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RESPONSE in Opposition re 44 MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM filed by… — Greathouse Capitalplus (Dkt. 49)
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This is Plaintiffs' Memorandum in Opposition to Defendants' Motion to Dismiss in Greathouse v. Capital Plus Financial, Case No. 4:21-cv-1243-BRW, in the Eastern District of Arkansas. Its table of contents lists arguments that the Court has personal jurisdiction over Defendants, including that Crossroads was CPF's alter ego, and that Plaintiffs are entitled to jurisdictional discovery. It also lists arguments that Plaintiffs sufficiently allege breach of contract, unjust enrichment, a UCL claim by Plaintiff Covarrubias, and a NCUDTPA claim by Plaintiff Myles.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
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“RESPONSE in Opposition re 44 MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM filed by… — Greathouse Capitalplus (Dkt. 49).”
Original at ecf.ared.uscourts.gov, No. 4:21-cv-01243-BRW, Doc. 49. Archived at Pandemic Darlings, https://pandemicdarlings.com/court-filings/greathouse-capitalplus-ared-131205/undated-gov-uscourts-ared-131205-49-0-gov-uscourts-ared-131205-49-0/
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Case 4:21-cv-01243-BRW Document 49 Filed 05/23/22 Page 1 of 75
IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
CENTRAL DIVISION
Eric Greathouse, et al.,
Plaintiffs,
Case No. 4:21-cv-1243-BRW
v.
Capital Plus Financial, LLC, et al.,
Defendants.
Plaintiffs’ Memorandum in Opposition to
Defendants’ Motion to Dismiss
Case 4:21-cv-01243-BRW Document 49 Filed 05/23/22 Page 2 of 75
Table of Contents
Introduction ..................................................................................................................................... 1
Factual Background ........................................................................................................................ 3
Argument ........................................................................................................................................ 9
I. The Court Has Personal Jurisdiction Over Defendants ...................................................... 9
A. Legal Standard ........................................................................................................ 9
B. Plaintiff Greathouse’s Claims ............................................................................... 11
C. Claims of Non-Resident Plaintiffs ........................................................................ 18
D. Crossroads Was CPF’s Alter Ego ......................................................................... 23
II. Plaintiffs are Entitled to Jurisdictional Discovery ............................................................ 29
III. Plaintiffs Sufficiently Allege Their Claims ...................................................................... 34
A. Legal Standard ...................................................................................................... 34
B. Plaintiffs Sufficiently Allege Breach of Contract Claims..................................... 35
1. Plaintiffs Have Article III Standing .......................................................... 35
2. The UCC Does Not Bar Plaintiffs’ Claims ............................................... 37
3. The Loan Documents are Binding Contracts ............................................ 38
4. Plaintiffs Did Not Release Their Claims .................................................. 44
C. Plaintiffs Sufficiently Allege Unjust Enrichment Claims ..................................... 46
D. Plaintiff Covarrubias Sufficiently Alleges a UCL Claim ..................................... 50
E. Plaintiff Myles Sufficiently Alleges a NCUDTPA Claim .................................... 56
Conclusion .................................................................................................................................... 60
i
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Table of Authorities
Page(s)
Cases
ACS Partners, LLC v. Americon Grp., Inc.,
2010 WL 883663 (W.D.N.C. Mar. 5, 2010) ..................................................................... 58
Advantage Consulting Grp., Ltd. v. ADT Sec. Sys.,
306 F.3d 582 (8th Cir. 2002) ............................................................................................ 40
AgriFund, LLC v. Regions Bank,
602 S.W.3d 726 (Ark. 2020)............................................................................................. 25
Albillo v. Intermodal Container Serv., Inc.,
2000 WL 35436363 (Cal. Super. Ct. Sept. 20, 2000),
aff’d in relevant part, 114 Cal. App. 4th 190, 8 Cal. Rptr. 3d 350 (2003) ....................... 50
Amtrust, Inc. v. Larson,
388 F.3d 594 (8th Cir. 2004) ............................................................................................ 43
Anderson v. Dassault Aviation,
361 F.3d 449 (8th Cir. 2004) ...................................................................................... 10, 24
Anderson v. Stewart,
234 S.W.3d 295 (Ark. 2006)............................................................................................. 25
Arkansas Labeling, Inc. v. Proctor,
2022 WL 1498384 (E.D. Ark. May 11, 2022) .................................................................. 14
Ashcroft v. Iqbal,
556 U.S. 662 (2009) .......................................................................................................... 34
Bank of Am., N.A. v. Drew,
2017 WL 10604133 (E.D. Ark. Nov. 16, 2017) ............................................................... 58
Bartolomeo v. S.B. Thomas, Inc.,
889 F.2d 530 (4th Cir. 1989) ............................................................................................ 57
Beasley v. Wells Fargo Bank,
235 Cal.App.3d 1383, 1 Cal. Rptr. 446 (1991) ................................................................. 56
Bell Atl. Corp. v. Twombly,
550 U.S. 544 (2007) .......................................................................................................... 34
ii
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Bender v. Xcel Energy, Inc.,
507 F.3d 1161 (8th Cir. 2007) .......................................................................................... 45
BKMJ, Inc. v. Jack Cooper Holdings Corp.,
2015 WL 6555450 (W.D. Ark. Oct. 28, 2015) ................................................................. 32
Black v. Valley Behavioral Health Sys., LLC,
2015 WL 13655174 (W.D. Ark. Nov. 9, 2015) ................................................................ 25
Bowersox Truck Sales & Serv. v. Harco Nat’l Ins. Co.,
209 F.3d 273 (3d Cir. 2000).............................................................................................. 45
BPI Development Group, L.C. v. Grange
181 F. Supp. 3d 604 (S.D. Iowa 2016) ............................................................................. 13
Braden v. Wal-Mart Stores, Inc.,
588 F.3d 585 (8th Cir. 2009) ............................................................................................ 34
Branch Banking & Tr. Co. v. Thompson,
418 S.E.2d 694 (N.C. Ct. App. 1992) ............................................................................... 58
Bristol-Myers Squibb Co. v. Superior Ct. of California, San Francisco Cty.,
137 S. Ct. 1773 (2017) ................................................................................................ 19, 20
Brooks v. Bank of Am., N.A.,
2021 WL 1541643 (S.D. Cal. Apr. 20, 2021) ................................................................... 51
Bruton v. Gerber Prod. Co.,
703 F. App’x 468 (9th Cir. 2017) ..................................................................................... 47
Bumpers v. Cmty. Bank of N. Virginia,
747 S.E.2d 220 (N.C. 2013) ........................................................................................ 58, 59
Burger King Corp. v. Rudzewicz,
471 U.S. 462 (1985) .................................................................................................... 12, 14
Cal. Grocers Assn. v. Bank of Am.,
22 Cal.App.4th 205, 27 Cal. Rptr. 2d 396 (1994)............................................................. 56
Campbell v. Asbury Auto., Inc.,
381 S.W.3d 21 (Ark. 2011)............................................................................................... 49
Carter v. United States,
123 F. App’x 253 (8th Cir. 2005) ..................................................................................... 60
iii
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Chen v. Bank of Am., N.A.,
2019 WL 9633650 (C.D. Cal. Oct. 29, 2019) ................................................................... 51
CitiMortgage, Inc. v. 1st Advantage Mortgage,
2015 WL 1894378 (E.D. Mo. Apr. 27, 2015)................................................................... 24
City of Long Beach v. Total Gas & Power N. Am., Inc.,
465 F. Supp. 3d 416 (S.D.N.Y. 2020),
aff’d, 2021 WL 5754295 (2d Cir. Dec. 3, 2021)............................................................... 48
Cnty. Sch. Bd. v. RT,
433 F. Supp. 2d 692 (E.D. Va. 2006) ............................................................................... 44
Columbia Mut. Ins. Co. v. Arkansas Valley Reg’l Indus. Dev. Co., LLC,
2006 WL 8444843 (E.D. Ark. Dec. 21, 2006) .................................................................. 59
Container Life Cycle Management LLC v. Safety Management Services Co.,
2020 WL 2843224 (W.D. Ark. June 1, 2020) ............................................................ 26, 27
Creative Calling Sols., Inc. v. LF Beauty Ltd.,
799 F.3d 975 (8th Cir. 2015) ...................................................................................... 12, 13
Cuellar-Aguilar v. Deggeller Attractions, Inc.,
812 F.3d 614 (8th Cir. 2015) ...................................................................................... 41, 42
Daimler AG v. Bauman,
571 U.S. 117 (2014) .......................................................................................................... 10
Dan King Plumbing Heating & Air Conditioning, LLC v. Harrison,
869 S.E.2d 34 (N.C. Ct. App. 2022) ........................................................................... 58, 59
Davis v. HSBC Bank Nev., N.A.,
691 F.3d 1152 (9th Cir. 2012) ..................................................................................... 50 51
Davis v. United States,
2021 WL 2580121 (E.D. Ark. June 23, 2021) .................................................................. 33
de Melo v. Lederle Lab’ys, Div. of Am. Cyanamid Corp.,
801 F.2d 1058 (8th Cir. 1986) .......................................................................................... 18
Digi-Tel Holdings, Inc. v. Proteq Telecomms. (PTE), Ltd.,
89 F.3d 519 (8th Cir. 1996) .............................................................................................. 11
Doberstein v. G–P Indus., Inc.,
2015 WL 6606484 (Del. Ch. Oct. 30, 2015) .................................................................... 28
iv
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DOXA Total Design Strategy v. DOXA Enters., Inc.,
2011 WL 13232558 (E.D. Ark. Jan. 26, 2011) ................................................................. 33
Drake & Beemont Mut. Aid Soc’y Against Fire & Lightning v. United States,
330 F.2d 548 (8th Cir. 1964) ............................................................................................ 45
Elizabeth M. Byrnes, Inc. v. Fountainhead Commercial Capital, LLC,
2021 WL 5507225 (C.D. Cal. Nov. 24, 2021) .................................................................. 36
Ellis v. J.P. Morgan Chase & Co.,
950 F. Supp. 2d 1062 (N.D. Cal. 2013) ............................................................................ 55
Ellsworth v. U.S. Bank, N.A.,
908 F. Supp. 2d 1063 (N.D. Cal. 2012) ............................................................................ 54
Env’t Rsch. Int’l, Inc. v. Lockwood Greene Eng’rs, Inc.,
355 A.2d 808 (D.C. 1976) ................................................................................................ 21
Epps v. Stewart Info. Servs. Corp.,
327 F.3d 642 (8th Cir. 2003) ................................................................................ 23, 24, 28
Epsman v. Martin-Landers, LLC,
2007 WL 2819592 (E.D. Ark. Sept. 26, 2007) ................................................................. 59
Farmers & Merchs. Bank v. Hamilton Hotel Partners of Jacksonville Ltd. P’ship,
702 F. Supp. 1417 (W.D. Ark. 1988)................................................................................ 15
Fast v. Applebee’s Int’l, Inc.,
243 F.R.D. 360 (W.D. Mo. 2007) ..................................................................................... 19
Fastpath, Inc. v. Arbela Techs. Corp.,
760 F.3d 816 (8th Cir. 2014) ............................................................................................ 12
Fed. Trade Comm’n v. BINT Operations LLC,
2022 WL 990276 (E.D. Ark. Mar. 31, 2022) ................................................................... 22
Feitelberg v. Credit Suisse First Boston, LLC,
134 Cal.App.4th 997, 36 Cal. Rptr. 3d 592 (2005)........................................................... 56
Ford Motor Co. v. Montana Eighth Jud. Dist. Ct.,
141 S. Ct. 1017 (2021) ................................................................................................ 10, 20
Foreman Elec. Servs., Inc. v. Haliron Power, LLC,
2022 WL 55015 (W.D. Ark. Jan. 5, 2022) ................................................................. 25, 27
v
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Frigillana v. Frigillana,
266 Ark. 296, 584 S.W.2d 30 (1979).......................................................................... 48, 49
Gen. Electric Capital Corp. v. Mackzilla, LLC,
2016 WL 1059529 (S.D. Tex. Mar. 17, 2016) .................................................................. 22
George v. Davis,
2015 WL 389895 (W.D. Ark. Jan. 28, 2015) ................................................. 23, 24, 25, 28
Gerawan Farming, Inc. v. Rehrig Pac. Co.,
2013 WL 1414637 (E.D. Cal. Apr. 8, 2013),
aff’d, 587 F. App’x 654 (Fed. Cir. 2014) .......................................................................... 52
Glenn v. Wagner,
313 N.C. 450, 329 S.E.2d 326 (1985)............................................................................... 25
Harper Enters. v. Aprilia World Serv. USA, Inc.,
270 F. App’x 458 (8th Cir. 2008) ..................................................................................... 44
HHH Farms, L.L.C. v. Fannin Bank,
2022 WL 175967 (Tex. App. Jan. 20, 2022) .................................................................... 27
Holistic Indus. of Arkansas, LLC v. Feuerstein Kulick LLP,
2021 WL 4005872 (E.D. Ark. Sept. 2, 2021) ................................................................... 13
Holmes v. Solon Automated Servs.,
752 S.E.2d 179, 185 (N.C. App. 2013) ............................................................................. 49
Hooked Media Group, Inc. v. Apple Inc.,
55 Cal.App.5th 323, 269 Cal.Rptr.3d 406 (2020) ............................................................. 47
Horne v. Elec. Eel Mfg. Co.,
987 F.3d 704 (7th Cir. 2021) ............................................................................................ 44
Hotfoot Logistics, LLC v. Shipping Point Mktg., Inc.,
2014 Ark. 460, 447 S.W.3d 592 ....................................................................................... 17
Humphreys v. Med. Towers, Ltd.,
893 F. Supp. 672 (S.D. Tex. 1995), aff’d, 100 F.3d 952 (5th Cir. 1996) ......................... 27
In re Dicamba Herbicides Litig.,
359 F. Supp. 3d 711 (E.D. Mo. 2019)............................................................................... 19
In re Folgers Coffee,
2021 WL 7004991 (W.D. Mo. Dec. 28, 2021) ................................................................. 19
vi
Case 4:21-cv-01243-BRW Document 49 Filed 05/23/22 Page 8 of 75
In re Generic Pharmaceuticals Pricing Antitrust Litig.,
2022 WL 1470272 (E.D. Pa. May 10, 2022) .................................................................... 48
Jacobs v. Glob. Tel*Link Corp.,
2016 WL 5953128 (W.D. Ark. May 17, 2016) .......................................................... 51, 52
Jones v. Ford,
2008 WL 2986411 (E.D. Ark. July 31, 2008) .................................................................. 47
Kane v. Valley Slurry Seal Co.,
2018 WL 2126752 (Cal. Ct. App. May 8, 2018) .............................................................. 52
K.C. Properties of N.W. Arkansas, Inc. v. Lowell Invs. Partners, LLC,
280 S.W.3d 1 (Ark. 2008)................................................................................................. 25
Kirk v. Schaeffler Grp. USA, Inc.,
887 F.3d 376, 388 (8th Cir. 2018) .................................................................................... 26
Kivett v. Flagstar Bank, FSB,
506 F. Supp. 3d 749 (N.D. Cal. Dec. 10, 2020) ................................................................ 53
K-V Pharm. Co. v. J. Uriach & CIA, S.A.,
648 F.3d 588 (8th Cir. 2011) ..................................................................................... passim
Knotts v. Nissan N. Am., Inc.,
346 F. Supp. 3d 1310 (D. Minn. 2018) ............................................................................. 19
Krumm v. Kittrich Corp.,
2019 WL 6876059 (E.D. Mo. Dec. 17, 2019) .................................................................. 19
Kuhns v. Scottrade, Inc.,
868 F.3d 711 (8th Cir. 2017) ...................................................................................... 35, 48
Lamb v. Turbine Designs, Inc.,
41 F. Supp. 2d 1362 (N.D. Ga. 1999) ............................................................................... 21
LegalForce RAPC Worldwide P.C. v. UpCounsel, Inc.,
2019 WL 160335 (N.D. Cal. Jan. 10, 2019) ............................................................... 50, 54
Lex Tex Ltd., Inc. v. Skillman,
579 A.2d 244 (D.C. 1990) ................................................................................................ 21
Madrinas Brands, LLC v. Horseshoe Bev. Co., LLC,
2022 WL 823055 (E.D. Mo. Mar. 18, 2022) .................................................................... 33
vii
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Mayer Hoffman McCann, P.C. v. Barton,
614 F.3d 893 (8th Cir. 2010) ............................................................................................ 38
MicroStrategy Inc. v. Acacia Rsch. Corp.,
2010 WL 5550455 (Del. Ch. Dec. 30, 2010) .................................................................... 28
Mitchell v. Blue Cross Blue Shield of N.D.,
953 F.3d 529 (8th Cir. 2020) ............................................................................................ 35
Mobil Oil Corp. v. Linear Films, Inc.,
718 F. Supp. 260 (D. Del. 1989) ....................................................................................... 28
Mountain View Hosp., L.L.C. v. Sahara, Inc.,
2011 WL 4962183 (D. Idaho Oct. 17, 2011) .................................................................... 44
Mutz v. Citizens State Bank,
966 F.2d 434 (8th Cir. 1992) ............................................................................................ 45
Nat’l Rural Telecomms. Co-op. v. DIRECTV, Inc.,
319 F. Supp. 2d 1059 (C.D. Cal. 2003) ............................................................................ 53
Neb. Pub. Power Dist. v. MidAmerican Energy Co.,
234 F.3d 1032 (8th Cir. 2000) .......................................................................................... 40
Norfolk & W. Ry. Co. v. Am. Train Dispatchers Ass’n,
499 U.S. 117 (1991) .................................................................................................... 41, 42
One Bank & Trust, N.A. v. Galea,
2012 WL 6019091 (E.D. Ark. Dec. 3, 2012) .................................................................... 46
Oto Analytics, Inc. v. Cap. Plus Fin., LLC,
2022 WL 1082368 (N.D. Tex. Apr. 11, 2022) ................................................................. 16
Oto Analytics, Inc. v. Capital Plus Financial, LLC,
2022 WL 1488441 .......................................................................................... 15, 41, 42, 49
Ouachita Watch League v. Henry,
2012 WL 12792161 (E.D. Ark. May 1, 2012) .................................................................. 34
Oxley v. Asplundh Tree Expert Co.,
2006 WL 1642152 (W.D.N.C. June 12, 2006) ................................................................. 57
Penick v. Penick,
783 S.W.2d 194 (Tex. 1988)............................................................................................. 48
viii
