Court filing
Response re 1 Petition to Vacate Arbitration Award by Oto Analytics, LLC. (Cheney, Alexander)… — Benworth Oto (Dkt. 25)
Filed August 26, 2024 in Benworth Oto; one of 100 filings from this case.
Record facts
| Court | U.S. District Court for the Northern District of California |
|---|---|
| Filed | 2024-08-26 |
U.S. District Court for the Northern District of California · No. 4:24-cv-04840-AMO · Doc. 25 · 2024-08-26 · Docket on CourtListener
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OPPOSITION TO PETITION TO VACATE FINAL ARBITRATION AWARD
Case No. 3:24-cv-4840-AMO
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UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN FRANCISCO DIVISION
WILLKIE FARR & GALLAGHER LLP
Alexander L. Cheney (SBN 302157)
acheney@willkie.com
333 Bush Street
San Francisco, CA 94104
(415) 858-7400
Stuart R. Lombardi (pro hac vice)
slombardi@willkie.com
787 7th Avenue
New York, NY 10019
(212) 728-8000
Joshua S. Levy (pro hac vice)
jlevy@willkie.com
1875 K Street, N.W.
Washington, DC 20006-1238
(202) 303-1000
Attorneys for Respondent
Oto Analytics, LLC
BENWORTH CAPITAL PARTNERS LLC,
Petitioner,
v.
OTO ANALYTICS, LLC,
Respondent.
Case No. 3:24-cv-4840-AMO
OPPOSITION TO PETITION TO
VACATE FINAL ARBITRATION
AWARD
Hon. Araceli Martínez-Olguín
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TABLE OF CONTENTS
INTRODUCTION .............................................................................................................1
BACKGROUND ...............................................................................................................4
A.
Womply Is A Technology Company That Provided Technology
Services To Benworth, A PPP Lender. ............................................4
B.
Womply Commenced The Arbitration After Benworth Stopped
Paying Womply’s Fees. ...................................................................6
C.
The Arbitrator Rejects Benworth’s Illegality Arguments In A Final
Award. ..............................................................................................7
ARGUMENT .....................................................................................................................8
I.
The Arbitrator Did Not Exceed His Powers. .............................................10
A.
The Arbitrator Did Not Manifestly Disregard The Law Concerning
The Agent Fee Cap. .......................................................................11
B.
The Arbitrator Did Not Manifestly Disregard Law Or Facts In
Finding Womply Was Not An LSP. ..............................................15
II.
The Final Award Does Not Violate Public Policy. ....................................21
III.
The Arbitrator Reasonably Declined to Stay the Arbitration. ...................23
CONCLUSION ................................................................................................................25
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TABLE OF AUTHORITIES
Cases
Page(s)
Am. Postal Workers Union AFL-CIO v. U.S. Postal Serv.,
682 F.2d 1280 (9th Cir. 1982) ............................................................................................... 15
Ariz. Elec. Power Co-op., Inc. v. Berkeley,
59 F.3d 988 (9th Cir. 1995) ................................................................................................... 21
Aspic Eng’g & Constr. Co. v. ECC Centcom Constructors LLC,
913 F.3d 1162 (9th Cir. 2019). (Pet. .) ................................................................................... 21
Barnes v. Logan,
122 F.3d 820 (9th Cir. 1997) ................................................................................................... 8
Biller v. Toyota Motor Corp.,
668 F.3d 655 (9th Cir. 2012) ........................................................................................... 10, 19
Bosack v. Soward,
586 F.3d 1096 (9th Cir. 2009) ............................................................................... 9, 10, 17, 20
Broadway Cab Co-op., Inc. v. Teamsters & Chauffeurs Local Union No. 281, IBT,
710 F.2d 1379 (9th Cir. 1983) ............................................................................................... 22
Carter v. Health Net of Cal., Inc.,
374 F.3d 830 (9th Cir. 2004) ................................................................................................. 14
Collins v. D.R. Horton, Inc.,
505 F.3d 874 (9th Cir. 2007) ................................................................................. 2, 10, 15, 20
Comedy Club, Inc. v. Improv West Assocs.,
553 F.3d 1277 (9th Cir. 2009) ............................................................................................... 15
Coutee v. Barington Cap. Grp., L.P.,
336 F.3d 1128 (9th Cir. 2003) ............................................................................................... 14
Cristo v. Charles Schwab Corp.,
2021 WL 6051825 (S.D. Cal. 2021) ...................................................................................... 23
Fordjour v. Wash. Mut. Bank,
2010 WL 2529093 (N.D. Cal. 2010) ..................................................................................... 24
HayDay Farms, Inc. v. FeeDx Holdings, Inc.,
55 F.4th 1232 (9th Cir. 2022) ......................................................................................... passim
Kyocera Corp. v. Prudential–Bache Trade Servs., Inc.,
341 F.3d 987 (9th Cir. 2003) ................................................................................................... 9
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Local 588 v. Foster Poultry Farms,
74 F.3d 169 (9th Cir. 1995) ..................................................................................................... 4
LPL Fin., LLC v. Gardner,
2022 WL 1750363 (N.D. Cal. May 31, 2022) ....................................................................... 19
Milliner v. Bock,
2020 WL 3103788 (N.D. Cal. 2020) ..................................................................................... 25
Multicare Health Sys. v. Wash. State Nurses Assoc.,
743 F. App’x 757 (9th Cir. 2018) .......................................................................................... 19
Naing Int’l Enters., Ltd. v. Ellsworth Assocs., Inc.,
961 F. Supp. 1 (D.D.C. 1997) ................................................................................................ 24
Oto Analytics, Inc. v. Capital Plus Financial, LLC,
2022 WL 1488441 (N.D. Tex. May 11, 2022) ...................................................................... 14
Oxford Health Plans LLC v. Sutter,
569 U.S. 564 (2013) ................................................................................................................. 9
Phoenix Newspapers, Inc. v. Phoenix Mailers Union Loc. 752, Int’l Bhd. of Teamsters,
989 F.2d 1077 (9th Cir. 1993) ............................................................................................... 22
Riley v. QuantumScape Corp.,
2023 WL 1475092 (N.D. Cal. Feb. 2, 2023) ............................................................. 17, 18, 20
Sw. Reg’l Council of Carpenters v. Drywall Dynamics, Inc.,
823 F.3d 524 (9th Cir. 2016) ................................................................................................. 21
T-Mobile USA, Inc. v. Qwest Commc’ns Corp.,
2007 WL 3171428 (W.D. Wash. Oct. 26, 2007) ................................................................... 15
U.S. Life Ins. Co. v. Superior Nat’l Ins. Co.,
591 F.3d 1167 (9th Cir. 2010) ................................................................................................. 9
Va. Mason Hosp. v. Wash. State Nurses Ass’n,
511 F.3d 908 (9th Cir. 2007) ........................................................................................... 21, 22
Statute
9 U.S.C. § 10(a) ........................................................................................................................... 9
Other Authorities
12 C.F.R. § 103.1 ....................................................................................................... 7, 16, 22, 23
85 Fed. Reg. 20,811 (Apr. 15, 2020) ........................................................................................... 7
86 Fed. Reg. 3,692 (Jan. 14, 2021) ............................................................................................ 14
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Respondent Oto Analytics, LLC (f/k/a Oto Analytics, Inc., d/b/a Womply) (“Womply”)
respectfully submits this opposition to the Petition to Vacate Final Arbitration Award (“Petition”
or “Pet.”) filed by Petitioner Benworth Capital Partners LLC (“Benworth”).
INTRODUCTION
After nearly two years of litigation, including a seven-day hearing (the “Evidentiary
Hearing”) akin to a trial, an arbitrator issued a 73-page award in a JAMS arbitration captioned
Oto Analytics, Inc. d/b/a Womply v. Benworth Capital Partners LLC, JAMS Ref.
