrowers’
Agent in securing PPP loans for four Borrowers of BofA in an amount of
approximately $50,000. These Borrowers’ PPP loans were funded, and BofA has
been paid its Lender Fees by the federal government under the PPP, which by
definition, includes Plaintiffs. Prior to the filing of this suit, BofA posted on its
website, “In 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 in applying for loans
through the Paycheck Protection Program.” BofA’s online application system did
not allow the Borrower or Agent to submit any information identifying the Agent.
Having taken custody from the SBA of the $482.00 in Agent Fees owed to CSF,
BofA has failed to comply with the SBA Regulations and submit Form 159,
thereby allowing Defendant to pay Plaintiffs the statutorily-required fees that
Plaintiffs are owed.
17.
Upon information and belief, at all relevant times, Defendant Live
Oak Banking Company (“Live Oak”) is a subsidiary of Live Oak Bancshares,
Inc. Live Oak specializes in originating business loans that are guaranteed by
the SBA. Live Oak is headquartered in Wilmington, North Carolina, and
conducts substantial business within the State of California. CSF acted in the
2 https://www.americanbanker.com/news/heres-where-wells-fargo-is-donating-
its-400m-in-ppp-
fees#:~:text=Wells%20Fargo%20says%20it%20collected,recover%20from%20t
he%20coronavirus%20pandemic.
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 8 of 37 Page ID #:1018
9
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
statutorily defined role of the Borrower’s Agent in securing a PPP loan for one
Applicant of Live Oak in an amount of approximately $20,833. Having taken
custody from the SBA of the $208.33 in Agent Fees owed to CSF, Live Oak has
failed to comply with the SBA Regulations and submit Form 159, thereby
allowing Defendant to pay Plaintiffs the statutorily-required fees that Plaintiffs
are owed. When Live Oak was sent an email requesting payment of the Agent
Fee, Defendant responded that they were not paying Borrowers’ Agents any
fees.
18.
Upon information and belief, at all relevant times, Defendant,
Harvest Small Business Finance (“Harvest”) is a limited liability company
organized and authorized to do business and doing business in the State of
California. Harvest is a non-bank lender with the specific goal of serving small
business borrowers and is located in Laguna Hills, California. AVD acted in the
statutorily defined role of the Borrower’s Agent in securing PPP loans for five
Applicants of Harvest in an amount of approximately $1,800,000. Having taken
custody from the SBA of the $6,397.00 in Agent Fees still owed to AVD,
Harvest has failed to comply with the SBA Regulations and to pay Plaintiffs the
statutorily-required fees that Plaintiffs are owed. When Harvest was contacted
for payment of the Agent Fees, Harvest responded that they are only paying 50%
of the statutory fee.
II. JURISDICTION AND VENUE
19.
The Court has original jurisdiction over this action under the Class
Action Fairness Act, 28 U.S.C. §1332(d), because this is a class action in which
(1) at least some members of the proposed Class have different citizenship from
Defendant(s); (2) the proposed Class consists of more than 100 persons or entities;
and (3) the claims of the proposed members of the Class exceed $5,000,000 in the
aggregate.
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 9 of 37 Page ID #:1019
10
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
20.
This Court has personal jurisdiction over Defendants because
Defendants do business in this District, and a substantial number of the events
giving rise to the claims alleged herein took place in this District.
21.
The venue is proper in this District pursuant to 28 U.S.C. §
1391(b)(2) because Plaintiffs’ principal place of business are located in this
District, and a substantial part of the events or omissions giving rise to the alleged
claims occurred in this District. Plaintiffs, on behalf of its clients, applied for the
PPP loans while in this District and Defendants marketed, promoted, and took
Applications for the PPP loans in this District.
III.
FACTUAL ALLEGATIONS
BACKGROUND
22.
On January 21, 2020, the Center for Disease Control and Prevention
(“CDC”) confirmed the first U.S. case of a new coronavirus, known as COVID-
19.
23.
On January 30, 2020, the World Health Organization (“WHO”)
declared the COVID-19 outbreak to be a “public health emergency of international
concern.”
24.
On March 4, 2020, California Governor Gavin Newsom proclaimed
a State of Emergency to exist in California as a result of the threat of COVID-19.
25.
On March 11, 2020, the WHO declared that the spread of COVID-
19 had become a pandemic.
26.
On March 13, 2020, President Trump issued the Coronavirus
Disease 2019 (COVID-19) Emergency Declaration applicable to the United States,
which declared that the pandemic was of “sufficient severity and magnitude to
warrant an emergency declaration for all states, territories and the District of
Columbia.”
27.
The Trump Administration expressly recognized that with the
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 10 of 37 Page ID
#:1020
11
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
COVID-19 emergency, “many small businesses nationwide are experiencing
economic hardship as a direct result of the Federal, State, and local public health
measures that are being taken to minimize the public’s exposure to the virus.” See
Business Loan Program Temporary Changes; Paycheck Protection Program, 13
CFR Part 120, Interim Final Rule (the “SBA PPP Final Rule”).
28.
On March 25, 2020, in response to the economic damage caused by
the COVID-19 crisis, the United States Senate passed the Coronavirus Aid, Relief,
and Economic Security Act, the CARES Act (P.L. 116-136). The CARES Act was
passed by the House of Representatives the following day and signed into law by
President Trump on March 27, 2020. This legislation included $377 billion in
federally-funded loans to small businesses and a $500 billion governmental
lending program administered by the United States Department of Treasury
(“Treasury”) and the SBA, a United States government agency that provides
support to entrepreneurs and small businesses.
29.
On August 8, 2020, the SBA stopped accepting PPP Applications as
the PPP ended.
THE PPP: A PROGRAM DESCRIPTION
30.
As part of the CARES Act, the Federal Government created a $349
billion loan program, referred to as the Paycheck Protection Program or PPP,
temporarily adding a new product to the SBA’s 7(a) Loan Program (“SBA 7(a)
Program” or “SBA 7(a) Loans”).
31.
The PPP provided small businesses with loans to be originated from
February 15, 2020, through June 30, 20203. The PPP was created to provide
American small businesses with eight-weeks4 of cash-flow assistance and to allow
a certain percentage of the loan to be forgiven if the loan is utilized to retain
3 On June 30, the PPP Application deadline was extended until August 8, 2020.
4 On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020
(Pub. L. 116-142), extended the eight-week period to twenty-four weeks.