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Pennington v. BHP Billiton Petro. (Fayetteville), LLC,
2021 Ark. 179, 631 S.W.3d 555 (2021)............................................................................ 45
People ex rel. Harris v. Aguayo,
11 Cal. App. 5th 1150, 218 Cal. Rptr. 3d 221 (2017)....................................................... 53
Pinehurst Neuropsychology, PLLC v. First-Citizens Bank & Trust Co.,
2021 WL 4460273 (M.D.N.C. Sept. 29, 2021)................................................................. 36
Plymouth Cnty., Iowa v. Merscorp, Inc.,
774 F.3d 1155 (8th Cir. 2014) .......................................................................................... 48
Potts v. Johnson & Johnson Consumer Inc.,
2021 WL 2177386 (D.N.J. May 28, 2021) ....................................................................... 48
Pro-Comp Mgmt., Inc. v. R.K. Enters., LLC,
237 S.W.3d 20 (Ark. 2006)............................................................................................... 49
Profiles, Inc. v. Bank of Am. Corp.,
453 F. Supp. 3d 742 (D. Md. 2020) .................................................................................. 36
Progressive American Insurance Co. v. State Farm Mutual Auto. Insurance Co.,
184 N.C.App. 688, 647 S.E.2d 111 (2007) ....................................................................... 48
Prudential Ins. Co. of Am. v. Herman,
2009 WL 10674431 (C.D. Cal. Aug. 31, 2009)................................................................ 52
Radaszewski v. Contrux, Inc.,
891 F.2d 672 (8th Cir. 1989) ............................................................................................ 26
Razor Cap., LLC v. HP Debt Exch., LLC,
2013 WL 4483366 (D. Minn. Aug. 19, 2013) .................................................................. 13
Revenexx v. Regenex Health LLC,
446 F. Supp. 3d 469 (S.D. Iowa 2020) ............................................................................. 33
Robb-Fulton v. Robb (In re Robb),
23 F.3d 895 (4th Cir. 1994) .............................................................................................. 43
Romak USA, Inc. v. Rich,
384 F.3d 979 (8th Cir. 2004) ............................................................................................ 15
Salone v. Bank of Am., N.A.,
2018 WL 3815041 (C.D. Cal. June 22, 2018) .................................................................. 51
ix
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Sandoval v. PharmaCare US, Inc.,
145 F. Supp. 3d 986 (S.D. Cal. 2015) ............................................................................... 50
Sandoz Inc. v. Amgen Inc.,
137 S. Ct. 1664 (2017) ...................................................................................................... 50
SAS Inst. Inc. v. World Programming Ltd.,
2011 WL 1059139 (E.D.N.C. Feb. 3, 2011), rev’d in part on other grounds,
2011 WL 1059128 (E.D.N.C. Mar. 18, 2011) .................................................................. 33
Scherer v. Wells Fargo Bank, N.A.,
No. H-20-cv-1295, Order, Doc. No. 20 at 3 (S.D. Tex. Apr. 29, 2020) ........................... 36
Se. Stud & Components, Inc. v. Am. Eagle Design Build Studios, LLC,
ECF 81 (E.D. Ark. Feb. 12, 2008) .................................................................................... 33
Shearon v. Boise Cascade Corp.,
478 F.2d 1111 (8th Cir. 1973) .......................................................................................... 38
Smith v. Arrington Oil & Gas, Inc.,
664 F.3d 1208 (8th Cir. 2012) .......................................................................................... 37
Smith v. Chase Grp., Inc.,
354 F.3d 801 (8th Cir. 2004) ............................................................................................ 44
SmithKline Beecham Corp. v. Abbott Labs.,
2017 WL 1051123 (M.D.N.C. Mar. 20, 2017) ................................................................. 57
Snow v. Admiral Ins. Co.,
612 F. Supp. 206 (W.D. Ark. 1985).................................................................................. 41
Spokeo v. Robins,
578 U.S. 330 (2016) .......................................................................................................... 35
Steinbuch v. Cutler,
518 F.3d 580 (8th Cir. 2008) ............................................................................................. 32
Strong v. Caliber Home Loans, Inc.,
840 F. App’x 890 (8th Cir. 2021) ..................................................................................... 45
Swan Racing Co., LLC v. XXXtreme Motorsport, LLC,
2015 WL 4430257 (W.D.N.C. July 20, 2015) .................................................................. 57
Sybersound Recs., Inc. v. UAV Corp.,
517 F.3d 1137 (9th Cir. 2008) .......................................................................................... 51
x
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Synovus Bank v. Okay Props., LLC,
2012 WL 3745280 (W.D.N.C. Aug. 28, 2012)................................................................. 59
Tang v. Northpole Ltd.,
314 F.R.D. 612 (W.D. Ark. 2016) .............................................................................. 24, 26
TCF Nat’l Bank v. Mkt. Intelligence, Inc.,
812 F.3d 701 (8th Cir. 2016) ............................................................................................ 45
Terra Int’l, Inc. v. Mississippi Chem. Corp.,
119 F.3d 688 (8th Cir. 1997) ............................................................................................ 18
Texas Integrated Conveyor Sys., Inc. v. Innovative Conveyor Concepts, Inc.,
300 S.W.3d 348 (Tex. App. 2009) .................................................................................... 49
Thomas v. General Motors LLC,
2018 WL 813584 (E.D. Ark. Feb. 9, 2018) ...................................................................... 46
Thomas v. S. Pioneer Life Ins. Co.,
2009 WL 4894695 (E.D. Ark. Dec. 11, 2009) .................................................................. 33
Tishner v. Wright Med. Grp., Inc.,
2017 WL 1520424 (E.D. Ark. Apr. 25, 2017) ............................................................ 32, 33
Torchmark Corp. v. Rice,
945 F. Supp. 172 (E.D. Ark. 1996) ................................................................................... 24
U.S. ex rel. King v. Solvay S.A.,
823 F. Supp. 2d 472 (S.D. Tex. 2011) .............................................................................. 27
US LEC Commc’ns, Inc. v. Qwest Commc’ns Corp.,
2006 WL 1367383 (W.D.N.C. May 15, 2006) ................................................................. 57
Valley View Agri, LLC v. Producers Co-op. Oil Mill,
2015 WL 853277 (E.D. Ark. Feb. 26, 2015) .................................................................... 32
Vallone v. CJS Sols. Grp., LLC,
9 F.4th 861 (8th Cir. 2021) ............................................................................................... 19
Vertical Doors Inc. v. J.T. Bonn Inc.,
2008 WL 11343051 (C.D. Cal. Dec. 15, 2008) ................................................................ 52
Viasystems, Inc. v. EBM-Papst St. Georgen GmbH & Co., KG,
646 F.3d 589 (8th Cir. 2011) ............................................................................................ 28
xi
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Walden v. Fiore,
571 U.S. 277 (2014) .................................................................................................... 11, 15
Wallace v. ConAgra Foods, Inc.,
747 F.3d 1025 (8th Cir. 2014) .......................................................................................... 35
Wallace ex rel. Cencom Cable Income Partners II, Inc., L.P. v. Wood,
752 A.2d 1175 (Del. Ch. 1999)......................................................................................... 28
Walmart Inc. v. Cuker Interactive, Ltd. Liab. Co.,
949 F.3d 1101 (8th Cir. 2020) .......................................................................................... 45
Weirton Med. Ctr., Inc. v. Cmty. Health Sys., Inc.,
2017 WL 2789008 (N.D. W.Va. June 27, 2017) .............................................................. 32
Weisenberger v. Ameritas Mutual Holding Co.,
2022 WL 1078211 (D. Neb. Apr. 7, 2022) ....................................................................... 59
Weitz Co. v. MH Washington,
631 F.3d 510 (8th Cir. 2011) ............................................................................................ 26
Wessels, Arnold & Henderson v. Nat’l Med. Waste, Inc.,
65 F.3d 1427 (8th Cir. 1995) ............................................................................................ 12
Wesson v. Lamb AB,
2018 WL 11320712 (W.D. Ark. June 18, 2018) .................................................. 32, 33, 34
West v. JPMorgan Chase Bank, N.A.,
214 Cal. App. 4th 780, 154 Cal. Rptr. 3d 285 (2013)....................................................... 51
Whaley v. Esebag,
946 F.3d 447 (8th Cir. 2020) ............................................................................ 9, 10, 11, 18
WhatsApp Inc. v. NSO Group Technologies Ltd.,
472 F. Supp. 3d 649 (N.D. Cal. 2020) .............................................................................. 22
Willis Elec. Co. v. Polygroup Macau Ltd. (BVI),
437 F. Supp. 3d 693 (D. Minn. 2020) ............................................................................... 22
Wilson v. Arkansas Dep’t of Hum. Servs.,
850 F.3d 368 (8th Cir. 2017) ............................................................................................ 52
Winchel v. Craig,
55 Ark. App. 373, 934 S.W.2d 946 (1996)) ..................................................................... 24
xii
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Zuniga v. Bank of Am. N.A.,
2014 WL 7156403 (C.D. Cal. Dec. 9, 2014) .................................................................... 51
Rules
86 FED. REG. 3692, 3710 .................................................................................................... 8, 42, 44
FED. R. CIV. P. 4(k)(1)(A) ............................................................................................................... 9
Statutes
ARK. CODE ANN. § 4-27-1505(c) ................................................................................................. 26
ARK. CODE ANN. § 16-4-101(B) ................................................................................................... 10
Other Authorities
California Unfair Competition Law ....................................................................................... passim
CARES Act ............................................................................................................................ passim
North Carolina Unfair and Deceptive Trade Practices Act ................................................... passim
WRIGHT & MILLER, 4A Fed. Prac. & Proc. Civ. § 1069.7 (4th ed.) ............................................. 22
xiii
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Introduction
Defendants’ motion is notable for what they choose to omit. They say nothing about how
many of the 472,036 Small Business Administration (“SBA”)-approved Paycheck Protection
Program (“PPP”) loans, or how much of the over $7.5 billion in total PPP loan proceeds,
defendant Capital Plus Financial, LLC (“CPF”) committed to fund but failed to. They say
nothing about the total PPP loan advances CPF obtained from the Federal Reserve on those
unfunded loans or the status and whereabouts of those proceeds. And they say nothing about
CPF obtaining PPP loan fees on the backs of Plaintiffs and other unfunded but SBA-approved
borrowers; upstreaming $930 million of PPP fees, including those ill-gotten gains, to its
corporate parent, defendant Crossroads Systems, Inc. (“Crossroads”); or Crossroad’s distribution
in turn, within less than a month thereafter, of over $157 million in the form of a special cash
dividend to its own senior leadership.
They also ignore that the central purpose of the PPP’s second round of funding in 2021
was to help small businesses, especially those owned by minority, underserved, veteran, and
women businesses, harmed by the fallout from COVID-19. The four class representatives here,
who run, respectively, insurance adjustor, auto repair, landscaping and artist support businesses,
each badly needed the financial help the PPP was designed to provide, just like the other SBA-
approved but unfunded class members did for their businesses. Denying Plaintiffs a fair
opportunity to pursue their claims in this Court would be not only procedurally improper, but add
further injustice to the very class of people Congress established the PPP to support. Defendants’
motion provides no basis for dismissal.
First, Plaintiffs have sufficiently alleged the Court’s personal jurisdiction over
Defendants. CPF did substantial PPP lending directly in Arkansas not just with over 2,500
Arkansas resident business owners, but also for thousands more PPP loans for SBA-approved
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borrowers within the coverage areas of the SBA’s Little Rock Commercial Loan Service Center
(the “LRSC”). Defendants publicly touted the depth of their underwriting investigations into
each borrower and reaped millions in fees from their Arkansas contacts. Even if that activity
were not by itself sufficient to confer jurisdiction (it is), it exceeds by even more the standards to
allow Plaintiffs jurisdictional discovery to develop a fuller record of Defendants’ PPP contacts
here if the Court has any doubt it may fairly assert jurisdiction based on publicly known facts
alone.
Defendants’ other arguments also do not justify dismissal at this stage of the proceedings.
Plaintiffs have Article III standing to assert their breach of contract claims by virtue of the SBA’s
approval of their PPP loans, their signing binding loan agreements, CPF’s breach in failing to
fund those loans and the damages Plaintiffs incurred by being deprived of the use of those funds
to support their businesses. Defendants acknowledge that those contracts were binding and
enforceable when then they submitted them to the SBA for payment of CPF’s loan processing
fees.
Plaintiffs’ unjust enrichment claims are sufficiently pleaded in the alternative to their
contract claim, as Plaintiffs conferred benefits on Defendants in the form of PPP loan fees to
fund their loans. Plaintiff Covarrubias also sufficiently pleads in the alternative that he and the
proposed California subclass are entitled to injunctive relief and restitution under California’s
Unfair Competition Law (“UCL”), as Defendants’ conduct was both “unlawful” and “unfair”
under that statute. And plaintiff Myles sufficiently pleads on behalf of the proposed North
Carolina subclass a claim under the North Carolina Unfair and Deceptive Trade Practices Act
(“NCUDTPA”) since, once induced by and locked into CPF for PPP funding, she could not
properly apply for another PPP loan. And Crossroads’s own words show it controlled and
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directed CPF’s PPP lending and thus was its alter ego, although Defendants’ arguments
otherwise raise factual disputes inappropriate for resolution now anyway. The Court should deny
Defendants’ motion in full.
Factual Background
On March 27, 2020, following the worldwide outbreak of COVID-19, Congress passed
the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) to provide over $2
trillion in immediate assistance to individuals, families and businesses. ¶ 41.1 An integral part of
the CARES Act was the PPP. Administered by the SBA, the PPP authorized $813.7 billion in
PPP loans through May 31, 2021. ¶ 45. PPP loans are guaranteed by the SBA with the
expectation that they will be forgiven for all borrowers who use them for authorized purposes.
¶ 44. To ensure that small businesses and sole proprietors received PPP loan proceeds quickly
and efficiently, the SBA delegated lending to authorized private PPP lenders and required PPP
loans to be funded within ten days of SBA approval and execution of the loan documents. ¶ 55.
In return for each PPP loan, the SBA paid PPP lenders loan processing fees. ¶ 4.
Defendants’ PPP Operations: On December 27, 2020, PPP loan processing fees were
increased to address PPP lenders’ neglect of PPP loan applications from sole proprietors and
other small businesses, especially minority, underserved, veteran and women-owned businesses.
¶ 50. Whereas originally lenders would receive a five percent fee for loans of $350,000.00 or
less, the fee was increased to fifty percent or $2,500.00, whichever is less, for PPP loans of up to
1
Unless otherwise noted, all paragraph references are to paragraphs in Plaintiffs’ Amended
Class Action Complaint (Doc. No. 31); all page cites are to the ECF rather than native page
number; all emphases are in the original; and all internal quotation marks, alterations, footnotes
and citations are omitted.
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$50,000.00. As a result, PPP lenders received a flat fee of $2,500.00 for virtually every PPP loan
less than $50,000.00. ¶¶ 49-51.
Defendant CPF was an SBA-authorized PPP lender. At the direction of its corporate
parent Crossroads, CPF exploited the increased PPP loan fees in 2021 by agreeing to fund
472,036 PPP loans totaling over $7.5 billion in loan proceeds -- the second highest number of
PPP loans by any lender in 2021, and more loans than Bank of America, PNC Bank, TD Bank
and Wells Fargo combined. ¶¶ 9, 78.
The Federal Reserve advanced the funds to CPF through term loans from the Paycheck
Protection Program Liquidity Facility (the “PPPLF”) secured by PPP loans. ¶¶ 92-93. PPPLF
advances could only be secured by SBA-guaranteed PPP loans, and the principal amount
advanced equaled the principal amount of the PPP loan pledged to secure the advance. ¶ 96. In
total, CPF received at least $6,458,857,759.43 from the PPPLF to fund PPP loans. ¶ 100.
Crossroads’ control over CPF’s PPP activities was continuous and substantial.
Crossroads is a publicly-traded for-profit company, and wholly owned CPF at all times material.
¶ 7. Among other things, Crossroads directed CPF to upstream to Crossroads the PPP loan
processing fees as if Crossroads and CPF were one and the same companies (¶¶ 10-11, 14, 79);
both companies shared senior executives including their then-dual CEOs Eric Donnelly
(“Donnelly”) and CFOs Farzana Giga (“Giga”), who also was a director of Crossroads (¶¶ 30,
83); both companies had overlapping websites that referred to each other (¶ 38); Crossroads
made statements in U.S. Securities and Exchange Commission (“SEC”) filings and other public
statements referring to the companies as one (¶¶ 11, 14, 79, 82); and Crossroads reported in its
own SEC filings that it earned the PPP lender processing fees even though CPF and not
Crossroads was the SBA-approved lender. ¶¶ 11, 79-80.
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Defendants’ PPP lending activities were extremely lucrative for them and their senior
leadership despite failing to fund the SBA-approved loans of Plaintiffs and numerous other SBA-
approved borrowers. ¶¶ 117, 133, 144, 155, 158 (a)-(g). In particular, in 2020, CPF’s total
revenue from operations was $36.6 million. ¶ 77. According to Crossroads’s SEC filings, CPF’s
agreements with Plaintiffs and other SBA-approved borrowers to fund 472,036 PPP loans for
over $7.5 billion in 2021 resulted in Crossroads reporting that it “earned fees from the [PPP]
totaling approximately $930 million” (¶ 79), and total revenues of $932.7 million, or 2,446%
higher than the revenues Crossroads earned in the comparable 2020 period. ¶ 88.
Further, less than two months after the PPP lending window closed as of May 31, 2021,
Crossroads announced that as a result of a “windfall associated with the PPP loan program” it
was “now overcapitalized” and would pay out a special dividend of $40 per share to Crossroads
shareholders of record as of July 19, 2021. ¶¶ 14, 85-86. At that time, Donnelly, Giga and other
senior executives of Crossroads owned approximately 66% of Crossroads’s equity, with
Donnelly and Crossroads Chairman Robert Albert (“Alpert”) alone owning approximately
62.8%. ¶¶ 14, 83-84. The special dividend was paid on July 26, 2021 and totaled approximately
$238.9 million, of which Donnelly received $90,227,080, Alpert received $59,691,400 and
Donnelly, Alpert, Giga and other senior Crossroads employees and directors collectively
received $157,696,080, including from fees earned on SBA-approved class member PPP loans
CPF failed to fund. ¶¶ 86-87, 101. No discovery has been produced in this case, but emails from
other litigation against CPF reflect that CPF executives were aware of unfunded PPP loan
complaints. ¶ 102.