No. 1210038203 (the “Arbitration”).1 The defendant in that proceeding, Benworth, now asks
this Court to vacate the award, ostensibly for the narrow reasons for vacatur permitted by the
Federal Arbitration Act (the “FAA”). In reality, however, Benworth’s 67-page brief (and over
2,000-page appendix) seeks the type of full-blown appeal of the Arbitrator’s legal conclusions
and factual findings that is prohibited by the FAA. Benworth’s Petition should be denied.
Benworth is a Florida-based lender that made Paycheck Protection Program (“PPP”)
loans to small businesses. In 2021, Benworth contracted with Womply, a technology company,
to use the technology services Womply developed specifically for PPP lenders. After Benworth
failed to pay Womply all of the fees due under the parties’ agreements, Womply commenced the
Arbitration against Benworth for breach of contract. In an effort to avoid paying Womply its
fees (and to recoup fees it already paid to Womply), Benworth asserted several affirmative
defenses and counterclaims raising novel issues of first impression based on the complicated and
barely litigated regulatory scheme governing the PPP. The Arbitrator rejected those arguments,
found that Benworth breached its agreements with Womply, and awarded Womply
approximately $118 million. Womply has moved to confirm the award in this Court.
Now, Benworth argues that the award should be vacated for the principal reason that the
Arbitrator exceeded his powers by “manifestly disregarding the law.” Benworth’s own authority
makes clear that Benworth carries a high burden to prove this claim, and even simple errors of
1 The arbitrator was Alexander L. Brainerd (the “Arbitrator”), a Fellow of the American College
of
Trial
Lawyers
with
decades
of
litigation
and
arbitration
experience.
See https://www.jamsadr.com/brainerd/.
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law or unsubstantiated findings of fact are insufficient. Instead, Benworth must establish that the
Arbitrator understood a law that is “well defined, explicit, and clearly applicable,” correctly
interpreted the law, and disregarded it. Collins v. D.R. Horton, Inc., 505 F.3d 874, 879–80 (9th
Cir. 2007) (emphasis in original) (cleaned up). As detailed below, the Arbitrator did not
manifestly disregard any law. Moreover, the laws at issue in the Arbitration were not well
defined, explicit, or clearly applicable. To the contrary, Benworth’s affirmative defenses and
counterclaims were based on a complex regulatory scheme involving laws, regulations, rules,
and administrative guidance that are virtually untested in court.
The PPP was a first-of-its-kind government program hastily implemented in 2020 in the
midst of a national crisis. In response to the COVID-19 pandemic, Congress passed legislation
that created the PPP (Pet. at 7), which was administered by the United States Small Business
Administration (“SBA”) and authorized private lenders to “loan” money to businesses to keep
them afloat. (Pet. App’x 3185–3257 (Final Award (“FA”)) at 2.) Those loans were forgivable
if the borrower used the funds for certain purposes, meaning most businesses would never have
to pay them back. (FA at 9.) The loans were also guaranteed by the federal government, virtually
eliminating any risk to the lenders so long as the lenders followed program rules. (Id.) For
making the loans, the federal government paid PPP lenders lucrative lender processing fees. (Id.)
The PPP was governed by a complex web of laws, regulations, rules, and SBA guidance—some
of which were specifically tailored to the PPP and others that pre-existed the PPP and applied
generally to a broad category of SBA loan programs. The PPP ended in 2021.
In the Arbitration, Benworth relied on various regulations, rules, and SBA guidance to
argue that (i) certain of Womply’s fees were illegal because they exceeded an SBA limit on fees
a lender could pay to an agent for helping a borrower prepare a loan application, and/or (ii) all of
Womply’s fees were illegal because the SBA never reviewed Benworth’s agreements with
Womply. Apart from one decision from a federal court in Texas (discussed below), the parties
were unable to identify any case law from any state or federal court in the United States that
interpreted or applied many of the regulations, rules, and guidance relevant to Benworth’s
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arguments. The Arbitrator therefore was tasked with resolving several issues of first impression.
In resolving those issues, the Arbitrator considered substantial evidence submitted by the parties.
During the Evidentiary Hearing, the parties submitted 240 exhibits into evidence and elicited
testimony from five fact witnesses and one expert witness who testified regarding the regulatory
scheme applicable to the PPP. The parties also submitted more than 200 pages of pre- and post-
hearing briefing. The Arbitrator drew legal conclusions, made findings of fact, and ultimately
rejected Benworth’s arguments. Under the FAA, the Court is not permitted to review the
Arbitrator’s legal conclusions and findings of fact, let alone overturn them if the Court finds the
Arbitrator committed error (he did not), which is what Benworth seeks here.
The Arbitrator also did not, as Benworth claims, disregard applicable laws and apply “his
own rough sense of justice” in order to reach a result that he thought was more “fair.” (See, e.g.,
Pet. at 5, 28–29, 61–62.) As Benworth acknowledges, the Arbitrator expressly recognized that
“it is not, actually, the Arbitrator’s role to decide what is ‘fair;’ he is instead merely tasked with
interpreting the contract provisions.” (FA at 54; see also Pet. at 48.) But what Benworth fails to
disclose is that the Arbitrator made this statement in response to Benworth’s request that the
Arbitrator ignore the parties’ Agreements and applicable law in order to reach a result that
Benworth believed would be more equitable. In his award, the Arbitrator wrote that he was
“somewhat sympathetic to Benworth’s argument that, in light of this damages award, it will
receive only a fraction of its compensation from the SBA.” (FA at 54.) However, he made clear
that he was not supposed to decide what is “fair,” and that “Benworth chose to enter into these
Agreements with Womply; no evidence was introduced that it was coerced in any way.” (Id.)
He continued that “Benworth therefore cannot now argue that the Agreements are unfair or too
one-sided. Such arguments should have been made during the parties’ negotiations,” which he
described as “arms-length.” (Id.) Benworth’s suggestion in its Petition that the Arbitrator’s
refusal to dispense “rough justice” in Benworth’s favor is somehow evidence of the Arbitrator’s
manifest disregard of the law is disingenuous and deeply misleading.
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Benworth’s argument that the Arbitrator’s decision is against public policy also should
be rejected. Benworth does not actually identify any “‘explicit, dominant and well-defined’
public policy” that the award purportedly violates, as it must. See Local 588 v. Foster Poultry
Farms, 74 F.3d 169, 174 (9th Cir. 1995) (“The party seeking to vacate the arbitration award bears
the burden of showing that the arbitration award violates an ‘explicit, dominant and well-defined’
public policy.”). Instead, Benworth does little more than rehash its arguments that the
Arbitrator’s decision is incorrect, which is not a basis to vacate the award under the FAA.
Finally, Benworth’s argument that the Arbitrator engaged in misconduct by failing to stay
the Evidentiary Hearing is similarly deficient. For years, Benworth has asserted that the SBA is
on the precipice of resolving some issue that would bear on the dispute, but despite repeated
requests from the Arbitrator, Benworth failed to provide compelling evidence supporting its
assertion. It has been more than 17 months since Benworth first made this claim, and Benworth
still is unable to provide evidence of some imminent decision from the SBA that would inform
the Arbitrator’s resolution of the dispute. Under these circumstances, the Arbitrator was not
required to indefinitely stay the Arbitration, as Benworth requested.
For these reasons, and the reasons below, the Petition should be denied.
BACKGROUND
A.
Womply Is A Technology Company That Provided Technology Services To
Benworth, A PPP Lender.
Womply is a technology company that, in 2021, developed “PPP Fast Lane,” a technology
platform that made it easy for applicants to apply for a PPP loan and more efficient for lenders
to process and manage a large volume of PPP loan applications. (FA at 2, 16; Pet. at 18–19.)
PPP Fast Lane also allowed applicants to submit information to apply for a PPP loan, and
Womply routed applicant information to PPP lenders that contracted to use PPP Fast Lane. (FA
at 22–23.) Womply’s technology also included a lender-facing portal, the Teslar Portal, which
allowed lenders like Benworth to efficiently review applicant information, generate loan
documents, submit information to the SBA for approval, and initiate payment of loan proceeds.
(Id. at 25–29.)
