Court filing
Amended Class Action Complaint — Greathouse v. Capital Plus (E.D. Ark.) (N.D. Tex.)
Filed March 28, 2022 in Greathouse v. Capital Plus; one of 8 filings from this case.
Record facts
| Court | U.S. District Court for the Eastern District of Arkansas, Central Division |
|---|---|
| Filed | 2022-03-28 |
U.S. District Court for the Eastern District of Arkansas, Central Division · No. 4:21-cv-01243-BRW · Doc. 31 · 2022-03-28 · Docket on CourtListener
Full text
FILED
U.S. DISTRICT COURT
EASTERN DISTRICT ARKANSAS
MAR 2 8 2022
IN THE UNITED ST ATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
CENTRAL DIVISION
TAMMY H. DOWN!, CLERK
By:
·~
ERIC GREATHOUSE, ERNESTO
COVARRUBIAS, TIFF ANY SUMRALL
and BARBARA MYLES, individually and
on behalf of all others similarly situated,
Plaintiff,
V.
CAPITAL PLUS FINANCIAL, LLC and
CROSSROADS SYSTEMS, INC.,
Defendants.
Case No. 4:21-cv-1243-BRW
AMENDED CLASS ACTION
COMPLAINT
JURY TRIAL DEMANDED
Plaintiffs Eric Greathouse ("Greathouse"), Ernesto Covarrubias ("Covarrubias"), Tiffany
Sumrall ("Sumrall") and Barbara Myles ("Myles") (collectively, "Plaintiffs"), individually and
on behalf of all others similarly situated, file this Amended Class Action Complaint for damages,
an accounting, and equitable relief against Capital Plus Financial, LLC ("CPF") and CPF's
corporate parent, Crossroads Systems, Inc. ("Crossroads" and, together with CPF,
"Defendants"), for failure to fund U.S. Small Business Association (the "SBA")-approved
Paycheck Protection Program ("PPP" or the "Program") loans that CPF was contractually
obligated to fund. In support, Plaintiffs make the following allegations based upon information
and belief except as to the allegations pertaining to themselves which are based on personal
knowledge. Plaintiffs' information and belief is based on the ongoing investigation of their
counsel which included, among other things, a review of applicable documents, information
from other litigation against Defendants and one of Defendants' senior executives, publicly
DEPCLERK
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 1 of 129
available information concerning the PPP and PPP loans, filings with the U.S. Securities and
Exchange Commission (the "SEC"), and media and other reports available on the Internet.
Summary of the Claims
1.
Following the worldwide outbreak of COVID-19, Congress passed the
Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") to, among other things,
provide some relief to America's small businesses and sole proprietors through the creation of
the PPP.
2.
Administered by the United States Small Business Administration ("SBA"), the
PPP was established to provide hundreds of billions of dollars of potentially forgivable loans to
small businesses and sole proprietors in a quick and efficient manner using the same standard
form note and accompanying loan agreement documents that Plaintiffs and other PPP borrowers
entered into with CPF.
3.
To ensure that small businesses and sole proprietors received PPP loan proceeds
quickly, the applicable provisions of the PPP required lenders to fund PPP loans within ten days
of SBA approval.
4.
Lenders that participated in the Program were entitled to fees payable by the SBA
for each PPP loan the lenders processed.
5.
Defendant CPF was one of the SBA's authorized PPP lenders.
6.
Before the PPP, CPF was a small lender in the Texas area with less than $40
million in total revenue in fiscal year 2020.
7.
Defendant CPF is, or at all times relevant in 2021 was, defendant Crossroads's
only operating subsidiary. Crossroads is a publicly-traded for-profit holding company. CPF is,
and at all times relevant in 2021 was, controlled and dominated by Crossroads; shared certain of
2
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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.
8.
In 2021, after the SBA substantially increased the fees lenders would receive for
PPP loans made in 2021, Crossroads caused CPF to exploit that increased fee opportunity by
dramatically ramping up its participation in PPP lending. It was hugely successful in that respect.
9.
In particular, CPF reportedly processed 472,036 PPP loans totaling over $7.5
billion through May 31, 2021 -- the second most PPP loans by any other lender in 2021, and
more than the total number of PPP loans made in 2021 by Bank of America, PNC Bank, TD
Bank and Wells Fargo combined. See Paycheck Protection Program (PPP) Report: Approvals
through 05/3 l /2021, at p. 7, available at https:/ /www.sba.gov/sites/default/files/202 l-
06/PPP Report Public 210531-508.pdf (last accessed Sept. 21, 2021 ).
10.
Although only CPF and not Crossroads was the SBA-qualified PPP lender,
Crossroads was the alter ego of CPF, and thus CPF upstreamed all or the vast bulk of its PPP
lending fees directly to Crossroads.
11.
Accordingly, in its SEC filings, Crossroads reported that "the Company" received
$970.5 million in total revenue of which $930 million was PPP loan fees in 2021 compared to
just $27.5 million in total revenue the prior year. As stated in Crossroads's quarterly report filed
with the SEC for the period ending July 31, 2021:
"Total revenue from operations for the nine months ended July 31, 2021, was
$970.5 million compared to $27.5 million for the same period of 2020. The
increase in revenue was the result of the Company participating in the Payment
Protection Program (PPP) administered by the Small Business Administration
('SBA'). The Company earned fees from the program totaling approximately
$930.0 million."
3
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See http://www.crossroads.com/wp-content/uploads/2021/09/CRSS O3-2021-OTC-Disclosure-
Statement.pdf (accessed Dec. 23, 2021) (emphasis added).
12.
In flagrant disregard of its contractual loan agreement obligations to Plaintiffs and
the other eligible class member borrowers, however, CPF failed to actually fund those
borrowers' SBA-approved PPP loans.
13.
Plaintiffs and numerous other business owners across the country each timely
applied for PPP loans with CPF, had their loans approved by the SBA and assigned PPP loan
numbers, and yet never received their PPP loan funds.
14.
For its role in controlling CPF and in directing the conduct and exploiting CPF's
status as an SBA-approved PPP lender, Crossroads not only received hundreds of millions of
dollars in PPP loan fees -- including loan fees on the backs of the PPP loans of Plaintiffs and
other putative borrower members of the proposed class across the country that CPF failed to
fund. It also, less than two months from when the PPP lending window closed on May 31, 2021,
announced that as a result of its "windfall associated with the PPP loan program" it was "now
overcapitalized" and would pay out a special dividend of $40 per share to shareholders of record
as of July 19, 2021 totaling over $238 million, $157 million of which was rushed out and paid to
the handful of senior executives and directors of Defendants who collectively then owned
approximately 66% of Crossroads's equity.
15.
In sum, while purporting to "promote economic vitality and community
development" and '"hav[ing] seen firsthand the impact that the pandemic has had on minority-
owned businesses in low-to-moderate income tracts"' as Crossroads stated in its January 11,
2021 news release (see Capital Plus Financial Partners with Blueacom to Expedite PPP Loan
Relief to Small Businesses - Jan 11, 2021), Defendants and their senior executives shamelessly
4
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enriched themselves off the backs of PPP loans to which Plaintiffs and other class member
borrowers were contractually entitled but CPF failed to fund.
Parties
16.
Plaintiff Greathouse, a natural person residing in Russellville, Arkansas, is a sole
proprietor of an insurance inspection business.
17.
Plaintiff Covarrubias, a natural person residing in Santee, California, is a sole
proprietor of an auto repair business.
18.
Plaintiff Sumrall, a natural person residing in El Paso, Texas, is a sole proprietor
of a landscape architectural business.
19.
Plaintiff Myles, a natural person residing in Raeford, North Carolina, is a sole
proprietor of a business involving independent artists, writers and performers.
20.
Defendant CPF is a limited liability company organized under the laws of the
state of Texas with its principal place of business at 2247 Central Drive, Bedford, Texas 76021.
21.
Defendant Crossroads is a corporation organized under the laws of Delaware with
its principal place of business at 4514 Cole Avenue, Suite 1600, Dallas, Texas 75205.
Jurisdiction & Venue
22.
This Court has subject matter jurisdiction under 28 U.S.C. § 1332(a)(l) because
the aggregate amount in controversy exceeds $75,000.00, exclusive of interest and costs, and is
between citizens of different states. This Court also has jurisdiction under the Class Action
Fairness Act because at least one member of the proposed class is a citizen of a different state
than defendant CPF; there are more than 100 members of the proposed class; and the aggregate
amount in controversy exceeds $5,000,000.00 exclusive of interest and costs. See 28 U.S.C.
§ 1332(d)(2)(A).
5
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23.
Defendants' motion to dismiss contends that plaintiff Greathouse' s initial
complaint "fail[ed] to plead that Defendants' conduct relating to the claims he asserts in this case
created any connection with Arkansas, and, indeed, no such connection exists." Dkt. 25 at ECF
p. 8 ( emphasis added). Defendants are incorrect because they have many connections here.
24.
As a threshold matter, Defendants premise their challenge to personal jurisdiction
on a single self-serving declaration (ECF 24-1 ), and assert exclusively facts regarding what they
did outside Arkansas. In doing so, Defendants would have the Court ignore entirely other
publicly available facts they omit which clearly demonstrate, even at this pleading stage without
the benefit of any discovery, that Defendants purposefully availed themselves of, and benefitted
directly from, substantial business in Arkansas and this judicial District at all relevant times
concerning the claims at issue.
25.
This Court has personal jurisdiction over defendant CPF because CPF had
substantial and direct contacts in this District by virtue of its entering into its agreement to fund
plaintiff Greathouse' s PPP loan; by entering into PPP loan agreements with thousands of other
PPP borrowers in this District; by committing to fund the PPP loans under the contractual loan
agreements it entered into with plaintiff Greathouse and other PPP borrowers in this District; by
its loan and borrower review and underwriting activities Defendants admit accompanied, and
were a part of, each such PPP loan, including the thousands of loans to borrowers in this District;
by its obtaining PPP lender fees from PPP loans committed to borrowers in Arkansas and this
District; by virtue of ongoing PPP loan advance reporting requirements to the SBA directly in
this District concerning the PPP loans of borrowers not only in this District and Arkansas, but
also borrowers from 23 other states and the District of Columbia, Puerto Rico and the U.S.
Virgin Islands; and by virtue of its communications and activities it undertook in this District
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with the SBA relating to many of the PPP loans, PPP loan forgiveness, interest on PPP loans and
PPP loan fees at issue in this case.
26.