Defendants’ PPP Activities in Arkansas: Defendants’ PPP activities in Arkansas were
substantial and continuous throughout the relevant period. CPF entered into PPP loan agreements
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with 2,578 SBA-approved Arkansas residents for $38,715,478.00 in total loan proceeds (¶ 26);
collected nearly $7 million in fees attributable to those loans assuming that each such loan
resulted in fees of at least $2,500.00 per loan (¶ 27); and conducted underwriting reviews of each
PPP loan application. ¶¶ 29-31. See also Declaration of Eric Greathouse (the “Greathouse
Decl.”), attached hereto as Exhibit A, ¶¶ 6-15 (describing plaintiff Greathouse’s activities in
Arkansas to obtain his PPP loan).
While Defendants attempt to minimize, and the Giga declaration largely ignores, CPF’s
PPP lending activities in Arkansas, CPF’s underwriting reviews entailed “thorough”
investigations of each such borrower. As Alpert and Donnelly stated in a letter to Crossroads’s
shareholders filed with the SEC: “Though we leaned heavily on our loan service providers for
support on the front end, we were thorough in reviewing applications on the back end. Whereas
most lenders use one to two layers of identity verification and customer compliance mechanisms,
we used four. This investment in KYC (‘knowing your customers’) substantially reduced fraud
…”. ¶ 30 (emphasis added).
Defendants’ original motion to dismiss falsely stated that the claims in this case have “no
such connection” to Arkansas. Doc. No. 25, at 8. But as Plaintiffs’ Amended Complaint alleges,
the LRSC they failed to disclose is some three miles from this Court, and is one of only two
nationwide SBA service centers. ¶¶ 32-35. CPF communicated directly with the LRSC with
respect to PPP loan applicants and borrowers in Arkansas and the other states and territories
within the LRSC’s coverage area. ¶ 36. The LRSC served not only the East Coast but also Texas,
where both Defendants are based, meaning that CPF and also likely Crossroads dealt directly
with the LRSC concerning many aspects of PPP lending. ¶¶ 32-37. Three of the four Plaintiffs
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reside in states covered by the LRSC (all but plaintiff Covarrubias). ¶¶ 16, 18-19; see also
https://advocacy.sba.gov/regional-advocates/ (identifying areas covered by the LRSC).
Based on SBA PPP lending data, the coverage areas of the LRSC included 231,268 of
CPF’s 472,036 in total PPP loan commitments, representing $3,684,000,149 of the over $7.5
billion in total PPP loan proceeds CPF committed to fund in 2021. See PPP FOIA - Dataset -
U.S. Small Business Administration (SBA) | Open Data (visited May 16-18, 2022); see also
Declaration of Lawrence J. Lederer in Opposition to Defendants’ Motion to Dismiss and in
Support of Plaintiffs’ Request for Jurisdictional Discovery, attached hereto as Exhibit B, (the
“Lederer Decl.”) ¶¶ 8-9 (identifying PPP loan numbers and amounts for areas covered by the
LRSC).
Plaintiffs’ PPP Loan Contracts: Plaintiffs are the sole proprietors of their own
businesses. Plaintiffs all applied for PPP loans to fund their business operations amid COVID,
and each:
timely contracted with CPF for their PPP loans in 2021;
had their PPP loan applications approved by the SBA;
signed and returned to CPF all required Loan Documents (¶ 111) namely, the
standard form Note; an Additional and Correction Documents Agreement (Errors
and Omissions Agreement) (the “Additional Agreement”); a Business Purpose
Statement; a Notice – No Oral Agreements signed by each Plaintiff and Ms. Giga;
a Written Consent of Governing Body form; an IRS W-9 form; and an
Information and Bank Account Certification and Authorization form; see Doc.
No. 31, at 58-70 (attaching plaintiff Greathouse’s standard form Note and other
Loan Documents); and
never received the proceeds of their SBA-approved PPP loans from CPF, despite
complying with all of the terms of the Loan Documents.
Despite relying on a provision in the Note containing a limited and inapplicable release
(Doc. No. 31, at 62), Defendants contend that no contract exists and that they were not obligated
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to actually fund any of Plaintiffs’ loans. But that contention is belied by the terms of the Loan
Documents and the PPP. In particular, each promissory Note:
identifies the specific SBA-approved PPP loan, loan number and loan amount;
specifies that the parties are, respectively, each Plaintiff “Borrower” and the
“Lender” defendant CPF;
states that, “[i]n return for the Loan, Borrower promises” to pay the principal plus
“interest on the unpaid principal balance, and all other amounts required by this
Note” back to CPF if not forgiven (emphasis added);
contains other loan repayment terms and events of default and CPF’s rights in the
event of default and other provisions, including that “[a]ll individuals and entities
signing this Note are jointly and severally liable”; and
states that, “[b]y signing below, each individual or entity becomes obligated under
this Note as Borrower.” See ¶¶ 174-177; Doc. No. 31, at 58-70.
Similarly, the Additional Agreement states that, “[i]n consideration of Capital Plus
Financial, LLC … making the above loan, each of the undersigned, jointly and severally, do
hereby agree as follows ….”; identifies the loan amount; obligates each Plaintiff class member
borrower to deliver other documents “pertaining to the above loan”; and states that CPF “is
relying on this agreement in making the above loan ….” Doc. No. 31, at 64 (emphasis added).
The “Notice - No Oral Agreements” identifies each Plaintiff and the SBA-approved loan
amount; governs the “Loan by Lender, Capital Plus Financial, LLC to Borrower”; states that
“THE WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES …”; defines the term “Loan Agreement”; and is executed by both
parties. Doc. No. 31, at 66. And the Information and Bank Account Certification and
Authorization form identified the borrower’s account and routing numbers for CPF “to deposit
the loan proceeds on the [Plaintiff] company’s behalf.” Doc. No. 31, at 70. In addition,
applicable PPP rules are incorporated in the Loan Documents and affirmatively bound PPP
lenders to disburse the loans. See, e.g., 86 Fed. Reg. 3692, 3710 (“The lender must make a one-
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time, full disbursement of the PPP loan within ten calendar days of loan approval”) (emphasis
added).
Despite these facts and follow-up efforts to get funding, CPF failed to fund any of
Plaintiffs’ PPP loans. ¶¶ 115-116, 128-132, 143, 154. As a result, Plaintiffs’ businesses were
damaged by being deprived of funds to which Plaintiffs were contractually entitled. ¶¶ 119, 135,
146, 157. Once signed up with CPF, moreover, Plaintiffs and other class member borrowers were
unable to apply for PPP loans from other PPP lenders. ¶¶ 58-60. The Amended Complaint
identifies numerous other complaints by unfunded CPF borrowers. See ¶¶ 158(a)-(g). Plaintiffs
allege that Defendants’ failure to fund their PPP loans breached the standard form Loan
Documents of all similarly situated class member borrowers (¶¶ 161, 172-185); constituted
unjust enrichment only in the alternative, to the extent Plaintiffs’ contract claims provide less
than complete relief (¶¶ 193-203); and violated the consumer protection statutes of California
again only in the alternative to the contract claim (¶¶ 204-217) and North Carolina (¶¶ 218-230).
Argument
I. The Court Has Personal Jurisdiction Over Defendants
A. Legal Standard
To defeat a motion to dismiss for lack of personal jurisdiction, Plaintiffs need only make
“a prima facie showing that personal jurisdiction exists,” which requires pleading only
“sufficient facts to support a reasonable inference that the defendant can be subjected to
jurisdiction within the state.” K-V Pharm. Co. v. J. Uriach & CIA, S.A., 648 F.3d 588, 591-92
(8th Cir. 2011). The showing required at this stage is “minimal.” Id. The evidence should be
viewed in the light most favorable to the Plaintiffs, and all factual conflicts should be resolved in
their favor in deciding whether they have made the requisite showing. Id.; see also Whaley v.
Esebag, 946 F.3d 447, 451 (8th Cir. 2020). Plaintiffs easily chin that low bar here.
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The Court may assert personal jurisdiction over Defendants to the maximum extent
allowed by the long-arm statute of the forum state and the Due Process Clause. See FED. R. CIV.
P. 4(k)(1)(A); Daimler AG v. Bauman, 571 U.S. 117, 125 (2014). Arkansas’s long-arm statute
authorizes personal jurisdiction to the fullest extent possible under the Due Process Clause. ARK.
CODE ANN. § 16-4-101(B); Anderson v. Dassault Aviation, 361 F.3d 449, 451 (8th Cir. 2004).
Accordingly, to establish personal jurisdiction, Plaintiffs must show only sufficient “minimum
contacts” exist so that “traditional notions of fair play and substantial justice” are not offended.
Whaley, 946 F.3d at 451 (applying Arkansas long-arm statute) (citing Int’l Shoe Co. v.
Washington, 326 U.S. 310, 316 (1945)).2 This requirement is met where the “defendant’s
conduct and connection with the forum State are such that he should reasonably anticipate being
haled into court there.” K-V Pharm. Co., 648 F.3d at 592-93.
The United States Supreme Court’s most recent decision on the issue of personal
jurisdiction cautions against Defendants’ overly narrow view of specific jurisdiction. “None of
our precedents has suggested that only a strict causal relationship between the defendant’s in-
state activity and the litigation will do.” Ford Motor Co. v. Montana Eighth Jud. Dist. Ct., 141 S.
Ct. 1017, 1026 (2021). There, the Supreme Court clarified that specific jurisdiction requires that
“the suit arise out of or relate to the defendant’s contacts with the forum … [and] contemplates
that some relationships will support jurisdiction without a causal showing.” Id. The Supreme
Court explained that for specific jurisdiction to attach, a defendant must have “deliberately
reached out beyond its home —by, for example, exploiting a market in the forum State or
entering a contractual relationship centered there.” Id. at 1025 (emphasis added).
2
Because Defendants are not headquartered and do not maintain a principal place of
business in Arkansas, Plaintiffs do not advance a general jurisdiction theory. Daimler, 571 U.S.
at 137.
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The Eighth Circuit has established a five-factor test to determine whether sufficient
minimum contacts exist, with the first three factors being of “primary importance”: “(1) the
nature and quality of contacts with the forum state; (2) the quantity of such contacts; (3) the
relation of the cause of action to the contacts; (4) the interest of the forum state in providing a
forum for its residents; and (5) convenience of the parties.” Whaley, 946 F.3d at 452. The third
factor addresses the particular question of specific jurisdiction, and the fourth and fifth factors
“carry less weight and are not dispositive.” Id.
Throughout their motion, Defendants lean heavily on Walden v. Fiore, 571 U.S. 277
(2014), but the facts of Walden are inapposite. There, the U.S. Supreme Court found no personal
jurisdiction existed in Nevada over a Georgia police officer for an intentional tort he committed
in Georgia against two Nevada residents as they traveled through the Atlanta airport. Id. at 288.
Walden stands for the unremarkable proposition that a defendant’s contacts with a resident alone
are not sufficient. But as described below, Defendants have numerous, significant contacts with
the State of Arkansas, not just an Arkansas resident. As a result, Defendants’ motion to dismiss
for lack of personal jurisdiction should be denied.
B. Plaintiff Greathouse’s Claims
Plaintiff Greathouse asserts claims for breach of contract and unjust enrichment.
Defendants unquestionably are subject to personal jurisdiction with respect to these claims.
The first three factors -- (i) the nature and quality of contacts with the forum state, (ii) the
quantity of such contacts, and (iii) the relation of the cause of action to the contacts -- are closely
related and may be considered together. Digi-Tel Holdings, Inc. v. Proteq Telecomms. (PTE),
Ltd., 89 F.3d 519, 522-23 (8th Cir. 1996). These factors all weigh in favor of the Court’s exercise
of jurisdiction based on the contractual relationship defendant CPF formed with an Arkansas
resident that had foreseeable consequences in the State of Arkansas.
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Defendants argue that a contract “in and of itself” is not enough to confer jurisdiction.
But the very case cited by Defendants underscores that this principal is one of limited
applicability and does not apply to this case. In Fastpath, Inc. v. Arbela Techs. Corp., 760 F.3d
816, 824 (8th Cir. 2014), the court found that the defendant was not subject to personal
jurisdiction in Iowa because the defendant’s solicitation of the confidentiality agreement at issue
took place outside Iowa, the contract did not contemplate the exchange of information in Iowa,
no information was ever exchanged in Iowa, and any alleged breach of the agreement occurred
outside Iowa. There, the only connection to Iowa was the plaintiff’s residence, but that is not the
case here.
Contrary to Defendants’ position, the Supreme Court recently announced that “entering a
contractual relationship centered [in the forum]” is indeed sufficient to confer jurisdiction. Ford
Motor Co., 141 S. Ct. at 1025. Further, the Supreme Court previously has emphasized the need
for a “highly realistic approach” that recognizes that a contract is “ordinarily but an intermediate
step serving to tie up prior business negotiations with future consequences which themselves are
the real object of the business transaction.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 479
(1985). As a result, factors such as prior negotiations, contemplated future consequences, the
terms of the contract, and the parties’ course of dealing must be evaluated in determining
whether the defendant purposefully established minimum contacts within the forum. Id.; see also
K-V Pharm. Co., 648 F.3d at 594. The Eighth Circuit has determined that solicitation of a
business relationship to a resident of the forum,3 the place of a contract’s performance, and a
contractual provision requiring a defendant to remit payment to a forum resident are all
3
The Eighth Circuit has held that these contacts are sufficient even when it is unclear who
initiated the contact. See Wessels, Arnold & Henderson v. Nat’l Med. Waste, Inc.,65 F.3d 1427,
1432-33 (8th Cir. 1995).
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significant factors that courts should consider in evaluating personal jurisdiction in contract
cases. See, e.g., K-V Pharm. Co, 648 F.3d at 594-95; Creative Calling Sols., Inc. v. LF Beauty
Ltd., 799 F.3d 975, 980-81 (8th Cir. 2015). In light of this well-established precedent,
Defendants’ argument, relying on the Calder effects test, that the effect of a contract in the forum
state has no bearing on the jurisdictional analysis, is simply false.
Courts in the Eighth Circuit have applied the same reasoning to financial contracts. For
example, in BPI Development Group, L.C. v. Grange, the court found jurisdiction proper in Iowa
where plaintiffs, Iowa residents, asserted claims for breach of contract and unjust enrichment
against non-resident defendants. 181 F. Supp. 3d 604, 613 (S.D. Iowa 2016). Plaintiffs allegedly
loaned money to defendants to fund defendants’ business outside of Iowa, and defendants failed
to repay the loan. Id. at 609. The court found that defendants purposefully availed themselves of
the laws of Iowa by allegedly soliciting and entering into a loan agreement to be repaid to
Plaintiffs in Iowa. Id. at 613-14; see also Razor Cap., LLC v. HP Debt Exch., LLC, 2013 WL
4483366, at *4 (D. Minn. Aug. 19, 2013) (holding Minnesota court had personal justification
over Texas defendant where it had entered into a loan sale agreement with a Minnesota resident
even where solicitation and negotiations were handled through defendant’s broker).
Defendants make much of the fact that they are not registered to do business in Arkansas,
have no employees in Arkansas, maintain no offices in Arkansas and do not advertise in
Arkansas. Doc. No. 45, at 29; Doc. No. 44-1, ¶¶ 6-9. But those facts are not dispositive to the
personal jurisdiction determination. See Creative Calling Sols., Inc., 799 F.3d at 979
(determining Iowa court had jurisdiction where defendant had no contacts with Iowa apart from
one business relationship with plaintiff). Likewise, specific jurisdiction may be exercised where
a defendant has never traveled to the forum state. See Holistic Indus. of Arkansas, LLC v.
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Feuerstein Kulick LLP, 2021 WL 4005872, at *6-7 (E.D. Ark. Sept. 2, 2021) (determining
defendant had sufficient contacts where it did not travel to Arkansas, did not advertise in
Arkansas and had not actively sought or established any business relationships in the state); see
also Burger King, 471 U.S. at 476 (“[As] long as a commercial actor’s efforts are purposefully
directed toward residents of another State ... an absence of physical contacts can[not] defeat
personal jurisdiction there.”).
In this case, defendant CPF did not just enter into a contract with an Arkansas resident.
Rather, it entered into a contract with an Arkansas resident, the terms of which provided that loan
proceeds were to be deposited by CPF into a bank account in the State of Arkansas. See Doc. No.
31, at 58-70; see also Greathouse Decl. ¶¶ 2, 11. Defendants knew the proceeds were to be used
to support an Arkansas business given the purposes of the PPP. Id. ¶¶ 3, 10. Greathouse
completed the loan application in Arkansas and sent it and supporting materials to defendant
CPF from Arkansas. Id. ¶¶ 6-8, 12-14. Defendant CPF conducted borrower review and
underwriting activities with respect to the loan, including confirming the identity of the applicant
(an Arkansas resident), reviewing the application and confirming receipt of materials from
Arkansas, including the status of the Arkansas business and its payroll. ¶ 29 (citing 86 Fed. Reg.
at 3707-08). Defendant CPF then submitted those materials to the federal government on behalf
of an Arkansas resident asking the government to fund the loan so CPF could provide money to
an Arkansas resident. These facts underscore that this case involves more than a traditional
lender-borrower relationship. Here, Defendant CPF agreed to do more than simply loan money;
it reviewed and submitted plaintiff’s application and materials to the federal government on his
behalf and requested federal funding on his behalf.
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Further, Defendants admit they, or at least CPF, directed communications, advertisements
and documents into Arkansas after the loan was approved by the SBA. Doc. No. 44-1 ¶ 12;
Greathouse Decl. ¶¶ 15, 17; see also Arkansas Labeling, Inc. v. Proctor, 2022 WL 1498384, at
*8 (E.D. Ark. May 11, 2022) (“Although mail, fax, and telephone communications do not alone
establish personal jurisdiction, ‘in conjunction with other contacts they may support the exercise
of personal jurisdiction.’”). As a result of this contractual business relationship with a resident of
Arkansas, CPF received, and in turn paid to its corporate parent Crossroads, a benefit in the form
of lender fees. ¶¶ 10-11, 25, 79-80. And when CPF failed to fund the loan, damages were felt in
Arkansas. Greathouse Decl. ¶ 19.
