Court filing
Response in Opposition re 138 Motion to Certify Class Brief filed by Prestamos CDFI, LLC — Marshall v. Prestamos CDFI (Dkt. 142)
Filed October 4, 2024 in Marshall v. Prestamos CDFI, LLC; one of 344 filings from this case.
Record facts
| Court | U.S. District Court for the Eastern District of Pennsylvania |
|---|---|
| Filed | 2024-10-04 |
U.S. District Court for the Eastern District of Pennsylvania · No. 5:21-cv-04337-JMG · Doc. 142 · 2024-10-04 · Docket on CourtListener
Full text
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
ALICIA MARSHALL, et al., individually and
on behalf of all others similarly situated,
Plaintiffs,
v.
PRESTAMOS CDFI, LLC,
Defendant.
Civil Action No. 5:21-cv-04337-JMG
BRIEF IN OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION
Case 5:21-cv-04337-JMG Document 142 Filed 10/04/24 Page 1 of 25
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TABLE OF CONTENTS
Page
INTRODUCTION ....................................................................................................................... 1
BACKGROUND ......................................................................................................................... 3
I.
The PPP Regulations........................................................................................................... 3
II.
The PPP Loans at Issue ....................................................................................................... 4
III. The Litigation...................................................................................................................... 5
ARGUMENT ............................................................................................................................... 7
I.
The Stringent Standards Governing Class Certification ..................................................... 7
II.
Plaintiffs Do Not Satisfy Rule 23(a)’s Threshold Requirements of Commonality
and Typicality ..................................................................................................................... 8
A.
Plaintiffs’ Proposed Classes Lack Commonality .................................................... 8
B.
The Named Plaintiffs Are Not Typical of the Proposed Class ............................. 12
III. Plaintiffs Fail to Satisfy the Requirements of Rule 23(b) ................................................. 13
A.
Plaintiffs’ Proposed Declaratory Judgment Class Is Not Cohesive ...................... 13
B.
Common Questions Do Not Predominate for the Damages Class ....................... 14
IV. None of the Class Representatives is a Member of the Proposed Classes and, In
Any Event, The Classes Are Not Ascertainable ............................................................... 16
V.
Plaintiffs Remaining Efforts to Manufacture Classwide Issues Are Unpersuasive .......... 18
A.
Plaintiffs Are Under No Obligation to Repay Loans They Never Received ........ 18
B.
Plaintiffs’ Spurious Allegations Regarding Prestamos’s Reporting
Obligations to the SBA and Prestamos’s Retention of Processing Fees Are
Irrelevant to Plaintiffs’ Breach of Contract Claim ................................................ 19
CONCLUSION .......................................................................................................................... 20
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TABLE OF AUTHORITIES
Page(s)
Cases
Amchem Prods. v. Windsor, 521 U.S. 591 (1997) ...............................................................8, 14, 16
Barnes v. Am. Tobacco Co., 161 F.3d 127 (3d Cir. 1998) ...............................................................8
Byrd v. Aaron’s Inc., 784 F.3d 154 (3d Cir. 2015) ..........................................................................8
Campusano v. BAC Home Loans Servicing, LP,
No. CV 11-4609 PSG, 2013 US Dist. LEXIS 76148 (C.D. Cal. Apr. 29, 2013) ....................15
Carrera v. Bayer Corp., 727 F.3d 300 (3d Cir. 2013) ...................................................................17
Cave v. Saxon Mortg. Servs., Civ. A. No. 11-4585;
Civ A. No. 12-5366, 2016 U.S. Dist. LEXIS 141033 (E.D. Pa. Oct. 11, 2016) .............. passim
Chemtech Int’l, Inc. v. Chem. Injection Techs, 247 F. App’x 403 (3d Cir. 2007) .........................11
Comcast Corp. v. Behrend, 569 U.S. 27 (2013) ......................................................................15, 16
Corvello v. Wells Fargo Bank, N.A., Nos. 10-cv-05072-VC, 11-cv-03884-VC,
2016 US Dist. LEXIS 11674 (N.D. Cal. Jan. 29, 2016) ..........................................................14
Ctr. City Periodontists, P.C. v. Dentsply Int’l, Inc.,
321 F.R.D. 193 (E.D. Pa. 2017) ...............................................................................................12
Greathouse v. Cap. Plus Fin., LLC, No. 4:22-CV-0686-P,
2023 U.S. Dist. LEXIS 157204 (N.D. Tex. Sep. 6, 2023) ............................................... passim
In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305 (3d Cir. 2008) ..................................1, 7, 8
Marcus v. BMW of N. Am., Inc., 687 F.3d 583 (3d Cir. 2012) ......................................................12
Mellon Bank, N.A. v. Aetna Business Credit, Inc., 619 F.2d 1001 (3d Cir. 1980) ........................11
Mielo v. Steak ‘n Shake Operations, Inc., 897 F.3d 467, 483 (3d Cir. 2018) ..................................7
NBL Flooring, Inc. v. Trumbull Ins. Co., No. 10-4398,
2014 U.S. Dist. LEXIS 19934 (E.D. Pa. Feb. 12, 2014) .........................................................14
O’Gara v. Countrywide Home Loans, Inc., 282 F.R.D. 81 (D. Del. 2012) ...................................14
In re Paulsboro Derailment Cases, No. 13-784,
2014 U.S. Dist. LEXIS 115542 (D.N.J. Aug. 20, 2014)..........................................................15
Case 5:21-cv-04337-JMG Document 142 Filed 10/04/24 Page 3 of 25
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Pierce Assocs., Inc. v. Nemours Found., 865 F.2d 530 (3d Cir. 1988) .........................................19
In re Processed Egg Prods. Antitrust Litig., 312 F.R.D. 124 (E.D. Pa. 2015) ..............................13
Rodriguez v. Nat’l City Bank., 726 F.3d 372 (3d Cir. 2013) ...........................................................7
In re Schering Plough Corp. ERISA Litig., 589 F.3d 585 .............................................................12
Shelton v. Bledsoe, 775 F.3d 554 (3d Cir. 2015) .............................................................................7
Springfield Hosp., Inc. v. Guzman, 28 F.4th 403 (2d Cir. 2022) ...................................................15
Stewart v. Abraham, 275 F.3d 220 (3d Cir. 2001) .........................................................................12
Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011) ...............................................................8, 11
Wharton v. Danberg, 854 F.3d 234 (3d Cir. 2017)..........................................................................7
Other Authorities
86 FR 3692-3712 .......................................................................................................................3, 20
86 FR 13149-13156 .......................................................................................................................11
Fed. R. Civ. P. 23 ................................................................................................................... passim
Case 5:21-cv-04337-JMG Document 142 Filed 10/04/24 Page 4 of 25
INTRODUCTION
Plaintiffs seek to represent a class of individuals who sought small business loans under
the federal Paycheck Protection Program (the “PPP”) but whose own banks rejected and returned
the PPP funds disbursed by Prestamos. This case is virtually identical to Greathouse v. Capital
Plus Financial, LLC, No. 4:22-CV-0686-P, 2023 U.S. Dist. LEXIS 157204 (N.D. Tex. Sep. 6,
2023), another PPP case brought by these same plaintiffs’ counsel, supported by the same
experts, in which the court denied class certification and plaintiffs dismissed the case on a non-
class basis by stipulation. In both cases, unsuccessful PPP borrowers brought class actions for
breach of contract against Community Development Financial Institutions (“CDFIs”) devoted to
underserved communities.