More particularly, and for further detail, although Defendants' motion to dismiss
implies it did business in this District only with plaintiff Greathouse, CPF in fact committed to
fund at least 2,134 separate SBA-approved PPP loans in 2021 for qualified borrowers residing in
this District alone, for total PPP loan proceeds of at least $32,770,618.00 according to the SBA's
own publicly-available PPP loan data. See website https://data.sba.gov/dataset/ppp-foia
(public_up_to_150k_1_220102.csv). In addition, and also based on the SBA's publicly available
SBA PPP loan data, CPF committed to fund at least 2,578 separate SBA-approved PPP loans in
2021 for qualified borrowers residing in the State of Arkansas, for total PPP loan proceeds of at
least $38,715,478.00. /d.
27.
Assuming that each such PPP loan generated PPP loan processing fees of at least
$2,500.00 per loan, this means that CPF obtained at least $5,335,000.00 in total PPP loan fees on
the backs of resident business owners located directly in this District (2,134 x $2,500.00), and
$6,895,000.00 in total PPP loan fees from loans to resident business owners in Arkansas (2,578 x
$2,500.00).
28.
In connection with each of the thousands of PPP loan agreements and millions of
dollars in lender processing fees with borrowers in this District, CPF purposefully availed itself
of substantial and direct business activity in this District sufficient to subject itself to the personal
jurisdiction of this Court. In fact, for each such PPP loan, CPF's role was not limited to entering
into the loan agreement contracts and funding the loans for Plaintiffs and other putative class
member borrowers.
7
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29.
In addition, CPF's role as the SBA-approved lender of PPP loans required it to
underwrite and review each PPP loan individually, wherever the borrower was located.
Defendants even admit that CPF had to review each such loan and apply its underwriting
requirements to each such loan. See, e.g., ECF 25 at ECF p. 16 ("CPF's role in PPP lending is
thus limited to applying its own internal underwriting requirements to loan applications ... ,
making a decision of whether to fund loan, and then ultimately funding the loan if appropriate.")
( emphasis added). Similarly, in other currently pending litigation involving a claim that
Defendants failed to share PPP lender processing fees with one of its agents, Defendants stated
the following regarding CPF's underwriting obligations as to each PPP loan:
"The lender, however, must do some basic 'underwriting.' Specifically, the PPP
Regulations contain a section titled, "What do lenders have to do in terms of loan
underwriting?" [86 Fed. Reg.] at 3707-08. The regulations enumerate four
'underwriting' steps:
(1)
confirm receipt of the borrower certifications in the Form 2483
application;
(2)
confirm receipt of documentation showing employment status of the
applicant or if a business, documents showing employees as of February
2020;
(3)
confirm the historic payroll (if the applicant had employees) by examining
the documentation submitted; and
(4)
comply with the Bank Secrecy Act ("BSA") or similar anti-money
laundering procedures, such as a customer identification program
("COP"), designed to make sure the lender confirms the identity of the
applicant.
Id. In addition to the above steps, the lender was obligated to 'review' each
application. Id. at 3708 ('Each lender's underwriting obligation under the PPP is
limited to the items above and reviewing the 'Paycheck Protection Borrower
Application Form.')."
Quoting Defendants' Memorandum of Law in Oto Analytics, Inc. d/b/a Womply v. Capital Plus
Financial, LLC, et al., Case No. 3:21-cv-2636-B (N.D. Tex.) (ECF 43 at ECF pp's 9-10).
8
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30.
Further, Defendants' attempt to argue that they outsourced and relied on third-
party PPP agent firms and thereby were distanced from actively undertaking its own
underwriting and review obligations (see ECF 25 at ECF pp's. 15-16), is contradicted by
Crossroads's own statements to shareholders in describing its involvement in PPP. For example,
in a letter accompanying Crossroads's report to shareholders for the three months ended
April 30, 2021, Crossroads's Chairman Robert Alpert and Crossroads's and CPF's then dual
CEO and Crossroads Board member Eric Donnelly stated that "[t]hough 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, which is evidenced by a negligible rate of active fraud
cases of less than .25bps." ( emphasis added).
31.
This Court has personal jurisdiction over defendant CPF by virtue of the
underwriting and review process that CPF necessarily had to do as to each PPP borrower in this
District, including but not limited to plaintiff Greathouse and the thousands of additional PPP
borrowers in this District.
32.
The Court also has personal jurisdiction over defendant CPF also by virtue of
CPF's substantial and direct connections to, and communications and activities regarding PPP
lending with, the SBA Commercial Loan Service Center located directly in this District -- some
three miles from this Court and the offices of one of Defendants' counsel.
33.
Again although omitted from Defendants' motion to dismiss, the SBA has two
Commercial Loan Service Centers in the United States that service all of the SBA's commercial
loans, one in Fresno, California that services business primarily in the western half of the United
9
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States, and the other actually located in Little Rock, Arkansas at 2120 Riverfront Drive, that
services business primarily in the eastern half of the United States. See
https://www.sba.gov/LittleRockCLSC. The SBA's Little Rock Commercial Loan Service Center
"was created in 1995 to centralize the servicing of SBA's 7(a), 504 Debenture and Disaster
Business loans for Regions 1-4 (Eastern Seaboard) and most of Region 6 (Central Southern
States Oklahoma and Texas)"; "covers 24 states, the District of Columbia as well as Puerto Rico
and the US Virgin Islands"; and "is one of two Centers nationwide that handles all of SBA 's
commercial loans." See https://www.sba.gov/content/mission-clsc-ar (emphasis added).
34.
The SBA's Little Rock Commercial Loan Service Center includes Texas-based
qualified PPP and other SBA-approved lenders including CPF. See
https:/ /www.sba.gov/sites/default/files/2021-02/Procedural%20Notice%205000-20091 %20-
%202nd%20Updated%20PPP%20Processing%20Fee%20and%20 l 502%20Reporting-508.pdf at
6 n. 4 ("The geographic coverage of the Fresno Servicing Center is SBA Regions 5, 6 (except for
Arkansas, Oklahoma and Texas) 7, 8, 9, and 10. The geographic coverage of the Little Rock
Servicing Center is SBA Regions 1, 2, 3, 4, and 6 (except New Mexico and Louisiana)."
35.
PPP and PPP lending was part of the SBA's commercial loan servicing. In
connection with the PPP and PPP lending, CPF engaged in substantial and direct
communications with personnel in the SBA's Little Rock Commercial Loan Service Center
regarding PPP loan applicants, SBA-approved borrowers including Plaintiffs and the other
putative members of the proposed class, PPP lender fees and other aspects of the PPP. The SBA
even directed that questions relating to aspects of PPP lending should be made to either of the
two Service Centers. See, e.g., https://www.sba.gov/sites/default/files/202 l-
02/Procedural%20N otice%205000-2009 l %20-
10
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%202nd%20Updated%20PPP%20Processing%20F ee%20and%201502%20Reporting-508.pdf at
p. 6 ("Questions on voluntary termination can be emailed to: For the Fresno Servicing Center:
fsc.servicing@sba.gov; for the Little Rock Servicing Center: lrsc.servicing@sba.gov.").
36.
CPF accordingly communicated substantially and directly with personnel from
the Little Rock Commercial Loan Service Center not only in connection with the PPP loans of
plaintiff Greathouse and other SBA PPP borrowers residing directly in this District, but also in
connection with PPP borrowers from the additional 23 states and other territories within the
SBA's Little Rock Commercial Loan Service Center coverage areas -- which, collectively,
represents many thousands of additional SBA-approved borrowers, including Plaintiffs and
numerous other similarly situated SBA-approved but unfunded borrowers of the proposed class.
3 7.
Although these facts demonstrate that CPF has sufficient contacts in this District
relating to the PPP lending at issue, 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 the lender processing fees CPF generated thereby will
provide additional evidence regarding the substantial and direct business Defendants did at all
relevant times in this District. 1
Defendants moved on February 25, 2022 to basically stay discovery under the guise of extending
the Court's scheduling deadlines pending the Court's ruling on their motion to dismiss, premised largely
on their false contention that this Court lacks jurisdiction. See ECF 26, 27. The Court granted that motion
by Order on March 2, 2022. See ECF 30. If the Court has any doubt it may properly exercise personal
jurisdiction over both Defendants, Plaintiffs request they be permitted to take jurisdictional discovery
concerning Defendants' contacts with the Little Rock Service Center regarding Plaintiffs' PPP loans and
the PPP loans of other PPP applicants and borrowers within the Little Rock Service Center's coverage area;
the total number of such applicants and borrowers of CPF and amounts of PPP proceeds and PPP lender
processing fees at issue within that coverage area; the number of SBA-approved but unfunded class member
PPP borrowers and total loan proceeds and the potential disposition by Defendants or whereabouts of those
unfunded proceeds, including for unfunded borrowers in this District, Arkansas and other such borrowers
within that coverage area; and the written and oral communications Defendants had with PPP borrowers in
reviewing and underwriting PPP loan applications from borrowers in this District and the SBA coverage
11
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38.
The Court has personal jurisdiction over defendant Crossroads because
Crossroads controlled and directed CPF's conduct in PPP lending even though only CPF was the
SBA-approved and qualified PPP lender; Crossroads directed CPF to, and CPF did, in fact,
"upstream" to Crossroads the PPP loan processing fees CPF obtained from the PPP loans of
Plaintiffs, class members and other borrowers as if Crossroads and CPF were one and the same
company; Crossroads and CPF shared senior executives and overlapping websites that referred to
each other; the shared executives of Crossroads and CPF participated directly or indirectly in the
PPP lending process and in regularly communicating with personnel from the SBA's Little Rock
Commercial Loan Service Center in connection with the PPP loans at issue; Crossroads's SEC
disclosures and other statements referred to the companies as if they were one and the same; CPF
was Crossroads's only operating subsidiary in 2021 and Crossroads was CPF's alter ego at all
times relevant in connection with all aspects of PPP lending; and CPF's contacts in this District
in connection with the claims at issue are also imputed to its corporate parent Crossroads.
39.
Venue is proper in this judicial District under 28 U.S.C. § 1391(b)(2) because a
substantial part of the events giving rise to the claims occurred in this District.
Additional Factual Allegations
Background Concerning the
COVID-19 Pandemic and the PPP
40.
On March 11, 2020, the World Health Organization declared the COVID-19
outbreak a "pandemic." Two days later, on March 13, 2020, the United States declared a national
emergency due to the COVID-19 pandemic.
area. Jurisdictional discovery will further support Plaintiffs' allegations that the Court's exercise of personal
jurisdiction over both Defendants in this case is fair.
12
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41.