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Benworth is a Florida-based lender that was authorized to make PPP loans. (Pet. at 6,
10.) In February 2021, “Benworth and Womply were introduced by a mutual business
connection” and the “companies decided to enter into a business relationship.” (FA at 17.) The
Parties entered into two separate Agreements pursuant to which Benworth received Womply’s
PPP Fast Lane services: (i) the “Referral Agreement” and (ii) the “Order Form,” which
incorporated Womply’s Master Developer Agreement by reference (collectively, the
“Agreements”). (Id. at 18.) The Agreements specified the services Womply agreed to provide
to Benworth and the associated fees Benworth agreed to pay to Womply.
First, under the Referral Agreement, “Benworth agreed to pay Womply a . . . Referral
Fee for applicant information collection and referral services” (the “Referral Fee”). (Id. at 20
(citing Referral Agreement (Pet. App’x 3982 § 1.1)).) The Referral Fee was “1% of the amount
of each Womply-referred PPP loan that the SBA approved and Benworth ultimately funded.”
(Id. (citing Referral Agreement (Pet. App’x 3982–83 § 2.2)).)
Second, “[p]ursuant to the separately executed Order Form, Benworth agreed to pay
Womply an Application Programming Interface [] Fee (the ‘API Fee’) and a tier-based
‘Technology Fee’ for access to Womply’s technology services and the Teslar Portal.” (Id. at 20–
21.) This “API Package” of services integrated several third-party technology services. (Id. at
20.) The API Fee was a flat $250 for each PPP loan that Benworth funded using PPP Fast Lane.
(Id. at 21 (citing Order Form (Pet. App’x 3986)).) The Technology Fee was calculated as a
percentage of the Lender Processing Fee that Benworth received from the SBA. (Id. at 21 (citing
Order Form (Pet. App’x 3987 § 2)).)
Womply’s services proved to be a boon to Benworth. In 2020, before Benworth used
PPP Fast Lane, Benworth funded fewer than 700 PPP loans. (Pet. at 11.) In 2021, with
Womply’s PPP Fast Lane, Benworth funded more than 300,000 PPP loans with a total principal
amount of more than $4 billion. (Id.; FA at 17–18, 22.) Benworth received at least $680 million
in Lender Processing Fees from the SBA for making these loans. (Pet. at 11.)
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B.
Womply Commenced The Arbitration After Benworth Stopped Paying
Womply’s Fees.
On July 1, 2021, Benworth informed Womply that it was withholding nearly $42 million
in fees due under the Agreements. (FA at 29.) “Thereafter, Benworth stopped paying Womply
its fees altogether.” (Id.) Womply commenced the Arbitration on August 25, 2021, asserting
breach of contract claims for Benworth’s failure to pay its Referral Fees, Technology Fees, and
API Fees, as well as related declaratory judgment claims. (FA at 30.) In its defense, and in
support of counterclaims it asserted against Womply, Benworth relied on two SBA regulations
to argue that Womply’s fees were illegal.2 These arguments are discussed below.
1.
Benworth’s Agent Fee Cap Argument
Benworth argued that Womply’s Technology Fees were illegal because they exceeded a
cap that the SBA imposed on fees a lender could pay for certain services. Specifically, an SBA
regulation states that “[t]he total amount that an agent may collect from the lender for assistance
in preparing an application for a PPP loan (including referral to the lender) may not
exceed: . . . [o]ne (1) percent for loans of not more than $350,000 . . . .” (the “Agent Fee Cap”).
(Pet. at 9 (citing 85 Fed. Reg. 20,811, 20,816 (Apr. 15, 2020)) (emphasis added).) Benworth
claimed that both Womply’s Referral Fee and Technology Fee were subject to the Agent Fee
Cap, and because the Referral Fee was 1% of a PPP loan, paying an additional Technology Fee
would violate the Agent Fee Cap. (FA at 30.) Womply argued that its Technology Fee was not
subject to the Agent Fee Cap because that fee was for technology services that helped Benworth
(among other things) process loans, and not for helping an applicant prepare an application or for
referring the applicant to Benworth (for which Womply received its Referral Fee).
Accordingly, to resolve this issue, the Arbitrator had to make factual findings regarding
the nature of the various services that Womply provided for its Referral Fees, API Fees, and
Technology Fees, interpret the SBA regulation providing the Agent Fee Cap, and make a
determination as to whether and to what extent the Agent Fee Cap applied to those fees.
2 Benworth also disputed Womply’s interpretation of the Technology Fee in the Order Form.
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2.
Benworth’s Lender Service Provider Argument
Benworth also argued that all of Womply’s fees were illegal because, it claimed, Womply
was a “Lender Service Provider” (“LSP”) as defined by SBA regulations, and Womply’s
Agreements were not reviewed and approved by the SBA, as required by SBA guidance. An
LSP is “an Agent who carries out lender functions in originating, disbursing, servicing, or
liquidating a specific SBA business loan or loan portfolio for compensation from the lender,” 12
C.F.R. § 103.1(d), and the SBA has advised that “[a]n LSP may only receive compensation from
the 7(a) Lender for services provided under an SBA-reviewed LSP Agreement.” (Ex. 13, SBA,
Standard Operating Procedure 50 10 6 Lender and Development Company Loan Programs
(Oct. 1, 2020) (the “SOP”) at 185.)4 It was undisputed that Benworth’s Agreements with
Womply were not reviewed by the SBA before Womply provided services to Benworth.
However, Womply disputed that it was an LSP.
To resolve this issue, the Arbitrator had to make factual findings regarding the services
that Womply provided to Benworth, interpret SBA regulations and SOPs regarding the definition
of an LSP, and determine whether Womply fit within the SBA’s definition of an LSP. In
addition, to the extent Womply was an LSP, the Arbitrator had to determine what impact (if any)
that would have on Benworth’s contractual obligation to pay Womply’s fees.
C.
The Arbitrator Rejects Benworth’s Illegality Arguments In A Final Award.
On December 21, 2023, following a “seven-day evidentiary hearing akin to a full-fledged
trial,” the Arbitrator issued an Interim Award finding that Benworth breached the Agreements
by failing to pay Womply its fees. (FA at 68.)
3 All references to “Exhibit” or “Ex.” refer to exhibits to the accompanying declaration of
Alexander L. Cheney in support of the Opposition to Petition to Vacate Final Arbitration Award
(“Cheney Decl.”), dated August 26, 2024.
4 The nearly 600-page SOP is published by the SBA and contains “the SBA’s participation
requirements for 7(a) Lenders and Certified Development Companies (CDCs) . . . and the policies
and procedures governing the 7(a) and 504 loan programs.” (Ex. 1 (SOP) at 7.) The PPP was
one of the SBA’s 7(a) loan programs, which are implemented pursuant to Section 7(a) of the
United States Small Business Act. 85 Fed. Reg. 20,811, 20,811 (Apr. 15, 2020).
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The Arbitrator also rejected Benworth’s arguments that Womply’s fees were illegal. The
Arbitrator held that the Technology Fees “are not illegal” because the “Technology Services
provided by Womply to Benworth were not subject to the SBA’s 1% Agent Fee Cap.” (FA at
41.) The Arbitrator also determined that Womply was not an LSP and, therefore, its Agreements
did not have to be reviewed by the SBA. (Id. at 41–45.) The Arbitrator further held that, even if
Womply were an LSP, Benworth nevertheless would be required to pay Womply’s Technology
Fees because: (i) Benworth did not cite to any rule or regulation stating that its failure to obtain
SBA review would render the Agreements invalid or void, and (ii) California law provides that
Womply should be compensated for the services Benworth used to “earn[] hundreds of millions
of dollars,” even if the Agreements technically violated SBA rules or regulations. (Id. at 45–47.)
The Arbitrator awarded Womply approximately $86 million in unpaid fees,5 and reserved
decision on the amount of interest, attorneys’ fees, and costs of collection to which Womply was
entitled under the Agreements. Benworth unsuccessfully moved for reconsideration of the
decisions in the Interim Award that Benworth now seeks to vacate.6 (Pet. at 24; Pet. App’x 2957–
2973; FA at 56.)