In denying class certification, the Greathouse court held that plaintiffs could not establish
commonality or predominance as required by Fed. R. Civ. P. 23 because, as demonstrated by the
experiences of the class representatives, the putative class members failed to receive loans for
reasons specific to each of them. In particular, borrowers’ banks declined to accept or retain the
lender’s transfer of funds based on the status and nature of the particular borrower’s account. As
a result, the core questions of whether the lender breached its contractual obligation and, if so,
whether that breach caused damages, were not susceptible to class treatment. See In re
Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 311 (3d Cir. 2008) (“If proof of the essential
elements of the cause of action requires individual treatment, then class certification is
unsuitable.”) (internal quotation omitted).
Class discovery in this case—which resulted in voluntary withdrawal of 54% of the
named plaintiffs—confirms that commonality and predominance are also absent here. Like the
CDFI in Greathouse, Prestamos disbursed the loans to bank accounts designated by borrowers,
only to have those banks return the disbursements for reasons specific to the borrower, e.g.,
Case 5:21-cv-04337-JMG Document 142 Filed 10/04/24 Page 5 of 25
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frozen accounts, incorrect account details, suspicions of fraud, improper account use, and closed
accounts. Also as in Greathouse, the loan documentation submitted by the class representatives
was either incomplete or inaccurate. As a result, the Court here would similarly need to evaluate
each borrower’s loan file to determine whether defendant Prestamos breached the loan
agreement or was excused from performance because the borrower did not meet the
requirements of the PPP, of his or her own bank, or both. For this reason alone, plaintiffs cannot
establish commonality or predominance, precluding class certification.
Keenly aware of this problem, plaintiffs go to extraordinary lengths to distance this case
from Greathouse. Their primary contention is that the proposed classes here are “narrower” than
in Greathouse, as they are limited to borrowers who submitted “all required documentation” but
as to whom Prestamos “failed to disburse the PPP loan proceeds.”
But this new definition does not resolve the need for individualized inquiry – the
Greathouse problem persists. First and foremost, the individualized issues that were fatal in
Greathouse are equally fatal here – borrowers’ own banks rejected Prestamos’s disbursements of
the funds for a host of reasons specific to each borrower. No matter how much plaintiffs try to
plead around Greathouse, each plaintiff’s claim will always hinge on why they did not receive
their PPP loans. The “required documentation” inquiry is also necessarily individualized,
requiring thousands of mini-trials to assess whether the plaintiff’s tax returns, bank statements,
or payroll records established eligibility for PPP loans. Each of the ten remaining class
representatives had his or her own unique set of deficiencies in documentation, and a strong case
can be made that none of them is even a member of the classes as now redefined by plaintiffs.
Equally unsuccessful are plaintiffs’ remaining efforts to distance themselves from
Greathouse. They allege that Prestamos filed “false” Form 1502s with the Small Business
Case 5:21-cv-04337-JMG Document 142 Filed 10/04/24 Page 6 of 25
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Administration (the “SBA”) stating the loans were funded. Prestamos has refuted Plaintiffs’
theory with unrebutted evidence that, as a non-depository institution, Prestamos had to list the
loans as “funded” on the Form 1502 to obtain the credit advances from the Federal Reserve.
Lastly, plaintiffs offer no coherent classwide theory of damages as required by settled
case law. They seek funding of each class member’s PPP loan based on the premise that every
class member, in a but-for world, would have applied and satisfied every condition for loan
forgiveness, but they offer no methodology for demonstrating forgiveness on a classwide basis
(nor could they). For all of these reasons, the Court should deny class certification.
BACKGROUND
I.
The PPP Regulations
Self-employed persons were eligible for a PPP loan if, among other things, their
businesses were operating on February 15, 2020, had self-employment income, filed an IRS
Form 1040 Schedule C (“Schedule C”), and submitted documentation demonstrating the same.
86 FR 3692, 3695-96. Borrowers were also required to certify “that the information provided in
this application and the information provided in all supporting documents and forms is true and
accurate in all material respects.” Id. at 3706; see also Ex. 1 (G. Lloyd Signed Form 2483) at 3.