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 11 of 37 Page ID
#:1021
12
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
employees and fund payrolls. Although the loans are administered by the Treasury
and backed by the Federal Government, the loans are funded by private lenders,
including the Defendants, that review and approve PPP Applications.
32.
The Treasury announced on April 3, 2020, that small businesses and
sole proprietors could fill out an Application to apply and receive loans to cover
their payroll and other expenses through approved SBA Lenders. Beginning on
April 10, 2020, independent contractors and self-employed individuals could apply
as well.5
33.
On April 24, 2020, President Trump signed the Paycheck Protection
Program and Health Care Enhancement Act (“PPPEA”). The PPPEA added $310
billion in PPP funding, bringing the total PPP funds available to lend to $659
billion.
34.
On June 5, 2020, President Trump signed the Paycheck Protection
Program Flexibility Act of 2020 (“Flexibility Act”) (Pub. L. 116-142), which
changed key provisions of the Paycheck Protection Program, including provisions
relating to the maturity of PPP loans, the deferral of PPP loan payments, and the
forgiveness of PPP loans. The Flexibility Act did not change Defendants’
statutory duty to pay Plaintiffs the Agent Fees Plaintiffs are owed.
35.
The 2019 SBA Standard Operating Procedures6 (“SBA SOP”) and
the SBA PPP Final Rule7 (collectively, the “SBA Regulations”), consistent with
5 Paycheck Protection Program (PPP) Information Sheet: Borrowers, Dep’t of
Treasury (last visited, June 18, 2020),
https://home.treasury.gov/system/files/136/PPP--Fact-Sheet.pdf
6 https://www.sba.gov/sites/default/files/2019-
02/SOP%2050%2010%205%28K%29%20FINAL%202.15.19%20SECURED%
20copy%20paste.pdf. Last visited December 7, 2020.
7 https://home.treasury.gov/system/files/136/PPP--IFRN%20FINAL.pdf. Last
visited December 7, 2020.
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 12 of 37 Page ID
#:1022
13
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
the Treasury’s Paycheck Protect Program (PPP) Information Sheet for Lenders8
(the “PPP ISL”), describes a system to distribute the PPP loans that relies on SBA
authorized Lenders – who approve and fund loan applicants – and independent
agents, hired by either the Borrower or Lender – who provide small businesses
with the necessary assistance enabling them to apply for a PPP loan.
36.
Under the SBA Regulations and PPP ISL, a PPP Agent “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 lender9 with originating, disbursing,
servicing, liquidating, or litigating SBA loans [(“Lender
Agent”)];
• A loan broker; or,
• Any other individual or entity representing an applicant by
conducting business with the SBA.”10
37.
Unlike the traditional SBA 7(a) Program, the SBA Regulations
expressly contemplate and encourage Borrower Agents to assist small businesses
with their Applications. The SBA Regulations allow for and set standards by which
PPP Agents are to be paid for their work. Specifically, the regulations require
8 Paycheck Protection Program (PPP) Information Sheet: Lenders, Dep’t of
Treasury (last visited, June 18, 2020),
https://home.treasury.gov/system/files/136/PPP%20Lender%20Information%20F
act%20Sheet.pdf?
9 An agent that “assists a lender” is categorized by the SBA SOP as a lender
agent (“Lender Agent”) (footnote added).
10 Id. Paycheck Protection Program (PPP) Information Sheet: Lenders.
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 13 of 37 Page ID
#:1023
14
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
that PPP Agents be paid from a portion of the set fees provided to SBA
Lenders for processing the PPP loan.
38.
Congress delegated the authority to the SBA to determine the
methodology and the maximum amount an Agent may collect in its Agent Fees.11
39.
Before the passage of the CARES Act, Lenders were not
compensated by the SBA for originating SBA 7(a) Loans. Under the newly
enacted SBA Regulations for PPP loans, Lenders are generously compensated for
processing PPP loans (“Lender Fees”) based on the amount funded to the
Borrower. The SBA pays Lender Fees to Lenders who process PPP loans in the
following amounts:
• Five percent (5%) for loans of not more than $350,000;
• Three percent (3%) for loans of more than $350,000 and less
than $2,000,000; and
• One percent (1%) for loans of at least $2,000,000.12
40.
The SBA Regulations state, “Agent fees will be paid by the lender
out of the fees the lender receives from SBA. Agents may not collect fees from
the borrower or be paid out of the PPP loan proceeds. The total amount that an
agent may collect from the lender for assistance in preparing an application for a
PPP loan … may not exceed:
• One (1) percent for loans of not more than $350,000;
• 0.50 percent for loans of more than $350,000 and less than $2
million; and
• 0.25 percent for loans of at least $2 million.”13
11 “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.” CARES Act 15 USCA § 636 1102.
(a)(2)(36)(P)(ii).
12 85 FR 20816 (3)(d).
13 85 FR 20816 (4)(c).
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 14 of 37 Page ID
#:1024
15
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
41.
The CARES Act authorized the Treasury to establish limits on Agent
Fees. The Treasury, “in consultation with the Secretary, determined that the
agent fee limits set forth above are reasonable based upon the application
requirements and the fees that lenders receive for making PPP loans.”14
42.
In other words, when implementing the CARES Act, the Treasury
determined that the best and quickest way to get the PPP loans to the small
businesses was to establish new regulations where Lenders and Borrower Agents
work together to quickly and efficiently process Applications.15
Plaintiffs are the Borrower’s Agent, Not the Lender’s Agent
43.
By assisting businesses in preparing their Applications for PPP
funding, PPP Agents played a critical role in fulfilling the goals of the CARES Act
and ensuring adherence to the United States Congress’s legislative intent. Indeed,
the Senate directed the Treasury to “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.”16
14 Id. (emphasis added).
15 Adding validity to the need to file this action, on May 27, 2020, United
Community Banks, Inc. (“UCB”), received a civil investigative demand (“CID”)
from the U.S. Department of Justice (the “DOJ”) pursuant to the False Claims
Act. The CID directed UCB and its affiliated entities “to produce certain
documents and respond to written interrogatories relating to the PPP loans
approved by the Bank, the Bank’s non-payment of fees to agents of borrowers
and the Bank’s policies related to payment or non-payment of agent fees.”