Defendants also admit that there were borrower-facing advertising and communications
directed to Arkansas and services provided in Arkansas (Doc. No. 45, at 32; Doc. No. 44-1, ¶¶ 9-
11). Defendants try to hide behind Blueacorn, but their argument is unavailing.4 As an initial
matter, the argument is undermined by Defendants’ own representations that “we were thorough
in reviewing applications on the back end.” ¶ 30. Moreover, to the extent Defendants authorized
Blueacorn to take actions on Defendants’ or CPF’s behalf, courts may exercise personal
jurisdiction over a defendant through the acts of its agent. See Oto Analytics, Inc. v. Capital Plus
Financial, LLC, 2022 WL 1488441, at *5 (stating that “the Court finds Womply was an ‘agent’”
of CPF’s for purposes of PPP lending); Romak USA, Inc. v. Rich, 384 F.3d 979, 985 (8th Cir.
2004); Farmers & Merchs. Bank v. Hamilton Hotel Partners of Jacksonville Ltd. P’ship, 702 F.
Supp. 1417, 1427 (W.D. Ark. 1988) (explaining that Arkansas’s long-arm statute “allows the
4
Under Defendants’ own argument, the fact that Greathouse would not have known about
CFP’s involvement has zero impact on the jurisdictional analysis. Doc. No. 45, at 29; Walden,
571 U.S. at 284 (discussing “the defendant-focused ‘minimum contacts’ inquiry”).
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court to exercise jurisdiction over one who acts directly or by an agent.”). Defendants rely on
Walden to argue that a defendant’s relationship with a third party alone is an insufficient basis
for jurisdiction. Walden, 571 U.S. at 286. But Walden did not address the situation here where,
by Defendants’ own admission, Crossroads and/or CPF contracted with Blueacorn to provide
these services on their behalf. Thus, Blueacorn’s contacts are imputed to Defendants.
Just two weeks before Defendants filed their motion to dismiss, a federal court in Texas
ruled on a similar motion in a case involving CPF. Oto Analytics, Inc. v. Cap. Plus Fin., LLC,
2022 WL 1082368, at *8 (N.D. Tex. Apr. 11, 2022). There, the court granted dismissal of
Blueacorn and its CEO for lack of personal jurisdiction. But the court there actually held that
“[e]very [PPP] application that Blueacorn sent to Capital Plus created a new contact with Texas,”
and thus held that the sending of those applications into Texas were sufficient minimum
contacts. Id., at *6. Instead, the court declined to exercise jurisdiction because the tort and
contract claims at issue there “did not solidly connect Blueacorn to Texas.” Id., at *9. With
respect to the contract claims, the court explained that “the contract underlying the business
transaction at issue in the lawsuit was not signed in the state and did not call for performance in
the state” and further that “[t]he agreements were not delivered in Texas” and that “no premiums
were sent to Texas.” Id. at *8-9. Here, by contrast, CPF sent plaintiff Greathouse and other SBA-
approved PPP borrowers thousands of Loan Document contracts into Arkansas to assist
Arkansas borrowers; used those contracts to pledge them as collateral and thereby obtain
millions of dollars in PPP loan fees; and had additional contacts in Arkansas with the LRSC
regarding thousands of additional PPP loans. Moreover, plaintiff Greathouse and other SBA-
approved PPP borrowers signed the contracts in Arkansas, and the contracts called for
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performance in Arkansas. Also unlike Oto, plaintiff Greathouse’s contract and unjust enrichment
claims arise directly from Defendants’ contacts here.
To be clear, Plaintiffs’ “unilateral acts” did not drag Defendants into the forum. Id.
Rather, as the SBA-qualified PPP lender CPF reached out beyond Texas into Arkansas by
entering into a contract with future consequences in Arkansas (i.e., payment to an Arkansas
resident into an Arkansas bank account to help an Arkansas business) and directing
communications into Arkansas regarding the contractual relationship. As a result, the first two
factors (the nature and quality of contacts with the forum state and the quantity of such contacts)
weigh heavily in favor of exercising jurisdiction.
The fact that CPF ultimately breached its promise and failed to provide the PPP loans as
Plaintiffs allege does not change the jurisdictional analysis because under the contract,
Defendants “could reasonably be expected to have” involvement in the State of Arkansas and to
be haled into court here. K-V Pharm. Co, 648 F.3d at 594 (reasoning that though contract’s terms
were never carried out, terms and future consequences of parties’ contract supported personal
jurisdiction).
With respect to the third factor (the relation of the cause of action to the contacts), all of
the contacts with Arkansas described above relate directly to this lawsuit. Defendants’ contacts
with Arkansas have a direct connection to plaintiff’s contract and unjust enrichment claims. All
of Defendants’ contacts with Arkansas were related to the promissory Note and accompanying
Loan Documents and the performance required pursuant to those agreements. And Defendants’
non-performance of their obligations to provide the loan proceeds under the agreement triggered
the instant lawsuit. As such, this factor weighs in favor of personal jurisdiction over Defendants.
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With respect to the fourth factor, Arkansas has a strong interest in providing a forum for
its citizens. See Hotfoot Logistics, LLC v. Shipping Point Mktg., Inc., 2014 Ark. 460, at 9, 447
S.W.3d 592, 597. Thus, this factor weighs in favor of jurisdiction.
With respect to the fifth factor, Arkansas is a convenient forum for plaintiff Greathouse,
and he has a strong interest in litigating here. Greathouse Decl. ¶ 2. Plaintiff Greathouse resides
in this district and maintains relevant records here. CPF also had direct contacts with thousands
of other SBA-approved PPP borrowers in Arkansas (¶ 26), and other direct communications here
concerning other PPP borrowers within the LRSC’s coverage areas and will likely maintain
relevant records and evidence of those contacts. Defendants CFP and Crossroads are located in
neighboring state Texas, so the burden is not so great on them, particularly considering that a
plaintiff generally is entitled to “considerable deference” in selecting the forum in which it will
litigate. See Terra Int’l, Inc. v. Mississippi Chem. Corp., 119 F.3d 688, 695 (8th Cir. 1997); de
Melo v. Lederle Lab’ys, Div. of Am. Cyanamid Corp., 801 F.2d 1058, 1062 n.4 (8th Cir. 1986)
(“There is ordinarily a strong presumption that a plaintiff’s choice of forum will not be disturbed,
absent a clear indication that it would be unnecessarily burdensome for the defendant or the
court.”). Accordingly, the convenience of the parties weighs in favor of jurisdiction.
Looking at the totality of the circumstances, Plaintiffs have pleaded more than sufficient
facts to support a reasonable inference that Defendants can fairly be subjected to jurisdiction
within the state with respect to the breach of contract and unjust enrichment claims. K-V Pharm.
Co, 648 F.3d at 591-92, 594; Whaley, 946 F.3d at 452.
C. Claims of Non-Resident Plaintiffs
Given the significant contacts that Defendants had with the State of Arkansas related to
their many PPP lending activities, this Court also has jurisdiction over the claims of non-resident
plaintiffs Covarrubias (a California resident), Sumrall (a Texas resident) and Myles (a North
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Carolina resident). In fact, three of the four plaintiffs’ PPP loans (Greathouse, Sumrall and
Myles) fall within states covered by the SBA’s LRSC; only plaintiff Covarrubias falls outside.
Thus, the Court may exercise jurisdiction not only over the contract and unjust enrichment
claims, but also over the North Carolina and California statutory claims (the “Non-Resident
Plaintiffs’ Claims”).
Defendants lean heavily on Bristol-Myers Squibb Co. v. Superior Ct. of California, San
Francisco Cty., 137 S. Ct. 1773, 1778 (2017) (BSM) to argue that specific jurisdiction is lacking
over the Non-Resident Plaintiffs’ Claims, but Defendants ask far more of BMS than it can
provide.5 BMS involved claims of non-California plaintiffs in a mass tort action against a non-
California entity. Importantly, the BMS court did not clarify whether its holding applies to class
actions. See id. at 1789 n.4 (Sotomayor, J., dissenting) (“The Court today does not confront the
question whether its opinion here would also apply to a class action[.]”).” Although the Eighth
Circuit has not directly addressed the applicability of BMS to class actions, the vast majority of
district courts in the Eighth Circuit have held that BMS does not apply to class actions. See In re
Folgers Coffee, 2021 WL 7004991, at *5 (W.D. Mo. Dec. 28, 2021) (collecting cases); Krumm
v. Kittrich Corp., 2019 WL 6876059, at *4 (E.D. Mo. Dec. 17, 2019) (“agree[ing] with the better
reasoned decisions of the numerous courts across the country that have declined to extend BMS
to the class action context”); Knotts v. Nissan N. Am., Inc., 346 F. Supp. 3d 1310, 1329 (D.
Minn. 2018) (holding BMS did not apply to class actions). These courts reasoned that “a class
action fundamentally differs from a mass tort action” and “[t]o extend BMS to class actions
5
Defendants also place too much emphasis on Vallone v. CJS Sols. Grp., LLC, 9 F.4th 861
(8th Cir. 2021), a case that involved a collective action brought under the Fair Labor Standards
Act, which is entirely distinct from a class action. See Fast v. Applebee’s Int’l, Inc., 243 F.R.D.
360, 362 (W.D. Mo. 2007) (“A 216(b) collective action differs significantly from Fed. R. Civ. P.
23 class actions.”).
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would create an extraordinary sea change in class action practice because nationwide classes
would be possible only in the one or two States where the defendant is subject to general
jurisdiction.” In re Folgers Coffee, 2021 WL 7004991, at *5. Only a minority of courts have
gone the other way. See, e.g., In re Dicamba Herbicides Litig., 359 F. Supp. 3d 711, 723 (E.D.
Mo. 2019) (relying on authority exclusively from the Northern District of Illinois).
But based on the substantial publicly available facts already known about CPF’s
nationwide PPP lending, CPF’s contractual obligations to fund at least 2,578 separate SBA-
approved PPP loans for total proceeds of $38,715,478.00 for qualified borrowers in Arkansas,
CPF’s underwriting and other communications relating to those loans and CPF’s contacts with
the LRSC relating to thousands of additional PPP loans, jurisdiction exists independently in this
case. Thus, the Court should decline to apply BMS to this class action.
Even if BMS applied in this case, Defendants nevertheless are subject to personal
jurisdiction with respect to the Non-Resident Plaintiffs’ Claims. The Supreme Court explained
that its decision in BMS did not usurp “settled principles” of personal jurisdiction. BMS, 137 S.
Ct. at 1783. BMS simply reiterated that there must be “an affiliation between the forum and the
underlying controversy[.]” Id. at 1780. The Supreme Court recently confirmed that in order to
assert specific jurisdiction over a non-resident defendant, the controversy need only “relate to the
defendant’s contacts” with the forum. Ford Motor Co., 141 S. Ct. at 1025. Put differently, “there
must be an affiliation between the forum and the underlying controversy[.]” Id.
Here, there is an affiliation between the forum and the Non-Resident Plaintiffs’ Claims,
and the connection is much more than just plaintiff Greathouse. Defendants had direct contacts
with not only thousands of PPP borrowers in Arkansas, but also with the SBA’s LRSC
concerning other PPP borrowers. ¶¶ 32-37; see also Lederer Decl. ¶¶ 7-9 (citing CPF’s
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commitment to fund more than $3.6 billion to 231,268 PPP borrowers within the LRSC’s
coverage areas). The SBA’s LRSC assisted with the administration of PPP loans from customer
service to disbursement.6 Publicly available sources reflect that the LRSC received many emails
from lenders regarding PPP loans,7 and lenders were to contact the LRSC regarding voluntary
termination of PPP loans.8 The authority cited by Defendants regarding the LRSC’s alleged role
being limited to disbursement relates solely to SBA 7a loans, which are not at issue here.
Importantly, since the LRSC serves Texas, CPF was required by the SBA to direct
questions relating to aspects of PPP lending there. ¶ 35. The LRSC also covers three of the four
plaintiffs. As a result, the Non-Resident Plaintiffs’ Claims clearly have a direct connection to
Arkansas and relate to Defendants’ contacts with Arkansas.
Defendants respond by arguing that their interactions with the SBA are subject to the
“government contact exception.” But Defendants’ out-of-circuit authority is misplaced. The
“government contracts” exception is “[r]ooted in the constitutional right to petition the
government” Lamb v. Turbine Designs, Inc., 41 F. Supp. 2d 1362, 1365 (N.D. Ga. 1999), and
“finds its source in the unique character of the District as the seat of national government and in
the correlative need for unfettered access to federal departments and agencies for the entire
national citizenry[.]” Env’t Rsch. Int’l, Inc. v. Lockwood Greene Eng’rs, Inc., 355 A.2d 808, 813
6
Because the PPP was an unprecedented program, and without the benefit of jurisdictional
discovery, the record is unclear as to the extent of specific PPP services provided by the LRSC.
As discussed later, discovery is needed on that issue. Discovery likewise is needed to understand
the nature and extent of the specific communications between Defendants and the LRSC,
additional detail regarding the involvement of the LRSC in PPP lending, the involvement of the
LRSC in the payment of lender fees and the involvement of the LRSC in other aspects of the
PPP, including PPP loan forgiveness. See Lederer Decl. ¶¶ 11, 13-14.
7
See https://content.govdelivery.com/accounts/USSBA/bulletins/2bdd1e0.
8
See https://www.bangor.com/getmedia/28f48c43-ba69-4d58-ae50-d3401051311e/SBA-
Paycheck-Protection-Program-FAQs.pdf (page 92).
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(D.C. 1976) (acknowledging a First Amendment gloss to the exception in that it protects one’s
right to petition the government for a redress of grievances, without fear of the threat of suit).
But the exception is not “a blanket prohibition against assertions of personal jurisdiction
in all cases involving interplay with the federal government.” Lex Tex Ltd., Inc. v. Skillman, 579
A.2d 244, 250 n.15 (D.C. 1990). In this case, Defendants were not exercising the right to petition
the government for their sakes. Rather, they were submitting loan applications and seeking fund
advances from the PPPLF on behalf of, and to in turn distribute to, SBA-approved PPP
borrowers. When a defendant transacts business on behalf of another (i.e., is not exercising its
own protected rights), the government contracts exception does not apply, and a defendant is
subject to jurisdiction. See id. at 249. As a result, Defendants’ contacts with the SBA in
submitting loan applications and supporting documents on behalf of borrowers likewise subjects
them to this Court’s jurisdiction.
Even if the Non-Resident Plaintiffs’ Claims did not independently subject Defendants to
personal jurisdiction (they do), the Court can properly exercise jurisdiction over these claims
under the doctrine of pendent jurisdiction. Under this doctrine, “[a] district court has discretion to
exercise personal jurisdiction over a claim that it ordinarily lacks personal jurisdiction over only
when that claim arises out of the same common nucleus of operative fact as does a claim that is
within the personal jurisdiction power of the court.” WRIGHT & MILLER, 4A Fed. Prac. & Proc.
Civ. § 1069.7 (4th ed.); see also Fed. Trade Comm’n v. BINT Operations LLC, 2022 WL
990276, at *3 (E.D. Ark. Mar. 31, 2022) (recognizing doctrine). Courts in this circuit and others
have exercised pendent personal jurisdiction over defendants. See, e.g., Willis Elec. Co. v.
Polygroup Macau Ltd. (BVI), 437 F. Supp. 3d 693, 704 (D. Minn. 2020); WhatsApp Inc. v. NSO
Group Technologies Ltd., 472 F. Supp. 3d 649, 678 (N.D. Cal. 2020). The doctrine applies in
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both the diversity and federal question contexts. WRIGHT & MILLER, 4A Fed. Prac. & Proc. Civ.
§ 10169.7 (4th ed.); Gen. Electric Capital Corp. v. Mackzilla, LLC, 2016 WL 1059529, at *6
(S.D. Tex. Mar. 17, 2016) (“[T]he use of pendent personal jurisdiction may be equally or even
more justified in some diversity cases than in federal question cases with a mix of federal and
state law claims.”).
Here, all claims arise out of a common nucleus of operative fact. All claims arise from
Defendants’ failure to fund the SBA-approved PPP loans. Like the contract and unjust
enrichment claims, the California and North Carolina statutory claims involve representations
and commitments by Defendants to fund PPP loans, securing advances from the PPPLF via
Plaintiffs’ PPP loan agreements, reviewing and submitting the required materials and
undertaking all underwriting activities, and the subsequent failure to actually fund the approved
loans. In fact, Count IV for violation of California’s UCL is expressly based on the contract
claim. ¶¶ 211, 213. Because all claims arise out of a common nucleus of operative facts, it is
proper for the Court to exercise pendent personal jurisdiction over Defendants with respect to the
Non-Resident Plaintiffs’ Claims should the Court find jurisdiction otherwise is lacking.
D. Crossroads Was CPF’s Alter Ego
The Court has personal jurisdiction over defendant Crossroads because Crossroads was
CPF’s alter ego at all times relevant for PPP lending, and CPF’s contacts in Arkansas are
therefore imputed to Crossroads. See George v. Davis, 2015 WL 389895, at *4 (W.D. Ark.
Jan. 28, 2015) (imputing contacts of out-of-state defendant that was subject to specific
jurisdiction under the alter ego doctrine).
“Personal jurisdiction can be properly asserted over a corporation if another is acting as
its alter ego, even if that alter ego is another corporation.” Epps v. Stewart Info. Servs. Corp., 327
F.3d 642, 649 (8th Cir. 2003) (citing Lakota Girl Scout Council v. Havey Fund–Raising Mgmt.,
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519 F.2d 634, 637 (8th Cir. 1975)). The alter ego doctrine applies when “the parent so controlled
and dominated the affairs of the subsidiary that the latter’s corporate existence was disregarded
so as to cause the residential corporation to act as the nonresidential corporate defendant’s alter
ego.” Id. District courts in the Eighth Circuit, including in Arkansas, have asserted personal
jurisdiction over defendants under the alter ego doctrine. See Tang v. Northpole Ltd., 314 F.R.D.
612, 620 (W.D. Ark. 2016); George, 2015 WL 389895, at *3-4; CitiMortgage, Inc. v. 1st
Advantage Mortgage, 2015 WL 1894378, at *12 (E.D. Mo. Apr. 27, 2015).