After a lender and the SBA approved an application, the SBA would issue an SBA Loan
Number. The regulations then required a lender to “disburse” the PPP loan funds to the
borrower within a prescribed timeframe but provided that “lenders are not responsible for delays
in disbursement attributable to a borrower’s failure to timely provide required loan
documentation[.]” 86 FR at 3710 (emphasis added). Lenders were also required to report to
SBA “on SBA Form 1502 whether it has fully disbursed PPP loan proceeds” for each approved
loan. Id. at 3709 (emphasis added). The regulations do not require a lender to ensure that a
borrower receives and is able to draw upon these funds. See generally 86 FR 3692. As noted in
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Greathouse, “[t]he PPP program issued no guidance or duty on how to handle bank rejections [of
PPP fund disbursements].” 2023 U.S. Dist. LEXIS 157204 at *17.
II.
The PPP Loans at Issue
Pursuant to the CARES Act, the Federal Reserve maintained a credit facility from which
PPP lenders could borrow funds to issue PPP loans. Ex. 2 (Castillo Decl.) ¶ 21. Prestamos, a
non-depository bank that lacks the liquidity of other SBA-approved lenders, utilized credit
advances from the Federal Reserve to issue PPP loans. Id. ¶ 28.
Each class representative executed a promissory note (the “Note”) and other Loan
Documents with Prestamos, which included providing an account number at the borrower’s bank
so Prestamos would know where to disburse the funds. Pls’ App. in Supp. of Pls.’ Mot. for Class
Certification, Exs. 1-10. Consistent with the Loan Documents, Prestamos disbursed the approved
amount of PPP funds to each class representative at his or her designated bank account. Ex. 3
(Disbursement and Return Compilation). For different reasons and on different timelines, each
class representative’s bank returned the PPP funds that Prestamos had disbursed back to
Prestamos. Id.; Ex. 4 (Bank Return Reasons).
The SBA and the U.S. Secret Service issued guidance to PPP lenders (including
Prestamos) and borrowers’ banks authorizing banks to return to the lender any PPP
disbursements that the bank believed “w[ere] initiated due to fraud.” Ex. 5 (SBA and Secret
Service “Application Fraud Indicators” Guidance). The guidance directed banks to use certain
ACH return codes for suspicious PPP activity. Id. Similarly, banks that accepted disbursements
of PPP funds for borrowers they suspected were ineligible sometimes contacted Prestamos and
the SBA seeking to return these funds. Ex. 6 at ’71-73; see also, e.g., Ex. 7 (Compilation of
Examples). In such instances, SBA required that Prestamos take prompt action to “investigat[e]
the potential fraud on these loans,” and “take action immediately to recover on these loans.” Ex.
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6 at ’71; see also Ex. 8 (email from SBA to Prestamos identifying fraudulent PPP loan disbursed
from Prestamos to a Citizens’ Bank account and directing Prestamos to “work with Citizens to
have those funds returned.”). If borrower fraud was flagged, SBA directed Prestamos as follows:
“[p]lease DO NOT disburse these funds until the investigation has been completed.” Ex. 9.
Consistent with these directives, when a borrower’s bank returned a disbursement of PPP
funds to Prestamos, Blueacorn (at Prestamos’s direction) would conduct enhanced due diligence
on the borrower’s loan file by requesting additional document(s) from the borrower to confirm
eligibility, including a full federal tax return from either 2019 or 2020. Ex. 10 (Blueacorn
Enhanced Due Diligence Guidelines) at ’99; Ex. 2 ¶¶ 39-45.
For different, borrower-specific reasons, each class representative failed the enhanced
due diligence process, causing Prestamos to cancel each of their loans. Ex. 11 (Deficient Loan
Docs.); Ex. 2 ¶ 47. In September 2021, before this lawsuit was filed, Prestamos returned the
credit advances from the Federal Reserves for those loans to the federal government. Ex. 2 ¶ 51.
While irrelevant to this lawsuit, it is worth noting that SBA told Prestamos that Prestamos could
“retain the processing fees on these loans.” Ex. 12 (Email from Jordan Craig (SBA) to David
Castillo (Prestamos), dated September 7, 2021).
III.
The Litigation
On May 2, 2024, Plaintiffs filed a Third Amended Complaint (the “TAC”), adding new
allegations aimed at distinguishing this case from Greathouse, in which the court had denied
class certification in September 2023. ECF No. 108. The TAC, while remaining a single-count
breach-of-contract complaint, also revised class definitions by adding two new criteria for class
membership. The original definitions covered “[a]ll persons and entities . . . who executed their
Loan Documents but did not receive the PPP loan proceeds.” Second Am. Compl. ¶ 230, May
20, 2022, ECF No. 42. The current definitions include the original group, limited to persons and
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entities who “provided to Prestamos all required loan documentation, but as to whom Prestamos
both failed to disburse the PPP loan proceeds and reported to the SBA that the loan proceeds
were disbursed.” TAC ¶¶ 376-77. Notwithstanding their newfound focus on Prestamos’s
reporting obligations “to the SBA,” Plaintiffs neither amended their sole claim for breach of
contract nor added a claim based on this (allegedly) inaccurate reporting. See id. ¶¶ 418-36.
During class discovery, Plaintiffs’ counsel voluntarily dismissed twelve of the original
twenty-two class representatives based on deficiencies and inconsistencies in their loan files
and/or their lack of cooperation with discovery.1 During class discovery, Prestamos produced
176,844 documents and deposed the remaining ten class representatives. Plaintiffs opted not to
depose any Prestamos employees, including, most notably, David Castillo (Senior Credit
Officer), whose unrebutted declaration addresses facts critical to the Court’s class certification
analysis. See Ex. 2.
Class discovery uncovered substantial individualized issues concerning the loan
documentation class representatives submitted and the reasons their banks returned PPP funds
Prestamos had disbursed. In particular, discovery from third-party banks confirmed that, similar
to the Greathouse plaintiffs, “the individuals’ banks returned the funds for different reasons
unique to each Plaintiff.” Greathouse, 2023 U.S. Dist. LEXIS 157204, at *17; Ex. 4. Class
discovery also confirmed that each class representative submitted documentation in support of
his or her loan application that was deficient in different respects. Some submissions were
1
Although Plaintiffs intimate that these dismissals were a product of Prestamos’s allegedly
“onerous discovery demands,” Pls.’ Br. in Supp. of Mot. for Class Certification at 11, the facts
tell a different story. One dismissed class representative was not SBA-approved and did not sign
the Loan Documents. Ex. 13 (Dismissed Class Reps.). Another applied for multiple PPP loans.