After extensive briefing, the Arbitrator held an evidentiary hearing from April 8 to
April 11, 2024, concerning the amount of attorneys’ fees, costs of collection, and finance charges
Benworth owed Womply. (FA at 57.) On June 26, 2024, the Arbitrator entered a 73-page
Final Award.
ARGUMENT
Under the FAA and Ninth Circuit precedent, “judicial review of an arbitrator’s decision is
both limited and highly deferential.” Barnes v. Logan, 122 F.3d 820, 821 (9th Cir. 1997) (cleaned
up). Courts must accept an arbitrator’s findings of fact, HayDay Farms, Inc. v. FeeDx Holdings,
5 The Arbitrator found in Benworth’s favor on the interpretation of the Technology Fees
provision. (FA at 47–50.) This reduced Womply’s damages by approximately $65 million.
6 Womply consented to a declaratory judgment on its obligation to provide loan files to Benworth.
(Cheney Decl. ¶ 6; FA at 58.) Womply complied with the Arbitrator’s order and delivered the
loan files to Benworth on June 12, 2024. (Id.)
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Inc., 55 F.4th 1232, 1241 (9th Cir. 2022), and “[n]either erroneous legal conclusions nor
unsubstantiated factual findings justify federal court review of an arbitral award.” Bosack v.
Soward, 586 F.3d 1096, 1102 (9th Cir. 2009) (cleaned up). That is because the FAA allows only
four narrow grounds on which a court may vacate an arbitration award, only two of which are at
issue here:
(3) where the arbitrators were guilty of misconduct in refusing to
postpone the hearing . . .; or
(4) where the arbitrators exceeded their powers, or so imperfectly
executed them that a mutual, final, and definite award upon the
subject matter submitted was not made.7
9 U.S.C. § 10(a); see also Bosack, 586 F.3d at 1102 (“Our review is limited by the [FAA], which
enumerates limited grounds on which a federal court may vacate, modify, or correct an arbitral
award.”). “The burden of establishing grounds for vacating an arbitration award is on the party
seeking it.” U.S. Life Ins. Co. v. Superior Nat’l Ins. Co., 591 F.3d 1167, 1173 (9th Cir. 2010);
see also Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 569 (2013) (holding that the party
seeking vacatur of an arbitral award under the FAA “bears a heavy burden”).
The limited judicial review permitted by the FAA is “designed to preserve due process
but not to permit unnecessary public intrusion into private arbitration procedures.” U.S. Life, 591
F.3d at 1173 (quotation omitted). To allow a more expansive review also would undermine some
of the reasons that parties choose arbitration, which include efficiency and cost saving. See
Kyocera Corp. v. Prudential–Bache Trade Servs., Inc., 341 F.3d 987, 998 (9th Cir. 2003)
(discussing advantages of arbitration, such as speed and economy). As the Supreme Court has
explained, “[i]f parties could take full-bore legal and evidentiary appeals, arbitration would
become merely a prelude to a more cumbersome and time-consuming judicial review process.”
Oxford, 569 U.S. at 568–69 (cleaned up).
7 An award also may be vacated if it “was procured by corruption, fraud, or undue means” or
“there was evident partiality or corruption in the arbitrators.” 9 U.S.C § 10(a)(1) and (2).
Benworth does not seek to vacate the Final Award on either of those grounds.
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Here, Benworth seeks to vacate the Final Award on the grounds that: (i) the Arbitrator
exceeded his powers because the Final Award is completely irrational and manifestly disregards
law concerning the Agent Fee Cap and LSPs, (ii) it is contrary to public policy, and (iii) the
Arbitrator is guilty of misconduct for not postponing the Evidentiary Hearing. In reality, as
shown below, the vast majority of Benworth’s 67-page petition (supported by an over 2,000-page
appendix) seeks the type of “full-bore legal and evidentiary appeal[]” of the Arbitrator’s legal
conclusions and factual findings that is prohibited by the FAA.8 In any event, Benworth fails to
establish that any of the narrow grounds for vacating an arbitral award under the FAA apply here.
I.
THE ARBITRATOR DID NOT EXCEED HIS POWERS.
As Benworth’s own authority acknowledges, manifest disregard of the law is a “high
standard.” HayDay, 55 F.4th at 1240 (quotation omitted). The moving party must show that the
arbitrator: (1) understood and correctly stated the law, but (2) proceeded to disregard it. Id. at
1241. To meet this high standard, “there must be some evidence in the record, other than the
result, that the arbitrator[] [was] aware of the law and intentionally disregarded it.” Bosack, 586
F.3d at 1104 (cleaned up). “[E]ven misstatements of the law followed by erroneous application
of the law do not provide grounds upon which a reviewing court may vacate an arbitral award
under the FAA.” Biller v. Toyota Motor Corp., 668 F.3d 655, 668 n.7 (9th Cir. 2012).
“Moreover, to rise to the level of manifest disregard the governing law alleged to have been
ignored by the arbitrators must be well defined, explicit, and clearly applicable.” Collins, 505
F.3d at 879–80 (emphasis in original) (cleaned up).
Similarly, the completely irrational standard “is extremely narrow and is satisfied only
‘where the arbitration decision fails to draw its essence from the agreement.’” Bosack, 586 F.3d
at 1106 (quoting Comedy Club, Inc. v. Improv West Assocs., 553 F.3d 1277, 1288 (9th Cir. 2009))
(cleaned up). In applying this standard, courts do not “decide the rightness or wrongness of the
8 That Benworth spends 67 pages of briefing and a more than 2,000-page appendix challenging
the Arbitrator’s legal conclusions and factual determinations reveals that it has not identified one
of the narrow grounds for vacatur allowed by the FAA. Petitions to vacate are motions, 9 U.S.C.
§ 6, subject to the 25-page limit in Civil Local Rule 7-2(b).
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arbitrators’ contract interpretation,” nor do courts consider whether “findings of fact are correct
or internally consistent,” but rather courts review to determine only “whether the award is
‘irrational’ with respect to the contract.” Id. “[T]he court must defer to the arbitrator’s decision
as long as the arbitrator even arguably construed or applied the contract.” Hayday, 55 F.4th at
1241 (quoting U.S. Life, 591 F.3d at 1177).
Benworth fails to satisfy its heavy burden to show that the Arbitrator manifestly
disregarded the law or that the Final Award was completely irrational.
A.
The Arbitrator Did Not Manifestly Disregard The Law Concerning The Agent
Fee Cap.
Benworth spends nearly 20 pages of its Petition arguing that “the Arbitrator’s conclusion
that the Agent Fee Cap does not apply to the Technology Fees is legally irreconcilable with the
undisputed facts” and that he “conscientiously chose to ignore the SBA Regulations . . . because
[he] did not agree that the regulations were fair to Womply.” (Pet. at 29.) Benworth’s argument
is based on the faulty premise that it was “undisputed” that the services in the Order Form—
defined as “Technology Services” for which Benworth agreed to pay Technology Fees—were
for helping borrowers prepare their applications, as opposed to helping Benworth process those
applications. Benworth also mischaracterizes the Arbitrator’s Final Award.
As explained in the Final Award, “Benworth d[id] not dispute that . . . the 1% Agent Fee
Cap applies only to fees paid to Agents for ‘assist[ing] an eligible recipient’—i.e., a borrower—
‘to prepare an application for a [PPP] loan.’” (FA at 35 (emphasis added).) In other words,
Benworth admitted that fees owed to Womply for providing assistance to Benworth—a lender—
were not subject to the Agent Fee Cap. Thus, the nature and purpose of Womply’s various
services, including whether they assisted borrowers or Benworth, were some of the most hotly
contested factual issues in the Arbitration, with both sides submitting substantial evidence.