In response, on March 27, 2020, the United States Congress passed the largest
economic stimulus package in the nation's history -- the CARES Act. The CARES Act
amounted to over $2 trillion in aid, equivalent to roughly $6,000 per American, or 45% of all
federal government spending for 2019.
42.
The CARES Act was enacted to provide immediate assistance to individuals,
families, and businesses affected by the CO VID-1 9 emergency.
43.
One facet of the CARES Act's approach to economic relief was the PPP.
Recognizing the huge strain that the COVID-19 pandemic would likely impose on American
small businesses, the PPP initially allocated $349 billion for loans to small businesses, sole
proprietors, and nonprofit organizations, among others. These loans were intended to pay up to
eight weeks of payroll costs (including benefits) and could also be used to pay interest on
mortgages, rent, and utilities.
44.
PPP loans are guaranteed by the SBA, and the PPP provides for loan forgiveness
if the borrower demonstrates that the funds were used in compliance with PPP regulations.
45.
The PPP has received several legislative renewals, modifications, and extensions.
On April 24, 2020, the President signed the Paycheck Protection Program and Health Care
Enhancement Act, which provided additional funding and authority for the PPP. On June 5,
2020, the Paycheck Protection Program Flexibility Act of 2020 was enacted, extending the
deferral period for PPP loans, among other provisions. On July 4, 2020, the PPP was further
amended to guarantee PPP loans to August 8, 2020. On December 27, 2020, the Economic Aid
to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the "Economic Aid Act") was
enacted, which further extended the PPP and allowed for the SBA to authorize second-draw PPP
loans through March 31, 2021, available to borrowers who already used their previous PPP loan
13
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proceeds for permitted expenditures. On March 11, 2021, the American Rescue Plan Act was
signed into law, adding an additional $7.25 billion for PPP loans, bringing total appropriations
for the program to $813.7 billion. Finally, on March 30, 2021, the PPP Extension Act was
enacted, which extended the PPP application deadline to May 31, 2021, and gave the SBA until
June 30, 2021 to process loan applications.
46.
PPP loans are generally available to businesses in operation as of February 15,
2020 that had paid employees, as well as self-employed individuals. Businesses receiving PPP
loans cannot have more than 500 employees and cannot be in bankruptcy. Further, applicants are
required to certify that the "current economic uncertainty makes this loan request necessary to
support the ongoing operations of the Applicant." Currently, at least 60% of the proceeds must
be used for payroll costs. The entire amount of any PPP loan is subject to forgiveness so long as
the proceeds are used for eligible expenses.
47.
Under the Economic Aid Act, a PPP borrower is entitled to a second draw under
narrower conditions than its first draw. For example, a second draw borrower must have 300 or
fewer employees, must demonstrate that it sustained a certain percentage reduction in its gross
receipts compared to 2019, and must have used its entire first draw proceeds prior to
disbursement of its second draw proceeds. Second draw loans -- like first draw loans -- are also
subject to forgiveness.
48.
Given the anticipated volume of PPP loan applications, Congress provided for
PPP loan processing and funding through private lenders, with the SBA paying these lenders a
fee for each processed PPP loan.
49.
For their participation, the PPP originally provided that lenders would receive fees
at a rate of five percent for loans $350,000.00 or less, three percent for loans between
14
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$350,000.00 and $2,000,000.00, and one percent for loans over $2,000,000.00. See SBA
Procedural Notice, Control No. 5000-20091 (Feb. 8, 2021), available at
https://www.sba.gov/sites/default/files/202 l -02/Procedural %20Notice%205000-2009 l %20-
%202nd%20Updated%20PPP%20Processing%20F ee%20and%20 l 502%20Reporting-508.pdf
(last accessed Sept. 17, 2021 ).
50.
To address institutional lenders' neglecting of PPP loan applications from many
small businesses -- especially minority, underserved, veteran, and women-owned businesses -- in
favor of larger PPP loans, the Economic Aid Act added that lenders processing loans of up to
$50,000.00 would receive an increased fee of fifty percent or $2,500.00, whichever is less, per
PPP loan beginning December 27, 2020.
51.
As the vast majority of PPP loans -- even those to the smallest businesses and sole
proprietors -- exceeded $5,000.00, PPP lenders received a flat fee of $2,500 for virtually every
PPP loan less than $50,000.00.
52.
On February 8, 2021, the SBA issued a new notice setting forth the procedure for
how lenders would be paid PPP loan fees by the SBA. Id.
53.
To apply for a PPP loan, a prospective borrower would have to submit a
standardized Borrower Application Form issued by the SBA (SBA Form 2483 for first time
borrowers and SBA Form 2483-SD for second draw borrowers), together with relevant payroll
documentation, to a lender. Once the lender reviewed and approved the loan application, the
lender would submit the application to the SBA for approval.
54.
Following SBA approval of an application, the SBA would issue a ten-digit loan
identification number (known as a "GP [General Program] number") for the borrower's loan.
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55.
Provided that the borrower had executed the loan documents, the lender was
required to disburse the PPP funds within ten days of SBA approval and assignment of the loan
number.
56.
If the PPP borrower did not sign and submit all of the required documents to the
lender, then the PPP lender was required to report the loan and corresponding loan number as
cancelled no later than twenty days from the SBA approval and assignment of the loan number.
57.
Lenders' compliance with the above PPP funding requirement was of paramount
importance to applicants and borrowers for reasons beyond their need to get the PPP loan
proceeds in a timely manner.
58.
Once the SBA approved a PPP loan and assigned it a loan number, the applicant
could not apply for a PPP loan with any other lender because the applicant could not make all of
the required certifications on another PPP loan application. Thus, once approved, the borrower
was essentially "stuck" with the lender to whom it applied for the PPP loan, meaning that the
borrower had to rely exclusively on the good faith of the lender to actually fund the loan.
59.
For both first draw and second draw PPP loans, a PPP loan applicant had to
certify that they had not and would not receive another first draw or second draw loan,
respectively.
60.
Since the lender's obligation to fund a PPP loan ran from the date the SBA
approved and assigned a loan number, an applicant could not certify to another lender that they
would not receive the first loan even if the first lender had failed to timely fund the loan.
61.
Once a PPP loan was funded, the lender had ten days to submit an SBA Form
1502 to report to the SBA that the loan proceeds had been disbursed. After the lender submitted a
Form 1502, the SBA would initiate payment of the processing fee to the lender.
16
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62.
By submitting a Form 1502, the lender represented to the SBA that the PPP loan
had been fully funded. Further, a lender was required to update the SBA with monthly Form
1502 reports detailing each PPP loan's status.
Background Concerning Defendants
63.
CPF is a certified community development financial institution ("CDFI").
64.
CPF states on its website that it purports to "serv[ e] the Hispanic community in
the state of Texas." See http://www.crossroads.com/wp-content/uploads/2021/09/CRSS 03-
2021-OTC-Disclosure-Statement.pdf (accessed Dec. 23, 2021 ).
65.
CDFis were established as part of the Riegle Community Development and
Regulatory Improvement Act of 1994. See What Are CDFis, available at
https://www.cdfifund.gov/sites/cdfi/files/documents/cdfi infographic v08a.pdf (last accessed
Sept. 17, 2021). There are reportedly 1,000 CDFis operating nationwide. Id.
66.
Although it is a CDFI, CPF was acquired by the for-profit, publicly-traded
company Crossroads in 2017 (OTCQB: CRSS ).
67.
Crossroads states in media releases and on its website that it is a holding company
that focuses on investing in businesses that promote economic vitality and community
development. See, e.g., https://capitalplusfin.com/in-the-news/.
68.
Since many sole proprietors' PPP loans were in amounts less than $10,000.00,
PPP lenders were generating processing fees of only several hundred dollars for making those
loans in 2020.
69.
Pursuant to the new 2021 increased fee schedule, however, lenders like CPF could
count on collecting a $2,500.00 flat fee for every PPP loan less than $50,000.00.
17
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 17 of 129
70.
Taking into consideration the incredible demand for PPP loans less than
$50,000.00 by sole proprietors, independent contractors, self-employed individuals and other
underserved small businesses together with the more lucrative fee schedule, CPF and its
corporate parent Crossroads saw an opportunity to generate enormous amounts of lender fees by
booking a high volume of PPP loans under $50,000.00.
71.
CPF and/or Crossroads reportedly contracted with Blue Acorn PPP, LLC (and/or
its affiliate, Fin Cap, Inc. or their affiliates) ("Blueacorn") in 2021 to help identify borrowers to
whom CPF could make PPP loans and assist in the PPP paperwork process. Blueacorn
reportedly, in turn, contracted with others such as Oto Analytics, Inc. d/b/a Womply ("Womply")
to also help identify and assist additional potential PPP borrowers.
72.
Blueacorn was created in 2020. Neither Blueacorn or Womply is a bank or the
SBA-qualified lender and, therefore, cannot actually make PPP loans.
73.
Defendants assert in their motion to dismiss that "CPF is committed to its
borrowers' satisfaction and takes seriously any concerns that are raised about its services." ECF
25 at ECF p. 9. In truth, Defendants' PPP lending services have embroiled it not only in this
litigation but also as noted above a separate lawsuit from its own direct or indirect partner,
Womply, which alleges that both Defendants and one of their senior executives, Eric Donnelly
("Donnelly"), defrauded Womply out of its share of PPP lender processing fees and other
payments. See Oto Analytics, Inc. d/b/a Womply v. Capital Plus Financial, LLC, Crossroads
Systems, Inc., Eric Donnelly, Ba Fin Orion, LLC d/b/a Blueacorn, and Barry Calhoun, Case No.
3:21-cv-2636-B (N.D. Tex.). More specifically, Womply alleges that it referred 86,521 PPP
loans to CPF totaling more than $950 million in total PPP loan proceeds that resulted in CPF
18
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receiving $186,882,946 in lender processing fees, but that defendants there actually committed
fraud and conspired in failing to pay Womply its share of those and other fees.
74.
In general, only SBA section 7(a)-approved lenders were approved to make PPP
loans, together with any additional lenders determined by the Administrator of the SBA and the
Secretary of the U.S. Treasury to also be qualified to make such loans. See 86 Fed. Reg. 3692
(Jan. 14, 2021 ), available at https://www.federalregister.gov/documents/202 l/O 1/14/2021-
00451/business-loan-program-temporary-changes-paycheck-protection-program-as-amended-by-
economic-aid-act (last accessed Sept. 17, 2021 ).
75.
Accordingly, Plaintiffs and other similarly situated class member borrowers
contracted with CPF as the lender obligated to make the PPP loans.