Id. Two received their PPP funds and spent them. Id. And one received his PPP funds,
withdrew some of them, had his account frozen by his bank, returned the withdrawn funds to his
bank, and then had his bank return the PPP funds to Prestamos. Id.
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incomplete, others were inaccurate to the point of appearing fraudulent, and still others
confirmed borrower ineligibility for a PPP loan. Ex. 11. The parties also submitted expert
reports as part of the class discovery proceedings, and the experts were deposed. This motion for
class certification followed.
ARGUMENT
I.
The Stringent Standards Governing Class Certification
“In deciding whether to certify a class under Federal Rule of Civil Procedure 23, a district
court must make ‘findings’ and factual determinations.” Wharton v. Danberg, 854 F.3d 234, 241
(3d Cir. 2017) (citing In re Hydrogen Peroxide Antitrust Litig., 552 F.3d at 320). The class
certification analysis “begins with a determination of whether the plaintiff has satisfied the
prerequisites of Rule 23(a): numerosity, commonality, typicality, and adequacy of
[representation].” Shelton v. Bledsoe, 775 F.3d 554, 559 (3d Cir. 2015). The “rigorous analysis
of the evidence and arguments” may necessitate “a preliminary inquiry into the merits of the
plaintiffs’ claims to ensure they can be properly resolved as a class action.” Rodriguez v. Nat’l
City Bank., 726 F.3d 372, 380 (3d Cir. 2013) (internal quotation marks and citation omitted).
“When courts harbor doubt as to whether a plaintiff has carried her burden under Rule 23, the
class should not be certified.” Mielo v. Steak ‘n Shake Operations, Inc., 897 F.3d 467, 483 (3d
Cir. 2018) (citing In re Hydrogen Peroxide, 552 F.3d at 321).
In addition to the four requirements of Rule 23(a), plaintiffs must also satisfy the
applicable sections of Rule 23(b). Plaintiffs here seek a declaratory judgment class under Rule
23(b)(2) and a damages class under Rule 23(b)(3). Rule 23(b)(2) requires plaintiffs to show that
the party opposing the class “has acted or refused to act on grounds that apply generally to the
class,” Fed. R. Civ. P. 23(b)(2), and that the class is “sufficiently cohesive,” Cave v. Saxon
Mortg. Servs., Civ. A. No. 11-4585; Civ A. No. 12-5366, 2016 U.S. Dist. LEXIS 141033, at *31
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(E.D. Pa. Oct. 11, 2016) (citing Barnes v. Am. Tobacco Co., 161 F.3d 127, 143 (3d Cir. 1998)).
Rule 23(b)(3) requires proof that (1) “[c]ommon questions ‘predominate over any questions
affecting only individual members’”; and (2) “class resolution must be ‘superior to other
available methods for the fair and efficient adjudication of the controversy.’” Amchem Prods. v.
Windsor, 521 U.S. 591, 615 (1997). In addition, “[a] plaintiff seeking certification of a Rule
23(b)(3) class must prove by a preponderance of the evidence that the class is ascertainable.”
Byrd v. Aaron’s Inc., 784 F.3d 154, 163 (3d Cir. 2015).
“[A] class may not be certified without a finding that each Rule 23 requirement is met.”
In re Hydrogen Peroxide, 552 F.3d at 310. Failure to meet even one of the foregoing standards
is fatal to certification, and as discussed below, Plaintiffs are unable to meet many of them.
II.
Plaintiffs Do Not Satisfy Rule 23(a)’s Threshold Requirements of Commonality and
Typicality
A.
Plaintiffs’ Proposed Classes Lack Commonality
Rule 23(a)(2) requires plaintiffs to show they have “a common contention . . . that is
capable of classwide resolution – which means that determination of its truth or falsity will
resolve an issue that is central to the validity of . . . the claim[] in one stroke.” Wal-Mart Stores,
Inc. v. Dukes, 564 U.S. 338, 350 (2011). To establish commonality, Plaintiffs first assert without
elaboration that Prestamos “breached the standard form Loan Documents,” and cite a case for the
general proposition that claims involving interpretation of form contracts are appropriately
litigated on a class basis. Pls.’ Br. at 8.
Plaintiffs’ counsel made this “form document” argument in Greathouse and the court
properly rejected it, holding that the “central question” of whether the lender breached the loan
agreement was not common given the wide variety of reasons – expressed in different
Automated Clearinghouse (“ACH”) rejection codes – that class members did not receive their
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loans. See Greathouse, 2023 U.S. Dist LEXIS 157204 at *16, *17 n.3 (noting that the class
representatives’ banks “returned the [loan] funds for different reasons unique to each Plaintiff”
as evidenced by different ACH codes). Accordingly, it held that the plaintiffs had not satisfied
commonality because “[t]he varying circumstances of Lead Plaintiffs’ loan processes . . . makes
certifying a class for breach of contract nearly impossible given the many possible answers that
resolve the questions ‘why were funds not disbursed[.]’” Id. at *18 (emphasis added).
The same “varying circumstances” caused return of the loan funds here. Like in
Greathouse, the class representatives’ banks returned Prestamos’s disbursements of PPP funds to
class representatives based on different ACH rejection codes. Ex. 4. Notably, the codes most
frequently used by the class representatives’ banks were the codes the SBA and the Secret
Service told banks to use for suspicious activity.2 Ex. 5.
