Court filing
Memorandum of Law in Support of Motion to Dismiss — Carr v. Kabbage (N.D. Ga. No. 1:22-cv-01249)
Filed May 31, 2022 in Carr v. Kabbage; one of 11 filings from this case.
Record facts
| Court | U.S. District Court for the Northern District of Georgia, Atlanta Division |
|---|---|
| Filed | 2022-05-31 |
U.S. District Court for the Northern District of Georgia, Atlanta Division · No. 1:22-cv-01249-VMC · Doc. 12-1 · 2022-05-31 · Docket on CourtListener
Full text
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
JASON CARR, VICKI LEMASTER,
EDWARD FORD SERVICES LLC,
CARLTON MORGAN, 365 SUN LLC,
and CANDICE WORTHY, individually
and on behalf of others similarly
situated,
Plaintiffs,
v.
KABBAGE, INC., d/b/a K SERVICING,
Defendant.
CIVIL ACTION
NO. 1:22-cv-01249-VMC
DEFENDANT KABBAGE, INC., D/B/A KSERVICING’S
MEMORANDUM OF LAW IN SUPPORT OF ITS MOTION TO DISMISS
Case 1:22-cv-01249-VMC Document 12-1 Filed 05/31/22 Page 1 of 47
i
TABLE OF CONTENTS
Page
I.
INTRODUCTION ........................................................................................... 1
II.
FACTS .............................................................................................................3
A.
Background ........................................................................................... 3
B.
The Loan Application and Loan Forgiveness Allegations.................... 4
C.
The Terms of Service and Choice of Law Provision ............................ 6
D.
The Lawsuit ........................................................................................... 7
III.
LEGAL STANDARD ..................................................................................... 8
A.
Motion to Dismiss ................................................................................. 8
IV.
LEGAL ARGUMENT..................................................................................... 9
A.
Plaintiff Cannot Maintain a Private Cause of Action Under the
SBA or the CARES Act, Requiring Dismissal of All Claims ................
B.
Plaintiffs’ Claims Brought Pursuant to California, North
Carolina, Michigan, and Florida Statutes Should Be Dismissed
Because Georgia Law Governs ...........................................................12
C.
Plaintiffs’ State Law Claims Fail Procedurally and Substantively
and Should Be Dismissed ..................................................................134
1.
Plaintiffs Have Not Pled a Violation of Georgia’s Fair Business
Practices Act Claim ...................................................................15
a.
Plaintiffs Have Failed to Comply With the Statutory
Pre-suit Notice Requirement ..........................................15
b.
Plaintiffs Lack Standing to Assert A GFBPA Claim
........................................................................................16
Case 1:22-cv-01249-VMC Document 12-1 Filed 05/31/22 Page 2 of 47
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c.
The GFBPA Does Not Apply to KServicing’s
Alleged Conduct .............................................................17
d.
Plaintiffs Have Failed to Establish the Elements of
a GFBPA Claim ..............................................................18
2.
Plaintiffs Have Not Pled a Violation of California’s Unfair
Competition Law (“UCL”) .......................................................19
3.
Plaintiffs Have Not Pled Facts Establishing a Violation of
North Carolina’s Unfair and Deceptive Practices Act ..............22
4.
Plaintiffs Have Not Pled Facts Showing a Violation of
Michigan’s Consumer Protection Act .......................................27
5.
Plaintiffs Have Not Pled a Cognizable Claim Under
Florida’s Deceptive and Unfair Trade Practices Act ................29
D.
Plaintiffs Carr, Edward Ford Services LLC and Morgan’s Claims
Should
Be
Dismissed
for
Failure
to
Exhaust
Their
Administrative Remedies ....................................................................33
VI.
CONCLUSION ..............................................................................................36
Case 1:22-cv-01249-VMC Document 12-1 Filed 05/31/22 Page 3 of 47
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TABLE OF AUTHORITIES
Page(s)
Cases
Acosta v. Gustino,
No. 6:11-cv-1266-Orl-31GJK, 2012 U.S. Dist. LEXIS 130656
(M.D. Fla. Sep. 12, 2012) ................................................................................... 30
Alexander v. Sandoval,
532 U.S. 275 (2001) .............................................................................................. 9
Alvear v. Sandy Springs Toyota, Inc.,
775 S.E.2d 172 (Ga. Ct. App. 2015) ............................................................. 15, 16
Am. United Life Ins. Co. v. Martinez,
403 F.3d 1043 (11th Cir. 2007) ............................................................................ 8
Ashcroft v. Iqbal,
556 U.S. 662 (2008) .............................................................................................. 8
Baxter v. Fairfield Fin. Servs.,
307 Ga. App. 286 (2010) .................................................................................... 13
Bell Atl. Corp. v. Twombly,
550 U.S. 544 (2007) .............................................................................................. 8
Bennett v. Loancare, LLC, No. CV418-297, 2019 U.S. Dist. LEXIS
141233, at *5 (S.D. Ga. Aug. 20, 2019) .............................................................. 9
Berryman v. Merit Property Management, Inc.
(2007) 152 Cal.App.4th 1544, 62 Cal. Rptr. 3d 177 ............................................ 2
Bonilla v. United States,
652 F.App’x 885 (11th Cir. 2016) ........................................................................ 8
Brooks v. Blue Cross and Blue Shield of Florida,
116 F.3d 1364 (11th Cir. 1997) .......................................................................... 20
Case 1:22-cv-01249-VMC Document 12-1 Filed 05/31/22 Page 4 of 47
iv
Bulluck v. Newtek Small Bus. Fin., Inc.,
2020 WL 1490702 (11th Cir. Mar. 27, 2020) .................................................... 10
Burns v. First Bank (In re Se. Materials, Inc.),
452 B.R. 170 (Bankr. M.D.N.C. 2011)............................................................... 26
Carley Capital Group v. Deloitte & Touche, LLP,
27 F. Supp. 2d 1324 (N.D. Ga. 1998) ................................................................. 19
Dan King Plumbing Heating & Air Conditioning, LLC v. Harrison,
869 S.E.2d 34 (N.C. Ct. App. 2022) ................................................................... 26
Friedlander v. PDK Labs, Inc.,
266 Ga. 180 (1996) ............................................................................................. 16
Georgia Ass’n of Latino Elected Officials, Inc. v. Gwinnett Cnty. Bd.
of Registrations & Elections,
499 F. Supp. 3d 1231 (N.D. Ga. 2020) ................................................................. 3
Helpling v. Rheem Mfg. Co.,
No. 1:15-cv-2247-WSD, 2016 U.S. Dist. LEXIS 37498 (N.D. Ga.
Mar. 23, 2016)..................................................................................................... 30
In re Gateway Radiology Consultants, P.A.,
983 F.3d 1239 (11th Cir. 2020) ............................................................................ 3
In re Kittrell,
115 B.R. 873 (Bankr. M.D.N.C. 1990)............................................................... 23
Johnson v. JPMorgan Chase Bank, N.A.,
488 F. Supp. 3d 144 (S.D.N.Y. 2020) ................................................................ 17
Kapordelis v. Gainesville Surgery Ctr., L.P.,
No. 2:10-CV-69-RWS, 2011 U.S. Dist. LEXIS 93164 (N.D. Ga.
Aug. 19, 2011) .................................................................................................... 14
Kobleur v. Grp. Hospitalization & Med. Servs., Inc.,
787 F. Supp. 1444 (S.D. Ga. 1991) .................................................................... 34
Kraft v. Detroit Entm’t, L.L.C.,
261 Mich. App. 534, 536, 683 N.W.2d 200, 202 (2004) ................................... 28
Case 1:22-cv-01249-VMC Document 12-1 Filed 05/31/22 Page 5 of 47
v
Kronos Prods. v. Sasib Bakery N. Am., Inc.,
00 C 670, 2002 U.S. Dist. LEXIS 10684 (N.D. Ill. June 13, 2002) ................... 13
Liss v Lewiston-Richards, Inc,
478 Mich 203, 210; 732 N.W.2d 514 (2007) ..................................................... 28
Lopez v. Bank of Am., N.A.,
505 F. Supp. 3d 961 (N.D. Cal. 2020) ................................................................ 16
Love v. Delta Air Lines,
310 F.3d 1347 (11th Cir. 2002) ............................................................................ 9
LStar Dev. Grp., Inc. v. Vining,
No. 5:20-CV-184-FL, 2021 U.S. Dist. LEXIS 181972 (E.D.N.C.