76.
For their role in identifying potential borrowers and helping with the PPP
paperwork, Blueacorn, Womply and other PPP agent firms were reportedly entitled to a part of
the lender's fees pursuant to their separate contractual relationships. See THE NEW YORK TIMES,
How Two Start-Ups Reaped Billions in Fees on Small Business Relief Loans (June 27, 2021),
available at https://www.nytimes.com/2021 /06/27 /business/ppp-relief-loans-blueacorn-
womply.html (last accessed Sept. 17, 2021).
Defendants' Exploit PPP Lending
77.
Before becoming a PPP lender, Capital Plus was a small, regional lender whose
total revenue from operations for the fiscal year ending October 31, 2020 was $36.6 million.
78.
At the direction and under the control of its corporate parent Crossroads, CPF
exploited the increased fees to be paid by the SBA on smaller PPP loans in 2021 by reportedly
agreeing to fund 472,036 PPP loans totaling over $7.5 billion in loan proceeds -- again the
second highest number of loans by any lender in 2021, and more loans than Bank of America,
19
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 19 of 129
PNC Bank, TD Bank and Wells Fargo combined. See SBA, Paycheck Protection Program (PPP)
Report, Approvals through 5/31/2021, p. 7, available at
https://www.sba.gov/sites/default/files/202 l-06/PPP Report Public 210531-508.pdf (last
accessed Sept. 17, 2021).
79.
As a result, Crossroads (not CPF) publicly reported that it "earned fees from the
[PPP] totaling approximately $930 million" according to its quarterly report filed with the SEC
for the period ending July 31, 2021. See http://www.crossroads.com/wp-
content/uploads/2021/09/CRSS O3-2021-OTC-Disclosure-Statement.pdf (accessed Dec. 23,
2021).
80.
On June 14, 2021, Crossroads released its consolidated financial results for the
second quarter of 2021, ending April 30, 2021. Crossroads disclosed that its "[g]ross origination
fees associated with PPP loans totaled $464.1 million for the quarter," and that Crossroads
" [ e ]xpects to accrue a total of $1.1 billion in deferred gross origination fees from the [PPP]." It
also disclosed that as of April 30, 2021, Crossroads "held a cash balance of $213.1 million
compared to $2.6 million as of October 31, 2020."
81.
The June 14, 2021 release of its financial results also states as follows ( emphasis
added):
In the last several months, Capital Plus has transformed from a regional single-
family mortgage-based lending institution into one of the country's largest
providers of small business loans," said Eric A. Donnelly, Chief Executive
Officer of Crossroads Systems. When the SBA announced its reopening of the
program in January, we immediately identified strong synergies between the
program's focus on small businesses and Capital Pius's core mission as a CDFI.
Together with our loan service providers, we established early incumbency as the
go-to institution for small business owners, independent contractors, and sole
proprietors. Financially, our success in the program has put us into the best
position we have ever been in, netting us more than $150 million in operating
income for the quarter. At a record cash position, we are well-capitalized to
support the future growth initiatives that will drive our double bottom line. We
20
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will provide a more detailed review of the quarter and these growth initiatives in
the near future upon the completion of PPP." ( emphasis added).
82.
In a July 8, 2021 letter to Crossroads' shareholders, Donnelly again touted the
success of its exploitation of PPP lending via its control and domination over its SBA-qualified
PPP lending subsidiary CPF, stating as follows:
"Within just five months, we have approved 472,036 loans at an average amount
of $16,062. In total, this amounts to .... As a result of our early dominance in PPP
lending, Capital Plus was ranked the fourth largest PPP lender by net dollar
amount and the second largest by the number of loans approved."
83.
According to a July 2021 investor presentation, corporate insiders of Crossroads
own (or then owned) approximately 66% of Crossroads' equity including specifically as follows:
Robert Alpert ("Alpert"), Chairman of the Board of Crossroads and principal of210/CRDS
Investment LLC, 1,492,285 shares, or 25% of Crossroad's total outstanding shares; Donnelly,
CEO and board member of Crossroads and also CEO of CPF until August 30, 2021, 2,255,677
shares, or 37.8% of Crossroad's total outstanding shares; and Farzana Giga ("Giga"), whose
declaration Defendants filed with their motion to dismiss (ECF 24-1 ), CFO of both Crossroads
and CPF and director of Crossroads, and Crossroads board members James Perez Foster, Claire
Gogel, Ray Kembel and Clark C. Webb ("Webb"), 194,440 shares, or 3.3% of Crossroad's total
outstanding shares. See http://www.crossroads.com/wp-content/uploads/202 l /0 I /Crossroads-
CRSS-Investor-Presentation 2021.pdf.
84.
Thus, in sum, the corporate insiders and directors of Crossroads owned 3,942,402
shares, or approximately 66%, of the 6,171,984 total outstanding shares as of July 2021, with
Albert and Donnelly together owning approximately 62.8%. Id.
85.
On July 8, 2021 -- following its receipt of hundreds of millions of dollars in PPP
loan fees, including for Plaintiffs and numerous other class member PPP loans CPF failed to
21
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actually fund -- Crossroads announced in a letter to shareholders that, based on its "windfall
associated with the PPP loan program" it was "now overcapitalized" and would pay out a special
dividend of $40 per share to its shareholders on July 26, 2021. See
http://www.crossroads.com/wp-content/uploads/2021 /07 /CRSS-FQ2-2021-Shareholder-
Letter.pdf (at p. 4).
86.
On July 15, 2021, Crossroads issued a news release stating the special dividend of
$40 per share will be payable on July 26, 2021 to stockholders of record at the close of business
on July 19, 2021, and that the total amount of the dividend would be approximately $238.9
million based on the number of Crossroads shares outstanding. See
https://crossroads.mediaroom.com/2021-07-15-Crossroads-Systems-Provides-Additional-
Information-on-Special-Dividend?pagetemplate=widgetpopup&printable.
87.
As a result, and based on the respective equity interests in Crossroads, Chairman
Alpert received $59,691,400 in cash from the special dividend; Crossroads's and CPF's then-
dual CEO Donnelly received $90,227,080; and Alpert, Donnelly and other corporate insiders and
directors collectively received $157,696,080 of the approximately $238.9 million total special
dividend.
88.
On December 14, 2021, Crossroads issued a news release reporting its fiscal year
2021 financial results. In that news release, Crossroads stated that its total fiscal year "revenues
increased 2,446% to $932.7 million, up from $36.6 million in the comparative 2020 period"; that
"[r]emoving PPP impact from the year's operations, total revenues were $34.9 million compared
to $36.6 million in 2020"; that "[o]perating income increased 4,127% to $243.4 million, up from
$5.8 million in 2020"; that "[t]he substantial increase in operating income was primarily due to
origination fees associated with the Company's participation in the PPP loan program"; and that
22
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 22 of 129
"[c]ash EPS (operating income less income to non-controlling interests) was $36.19, which was
a 4,820% increase compared to $0. 74 during the same period in 2020." See
https:/ /www .pmewswire.com/news-releases/crossroads-systems-reports-fiscal-fourth-guarter-
and-fiscal-year-2021-financial-results-301443835 .html (last accessed December 29, 2021).
89.
Crossroads Board Chairman Alpert is also Chairman and Co-CEO of PIO
Holdings, Inc. ("P 1 0"), a publicly traded investment firm that provides investment advisory
services to Crossroads, and is also headquartered at the same corporate headquarters as
Crossroads, 4514 Cole Avenue, Suite 1600, Dallas, Texas 75205. See
https://www.pIOalts.com/team.
90.
Crossroads controlled and directed the activities of CPF, and its management even
referred to the companies as if they were one specifically in the context of the PPP in public
communications to shareholders, among other things. For example, in a letter to shareholders
accompanying its fiscal second quarter report to shareholders for the three months ended
April 30, 2021, Crossroads Board Chair Alpert and Crossroads's and CPF's then-dual CEO
Donnelly stated that "[w]e were well equipped to lead the charge for the program's second draw
as a result of our CDFI status" (emphasis added); that "[l]ast quarter we highlighted our
intention to participate in the second federal PPP program" ( emphasis added); that "we were able
to issue and approve loan applications at an unprecedently rapid pace" ( emphasis added); and
that, "[w]ithinjust five months, we have approved 472,036 loans at an average amount of
$16,062. In total, this amounts to $7.6 billion in funding, more than 80% of which went directly
to companies and independent contractors of color.") (emphasis added). See
http://www.crossroads.com/wp-content/uploads/2021/07 /CRSS-FQ2-202 l-Shareholder-
Letter.pdf (last accessed December 29, 2021).
23
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 23 of 129
91.
In sum, Crossroads participated directly and indirectly in the PPP loan processing
through its common management and control and 100% ownership of CPF; exploited CPF's
status as an SBA-approved CDFI PPP lender to enrich itself and its corporate insiders to obtain
fees on PPP loans CPF never funded, including the PPP loans of Plaintiffs and the other putative
members of the proposed class; obtained millions of dollars in PPP lender processing fees
including on the backs of the unfunded loans of Plaintiffs and the other putative members of the
proposed class; and, in turn, improperly enriched itself and its senior leadership from a federally-
backed program designed actually to help struggling small minority, women and other business
owners whose businesses were struggling amid the COVID-19 pandemic.
CPF's Direct Participation in the
PPP Liquidity Facility
92.
To facilitate lending under the SBA's PPP, the Federal Reserve supplied liquidity
to CPF and other participating financial institutions through term financing to be secured by the
PPP loans. See Board of Governors of the Federal Reserve System, Paycheck Protection
Program Liquidity Facility (PPPLF), available at
https://www.federalreserve.gov/monetarypolicy/ppplf.htm (last accessed Sept. 17, 2021).
93.
In particular, the Paycheck Protection Program Liquidity Facility ("PPPLF") was
authorized under§ 13(3) of the Federal Reserve Act "to facilitate lending by eligible borrowers
[i.e., PPP lenders] to small businesses under the [PPP] .... Under the Facility, the Federal
Reserve Banks ('Reserve Banks') will lend to eligible borrowers [i.e., PPP lenders] on a non-
recourse basis, taking PPP Loans as collateral." See Paycheck Protection Program Liquidity
Facility Term Sheet, available at
https:/ /www.federalreserve.gov/newsevents/pressreleases/files/monetary202 l 0625a l .pdf (last
accessed Sept. 17, 2021 ).
24
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 24 of 129
94.
Further, "[a]ll lenders that are eligible to originate PPP Loans are eligible to
borrow under the Facility." Id.