But the ACH return codes only tell part of the story, because banks sometimes used the
same ACH return codes for different situations (as well as different return codes for similar
situations), including ineligible accounts and suspicions of fraud. Ex. 4 (Bank Return of Funds
Chart). The returns also occurred on different timelines, with some banks returning funds
immediately or within a few hours, e.g., id. at 36-39, and others taking far longer, id. at 40 (ten
days); 27-32 (more than a year). In some instances, borrowers withdrew some of the disbursed
PPP funds before the bank initiated a return to Prestamos. Id. at 40; Ex. 7 at 1, 3-4, 10-18, 29-
30, 46-47, 51, 66-71, 77-82, 90-92.
As the Greathouse court observed, “[t]he PPP program issued no guidance or duty on
how to handle bank rejections.” 2023 U.S. Dist. LEXIS 157204, at *17. Indeed, Plaintiffs’ own
2
These codes were: R03 (No Account/Unable to Locate Account); R17 (File Record Edit
Criteria); and R23 (Credit Entry Refused by Receiver).
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SBA “experts,” William Manger and William Briggs, conceded as much. Ex. 14 (W. Manger
Dep.) at 87:6-9; 96:24-97:10 (stating that “the lender would have to understand why this wasn’t
working properly and try and rectify the situation”); Ex. 15 (W. Briggs Dep.) at 101:10-102:17
(stating that lender should have “work[ed] with the borrower to resolve the issue”).
Plaintiffs try to sidestep Greathouse by narrowing their class definition to borrowers who
submitted “all required [loan] documentation.” Pls.’ Br. at 8; TAC ¶¶ 376-77. They contend
that the Greathouse court “rejected commonality because ‘[t]he central question . . . is whether
[the lender] failed to fund Plaintiffs’ loans or timely cancel them” under a PPP rule requiring
cancellation within 20 days when the borrower has failed to submit “required documentation.”
Pls.’ Br at 8 (quoting Greathouse, 2023 U.S. Dist. LEXIS 157204, at *15).3
Plaintiffs misstate the holding in Greathouse. Although the court did refer to the 20-day
cancellation requirement, it ultimately declined to certify the class because of the varying
explanations for why the loans were not funded. Furthermore, Greathouse had no occasion to
consider certifying the narrower class proposed here because none of the class representatives
would have been members of that class. 2023 U.S. Dist. LEXIS 157204, at *16.
In any event, the question whether a borrower submitted “required documentation” is an
individualized issue not susceptible to class treatment. Cave, 2016 U.S. Dist. LEXIS 141033, is
illustrative. Cave was a putative class action under a federal loan program that, like the PPP,
provided relief to borrowers due to a national economic downturn and featured form loan
agreements that the lender allegedly breached. Like Plaintiffs here, the Cave plaintiffs sought to
represent borrowers who allegedly qualified for the loans but did not receive them. Also like
3
Plaintiffs argue that they added an allegation absent in Greathouse, that Prestamos filed
“false” Form 1502s with the SBA stating that loans were funded. Pls.’ Br. at 8. As discussed
infra at Section V.B., this contention is irrelevant to Plaintiffs’ breach of contract claim.
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Plaintiffs here, the Cave plaintiffs defined the Cave I class as limited to borrowers who
“complied with [the lender’s] requests for documentation.” Id. at *3. In holding the plaintiffs
could not satisfy commonality, the court explained that “[e]ach borrowers’ individual dealings”
with the lender affected the liability analysis, and therefore “[t]he mere fact that all prospective
class members signed the same contract does not ‘drive the resolution of the litigation.’” Id. at
*56 (quoting Dukes, 564 U.S. at 350).
In the instant case, as in Cave and Greathouse, a review of the individual borrowers’ loan
files is necessary to determine whether each one provided “all required loan documentation.”
For example, putative class members were required to submit a Schedule C “to substantiate the
applied-for PPP loan amount,” a bank statement or other record “that establishes you are self-
employed” and, if the borrower’s bank returned Prestamos’s disbursement of PPP funds and the
borrower was subject to enhanced due diligence, the borrower had to submit a full federal tax
return that would be “reconciled against the initial [S]chedule [C] data the applicant provided.”
86 FR 13149, 13151; Ex. 10 at ’99. Whether these documents ultimately demonstrated a
borrower’s eligibility for a PPP loan, as they were required to do, is an individualized inquiry.
For example, certain Plaintiffs submitted Schedule C’s that reported information that differed
materially from amounts contained on their full federal tax returns. See Ex. 11.
This individualized inquiry lies at the core of Plaintiffs’ breach of contract claim because
borrower’s submission of required documentation was a condition precedent to Prestamos’s
obligation to disburse his or her loan and Plaintiffs bear the burden of proving they satisfied the
condition precedent. Mellon Bank, N.A. v. Aetna Business Credit, Inc., 619 F.2d 1001, 1007 (3d
Cir. 1980); cf. Chemtech Int’l, Inc. v. Chem. Injection Techs, 247 F. App’x 403, 405 (3d Cir.
2007) (dismissing breach of contract claim for failure to allege satisfaction of condition
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12
precedent). Absent required documentation, Prestamos was excused from performance and
could not be liable for breach of contract. As the Cave court explained in the analogous inquiry
into predominance, “[w]hether a borrower submitted accurate financial information to Saxon is a
condition precedent to receiving a permanent [loan] modification under the terms of the [trial
payment plan] and the [applicable federal regulations] and, we find, is an individual issue not
capable of proof with evidence that is common to the class.” 2016 U.S. Dist. LEXIS 141033, at
*71-72 (emphasis added).
So too here, class discovery demonstrates that whether the borrower submitted accurate
and complete documentation is an individualized issue. Once again, the Court need not look
beyond the experiences of the ten remaining class representatives to appreciate that each presents
a unique case in terms of their documentation. Ex. 11. In sum, the Plaintiffs cannot establish
commonality.
B.
The Named Plaintiffs Are Not Typical of the Proposed Class
Plaintiffs fare no better in attempting to satisfy the typicality requirement of Rule 23(a).
“Even when common issues exist . . . typicality is designed to ‘screen out class actions in which
the legal or factual position of the representatives is markedly different from that of the other
members of the class[.]” Ctr. City Periodontists, P.C. v. Dentsply Int’l, Inc., 321 F.R.D. 193,
206 (E.D. Pa. 2017) (quoting Marcus v. BMW of N. Am., Inc., 687 F.3d 583, 598 (3d Cir. 2012)).