(United Community Banks, Inc., Form 8-K (last visited June 18, 2020),
https://ir.ucbi.com/static-files/c7f8eaa8-d6bf-48e8-8ebc-a60c0bf3adea. UCB is a
named defendant in another lawsuit based on the same allegations in the Northern
District of Georgia, 1:20-cv-02026-LMM.)
16 CARES ACT, PL 116-136, March 27, 2020, 134 Stat 281 (emphasis added).
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 15 of 37 Page ID
#:1025
16
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
44.
Congress saw the PPP as a symbiotic three-party program: the
Agent, the Lender, and the Borrower. Each party was considered a co-equal in the
process. Each played an essential role in effectuating the PPP’s policies of putting
scarce federal funds into Main Street America's hands to prevent economic
collapse.
45.
The Final Rule states that “[t]he program requirements of the PPP
identified in this rule temporarily supersede any conflicting Loan Program
Requirement (as defined in 13 CFR 120.10) . (The “Conflicting Requirements”).17
46.
Defendants freely (and hypocritically) accept the Conflicting
Requirements implementing the payment of their Lender Fees from the SBA but
refuse to acknowledge the Conflicting Requirements implementing the payment of
Agent Fees.
47.
On or about August 27, 2020, the SBA reaffirmed its earlier stance
on the PPP regulations as compared to the traditional SBA 7(a) Program by
publishing the new SBA’s Standard Operating Procedure 50 10 6, Part 2, Section
B, page 22418, which clarifies that, “Because Paycheck Protection Program (PPP)
loans authorized under § 7(a)(b) of the Small Business Act are 7(a) loans, this SOP
applies to the making of PPP loans, to the extent that the SOP is not
superseded by or in conflict with PPP-specific requirements.”
48.
Under the PPP, as well as the traditional SBA 7(a) Program, there
are Lender Agents and Borrower Agents. These are two separate, distinct
categories of agents, with separate SBA governing requirements.
49.
The Borrower Agent works for the Borrower. As detailed in the SBA
SOP, “Employment of Agent Initiated by Applicant… When an Applicant employs
an Agent: 1. The Agent may bill and be paid by the Applicant for providing
packaging services as long as compensation is reasonable and customary for those
17 85 FR 20812 III 1
18 Effective October 1, 2020 (“SBA SOP 2020”).
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 16 of 37 Page ID
#:1026
17
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
services…”19 As for the, “compensation is reasonable and customary for those
services”, as stated above, the SBA and Treasury Secretary Mnuchin determined
that the Agent Fees “are reasonable based upon the application requirements and
the fees that lenders receive for making PPP loans.” 20
50.
Immediately following the section in the SBA SOP titled
“Employment of Agent Initiated by Applicant” is “Employment of Agent by
Lender (not an LSP).” This section provides the rules that the Lender must follow
when hiring its own Agent. “When a Lender has decided to approve a loan
application and needs assistance with the preparation of the paperwork for
the application to SBA, the loan closing, or preparation of the loan to sell it on
the Secondary Market, the Lender may use an Agent…. 2. The Agent must bill
and be paid by the Lender for all services and the Lender may not pass these
charges through to the Applicant under any circumstances.”21
51.
The Lender has the sole right to determine whether or not they will
retain a Lender Agent. The Borrower has no right to approve or disapprove the
Lenders’ Agent. Similarly, per the SBA SOP and the SBA Regulations, Borrowers
are free to choose their own Agent, and the Lender has no right to approve or
disapprove the Borrowers’ Agent, or to dictate the amount a Borrower’s Agent will
be paid.
52.
The Plaintiffs acted in the statutorily approved role of the
Borrower’s Agent for the Borrower’s that obtained their PPP loans from the
Defendants.
53.
Nowhere in the CARES Act, the SBA SOP, the SBA SOP 2020,
or the SBA Regulations does the federal government require, mandate, or
even suggest that a Borrower Agent be approved by a Lender, either before
19 SBA SOP, Subpart B, ch 3, IX(D).
20 85 FR 20816 (4)(c).
21 SBA SOP, Subpart B, Ch. 3, IX(E) (emphasis added).
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 17 of 37 Page ID
#:1027
18
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
or after the Agent assists the Borrower, in order for the Agent to be entitled
to its Agent Fee. What they do say is that the Lender must complete, sign, and
submit the necessary forms for the Borrower’s Agent to receive their Agent Fee,
which Defendants refuse to do, even though the only way Defendants could be PPP
Lenders is if they agreed to comply with all of the SBA Regulations.
Defendants were Legally Required to Complete, Sign, and Submit Form 159
54.
In the traditional SBA (7)(a) Program, the Lender pays the Lender’s
Agent, and the Borrower pays the Borrower’s Agent their respective Agent Fee.
However, the SBA Regulations specifically overrode that possibility by stating,
“Agent fees will be paid by the lender out of the fees the lender receives from
SBA. Agents may not collect fees from the borrower or be paid out of the PPP
loan proceeds.” Therefore, the traditional SBA SOP is in “conflict with PPP-
specific requirements,” meaning the Conflicting Regulations apply. Therefore, the
Lender is legally required to pay the Borrower’s Agent the Agent Fee normally
paid by the Borrower.
55.
In order for the Borrower to pay the Borrower’s Agent under the
traditional 7(a) Program, the Borrower would use Form 159, which the Borrower,
the Borrower’s Agent, and the Lender must sign. But because the SBA Regulations
overrode who pays the Borrower’s Agent, the SBA requires the Lender to use
Form 159. “The Applicant or the Lender, depending on who paid or will pay the
Agent, must use SBA Form 159, ‘Fee Disclosure Form and Compensation
Agreement,’ to document the fees.”22 The SBA Regulations specifically put the
Lender into the Borrower’s shoes and require the Lender to fill out and sign
the required Form 159.
56.
SBA Form 159 states: “Who must complete this form?: This form
must be completed and signed by the SBA Lender and the Applicant
whenever an Agent is paid by either the Applicant or the SBA Lender in
22 SBA SOP, Subpart B, ch. 3, VIII(B)(1).
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 18 of 37 Page ID
#:1028
19
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
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
57.
The Final Rule states that Agent fees will be paid by the lender out
of the fees the lender receives from the SBA. Since the Lender is paying the Agent
Fee, the Lender is required to fill out Form 159.
58.
The only time the Agent is required to sign Form 159 is if the Agent
is being paid by the Applicant. Under the PPP, the Applicant is expressly
disallowed to pay the Agent, shifting the responsibility to the Lender. The Agent
is not required to fill out or sign Form 159.