95.
For CPF and other qualified CDFI PPP lenders, the lending Federal Reserve Bank
was the Federal Reserve Bank of Cleveland. Id.
96.
Only SBA-guaranteed PPP loans are eligible to serve as collateral for PPPLF
advances, and the principal amount advanced under the PPPLF was to be equal to the principal
amount of the PPP loan pledged to secure the extension of credit. Id.
97.
CPF received billions of dollars of advances through the PPPLF as specified more
fully below, in addition to other PPP advances.
98.
In fact, although the PPP application period ended on May 31, 2021 and the life
cycle of a PPP loan application should only take a few business days, CPF continued to receive
substantial advances through the PPPLF between June 30, 2021 and July 30, 2021, after the
deadline for processing loan applications.
99.
For example, between July 1, 2021 and July 30, 2021, CPF received at least three
PPPLF cash advances each exceeding $30,000,000.00, and also received a total of
$134,119,585.79 in PPP loan advances for the month of July 2021 alone.
100.
In particular, according to a report by the Federal Reserve to the U.S. Congress
dated December 13, 2021 "PPPLF Transaction-specific Disclosures (XLSX)." CPF received the
following specific cash advances from the PPPLF:
Date of Advance
Amount
2021-02-02
$2,178,040.41
2021-02-02
$627,622.00
2021-02-11
$5,708,115.06
2021-02-11
$273,968.00
2021-02-11
$2,710,413.00
2021-02-11
$273,579.59
25
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 25 of 129
Date of Advance
Amount
2021-02-11
$2,129,648.45
2021-02-11
$3,693,488.60
2021-02-11
$5,512,672.14
2021-02-25
$1,191,862.00
2021-02-25
$1,906,418.00
2021-02-25
$34,357.00
2021-02-25
$1,291,742.00
2021-02-25
$2,976,057.35
2021-02-25
$541,239.00
2021-02-25
$372,863.50
2021-02-25
$57,626.00
2021-03-01
$354,159.11
2021-03-01
$5,647,969.98
2021-03-02
$325,669.00
2021-03-02
$4,378,004.32
2021-03-02
$1,460,686.27
2021-03-02
$182,176.50
2021-03-02
$215,785.00
2021-03-02
$10,184,988.00
2021-03-02
$586,175.75
2021-03-03
$452,683.05
2021-03-03
$2,161,402.00
2021-03-04
$5,273,526.10
2021-03-09
$5,825,425.32
2021-03-09
$5,502,974.02
2021-03-09
$791,045.97
2021-03-09
$7,966,408.33
2021-03-10
$4,144,182.85
2021-03-11
$3,279,707.66
2021-03-15
$22,298,842.23
2021-03-16
$764,647.00
2021-03-16
$17,845,001.09
2021-03-16
$902,196.50
2021-03-16
$1,794,125.60
2021-03-17
$19,604,711.14
2021-03-18
$14,608,755.33
2021-03-18
$1,091,038.95
2021-03-19
$12,415,131.15
2021-03-22
$82,131,881.16
2021-03-23
$54,386,988.50
2021-03-23
$ 16,861,162.00
26
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 26 of 129
Date of Advance
Amount
2021-03-23
$27,003,647.85
2021-03-24
$98,770,508.82
2021-03-25
$10,147,992.90
2021-03-29
$479,593.40
2021-03-29
$6,760,457.63
2021-03-29
$11,671,507.38
2021-03-29
$11,310,627.52
2021-03-29
$8,987,367.00
2021-03-29
$8,840,001.43
2021-03-29
$8,036,480.35
2021-03-29
$7,579,378.00
2021-03-29
$7,687,847.70
2021-03-29
$5,476,010.00
2021-03-29
$3,022,105.50
2021-03-29
$2,097,367.75
2021-03-29
$7,343,229.25
2021-03-29
$5,352,732.72
2021-03-29
$3,907,229.00
2021-03-29
$3,074,780.48
2021-03-29
$2,324,503.09
2021-03-29
$947,087.00
2021-03-29
$2,505,979.50
2021-03-29
$1,170,854.10
2021-03-29
$4,357,560.50
2021-03-30
$79,562,983.00
2021-03-30
$102,496,216.00
2021-03-30
$72,574,056.00
2021-03-30
$84,507,665.00
2021-03-31
$75,764,259.00
2021-04-01
$9,549,671.89
2021-04-01
$39,612,141.00
2021-04-02
$243,075,429.00
2021-04-06
$257,472,124.33
2021-04-06
$132,444,399.00
2021-04-07
$10,927,697.00
2021-04-07
$62,021,483.00
2021-04-08
$85,339,435.12
2021-04-08
$259,374,000.00
2021-04-16
$126,501,443.00
2021-04-16
$181,211,831.00
2021-04-16
$162,256,760.73
27
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 27 of 129
Date of Advance
Amount
2021-04-16
$16,005,416.00
2021-04-16
$176,063,638.00
2021-04-20
$15,295,725.00
2021-04-21
$12,171,969.60
2021-04-21
$5,953,438.16
2021-04-21
$38,643,341.00
2021-04-21
$96,987,237.00
2021-04-21
$48,105,810.00
2021-04-23
$58,507,134.00
2021-04-23
$368,780,681.00
2021-04-23
$327,135,009.82
2021-04-23
$70,865,658.00
2021-04-26
$114,086,044.00
2021-04-30
$5,717,971.00
2021-05-03
$1,765,216.00
2021-05-03
$2,944,483.47
2021-05-03
$2,096,650.00
2021-05-04
$2,293,625.00
2021-05-04
$34,802,766.00
2021-05-06
$2,125,832.00
2021-05-06
$1,070,106.00
2021-05-06
$616,115.00
2021-05-06
$835,290.00
2021-05-07
$365,435.00
2021-05-12
$263,080,394.00
2021-05-12
$33,579,305.00
2021-05-12
$16,088,836.00
2021-05-12
$5,443,630.00
2021-05-12
$890,741.00
2021-05-12
$1,413,197.00
2021-05-17
$1,851,188.00
2021-05-17
$1,577,688.00
2021-05-17
$1,581,021.00
2021-05-17
$8,630,450.25
2021-05-18
$1,101,950.00
2021-05-18
$577,710.00
2021-05-18
$535,369,687.12
2021-05-20
$33,419,154.94
2021-05-20
$46,027,570.00
2021-05-24
$11,859,766.00
2021-05-25
$9,886,972.00
28
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 28 of 129
Date of Advance
Amount
2021-05-25
$2,365,516.00
2021-05-25
$600,024.00
2021-05-25
$1,831,023.00
2021-05-28
$1,902,346.00
2021-05-28
$5,249,415.00
2021-05-28
$1,677,600.00
2021-06-02
$2,478,525.99
2021-06-02
$395,067.00
2021-06-02
$574,919.00
2021-06-04
$2,086,894.92
2021-06-04
$834,823.00
2021-06-04
$1,120,999.32
2021-06-04
$80,299,469.78
2021-06-04
$147,886,129.00
2021-06-10
$1,805,560.00
2021-06-10
$700,921.00
2021-06-10
$1,143,936.00
2021-06-10
$12,226,237.00
2021-06-10
$968,115.00
2021-06-16
$1,729,026.00
2021-06-16
$933,469.00
2021-06-16
$46,130,527.00
2021-06-17
$484,266.07
2021-06-17
$542,102.00
2021-06-17
$807,337.00
2021-06-18
$49,044,789.00
2021-06-22
$16,783,373.00
2021-06-23
$515,136,782.00
2021-06-23
$312,406,138.00
2021-06-24
$8,087,276.00
2021-06-24
$15,750,200.00
2021-06-24
$23,444,948.00
2021-06-25
$1,627,318.00
2021-06-25
$1,400,035.00
2021-06-25
$2,004,933.00
2021-06-25
$1,331,199.00
2021-06-25
$1,303,819.32
2021-06-25
$149,773.00
2021-06-29
$2,496,951.63
2021-06-29
$538,849.00
2021-06-29
$41,636.00
29
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 29 of 129
Date of Advance
Amount
2021-06-29
$126,344.00
2021-06-29
$1,119,986.00
2021-06-29
$179,504.00
2021-06-29
$244,511.00
2021-06-29
$26,324.00
2021-06-29
$127,795.00
2021-06-29
$144,425.00
2021-06-29
$39,294.00
2021-06-29
$114,014.00
2021-06-29
$5,000.00
2021-06-29
$1,140,000.00
2021-06-29
$7,642,798.00
2021-06-29
$101,233,693.33
2021-06-30
$194,761.00
2021-07-01
$35,891,616.00
2021-07-01
$217,926.00
2021-07-01
$436,360.00
2021-07-06
$38,610,016.00
2021-07-06
$1,025,508.00
2021-07-06
$62,496.00
2021-07-07
$7,098,589.00
2021-07-13
$1,219,924.00
2021-07-13
$452,164.00
2021-07-14
$385,525.00
2021-07-14
$41,193,415.00
2021-07-29
$239,725.00
2021-07-30
$72,735.00
2021-07-30
$6,304,677.00
2021-07-30
$858,609.79
2021-07-30
$32,930.00
2021-07-30
$17,370.00
Total
$6,458,857,759.43
See Board of Governors of the Federal Reserve System, Paycheck Protection Program Liquidity
Facility (PPPLF), available at https://www.federalreserve.gov/monetarypolicy/ppplf.htm (last
accessed Dec. 23, 2021).
101.
As alleged below, while CPF reportedly received over $6.4 billion from the
PPPLF in 2021 alone, CPF failed to actually fund PPP loans approved by the SBA for Plaintiffs
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and numerous other SBA-approved borrower members of the proposed class. CPF failed to fund
class member approved loans, moreover, despite having actually received the unfunded PPP loan
proceeds via advances from the PPPLF secured by the PPP loans, including the PPP loans it
failed to fund.
102.
Although no discovery has occurred yet in this case, emails produced in
Womply's litigation against Defendants reflect Defendants knew of CPF's failure to fund SBA-
approved PPP loans. For example, one such unfunded borrower wrote an email to Christopher
Dalton ("Dalton") of the SBA on June 24, 2021 stating as follows:
"Hi Christopher, This is Minority women own small business for 14 years Covid
19 destroyed my business . SBA approved ppp loan . I email to Ms .Faranz.a giga
capital plus , I got respond from Greg Jacobson i give him my information still no
respond. 'I NEED HELP.' My lender is Capital Plus My loan no is. First draw
ppp loan . Amount of loan is not big but for me is really helpful to restart my
business. Thank you,"
·
Dalton forwarded that email to Donnelly and CPF employee Greg Jacobson ("Jacobson") on
June 25, 2021 and Jacobson, in turn, forwarded it to representatives ofWomply also on June 25,
2021, stating "please see below a request for status from the SBA" and "also confirm all else is
getting funded .... " Another email dated June 18, 2021 by CPF's CFO Farz.ana Giga to Connie
Spencer-Adams of Womply stated as follows: "Any loans not sent to BA/CPF by 6/23 will not
be able to get funds and none of us want to deal with that."