“It is well-established that a proposed class representative is not ‘typical’ under Rule 23(a)(3) if
‘the representative is subject to a unique defense that is likely to become a major focus of the
litigation.’” Marcus, 687 F.3d at 599 (quoting In re Schering Plough Corp. ERISA Litig., 589
F.3d 585, 598) (3d Cir. 2009)).
Different factual defenses exist for nearly every class representative, and they necessarily
will exist among absent class members as well. See Stewart v. Abraham, 275 F.3d 220, 227 (3d
Case 5:21-cv-04337-JMG Document 142 Filed 10/04/24 Page 16 of 25
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Cir. 2001) (“The typicality inquiry centers on whether the interests of the named plaintiffs align
with the interests of the absent class members.”). These defenses include (i) the failure of each
class representative to submit “all required loan documentation”; and (ii) the inability of each
class representative to prove Prestamos “caused” their alleged damages because, as Plaintiffs
have acknowledged, Prestamos could not “force” the borrowers’ banks to accept the loan
proceeds. Ex. 15 at 90:10-23 (“Prestamos . . . cannot force the bank to take money.”); Ex. 14 at
86:6-12; Ex. 11; Ex. 4.
These unique defenses preclude a finding of typicality, providing an additional
dispositive ground to deny class certification.
III.
Plaintiffs Fail to Satisfy the Requirements of Rule 23(b)
A.
Plaintiffs’ Proposed Declaratory Judgment Class Is Not Cohesive
To establish “cohesiveness” under Rule 23(b)(2), the plaintiffs must show that the
“class’s claims are common ones and that adjudication of the case will not devolve into
consideration of myriad individual issues.” In re Processed Egg Prods. Antitrust Litig., 312
F.R.D. 124, 169 (E.D. Pa. 2015) (citations omitted).
Plaintiffs’ redefined classes are not cohesive. Once again, Cave is instructive. There, the
court considered a “class definition requir[ing] that putative members ‘complied with
[Defendant]’ requests for documentation.’” 2016 U.S. Dist. LEXIS 141033, at *37. The Cave
court observed that determining which persons were included within this definition “requires
reviewing the contents of each borrower’s loan file and thus raises myriad individual issues[,]”
and therefore the class “cannot be certified because it is not cohesive.” Id. at *37, *47. The
same is true here. As explained in Section II.A., supra, individualized reviews of each
borrower’s loan file are required to determine whether each borrower in fact “provided to
Prestamos all required loan documentation” (regardless of how Plaintiffs define that term).
Case 5:21-cv-04337-JMG Document 142 Filed 10/04/24 Page 17 of 25
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B.
Common Questions Do Not Predominate for the Damages Class
Principally for the reasons discussed above with respect to commonality, Plaintiffs also
cannot establish that common issues “predominate” over individual issues, which is a “far more
demanding” standard than commonality and an essential requirement of their proposed damages
class under Rule 23(b)(3). Amchem Products v. Windsor, 521 U.S. 591, 624 (1997); see also
NBL Flooring, Inc. v. Trumbull Ins. Co., No. 10-4398, 2014 U.S. Dist. LEXIS 19934, at *13
(E.D. Pa. Feb. 12, 2014) (predominance “even more demanding than” commonality).
As the Greathouse court held in language equally applicable here:
For the same reasons that prevent this Court from finding commonality or
typicality, Plaintiffs’ claims also fail to satisfy Rule 23(b)(3) as common questions
of fact do not predominate over individualized questions in this proposed class. As
evidenced above, the reasons for why a loan was not funded is an individualized
affair that presents too many unique scenarios to properly be considered under a
class action. And because the central identity of the case rests on this question,
the lack of predomination of common facts is fatal . . . .
2023 U.S. Dist. LEXIS 157204, at *21-22 (emphasis added) (citation omitted).
Plaintiffs argue that they have satisfied predominance by narrowing the classes, Pls.’ Br.
at 14, but that is simply not true because, as discussed above with respect to commonality,
applying the “required documentation” element still necessitates individualized treatment. As
the Cave court explained, “individual issues concerning whether each member of the proposed
class satisfied the eligibility requirements for a permanent [loan] modification overwhelm
questions that are common to the class.” 2016 U.S. Dist. LEXIS 141033, at *72; see also
O’Gara v. Countrywide Home Loans, Inc., 282 F.R.D. 81, 89 (D. Del. 2012) (“[W]here . . .
numerous individualized inquiries are required to determine breach and damages, class
certification is not appropriate.”).4
4
Accord Corvello v. Wells Fargo Bank, N.A., Nos. 10-cv-05072-VC, 11-cv-03884-VC,
2016 US Dist. LEXIS 11674, at *19 (N.D. Cal. Jan. 29, 2016) (rejecting predominance in
Case 5:21-cv-04337-JMG Document 142 Filed 10/04/24 Page 18 of 25
15
Nor have Plaintiffs set forth a classwide damages methodology as required to establish
predominance. See Comcast Corp. v. Behrend. 569 U.S. 27 (2013). In reversing class
certification in Comcast, the Supreme Court held that “[q]uestions of individual damage
calculations will inevitably overwhelm questions common to the class.” Id. at 34; see also In re
Paulsboro Derailment Cases, No. 13-784, 2014 U.S. Dist. LEXIS 115542, at *43 (D.N.J. Aug.
20, 2014) (“At the certification stage, the Court must be assured that the determination of
whether the defendant’s conduct caused injury to each class member can be made at the class
level and without identifying damages that are not the result of the wrong. Damages must be
capable of measurement on a classwide basis.” (citations and internal quotation marks omitted)).