Sep. 23, 2021) ..................................................................................................... 25
Marshall v. Miller,
302 N.C. 539, 276 S.E.2d 397 (1981) ................................................................ 23
Martin v. Creative Mgmt. Grp., Inc.,
No. 10-cv-23159, 2013 WL 12061809 (S.D. Fla. July 26, 2013) ...................... 13
McCulloch v. PNC Bank Inc.,
298 F.3d 1217 (11th Cir. 2002) .......................................................................... 10
McDonald v. S Farm Bureau Life Ins. Co.,
291 F.3d 718 (11th Cir. 2002) ........................................................................ 9, 10
McKibben v. I.C. Sys., Inc.,
No. 117CV01384LMMAJB, 2018 WL 1896419 (N.D. Ga. Jan. 19,
2018) ................................................................................................................... 12
Miller v. Ensley,
88 N.C. App. 686, 365 S.E.2d 11 (1988) ........................................................... 26
Nat’l Freight, Inc. v. Consol. Container Co., LP,
166 F. Supp. 3d 1320 (N.D. Ga. 2015) ............................................................... 13
Noggles v. Battle Creek Wrecking, Inc.,
153 Mich. App. 363, 395 N.W.2d 322, 1986 Mich. App. LEXIS
2791 (Mich. Ct. App. 1986) ................................................................................ 28
Case 1:22-cv-01249-VMC Document 12-1 Filed 05/31/22 Page 6 of 47
vi
Odinma v. Aurora Loan Servs.,
No. C-09-4674 EDL, 2010 U.S. Dist. LEXIS 54190 (N.D. Cal.
June 3, 2010) ....................................................................................................... 19
Rayle Tech, Inc. v. DeKalb Swine Breeders, Inc.,
133 F.3d 1405 (11th Cir. 1998) .......................................................................... 13
Sheppard v. Bank of Am., N.A.,
542 F. App’x 789 (11th Cir. 2013) ..................................................................... 17
Shroyer v. New Cingular Wireless Services, Inc.,
C.A.9 (Cal.) 2010, 622 F.3d 1035 ...................................................................... 21
Snow v. DirecTV, Inc.,
450 F.3d 1314 (11th Cir. 2006) ............................................................................ 9
Spartan Leasing v. Pollard,
101 N.C. App. 450, 400 S.E.2d 476 (1991) ....................................................... 22
State ex rel. Ryles v. Meredith Chevrolet, Inc.,
145 Ga. App. 8, 244 S.E.2d 15 (1978) ............................................................... 16
Stewart v. SunTrust Mortg., Inc.,
770 S.E.2d 892 (Ga. Ct. App. 2015) ................................................................... 17
Tectonics, Inc. of Fla. v. Castle Const. Co.,
753 F.2d 957 (11th Cir. 1985) ........................................................................ 9, 10
United States v. Barry,
904 F.2d 29 (11th Cir. 1990) (per curiam) ......................................................... 34
Zeeman v. Black,
156 Ga. App. 82, 273 S.E.2d 910 (1980) ........................................................... 18
Statutes
15 U.S.C.S. § 1692a ................................................................................................. 21
15 U.S.C. §§ 1692 .................................................................................................... 21
California Business and Professions Code § 17200 ..................................... 18, 20,22
Case 1:22-cv-01249-VMC Document 12-1 Filed 05/31/22 Page 7 of 47
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California Civil Code
§ 1788 .................................................................................................................. 21
§ 1788.2(e) .......................................................................................................... 21
§ 1788.2(f) ........................................................................................................... 21
California Rosenthal Act .......................................................................................... 21
Code Ann. § 106-1203 (a) ....................................................................................... 17
Coronavirus Aid, Relief, and Economic Security Act ......................................passim
Fair Credit Reporting Act ........................................................................................ 11
Federal Fair Debt Collections Practice Act ............................................................. 21
Florida Deceptive and Unfair Trade Practices Act ..........................28, 29, 30, 31, 32
Florida Consumer Protection Statute
§ 501.203(8) ........................................................................................................ 29
§ 501.204(1) .................................................................................................. 28, 29
Ga. Code Ann.
§ 10-1-396 ........................................................................................................... 17
§ 10-1-399(b) ................................................................................................. 15,16
Georgia Fair Business Practices Act ......................................................... 14,15,16,17
MCL 445.904(1)(a) .................................................................................................. 28
Michigan Consumer Protection Act............................................................... 26,27,28
Michigan Consumer Protection Act
§ 445.901 ............................................................................................................. 26
§ 445.902(g) .................................................................................................. 26, 27
§ 445.903 ............................................................................................................. 27
§ 445.904(1)(a) ................................................................................................... 28
North Carolina Unfair and Deceptive Trade Practices Act ..............................passim
North Carolina Unfair and Deceptive Trade Practices Act, N.C.G.S.
§ 75-54 ................................................................................................................ 22
Case 1:22-cv-01249-VMC Document 12-1 Filed 05/31/22 Page 8 of 47
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O.C.G.A.
§10-1-393(a) ....................................................................................................... 14
§ 13-6-11 ......................................................................................................... 7, 35
Rules and Regulations
13 CFR
§120 (2021) ......................................................................................................... 32
§120 §(5)(1)(a)(2021) “Paycheck Protection Program SBA Loan
Review Procedures and Related Borrower and Lender
Responsibilities” ................................................................................................. 33
86 FR 8283, February 5, 2021 ............................................................................ 32
Federal Rules of Civil Procedure
Rule 9(b) ............................................................................................................. 19
Rule 12(b)(6) ..................................................................................................... 1, 7
Procedural Notice Control No. 5000-827666 n. 1 ............................................. 24, 32
Other Authorities
https://ussbaforgiveness.github.io/API-Dictionary.html#2-create-
forgiveness-request (last accessed May 31, 2022) ............................................. 34
https://www.cnbc.com/2020/06/17/kabbage-turned-to-doling-out-ppp-
loans-to-save-its-lending-business.html ............................................................. 13
KABBAGE, “Kabbage, Inc. Terms of Service,” available at
https://www.kservicing.coin/lep-,al/tos/ ............................................................. 47
KABBAGE, “Kabbage, Inc. Terms of Service,” available at
https://www.kservicing.com/legal/tos/ (last accessed May 31,
2022) ................................................................................................................... 15
Case 1:22-cv-01249-VMC Document 12-1 Filed 05/31/22 Page 9 of 47
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Kabbage Partners with SBA-Authorized Bank to Deliver Paycheck
Protection Program Loans to Small Businesses,
https://www.businesswire.com/news/home/20200407005618/en/K
abbage-Partners-with-SBA-Authorized-Bank-to-Deliver-
Paycheck-Protection-Program-Loans-to-Small-Businesses ............................... 12
Case 1:22-cv-01249-VMC Document 12-1 Filed 05/31/22 Page 10 of 47
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Pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, Defendant
Kabbage, Inc., d/b/a KServicing (“KServicing”),1 respectfully moves this Court to
dismiss Plaintiffs’ Complaint in its entirety with prejudice.
I.
INTRODUCTION
Named Plaintiffs, Jason Carr, Vicki LeMaster, Edward Ford Services, LLC,
Carlton Morgan, 365 Sun LLC, and Candice Worthy (“Plaintiffs”) bring this
purported nationwide class action against KServicing complaining that KServicing
has failed to “timely and competently” process their Small Business Administration
(“SBA”) Paycheck Protection Program (“PPP”) loan forgiveness applications.
(Compl. ¶¶ 1, 14-15, 137-138.). On this basis, they have asserted a panoply of claims
for declaratory and injunctive relief and damages for unjust enrichment, as well as
claims under various state consumer statutes.
All of Plaintiffs’ claims should be dismissed pursuant to Fed. R. Civ. P.
12(b)(6), for failure to state a claim upon which relief can be granted, because all of
the claims arise out of and seek enforcement of the Coronavirus Aid, Relief, and
Economic Security Act, Pub. L. 116-136 (“CARES Act”) or the SBA regulations
that seek to enforce the CARES Act, which do not provide a private right of action.
1 Kabbage is a trademark of American Express used under license. Kabbage, Inc.,
doing business as KServicing, is not affiliated with American Express.
Case 1:22-cv-01249-VMC Document 12-1 Filed 05/31/22 Page 11 of 47
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Furthermore, the Terms of Service Plaintiffs agreed to, mandates that all
disputes relating to KServicing’s services with respect to PPP loans are governed by
Georgia law. Therefore, Plaintiffs’ consumer protection claims arising under
California, North Carolina, Michigan, and Florida statutes are inapplicable and must
also be dismissed for this additional reason. Finally, all of the deceptive or unfair
trade practices act claims (including those in Georgia) fail as a matter of law. As to
the Georgia consumer protection act claim, it fails for three main reasons: (1)
Plaintiffs failed to comply with the statutes’ pre-suit notice requirement; (2)
Plaintiffs lack standing to assert the claim; and (3) Plaintiffs failed to allege facts
supporting the essential elements of the cause of action including reliance. (Compl.
¶¶ 255-301.) Similarly the remaining state claims fail because: (1) KServicing is
not a proper defendant; (2) the statutes regulate conduct with consumers—not
business owners; (3) the transactions at issue are not covered; and (4) Plaintiffs have
not pled that they have suffered a cognizable injury or damages.2 Id.