103.
Furthermore, Defendants cite totally distinguishable cases involving prospective
PPP loan applicants rather than, as here, SBA-approved borrowers, delayed PPP loan payments,
and PPP loan processing fee "agent" cases (ECF 25 at ECF pp's 10-11), and then glibly and
callously assert that "Plaintiff's misleading claim in this case, that CPF 'failed to fund' a loan it
agreed to make, suggests that "litigants seeking to exploit the PPP for private gain are simply
running out of ideas." Id. at ECF p. 11. In truth, Plaintiffs -- who are small business owners
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involved, respectively, in insurance inspection, auto repair, landscaping and support for artists
and writers -- are among the very intended beneficiaries that Congress designed the PPP to assist
and CPF was contractually obligated but failed to fund.
CPF's Failure to Fund
Plaintiff Greathouse's PPP Loan
104.
When the pandemic began, Plaintiff Greathouse was, and continues to be, in the
business of providing insurance inspection services in the Russellville, Arkansas area.
105.
Due to the pandemic, Plaintiff was not able to provide these services with the
same frequency and, as a result, lost significant income.
106.
On or about April 8, 2021, Greathouse applied for a PPP loan with CPF.
Greathouse submitted all requested documentation and information.
107.
On or about April 9, 2021, the SBA approved Greathouse's PPP loan application
and assigned it a loan number (SBA Loan Number 9988328700).
108.
Greathouse was approved for a PPP loan in the amount of$15,665.00.
109.
On April 18, 2021, Greathouse received the standard form PPP promissory note
(the "Note") and accompanying documents for him to sign.
110.
The Note identified the SBA loan number and amount, Defendant CPF as the
lender and Plaintiff Greathouse as the borrower; set forth payment terms, potential events of
default, CPF' s rights in the event of default, and other terms and conditions; and provided the
terms for Plaintiff Greathouse to repay the loan to CPF if it was not forgiven.
111.
The Note also included a standard form Additional and Correction Documents
Agreement (Errors and Omissions Agreement) between CPF and Plaintiff Greathouse; a
Business Purpose Statement; a Notice - No Oral Agreements bearing the signature CPF Chief
Financial Officer Giga and Plaintiff Greathouse; a Written Consent of Governing Body form for
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Greathouse to represent that he is authorized to receive the loan and on which CPF may rely; an
IRS W-9 Request for Taxpayer Identification Number and Certification; and an Information and
Bank Account Certification and Authorization form identifying the bank or other account to
which CPF was obligated to send the funds (collectively, the "Loan Documents").
112.
On April 18, 2021, Greathouse signed and returned the Loan Documents in order
to obtain the $15,665.00 PPP loan.
113.
Also on April 18, 2021, Greathouse was advised by email that his loan was
approved and is being funded.
114.
Despite properly and timely completing, signing and submitting the Loan
Documents and additional attempts to obtain the loan proceeds, however, Greathouse never
received the proceeds of his SBA-approved PPP loan.
115.
For example, Greathouse contacted and consulted with his local SBA office about
CPF's failure to fund his PPP loan, and sent emails and made numerous telephone calls to CPF
and Blueacom to try to follow-up and get funded, all to no avail.
116.
On July 19, 2021, and following his complaints to the local SBA office and
telephone calls again seeking funding, Greathouse was advised on July 19, 2021 that his PPP
loan was being funded within an estimated three to six days.
117.
Although the SBA's records reported that Greathouse's PPP loan had actually
been funded, Greathouse never received any PPP loan proceeds.
118.
The SBA's record of the alleged disbursement of Greathouse's loan proceeds was
based on data CPF provided to the SBA.
33
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119.
CPF's failure to fund Greathouse's SBA-approved PPP loan deprived Greathouse
of funds that would have directly assisted in the operation of his business and resulted in lost
opportunities and other consequential damages.
CPF's Failure to Fund
Plaintiff Covarrubias's PPP Loan
120.
When the pandemic began, plaintiff Covarrubias was, and continues to be, in the
business of providing auto repair services in the Santee, California area.
121.
Due to the pandemic, plaintiff Covarrubias' s business lost significant income.
122.
In or about May 2021, Covarrubias applied for a PPP loan with CPF. Covarrubias
submitted all requested documentation and information.
123.
In May 2021, the SBA approved Covarrubias's PPP loan application and assigned
it a loan number (SBA Loan Number 4713608906).
124.
Covarrubias was approved for a PPP loan in the amount of $8,332.00.
125.
On May 21, 2021, Covarrubias received the same standard form PPP promissory
Note and accompanying standard form Loan Documents for him to sign that plaintiff Greathouse
also received and signed.
126.
On May 21, 2021, Covarrubias signed and returned the Loan Documents in order
to obtain the $8,332.00 PPP loan.
127.
Also on May 21, 2021, Covarrubias was advised by email that his loan was
approved and is being funded.
128.
Despite properly and timely completing, signing and submitting the Loan
Documents and additional attempts to obtain the loan proceeds, however, Covarrubias never
received the proceeds of his SBA-approved PPP loan. Covarrubias attempted to contact CPF
directly to get his loan funded, but was unable to reach anyone live with whom to speak. As he
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stated in a December 8, 2021 email to an SBA representative, there was a "lack of customer
service and being able to get ahold of a live person being nonexistent made things worse."
129.
Covarrubias also contacted the SBA directly about CPF's failure to fund his PPP
loan, and sent emails and made numerous telephone calls to CPF and SBA to try to follow-up
and get funded, all to no avail.
130.
For example, Covarrubias sent an email to a SBA representative on November 29,
2021 stating "If the loan had been canceled and return why was I able to get approved for my
loan to be forgiven. Someone kept that money knowing that ifl didn't get my loan forgiven I
would be on the hook for paying it back. I would've been out of time to apply for the loan to be
forgiven[] I would've been responsible for paying loan back if the loan was still in limbo." The
SBA representative replied to him that same day by email stating "I understand this has
happened to a lot of individuals, but therefore the SBA is program -- the bank utilize [sic] just
like a mortgage done by Fanny/Freddie. Yes, it is backed by a Government program, but it is
managed and held with a bank or lending institution. We don't approve, deny, or withdraw any
requests, because they are not our loans."
131.
Similarly, in a September 29, 2021 email Covarrubias sent to the Blueacom portal
after Blueacom refused to assist in getting CPF to fund his loan, Covarrubias sought further
information regarding the whereabouts of the PPP loan proceeds he was approved by the SBA to
receive, and which SBA records falsely showed were disbursed to him and as to which he was be
obligated to repay plus interest:
"First and foremost those documents I originally sent in where prove enough for
the SBA to approve my loan and give me a loan number. Second had my loan
been denied I wouldn't of received an email reminding me about the loan
forgiveness. Why haven't I received an email from you or my lender telling me to
get my loan forgiven. I know why because than you would be committing a fraud.
What your trying to do is wait everyone out until the very last minute who has
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$8332 just laying around to pay the loan back when it could all just go away with
the loan forgiveness, oh but wait what happens to the $8332 dollars of mine that
the SBA approved who gets that money. Well that money who knows where it
went it just disappeared it vanished along with thousands of other people's PPP
loans that BLUE ACORN AND CAPITAL PLUS FINANCIAL HA VE STOLEN
LIED ABOUT BEING DISBURSED. I NEVER RECEIVED NOT ONE PHONE
CALL FROM EITHER BLUE ACORN OR CAPITAL PLUS FINANCIAL."
(emphasis in original)
132.
Covarrubias still persisted in his efforts to actually get his SBA-approved loan
funded.
133.
Although the SBA's records reported that Covarrubias's PPP loan had actually
been funded, Covarrubias never received any PPP loan proceeds.
134.
The SBA's record of the alleged disbursement of Covarrubias's loan proceeds
was based on data CPF provided to the SBA.
135.
CPF's failure to fund Covarrubias's SBA-approved PPP loan deprived
Covarrubias of funds that would have directly assisted in the operation of his business and
resulted in lost opportunities and other consequential damages.
CPF's Failure to Fund
Plaintiff Sumrall's PPP Loan
136.
When the pandemic began, plaintiff Sumrall was, and continues to be, in the
business of providing landscape architectural services in the El Paso, Texas area.
137.
Due to the pandemic, plaintiff Sumrall was not able to provide these services with
the same frequency and, as a result, lost significant income.
138.
On or about May 18, 2021, Sumrall applied for a PPP loan with CPF. Sumrall
submitted all requested documentation and information.
139.
In May 2021, the SBA approved Sumrall's PPP loan application and assigned it a
loan number (SBA Loan Number 5126489010).
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140.
Sumrall was approved for a PPP loan in the amount of $4,095.00.
141.
Also in May 2021, Sumrall received the same standard form Note and
accompanying Loan Documents for her to sign that plaintiff Greathouse received, and Sumrall
signed and returned the Loan Documents in order to obtain the $4,095.00 PPP loan.
142.
Despite properly and timely completing, signing and submitting the Loan
Documents and additional attempts to obtain the loan proceeds, however, Sumrall never received
the proceeds of her SBA-approved PPP loan.
143.
For example, Sumrall contacted the Blueacom for any information it had about
CPF's obligation to fund her loan and, by email on May 29, 2021, was told that "[i]fyour
application is SBA approved, you can be rest assured that your funds are secure and they will be
transferred to your account." Sumrall replied as follows:
"I understand you may be very busy but I have lost 2 people to COVID my
business home and family a on the brink. There has been no light in sight. I have
passed every identity verification process. I never once stated anything about
fraud. Please explain why I was approved and signed your promissory note and
have no money and now this. Please explain."
144.
Although the SBA's records reported that Sumrall's PPP loan had actually been
funded, Sumrall never received any PPP loan proceeds.
145.
The SBA's record of the alleged disbursement of Sumrall's loan proceeds was
based on data CPF provided to the SBA.
146.
CPF's failure to fund Sumrall's SBA-approved PPP loan deprived Sumrall of
funds that would have directly assisted in the operation of her business and resulted in lost
opportunities and other consequential damages.