Far from ignoring the evidence, the Arbitrator devoted more than thirteen pages of the
Final Award to describing and analyzing the evidence presented at the Evidentiary Hearing. (See
FA at 22–29, 33–41.) The Arbitrator ultimately concluded that the services for which Womply
received the Technology Fee benefited Benworth (FA at 37), a factual finding that this Court
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may not reconsider. HayDay, 55 F.4th at 1241 ("We also must accept the arbitrator's findings
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of fact."). The Arbitrator's detennination was based on (among other evidence) testimony from
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Benworth's own CEO, finding that "it is undisputed that without Womply's Technology
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Services, Benworth would have had to conduct manual reviews of each PPP loan applicant's
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inf01mation, making it impossible for it to have successfully processed billions of dollars in PPP
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loan applications." (FA at 37 (citing Hr'g Tr. (Scammell) at 317:25- 318:7; Hr'g Tr. (Navan o)
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(Benworth's CEO) at 1327:2-12, 1413:1-21, 1415:11-16, 1417:8-1420:18 (testifying that
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Technology Se1vices also allowed Benworth to review each 'Paycheck Protection Application
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F 01m' and confom receipt of the ce1tifications contained therein," and that "[ a ]11 the se1vices
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directly benefited Benwo1th and allowed it to process and make over 300,000 loans" and "were
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distinct from and had nothing to do with assisting a potential borrower in completing an
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application." (Id. at 37- 38). In summarizing his factual findings, the Arbitrator concluded that
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it was "wholly disingenuous and a complete distortion of the evidence for Benwo1th to now
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argue that no benefit was received from the Womply technology." (Id. at 39 (emphasis added).)
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While the Arbitrator concluded that the se1vices for which Womply earned the
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Technology Fee were distinct from its se1vices that assisted applicants, Benwo1th tried to conflate
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Womply's se1vices dming the Arbitration. The Arbitrator expressly found that Benworth
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"conflate[d] Womply's refenal se1vices, API Se1vices, and Technology Se1vices," which, he
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obse1ved, "the paities clearly perceived [as] .. . different at the time of contracting since they
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were enumerated separately in different contracts and each se1vice had a different fonnula for
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fees." (FA at 36.) Indeed, the Refenal Agreement provided that Womply would be compensated
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for its refenal se1vices (which included preparing or refening PPP loan applications) with a
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Referral Fee of 1% of a loan’s principal amount (what was subject to and consistent with the
Agent Fee Cap). (Id. at 20, 33). The separate Order Form provided that Womply would be
compensated for its API Package in the form of an API Fee and Technology Fee for each loan,
which were not subject to the Agent Fee Cap. (Id. at 20–21, 41.) Accordingly, the Arbitrator
did not manifestly disregard the Agent Fee Cap, but simply rejected Benworth’s argument that it
also applied to the Technology Fees, stating that “[u]nder Benworth’s interpretation, the
Technology Services and associated fee provision would be impermissibly rendered meaningless
since they would be subsumed within the Agreements’ referral services and fees.” (FA at 36.)
In its Petition, Benworth again distorts the record and conflates Womply’s various
services to contend that it was “undisputed” that Womply’s services helped borrowers prepare
applications. For example, Benworth claims that the “Arbitrator admitted that the Technology
Services assisted in preparing and referring PPP loan applications.” (Pet. at 44.) For support,
Benworth relies on a rhetorical question its counsel asked during closing arguments: “Did any
of Womply’s technology assist in either preparing or referring PPP loan applications?” (Pet.
App’x at 2776 (Closing Arguments) (emphasis added).) The Arbitrator answered “yes,” which
is consistent with his finding that the 1% Referral Fee compensated Womply for “applicant
information collection and referral services” and “was subject to the 1% Agent Fee Cap.” (FA
at 20, 33, 41 (emphasis added).) The Arbitrator was not signaling his agreement with Benworth’s
position that the Technology Fee also was subject to the Agent Fee Cap.
Benworth also asked the Arbitrator to ignore the parties’ Agreements regarding services
and associated fees and, instead, award Womply fees only for each individual service that
Womply could prove did not benefit a borrower, with the amount of such fees based on
Womply’s cost for providing such service.9 Relying on California law, the Arbitrator held that
he “cannot disregard the parties’ Agreements and create his own price for each of Womply’s
services.” (FA at 36.) Indeed, he found that “nothing in the parties’ Agreements demonstrates
9 The Arbitrator called Benworth’s proposed methodology an “elaborate and unsubstantiated
formula.” (FA at 35–36.)
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any intent by the parties to authorize payment of Womply’s Technology Fees only if they can be
tied to a particular cost or to authorize the Arbitrator to carve up the Technology Fees and allocate
a portion of them to each of Womply’s services based on the relative costs of those services.”
(Id. (citing Founding Mems. of the Newport Beach Cntry. Club v. Newport Beach Cntry. Club,
Inc., 109 Cal. App. 4th 944, 955 (2003)).)
While Benworth challenges the correctness of these factual findings and legal
conclusions, that is beyond the scope of this Court’s review under the FAA. See HayDay, 55
F.4th at 1241 (“We also must accept the arbitrator’s findings of fact.”); Carter v. Health Net of
Cal., Inc., 374 F.3d 830, 838 (9th Cir. 2004) (“Errors of fact do not generally constitute manifest
disregard of federal law,” for purposes of request to vacate arbitration award.). As Benworth’s
own authority makes clear, courts “have no authority to re-weigh the evidence.” Coutee v.
Barington Cap. Grp., L.P., 336 F.3d 1128, 1134 (9th Cir. 2003).
For the same reason, Benworth’s claim that the Arbitrator misinterpreted Oto Analytics,
Inc. v. Capital Plus Financial, LLC, 2022 WL 1488441 (N.D. Tex. May 11, 2022), is beside the
point. It also is wrong. Capital Plus concerned a lawsuit Womply filed against a different PPP
lender that failed to pay Womply’s fees. In a motion to dismiss Womply’s complaint in that case,
the PPP lender argued that, as a matter of law, the Agent Fee Cap prohibited Womply from
collecting both a 1% Referral Fee and a separate Technology Fee. Id. at *9. The Capital Plus
court rejected that argument, holding that the SBA regulation containing the Agent Fee Cap
(i) did not “foreclose a Technology Fee like the one in the Developer Order Form,” and
(ii) “limit[s] the fee for preparing an application for a PPP loan, but not for any other reason.”
Id. at *10 (citing 86 Fed. Reg. 3,692, 3,709–10 (Jan. 14, 2021)) (emphasis added). In criticizing
the Arbitrator for referencing Capital Plus, Benworth claims the case should be given little
weight because it was a motion to dismiss ruling that “left open the possibility that discovery
would reveal additional information about the services Womply provided under the order form
that may have resulted in the Agent Fee Cap precluding recovery of technology fees.” (Pet. at
42.) But, as Benworth admits, “such additional information was presented to the Arbitrator here”
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(id.) and, after considering that information, the Arbitrator independently determined that the
Technology Fees charged to Benworth did not compensate Womply for assisting a borrower to
prepare a loan application and, therefore were not subject to the Agent Fee Cap (see FA at 35–
41 (citing Capital Plus after analyzing the factual record)).
The Arbitrator’s reference to Capital Plus is not evidence that the Arbitrator disregarded
any law either. Capital Plus is the only decision we are aware of concerning the application of
the Agent Fee Cap to fees charged to a lender, and the Arbitrator’s decision is consistent with its
holding. Accordingly, Benworth’s reliance on Comedy Club, 553 F.3d 1277, and Am. Postal
Workers Union AFL-CIO v. U.S. Postal Serv., 682 F.2d 1280 (9th Cir. 1982), in which courts
found that arbitrators disregarded well-defined, explicit, and clearly applicable laws, is
misplaced. Moreover, the lack of binding precedent eviscerates Benworth’s argument that the
Arbitrator manifestly disregarded the law. See Collins, 505 F.3d at 879–80 (“[T]o rise to the
level of manifest disregard the governing law alleged to have been ignored by the arbitrators must
be well defined, explicit, and clearly applicable.”) (emphasis in original) (cleaned up); T-Mobile
USA, Inc. v. Qwest Commc’ns Corp., 2007 WL 3171428 at *5 (W.D. Wash. Oct. 26, 2007)
(declining to find manifest disregard where no binding precedent existed).