2 The California consumer protection claim fails because Plaintiffs have not
demonstrated that KServicing committed an unlawful, fraudulent, or unfair business
practice. Id. The North Carolina claim fails because: (1) Plaintiffs failed to plead
facts alleging a fraudulent or deceptive practice; (2) KServicing’s alleged actions do
not affect commerce; and (3) Plaintiffs fail to allege facts demonstrating reliance or
causation. Id. The Michigan claim fails because: (1) the transaction between
KServicing and the Plaintiff is not “trade or commerce” as defined under Michigan
law; and (2) transactions specifically authorized by federal statute—such as
KServicing’s PPP loan processing—are explicitly exempt from the Michigan
Case 1:22-cv-01249-VMC Document 12-1 Filed 05/31/22 Page 12 of 47
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II.
FACTS
A.
Background
To alleviate the financial devastation caused by the COVID-19 pandemic,
Congress passed a series of financial recovery measures, including the CARES Act,
on March 25, 2020, which was signed into law on March 27, 2020. See Georgia
Ass'n of Latino Elected Officials, Inc. v. Gwinnett Cnty. Bd. of Registrations &
Elections, 499 F. Supp. 3d 1231, 1235 (N.D. Ga. 2020). As part of the CARES Act,
the PPP expanded the SBA’s Section 7(a) loan program by providing small
businesses an opportunity to borrow money to cover payroll and other expenses. In
re Gateway Radiology Consultants, P.A., 983 F.3d 1239, 1247 (11th Cir. 2020).
As an approved lender and loan processor, KServicing partnered with the
SBA to connect small businesses to PPP loans in record time with its proprietary
technology.3 (Compl. ¶¶ 57-58, 62-63.) For example, within three months of the
pandemic arriving in the United States, KServicing assisted over 130,000 small
Consumer Protection Act. Id. Finally, the Florida claim fails because: (1) it does not
apply to KServicing’s alleged debt collection efforts; (2) Plaintiffs fail to allege
reliance or causation; and (3) Plaintiffs have not pled actual damages. Id.
3 Kabbage Partners with SBA-Authorized Bank to Deliver Paycheck Protection
Program Loans to Small Businesses, https://www.businesswire.com/news/home/
20200407005618/en/Kabbage-Partners-with-SBA-Authorized-Bank-to-Deliver-
Paycheck-Protection-Program-Loans-to-Small-Businesses, dated April 7, 2020.
Last accessed May 31, 2022. (See Compl. fn. 20).
Case 1:22-cv-01249-VMC Document 12-1 Filed 05/31/22 Page 13 of 47
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businesses in obtaining PPP funding at an average loan of just $29,000, well below
the SBA’s overall average of $113,000.4 In all, KServicing processed approximately
$7 billion in PPP loans, providing vital support (“a much-needed emergency
lifeline”) to hundreds of thousands of businesses. (Compl. ¶¶ 37, 70.)
B.
The Loan Application and Loan Forgiveness Allegations
Plaintiffs have filed the instant action against KServicing seeking to bring
claims individually and on behalf of others similarly situated, for a variety of claimed
grievances relating to their PPP loan forgiveness applications. (Compl. ¶ 8.)
First, Plaintiffs allege that KServicing failed to timely process their PPP loan
forgiveness applications “within 60 days” despite the SBA’s guidance that “a lender
must issue a decision to SBA on a loan forgiveness application not later than 60 days
after receipt of a complete loan forgiveness application from borrower.” (Id. ¶ 14,
91.) (emphasis added).
Second, Plaintiffs allege that KServicing wrongfully failed to participate in
the SBA’s Direct Borrower Forgiveness Portal (“SBA Portal”), although Plaintiffs
acknowledge it was not a requirement but merely “an alternative method for
4 How Kabbage saved its small business lending operation in the middle of the
pandemic.
https://www.cnbc.com/2020/06/17/kabbage-turned-to-doling-out-ppp-
loans-to-save-its-lending-business.html, last accessed May 31, 2022. (See Compl.
fn. 16).
Case 1:22-cv-01249-VMC Document 12-1 Filed 05/31/22 Page 14 of 47
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processing borrower loan forgiveness applications for all PPP loans of $150,000 or
less.” (Id. ¶ 108.)
Third, Plaintiffs allege that KServicing’s statements were deceptive because
they listed loan forgiveness amounts as “$0.00,” as required by the SBA for loans
that were not yet forgiven. (Id. ¶ 172.)
Finally, Plaintiffs allege that KServicing wrongfully attempted to collect loan
payments by sending them letters, despite the fact that each of these letters stated:
“If you have filed an appeal for your Forgiveness decision, please notify us at
pppforgiveness@kservicing.com.”. (Id. ¶ 189.)
None of these allegations have merit and fail as a matter of law.
C.
The Terms of Service and Choice of Law Provision
Each of KServicing’s customers, including Plaintiffs, have agreed to
KServicing’s Terms of Service, which also includes a Georgia choice-of-law
provision and states in relevant part as follows:
General & Acceptance
BY USING AND/OR VISITING THIS WEBSITE AND/OR USING THE
KABBAGE, INC. SERVICES, YOU SIGNIFY YOUR ASSENT TO BOTH
THESE TERMS AND CONDITIONS (the “Terms of Use” or “Agreement”).
. . If you do not agree to any of these terms, then please do not use the Website
or the Services. . . . In addition to all other agreements that may be provided
to you, this Terms of Use Agreement sets forth the legally binding terms for
your use of the Services and they shall apply to all users of the Website. By
continuing to use the Services, you agree to be bound by this Agreement. You
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are only authorized to use the Services (regardless of whether your access or
use is intended) if you agree to abide by all applicable laws and to this
Agreement….
…
Section 14: General
You agree that: (i) the Website shall be deemed solely based in Georgia, USA;
and (ii) the Website shall be deemed a passive website that does not give rise
to personal jurisdiction over Kabbage, Inc. either specific or general, in
jurisdictions other than Georgia. These Terms of Service shall be governed
by the internal substantive laws of the State of Georgia, without respect
to its conflict of laws principles. Any claim or dispute between you and
Kabbage, Inc. that arises in whole or in part from the Website or the Services
shall be decided exclusively by a court of competent jurisdiction located in
Atlanta, Georgia.
…
(See also id. ¶ 234.) (emphasis added). 5
D.
The Lawsuit
On March 30, 2022, Plaintiffs filed their Complaint asserting the following
causes of action: First, Count 1 seeks a declaratory judgment that KServicing must
comply with the terms of the CARES Act SBA regulations by, among other things,
“immediately ceasing to ask for documentation that is not required … and allowing
borrowers to utilize the streamlined application process.” (Compl. ¶¶ 243-244.) This
count seeks direct enforcement of the CARES Act.
5(See Compl. ¶ 234; KABBAGE, “Kabbage, Inc. Terms of Service,” available at
https://www.kservicing.com/legal/tos/ (last accessed May 31, 2022)).
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Next, Count 2, a claim for unjust enrichment, alleges that KServicing has
“frustrated Congressional intent to aid small businesses” by allegedly being
“unwilling or unable to adequately service the plaintiffs” and claim KServicing
should not be allowed retain the fees it received as a result. (Id. ¶ 252.) This count
seeks damages based on KServicing’s performance administering the CARES Act.
Counts 3-7 allege that KServicing has violated various state unfair and
deceptive trade practice acts by failing to adhere to its obligations as a servicer of
PPP loans. (Id. ¶ 264.) Specifically, Plaintiffs allege that KServicing has failed to
process loan forgiveness applications within the mandated time period according to
SBA regulations. (Id. ¶¶ 274; 278; 284; 297-298.) Again each of these claims seek
damages based on KServicing’s performance administering the CARES Act.
III.
LEGAL STANDARD
A.
Motion to Dismiss
A court must dismiss a complaint pursuant to Federal Rule of Civil Procedure
12(b)(6) if the facts alleged do not entitle the plaintiff to relief. See Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 570 (2007) (complaint must “state a claim to relief that
is plausible on its face.”) “Threadbare recitals of the elements of a cause of action,
supported by mere conclusory statements, do not suffice.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2008).
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Although “a court must view the complaint in the light most favorable to the
plaintiff and accept all of the plaintiff’s well-pled facts as true,” Am. United Life Ins.
Co. v. Martinez, 403 F.3d 1043, 1057 (11th Cir. 2007), “[c]onclusory allegations,
unwarranted deductions of facts or legal conclusions masquerading as facts will not
prevent dismissal.” Bonilla v. United States, 652 F.App’x 885, 889 (11th Cir. 2016)
(citing Oxford Asset Mgmt. Ltd. v. Jaharis, 27 F.3d 1182, 1188 (11th Cir. 2002)). In
short, Plaintiffs must allege facts that support each element of their causes of action
in order to make out a valid claim. Snow v. DirecTV, Inc., 450 F.3d 1314, 1320
(11th Cir. 2006). Here, the Complaint fails to meet the requirements of Twombly,
Iqbal and its progeny.