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CPF's Failure to Fund
Plaintiff Myles's PPP Loan
14 7.
When the pandemic began, plaintiff Myles was, and continues to be, in the
business of providing services to independent artists, writers and performers in the Raeford,
North Carolina area.
148.
Due to the pandemic, plaintiff Myles's business was damaged and, as a result, lost
significant income.
149.
In or about May 2021, Myles applied for a PPP loan with CPF.
150.
Also in May 2021, the SBA approved Myles's PPP loan application and assigned
it a loan number (SBA Loan Number 5742309006).
151.
Myles was approved for a PPP loan in the amount of $11,497.00.
152.
In May 2021, Myles received and properly signed and returned the same standard
form Note and accompanying Loan Documents that plaintiff Greathouse received.
153.
Despite properly and timely completing, signing and submitting the Loan
Documents and additional attempts to obtain the loan proceeds, however, Myles never received
the proceeds of her SBA-approved PPP loan.
154.
For example, in an email on August 11, 2021, Myles summarized her experience
as follows:
"I also can show text messages beginning in 10/2019 until this year. I began
proceedings for this singing competition in October 2019, communicated with the
Director at Cole Auditorium in February 2020. I have the messages. Also, if you
requested all of the information that you stated I did not present to you, I would
like to know when, how, and a completed copy of what you were requesting. I
was never to start the business because of the pandemic so there wasn't any taxes
to file, no revenue, nothing. And finally, if you needed all of the documentation
that you claim I did not submit, why was I ever approved and sent a check to my
bank account?
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I will expect answers, I will not allow you all to treat me this way, and I will fight
for my right to have the check that was sent to me, returned. My account had not
been negative for a long time, but because I was informed that I had been
approved, I went in debt to open a business bank account, pay over $2000 for a
website, and many meetings.
I want the funds I was approved for returned to me or we will be in the news. And
don't say I am threatening you because I am not.. .. this is a promise. You will not
give and then take back, and think you're going to get away with it."
155.
Although the SBA's records reported that Myles's PPP loan had actually been
funded, Myles never received any PPP loan proceeds.
156.
The SBA's record of the alleged disbursement of Myles's loan proceeds was
based on data CPF provided to the SBA.
157.
CPF's failure to fund Myles's SBA-approved PPP loan deprived Myles of funds
that would have directly assisted in the operation of her business and resulted in lost
opportunities and other consequential damages.
CPF's Failure to Fund Other
SBA-Approved Class Member
Borrower PPP Loans
158.
Again while Defendants contend that "CPF is committed to its borrowers'
satisfaction" and that "the vast majority of CPF's borrowers have reported no issues receiving
their loans" (ECF 25 at ECF p. 9), the truth is that, in addition to Plaintiffs' experiences,
numerous other PPP borrowers across the United States have complained publicly about CPF's
failure to fund their PPP loans, examples of which include the following:
a.
"Capital Plus Financial has kept hundreds of people's PPP loans that were already
approved by the SBA." (Consumer Financial Protection Bureau Complaint
Database, Complaint No. 4409176, May 26, 2021,
https://www.consumerfinance.gov/data-research/consumer-complaints/, last
accessed Dec. 23, 2021);
b.
"I hope capital plus financial is shut down after this, and that's on god. They
deserve to lose all of their financial accreditations and business licenses. I have
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never in my life been in a situation like this with a financial institution that cuts
off all methods of contact/communication for months at a time with zero
explanation." (Consumer complaint, June 2020,
https://www.reddit.com/r/Blueacom/comments/nci8lm/just got off the phone w
ith an sba rep in tx/, last accessed Dec. 23, 2021);
c.
"[T] they don't have a ETA on when my funds will be sent to my account. They
do not have a phone to contact them, the lender Capital Plus Financial doesn't
have a way for me to contact. I have emailed the CEO of capital plus financial
every single day which is the lender and I have not heard anything from them at
all." (Consumer Financial Protection Bureau Complaint Database, Complaint No.
4348481, May 4, 2021, https://www.consumerfinance.gov/data-
research/consumer-complaints/, last accessed Dec. 23, 2021 );
d.
"I signed on April 8th and it says that my friends have been transferred or
deposited and I have not seen a dime has anybody reported this to the SBA?"
(June 2021 Consumer Complaint,
https://www.reddit.com/r/PPPLoans/comments/msOpzr/anybody been funded by
capital plus financial/gz92tah/?utm source=reddit&utm medium=web2x&cont
ext=3, last accessed Dec. 23, 2021);
e.
"If they broke they really need to just say that and send me to another lender or
something because at this point they owe me." (Consumer complaint, May 2021,
Facebook Group PPP Funding Group,
https://www.facebook.com/groups/442306946857529/posts/456065148815042,
last accessed Dec. 23, 2021);
f.
"They are making up the rules as they go, holding money that doesn't belong to
them. This is not what SBA intended." (Consumer complaint June 2021,
change.org, https://www.change.org/p/ppp-fraud-by-blueacorn-and-capital-plus-
financial-failure-to-deliver-sba-
funds?utm source=share petition&utm medium=custom url&recruited by id=9
da43a80-c0d6-012f-2f2f-4040496dcccb, last accessed Dec. 23, 2021); and
g.
"Other delay tactics are mistakes on bank account information you didn't make,
an inability to correct mistakes you did make and an inability to reach anyone at
both companies. They are holding funds and not delivering money to borrowers.
SBA tells you to resolve with a lender you can't reach directly and never returns
calls." (Change.org Petition: Report PPP fraud by Blueacorn and Capital Plus
Financial Failure to Deliver SBA Funds, 147 supporters, last accessed Dec. 23,
2021).
40
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159.
Indeed, Defendants have reportedly received so many complaints about CPF's
failure to fund SBA-approved PPP loans that they actually had to add a warning to CPF's
website about communications to CPF regarding PPP lending which stated as follows:
NOTICE CONCERNING THREATENING OR HARASSING
COMMUNICATIONS
The partnership of Capital Plus Financial and Blue Acorn has successfully served
hundreds of thousands of individuals and small businesses through the funding of
Paycheck Protection Program (PPP) loans.
Feedback from customers is always appreciated. Customer service remains our
top priority.
However, we will not tolerate any threatening or harassing actions or
communications from customers in any form.
Any communication from an applicant we deem threatening, harassing or
intimidating will result in the immediate withdrawal of the loan.
Additionally, we will pursue all available criminal and civil legal avenues to
defend and protect our companies and our associates. Our team includes former
federal agents and prosecutors. We are working closely with federal, state, and
local law enforcement to identify and prosecute those who would make threats
against our companies or our associates. We will pursue these options to the
fullest extent of the law.
See https://capitalplusfin.com/home/ (visited Dec. 26, 2021).
160.
CPF failed to fund the SBA-approved PPP loans of Plaintiffs and other Class
member borrowers despite the fact that CPF itself participated in the Program directly also as a
beneficiary, having received the PPP loan on April 13, 2020 ofreportedly $376,800. See, e.g.,
Capital Plus Financial LLC in Bedford, TX - SBA PPP Loan Data (Paycheck Protection
Program) (federalpay.org) (accessed on Dec. 28, 2021).
Class Action Allegations
161.
Plaintiffs bring this action individually and on behalf of the following national
class (the "Class") and subclasses:
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National Class: All persons and entities in the United States who, in 2021,
applied for PPP loans with defendant CPF as the lender for whom the SBA
provided an SBA loan number, and who executed and submitted their Loan
Documents but did not receive the PPP loan proceeds.
California Subclass: All persons and entities in California who, in 2021, applied
for PPP loans with defendant CPF as the lender for whom the SBA provided an
SBA loan number, and who executed and submitted their Loan Documents but
did not receive the PPP loan proceeds.
North Carolina Subclass: All persons and entities in North Carolina who, in
2021, applied for PPP loans with defendant CPF as the lender for whom the SBA
provided an SBA loan number, and who executed and submitted their Loan
Documents but did not receive the PPP loan proceeds.
162.
Excluded from the Class and subclasses are Defendants, any entities in which
Defendants have a controlling interest, Defendants' agents and employees, any Judge to whom
this action is assigned, and any member of such Judge's staff and immediate family.
163.
There is a well-defined community of interest among members of the Class and
subclasses, and the disposition of their claims in a single action will benefit the parties and the
Court.
164.
The proposed Class and subclasses meet each applicable requirement of Fed. R.
Civ. P. 23.
165.
Numerosity: While the exact number of members of the Class and subclasses are
unknown at this time and can be determined by appropriate discovery, the Class and each
subclass includes numerous members such that joinder of all members is impracticable within
the meaning of Rule 23(a)(l).
166.
Ascertainability: Names and addresses of members of the Class and subclasses
are available from Defendant CPF' s records and potentially other sources including publicly
available databases. Notice can be provided to the members of the Class and subclasses through
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direct mailing, publication, or otherwise using techniques and a form of notice similar to those
customarily used in class action litigation.
167.
Typicality: Plaintiffs' claims are based on the same facts and legal theories as
those of the other members of the Class and subclasses which Plaintiffs seek to represent.
Plaintiffs and the members of the Class and subclasses all similarly applied for PPP loans, had
their loans approved by the SBA, but did not receive their PPP loan proceeds from CPF despite
the parties' loan contracts.
168.
Adequacy: Plaintiffs will fairly and adequately represent the interests of the
members of the Class and respective subclasses. Plaintiffs are adequate representatives of the
Class and respective subclasses as their interests align with the interests of the members of the
Class and respective subclasses, and Plaintiffs are represented by counsel skilled and
experienced in class actions, including financial consumer and other class action litigation.
169.
Superiority: A class action is superior to all other available methods of the fair
and efficient adjudication of the claims asserted in this action because the expense and burden of
individual litigation makes it economically unfeasible for members of the Class and subclasses to
seek to redress their claims other than through a class action; if separate actions were brought by
individual members of the Class and subclasses, the resulting duplicity of lawsuits could lead to
differing and inconsistent adjudications; and, absent a class action, Defendants are unlikely to be
held accountable for CPF's failure to actually fund all applicable SBA-approved PPP loans.
170.
Predominance and Commonality: Common questions of law and fact exist and
predominate over any questions which affect individual members of the Class and subclasses.