Finally, Benworth maintains that the Arbitrator relied on “extrinsic evidence” and some
of the terms of the Agreements “to justify charging Benworth more than 1% for services that he
had admitted were ‘[a]bsolutely’ and without ‘dispute’ subject to the Agent Fee Cap.” (Pet. at
47.) This is misleading. The first clause of the paragraph in the Final Award that Benworth takes
issue with plainly states that the extrinsic evidence referenced by the Arbitrator is “not necessary
to the resolution of this issue” (i.e., whether the Agent Fee Cap applied to the Technology Fee).
(FA at 40.) This is not a “rough sense of justice” as Benworth contends, but one of five distinct
bases on which the Arbitrator rejected Benworth’s arguments. (Id. at 36–41.)
B.
The Arbitrator Did Not Manifestly Disregard Law Or Facts In Finding
Womply Was Not An LSP.
As discussed above, an LSP is defined as “an Agent who carries out lender functions in
originating, disbursing, servicing, or liquidating a specific SBA business loan or loan portfolio
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for compensation from a lender.” 12 C.F.R. § 103.1(d) (emphasis added). In the Arbitration,
Benworth argued that Womply was an LSP because it “originat[ed]” PPP loans for Benworth.
(FA at 42.) It also argued that Womply was an LSP because it engaged in “underwriting” for
Benworth, relying on a guidance document published by the SBA that provided “examples of
when SBA considers an Agent to meet the definition of an LSP,” which includes (among other
things) “[e]ntities providing technology services to a 7(a) Lender that include underwriting.”
(Ex. 1 (SOP) at 185.)
After interpreting SBA regulations and carefully considering the evidence, the Arbitrator
determined that Womply did not meet the definition of an LSP. (FA at 41–45.) Benworth seeks
to vacate that decision on the grounds that: (i) Benworth disagrees with the Arbitrator’s
interpretation of the word “originating” in SBA regulations, (ii) Benworth disagrees with the
Arbitrator’s finding that Womply did not engage in “underwriting” as that term is used in the
SOP, (iii) the Arbitrator did not give sufficient weight to the SBA’s guidance in the SOP
regarding examples of LSPs, and (iv) the Arbitrator improperly relied on facts supporting his
conclusion that Womply was not an LSP. None of these arguments justify vacatur.
1.
The Arbitrator Did Not Manifestly Disregard the Law in Interpreting the
Word “Origination” in SBA Regulations.
Benworth takes issue with the Arbitrator’s holding that, “[a]s the functions of an LSP are
listed as ‘originating, disbursing, servicing or liquidating’ a loan, the most logical definition of
originating is underwriting and approving a loan and submitting it to the SBA for final approval.”
(FA at 12; Pet. at 50.) However, Benworth fails to identify any law that the Arbitrator manifestly
disregarded in reaching this conclusion. Nor does Benworth even propose any alternative
definition of “originating” based on any applicable law, regulation, or rule. (See FA at 42
(“Benworth provides no statutory or regulatory definition of the term ‘originate.’”).)
Instead, Benworth complains that the Arbitrator “simply ignored” a snippet from a single
email that Benworth received from an SBA office that it claims “informs” the definition. (Pet.
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at 50.) In that email, the SBA’s Office of Credit Risk Management asked Benworth to identify
any third parties that engaged in “Originating Activities (application evaluation, gathering
documents, processing, etc.)” for Benworth. (Pet. App’x 3990.) Benworth contends that this
single, non-public email definitively establishes that the term “originating” in 12 C.F.R.
§ 101.3(d) means simply “gathering documents.” (Pet. at 50.) Benworth further contends that,
because the Arbitrator described some of Womply’s work as “collect[ing] data from potential
applicants to refer those applicants to Benworth,” the Arbitrator was required to find that Womply
was an LSP. (Id.) But the non-public SBA email on which Benworth relies is not a law,
regulation, or rule that is “well defined, explicit, and clearly applicable.” Riley v. QuantumScape
Corp., 2023 WL 1475092, at *15 (N.D. Cal. Feb. 2, 2023), aff’d, 2024 WL 885034 (9th Cir.
Mar. 1, 2024). Nor is it dispositive of the SBA’s supposed interpretation of the term, because
the email does not even purport to define the word “originating” as used in SBA regulations.
Benworth also fails to establish that the Arbitrator knew about the email and simply ignored
it. See Bosack, 586 F.3d at 1104 (“There must be some evidence in the record, other than the
result, that the arbitrator[] [was] aware of the law and intentionally disregarded it.”) (cleaned
up). Although the email was marked as an exhibit, the Arbitrator determined there was “[n]o
persuasive evidence” in support of Benworth’s position. (FA at 42–45.)
This Court is not permitted to review the Arbitrator’s interpretation of “originating,” nor
may it vacate the Final Award even if it disagrees with the Arbitrator’s interpretation. See
HayDay, 55 F.4th at 1240–43 (affirming confirmation of portion of award and reversing vacatur
of portion of award even though party moving for vacatur “probably offer[ed] the best
interpretation of the parties’ agreements” and the award “arguably violate[d] California law”).
2.
The Arbitrator Did Not Manifestly Disregard The Law In Finding That
Womply Did Not Engage In Underwriting.
Benworth also asks this Court to review the Arbitrator’s conclusion that Womply did not
engage in “underwriting.” (Pet. at 52–54.) After considering substantial evidence concerning
the nature of Womply’s services, the Arbitrator concluded that “it was Benworth, not Womply,
that was underwriting the PPP loans,” because “Benworth was required to take the information
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developed by the Womply technology and make a final determination that all necessary criteria
had been met before submitting a loan to the SBA for approval.” (FA at 43.) Benworth argues
that it was irrational to conclude that Womply did not engage in underwriting given that “the
Arbitrator specifically found that Womply’s technology to some extent electronically performed
the[] functions’ of underwriting a PPP loan.” (Pet. at 52 (quoting FA at 43).) But the Arbitrator
found that “Womply provided Benworth with technology that to some extent automated and
assisted Benworth with these [underwriting] functions.” (FA at 14.) Just as a lawyer uses
technology like Westlaw to practice law, Benworth used Womply’s technology to perform
underwriting. That does not make Westlaw a lawyer, nor does it make Womply an underwriter.
Benworth complains that the Arbitrator incorrectly interpreted the word “underwriting”
in the SOP. (Pet. at 52–54.) But there is no definition of “underwriting” in the SOP or in SBA
regulations. In the Arbitration, Benworth argued that the word “underwriting” in the SOP—
which applied to all SBA 7(a) loan programs—should be interpreted as meaning the unique
underwriting requirements specific to the PPP, which were significantly less stringent than for
the SBA’s other loan programs. Under the SBA’s PPP-specific rules, lenders were required to
only: (i) confirm that applicants certified they were entitled to receive a PPP loan and provided
information regarding the applicant’s employees and monthly payroll, and (ii) follow applicable
Bank Secrecy Act requirements to confirm the identity of the applicant. (FA at 43.) In other
words, Benworth asked the Arbitrator to assume that, by lowering the underwriting standards for
the PPP, the SBA intended to simultaneously expand the LSP definition in its regulations to
include third-party service providers that would not otherwise qualify as LSPs in other SBA loan
programs. But there is no authority we are aware of supporting Benworth’s position. In fact, we
are not aware of any case that has interpreted the definition of an LSP in the context of the PPP.
Thus, Benworth’s position that the definition of LSP is informed by the unique underwriting
requirements of the PPP is not law, let alone the type of “well defined, explicit, and clearly
applicable” law that an arbitrator may not ignore. Riley, 2023 WL 1475092, at *15.