59.
Additionally, supporting that it is the Lenders’ legal responsibility
to submit Form 159 to the SBA, the SOP requires that, “Lenders must submit
SBA Form 159 to Fiscal Transfer Agent (“FTA”) on loans that involve
payment of fees, including, but not limited to, those covering any packaging fees
charged by the Lender or where the Lender paid the Agent fee.”24
60.
Nowhere in the CARES Act, the SBA Regulations, the SOP, or
Form 159, does the Lender have the power to tell the Borrower they cannot use the
Agent of their choosing or decide to not fill out, sign, and submit Form 159.
61.
Instead, each of the Defendants: (1) stated they were not paying
Agent Fees or failed to respond to Plaintiffs’ request for Agent Fees; (2) provided
some of the necessary SBA forms that the Borrower was required to fill out, but
unlike other Lenders, Defendants specifically excluded Form 159; (3) designed
their Application process to avoid learning the fact or identity of any Borrower
Agents, so the Lender did not have to fill out Form 159; or, (4) even after learning
the identity of the Agent, Defendants refused to comply with the SBA SOP and fill
23 SBA Form 159, at p. 1.
24 SBA SOP, Subpart B, Ch. 3, VIII(B)(6).
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 19 of 37 Page ID
#:1029
20
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
out Form 159 and submit it to the SBA after the Borrower’s PPP loan was funded.
62.
According to the Final Rule, “Lenders must comply with the
applicable lender obligations set forth in this interim final rule.” 25 Defendants
agreed to comply with the SBA Regulations, which include, “Prior to the services
being provided, the Lender must advise the Applicant in writing that the Applicant
is not required to obtain or pay for unwanted services. If fees are charged to the
Applicant, an SBA Form 159 must be completed.” 26 Yet, Defendants failed to
provide such notice to the Borrower. Defendants’ failure to comply with SBA
Regulations not only required the filing of this lawsuit but increased the potential
for fraud by their failure to warn.
63.
Under the SBA Regulations, it is impossible for Plaintiff or the
Borrower to have accurately submitted Form 159 prior to the Lender approving a
Borrower’s PPP loan. The Agent Fee was a set percentage of the funded PPP loan
amount and with most Borrowers that Plaintiffs worked with, the initial
Application amount requested was adjusted by the Lender based on the
methodology each Lender used to approve the loan amount. Numerous additional
hours were spent by the Agents between the initial submission of the Application
and the final funding of the PPP loans, making the itemization of services requested
on Form 159 for Agent Fees over $2,500 impossible to complete prior to the PPP
loan being approved by the Lender.
64.
Assuming, arguendo, that the Plaintiffs or Borrowers were supposed
to submit Form 159 to the Lender, then, as described in detail above, even though
Plaintiffs were ready, willing, and able to fill out Form 159, Defendants thwarted
Plaintiffs’ ability of submission by not allowing Plaintiffs or Borrowers to submit
Form 159 or by stating Defendant was not paying Agent Fees, making any attempt
by Plaintiffs in submitting Form 159 futile. As Form 159 is required to be
25 85 CFR 20812 III 1.
26 SBA SOP, Subpart B, VI, A 3.
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 20 of 37 Page ID
#:1030
21
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
submitted after the Borrower’s loan has funded, Plaintiffs remain ready, willing,
and able to fill out Form 159 if the Court finds that Plaintiffs are required to do so.
PLAINTIFFS ASSISTED SMALL BUSINESS BORROWERS WITH
APPLYING FOR PPP LOANS
65.
To assist its clients with preparing Applications for a PPP loan
through Defendants, Plaintiffs spent considerable time familiarizing themselves
with the CARES Act and the related SBA Regulations. In particular, relevant
provisions include Section 1102, which permits the SBA to guarantee 100% of
SBA 7(a) Loans under the PPP, and Section 1106 of the Act, which provides
forgiveness of up to the full principal amount of qualifying loans guaranteed under
the PPP.
66.
Complying with the SBA Regulations, Plaintiffs assisted Applicants
in the preparation of their Application. As contemplated by the Federal
Government, such assistance contributed to the successful funding of the
Applicants’ PPP loans with a Defendant.
67.
If not for the Borrowers’ Agents, millions of small businesses would
have had difficulty or been unable to apply for PPP loans.
68.
Based on the SBA Regulations, Plaintiffs understood that they were
not allowed to charge Applicants any fee relating to the Application process and
that they were only permitted to receive compensation from the PPP Agents’
portion of the Lender Fees the Federal Government entrusted to the Lenders for
the PPP Agents’ benefit.
69.
Plaintiffs further understood that they were not entitled to the Agent
Fees until the Lender received its Lender Fees. Based on information and belief,
Defendants have received the Lender Fees for the Applicants Plaintiffs assisted as
well as the members of the Class assisted, thereby making the Agent Fees
immediately due to Plaintiffs.
70.
To participate in the PPP, “Lenders must comply with the applicable
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 21 of 37 Page ID
#:1031
22
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
lender obligations set forth in this [Final Rule]…”27.
71.
Therefore, Plaintiffs believed in good faith that Defendants would
comply with the law and pay Plaintiffs the statutorily required Agent Fees.
72.
However, Defendants violated the SBA Regulations because they
did not pay Plaintiffs the Agent Fees the Federal Government entrusted to the
Defendants for the benefit of the Plaintiffs. Instead, Defendants have illegally
retained the Agent Fee portion of the Lender Fees.
73.
Defendants, as Lenders under the PPP, lack any legal authority under
the SBA Regulations to withhold payment of the Agent Fees to Plaintiffs.
74.
Defendants received, and are keeping for their benefit, money
specifically identifiable as belonging to the Plaintiff under the SBA payment
mechanisms.28
75.
As a result of Defendants’ unlawful actions, Plaintiffs and the Class
have suffered financial harm by being deprived of the statutorily mandated
compensation for the assistance they provided in their critical role as a PPP Agent,
assisting Applicants in the preparation of their PPP Application. Defendants barred
Plaintiffs from receiving compensation for their role as PPP Agents in the PPP
process, which role resulted in significant benefits to both small businesses and the
Lenders.
27 85 FR 20812 (1). (emphasis added).