A court’s assertion of jurisdiction on this basis depends on whether the plaintiffs are able
to pierce the corporate veil, which is determined by state law. Epps, 327 F.3d at 649. Although
the laws of veil-piercing apply, the standard for doing so is typically “less stringent” for the
purposes of exercising personal jurisdiction rather than for imposing liability. Torchmark Corp.
v. Rice, 945 F. Supp. 172, 177 (E.D. Ark. 1996); see also Dassault Aviation, 361 F.3d at 452-53
(“For the purposes of the alter ego doctrine, the parent’s control of the subsidiary need not be so
abusive to the corporate form as to allow corporate veil piercing.”). Therefore, at this stage,
Plaintiffs need only make a prima facie showing that the Court may assert personal jurisdiction
over CFP (which they have done) and that the Court should disregard Crossroad’s corporate
form under state law for corporate veil-piercing.
Arkansas courts recognize the alter ego approach to piercing the corporate veil. Epps, 327
F.3d at 649 (citing Humphries v. Bray, 271 Ark. App. 962, 965, 611 S.W.2d 791, 793 (1981);
Winchel v. Craig, 55 Ark. App. 373, 934 S.W.2d 946, 950 (1996)). Arkansas courts have stated
that the doctrine of piercing the corporate veil is founded in equity and is applied when the facts
warrant its application to prevent injustice. Humphries, 271 Ark. at 967, 611 S.W.2d at 793
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(citing Aetna Cas. & Surety Co. v. Stover, 327 F.2d 288 (8th Cir.1964)). Regardless of which
states’ law applies, the outcome would be the same.9
Plaintiffs sufficiently allege an alter ego claim as to Crossroads. See, e.g., ¶¶ 7, 14, 38,
78-91, 188. Plaintiffs allege that CPF is, and at all relevant times was, controlled and dominated
by Crossroads; shared certain of the same senior executives; had a website that referenced and
promoted Crossroads and provided links to Crossroads’s website; was referred to in Crossroads’s
SEC filings and other public statements as one and the same company; and was operated by
Crossroads as if they were one and the same company. ¶¶ 7, 188. Plaintiffs further allege that
CPF’s actions were made “at the direction and under the control of its corporate parent
Crossroads[.]” ¶ 78. Plaintiffs specifically allege that the Court has personal jurisdiction over
Crossroads because it was CPF’s alter ego at all times relevant in connection with all aspects of
PPP lending. ¶ 38.
Further, the Arkansas Supreme Court has repeatedly held that “[w]hether the corporate
entity has been fraudulently abused is a question for the trier of fact.” AgriFund, LLC v. Regions
Bank, 602 S.W.3d 726, 731 (Ark. 2020). Accord K.C. Properties of N.W. Arkansas, Inc. v.
Lowell Invs. Partners, LLC, 280 S.W.3d 1, 15 (Ark. 2008); Anderson v. Stewart, 234 S.W.3d
295, 298 (Ark. 2006); Black v. Valley Behavioral Health Sys., LLC, 2015 WL 13655174, at *2
(W.D. Ark. Nov. 9, 2015) (final decision on piercing the corporate veil would be “premature” on
a motion to dismiss because the issue “had not yet been fully developed”).
9
See George, 2015 WL 389895, at *3 (describing alter ego doctrine under Texas law and
explaining that “Arkansas law is similar”); Tang, 314 F.R.D. at 618-19 (describing alter ego
doctrine under California law and explaining “[t]he standard is effectively the same under
Arkansas law”); Glenn v. Wagner, 313 N.C. 450, 454, 329 S.E.2d 326, 330 (1985) (setting forth
similar standard under North Carolina law).
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Arkansas federal courts have upheld alter ego allegations similar to Plaintiffs’ allegations
here. See, e.g., George,, 2015 WL 389895, at *4; Foreman Elec. Servs., Inc. v. Haliron Power,
LLC, 2022 WL 55015, at *3 (W.D. Ark. Jan. 5, 2022) (denying motion to dismiss where, like
here, the plaintiff’s “list of challenged transactions suggest that [the shareholder] Defendant
received several large payments” from the defendant corporation); Tang, 314 F.R.D. at 620
(“[n]ot finding an alter-ego relationship would potentially allow [the shareholder] to evade
liability for the [violation] while reaping its rewards. This is exactly the sort of unjust result the
alter-ego doctrine is purposed to prevent.”).
Defendants argue that “most Arkansas courts and other courts within the Eighth Circuit”
apply the law of the state of incorporation to alter ego claims. Doc. No. 45, at 70. But the Eighth
Circuit has repeatedly done otherwise. See, e.g., Kirk v. Schaeffler Grp. USA, Inc., 887 F.3d 376,
382 n.1, 388 (8th Cir. 2018) (applying Missouri law to Delaware subsidiary); Weitz Co. v. MH
Washington, 631 F.3d 510, 520-22 (8th Cir. 2011) (applying Missouri law to Colorado
corporations); Radaszewski v. Contrux, Inc., 891 F.2d 672, 674 (8th Cir. 1989) (applying
Missouri law to Texas corporation).
The sole case upon which Defendants rely, Container Life Cycle Management LLC v.
Safety Management Services Co., 2020 WL 2843224, at *4 (W.D. Ark. June 1, 2020), only
speculated as to how the Arkansas Supreme Court would rule, and that Court has also held that
the alter ego issue should not be resolved at the pleading stage. Container Life also relied on the
premise that “[t]he Arkansas business and commercial code says the State of Arkansas cannot
‘regulate the organization or internal affairs of a foreign corporation’” Id. (quoting Ark. Code
Ann. § 4-27-1505(c)). But the statute does not say that the State of Arkansas cannot regulate
such affairs. It says only that “[t]his chapter does not authorize this state to regulate” such
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affairs. Ark. Code Ann. § 4-27-1505(c) (emphasis added). Container Life also quoted First
National City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 621 (1983), for
its holding that “[d]ifferent conflicts principles apply … where the rights of third parties external
to the corporation are at issue.” Container Life, 2020 WL 2843224, at *4. Such rights are at issue
here. Different conflict principles apply.
As the court held in Foreman, 2022 WL 55015, at *3:
A federal court sitting in diversity, like the Court in this case, must apply
the substantive law of the forum state, absent a federal statutory or constitutional
directive to the contrary. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938);
Blankenship v. USA Truck, Inc., 601 F.3d 852, 856 (8th Cir. 2010). The Court is
unaware of a federal statutory or constitutional directive providing otherwise, so
Arkansas substantive law applies to this case.
Defendants cite no authority for their claim that the law of Delaware (where Crossroads
is incorporated) rather than the law of Texas (where CPF is incorporated) applies. See Doc. No.
45, at 70. The Container Life court quoted Select Creations, Inc. v. Paliafito Am., Inc., 852 F.
Supp. 740, 774 (E.D. Wis. 1994), for its holding that “[a] court applies the law of the state of
incorporation of the controlled corporation to determine whether the corporate form should be
disregarded.” Container Life, 2020 WL 2843224, at *4 (emphasis added). That rule dictates that
Texas law, rather than Delaware law, would apply if Arkansas law did not.
And like Arkansas law, Texas law dictates the denial of Defendants’ motion to dismiss.
See, e.g., HHH Farms, L.L.C. v. Fannin Bank, 2022 WL 175967, at *12 (Tex. App. Jan. 20,
2022) (“The ... bas[is] for disregarding the corporate fiction involve[s] questions of fact …
Except in very special circumstances, fact questions should be determined by the jury.”); U.S. ex
rel. King v. Solvay S.A., 823 F. Supp. 2d 472, 549-550 (S.D. Tex. 2011), vacated in part on other
grounds, 2012 WL 1067228 (S.D. Tex. Mar. 28, 2012) (denying a parent company’s motion to
dismiss where it wholly owned the defendant subsidiary for part of the relevant period; its CEO
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and its Vice President of Finance sat on the subsidiary’s Board of Directors; both corporations’
financial data was grouped in a global annual report; and the two corporations appeared together
on relevant press releases); Humphreys v. Med. Towers, Ltd., 893 F. Supp. 672, 689 (S.D. Tex.
1995), aff’d, 100 F.3d 952 (5th Cir. 1996) (denying summary judgment for sole shareholder of
parent corporation where subsidiary derived almost all its income from operations of indirect
subsidiary and paid some of shareholder’s personal expenses).
Two other cases Defendants rely on were decided on summary judgment stage. See
MicroStrategy Inc. v. Acacia Rsch. Corp., 2010 WL 5550455 (Del. Ch. Dec. 30, 2010); Mobil
Oil Corp. v. Linear Films, Inc., 718 F. Supp. 260, 269 (D. Del. 1989). The plaintiff in Wallace ex
rel. Cencom Cable Income Partners II, Inc., L.P. v. Wood, 752 A.2d 1175, 1184 (Del. Ch. 1999),
alleged nothing directed at piercing the corporate veil of a partnership other than that the
“purpose of the General Partner is to manage and operate the Partnership.” And the bottom line
“fairness” standard in Doberstein v. G–P Indus., Inc., 2015 WL 6606484, at *4 (Del. Ch.
Oct. 30, 2015), supports Plaintiffs’ alter ego claim on the facts here especially at this stage.
Defendants’ reliance on Viasystems, Inc. v. EBM-Papst St. Georgen GmbH & Co., KG
and Epps v. Stewart Information Services Corp. for the proposition that contacts of a subsidiary
may only be imputed to the parent if the subsidiary is a resident of the forum is misplaced. The
analysis in both Viasystems, Inc. and Epps centered around general personal jurisdiction. See
Viasystems, Inc. v. EBM-Papst St. Georgen GmbH & Co., KG, 646 F.3d 589, 596 (8th Cir.
2011); Epps, 327 F.3d at 650. But general jurisdiction is not at issue here. It is clear that courts
may impute the contacts of an out-of-state defendant that is subject to specific jurisdiction to
another under the alter ego doctrine. See George, 2015 WL 389895, at *4.
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Therefore, under governing law, CFP’s contacts should be imputed to Crossroads and the
Court should exercise personal jurisdiction over both Defendants.
II. Plaintiffs Are Entitled to Jurisdictional Discovery
As discussed above, the extensive and detailed facts alleged over 14 paragraphs in
Plaintiffs’ Amended Complaint already demonstrate, based exclusively on publicly available
information, that both Defendants purposefully availed themselves of, and benefited directly
from, substantial PPP business in Arkansas. ¶¶ 23-36. But if the Court has any doubt it may
properly exercise personal jurisdiction, the Court should permit jurisdictional discovery. The
discovery Plaintiffs seek includes principally CPF’s communications with borrowers in Arkansas
and within the coverage areas of the SBA’s LRSC, Defendants’ relationship with Blueacorn and
other PPP agents and Ms. Giga’s knowledge of those activities, and is identified in the
accompanying Lederer Decl. ¶ 13(a)-(f).
The parties agree on the governing standards. In particular, and (largely) as Defendants
quote, “jurisdictional discovery is permitted only ‘if certain facts necessary to resolving the
jurisdictional inquiry are either unknown or undisputed [sic].” Doc. No. 45, at 41 (quoting
Viasystems, 646 F.3d at 598 ).10 Both tests are satisfied here.
First, jurisdictional discovery is warranted under Viasystems’s “unknown” test. Many
core factual issues bearing directly on Defendants’ PPP lending activities in Arkansas are
unknown. SBA data already show, and Defendants do not dispute or even address in their
motion, that CPF committed to fund 2,578 separate SBA-approved PPP loans for qualified
10
Defendants misquote Viasystems in that the Eighth Circuit’s actual last word in the
quoted sentence is “disputed” not “undisputed.” Plaintiffs understand typographical error. But
the important substantive point is that jurisdictional discovery is clearly warranted here under
Viasystems because the parties dispute several key factual issues regarding whether the already-
known extent of Defendants’ PPP activities in this state render jurisdiction fair.
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borrowers in Arkansas in 2021 for total proceeds of $38,715,478.00. ¶ 26. What emails and other
documents and communications did CPF have with, and receive from, those borrowers? What
specific underwriting activities did Defendants do for those loans, especially given that they
reviewed each PPP loan “thorough[ly]” and with “four” “layers” of review (¶ 30)? How much
PPP lender processing fees did it make on those loans, whether CPF actually funded them or
not? What contacts did CPF have with the SBA’s LRSC concerning the PPP loans for the
231,268 total PPP borrowers within the LRSC’s coverage areas? And what information does
Ms. Giga, whose declaration addresses largely Defendants’ PPP lending activities outside of
Arkansas, have regarding those in-state activities?11
Defendants are correct that this information will also bear on “the scope and claims of the
putative class.” Doc. No. 45, at 42. But that does not render jurisdictional discovery improper or
mean that it “is at best a thinly veiled attempt to … investigate the scope and claims of th[e]
putative class.” Id. Rather, any such factual overlap just shows that this information is also
relevant to the merits of the claims at issue. Indeed and for that reason, the jurisdictional
discovery Plaintiffs seek would also help shape the parties’ Rule 26(f) meet and confer to be
scheduled per the Court’s Order (Doc. No. 39), and guide, and perhaps even narrow, the contours
of discovery going forward as the parties may focus on the SBA-approved but unfunded putative
class member loans.
11
Defendants argued during the April 27, 2022 hearing that Plaintiffs “say in their
[Amended] complaint that there aren’t any unknown jurisdictional facts” requiring discovery.
Doc. No. 43, at 5. In truth, Plaintiffs’ Amended Complaint both specifically alleges the potential
need for “jurisdictional discovery regarding CPF’s and likely both Defendants’ direct dealings
and communications with borrowers in this District and with the SBA Little Rock Servicing
Center” and also discusses the jurisdictional discovery Plaintiffs seek. ¶ 37 & n.1. Accord
Lederer Decl. ¶ 13(a)-(f).
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Defendants should also be able to readily access much of this information with minimal
burden. As an SBA-approved PPP lender, CPF is required to maintain and promptly produce
details about its PPP lending activities. See, e.g., Federal Reserve Bank Operating Circular No.
10 § 8.0.2 (requiring PPP lenders to keep in an “accessible and secure location on the [lender’s]
premises … a current statement of outstanding Advances and Indebtedness.” Operating Circular
No. 10 also mandates that all “Lending Documents shall be immediately and routinely
available.” Id. § 10(l); see also SBA Procedural Notice (July 15, 2021), at 1-2 (detailing
additional PPP recordkeeping requirements).
Second, jurisdictional discovery is also warranted under Viasystems’s “disputed” test.
The parties sharply dispute several jurisdictional issues, including the core one regarding
whether the facts already before the Court render jurisdiction fair. The parties also dispute
whether, to use Defendants’ own words, “personal jurisdiction exists [given] (1) CPF contracted
with Greathouse; (2) CPF conducted an internal review regarding Greathouse’s loan; (3) CPF
earned fees in connection with Greathouse’s loan; (4) CPF had contracts, conducted reviews, and
received fees in connection with PPP loans to others in Arkansas; and (5) CPF communicated
regarding the PPP with the U.S. Small Business Administration’s service center in Little Rock.”
Doc. No. 45, at 14-15. Plaintiffs also dispute Defendants’ invitation that the Court decide
jurisdiction on Ms. Giga’s untested declaration which fails to address Defendants’ PPP lending
activities in Arkansas, and which Defendants tellingly failed to update or supplement following
the newly added jurisdictional allegations in Plaintiffs’ Amended Complaint.12
12
Defendants no doubt failed to update Ms. Giga’s declaration in a futile attempt to
maintain there are no disputed jurisdictional facts. But that posturing is as meritless as their
original denial that this case has any “connection” to Arkansas (Doc. No. 25, at 8) without even
mentioning the LRSC, which they now admit they “may have had communications with” (Doc.
No. 45, at 42) and which is clearly and spot on jurisdictionally relevant.
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Defendants admit that the nature, quality and quantity of their contacts ultimately governs
their jurisdictional challenge. Doc. No. 45, at 24. But they would have the Court deny Plaintiffs
any discovery exploring those very contacts. Parsing through the doublespeak, Defendants’
position is contradictory, highly prejudicial to the Plaintiffs and proposed class and invites
potential error. In truth, jurisdictional discovery is clearly warranted under Viasystems’s
“disputed” test.
Jurisdictional discovery is also warranted where, also as here, a plaintiff makes a prima
facie case for jurisdiction and offers “documentary evidence, and not merely speculations or
conclusory allegations” regarding a defendant’s contacts with the forum state. Steinbuch v.
Cutler, 518 F.3d 580, 589 (8th Cir. 2008). See also Valley View Agri, LLC v. Producers Co-op.
Oil Mill, 2015 WL 853277, at *4 (E.D. Ark. Feb. 26, 2015) (allowing jurisdictional discovery).
Defendants’ own case is in accord. See Wesson v. Lamb AB, 2018 WL 11320712, at *7 (W.D.
Ark. June 18, 2018) (where “a plaintiff offers ‘documentary evidence’ in support of its argument
that personal jurisdiction exists, a court should not dismiss the cause of action before allowing
the plaintiff an opportunity to conduct jurisdictional discovery.”). Here, the SBA’s publicly
available PPP data regarding the PPP loans defendant CPF committed to fund supports discovery
regarding those very data.
Jurisdictional discovery is also appropriate where, again as here, the defendants are
corporations or they are affiliated with each other. Tishner v. Wright Med. Grp., Inc., 2017 WL
1520424, at *1 (E.D. Ark. Apr. 25, 2017) (citation omitted). “[A] parent corporation may be
subject to a court’s personal jurisdiction through the contacts of its subsidiary if the subsidiary
constitutes the ‘alter ego’ of the parent.” BKMJ, Inc. v. Jack Cooper Holdings Corp., 2015 WL
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6555450 (W.D. Ark. Oct. 28, 2015) (citing Anderson v. Dassault Aviation, 361 F.3d 449, 452-53
(8th Cir. 2004)).
Other courts, including this Court, have relied on these principles in requiring
jurisdictional discovery. See, e.g., Weirton Med. Ctr., Inc. v. Cmty. Health Sys., Inc., 2017 WL
2789008, at *2 (N.D. W.Va. June 27, 2017) (ordering deposition and other discovery concerning
defendant’s agents and subsidiaries); SAS Inst. Inc. v. World Programming Ltd., 2011 WL
1059139, at *6, *8 (E.D.N.C. Feb. 3, 2011), rev’d in part on other grounds, 2011 WL 1059128
(E.D.N.C. Mar. 18, 2011) (ordering jurisdictional discovery where the declaration, like
Ms. Giga’s declaration here, left “several material matters unaddressed” and to explore
defendant’s sales through third-parties); Davis v. United States, 2021 WL 2580121, at *3 (E.D.