IV.
LEGAL ARGUMENT
A.
Plaintiffs Cannot Maintain a Private Cause of Action Under the
CARES Act, Requiring Dismissal of All Claims.
Plaintiffs’ claims should be dismissed in their entirety because there is no
private right of action to enforce the CARES Act. See Alexander v. Sandoval, 532
U.S. 275, 286 (2001) (“Private rights of action to enforce federal law must be created
by Congress.”). Moreover, Plaintiffs cannot establish that the CARES Act imposed
a duty on KServicing to support any of its claims. See, e.g., Tectonics, Inc. v. Castle
Constr. Co., 753 F.2d 957, 960 (11th Cir. 1985) (finding no private right of action
under Small Business Act (the “SBA Act”), which was amended by the CARES
Case 1:22-cv-01249-VMC Document 12-1 Filed 05/31/22 Page 18 of 47
9
Act). Where there is no private cause of action, Plaintiffs claims must be dismissed
under 12(b)(6) as a matter of law. See, e.g., Laster v. Georgia, No. 1:20-CV-81
(LAG), 2020 U.S. Dist. LEXIS 253347, at *6 (M.D. Ga. July 1, 2020) (holding
Plaintiff's HIPAA claims must be dismissed because HIPPA does not create a private
right of action.); Bennett v. Loancare, LLC, No. CV418-297, 2019 U.S. Dist. LEXIS
141233, at *5 (S.D. Ga. Aug. 20, 2019) (“to the extent that Plaintiff is attempting to
raise violations of [an FTC statute], those claims must be dismissed because there is
no private right of action for [such] violations”.)
In assessing whether a plaintiff can maintain a private action under a federal
statute, the“central inquiry,” is “whether Congress intended to create, either
expressly or by implication, a private cause of action.” McDonald v. S Farm Bureau
Life Ins. Co., 291 F.3d 718, 722 (11th Cir. 2002) (internal quotation marks omitted).
“[T]he bar for showing legislative intent is high.” Love v. Delta Air Lines, 310 F.3d
1347, 1352 (11th Cir. 2002) (internal quotation marks omitted). “Congressional
intent to create a private right of action will not be presumed,” rather “[t]here must
be clear evidence of Congress’s intent to create a cause of action.” McDonald, 291
F.3d at 722 (quotation omitted).
Neither the CARES Act nor its predecessor, the SBA Act, create an express
or implied private right of action. See e.g. Tectonics, Inc. of Fla., 753 F.2d at 960
Case 1:22-cv-01249-VMC Document 12-1 Filed 05/31/22 Page 19 of 47
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(finding the “declared purpose” of the SBA Act establishes “there was no intent to
create civil rights of action in private persons”); see also Bulluck v. Newtek Small
Bus. Fin., Inc., 2020 WL 1490702, at *3 (11th Cir. Mar. 27, 2020) (finding a breach
of a duty of care claim for not providing loan information is not viable because “no
private right of action exists for a violation of the [SBA Act] or the regulations”).
Thus, “the burden rests with [plaintiff] to establish that an implied private right of
action exists.” McCulloch v. PNC Bank Inc., 298 F.3d 1217, 1221 (11th Cir. 2002).
Plaintiffs cannot satisfy this burden because, since the enactment of the CARES Act
in 2020, courts have repeatedly concluded that no private right of action exists, either
express or implied.
In the face of this controlling authority Plaintiffs seek to improperly assert
state law claims directly rooted in purported violations of the CARES Act. (Compl.
¶¶ 243-244.) But, the law is clear: Plaintiffs cannot circumvent the Supreme Court’s
holding in Alexander by pleading a violation of the CARES Act (and SBA
regulations) as a state law claim. See 532 U.S. at 286–87 (“[A] state cannot
manufacture a judicial right of action to enforce a federal statute where, as here,
Congress has not affirmatively intended for a State to be able to do so nor clearly
crafted one on its own volition.”) (internal citations omitted). Despite this clear
mandate prohibiting plaintiffs from cloaking federal claims as state law claims,
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however, Plaintiffs’ claims of unjust enrichment and alleged violations of state
consumer protection laws are all premised on duties ostensibly created by the
CARES Act (or SBA regulations). (See Compl. ¶¶ 119-141.)
When the gravamen of a Plaintiffs’ claims are rooted in an alleged violation
of federal law that provides no private right of action, the Court must dismiss those
claims as well regardless of how the claims are characterized or styled. See, e.g.,
McKibben v. I.C. Sys., Inc., No. 117CV01384LMMAJB, 2018 WL 1896419, at *3
(N.D. Ga. Jan. 19, 2018), report and recommendation adopted, No. 1:17-CV-1384-
LMM-AJB, 2018 WL 1905067 (N.D. Ga. Feb. 20, 2018) (affirming dismissal of
FCDPA claims that were found to be an “impermissible attempt to circumvent the
Fair Credit Reporting Act,” which carries no private right of action.). In the instant
case, Counts 2-7 are ultimately rooted in violations of the CARES Act. Because the
CARES Act provides no private right of action, these additional claims must be
dismissed, too.
B.
Plaintiffs’ Claims Brought Pursuant to California, North Carolina,
Michigan, and Florida Statutes Should Be Dismissed Because
Georgia Law Governs.
Plaintiffs’ claims brought under California, North Carolina, Michigan, and
Florida law should each be dismissed because under “KServicing’s Terms of
Service,” which the Plaintiffs allege governs the agreement between the parties,
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12
Georgia law applies. (See Compl. ¶ 234); KABBAGE, “Kabbage, Inc. Terms of
Service,” available at https://www.kservicing.com/legal/tos/) asserts that Georgia
law governs.
Under Georgia’s choice of law rules, “parties by contract may stipulate that
the laws of [a] jurisdiction will govern the transaction.” Rayle Tech, Inc. v. DeKalb
Swine Breeders, Inc., 133 F.3d 1405, 1409 (11th Cir. 1998) (quotation marks and
citation omitted). “[C]ontractual choice-of-law provisions will be enforced unless
application of the chosen law would be contrary to the public policy or prejudicial
to the interests of this state.” Nat'l Freight, Inc. v. Consol. Container Co., LP, 166
F. Supp. 3d 1320, 1326 n.3 (N.D. Ga. 2015) (“The State of Georgia has significant
interest in regulating the conduct of businesses operating within its borders.”)
(citations omitted); see also (Compl. ¶¶ 228-229.).
Moreover, “[a] contractual choice of law bars actions brought under another
state’s law.” See, e.g., Kronos Prods. v. Sasib Bakery N. Am., Inc., 00 C 670, 2002
U.S. Dist. LEXIS 10684, at *15 (N.D. Ill. June 13, 2002); Martin v. Creative Mgmt.
Grp., Inc., No. 10-cv-23159, 2013 WL 12061809, at *9 (S.D. Fla. July 26, 2013)
(“Where the parties agreed to a choice-of-law provision in their contract, claims
brought under the statutes of other states are generally inapplicable.”). Therefore,
Georgia law governs not just the parties’ contractual claims, but all claims raised by
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Plaintiffs. See Nat'l Freight, Inc., 166 F. Supp. 3d at 1326 n.3; see also Baxter v.
Fairfield Fin. Servs., 307 Ga. App. 286, 292 (2010) (finding that Georgia law
applied to Plaintiffs’ non-contractual claims because the alleged misconduct
occurred in Georgia).
First, Plaintiffs allege the Terms of Service are applicable to the parties’
dispute. (See Compl. ¶ 234.) Second, Georgia law expressly applies to the Terms of
Service. (Id.) Moreover, Georgia courts also apply the rule of lex loci delictis—
which directs that the substantive law of the place where the alleged wrong occurred
should govern the dispute. Kapordelis v. Gainesville Surgery Ctr., L.P., No. 2:10-
CV-69-RWS, 2011 U.S. Dist. LEXIS 93164, at *8 (N.D. Ga. Aug. 19, 2011).
Because Georgia law governs, Plaintiffs cannot maintain causes of actions brought
under California, North Carolina, Michigan, and Florida law. Accordingly, dismissal
of all claims brought under any other state’s statutory law is required.
C.
Plaintiffs’ State Law Claims Fail Procedurally and Substantively
and Should Be Dismissed.
Notwithstanding the fact that Plaintiffs are precluded from pursuing state law
claims under the CARES Act, for the additional reasons that follow, Plaintiffs have
independently failed to plead cognizable claims against KServicing on each of its
state law claims.
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1.
Plaintiffs Have Not Pled a Violation of Georgia’s Fair
Business Practices Act Claim.
The Georgia Fair Business Practices Act (“GFBPA”) provides in relevant
part: Unfair or deceptive acts or practices in the conduct of consumer transactions
and consumer acts or practices in trade or commerce are declared unlawful.