28 Lenders are required to submit SBA Form 1502 to receive their Lender Fees,
which by statute include the Agent Fees. Each PPP loan is listed on a separate
line and submitted to the SBA for payment. In order to make the calculation of
the individual Lender Fee and Agent Fee traceable for the Lender, the “SBA will
make a payment for each loan on an individual basis so that Lenders will be able
to match the received payment with the corresponding loan.” SBA Procedural
Notice #5000-20036. https://www.sba.gov/sites/default/files/2020-07/5000-
20036-508.pdf. Last visited December 7, 2020.
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 22 of 37 Page ID
#:1032
23
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
IV. CLASS ALLEGATIONS
76.
Plaintiffs brings this action on behalf of themselves and all other
similarly situated Class Members pursuant to Rule 23(a), (b)(2), and (b)(3) of the
Federal Rules of Civil Procedure and seeks certification of the following
Nationwide Class:
All Agents who assisted a business in preparing an Application
for a PPP loan pursuant to the CARES Act (the “Nationwide
Class”).
77.
To the extent that a Nationwide Class is not certified, in the
alternative, Plaintiffs brings this action on behalf themselves, and all other
similarly situated Class Members pursuant to Rule 23(a), (b)(2), and (b)(3) of the
Federal Rules of Civil Procedure and seeks certification of the following Statewide
Class:
All Agents who assisted a business in California in preparing an
Application for a PPP loan pursuant to the CARES Act (the
“Statewide Class”).
The Statewide and Nationwide Class may hereafter be referred to as the “Class”.
78.
For purposes of the Class definition, the term “Agent” has the same
meaning as an “agent” under the SBA Regulations.
79.
Plaintiffs reserve the right to expand, limit, modify, or amend this
Class definition, including the addition of one or more subclasses, in connection
with Plaintiffs’ motion for class certification, or any other time, based upon, inter
alia, changing circumstances and/or new facts obtained during discovery.
80.
The following are excluded from the Class and/or Subclass: (a) any
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 23 of 37 Page ID
#:1033
24
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Judge or Magistrate presiding over this action and members of their families; (b)
the officers, directors, or employees of Defendants; and (c) all persons who
properly execute and file a timely request for exclusion from the Class.
81.
Numerosity: The Class is composed of hundreds or thousands of
Agents (the “Class Members”), whose joinder in this action would be
impracticable. The disposition of their claims through this class action will benefit
all Class Members, the parties, and the courts.
82.
Commonality and Predominance: Common questions of law and
fact affect the Class. These questions of law and fact predominate over individual
questions affecting individual Class Members and include, but are not limited to,
the following:
a. Whether Plaintiffs are an “agent” as that term is defined by the Cares
Act and relevant regulations;
b. Whether Defendants were obligated to pay Plaintiffs and the Class
Agent Fees from the Lender Fees it received under the CARES Act;
c. Whether Defendants failed to pay Agent Fees they were required to
pay;
d. Whether Class Members are entitled to damages; and if so, in what
amount;
e. Whether Defendants are likely to continue to mislead the public and
Class Members and continue to violate SBA Regulations regarding
paying Agents their earned fees under the CARES Act;
f. Whether Plaintiffs and Class Members are entitled to an award of
reasonable attorney’s fees, pre-judgment interest and costs of suit; and
g. Whether Defendants were unjustly enriched by their practice of
refusing to pay Agent Fees.
83.
Superiority: In engaging in the conduct described herein, Defendants
have acted and/or failed to act on grounds generally applicable to Plaintiffs and
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 24 of 37 Page ID
#:1034
25
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
other Class Members. Such behavior requires the Court’s imposition of uniform
relief to ensure compatible standards of conduct toward Class Members. A class
action is superior to all other available means for the fair and efficient adjudication
of Plaintiffs’ and the Class Members’ claims. Few, if any, Class Members could
afford or would deem it economically reasonable to seek legal redress of the
wrongs complained of herein on an individual basis. Absent a class action, Class
Members would not likely recover or have the chance to recover, and Defendants
would be permitted to retain the fruits of their misdeeds. Any difficulties that might
occur in the management of this proposed class action are insubstantial. See Fed.
R. Civ. P. 23(b)(1)(A).
84.
Typicality: Plaintiffs’ claims are typical of, and are not antagonistic
to, the claims of the other Class Members. Plaintiffs and the Class Members have
been injured by Defendants’ uniform, unfair and unlawful practice of denying PPP
Agent Fees, as alleged herein. The factual and legal basis of Defendants’ liability
to Plaintiffs and each Class Member as a result of Defendants’ actions are
described herein.
85.
Adequacy: Plaintiffs are an adequate representative of the Class
because it is a member of the Class, and Plaintiffs’ interests do not conflict with
the interests of the other Class Members that Plaintiffs seek to represent. Plaintiffs
will fairly and adequately represent and protect the interests of the other Class
Members. Plaintiffs have retained counsel with substantial experience in litigating
complex cases, including class actions. Both Plaintiffs and their counsel will
vigorously prosecute this action on behalf of the Class and have the financial ability
to do so. Neither Plaintiffs nor counsel have any interest adverse to other Class
Members.
86.
Plaintiffs are informed and believes that Defendants keep extensive
computerized records of their loan applications through, inter alia, computerized
loan application systems, and Federally-mandated record-keeping practices.
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 25 of 37 Page ID
#:1035
26
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Defendants have one or more databases through which all of the Applicants may
be identified and ascertained, and it maintains contact information, including email
and mailing addresses. From this information, the existence of the Class Members
(i.e., the PPP Agent for the Applicant) can be determined, and thereafter, a notice
of this action can be disseminated in accordance with due process requirements.
V. CAUSES OF ACTION
COUNT I
DECLARATORY RELIEF
AGAINST ALL DEFENDANTS
87.
Plaintiffs hereby incorporate by reference the foregoing allegations
as if fully set forth herein.
88.
Plaintiffs assisted their clients with the PPP Loan application
process, allowed Defendants to secure customers for PPP lending, and satisfied all
prerequisites for obtaining PPP Agent Fees. Defendants failed to pay Agent Fees
owed to Plaintiffs as required by the SBA Regulations. Instead, Defendants kept
the Agent Fees for themselves, in direct violation of the SBA Regulations.
89.
An actual controversy has arisen between Plaintiffs and Defendants
as to the Agent Fees owed to Plaintiffs by Defendants. Through their conduct of
refusing to pay Agent Fees and otherwise, Defendants have denied that they owe
the statutorily required Agent Fees to Plaintiffs and the Class.