Ark. June 23, 2021) (granting discovery where affidavits insufficient to resolve the outstanding
issues); Thomas v. S. Pioneer Life Ins. Co., 2009 WL 4894695, at *1 (E.D. Ark. Dec. 11, 2009);
Se. Stud & Components, Inc. v. Am. Eagle Design Build Studios, LLC, ECF 81 (E.D. Ark.
Feb. 12, 2008).
Defendants’ authorities are distinguishable. The court in Viasystems, 646 F.3d at 598,
held that the district court had not abused its discretion in denying jurisdictional discovery on the
factual record there. Plaintiffs concur that whether a court should permit jurisdictional discovery
depends on the facts of each case. In general, however, courts in this district have frequently
cited Steinbuch, 518 F.3d 580, in recognizing that “[t]he Eighth Circuit has instructed that
jurisdictional discovery should be permitted where a plaintiff offers ‘documentary evidence, and
not merely speculations or conclusory allegations’ regarding a defendant’s contacts with the
forum state.” DOXA Total Design Strategy v. DOXA Enters., Inc., 2011 WL 13232558, at *5
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(E.D. Ark. Jan. 26, 2011) (quoting Steinbuch). Accord Tishner, 2017 WL 1520424, at *1
(quoting Steinbuch). Plaintiffs have done just that here.
Other cases Defendants cite stand for the proposition that the mere existence of a
declaration disputing personal jurisdiction does not by itself justify jurisdictional discovery. See
Wesson, 2018 WL 11320712; Madrinas Brands, LLC v. Horseshoe Bev. Co., LLC, 2022 WL
823055 (E.D. Mo. Mar. 18, 2022); Revenexx v. Regenex Health LLC, 446 F. Supp. 3d 469 (S.D.
Iowa 2020). Plaintiffs’ requested discovery is not based on the existence of the Giga declaration
alone. But Defendants’ reliance on that declaration also favors permitting discovery. See
Ouachita Watch League v. Henry, 2012 WL 12792161, at *1 (E.D. Ark. May 1, 2012)
(“[H]aving submitted testimony [addressed to jurisdiction] in the form of declarations under
penalty of perjury, [defendants] cannot now object to answering questions regarding the facts
asserted in that testimony.”). And the court in Wesson, 2018 WL 11320712, at *8, based its
decision to deny discovery on the plaintiff’s failure to comply with Rule 56, which has no
bearing here at all.
III. Plaintiffs Sufficiently Allege Their Claims
A. Legal Standard
To survive a motion to dismiss under Rule 12(b)(6), a complaint must contain sufficient
facts to state a claim to relief that is plausible on its face. FED R. CIV. P. 12(b)(6); Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009). The court must accept all well-pleaded allegations as true and
draw all reasonable inferences in favor of the nonmoving party. Braden v. Wal-Mart Stores, Inc.,
588 F.3d 585, 594 (8th Cir. 2009). A well-pleaded complaint will survive a motion to dismiss
even if it appears recovery is very remote or even unlikely. See Bell Atl. Corp. v. Twombly, 550
U.S. 544, 554–556 (2007).
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B. Plaintiffs Sufficiently Allege Breach of Contract Claims
Defendants argue that Plaintiffs’ breach of contract claims should be dismissed on four
grounds. Each argument fails.
1. Plaintiffs Have Article III Standing
Defendants first argue that Plaintiffs’ breach of contract claims should be dismissed
because Plaintiffs’ have not suffered legally cognizable injuries and, as a result, lack Article III
standing. Defendants’ argument hinges on the flawed idea that Plaintiffs do not plead concrete
injuries because they fail to allege (i) they ever tried to obtain PPP loans from other PPP lenders,
and (ii) they could have easily so tried. This argument is incorrect.
Plaintiffs agree that the test for Article III standing requires that a plaintiff have
“(1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the
defendant, and (3) that is likely to be redressed by a favorable judicial decision.” Spokeo v.
Robins, 578 U.S. 330, 338 (2016). Defendants are incorrect, however, that Plaintiffs lack
standing because Plaintiffs clearly have alleged injury traceable directly to Defendants that this
Court can redress.
For breach of contract claims, a plaintiff may establish Article III standing by alleging
that it did not receive the benefit of the bargain under the contract. See Mitchell v. Blue Cross
Blue Shield of N.D., 953 F.3d 529, 536 (8th Cir. 2020) (“Traditionally, a party to a breached
contract has a judicially cognizable injury for standing purposes because the other party’s breach
devalues the services for which the plaintiff contracted and deprives them of the benefit of their
bargain.”); Kuhns v. Scottrade, Inc., 868 F.3d 711, 716 (8th Cir. 2017) (“Kuhns alleged that he
bargained for and expected protection of his PII, that Scottrade breached the contract when it
failed to provide promised reasonable safeguards, and that Kuhns suffered actual injury, the
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diminished value of his bargain.”); Wallace v. ConAgra Foods, Inc., 747 F.3d 1025, 1029 (8th
Cir. 2014) (“When the alleged harm is economic, the injury in fact question is straightforward.”).
Here, by definition, Plaintiffs and class member borrowers were eligible and applied for
and were approved by the SBA for PPP loans to help fund their respective businesses (¶¶ 13,
104-107, 120-123, 136-139, 147-150); properly completed and signed their Loan Documents
(¶¶ 13, 112, 125-126, 141-42, 151-52); and sustained injuries in fact when they did not receive
the benefits of their bargain -- the PPP loan proceeds which they were contractually entitled to
receive to support their businesses (¶¶ 13, 117, 119, 128, 135, 142, 146, 153-157).
Defendants’ arguments are meritless. First, whether Plaintiffs applied for or could have
applied for PPP loans with other lenders is irrelevant because Plaintiffs’ claims are not based on
being denied access to the PPP. Plaintiffs’ claims are for breach of actually executed and binding
Loan Document agreements that obligated CPF to fund Plaintiffs’ SBA-approved PPP loans.
Defendants also ignore that, as a result of having applied for PPP loans with CPF, being assigned
loan numbers for their approved loans and entering the Loan Documents, Plaintiffs could not
properly even apply to other PPP lenders but instead were effectively “stuck” with CPF to fulfill
its contractual obligation to actually fund. ¶¶ 58-60, 183. Since Defendants were required to fund
Plaintiffs’ loans after the Loan Documents had been signed, Plaintiffs could no longer certify, as
a requirement of any loan application to a different PPP lender, that they would not receive
another PPP loan. Id.
Second, Plaintiffs are not PPP applicants alleging denial of access to the PPP; rather, they
are SBA-approved borrowers alleging breach of CPF’s obligation to actually fund their loans.
This distinguishes Defendants’ cases which were brought by PPP loan applicants and potential
borrowers, not SBA-approved counterparties to a binding loan agreement. See Pinehurst
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Neuropsychology, PLLC v. First-Citizens Bank & Trust Co., 2021 WL 4460273, at *3
(M.D.N.C. Sept. 29, 2021); Profiles, Inc. v. Bank of Am. Corp., 453 F. Supp. 3d 742, 755 (D.
Md. 2020) (“BofA, by definition, has not denied Plaintiffs access to the PPP.”); Scherer v. Wells
Fargo Bank, N.A., No. H-20-cv-1295, Order, Doc. No. 20 at 3 (S.D. Tex. Apr. 29, 2020)
(unpublished) (“Plaintiffs fails to show how Plaintiffs would suffer irreparable injury if not given
access to a loan specifically from Wells Fargo.”); Elizabeth M. Byrnes, Inc. v. Fountainhead
Commercial Capital, LLC, 2021 WL 5507225, at *4 (C.D. Cal. Nov. 24, 2021). None of these
cases held what Defendants ask the Court to do here -- dismiss a contract claim by parties to
enforceable PPP loan contracts for failure of the lender to actually fund their loans.
2. The UCC Does Not Bar Plaintiffs’ Claims
Defendants’ argument that Plaintiffs’ lack statutory standing under Article 3 of the UCC
is a red-herring. The UCC provisions on which Defendants rely involve the rights of holders
(i.e., payees) of promissory notes and other negotiable instruments to enforce those instruments
against the obligor (e.g., to collect the amount due from a borrower under a promissory note).
Here, Plaintiffs are not seeking to enforce the notes as holders of negotiable instruments
under Article 3 of the UCC. Rather, Plaintiffs’ breach of contract claims are premised on CPF’s
obligation to fund class member PPP loans as required by the parties’ Loan Documents and
within the framework, purpose and rules governing PPP lending. See, e.g., Smith v. Arrington Oil
& Gas, Inc., 664 F.3d 1208, 1213 (8th Cir. 2012) (“Under Arkansas contract law, multiple
documents executed as part of a single transaction generally will be construed together as a
single contract.”). Hence, UCC Article 3 standing does not apply to Plaintiffs’ claims, and
Defendants do not cite any authority suggesting otherwise.
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3. The Loan Documents are Binding Contracts
Defendants’ argument that Plaintiffs do not properly allege breach of contract claims
ignores basic principles of contract construction, the express terms of the Loan Documents, the
purpose and framework of the PPP and Defendants’ own actions confirming -- and reaping the
benefits of -- Plaintiffs’ SBA approved loans. Although initially framed as a purported failure by
Plaintiffs’ to have alleged the “existence of a contract,” Defendants clarify that their position is
actually that they were not required to fund Plaintiffs’ PPP loans. Doc. No. 45, at 49-50. Either
way, Defendants are incorrect.
The Loan Documents are indisputably binding contracts that obligated Defendants to
fund the PPP loans. In fact, Defendants confirmed the binding nature of the loans set forth in the
Loan Document contracts when they pledged them as collateral in order to acquire PPPLF
advances. ¶¶ 93, 96, 101, 180.
Section 1 of the Note recites that the consideration for the borrower’s agreements under
the Note is “the Loan.” Doc. No. 31 at 58. CPF obtained PPPLF advances by submitting
Plaintiffs’ and other absent class members’ PPP loans as collateral. ¶¶ 93, 96, 101, 180.
Defendants do not and cannot reasonably contest any of these facts; indeed, unenforceable loans
could not serve as collateral for PPPLF advances.
In fact, the Notes included in the Loan Documents would be unenforceable by
Defendants or their pledgee (the Federal Reserve) for failure of consideration if CPF was not
obligated to fund the loans, and therefore worthless as collateral for PPPLF advances. The only
consideration that would render the Notes enforceable against the Plaintiffs -- short of actually
funding the loans -- would have been CPF’s actual commitment to fund the loans. See Mayer
Hoffman McCann, P.C. v. Barton, 614 F.3d 893, 902 (8th Cir. 2010) (“Just as with every ….
kind of contract, a contract … must be supported by consideration.”); Shearon v. Boise Cascade
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Corp., 478 F.2d 1111, 1115 (8th Cir. 1973) (“Though consideration is essential to the validity of
a contract, it is not essential that such consideration consist of a mutual promise.”).
Plaintiffs’ claims are further supported by the purpose of the PPPLF and the process by
which PPP lenders obtained funds from the PPPLF. ¶¶ 92-97; see also Paycheck Protection
Program Liquidity Facility Term Sheet available at
https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20210625a1.pdf (last
accessed Sept. 17, 2021). By borrowing from the PPPLF, PPP lenders received advances for the
purpose of funding the very same PPP loans which they provided as collateral to secure those
advances.
Defendants also do not contest that CPF used the PPP loans of Plaintiffs and other SBA-
approved borrowers to obtain PPPLF advances. ¶¶ 93, 96, 101, 180. Further, the PPP required
that PPP lenders fund loans promptly after SBA-approval and signing of the Loan Documents,
and the PPPLF was designed to advance the proceeds necessary to fund PPP loans. Since the
entire PPP and PPPLF framework contemplated that the funding for PPP loans would only be
advanced by the Federal Reserve after SBA approval and the Loan Documents were signed and
the loans’ pledged to the Federal Reserve, Defendants cannot credibly argue that CPF was not
obligated to fund Plaintiffs’ PPP loans.
To pledge a PPP loan as collateral and request a PPPLF advance, CPF had to complete
and submit a Paycheck Protection Program Liquidity Facility PPP Pledge and Advance Request
form (“Advance Request Form”). See Paycheck Protection Program Liquidity Facility PPP
Pledge and Advance Request form available at
https://www.frbdiscountwindow.org/generalpages/ppplf_historical_documentation. The Advance
Request Form required CPF to provide information about each loan, such as the SBA loan
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number and the “origination date / issue date,” but did not require CPF to specify the loan was
funded. Id. It is axiomatic that since an unenforceable PPP loan would serve no purpose as
collateral for a PPPLF advance, any unfunded loan that CPF pledged as collateral had to be
supported by a binding commitment to actually fund the loan. In short, by conceding that
Plaintiffs’ loans were used as collateral to obtain PPPLF advances, Defendants admit that
Plaintiffs’ Loan Documents obligated them to fund the loans.
Defendants’ argument that CPF was not obligated to fund Plaintiffs’ loans is contrary to
the plain language of the Loan Documents. “The terms of a contract are to be accorded their
plain and ordinary meaning as ordinary, average, or reasonable persons would understand them.”
Neb. Pub. Power Dist. v. MidAmerican Energy Co., 234 F.3d 1032, 1040 (8th Cir. 2000). A
“contract must be interpreted to give effect to the parties’ intent at the time the contract was
drafted.” Id. See also Advantage Consulting Grp., Ltd. v. ADT Sec. Sys., 306 F.3d 582, 585 (8th
Cir. 2002) (“The court must consider the overall purpose of the contract, as well as its terms.”).
Indisputably, the PPP was intended to quickly and efficiently provide forgivable federally
backed loans to small businesses and sole proprietors adversely impacted by the COVID-19,
including the Plaintiffs here. ¶ 50; see 86 FED. REG. at 3692. Notably, the PPP streamlined the
lending process by removing traditional loan underwriting requirements and requiring PPP
lenders to fund SBA approved PPP loans quickly. Id., at 3707-08.
The Loan Documents unquestionably obligated CPF to fund Plaintiffs’ loans. The Note
identifies CPF as the “Lender” and each Plaintiff as the SBA-approved “Borrower,” and the SBA
loan number and amount, payment terms, the lender’s rights and other provisions, and was
signed and submitted by each borrower and accepted by Defendants. Doc. No. 31, at 58. The
Note states that “[i]n return for the Loan, Borrower promises to pay to the order of the Lender”
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the principal amount of the loan plus interest unless forgiven (id.) (emphasis added); the
Additional Agreement states that “[i]n consideration of CPF … (hereinafter called ‘Lender’)
making the above loan …” and contains other conditions “pertaining to the above loan”
including “that Lender is relying upon this agreement in making the above loan ….” (id. at 64)
(emphasis added); and the Information form identifies each Plaintiff’s bank account for CPF to
actually deposit the loan proceeds. Id. at 70. CPF also signed and delivered to Plaintiffs the
Notice – No Oral Agreement which defines “Loan Agreement” to “mean[] one or more
promises, promissory notes, agreements … or other documents or commitments … pursuant to
which a financial institution loans … or agrees to loan,” which also evinces CPF’s obligation to
fund. Id. at 66.
Defendants may try to rely on Oto Analytics, 2022 WL 1488441, at *14, which dismissed
a contract claim against CPF. But that case dismissed the contract claim because, unlike here, the
plaintiff did “not identify an independent duty that the Capital Plus Defendants supposedly
breached” and because the court held that the claim was “premised on the SBA Fees, which
requires a direct contract between Womply and Capital Plus.” In fact, plaintiff Womply
conceded it lacked any direct contract to share in those fees, and asserted instead an oral contract
claim. Id.
It is well-established that “the law in effect at the time a contract is made forms a part of
the contract as if it had been expressed in the contract.” See Cuellar-Aguilar v. Deggeller
Attractions, Inc., 812 F.3d 614, 619-20 (8th Cir. 2015) (“Arkansas courts have recognized that
‘the law in effect at the time a contract is made forms a part of the contract as if it had been
expressed in the contract.’”) (emphasis added); Norfolk & W. Ry. Co. v. Am. Train Dispatchers
Ass’n, 499 U.S. 117, 130 (1991) (“Laws which subsist at the time and place of the making of a
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contract, and where it is to be performed, enter into and form a part of it, as fully as if they had
been expressly referred to or incorporated in its terms.”); Snow v. Admiral Ins. Co., 612 F. Supp.
206, 210 (W.D. Ark. 1985) (accord).
In Cuellar-Aguilar, plaintiffs alleged that the defendant breached their employment
agreements by not paying them the prevailing minimum wage required by statute. The district
court dismissed the complaint under Rule 12(b)(6), in part, because the court held that the
prevailing minimum wage was not part of the employment agreements. Recognizing that the law
in effect at the time of the contract becomes part of the contract, the Eight Circuit reversed and
held that plaintiffs had adequately plead causes of action for breach of contract. See Cuellar-
Aguilar, 812 F.3d at 619-20.
Similarly, Plaintiffs’ Loan Documents cannot be viewed in a vacuum and the law in
effect at the time those agreements were entered into is incorporated into them. Contrary to
Defendants’ position, PPP loan funding after SBA approval and execution of the Loan
Documents was not voluntary, but mandatory. 86 Fed. Reg. 3692, 3710. The SBA rule regarding
PPP loan funding states, in relevant part:
The lender must make a one-time, full disbursement of the PPP loan within
ten calendar days of loan approval; for the purposes of this rule, a loan is considered
approved when the loan is assigned a loan number by SBA.
Notwithstanding this limitation, lenders are not responsible for delays in
disbursement attributable to a borrower’s failure to timely provide required loan
documentation, including a signed promissory note. Loans for which funds have
not been disbursed because a borrower has not submitted required loan
documentation within 20 calendar days of loan approval shall be cancelled by the
lender.
See 86 FED. REG. 3692, 3710.
That funding rule also makes clear that, once the SBA approved a loan and received the
signed note and other Loan Documents, a PPP lender was obligated to fund within 10 days. ¶ 55.
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CPF’s failure to fund within ten days, or at all, constituted a clear breach of its contractual
obligations including the SBA funding rule which was incorporated into the Loan Documents as
a matter of law. See Cuellar-Aguilar, 812 F.3d at 619-20; Norfolk, 499 U.S. at 130; Oto
Analytics, 2022 WL 1488441, at *6 (“Thus, the Court looks to context provided by the SBA
regulations, statutes, and traditional dictionaries to determine whether Womply prepared,
submitted, or processed SBA loan applications.”).