O.C.G.A. §10-1-393(a).
Plaintiffs’ claims brought under the GFBPA should be dismissed on both
procedural and substantive grounds. First, Plaintiffs have failed to provide
statutorily-required pre-suit notice. Second, Plaintiffs lack standing to bring a
GFBPA claim because they are not “consumers” as defined by the statute. Third,
KServicing’s alleged conduct is regulated by federal law, making the GFBPA
inapplicable. Finally, Plaintiffs have failed to plead facts supporting the basic
elements of a GFBPA claim—violation, causation, and injury—providing
additional, and independent grounds for dismissal.
a.
Plaintiffs Have Failed to Comply With the Statutory
Pre-suit Notice Requirement
Plaintiffs must provide notice of a GFBPA claim “[a]t least 30 days prior to
the filing of any such action.” Ga. Code Ann. § 10-1-399(b). Absent proper pre-suit
notice, dismissal is required. See, e.g., Alvear v. Sandy Springs Toyota, Inc., 775
S.E.2d 172, 177 (Ga. Ct. App. 2015) (“Construing the first version of a complaint as
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15
‘written demand for relief’ filed ‘prior to the filing of any such action’ would render
[the notice requirement] meaningless[.]”). Like the Plaintiff in Alvear, here Plaintiffs
have failed to even allege that they sent the required notice prior to filing their
Complaint. Therefore, Plaintiffs have not alleged compliance with GFBPA’s notice
requirement.
b.
Plaintiffs Lack Standing to Assert a GFBPA Claim
Plaintiffs also lack standing to bring their GFBPA claim. A GFBPA claim
“must be brought in the plaintiff’s capacity as an individual member of the
consuming public.” Friedlander v. PDK Labs, Inc., 266 Ga. 180, 181 (1996)
(internal quotation marks omitted). Such a claim may “not” be brought “in a
representative capacity.” Id. (quoting Ga. Code Ann. § 10-1-399(a)). In other words,
a GFBPA claim cannot be brought by a business or on behalf of a business. See e.g.
State ex rel. Ryles v. Meredith Chevrolet, Inc., 145 Ga. App. 8, 8, 244 S.E.2d 15, 16
(1978) (holding GFBPA did not apply because the private sale of the cars was
limited to non-consumers). Because Plaintiffs are small business owners, and
applied for PPP loans to benefit their businesses, Plaintiffs are not “consumers”
within the meaning of the statute. (See, e.g., Compl. ⁋ 210); State ex rel. Ryles, 145
Ga. App. at 8. The GFBPA also does not apply to KServicing’s alleged conduct. See
also, Johnson v. JPMorgan Chase Bank, N.A., 488 F. Supp. 3d 144, 162 (S.D.N.Y.
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2020) (Dismissing plaintiff’s business law claims, in part, because the PPP
loans were “business-to business transactions” and the statements about PPP loans
were not consumer orientated”); Lopez v. Bank of Am., N.A., 505 F. Supp. 3d 961,
977 (N.D. Cal. 2020) (holding failure to pay PPP agent fees did not violate the UCL
because doing so was not unfair as it did not constitute a consumer injury).
c.
The GFBPA Does Not Apply to KServicing’s Alleged
Conduct
Further, even assuming, arguendo, that Plaintiffscan be considered as
consumers, the GFBPA does not apply to the conduct alleged because the PPP is a
federal lending program subject to an existing enforcement scheme. In other words,
the GFBPA does not apply to “[a]ctions or transactions specifically authorized under
laws administered by or rules and regulations promulgated by any regulatory agency
of . . . the United States,” Ga. Code Ann. § 10-1-396, including “loan lending and
servicing.” Sheppard v. Bank of Am., N.A., 542 F. App’x 789, 793 (11th Cir. 2013).
Because Plaintiffs’ GFBPA claim is premised on alleged violations of federal law,
the action is expressly precluded. See Stewart v. SunTrust Mortg., Inc., 770 S.E.2d
892, 898 (Ga. Ct. App. 2015).
Additionally, like the California UCL, “unfair or deceptive acts or practices”
under GFBPA are expressly limited to activities “in the conduct of consumer
transactions and consumer acts or practices in trade or commerce”—i.e., conduct
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that is not at issue here. Code Ann. § 106-1203 (a); see Meredith Chevrolet, Inc. 145
Ga. App. at 12 (finding business activities are not “consumer transactions” within
the meaning of the statute). KServicing’s processing of PPP loans or forgiveness
applications, are not a “consumer transaction” within the meaning of the statute
because it is neither a sale, lease nor rental, nor was it primarily for “personal, family,
or household purposes.” Because KServicing’s alleged conduct is not governed by
the GFBPA, this claim must be dismissed.
d.
Plaintiffs Have Failed to Establish the Elements of a
GFBPA Claim
Dismissal is also warranted because Plaintiffs have failed to plead facts
supporting an essential element of their claim—reliance. Zeeman v. Black, 156 Ga.
App. 82, 87, 273 S.E.2d 910, 916 (1980) (finding that when alleging a GFBPA
violation as a result of a misrepresentation the plaintiff must show injury resulting
from reliance on the alleged misrepresentation). Not only have Plaintiffs failed to
plead facts supporting a misrepresentation, but nowhere in the Complaint do
Plaintiffs allege they were damaged as a result of relying on statements made by
KServicing.
2.
Plaintiffs Have Not Pled a Violation of California’s Unfair
Competition Law (“UCL”).
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Plaintiffs have not pled a cognizable claim under California’s UCL. Plaintiffs
allege that KServicing violated Cal. Bus. & Prof. Code §§ 17200 which prohibits
“unfair competition.” The statute provides in relevant part: “unfair competition” is
“any unlawful, unfair or fraudulent business act or practice and unfair, deceptive,
untrue or misleading advertising.” Cal. Bus. & Prof. Code §§ 17200; et seq.; Odinma
v. Aurora Loan Servs., No. C-09-4674 EDL, 2010 U.S. Dist. LEXIS 54190, at *22-
23 (N.D. Cal. June 3, 2010). Plaintiffs’ claims under California’s UCL fail because
the Complaint does not set forth facts establishing unfair competition, as Plaintiffs
have failed to allege facts demonstrating that KServicing has committed an unlawful,
fraudulent, or unfair business practice.
First, Plaintiffs broadly allege that KServicing committed a fraudulent
business practice by making purportedly fraudulent representations on KServicing’s
website regarding its ability to carry out its obligations as a PPP loan servicer.
(Compl. ¶¶ 263-265.) But such allegations are not sufficient to meet the heightened
pleading standard required for fraud claims. See, e.g., Carley Capital Group v.
Deloitte & Touche, LLP, 27 F. Supp. 2d 1324, 1335 (N.D. Ga. 1998) (“Complaints
alleging fraud must meet the heightened-pleading standards of Rule 9(b), which
requires that "in all averments of fraud or mistake the circumstances constituting
fraud or mistake shall be stated with particularity." Fed. R. Civ. P. 9(b).”) “The
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plaintiff must allege the names of the persons who made the fraudulent
representations, their authority to speak, to whom they spoke, what they said or
wrote, and when it was said or written.” Brooks v. Blue Cross and Blue Shield of
Florida, 116 F.3d 1364, 1371 (11th Cir. 1997). Instead, Plaintiffs merely summarily
allege that “Defendant’s conduct, described herein, violated the ‘fraudulent’ prong
of the UCL.” (Compl. ¶ 262.) Thus, the Complaint is wholly devoid of the specificity
required, mandating dismissal of this claim. (See id. ¶ 264.); see also Kenery v. Well
Fargo, Nat'l Ass'n, No. 5:13-cv-02411-BLF, 2014 U.S. Dist. LEXIS 117550, at *22
(N.D. Cal. Aug. 22, 2014) (“allegations of fraud under §17200 must satisfy
the heightened pleading standard of Federal Rule of Civil Procedure 9(b).”)
Second, Plaintiffs proclaim that KServicing’s “conduct with respect to
servicing the PPP loans it disbursed,” including its conduct “throughout the loan
forgiveness application process” was “unfair.” (Compl. ¶260.) However, Plaintiffs
have not alleged facts that would show that KServicing’s conduct was “unfair.”
“Unfair” under the UCL means a practice where harm to the victim outweighs its
benefits. Shroyer v. New Cingular Wireless Services, Inc., C.A.9 (Cal.) 2010, 622
F.3d 1035. The processing of loan applications and provision of loan money at the
outset of the pandemic was to stave off the existential threats facing these borrowers.
(See Compl. ¶ 37.) Because the demand for PPP loans were so high “traditional
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20
banks quickly became overwhelmed”. (Id. at ¶ 61.) To handle the increased demand
for PPP loans many banks often prioritized existing customers with whom they had
preexisting financing relationships. Id. Absent the work of KServicing and other
similarly-situated loan servicers, businesses without prior existing relationships
were likely facing financial ruin and the shuttering of their businesses. See id. In
light of the dire need of cash infusions at the height of the COVID-19 pandemic, and
KServicing’s assistance to borrowers during this period, Plaintiffs cannot meet this
provision. Plaintiffs have simply failed to plead any facts establishing that any
alleged harm outweighs the benefits, as required.