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At bottom, Benworth asks this Court to consider whether the Arbitrator correctly
interpreted the SOP, but that is beyond the scope of this Court’s review under the FAA. See LPL
Fin., LLC v. Gardner, 2022 WL 1750363, at *1 (N.D. Cal. May 31, 2022) (“In reviewing an
arbitral award, courts do not sit to hear claims of factual or legal error by an arbitrator as an
appellate court does.”) (cleaned up). Even if this Court disagrees with the Arbitrator’s
interpretation, that is not a basis to vacate the Final Award. See Multicare Health Sys. v. Wash.
State Nurses Assoc., 743 F. App’x 757, 758–59 (9th Cir. 2018) (reversing vacatur because district
court wrongly vacated based on disagreement with arbitrator’s contract interpretation).
3.
The Arbitrator Did Not Manifestly Disregard The SOPs, Which Are Not
Law In Any Event.
Benworth claims that the Arbitrator refused to apply the SOPs (Pet. at 48–58), but it does
not actually identify any part of the SOPs that the Arbitrator understood but supposedly ignored.
Instead, it cites to pages of the Final Award in which the Arbitrator discussed two examples the
SBA provided of potential LSPs: (i) “[a]n individual or entity [that] generates a significant
number of 7(a) Lender’s loan originations” (“SOP Example 1”), and (ii) an entity that “provide[s]
services for the purposes of obtaining Federal financial assistance that include[s] interaction with
the Applicant either in-person or through the use of technology, to request or obtain eligibility
and/or financial information that will be provided to the 7(a) Lender” (“SOP Example 2”). (Id.
at 55–56 (citing FA at 44).) The Arbitrator did not ignore these examples.
For SOP Example 1, the Arbitrator expressly held that it “does not apply to Womply”
because “there is no proof that Womply was originating loans.” (FA at 43–44.) The Arbitrator
also expressly acknowledged SOP Example 2, but did not interpret it as broadly as Benworth
desired. In analyzing SOP Example 2, he noted that, “[a]s written, if this SOP were to be applied
to the various entities involved in the PPP program, then virtually every individual or entity
involved in the program would be considered an LSP,” a result he found “absurd” and “in direct
conflict with the SBA rules and regulations.” (FA at 44.) Benworth’s (or even this Court’s)
disagreement with that assessment “does not provide grounds upon which [this Court] may
vacate” the Final Award. Biller, 668 F.3d at 668 n.7.
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In addition, as Benworth itself argued in the Arbitration, “[a]gency guidance documents
like the SBA SOPs [] generally do not carry the force of law” (Ex. 2 (Benworth’s Motion to
Disqualify Manger) at 17), and the SOP is certainly not the type of “well defined, explicit, and
clearly applicable” law that, if ignored, could justify vacatur. Riley, 2023 WL 1475092, at *15;
see also Collins, 505 F.3d 874 at 884 (holding that “the arbitrators could not manifestly disregard
the law because no binding precedent existed” regarding the law they allegedly ignored). Indeed,
we are not aware of any case law even referencing the SBA’s examples of LSPs in the SOP.
Benworth attempts to elevate the significance of the SOP by claiming that the parties
incorporated the SOP by reference into their Agreements, making them contract terms that the
Arbitrator must strictly apply. (Pet. at 27–28, 57–58.) That is wrong. In the Agreements’ choice-
of-law provisions, the parties simply acknowledged that the Agreements were governed by
California law and “subject to all Applicable Laws, including SBA Regulations.” (Pet. App’x
3984 § 9.) The term SBA Regulations was defined to include (among other things) “guidance”
issued by the SBA concerning the PPP. (Id.) This did not turn the nearly 600-page SOP into a
“contract provision,” just as it did not render every decision published in California’s 174 years
of jurisprudence into a contractual provision. Even if the SOPs were incorporated by reference,
the Arbitrator would still have to interpret the SOPs—as he did in the Final Award. And this
Court is not permitted to review the Arbitrator’s legal interpretation of those SOPs, whether they
are merely guidance, carry the force of law, or are contract terms. See Bosack, 586 F.3d at 1106
(explaining that courts “do not decide the rightness or wrongness of the arbitrator[’s] contract
interpretation, only whether [his] decision draws its essence from the contract”) (cleaned up).
4.
This Court May Not Review the Arbitrator’s Findings of Fact.
In the Final Award, the Arbitrator identified four undisputed facts that he found supported
his conclusion that Womply was not an LSP: (i) the parties’ Agreements explicitly stated that
Womply was not an LSP, (ii) Benworth’s CEO told the SBA that “Womply is not an LSP,”
(iii) Benworth never claimed that Womply was an LSP until after the Arbitration began, and
(iv) Benworth knew how to enter into an LSP agreement, because, before contracting with
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Womply, it had entered into an LSP agreement with an LSP called Lendio. (FA at 44–45.) Now,
Benworth argues that the Arbitrator’s mere reference to these facts reflects that the Arbitrator
must have ignored SBA regulations. (Pet. at 5.) But Benworth does not (because it cannot) cite
anything in the Final Award to support that claim. Instead, Benworth relies on Aspic Eng’g &
Constr. Co. v. ECC Centcom Constructors LLC, 913 F.3d 1162 (9th Cir. 2019). (Pet. at 61–62.)
But Aspic is inapposite. There, the arbitrator considered the contracts at issue, yet disregarded
their controlling terms to give, in his view, the more “primitive” party a fair deal. Aspic, 913
F.3d at 1168. Here, the Arbitrator made his determination that Womply was not an LSP based
on the Agreements, the parties’ past practices, and the applicable law, not “his own rough sense
of justice.” (Pet. at 61; see FA at 54 (“[I]t is not, actually, the Arbitrator’s role to decide what is
‘fair;’ he is instead merely tasked with interpreting the contract provisions.”).)
II.
THE FINAL AWARD DOES NOT VIOLATE PUBLIC POLICY.
The Ninth Circuit has repeatedly made clear that “courts should be reluctant to vacate
arbitral awards on public policy grounds.” Ariz. Elec. Power Co-op., Inc. v. Berkeley, 59 F.3d
988, 992 (9th Cir. 1995); Va. Mason Hosp. v. Wash. State Nurses Ass’n, 511 F.3d 908, 917 (9th
Cir. 2007) (same); Sw. Reg’l Council of Carpenters v. Drywall Dynamics, Inc., 823 F.3d 524,
534 (9th Cir. 2016) (same). Accordingly, courts should vacate an arbitral award as violating
public policy only where there exists “an explicit, well-defined, and dominant public policy”
applicable to the dispute that “specifically militates against the relief ordered by the arbitrator.”
Va. Mason, 511 F.3d at 916 (cleaned up). That is not the case here.
Benworth has not identified “an explicit, well-defined, and dominant public policy” that
the Final Award purportedly violates. Id. Benworth’s public policy argument assumes that
Womply was an LSP and therefore violated SBA regulations governing LSPs. (Pet. at 62–63.)
However, the Arbitrator expressly found that Womply was not an LSP (FA at 44–45), which is
a factual finding that this Court may not revisit. See HayDay, 55 F.4th at 1241. Even if Womply
were an LSP (it was not), SBA regulations applying to LSPs are neither explicit nor well-defined.
(See supra Sections I.B.1–3.)
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Benworth’s attempt to couch this contract dispute as a matter of “public policy” is
unavailing. Benworth points to the SOP to argue that “lender service providers ‘may only receive
compensation from the 7(a) lender for services provided under an SBA-reviewed LSP
Agreement.’” (Pet. at 62 (quoting Ex. 1, SOP at 185).) However, as the Arbitrator explained in
the Final Award, when “read in context it is clear that this provision, like most of the SBA
regulations, is directed toward protecting the borrower, not the lender.” (FA at 46.) Specifically,
the SOP prohibits LSP’s from charging fees that are passed on to borrowers or are paid out of
SBA-guaranteed loan proceeds. (Ex. 1 (SOP) at 185.) To the extent SBA regulations account
for LSP fees charged to lenders, they make clear that “lenders have reasonable discretion in
setting compensation for Lender Service Providers” so long as such compensation is not “directly
charged to an Applicant or Borrower,” which Womply’s fees were not. 13 C.F.R. § 103.5(c).