Incorporation of the funding rule is further supported by the context of the PPP. See 15
U.S.C. § 9008(g) (requiring PPP lenders to make PPP loans “under the criteria, terms, and
conditions” set by the SBA and other governing rules). Additionally, the rules also make clear
that the express terms of PPP loan promissory notes must be consistent with the PPP rules. See
86 Fed. Reg. 3692, 3709 (“Lenders may include in their promissory notes for PPP loans any
terms and conditions ... that are not inconsistent with ... the PPP Interim Final Rules and
guidance ...”).
Defendants also acted consistent with, reaped the benefits of and made representations
confirming its agreement to fund Plaintiffs’ loans. For example, Defendants admit that CPF
obtained and upstreamed to Crossroads $930 million of PPP loan fees, and Defendants obtained
those fees by representing to the SBA that CPF had funded Plaintiffs’ and other SBA-approved
PPP loans it committed to fund. ¶¶ 79-80, 96-97. Nor do Defendants dispute that CPF obtained
over $6.4 billion in loan advances from the PPPFL by pledging Plaintiffs’ and other borrowers’
loans as collateral. ¶¶ 93, 96, 100-101. Defendants also consistently reported to the SBA --
falsely in the case of Plaintiffs’ and other class members’ loans -- that CPF had funded those
loans. ¶¶ 117, 133, 144, 155, 180.
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Based on the foregoing, Defendants are also precluded by quasi-estoppel from arguing
that they had not agreed to fund Plaintiffs’ PPP loans. The doctrine of quasi-estoppel precludes a
party from taking a position that is inconsistent with a position previously taken to obtain a
benefit. See Robb-Fulton v. Robb (In re Robb), 23 F.3d 895, 898 (4th Cir. 1994) (“‘[Q]uasi-
estoppel forbids a party from accepting the benefits of a transaction or statute and then
subsequently taking an inconsistent position to avoid the corresponding obligations or effects.’”);
Amtrust, Inc. v. Larson, 388 F.3d 594, 601 (8th Cir. 2004) (“‘Quasi-estoppel’ has been invoked
by various courts to estop parties from asserting a position in judicial proceedings different than
what was reported on their income tax returns.”).
Quasi-estoppel may be pled as a separate claim or used to oppose specific legal
arguments raised by a motion. See Cnty. Sch. Bd. v. RT, 433 F. Supp. 2d 692, 704-05 (E.D. Va.
2006); Mountain View Hosp., L.L.C. v. Sahara, Inc., 2011 WL 4962183, at *23-28 (D. Idaho
Oct. 17, 2011). The terms and purpose of the Loan Documents unquestionably obligated CPF to
fund Plaintiffs’ loans, as did Defendants’ actions and representations.
4. Plaintiffs Did Not Release Their Claims
Defendants’ contention that Plaintiffs released their claims is also meritless. First, a
release cannot immunize a party who, as here, breached the parties’ contract. See, e.g., Harper
Enters. v. Aprilia World Serv. USA, Inc., 270 F. App’x 458, 461 (8th Cir. 2008) (holding that
“the general principle of contract law that a party to a contract cannot claim its benefits where he
is the first to violate it”); Smith v. Chase Grp., Inc., 354 F.3d 801, 808 (8th Cir. 2004) (“A party
may not enforce the provisions of a contract if it first breached the agreement.”); Horne v. Elec.
Eel Mfg. Co., 987 F.3d 704, 718 (7th Cir. 2021) (“Horne is also correct that, under Illinois law, a
party in material breach may not enforce a provision of a contract that is favorable to him, such
as an exculpatory clause.”). Defendants cite no authority supporting their position that a release
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can relieve a party from having to perform its primary contractual obligation which for CPF was
to fund the PPP loans.
Second, the release explicitly applies only to alleged acts and omissions “on or prior to
the date hereof” (Doc. No. 31 at 62), and Plaintiffs’ claims accrued only after the contracts had
been signed, when CPF failed to fund their loans within 10 days after SBA approval and receipt
of the Loan Documents. See 86 Fed. Reg. 3692, 3710. Since CPF was required to fund the loans
after it received the signed Loan Documents, Plaintiffs’ claims for breach for failure to fund
could only have arisen after Plaintiffs’ Notes and other Loan Documents were executed and
returned. Thus, the release does not apply here for this reason as well. See Walmart Inc. v. Cuker
Interactive, Ltd. Liab. Co., 949 F.3d 1101, 1111 (8th Cir. 2020) (holding that release provisions
must be construed strictly against the drafter); Bowersox Truck Sales & Serv. v. Harco Nat’l Ins.
Co., 209 F.3d 273, 279-80 (3d Cir. 2000) (“Thus, ‘the general words of the release will not be
construed so as to bar the enforcement of a claim which has not accrued at the date of release.’”);
Strong v. Caliber Home Loans, Inc., 840 F. App’x 890, 891 (8th Cir. 2021) (holding that breach
of contract claims accrue at the time of the alleged breach); TCF Nat’l Bank v. Mkt. Intelligence,
Inc., 812 F.3d 701, 710 (8th Cir. 2016) (accord); Pennington v. BHP Billiton Petro.
(Fayetteville), LLC, 2021 Ark. 179, ¶ 3, 631 S.W.3d 555, 557 (2021) (“And a cause of action for
breach of contract accrues ‘when the plaintiff could have first maintained the action to a
successful conclusion.’”).
Moreover, a release “is to be restricted to the claim which was within the contemplation
of the parties.” Drake & Beemont Mut. Aid Soc’y Against Fire & Lightning v. United States, 330
F.2d 548, 553 (8th Cir. 1964); see also Mutz v. Citizens State Bank, 966 F.2d 434, 437 (8th Cir.
1992) (“Any question regarding the scope of a release is to be determined according to what
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fairly may be said to have been within the contemplation of the parties at the time the release was
given.”).
Plaintiffs’ claims for failure to fund cannot be said to have even been within the
contemplation of the parties to be covered by the release. Mutz, 966 F.2d at 437; Drake, 330 F.2d
at 553. The release cannot immunize Defendants also for this reason.
Defendants’ cases are distinguishable. In Defendants’ principal case, Bender v. Xcel
Energy, Inc., 507 F.3d 1161, 1170-71 (8th Cir. 2007), the Eight Circuit held that an “employer
may validly condition the payment of severance benefits on the employee’s agreement to release
the employer from any and all claims.” Bender merely supports the notion that contracting
parties may, as with any settlement, condition a payment on a general release. Bender does not
address the type of release at issue here, which by its own terms is limited temporally to conduct
occurring only “on or before” the date the contract was entered. Accord One Bank & Trust, N.A.
v. Galea, 2012 WL 6019091, at *6 (E.D. Ark. Dec. 3, 2012) (enforcing a release of “any and all
claims of Bank misconduct ... which have been, or could have been, asserted by Borrower
against the Bank ... prior to or contemporaneously with the execution of this Modification
Agreement”) (emphasis added).
C. Plaintiffs Sufficiently Allege Unjust Enrichment Claims
Arkansas law governs all Plaintiffs’ unjust enrichment claims. Even if that were not the
case, those claims are sufficiently alleged -- and alleged only in the alternative, to the extent
Plaintiffs’ contract claims fail to adequately compensate Plaintiffs and the class. ¶ 194. Contrary
to Defendants’ contention, California recognizes a cause of action for unjust enrichment. And
Plaintiffs’ unjust enrichment allegations meet the relevant standards of every state in which they
collectively reside.
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Plaintiff Covarrubias Sufficiently Alleges Unjust Enrichment: Defendants argue that
“Arkansas choice-of-law decisions generally apply the substantive law of the plaintiff’s home
state to claims for unjust enrichment.” Doc. No. 45, at 53. But this Court has employed a
practical approach to choice-of-law issues. As this Court held in Thomas v. General Motors LLC,
2018 WL 813584, at *1 (E.D. Ark. Feb. 9, 2018) (quoting Eighth Circuit precedent):
In Arkansas, a choice-of-law analysis requires consideration of “the lex
loci delicti rule within the framework of the five Leflar factors: (1) predictability
of results; (2) maintenance of interstate and international order; (3) simplification
of the judicial task; (4) advancement of the forum’s governmental interests; and
(5) application of the better rule of law.”
Accord Jones v. Ford, 2008 WL 2986411 (E.D. Ark. July 31, 2008) (applying same factors).
Each factor favors applying Arkansas law to plaintiff Covarrubias’s unjust enrichment claim.
The first factor, “predictability of results” is directed at preventing forum-shopping. Id.,
at *3. Applying Arkansas law promotes predictability and plaintiff Covarrubias has clearly not
attempted to forum shop to avoid California law; to the contrary, he alleges his own UCL claims
as discussed more fully below. The second “maintenance of interstate and international order”
factor “is not normally implicated if the state whose law is to be applied has sufficient contacts
with and interest in the facts and issues being litigated.” Id. Arkansas’s relevant contacts and
interests to the claims here are substantial as discussed above, and thus this factor also supports
applying Arkansas law. The “simplification of the judicial task” factor weighs heavily in favor of
applying the law of one state to all Plaintiffs’ claims. The fourth factor implicates “Arkansas’s
governmental interest … in preventing vexatious lawsuits” (id.), and this lawsuit is not
“vexatious.” And the “better rule of law” final factor also supports application of Arkansas law.
“Arkansas courts have suggested that when, based on a choice of law, a plaintiff could not get
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his day in court, the law allowing plaintiff his day in court is superior.” Id. Arkansas law raises
no risk that Covarrubias will not get his day in court.
Even if California law applied, however, Defendants are incorrect because Covarrubias
may still maintain his unjust enrichment claim. The Ninth Circuit recognized in Bruton v. Gerber
Prod. Co., 703 F. App’x 468, 470 (9th Cir. 2017), that “the California Supreme Court has
clarified California law, allowing an independent claim for unjust enrichment to proceed.” The
California intermediate appellate court decision Defendants cite, Hooked Media Group, Inc. v.
Apple Inc., 55 Cal.App.5th 323, 336, 269 Cal.Rptr.3d 406, 417 (2020), does not supersede Ninth
Circuit or California Supreme Court precedent. Other more recent court rulings cite Bruton in
sustaining unjust enrichment claims. See, e.g., In re Generic Pharmaceuticals Pricing Antitrust
Litig., 2022 WL 1470272, at *10 & nn.92-93 (E.D. Pa. May 10, 2022) (denying Rule 12(b)(6)
motion; citing Bruton and other cases relying on Bruton); City of Long Beach v. Total Gas &
Power N. Am., Inc., 465 F. Supp. 3d 416, 450 n.192 (S.D.N.Y. 2020), aff’d, 2021 WL 5754295
(2d Cir. Dec. 3, 2021); Potts v. Johnson & Johnson Consumer Inc., 2021 WL 2177386, at *13
(D.N.J. May 28, 2021).
Plaintiffs Have Standing: Defendants argue that Plaintiffs “fail to allege that the benefits
they seek to recover from Defendants are benefits that they actually conferred.” Doc. No. 45, at
55. But the Amended Complaint alleges that both the PPPLF advances CPF obtained and the
fees Defendants were paid were attributable directly to -- indeed, were secured exclusively by --
Plaintiffs’ PPP loans and the parties’ binding Loan Document contracts. See, e.g., ¶¶ 4, 8, 10, 11,
14, 25, 27-29, 96.
It is of no consequence that the SBA, rather than Plaintiffs, paid CPF those fees or the
Federal Reserve made those advances. In Plymouth Cnty., Iowa v. Merscorp, Inc., 774 F.3d
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1155, 1158 (8th Cir. 2014), the court held that the plaintiff maintained Article III standing to
assert an unjust enrichment claim even though defendants had only deprived the plaintiff of
funds to which plaintiff was entitled, finding that to be “a sufficient injury in fact to allow the
County to maintain an action against the Lenders.”
Defendants rely on Frigillana v. Frigillana, 266 Ark. 296, 584 S.W.2d 30 (1979), Penick
v. Penick, 783 S.W.2d 194 (Tex. 1988), and Progressive American Insurance Co. v. State Farm
Mutual Auto. Insurance Co., 184 N.C.App. 688, 647 S.E.2d 111 (2007), but they are all state
court cases to which Article III does not apply. As the Eighth Circuit held in Kuhns, 868 F.3d at
716, “it is crucial ... not to conflate Article III’s requirement of injury in fact with a plaintiff’s
potential causes of action.” That is, “Kuhns alleged that … Scottrade breached the contract …
and that Kuhns suffered actual injury, the diminished value of his bargain. Whatever the merits
of Kuhns’s contract claim, and his related claim[] for … unjust enrichment, he has Article III
standing to assert them.” Id.
Defendants may also try to rely on the court’s dismissal of the unjust enrichment claim
against CPF in Oto Analytics, 2022 WL 1488441, at *13. But that case involved a claim to share
in PPP loan fees by a PPP agent that lacked any contractual entitlement to those fees, and the
court dismissed the claim “because [plaintiff] Womply did not comply with the applicable statute
and regulations that require a compensation agreement” to share in PPP loan fees. Id.
Contrary to Defendants, Plaintiffs clearly “conferred a benefit” on Defendants in the form
of PPP loan fees secured by Plaintiffs’ PPP loans. ¶¶ 4, 8, 10-11, 14, 27, 79-88. Defendants’
argument that the federal government was the actual payor ignores the reality of PPP lending and
is meritless. In fact, in a case Defendants cite, the federal government, rather than the plaintiff,
similarly conferred the relevant benefits on the defendant. See Frigillana, 584 S.W.2d at 35
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(defendant retained civil service benefits to which plaintiff was allegedly entitled). Defendants
cite no authority grafting a strict privity requirement onto an unjust enrichment claim as they in
substance seek.
None of Defendants’ cases mandate dismissal and all actually sustained the claim. See
Campbell v. Asbury Auto., Inc., 381 S.W.3d 21, 36 (Ark. 2011) (reversing summary judgment
for the defendant); Pro-Comp Mgmt., Inc. v. R.K. Enters., LLC, 237 S.W.3d 20, 24 (Ark. 2006)
(remanding case for lower court to assess damages for unjust enrichment claim); Texas
Integrated Conveyor Sys., Inc. v. Innovative Conveyor Concepts, Inc., 300 S.W.3d 348, 370, 381,
383 (Tex. App. 2009) (reversing summary judgment for each of three defendants); Holmes v.
Solon Automated Servs., 752 S.E.2d 179, 185 (N.C. App. 2013) (reversing dismissal of
plaintiff’s unjust enrichment claim).
D. Plaintiff Covarrubias Sufficiently Alleges a UCL Claim
Defendants’ arguments to dismiss plaintiff Covarrubias’s UCL claims are also meritless.
Plaintiff properly alleges that Defendants’ conduct was both “unlawful” and “unfair” under that
statute.
Defendants’ “Unlawful” Conduct: Plaintiffs need not dispute Defendants’ claim that “a
plaintiff attempting to use a breach of contract as the predicate act must also plead that the
breach is independently unlawful” because Defendants’ conduct is sufficiently alleged to be
independently unlawful. Doc. No. 45, at 59. As the Supreme Court held in Sandoz Inc. v. Amgen
Inc., 137 S. Ct. 1664, 1673 (2017), a “business act or practice is unlawful under the [California]
unfair competition law if it violates a rule contained in some other state or federal statute.”
Accord Davis v. HSBC Bank Nev., N.A., 691 F.3d 1152, 1168 (9th Cir. 2012).
That rule encompasses CPF’s breaches in failing to fund the loans of plaintiff
Covarrubias and the other members of the California subclass. See, e.g., Sandoval v.
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PharmaCare US, Inc., 145 F. Supp. 3d 986, 994 (S.D. Cal. 2015) (“Plaintiff [properly] alleges a
violation of FDA regulations … and a resulting violation of the unlawful prong of the UCL.”)
Albillo v. Intermodal Container Serv., Inc., 2000 WL 35436363, at *18 (Cal. Super. Ct. Sept. 20,
2000), aff’d in relevant part, 114 Cal. App. 4th 190, 8 Cal. Rptr. 3d 350 (2003) (defendant who
violated Truth in Leasing Regulations “engaged in an ‘unlawful’ business practice”). The fact
that the CARES Act does not provide for a private right of action is irrelevant. LegalForce
RAPC Worldwide P.C. v. UpCounsel, Inc., 2019 WL 160335, at *13 (N.D. Cal. Jan. 10, 2019).
Defendants’ “Unfair” Conduct: Defendants’ claim that their conduct is not “unfair”
under the UCL is untethered to any test California appellate courts have adopted for that term.
See Jacobs v. Glob. Tel*Link Corp., 2016 WL 5953128, at *8 (W.D. Ark. May 17, 2016)
(identifying tests applied by California courts).
One of those definitions encompasses a “balancing test” pursuant to which “the gravity of
the harm to the alleged victim must outweigh the utility of the defendant’s conduct.” Id.
California courts have repeatedly held that the weighing of the parties’ interests pursuant to the
“balancing test” is inappropriate at the pleading stage. See Brooks v. Bank of Am., N.A., 2021
WL 1541643, at *4 (S.D. Cal. Apr. 20, 2021) (citing cases); Chen v. Bank of Am., N.A., 2019
WL 9633650, at *5 (C.D. Cal. Oct. 29, 2019). And no such balancing test could credibly even be
conducted here at this procedural juncture, as there are no facts in the record attempting to even
explain Defendants’ failure to fund, much less possibly showing any purported “utility” of that
failure. Particularly absent such evidence, Plaintiffs’ allegations are sufficient to state a claim
that Defendants’ conduct was “unfair.”
An alternate test “requires the consumer to have suffered an injury that,” inter alia,
“could not reasonably” be avoided. Jacobs, 2016 WL 5953128, at *8. That is also the case here.
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Accord Zuniga v. Bank of Am. N.A., 2014 WL 7156403, *8-9 (C.D. Cal. Dec. 9, 2014) (denying
a motion to dismiss where the plaintiff alleged that the defendant falsely told her she was being
offered a modification to lower her monthly mortgage payment); West v. JPMorgan Chase Bank,
N.A., 214 Cal. App. 4th 780, 806, 154 Cal. Rptr. 3d 285, 306 (2013) (reversing demurrer where
defendant allegedly violated federal regulations and made related misrepresentations to
borrowers).
Defendants’ cases do not support dismissal. The court in Sybersound Recs., Inc. v. UAV
Corp., 517 F.3d 1137, 1152 (9th Cir. 2008), did not apply a test that currently prevails in either
state or federal court. See Davis, 691 F.3d at 1170 (stating prevailing tests). Salone v. Bank of
Am., N.A., 2018 WL 3815041, at *5 (C.D. Cal. June 22, 2018), turned on the fact that the
plaintiff failed to show that defendants engaged in a “harmful, regular business practice.” And
contrary to Defendants, Prudential Ins. Co. of Am. v. Herman, 2009 WL 10674431, at *4 (C.D.