90.
Plaintiffs and the Class seek a declaration, in accordance with SBA
Regulations and pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201, that
Defendants are obligated to fill out, sign, and submit Form 159 to the SBA, set
aside money to pay the Agent Fees, and to pay the Agent Fees the Borrowers’
Agents have earned for the work performed on behalf of their clients that received
a PPP loan from the Defendants.
91.
Plaintiffs and the Class seek a declaration in accordance with the
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 26 of 37 Page ID
#:1036
27
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
SBA Regulations that a portion of the Lender Fees paid to Defendants must be paid
to Plaintiffs and the Class.
COUNT II
UNJUST ENRICHMENT
AGAINST ALL DEFENDANTS
92.
Plaintiffs hereby incorporate by reference the foregoing allegations
as if fully set forth herein.
93.
Plaintiffs and the Class Members are Borrower Agents who assisted
small businesses in preparing their Application for a PPP loan from Defendants.
This assistance directly conferred a benefit upon Defendants, who, in turn, received
a federal guarantee of repayment of the funds, interest on the lent amount, as well
as a substantial Lender Fee for each PPP loan from the U.S. Government.
94.
Defendants knew or should have known that they would directly
receive a specific financial benefit from the Lender Fees, which included the Agent
Fees, as well as the interest the Defendants earn for funding the Borrowers’ PPP
loan based on the Application which Plaintiffs and the Class Members assisted the
Borrowers in preparing for submission to Defendants.
95.
Defendants earned their Lender Fees in large part based on the work
of Plaintiffs and the Class Members.
96.
Defendants were aware that Borrowers were using Borrower Agents
and continued to accept Borrowers’ Applications knowing full well that a
Borrower Agent would likely be involved.
97.
Defendants are all sophisticated SBA lenders and are well aware of
the benefit an Agent has in ensuring the successful funding of an SBA loan.
98.
Knowing full well that there was a high degree of likelihood that a
Borrower’s Agent would be involved in the transaction, Defendants accepted and
funded the Borrower’s PPP loan earning them their Lender Fee, a portion of which
is the Agent Fee.
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 27 of 37 Page ID
#:1037
28
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
99.
Plaintiff believed they would be compensated for their work through
the Agent Fee owed to them by Defendants.
100.
Defendants knew that Form 159 was required for Plaintiffs to
receive their Agent Fees, but chose not to provide Form 159 or allow the
submission of form 159.
101.
Defendants intended that Plaintiff rely upon their conduct in that
Defendants agreed to comply with the SBA Regulations, and Plaintiff reasonably
relied on Defendants’ conduct when fulfilling its obligations as the Borrower
Agent.
102.
Plaintiff was ignorant of the true facts behind Form 159.
103.
Plaintiff suffered a detriment because of Defendants conduct.
104.
If not for the diligent work of the Plaintiffs and Class Members, the
amount of Lender Fees Defendants could have earned would have been
substantially reduced.
105.
Defendants want Plaintiffs to work for free, while the Defendants
keep 100% of the $18.2 billion in Lender Fees paid by the federal government to the
Lenders.29
106.
Although Plaintiff conferred a substantial benefit to the Defendants
by assisting the Borrower with the Application, thereby allowing the Lender to
fund the PPP loan and earn its Lender Fees30, Plaintiff was not hired by the Lender
29 Based on final PPP loan data released by the SBA, Lenders were paid an
estimated $18,289,452,785 in Lender Fees which included the Agent Fees the
federal government entrusted to the Lenders to be paid to the Borrower Agents.
https://home.treasury.gov/system/files/136/SBA-Paycheck-Protection-Program-
Loan-Report-Round2.pdf.
30 The Lender Fees generated in part by the work of the Borrower Agents are not
small. Like Agent Fees, Lender Fees are based strictly on the dollar amount of
the loan. It does not matter how much work or effort the Lender put into funding
the loan. A Lender will earn $100,000 in Lender Fees on funding a $10 million
loan. Based on publicly available information, Defendants earned approximately
the following amount in Lender Fees, which includes the Agent Fees entrusted to
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 28 of 37 Page ID
#:1038
29
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
to assist the Lender; the Borrower hired Plaintiff to assist the Borrower
107.
To participate in the PPP, “Lenders must comply with the applicable
lender obligations set forth in this [Final Rule]…”31. Despite their efforts as PPP
Agents, Defendants have failed to pay Plaintiffs and the Class Members the Agent
Fees in violation of the Final Rule.
108.
Instead, Defendants have retained the full amount of the Lender Fees
from which the SBA Regulations require Agent Fees to be paid. Therefore,
Defendants have unfairly retained fees intended to benefit and compensate
Plaintiffs and the Class for their efforts in promoting the interests of the CARES
Act and ensuring small businesses receive PPP loans.
109.
By holding themselves out as PPP lenders and certifying that they
would comply with their lender obligations, Defendants’ conduct requested
Plaintiffs, and the Class Members, to assist Applicants with their PPP Applications
and have the Applications submitted to Defendants for approval.
110.
Defendants retention of the Agent Fees to which Plaintiffs and the
Class Members are entitled constitutes an undue advantage or is, at a minimum,
unconscionable.
111.
Defendants have been, and continue to be unjustly enriched, to the
detriment and at the expense of the Plaintiffs and the Class Members.
112.
Defendants have unjustly benefitted through the illegal retention of
the Agent Fee portion of the Lender Fees paid by the Federal Government to the
Defendants for the benefit of the Plaintiffs and the Class.
113.
If Defendants’ practice of retaining the full amount of Lender Fees
Defendants by the SBA: Citibank - $118 million, U.S. Bank - $299 million,
Chase $1 billion, Wells - $447 million, BofA - $990 million, Live Oak - $61
million, and Harvest - $38 million. Source: https://home.treasury.gov/policy-
issues/cares-act/assistance-for-small-businesses/sba-paycheck-protection-
program-loan-level-data. Last visited December 2, 2020.
31 85 FR 20812 (1) (emphasis added).
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 29 of 37 Page ID
#:1039
30
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
despite the efforts of PPP Agents who, under the SBA Regulations, are entitled to
a portion of the Lender Fees as Agent Fees, then the purpose and intent of the
CARES Act would be upset because PPP Agents would receive no due
compensation for assisting small businesses seeking a PPP Loan.
114.