Benworth exercised its discretion when it agreed to the fees in the Agreements. The fact that it
now regrets having done so is not a matter of public policy.
Nor has Benworth shown that SBA regulations or guidance “specifically militate[]”
against Final Award’s relief. Va. Mason, 511 F.3d at 916. As the Arbitrator observed, the SOP
“does not state that an agreement is illegal or invalid if it is not submitted to the SBA.” (FA at
45–46.) In fact, Benworth has not identified any regulation, guidance, or case law specifically
stating that an LSP agreement that has not been reviewed by the SBA is invalid or unenforceable
against the lender. Va. Mason, 511 F.3d at 916 (holding that public policy must be “ascertained
by reference to the laws and legal precedents and not from general considerations of supposed
public interests”). Rather, Benworth’s authorities deal with arbitration awards that violated
explicit statutory authority under the National Labor Relations Act (“NLRA”). (Pet. at 63.) See
Phoenix Newspapers, Inc. v. Phoenix Mailers Union Loc. 752, Int’l Bhd. of Teamsters, 989 F.2d
1077 (9th Cir. 1993) (vacating arbitral award that mandated affirmative bargaining in violation
of explicit requirement under the NLRA); Broadway Cab Co-op., Inc. v. Local Union No. 281,
IBT, 710 F.2d 1379, 1385 (9th Cir. 1983) (reversing confirmation of arbitral award that
“contradicted Supreme Court precedent and applied an incorrect legal standard” under the
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NLRA). To the extent SBA regulations specify any consequences for noncompliant
compensation agreements, those consequences are, again, designed to protect borrowers, not
lenders. See 13 C.F.R. § 103.5(b) (where the SBA deems a compensation agreement
unreasonable, an agent or packager must “refund any sum in excess of the amount SBA deems
reasonable to the Applicant, and refrain from charging or collecting, directly or indirectly, from
the Applicant an amount in excess of the amount SBA deems reasonable”) (emphasis added).
III.
THE
ARBITRATOR
REASONABLY
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STAY
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ARBITRATION.
Benworth claims that the Arbitrator is “guilty of misconduct for refusing to postpone the
proceedings until the SBA completes its investigation of Womply.” (Pet. at 63.) This is a
mischaracterization of Benworth’s attempts to delay the Arbitration on at least three occasions.
Courts grant arbitrators significant deference in deciding requests to postpone arbitration
proceedings. See Cristo v. Charles Schwab Corp., 2021 WL 6051825, at *11 (S.D. Cal. 2021)
(“Arbitrators are granted broad discretion and deference in their determinations of procedural
adjournment requests.”) (cleaned up). This Court should defer to the Arbitrator’s discretion.
During the Arbitration, Benworth repeatedly requested that the Arbitrator stay the
Arbitration proceedings based on Benworth’s unsupported assertion that the SBA was on the
verge of resolving whether any of Womply’s fees violated SBA regulations. Benworth moved
for a continuance and/or a stay on that basis on March 10, 2023, on September 13, 2023, and
again on November 9, 2023, and the Arbitrator denied the motion in each instance for lack of
support. (Pet. at 22–23.) Now, more than 17 months later, the SBA still has not made the
determination that Benworth first claimed was imminent as early as March 10, 2023. (Id.) As
Benworth admits, the SBA has extended Womply’s purported suspension from doing business
with the SBA three times without indicating if or when it will reach a decision that might bear
on this dispute. (Pet. at 23.) Simply put, the Arbitrator properly exercised his discretion to not
indefinitely postpone the Arbitration when faced with no compelling evidence of an imminent
SBA decision or action relevant to the dispute.
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Accordingly, Benworth’s reliance on Naing Int’l Enters., Ltd. v. Ellsworth Assocs., Inc.,
961 F. Supp. 1 (D.D.C. 1997) is misplaced. In Naing, the SBA’s Inspector General had
recommended that the arbitration plaintiff be terminated from its lending program and—before
the arbitration hearing began—instructed the SBA to take action on the recommendation within
one month of the date set for the arbitration hearing. Id. at 4–5. Despite this, the arbitrator
refused “to wait for a reasonable period upon SBA action on the [] investigation.” Id. Naing
also makes clear that “arbitrators are to be accorded a degree of discretion in exercising their
judgment with respect to a requested postponement,” so “if there exists a reasonable basis for the
arbitrators’ decision not to grant a continuance, the Court will be reluctant to interfere with the
award on these grounds.” Id. at 3; see also Fordjour v. Wash. Mut. Bank, 2010 WL 2529093, at
*5 (N.D. Cal. 2010) (denying motion to vacate under Section 10(a)(3) because “there existed a
reasonable basis for the arbitrator’s denial of plaintiff’s request”).
Here, unlike in Naing, there was no evidence of a pending SBA recommendation, no
fixed date for SBA action, and the Arbitrator did not issue the Final Award until more than a year
after Benworth first claimed the SBA was on the precipice of making a determination about
Womply’s fees that Benworth said would impact the outcome of the case. The Arbitrator also
explained his basis for denying Benworth’s repeated requests to delay the Arbitration
proceedings in a September 27, 2023 order, which found that Benworth’s purported evidence of
an imminent SBA determination “was somewhat vague and general and did not provide sufficient
information to determine the extent to which the SBA investigation overlaps or bears upon the
issues raised in this Arbitration.” (Pet. App’x 2894.) The Arbitrator invited Benworth to produce
concrete evidence that the SBA was actually and imminently issuing a decision, but it never did.
(Id.)
Benworth also claims that “the Arbitrator refused to allow the SBA to testify, through
Ms. Seaborn, absent Benworth complying with conditions it could not meet, including retaining
Ms. Seaborn as an expert witness and making her available for a two-hour deposition.” (Pet. at
64.) As Benworth admits, the Arbitrator did not, in fact, refuse to allow Ms. Seaborn to testify.
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The Arbitrator merely imposed reasonable conditions for Benworth to call an expert witness in a
manner that would avoid unfair surprise. Most importantly, as was the case in the Arbitration,
Benworth fails to cite any evidence in its Petition that Ms. Seaborn actually intended to testify
(or that the SBA would permit her to do so), so there is no basis for Benworth to argue that it was
prejudiced by the conditions imposed by the Arbitrator.
Finally, although Benworth does not claim it justifies vacatur, Benworth asserts in passing
that the Arbitrator “refused to consider the Congressional Report” that it claims “completely
corroborated Benworth’s position on whether Womply was a lender service provider.” (Pet. at
64.) That is wrong. The Arbitrator invited Benworth to submit a motion arguing that it should
be submitted into evidence. (Ex. 3 (Order No. 6) at 1.) Benworth did just that and Womply
opposed. (Id. at 2.) After full briefing, the Arbitrator issued a seven-page order holding that
“[t]he existence of the report is in the record, but the content of the report is ‘rank hearsay’ and
does not fall within any of the hearsay exceptions asserted by Benworth.” (Id. at 7.) Thus, the
Arbitrator “considered” the report, but Benworth again disagrees with the result.
The Arbitrator’s reasonable rejection of Benworth’s repeated requests for a continuance
and imposition of conditions for Benworth to bring an undisclosed expert witness to the
Arbitration hearing are not grounds for vacatur of the Final Award. See Milliner v. Bock, 2020
WL 3103788, at *4–5 (N.D. Cal. 2020) (refusing to vacate arbitration award where arbitrator
denied motion to postpone the arbitration hearing upon reasonable bases).
CONCLUSION
Womply respectfully requests that the Court deny Benworth’s Petition.
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Respectfully submitted,
Dated: August 26, 2024
WILLKIE FARR & GALLAGHER LLP
By: /s/ Alexander L. Cheney
Alexander L. Cheney
Stuart R. Lombardi (pro hac vice)
Joshua S. Levy (pro hac vice)
Attorneys for Respondent
Oto Analytics, LLC
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