Third, Plaintiffs allege that KServicing violated the “unlawful” prong of the
UCL by violating California’s Rosenthal Act, Cal. Civ. Code §§ 1788, et seq., and
the Federal Fair Debt Collections Practice Act (the “FDCPA”), 15 U.S.C. §§ 1692,
et seq. Neither of these statutes are applicable to KServicing, however, because: (1)
KServicing is not a debt collector as defined by the FDCPA;6 and (2) the transactions
between the parties are not contemplated by California’s Rosenthal Act.7
6 A debt collector is defined as “any person who uses any instrumentality of interstate
commerce or the mails in any business the principal purpose of which is the
collection of any debts, or who regularly collects or attempts to collect, directly or
indirectly, debts owed or due or asserted to be owed or due another.” 15 U.S.C.S. §
1692a.
7 The Rosenthal Act is specifically limited to addressing “consumer debt,” which is
defined as “money . . . due or owing from a natural person by reason of a consumer
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Accordingly, Plaintiffs also cannot establish that KServicing’s conduct was
“unlawful” under the UCL. See e.g. Berryman v. Merit Property Management,
Inc. (2007) 152 Cal.App.4th 1544, 1554, 62 Cal. Rptr. 3d 177 (To make an unlawful
claim under §17200 of the Unfair Competition Law, a party must allege a “violation
of another law … [to] stat[e] a cause of action under the UCL's unlawful prong.”).
3.
Plaintiffs Have Not Pled Facts Establishing a Violation of
North Carolina’s Unfair and Deceptive Practices Act.
Plaintiffs have not pled a legally cognizable claim under North Carolina’s
Unfair and Deceptive Trade Practices Act, N.C.G.S. §§ 75-54 (“UDTPA”). UDTPA
states in relevant part: No debt collector shall collect or attempt to collect a debt or
obtain information concerning a consumer by any fraudulent, deceptive or
misleading representation. N.C.G.S. §§ 75-54.
Under the UDTPA, Plaintiffs must show “(1) an unfair or deceptive act or
practice, or an unfair method of competition, (2) in or affecting commerce, (3) which
proximately caused actual injury to the plaintiff or to his business.” Spartan Leasing
v. Pollard, 101 N.C. App. 450, 460-61, 400 S.E.2d 476, 482 (1991).
credit transaction.” Cal. Civ. Code § 1788.2(f). The term “consumer credit
transaction” relates to “a transaction between a natural person and another person in
which property, services, or money is acquired on credit by that natural person from
the other person primarily for personal, family, or household purposes.” Cal. Civ.
Code § 1788.2(e) (emphasis added).
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Plaintiffs’ claims brought under North Carolina law should be dismissed for
at least three independent reasons: (1) KServicing’s alleged return of loan
forgiveness forms with the amount populated as “$0.00” is neither fraudulent nor
deceptive under North Carolina law; (2) KServicing’s processing of PPP loan
applications is not an act affecting commerce; and (3) Plaintiffs have failed to plead
any facts establishing reliance on the alleged misrepresentations or an injury in fact.
First, KServicing’s conduct in sending loan forgiveness forms with an amount
pre-populated as “$0.00” does not constitute a fraudulent or deceptive business
practice. In North Carolina, whether a trade practice is unfair or deceptive depends
upon the facts of each case. In re Kittrell, 115 B.R. 873, 877 (Bankr. M.D.N.C.
1990); see also Marshall v. Miller, 302 N.C. 539, 548, 276 S.E.2d 397, 403 (1981)
(“A practice is unfair when it offends established public policy as well as when the
practice is immoral, unethical, oppressive, unscrupulous, or substantially injurious
to consumers.”).
Here, Plaintiffs allege, “[a]fter denying Carr’s application, KServicing then
fraudulently sent Carr a forgiveness application with the forgiveness amount pre-
populated as ‘$0.00,’ meaning that if Carr signed that document he would not be
requesting forgiveness of any amount of his PPP loan.” (Compl. ¶ 284.)
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Contrary to Plaintiffs’ assertions, however, sending a pre-populated form in
this manner was not deceptive. Carr had in fact been denied forgiveness and
therefore could only request “$0.00” for forgiveness. (Compl. ¶ 156.) Moreover,
KServicing’s use of a pre-populated form is not “an inequitable assertion of its
power” because the SBA guidelines instructed lenders to enter the amount of
“$0.00” in this required field.8 Indeed, new guidance by the SBA makes it clear that
having borrowers apply for a forgiveness amount less than their total loan amount is
not a deceptive practice. See (Exhibit 1 “SBA Procedural Notice 5000-827666”).
Thus, by acting in compliance with SBA’s procedures regarding the amount to be
entered on the form, KServicing cannot be found to have engaged in deceptive
conduct. It is illogical to conclude that compliance with SBA guidance could
constitute a statutorily “deceptive practice,” as Plaintiffs allege.
8 Instructions to lenders state: “Forgiveness Amount. This field must be 0 if the
lender decision is Denied. API validation also expects other amount related fields
used in determining forgive amount, as per 3508/3508EZ, to be 0.” SBA Forgiveness
Portal APIs, available at https://ussbaforgiveness.github.io/API-Dictionary.html#2-
create-forgiveness-request (last accessed May 23, 2022); see Henderson v. Sun
Pharmaceuticals Industries, Ltd., 809 F. Supp. 2d 1373, 1377-78 (N.D. Ga. 2011)
(finding when considering a 12(b)(6) motion to dismiss, a court may take judicial
notice of records, without converting the motion to one for summary judgment)
(internal citations omitted)); FAS Capital, LLC v. Carr, 7 F. Supp. 3d 1259, 1266-
67 (N.D. Ga. Mar. 20, 2014) (courts may take judicial notice of documents on
official government websites).
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Second, KServicing’s issuance of PPP loans to Plaintiffs is not an act affecting
commerce, as defined by the statute. Under North Carolina’s UDTPA, “the term
‘commerce’ mean[s] ‘business activities.’ ‘Business activities’ is a term which
connotes the manner in which businesses conduct their regular, day-to-day activities,
or affairs, such as the purchase and sale of goods, or whatever other activities the
business regularly engages in and for which it is organized.” LStar Dev. Grp., Inc.
v. Vining, No. 5:20-CV-184-FL, 2021 U.S. Dist. LEXIS 181972, at *31 (E.D.N.C.
Sep. 23, 2021). Here, KServicing provided a loan to Plaintiff Carr so that his
business could continue to operate. The purpose of the PPP loan was to provide
additional capital for business expenses. The PPP loans are thus akin to mechanisms
associated with financing a business entity, rather than a purchase and sale, or other
business activity under the statute. Accordingly, the services provided by KServicing
are not regulated under the North Carolina UDTPA.
Third, Plaintiffs have failed to plead facts showing causation or reliance from
any purported misrepresentation. Recovery under the UDTPA is “limited to those
situations when a plaintiff can show that plaintiff detrimentally relied upon a
statement or misrepresentation and he or she ‘suffered actual injury as a proximate
result of defendant’s deceptive statement or misrepresentation.’” Burns v. First Bank
(In re Se. Materials, Inc.), 452 B.R. 170, 177-78 (Bankr. M.D.N.C. 2011) (internal
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citations omitted); see also Miller v. Ensley, 88 N.C. App. 686, 691, 365 S.E.2d 11,
14 (1988) (“every false statement does not constitute a ‘deceptive’ act under Chapter
75. To be actionable under Chapter 75, an act of deception must have some adverse
impact on the individual or entity deceived.”); Dan King Plumbing Heating & Air
Conditioning, LLC v. Harrison, 869 S.E.2d 34 (N.C. Ct. App. 2022) (“The second
doctrine—the reliance doctrine—holds that in order to satisfy proximate cause, a
plaintiff must demonstrate that they detrimentally relied on the defendant’s alleged
misrepresentation or deception in order to recover under the statute.”).
Plaintiffs have pled no facts alleging that Carr relied on the loan forgiveness
application allegedly sent by KServicing. (See Compl. ¶ 284, see generally Compl.)
Similarly, Carr also has not alleged injury from KServicing’s alleged inclusion of
the “$0.00” amount on the application. Carr not only acknowledges that he did not
sign the form requesting a “$0.00” forgiveness amount, but also admits that his
application status is “ongoing.” (Compl. ¶ 158.) As a result, he has pled neither
reliance nor injury resulting therefrom, requiring dismissal of his claims.
4.
Plaintiffs Have Not Pled Facts Showing a Violation of
Michigan’s Consumer Protection Act.