Plaintiffs and the Class have no other means of obtaining
compensation because the SBA Regulations prohibit PPP Agents from
receiving payment from any source other than the Lender Fees and expressly
prohibit collecting any fees from the Applicants.
115.
Defendants’ conduct willfully and intentionally negates the terms of
the SBA Regulations by unilaterally refusing to fill out, sign, and submit the
required SBA Form 159 and to forward to the PPP Agents the regulatorily required
Agent Fees that the Federal Government entrusted to the Lenders. Defendants’
actions render those terms superfluous and undermine the intent of Congress to
promote small business loans under the PPP and CARES Act.
116.
Defendants should not be allowed to retain the proceeds from the
benefits conferred upon it by Plaintiffs and the U.S. Government.
117.
Plaintiffs and the Class were injured as a direct and proximate cause
of Defendants’ misconduct. Therefore, Plaintiffs seeks disgorgement of
Defendants’ unjustly acquired profits and other monetary benefits resulting from
Defendants’ unlawful conduct, an injunction preventing Defendants from
continuing their unlawful conduct, and all other relief afforded under the law that
this Court deems just and proper.
COUNT III
CONVERSION
AGAINST ALL DEFENDANTS
118.
Plaintiffs hereby incorporate by reference the foregoing allegations
as if fully set forth herein.
119.
Under the SBA Regulations, Plaintiffs and the Class, as PPP Agents,
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 30 of 37 Page ID
#:1040
31
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
have a right to, title in, and the legal right of possession of, Agent Fees that must
be paid from the amount of Lender Fees provided to Defendants for lending money
pursuant to approved Applications.
120.
The SBA Regulations state that “Agent fees will be paid out of
lender fees” and provide guidelines on the amount of Agent Fees that should be
paid to the PPP Agent, depending on the size of the PPP loan secured.
121.
Additionally, the SBA Regulations require that Lenders, not
Borrowers, pay the Agent Fees and fill out, sign, and submit Form 159 to the SBA.
The SBA Regulations unequivocally state that “Agents may not collect fees from
the applicant.”
122.
Plaintiffs and the Class fulfilled the role of PPP Agent by assisting
small businesses with their Applications. Due to Plaintiffs’ efforts, Defendants
made federally backed PPP loans, entitling Defendants to Lender Fees from the
U.S. Government. As such, Plaintiffs have a right to receive, and title to, the
regulatorily-mandated Agent Fees.
123.
Although Plaintiffs are entitled to Agent fees under the SBA
Regulations, Defendants have failed to pay the required Agent Fees, which the
Federal Government paid to the Defendants as part of the Lender Fees. Defendants
have no legal claim, authorization, or approval for this wrongful withholding of
the Agent Fees. Therefore, Defendants have appropriated, assumed, and exercised
dominion over the Plaintiffs’ and Class’ Agent Fees.
124.
In California, money may be the subject of a conversion claim if the
money can be described, identified, or segregated, and an obligation to treat it in a
specific manner is established. That requirement is met because the Agent Fees are
a segregated portion of the Lender Fees awarded through the SBA Regulations for
a successfully funded PPP loan.
125.
The exact amount that each Defendant owes Plaintiffs is listed under
the “Individual Defendant’s Allegations” section of this SAC.
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 31 of 37 Page ID
#:1041
32
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
126.
At the time Defendants unlawfully retained the Agent Fees,
Defendants knew or should have known that the Agent Fees were owed to
Plaintiffs and the other Class Members.
127.
Defendants knew or should have known that they would directly
receive a specific financial benefit from the Lender Fees, which included the Agent
Fees, as well as the interest the Defendants earns for funding the Borrowers’ PPP
loan based on the Application which Plaintiffs and the Class Members assisted the
Borrowers in preparing for submission to Defendants.
128.
The right to Agent Fees was immediately conferred upon Plaintiffs
and other Class Members the moment Defendants received their Lender Fees from
the SBA for funding PPP loans to Borrowers that Plaintiffs and other Class
Members assisted in preparing the Borrower’s Application.
129.
Defendants’ improper acts or practices of refusing to pay Plaintiffs
and the other Class Members the mandated Agent Fees are the proximate cause of
the damages sustained by the Plaintiffs and the Class Members, and such retention
of the mandated Agent Fees constitutes an undue advantage or is, at a minimum,
unconscionable.
130.
Defendants’ conduct manifests a knowing and reckless indifference
toward, and a disregard of, the rights of Plaintiffs and the Class Members.
131.
By withholding the Agent fees, Defendants have maintained
wrongful control over Plaintiffs’ property inconsistent with Plaintiffs’ entitlements
under the SBA Regulations.
132.
Defendants committed civil conversion by retaining monies owed to
Plaintiffs and the Class.
133.
Plaintiffs and the Class have been injured as a direct and proximate
cause of Defendants’ misconduct. Plaintiffs, as such, seeks recovery from
Defendants in the amount of the owed Agent Fees and for all other relief afforded
under the law.
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 32 of 37 Page ID
#:1042
33
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
COUNT IV
BREACH OF AN IMPLIED CONTRACT
AGAINST ALL DEFENDANTS
134.
Plaintiffs hereby incorporate by reference the foregoing allegations
as if fully set forth herein.
135.
Plaintiffs and the Class, as PPP Agents, conferred a benefit upon
Defendants by assisting Applicants with their PPP Applications that were
submitted to Defendants. Based in part on Plaintiffs’ work, Defendants received
interest on the PPP loan as well as the Lender Fee from the Federal Government,
approximately 20% of which was to be forwarded to the Borrowers’ Agents (i.e.,
Plaintiffs and the Class) as payment for the Agent Fee.
136.
In performing work to assist Applicants in preparing Applications
for a PPP loan for their small business, Plaintiffs and the Class had a reasonable
expectation of compensation. That reasonable expectation stemmed from the SBA
SOP and SBA Regulations, which Defendants certified they would comply with,
which explicitly stated Agents would receive Agent Fees from the Lenders. Those
Agent Fees were to be paid out of a portion of the Lender Fees.
137.
Defendants certification of their compliance with SBA Regulations
and the Final Rule provided mutual assent to the terms and conditions of the PPP,
which included the payment of Borrower Agent Fees.
138.
Despite that reasonable expectation and the plain language of the
SBA SOP and SBA Regulations, Defendants have failed to pay Plaintiffs and the
Class the statutorily required Agent Fees.
139.