Cal. Aug. 31, 2009), does not state an accepted definition of “unfair.” The court’s conclusion in
Jacobs, 2016 WL 5953128, at *8, is apt:
Given “the absence of an authoritative instruction” from the California
Supreme Court as to which, if any, of these three tests for the unfairness prong
should control, “this Court is reticent to adopt” any of them at this “pre-answer
stage[ ] of litigation” and for now will “err[ ] toward ensuring a hearing on the
merits” if the allegations in Plaintiffs’ Amended Complaint suffice to satisfy any
of them. McVicar v. Goodman Global, Inc., 1 F. Supp. 3d 1044, 1054 (C.D. Cal.
2014).
Plaintiff Covarrubias is Entitled to Relief: Defendants’ argument that plaintiff is not
entitled to any form of relief the UCL provides violates the fundamental principle of Rule
12(b)(6) jurisprudence that “the complaint should be read as a whole, not parsed piece by piece
to determine whether each allegation, in isolation, is plausible.” Wilson v. Arkansas Dep’t of
Hum. Servs., 850 F.3d 368, 371-72 (8th Cir. 2017).
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It also ignores that plaintiff Covarrubias’s request for equitable and injunctive relief in
the form of an accounting is proper under the UCL, and that this claim is asserted only in the
alternative to the extent his breach of contract claim fails to provide adequate relief. ¶ 216;
Prayer for Relief D. California courts have repeatedly held that plaintiffs may be entitled to an
accounting based on their UCL claims. See, e.g., Vertical Doors Inc. v. J.T. Bonn Inc., 2008 WL
11343051, at *10-11 (C.D. Cal. Dec. 15, 2008); Kane v. Valley Slurry Seal Co., 2018 WL
2126752, at *8 (Cal. Ct. App. May 8, 2018) (“plaintiffs have established an injury in fact,
sufficient to order an accounting to determine the extent of the injury”); Gerawan Farming, Inc.
v. Rehrig Pac. Co., 2013 WL 1414637, at *14 (E.D. Cal. Apr. 8, 2013), aff’d, 587 F. App’x 654
(Fed. Cir. 2014).
Defendants also argue that there is no threat of future violation which immunizes them
from injunctive relief under the UCL. But the fact that the PPP was closed to new applicants as
of May 31, 2021 does not relieve CPF of its obligations to account for the applicable PPPLF
advances and actually fund the PPP loans it committed to fund.
Covarrubias is likewise entitled to restitution, again in the alternative. Defendants
contend otherwise based on the premise that he never held the funds at issue and the argument
that he therefore had no “vested interest” in those funds. Doc. No. 45, at 61. But the UCL does
not require that Covarrubias ever held those funds. As the court stated in Kivett v. Flagstar Bank,
FSB, 506 F. Supp. 3d 749, 763 (N.D. Cal. Dec. 10, 2020), “[t]he concept of restoration or
restitution, as used in the UCL, is not limited only to the return of money or property that was
once in the possession of that person.” See also Nat’l Rural Telecomms. Co-op. v. DIRECTV,
Inc., 319 F. Supp. 2d 1059, 1067, 1083 (C.D. Cal. 2003) (claimant alleged defendant caused
third party to breach contractual duty to pass fees to claimant and class members).
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In addition, Covarrubias is entitled to restitution based on his “vested interests” in the
proceeds of his SBA-approved loan. In Kivett, 506 F. Supp. 3d at 763, the court held that class
members’ interest in the funds at issue became vested when those funds would have become
payable had defendant not unlawfully withheld them. Covarrubias’s interest here likewise
became vested ten days after the SBA approved his loan and he signed and submitted his Loan
Documents. ¶¶ 3, 55, 61. See also People ex rel. Harris v. Aguayo, 11 Cal. App. 5th 1150, 1168,
218 Cal. Rptr. 3d 221, 238 (2017) (holding that rightful owners of misappropriated properties
maintained an ongoing vested interest in the rents collected by landlords who misappropriated
them).
Defendants’ claim that Covarrubias has no vested interest in the proceeds of his SBA-
approved loan is based on a case decided by an intermediate appellate court over 100 years ago
which does not reference the UCL. See Doc. No. 45, at 61 (citing Lawrence v. Wilson, 187 P. 30,
32 (1919)). That and other cases involving a conventional loan are also distinguishable because
here, Covarrubias and other unfunded California borrowers also expected that their PPP loans
would be forgiven, thereby further supporting their interests in those proceeds. See ¶¶ 44, 46.
Defendants Are Not Protected by the “Safe Harbor” Rule: Defendants contend that
the UCL should not apply because the CARES Act and SBA regulations do not grant
Covarrubias a private right of action, but instead effectively grant Defendants unbridled
discretion in dealing with PPP borrowers. Defendants are wrong on both counts. The fact that
SBA regulations do not provide for a private right of action has no bearing. As the court stated in
LegalForce, 2019 WL 160335, at *13:
California courts have repeatedly stated that a plaintiff may bring a UCL
claim even when the conduct alleged to constitute unfair competition violates a
statute that does not provide a private right of action. [T]o forestall an action
under the unfair competition law, another provision must actually ‘bar’ the
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action....” Thus, [only] if a statute explicitly precludes private enforcement, or if a
statute expressly provides immunity for the conduct alleged, a plaintiff may not
plead around this bar by bringing a claim under the UCL.
Defendants cite no statute or regulation authorizing them to induce Covarrubias to forfeit
his ability to apply for PPP loans with other lenders by misrepresenting CPF’s intention to fund
his approved loan, or to breach the parties’ contract by withholding his loan proceeds. The
defendant in Ellsworth v. U.S. Bank, N.A., 908 F. Supp. 2d 1063, 1089 (N.D. Cal. 2012), like
Defendants here, argued at the dismissal stage “that it did nothing more than what was
authorized by statute.” The court was unmoved: “Though that may be true, it is a fact question to
be answered in discovery, not the basis for a motion to dismiss.” Id.
There is No Basis for Equitable Abstention: Defendants question the Court’s ability
and authority to adjudicate straightforward UCL claims in pressing for abstention. Doc. No. 45,
at 63. But the minimum restitution due Covarrubias is clear, and the injunctive relief required to
determine that amount is simple. Defendants proffer no detail as to what it is that may exceed the
scope of the Court’s capabilities. The fact that the CARES Act provided “the largest economic
stimulus package in the nation’s history” does not mean that the Act itself is unduly complex,
much less that this case addressing a small portion of it or the UCL claim is as well. Doc. No. 45,
at 64.
California courts have repeatedly ruled to the effect that “[t]he equitable abstention
doctrine applies in rare instances.” Ellis v. J.P. Morgan Chase & Co., 950 F. Supp. 2d 1062,
1082 (N.D. Cal. 2013) (citing Rex v. Chase Home Fin. LLC, 905 F. Supp. 2d 1111, 1134 (C.D.
Cal. 2012)). As the court held in Rex, 905 F. Supp. 2d at 1135, “resolution of Plaintiffs’ claims
merely requires this Court to ‘interpret the relevant terms of the contract’ and ‘interpret the
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relevant provisions of the’ statutes.” That is what Covarrubias seeks here. The court’s balancing
of the relevant equities in Rex, 905 F. Supp. 2d at 1135, also applies here:
[T]his Court is nonplussed that a multi-billion-dollar corporation would
invoke an equitable doctrine against borrowers … so as to avoid liability for
allegedly imposing illegal contracts on these borrowers and engaging in unfair
debt collection practices. Defendant is a corporation with enough resources to
have survived the recent recession, which is the largest economic downturn since
the Great Depression. … The Court fails to see how the equities of the situation
dictate denying Plaintiffs relief.
The cases Defendants cite do not support abstention. Plaintiffs’ requests for injunctive
relief in two of those cases would have required the trial courts to oversee defendants’ post-trial
business activities on an ongoing basis. See Beasley v. Wells Fargo Bank, 235 Cal.App.3d 1383,
1 Cal. Rptr. 446 (1991); Cal. Grocers Assn. v. Bank of Am., 22 Cal.App.4th 205, 27 Cal. Rptr. 2d
396 (1994). The court in Feitelberg v. Credit Suisse First Boston, LLC, 134 Cal.App.4th 997,
1021, 36 Cal. Rptr. 3d 592, 609 (2005), declined to resolve the abstention issue. And Plaintiffs
here are not asking the Court to determine “economic policy” as Defendants falsely claim. Doc.
No. 45, at 64. In sum, Plaintiffs do not seek anything outside of the Court’s capability and
authority.
E. Plaintiff Myles Sufficiently Alleges a NCUDTPA Claim
Defendants’ claim that plaintiff Myles has not sufficiently alleged “unfair” or “deceptive”
conduct under the NCUDTPA is contrary to caselaw applying those terms.
Defendants’ “Unfair” and “Deceptive” Conduct: Defendants seek the dismissal of
Myles’s NCUDTPA claim based in part on the premise that “[w]hether conduct by a defendant
constitutes an ‘unfair or deceptive act or practice’ is a question of law for determination by the
court.” Doc. No. 45, at 65 (citing Walker v. Fleetwood Homes of N.C., Inc., 653 S.E.2d 393, 399
(N.C. 2007)). But Walker says that “[w]hether an act found by the jury to have occurred is an
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unfair or deceptive practice which violates N.C.G.S. § 75–1.1 is a question of law for the court.”
Id. (emphasis added). That rule has no bearing here.
Defendants’ other contentions in this context are no more valid. Myles alleges that
Defendants violated the NCUDTPA in the formation of their contracts. Specifically, Defendants
“[r]epresent[ed] to plaintiff Myles and members of the North Carolina subclass their willingness
to disburse SBA-approved loans by delivering to plaintiff Myles and members of the North
Carolina subclass copies of the Note for their signatures, and accepting the signed Notes.”
¶ 222(a). That allegation is bolstered by widespread instances of similar complaints by many
other unfunded CPF borrowers. ¶ 158(a)-(g). Defendants claim absent any authority that there is
no difference between defendants who -- like Defendants here -- induce plaintiffs to sign
contracts by misrepresenting their intentions, and defendants who opt to breach their contracts
only after having entered into them. Dkt. No. 45, at 66 (“[E]very plaintiff who brings a contract
claim” might claim misrepresentations by the defendant).
Courts have rejected this reasoning. In another NCUDTPA case involving a breach of
contract, Bartolomeo v. S.B. Thomas, Inc., 889 F.2d 530, 535 (4th Cir. 1989), the court held that
a plaintiff can show “substantial aggravating circumstances” justifying treble damages by
showing “deception … in the formation of the contact.” The court in Swan Racing Co., LLC v.
XXXtreme Motorsport, LLC, 2015 WL 4430257, at *3 (W.D.N.C. July 20, 2015), denied
defendant’s motion to dismiss based on allegations that “[defendant] obtained the [contract] with
the [plaintiff] by promising to pay without any intention of ever doing so.” And the court in a
case Defendants cite (Doc. No. 45, at 66) quoted Fourth Circuit precedent in observing that
“substantial aggravating circumstances” exist where “the acts or practices complained of are
‘present at the time of contract formation.’” US LEC Commc’ns, Inc. v. Qwest Commc’ns Corp.,
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2006 WL 1367383, at *2 (W.D.N.C. May 15, 2006) (quoting United Roasters, Inc. v. Colgate-
Palmolive Co., 649 F.2d 985, 992 (4th Cir. 1981)). See also SmithKline Beecham Corp. v. Abbott
Labs., 2017 WL 1051123, at *13 (M.D.N.C. Mar. 20, 2017) (“[o]btaining a contract without
intending to adhere to the contract … can give rise to an action for unfair and deceptive trade
practices ….”); Oxley v. Asplundh Tree Expert Co., 2006 WL 1642152, at *5 (W.D.N.C.
June 12, 2006) (denying motion to dismiss where “plaintiffs have alleged that [defendant] not
only knowingly breached the contract, but made deceptive representations to plaintiffs … in the
formation of the contract.”).
Other cases Defendants cite likewise do not support dismissal. Bumpers v. Cmty. Bank of
N. Virginia, 747 S.E.2d 220, 226 (N.C. 2013), stands for the proposition that the statute does not
“apply to an individual who merely breaches a contract.” Plaintiffs in two other cases did not
allege that defendants misled them in the formation of the contracts at issue. See ACS Partners,
LLC v. Americon Grp., Inc., 2010 WL 883663 (W.D.N.C. Mar. 5, 2010); Branch Banking & Tr.
Co. v. Thompson, 418 S.E.2d 694 (N.C. Ct. App. 1992). The court in Dan King Plumbing
Heating & Air Conditioning, LLC v. Harrison, 869 S.E.2d 34, 43 (N.C. Ct. App. 2022), allowed
plaintiff’s NCUDTPA claim to go forward.
Myles’ Allegations Satisfy Rule 9(b): Defendants argument that Myles does not state
her NCUDTPA claim with sufficient particularity is belied by the Amended Complaint’s
abundant detail specifying the claims at issue. Defendants are also incorrect that plaintiff fails to
“state where in the Note, or what provision of the Note” required PPP funding (Doc. No. 45, at
67) because the Amended Complaint quotes those provisions in detail. ¶¶ 174-176. Those
paragraphs are incorporated into Myles’ NCUDTPA claim (¶ 218), as are the PPP funding rules
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which, again, also require the loans to have been funded. In sum, Defendants cite nothing
required by Rule 9(b) that Myles does not allege.
Myles Properly Alleges Reliance: The Amended Complaint also alleges that Myles
understood that she was forfeiting her right to seek PPP loans from other lenders upon
contracting with CPF. See, e.g., ¶¶ 58-60, 183. And Myles and the North Carolina subclass were
at that point “exclusively reliant upon CPF’s good faith in actually funding their SBA-approved
PPP loans.” ¶ 227.
Those allegations are also sufficient under established pleading standards. For example,
in Bank of Am., N.A. v. Drew, 2017 WL 10604133, at *2 (E.D. Ark. Nov. 16, 2017), the Court
held that it was “dubious that Plaintiff was justified in relying on Defendants’ misrepresentation,
however, this is a fact issue best resolved after discovery has been completed.” See also Epsman
v. Martin-Landers, LLC, 2007 WL 2819592, at *2 (E.D. Ark. Sept. 26, 2007) (plaintiff’s reliance
was a question of fact for the jury); Columbia Mut. Ins. Co. v. Arkansas Valley Reg’l Indus. Dev.
Co., LLC, 2006 WL 8444843, at *5 (E.D. Ark. Dec. 21, 2006) (denying Rule 12(b)(6) motion
where plaintiffs alleged that had they been fully informed about the relevant transactions, they
would not have entered into them).
Defendants cite Synovus Bank v. Okay Props., LLC, 2012 WL 3745280, at *10
(W.D.N.C. Aug. 28, 2012), but the plaintiffs “failed to allege with the requisite specificity what
misrepresentations that were made to them.” And the courts in Bumpers, 747 S.E.2d at 227, and
Dan King Plumbing, 869 S.E.2d at 43, did not address pleading standards.
Plaintiff Myles is an SBA-approved borrower: Despite Myles’ well-pleaded claim that
she was an eligible PPP borrower and that the SBA reported that her loan had actually been
funded based on CPF’s false representations (¶¶ 150-151, 155-156), Defendants seize on a single
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Case 4:21-cv-01243-BRW Document 49 Filed 05/23/22 Page 74 of 75
sentence in an email Myles wrote to infer that she admits she was not eligible. Doc. No. 45, at
69. Defendants do not dispute that the SBA approved Myles’ application or that CPF reported
her loan to be funded to obtain fees. Defendants’ claim that Myles was ineligible is also contrary
to Defendants’ representation that they confirmed borrowers’ employment status as part of their
underwriting review. ¶ 29.
At this stage, where the Court is required to read the complaint in the light most favorable
to Plaintiffs, those allegations are more than sufficient. The court in Weisenberger v. Ameritas
Mutual Holding Co., 2022 WL 1078211, at *8 n.4 (D. Neb. Apr. 7, 2022), recently relied on that
principle in denying defendant’s motion to dismiss even though the plaintiff’s allegations “taken
as a whole appear[ed] inconsistent.” The only case Defendants cite in this context, Carter v.
United States, 123 F. App’x 253 (8th Cir. 2005), has no bearing as the entirety of the complaint
in that case reflected that the facts were inconsistent with plaintiff’s theory of liability. Here,
Myles’s allegations are wholly consistent with Plaintiffs’ theories of liability. Even if there were
any ambiguity in that regard, it should be the subject of discovery.
Conclusion
The Court should deny Defendants’ motion to dismiss in its entirety. Alternatively, if the
Court is inclined to dismiss any of Plaintiffs’ claims, the Court should do so without prejudice
and grant Plaintiffs leave to file a further amended complaint, and grant jurisdictional discovery
as requested.
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Case 4:21-cv-01243-BRW Document 49 Filed 05/23/22 Page 75 of 75
Dated: May 23, 2022 Respectfully submitted,
FRIDAY, ELDREDGE & CLARK, LLP
Marshall S. Ney, AR Bar 91108
Katherine C. Campbell, AR Bar 2013241
3350 S Pinnacle Hills Parkway, Suite 301
Rogers, AR 72758
479-695-6049 Office
501-244-5389 Facsimile
mney@fridayfirm.com
kcampbell@fridayfirm.com
AND
BAILEY & GLASSER, LLP
Lawrence J. Lederer (pro hac vice)
Michael L. Murphy (pro hac vice)
Bart D. Cohen (pro hac vice)
1055 Thomas Jefferson Street NW, Suite 540
Washington, DC 20007
202-463-2101 Office
202-463-2103 Facsimile
llederer@baileyglasser.com
mmurphy@baileyglasser.com
bcohen@baileyglasser.com
AND
NOLAN HELLER KAUFFMAN LLP
Justin A. Heller (pro hac vice)
Matthew M. Zapala (pro hac vice)
80 State Street, 11th Floor
Albany, NY 12207
518-449-3300 Office
518-432-3123 Facsimile
jheller@nhkllp.com
mzapala@nhkllp.com
Attorneys for Plaintiffs Greathouse,
Covarrubias, Sumrall, Myles and the
Proposed Class and Subclasses
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