Plaintiffs have not pled a legally cognizable claim under Michigan’s
Consumer Protection Act, Mich. Comp. Laws Ann. §§ 445.901 et seq., (“MCPA”).
The MCPA states in relevant part:
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“Trade or commerce” means the conduct of a business providing goods,
property, or service primarily for personal, family, or household purposes and
includes the advertising, solicitation, offering for sale or rent, sale, lease, or
distribution of a service or property, tangible or intangible, real, personal, or
mixed, or any other article, or a business opportunity.
Id. at §§ 445.902 (g). Plaintiffs’ claims for alleged violations of Michigan’s
Consumer Protection Act (“MCPA”) fail for at least two reasons: (1) the transaction
between KServicing and Plaintiffs are not “trade or commerce” as defined under
Michigan law; and (2) transactions specifically authorized by federal statute—such
as KServicing’s loan PPP loan processing—are explicitly exempt from the MCPA.
First, Plaintiffs allege that KServicing is engaged in “trade or commerce”
within the meaning of § 445.902(g) of the MCPA via its marketing of its small
business lending services. (Compl. ⁋ 290.) Contrary to Plaintiff’s assertion,
however, this does not constitute “trade or commerce” pursuant to § 445.902(g) of
the MCPA. Like the North Carolina, and Georgia statutes discussed previously, the
MCPA was enacted to protect consumers with purchases of goods which are
primarily used for personal, family or household purposes. Noggles v. Battle Creek
Wrecking, Inc., 153 Mich. App. 363, 395 N.W.2d 322, 1986 Mich. App. LEXIS
2791 (Mich. Ct. App. 1986). The conduct at issue here does not relate to personal,
family, or household purposes, but rather to business loans for small businesses. As
such, the MCPA does not apply.
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Second, Plaintiffs allege that KServicing’s conduct constitutes unlawful
conduct of trade or commerce within the meaning of § 445.903 of the MCPA.
(Compl. ¶ 291.) However, KServicing’s work was “specially authorized” under
Michigan law, and therefore exempt. The MCPA does not apply, to “[a] transaction
or conduct specifically authorized under laws administered by a regulatory board or
officer acting under statutory authority of this state or the United States.” MCL
445.904(1)(a). “[T]he relevant inquiry is whether the general transaction is
specifically authorized by law, regardless of whether the specific misconduct alleged
is prohibited.” Liss v Lewiston-Richards, Inc., 478 Mich 203, 210; 732 N.W.2d 514
(2007) (quotation marks omitted) (holding the exception to the MCPA in MCL
445.904(1)(a) applied because residential home building was specifically authorized
under the Michigan Occupational Code).
It is undisputed that the issuance of PPP loans by KServicing is specifically
authorized by the CARES Act. (Compl. ¶ 4.) Therefore, KServicing’s alleged
actions of issuing PPP loans and processing related forgiveness applications clearly
fall within the MCPA “specially authorized” exception, warranting dismissal. See
Kraft v. Detroit Entm't, L.L.C., 261 Mich. App. 534, 536, 683 N.W.2d 200, 202
(2004) (holding that the MCPA did not apply because the conduct at issue was
specifically authorized under laws administered by the Michigan Gaming Control
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Board (MGCB), a state-authorized regulatory body, thus triggering the exemption
under Mich. Comp. Laws § 445.904(1)(a) of the MCPA.).
5.
Plaintiffs Have Not Pled a Cognizable Claim Under Florida’s
Deceptive and Unfair Trade Practices Act.
Plaintiffs have not pled a legally cognizable claim under Florida’s Deceptive
and Unfair Trade Practices Act, Fla. Stat. §§ 501.204.1 (“FDUTPA”). The FDUTPA
prohibits: “[u]nfair methods of competition, unconscionable acts or practices, and
unfair or deceptive acts or practices in the conduct of any trade or commerce.” Fla.
Stat. § 501.204(1) (emphasis added). The term “trade or commerce” is defined as
“the advertising, soliciting, providing, offering, or distributing, whether by sale,
rental, or otherwise, of any good or service, or any property, whether tangible or
intangible, or any other article, commodity, or thing of value, wherever situated.”
Fla. Stat. § 501.203(8).
Plaintiffs have failed to plead a legally cognizable claim under FDUTPA for
at least three reasons: (1) FDUTPA does not apply to KServicing’s alleged debt
collection efforts; (2) Plaintiffs have failed to prove causation—a necessary element
of their claim; (3) Plaintiffs have failed to prove reliance or actual damages
According to Plaintiffs, KServicing is engaged in debt collection efforts. (See
Compl. ¶¶ 189, 282.) Under FDUTPA, an attempt to collect a debt by exercising
one’s legal remedies does not constitute “advertising, soliciting, providing, offering,
Case 1:22-cv-01249-VMC Document 12-1 Filed 05/31/22 Page 38 of 47
29
or distributing” under the statute. See, e.g., Acosta v. Gustino, No. 6:11-cv-1266-
Orl-31GJK, 2012 U.S. Dist. LEXIS 130656, at *2 (M.D. Fla. Sep. 12, 2012) (holding
FDUTPA did not apply where the Defendants were debt collectors who sought to
convince the Plaintiff to pay a debt allegedly owed to his homeowners association
by sending demand letters). Plaintiffs allege that KServicing is attempting to collect
on Plaintiffs’ Loans (Compl. ¶¶ 163; 203.) Thus, under Plaintiffs’ own assertions,
the FDUTPA does not apply to KServicing’s alleged debt collection efforts.
Plaintiffs have also failed to state at least one of the essential elements of the
FDUTPA claim—causation. Plaintiffs must present individualized proof, i.e., that
they actually relied on the alleged misrepresentation to their detriment. Helpling v.
Rheem Mfg. Co., No. 1:15-cv-2247-WSD, 2016 U.S. Dist. LEXIS 37498, at *45
(N.D. Ga. Mar. 23, 2016). “Causation is a necessary element of the FDUTPA claim,
and causation must be direct, rather than remote or speculative.” (citations omitted)
Id. Here, Plaintiffs have failed to allege facts establishing causation because they
have failed to allege they relied on the alleged debt collection efforts. While
Plaintiffs allege statements on KServicing’s website are “deceptive trade practices,”
they never claim to have seen the website prior to selecting KServicing as a loan
processor nor do they allege the statements were influential in them selecting
KServicing. (Compl. ¶ 297.) Similarly, Plaintiffs have not alleged that they have
Case 1:22-cv-01249-VMC Document 12-1 Filed 05/31/22 Page 39 of 47
30
suffered any actual damages from KServicing’s purported debt collection efforts.
See St. Francis Holdings, LLC v. Pawnee Leasing Corp., No. 8:20-cv-1101-T-02,
2020 U.S. Dist. LEXIS 199151, at *19 (M.D. Fla. Oct. 27, 2020) (“It is well-
established that actual damages are a required element of a FDUTPA claim.”);
see also Emondson v. 2001 Live, Inc., No: 16-cv-3243-T-17AEP, 2017 U.S. Dist.
LEXIS 155753, 2017 WL 10085029, at *2 (M.D. Fla. July 25, 2017) (dismissing
FDUTPA claim because plaintiff pled only conclusory allegations of actual
damages). Importantly, the FDUTPA only provides recovery for “actual damages.”9
See City First Mortg. Corp. v. Barton, 988 So. 2d 82, 86 (Fla. Dist. Ct. App. 2008)
("FDUTPA
does
not
provide
for
the
recovery
of
nominal damages, speculative losses, or compensation for subjective feelings of
disappointment.").
Here, Plaintiffs’ simply state “Plaintiffs LeMaster and 365 Sun LLC and the
Florida Sub-Class members seek all monetary and non-monetary relief allowed by
law, including actual or nominal damages under Fla. Stat. § 501.211.” Not only are
nominal damages not awardable under the statute, but this is the same type of poorly
9 Actual damages are defined as (1) the value between what was promised and what
was delivered; or (2) the total price paid for a valueless good or service. St. Francis
Holdings, LLC v. Pawnee Leasing Corp., No. 8:20-cv-1101-T-02, 2020 U.S. Dist.
LEXIS 199151, at *19 (M.D. Fla. Oct. 27, 2020)
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31
pleaded conclusory allegation warranting dismissal as in Edmondson.10 The only
other damage alleged by the complaint is consequential in nature.11 Because no
actual loss has been suffered, Plaintiffs’ claims are thus at best premature.
Accordingly, Plaintiff’s FDUTPA claims cannot survive dismissal.
D.
Plaintiffs Carr, Edward Ford Services LLC and Morgan’s Claims
Should Be Dismissed for Failure to Exhaust Administrative
Remedies.