Instead, Defendants have retained, or stated their entitlement to
retain, the Agent Fee portion of the Lender Fees for themselves and thereby,
benefited from the work performed by Plaintiffs and the Class.
140.
It would be unjust to allow Defendants to retain the benefit of
Plaintiffs’ and the Class’s Agent Fees in light of their reasonable expectation of
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 33 of 37 Page ID
#:1043
34
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
payment for the services they rendered.
141.
Defendants, regardless of any intent of the parties, have a quasi-
contractual obligation to pay for the services by which they benefited and to
compensate Plaintiffs and the Class for the reasonable value of their services.
142.
Plaintiffs and the Class have been injured as a direct and proximate
cause of Defendants’ misconduct. Plaintiffs, as such, seeks recovery from
Defendants in the amount of the owed Agent Fees and for all other relief afforded
under the law.
COUNT V
VIOLATION OF THE “UNFAIR” PRONG OF THE UCL
CALIFORNIA BUSINESS & PROFESSIONS CODE § 17200, ET SEQ.
AGAINST ALL DEFENDANTS
143.
Plaintiffs hereby incorporate by reference the foregoing allegations
as if fully set forth herein.
144.
The California Unfair Competition Law (hereinafter “UCL”) defines
unfair business competition to include any “unlawful, unfair or fraudulent” act or
practice. A business act or practice is “unfair” under the UCL if the reasons,
justifications, and motives of the alleged wrongdoer are outweighed by the gravity
of the harm to the alleged victims.
145.
Defendants have committed unfair acts and concealed and omitted
material facts that have harmed Plaintiffs and the Class.
146.
Specifically, Defendants, despite their obligations under the SBA
Regulations and SBA SOP, have failed to fill out, sign, and submit Form 159 and
to pay the Plaintiffs and the Class the required Agent Fees, which the Federal
Government paid to the Defendants as part of the Lender Fees. Defendants’
conduct constitutes an unfair act because Defendants received Lender Fees as a
result of Plaintiffs’ and the Class’s efforts to assist Applicants in the Application
process to secure PPP loans through Defendants, who are SBA approved lenders,
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 34 of 37 Page ID
#:1044
35
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
and who agreed to comply with the SBA Regulations and SBA SOP requiring such
payment.
147.
By Defendants holding themselves out as PPP Lenders, Defendants
necessarily held themselves out as promising to follow the mandatory PPP
guidelines and regulations.
148.
Nevertheless, Defendants have failed to provide Plaintiffs and the
Class payment in the amount of the mandatory Agent Fees and instead retained the
Agent Fee portion of the Lender Fees for themselves.
149.
Defendants also concealed and omitted material information,
specifically, that despite holding themselves out as PPP lenders under the PPP
program, that Defendants would violate the law and refuse, and continue to refuse
despite clear regulatory guidance, to pay regulatorily-mandated Agent Fees. Had
Plaintiffs and the Class known that Defendants would refuse to pay Agent Fees,
they would have taken their loans to other SBA Lenders who complied with the
SBA Regulations.
150.
Defendants’ unfair acts and omissions occurred in connection with
the sale or advertisement of services, namely, services related to the processing and
financing of PPP loans under the CARES Act and SBA Regulations.
151.
Defendants intended that Plaintiffs and the Class rely on their
omissions because, had they stated they would not pay Agent Fees as required
under the SBA Regulations, Plaintiffs and the Class would not have helped secure
PPP loans from Defendants for their clients. By concealing and omitting their
intention not to pay required Agent Fees, Defendants improperly obtained business
from Plaintiffs and the Class for which Defendants were compensated through the
Lender Fees.
152.
Plaintiffs and the Class have been injured as a direct and proximate
cause of Defendants’ misconduct. Plaintiffs, as such, seek recovery from
Defendants in the amount of the owed Agent Fees, and for all other relief afforded
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 35 of 37 Page ID
#:1045
36
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
under the law.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs, individually and on behalf of the Class, pray for
the following relief:
a. For an Order certifying the Class as defined above, appointing Plaintiffs
as Class representative, and appointing Plaintiffs’ counsel as Class
counsel;
b. For an Order declaring Defendants’ actions to be unlawful;
c. For a declaration that all regulatorily-mandated and calculated Agent
Fees are owed to Plaintiffs and the Class and should be deposited into a
mutually agreeable fund or funds within 60 days, to be distributed to the
PPP Agents who are entitled to the funds;
d. For all injunctive and other equitable relief available to Plaintiffs and
Class Members;
e. For an award of all recoverable compensatory, statutory, and other
damages sustained by Plaintiffs and Class Members;
f. For reasonable attorneys’ fees and expenses as permitted by applicable
statutes and law;
g. For costs related to bringing this action;
h. For pre- and post-judgment interest as allowed by law; and,
i. Such further relief at law or in equity that this Court deems just and
proper.
DEMAND FOR JURY TRIAL
Plaintiffs, individually and on behalf of the Class, demand a trial by jury on all
issues so triable.
Dated: December 7, 2020
Respectfully submitted,
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 36 of 37 Page ID
#:1046
37
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
/s/ Michael E. Adler
GRAYLAW GROUP, INC.
Michael E. Adler, Esq. (CA Bar 236115)
26500 Agoura Road, #102-127
Calabasas, CA 91302
Telephone: (818) 532-2833
Facsimile: (818) 532-2834
DHILLON LAW GROUP INC.
Harmeet K. Dhillon (CA Bar No. 207873)
Nitoj P. Singh (CA Bar No. 265005)
177 Post St., Suite 700
San Francisco, CA 94108
Telephone: (415) 433-1700
Facsimile: (415) 520-6593
GERAGOS & GERAGOS, PC
Mark J. Geragos (CA Bar No.: 108325)
Ben J. Meiselas (CA Bar No.: 277412)
644 South Figueroa Street
Los Angeles, California 90017
Telephone: (213) 625-3900
Facsimile: (213) 232-3255
Attorneys for Plaintiffs and the Proposed
Class
Case 2:20-cv-03815-ODW-AGR Document 132 Filed 12/07/20 Page 37 of 37 Page ID
#:1047File and source
- File
- gov.uscourts.cacd.780998.132.0.pdf
- Size
- 433,239 bytes
- SHA-256
- dd044baf74141e83a2479862620d77094c8b6f210998673b1254c55d5bc41fae
- Original
- storage.courtlistener.com