Here, even assuming arguendo that Plaintiffs could establish liability, they cannot
measure damages on a classwide basis. To decide the damages question, the Court would have
to determine whether each Plaintiff would have ultimately been eligible for and applied for loan
forgiveness, requiring an individualized inquiry into whether each Plaintiff would have used a
sufficient percentage of the loan proceeds for payroll costs. Ex. 16 (Swain Rpt.) ¶ 79; see also
Ex. 17 (Baez Rebuttal Rpt.) ¶ 16 (explaining that only 81% of Prestamos’s PPP loans were fully
or partially forgiven). Plaintiffs have no methodology for determining which class members
would have applied and qualified for forgiveness in the but-for world. Rather, they simply
assume that forgiveness was automatic. Springfield Hosp., Inc. v. Guzman, 28 F.4th 403, 424
federal HAMP loan program because “[i]ndividual inquiries, such as whether a particular
borrower gave the bank sufficient income documentation, or whether the documentation was
accurate, would predominate”); Campusano v. BAC Home Loans Servicing, LP, No. CV 11-4609
PSG (JCx), 2013 US Dist. LEXIS 76148, at *17 (C.D. Cal. Apr. 29, 2013) (denying class cert for
lack of commonality given individualized questions such as whether conditions precedent were
“fulfilled in this instance”).
Case 5:21-cv-04337-JMG Document 142 Filed 10/04/24 Page 19 of 25
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(2d Cir. 2022) (stating “[PPP] forgiveness is neither automatic nor guaranteed. A borrower must
apply for forgiveness, which will only be granted if specified criteria are met.”).
Plaintiffs’ expert Steven Feinstein’s proposed damages methodology underscores
Plaintiffs’ inability to establish damages on a classwide basis. Feinstein offers an oversimplified
approach that awards damages to each borrower in the amount of the loan applied for (without
regard to forgiveness), plus “prejudgment interest” to compensate plaintiffs for lost profits and
other alleged injuries, without regard to whether they suffered consequential damages at all or
the size of such damages. Moreover, his “damages methodology does not consider how business
in different industries, service types, and locations were impacted by the COVID-19 pandemic,”
Ex. 17 ¶ 23, or the fact that “[p]roposed class members that did not meet the stipulated loan
conditions would have been in default on their loan and thus not in the same position as proposed
class members that met these conditions,” id ¶ 34. The damages calculation for each Plaintiff is
complex and individualized. As such, Plaintiffs cannot meet the requirements for class treatment
set forth in Comcast.
Here, just as in Greathouse and Cave, individual issues predominate over common
issues, and Plaintiffs cannot satisfy Rule 23(b)(3).5
IV.
None of the Class Representatives is a Member of the Proposed Classes and, In Any
Event, The Classes Are Not Ascertainable
Plaintiffs define their proposed classes as persons who “provided to Prestamos all
required loan documentation” but as to whom Prestamos “failed to disburse the PPP loan
proceeds.” TAC ¶¶ 376-77. But “a class representative must be part of the class,” Amchem
5
None of the breach of contract class action cases cited by Plaintiffs in the section of their
brief regarding predominance, see Pls.’ Br. at 15-16, involves circumstances even remotely like
those here, namely the situation in which the putative class member’s performance of its
obligations is a condition precedent to the class member’s breach of contract claim.
Case 5:21-cv-04337-JMG Document 142 Filed 10/04/24 Page 20 of 25
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Prods. v. Windsor, 521 U.S. 591, 625 (1997), and no class representative here is a class member
because none of them submitted “all required loan documentation” to Prestamos, Ex. 11 (for
example, Plaintiff Marshall was required to submit a full federal tax return after her financial
institution returned Prestamos’s disbursement, but submitted only a partial return that omitted a
complete Schedule C).
Plaintiffs’ redefined classes are also not ascertainable for the same reasons. “[T]o satisfy
ascertainability as it relates to proof of class membership, the plaintiff must demonstrate his
purported method for ascertaining class membership is reliable and administratively feasible, and
permits a defendant to challenge the evidence used to prove class membership.” Carrera v.
Bayer Corp., 727 F.3d 300, 308 (3d Cir. 2013). Whether a class member submitted “all required
documentation” cannot be determined without an individualized review of a loan file. And
although borrowers who “fail[ed] to receive loan proceeds” may be “easily identifiable with
available data,” as the Greathouse court found, 2023 U.S. Dist. LEXIS 157204, at *11, there is
no similarly feasible approach to determine why each borrower failed to receive these proceeds,
which is essential to determine whether there was a breach and who caused the resulting
damages. While Plaintiffs attempt to define the class with respect to loans that Prestamos
(allegedly) “failed to disburse,” unrebutted documentary evidence shows that Prestamos
disbursed PPP funds to each class representative, Ex. 4 (Bank Return of Funds Chart), rendering
the class definition empty. Despite Plaintiffs’ game of semantics, they cannot escape that this
case is about the multitude of reasons why borrowers did not receive their PPP loans despite
Prestamos sending the funds to their banks.
Case 5:21-cv-04337-JMG Document 142 Filed 10/04/24 Page 21 of 25
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V.
Plaintiffs Remaining Efforts to Manufacture Classwide Issues Are Unpersuasive
A.
Plaintiffs Are Under No Obligation to Repay Loans They Never Received
Plaintiffs repeatedly contend that they are under an obligation or demand to repay PPP
loan proceeds that they never received, which is the sole basis for their proposed Rule 23(b)(2)
class. See Pls.’ Br. at 11-12. The record refutes this contention.
As a threshold matter, the unrebutted declaration of Prestamos’s Senior Credit Officer
David Castillo states that Prestamos has cancelled each of the Class Members’ loans. Ex. 2.6
Plaintiffs do not identify a single document evidencing a current repayment obligation or
demand, and the few documents that do exist show that no such obligation or demand exists.
Plaintiffs point to excerpts from the depositions of two class representatives, Gregory
Lloyd and Alyshia Johnson. See Pls.’ Br. at 3, 5. Unrebutted documents refute their testimony.