Plaintiffs’ claims (Counts 3, 5, and 6) should be dismissed for failure to
exhaust administrative remedies. The SBA promulgated a Procedural Notice to all
PPP lenders and SBA Employees, effective January 27, 2022, outlining the “process
being implemented by SBA to allow [PPP] borrowers to request an SBA loan review
of partial approval forgiveness decisions issued by their PPP Lenders.” The SBA
10 Further the alleged delay in forgiveness pled by Plaintiffs has resulted in no loss
to Plaintiffs. Plaintiffs have not lost the ability to receive full forgiveness of their
loans. The SBA can still grant forgiveness, and if they do, any forgiveness over
payment made by plaintiffs’ to lender must be returned. Lenders are required to
return any forgiveness overpayments of $10 or more. Plaintiffs would only suffer
actual loss if the period to receive loan forgiveness had ended. see SBA Forgiveness
Portal
APIs,
available
at
https://ussbaforgiveness.github.io/UseCases/payment.html#:~:text=Overpayment,l
oan%20is%20%2410%20or%20less.(last accessed May 27, 2022); see Ohome v.
United States, No. 1:21-cv-368-MLB, 2021 U.S. Dist. LEXIS 232509, at *20 n.4
(N.D. Ga. Dec. 6, 2021) (Holding court can take judicial note of information that is
publicly available on a government web site) (internal citations omitted).
11 Here, Plaintiffs seek compensation for spending hours on the phone and replying
to numerous emails not the cost of the loan. (See Compl. ¶ 163.)
Case 1:22-cv-01249-VMC Document 12-1 Filed 05/31/22 Page 41 of 47
32
review process is applicable to borrowers who did not receive full denial forgiveness
decisions. See Procedural Notice Control No. 5000-827666 n. 1 (“Borrowers that
have received full denial forgiveness decisions from their Lenders should continue
to follow the process outlined in the Interim Final Rule on Loan Forgiveness
Requirements and Loan Review Procedures as Amended by the Economic Aid Act
(86 FR 8283, February 5, 2021), as amended”.) Plaintiffs Carr,12 Edward Ford
Services LLC, and Morgan allege they received loan forgiveness denials, therefore,
their loan forgiveness application processes are governed by 13 CFR §120 (2021).
(See Compl. ¶¶ 156, 171, 185.) 13 CFR §120 §(5)(1)(a)(2021) specifically provides
an administrative remedy for the Plaintiffs, where they can appeal denials directly
to the SBA.
The doctrine of exhaustion of administrative remedies provides that a party
may not seek judicial relief in the federal courts until that party has first sought all
possible relief within the agency itself. Kobleur v. Grp. Hospitalization & Med.
Servs., Inc., 787 F. Supp. 1444, 1448 (S.D. Ga. 1991). Importantly, the exhaustion
12 Plaintiff Carr incorrectly asserts that he could not appeal KServicing’s denial of
his forgiveness application because only a determination by the SBA can be
appealed (not one made by a servicer of a PPP loan). (See Compl. ¶ 155, fn. 71); 13
CFR §120 §(5)(1)(a)(2021) “Paycheck Protection Program SBA Loan Review
Procedures and Related Borrower and Lender Responsibilities” makes clear that the
SBA may review any PPP Loan.
Case 1:22-cv-01249-VMC Document 12-1 Filed 05/31/22 Page 42 of 47
33
doctrine applies when pertinent regulations contain the administrative remedy or
remedies. Id.; See, United States v. Barry, 904 F.2d 29, 31 (11th Cir. 1990) (per
curiam) (where litigant did not file written request for relief, as allowed by
regulation, he has not exhausted appropriate administrative remedy). Failure to
exhaust administrative remedies is a jurisdictional defect when Congress has
designated that particular administrative remedy as a statutory precondition to a
lawsuit. Grp. Hospitalization & Med. Servs., Inc., 787 F. Supp. 1448 (1991)
(internal citations omitted). In all other cases, including this action, exhaustion is a
matter of judicial discretion. Id. When determining whether to impose the exhaustion
requirement courts should consider the following factors: (1) judicial efficiency; (2)
allowing the agency to exercise its discretion; (3) the use of the agency to make a
factual record; (4) the benefit derived from drawing upon an agency's expertise; and
(5) the avoidance of weakening the administrative process by allowing people to
ignore administrative procedures. Id.
The Court should require exhaustion here as all of the factors weigh in favor
of requiring exhaustion. See Grp. Hospitalization & Med. Servs., Inc., 787 F. Supp.
at 1448. Both Factor 1 “judicial efficiency” and Factor 5 “the avoidance of
weakening the administrative process by allowing people to ignore administrative
procedures,” weigh in favor of requiring exhaustion because, by not requiring
Case 1:22-cv-01249-VMC Document 12-1 Filed 05/31/22 Page 43 of 47
34
exhaustion, the Court will encourage thousands of PPP applicants to disregard the
SBA’s review and guidance procedures and instead seek to have their loan’s
forgiveness status litigated before the nation’s courts rather than through the
regulatory system established by SBA. This would lead to a judicially sanctioned
flood of cases straight to the courthouse. As to Factor 2 “allowing the agency to
exercise its discretion,” and 3 “the use of the agency to make a factual record,”
appealing forgiveness decisions with the SBA first, and not the Court, prevents
discrepancies from arising between how the SBA decides to handle appealed cases
and how the Court does. Id. By not seeking review by the SBA Plaintiffs have
deprived the Court of knowing how the SBA would have handled their appeals. Id.
Factor 4 “the benefit derived from drawing upon an agency's expertise,” also weighs
in KServicing’s favor because the SBA—as the agency responsible for issuing
guidance—is the proper enforcement authority to evaluate Plaintiffs’ qualification
for PPP loan forgiveness. The SBA is also the most knowledgeable about the
legislator’s intent in enacting the CARES Act and can best insure it is carried out.
In short, because Plaintiffs Carr, Edward Ford Services LLC, and Morgan
have failed to exhaust their administrative remedies, this Court should dismiss all of
their claims.
Case 1:22-cv-01249-VMC Document 12-1 Filed 05/31/22 Page 44 of 47
35
Finally, as to all claims, because Plaintiffs have failed to plead cognizable
claims under Georgia common law or the state statutes under which claims have
been alleged, Plaintiffs’ additional requests for relief must fail. See Charly
Holdings, Inc. v. Curtom Classics, LLC, 2018 WL 6254586, at *4 (N.D. Ga. Nov.
14, 2018) (“[T]he Declaratory Judgment Act does not provide an independent cause
of action.”); O.C.G.A. § 13-6-11 (attorneys’ fees under the Georgia law, are
recoverable only for a prevailing party, and Plaintiffs’ allegations establish they
cannot prevail).
V.
CONCLUSION
For the foregoing reasons, Defendant KServicing respectfully requests that
this Honorable Court dismiss the complaint in its entirety with prejudice and award
KServicing all such other relief to which it is justly entitled.
Dated: May 31, 2022
Respectfully submitted,
DENTONS US LLP
/s/ Uchenna Ekuma-Nkama
Uchenna Ekuma-Nkama
Georgia Bar No. 957861
Alizé D. Mitchell
Georgia Bar No. 349963
303 Peachtree Street, N.E.
Suite 5300
Atlanta, GA 30308
Telephone: (404) 527-4000
Case 1:22-cv-01249-VMC Document 12-1 Filed 05/31/22 Page 45 of 47
36
Facsimile: (404) 527-4198
uchenna.ekuma-nkama@dentons.com
alize.mitchell@dentons.com
Drew W. Marrocco
(pro hac vice forthcoming)
Virginia Bar No. 38955/D.C. Bar No. 53205
1900 K Street NW
Washington, DC 20006
Telephone: (202) 496-7500
Facsimile: (202) 496 7756
drew.marrocco@dentons.com
Tomasita L. Sherer
(pro hac vice forthcoming)
New York Bar No. 3033859
1221 Avenue of the Americas
New York, NY 10020
Telephone: (212) 768-6700
Facsimile: (212) 768 6800
Counsel for Defendant Kabbage, Inc. d/b/a
KServicing
Case 1:22-cv-01249-VMC Document 12-1 Filed 05/31/22 Page 46 of 47
1
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
JASON CARR, VICKI LEMASTER,
EDWARD FORD SERVICES LLC,
CARLTON MORGAN, 365 SUN LLC,
and CANDICE WORTHY, individually
and on behalf of others similarly
situated,
Plaintiffs,
v.
KABBAGE, INC., d/b/a KSERVICING,
Defendant.
CIVIL ACTION
NO. 1:22-cv-01249-VMC
CERTIFICATE OF SERVICE AND COMPLIANCE
I certify that on May 31, 2022, I filed the foregoing DEFENDANT’S
MEMORANDUM OF LAW IN SUPPORT OF ITS MOTION TO DISMISS
with the Clerk of Court using the CM/ECF system, which will automatically send
e-mail notification of such filing to all counsel of record. I also certify that the
foregoing was prepared in accordance with N.D. Ga. L.R. 5.1, using Times New
Roman font, 14 point.
/s/ Uchenna Ekuma-Nkama
Uchenna Ekuma-Nkama
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