Prestamos disbursed PPP funds to Lloyd on May 31, 2021. Ex. 4. Inexplicably, Lloyd’s bank
held onto the funds for nearly a year-and-a-half. Id. at 27-32. During this period, Prestamos’s
records accurately showed that Lloyd had received his PPP funds, and Prestamos began sending
statements after the apparent forgiveness period on his loan expired indicating that he owed
principal and interest on his PPP loan. Ex. 18 (Prestamos Statement to Lloyd). After Lloyd
raised this issue with Prestamos, he was informed that “if no funds were used prior to the hold
[that Lloyd’s bank put on his account] then no payment plan is required.” Ex. 4 at 27-32
(emphasis added). Johnson testified “I believe I want to say . . . I received an e-mail stating that,
I want to say that the loan had to be repaid.” Pls.’ App. Ex. 19 at 6. Plaintiffs never produced
6
Plaintiffs’ reference at page 12 of their brief to Prestamos’s agreement to refrain from
seeking repayment of Drevnak’s PPP loan—which she received, spent down, and then did not
apply for forgiveness on—in exchange for her voluntary dismissal is inapposite. Defendants
routinely agree to forgo potential counterclaims against a plaintiff in exchange for that plaintiff
dropping their case.
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19
this alleged email, despite it being within the scope of Prestamos’s discovery requests. Ex. 19
(Prestamos First RFPs to Plaintiffs) at RFP Nos. 5, 7. The only conceivably relevant document
was an email Blueacorn inadvertently sent to at least some unfunded borrowers informing them
that if they did not complete forgiveness applications they would need to repay the full balance
of their PPP loan. Ex. 20 (Inadvertent Email Compl.). But later that same day, Blueacorn sent a
“CORRECTION” email to the same unfunded borrowers stating: “Earlier today we sent you an
email in error about applying for PPP Forgiveness. You can disregard that email as your loan
was not funded and no additional action is required.” Ex. 21 (Correction Email Compl.)
(emphasis added).
B.
Plaintiffs’ Spurious Allegations Regarding Prestamos’s Reporting
Obligations to the SBA and Prestamos’s Retention of Processing Fees Are
Irrelevant to Plaintiffs’ Breach of Contract Claim
In a last-ditch effort to infuse their case with equitable appeal, Plaintiffs accuse Prestamos
of malfeasance in its dealings with the SBA. Specifically, they allege Prestamos submitted false
Form 1502s stating loans had been funded when they had not, and baldly assert that Prestamos’s
retention of loan processing fees “may amount to fraud.” Pls.’ Br. at 15.
But under basic principles of contract law, dealings with third parties that are not
referenced in the contract between the parties have no bearing on the objective terms of the
contract as between the parties, or any potential breach thereof. Pierce Assocs., Inc. v. Nemours
Found., 865 F.2d 530, 536 (3d Cir. 1988). And the unrebutted facts show that Prestamos
ultimately cancelled PPP loans for all borrowers who did not successfully complete the
reverification process, which included all class members’ PPP loans. Ex. 2 ¶ 47.
Plaintiffs’ contention regarding processing fees is equally baseless. SBA guidance
provided that “[i]f the Lender has received a processing fee on a loan that was cancelled . . . SBA
will not require the Lender to repay [that] fee unless the Lender is guilty of an act of fraud in
Case 5:21-cv-04337-JMG Document 142 Filed 10/04/24 Page 23 of 25
20
connection with the PPP loan.” Ex. 22 (SBA Procedural Notice 5000-20091) at 7 n.5; see also
86 FR 3692, 3708; see Ex. 14 at 115:3-6 (acknowledging this requirement); Ex. 15 at 113:1-
114:12, 118:8-21 (same).
Prestamos has never engaged in or been charged with – let alone found guilty of – an act
of fraud in connection with the PPP. Moreover, Prestamos offered to return the processing fees
to the SBA in August and September of 2021, and was told by the SBA that “[t]he lender is able
to retain the processing fees on these loans.” Ex. 12.
In sum, these new allegations are irrelevant to class certification and liability, and they
are demonstrably false as well.
CONCLUSION
For the foregoing reasons, the Court should deny certification to the proposed classes.
Dated: October 4, 2024
BALLARD SPAHR LLP
By: /s/ Marcel S. Pratt
Marcel S. Pratt (Pa. ID 307483)
Edward D. Rogers (Pa. ID 69337)
Thomas J. Gallagher IV (Pa. ID 316269)
J. Chesley Burruss (Pa. ID 331521)
Henry W. Longley (Pa. ID 328847)
Travis W. Watson (Pa. ID 330753)
1735 Market Street, 51st Floor
Philadelphia, PA 19103
T: 215-665-8500
F: 215-864-8999
prattm@ballardspahr.com
rogerse@ballardspahr.com
gallaghert@ballardspahr.com
burrussc@ballardspahr.com
longleyh@ballardspahr.com
watsontw@ballardspahr.com
HERRERA ARELLANO LLP
Roy Herrera (admitted pro hac vice)
Daniel A. Arellano (admitted pro hac vice)
Jillian Andrews (admitted pro hac vice)
Austin T. Marshall (admitted pro hac vice)
Beatriz Aguirre (admitted pro hac vice)
Jane Ahern admitted pro hac vice)
1001 North Central Avenue, Suite 404
Phoenix, AZ 85004
T: 602-567-4820
Roy@ha-firm.com
Daniel@ha-firm.com
Jillian@ha-firm.com
Austin@ha-firm.com
Beatriz@ha-firm.com
Jane@ha-firm.com
Counsel for Defendant
Case 5:21-cv-04337-JMG Document 142 Filed 10/04/24 Page 24 of 25
CERTIFICATE OF SERVICE
I, Thomas J. Gallagher IV, hereby certify that on this 4th day of October, 2024, I caused a
copy of the foregoing Brief in Opposition to Plaintiffs’ Motion for Class Certification and
accompanying papers to be served on all counsel of record via the Court’s ECF system.
/s/ Thomas J. Gallagher IV
Thomas J. Gallagher IV
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