Common questions of fact and law include, but are not limited to:
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a.
whether defendant CPF failed to fund SBA-approved PPP loans to
Plaintiffs and other members of the Class and subclasses in breach of its
obligations to actually fund such loans;
b.
whether CPF and Crossroads obtained fees for PPP loans that CPF did not
make;
c.
whether CPF' s corporate parent, Crossroads, controlled CPF and was
unjustly enriched by obtaining fees for PPP loans;
d.
whether CPF's failure to fund SBA-approved PPP loans violated the Loan
Documents it entered into with Plaintiffs and other members of the Class
and subclasses; and
e.
whether defendant CPF's failure to fund SBA-approved PPP loans and
Crossroads's receipt of PPP loan fees damaged Plaintiffs and the members
of the Class and subclasses.
171.
Plaintiffs reserve the right to amend the definition of the Class and subclasses if
discovery or further investigation reveals that the definition of the Class or subclasses should be
amended.
COUNT ONE
Breach of Contract
(Against CPF)
1 72.
Plaintiffs incorporate the allegations from all previous paragraphs as if fully set
forth herein.
173.
This Count is alleged by all Plaintiffs against only defendant CPF.
174.
The standard form promissory Note and accompanying Loan Documents that CPF
and the members of the proposed Class entered into are binding, enforceable agreements. Among
other provisions, the Note identifies the specific PPP loan, loan number and amount of the loan;
specifies that the parties to the Note are, respectively, the Class member borrower and the
"Lender" CPF; provides that, "[t]his loan is made pursuant to the PPP"; requires the borrower to
pay back the principal of the loan plus interest if the PPP loan is not forgiven; contains other PPP
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loan repayment terms and events of default and the lender's rights in the event of the borrower's
default; and contains general provisions, including specifically that "[a]ll individuals and entities
signing this Note are jointly and severally liable[.]"
175.
In addition, the Additional and Correction Documents Agreement (Errors and
Omissions Agreement) that accompanies the promissory Note between the Plaintiff class
member borrowers and CPF provides additional terms and states, at the outset, explicitly as
follows:
"In consideration of Capital Plus Financial, LLC, located at 224 7 Central Drive,
Bedford, Texas 76021 (hereinafter called 'Lender') making the above loan, each
of the undersigned, jointly and severally, do hereby agree as follows .... "
176.
The Loan Document contracts entered into by CPF and the putative members of
the alleged borrower Class also include a "Notice - No Oral Agreements" document that governs
the "Loan by Lender, Capital Plus Financial, LLC to Borrower"; identifies each Class member
borrower; and is executed by both CPF via its CFO Giga, and each putative Class member
borrower.
177.
A complete copy of the Loan Document plaintiff Greathouse agreed to is attached
to this Complaint as Exhibit A (with only plaintiff Greathouse's Social Security and bank
account numbers redacted).
178.
Through its agreement to make PPP loans via the Loan Documents and as the
counterparty to the Loan Documents, CPF entered into binding agreements with Plaintiffs and
the members of the proposed Class to fund their respective PPP loans.
179.
Further, CPF had an implied duty to act in good faith and in accordance with fair
dealing to take all steps necessary to fund Plaintiffs' and the Class members' PPP loans pursuant
to the Loan Documents.
45
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 45 of 129
180.
In addition, CPF and its corporate parent Crossroads also acted consistent with,
reaped the benefits of and made numerous representations confirming CPF's agreement to fund
Plaintiffs' loans. For example, defendant Crossroads reported that "the Company" made $930
million in PPP loan fees by representing to the SBA that it had funded Plaintiffs' and other PPP
loans. Defendant CPF also obtained billions of dollars from the PPPFL by pledging Plaintiffs'
and other borrowers' loans as collateral. Defendant CPF could not properly secure PPPLF
advances on loans it would not fund. Defendant CPF also consistently reported to the SBA that it
had funded class members' loans.
181.
Defendant CPF breached its obligations to fund Plaintiffs' and the Class
members' PPP loans under the Loan Documents by failing to fund their loans.
182.
Moreover, all PPP loan applications require applicants to certify that they have
not, and will not, receive other PPP loans.
183.
As a result, once Plaintiffs and the other members of the Class applied for PPP
loans and their loan applications were approved by the SBA and assigned PPP loan numbers
pursuant to the Loan Documents, Plaintiffs and the Class members were no longer able to apply
for PPP loans with other PPP lenders as they would not be able to certify that they would not
receive another PPP loan.
184.
Plaintiffs and the Class members were therefore effectively bound to, and had to
rely exclusively on, CPF to actually abide by their Loan Document commitments to provide
them with the PPP loan funds that the SBA had already approved.
185.
As a result, CPF harmed Plaintiffs and the members of the Class in an amount to
be determined at trial, but not less than the amount of the wrongfully withheld PPP loan proceeds
plus all other applicable damages to the full extent permissible by law.
46
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COUNT TWO
Breach of Contract
(Against Crossroads)
186.
Plaintiffs incorporate the allegations from all previous paragraphs as if fully set
forth herein.
187.
This Count is alleged by all Plaintiffs against only defendant Crossroads.
188.
As more fully described above, Crossroads exercised substantial control over
CPF, operated with CPF as a single enterprise, held out in its SEC filings and other public
statements that it was one and the same companies, participated in CPF's PPP loan processing
practices, and exploited CPF's status as an SBA-approved CDFI lender to enrich itself and its
corporate insiders through improperly obtained funds.
189.
Crossroads also exercised its control over CPF to cause CPF to "upstream" to
Crossroads hundreds of millions of dollars in PPP-related loan processing fees and PPPLF loan
advances, notwithstanding that CPF had not funded Plaintiffs' and Class members' loans on
account of which CPF received those funds.
190.
Accordingly, Crossroads also breached the Loan Agreement contracts Plaintiffs
entered into with CPF because Crossroads controlled the conduct of, and is thus also liable for,
CPF' s breaches of those contracts. In addition, under the principles of equity and good
conscience, Crossroads should not be permitted to retain the funds it received as a result of
CPF's breaches of contract and Plaintiffs' and Class members' unfunded loans.
191.
As a result of the foregoing, Crossroads is liable to Plaintiffs and Class members
as CPF's alter ego, for the amount of the wrongfully withheld PPP loan proceeds plus all other
applicable damages to the full extent permissible by law.
47
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192.
As a result of the foregoing, the corporate veil of CPF should be pierced, and
Crossroads should be held liable to Plaintiff sand Class members for the amount of the
wrongfully withheld PPP loan proceeds plus all other applicable damages to the full extent
permissible by law.
COUNT THREE
Unjust Enrichment
(Against Both Defendants)
193.
Plaintiffs incorporate the allegations from all previous paragraphs as if fully set
forth herein.
194.
All Plaintiffs allege this Count against both Defendants. Plaintiffs allege this
Count only in the alternative, to the extent Plaintiffs' breach of contract claims fail to adequately
compensate Plaintiffs and Class members for the Defendants' violations as alleged herein.
195.
Plaintiffs and Class members conferred a monetary benefit on Defendants.
Specifically, they chose CPF to process and fund their PPP loans. In exchange, Plaintiffs and
Class members should have received the funds to which they were entitled.
196.
Defendants received PPPLF advances and PPP loan processing fees based, at least
in part, on the unfunded loans of the Plaintiffs and Class members.
197.
Defendants appreciated or had knowledge of the benefits they received as a result
of the Plaintiffs' and Class members' approved loans and they accepted and retained those
benefits. Defendants profited from Plaintiffs' and Class members' PPP loan transactions and
used the funds resulting therefrom for business purposes and for the personal gain of
Crossroads's shareholders, as alleged more fully above.
48
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 48 of 129
198.
Crossroads controlled and directed the activities of CPF for purposes of the PPP
also as alleged more fully above, and CPF should have timely and properly funded Plaintiffs'
and Class members' PPP loans.
199.
Under the principles of equity and good conscience, Defendants should not be
permitted to retain the funds they received as a result of Plaintiffs' and Class members' unfunded
loans, without having disbursed those or other funds to fund the loans to which Plaintiffs and
Class members were entitled.
200.
CPF did not fund those loans, and therefore did not provide full compensation for
the benefit Plaintiffs and Class members provided.
201.
As a direct and proximate result of Defendants' conduct, Plaintiffs and Class
members have suffered and will suffer injury.
202.
Defendants should not be permitted to unjustly enrich themselves at the expense
of Plaintiffs and Class members, but in equity and good conscience should be required to make
restitution for all funds acquired as a result of Defendants' unlawful conduct.
203.
Defendants should be compelled to disgorge into a common fund or constructive
trust, for the benefit of Plaintiffs and Class members, proceeds that it unjustly received as a result
of Plaintiffs' and Class members' PPP loans.
COUNTFOUR
Violation of California's Unfair Competition Law
Cal. Bus. & Prof. Code § 17200, et seq.
(Against Both Defendants)
204.
Plaintiffs incorporate the allegations from all previous paragraphs as if fully set
forth herein.
49
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 49 of 129
205.
The California Unfair Competition Law ("UCL") defines unfair business
competition to include any "unlawful, unfair, or fraudulent" act or practice. Cal. Bus. & Prof.
Code § 17200.
206.
A business act or practice is "unlawful" under the UCL if it violates any other law
or regulation.
207.
Plaintiff Covarrubias brings this claim individually and on behalf of the California
subclass and has standing to bring this claim because he is and at all times relevant was a
resident of California and is subject to the protection of the UCL.
208.
CPF's failure to fund SBA-approved PPP loans breached the Loan Documents
and accompanying legal duties it owed plaintiff Covarrubias and the other members of the
California subclass.
209.
As a result of its failure to fund the SBA-approved PPP loans, CPF obtained fees
and other compensation to which it was not entitled, including fees on loans it never funded and
loan proceeds rightfully belonging to plaintiff Covarrubias and the California subclass, and
wrongfully deprived plaintiff Covarrubias and the members of the California subclass of PPP
loan proceeds.
210.
When the PPP loans of plaintiff Covarrubias and the California subclass were
approved by the SBA, these SBA-approved borrowers had a vested interest in the PPP loan
proceeds which CPF wrongfully withheld.
211.
CPF's failures to fund these PPP loans thereby constitute a violation under the
"unlawful" prong of the UCL.
212.
Similarly, CPF's failure to fund SBA-approved loans also constitutes "unfair"
acts and practices under the UCL because CPF's acts and practices as alleged offend public
50
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 50 of 129
policy and are immoral, unethical, oppressive, unscrupulous and substantially injurious to
plaintiff Covarrubias and the members of the California subclass.
213.
CPF's breaches of contract -- including not disbursing SBA-approved loan funds
and "locking" these borrowers into CPF -- constitute an unfair practice because those breaches
are immoral, unethical, oppressive, unscrupulous, or substantially injurious.
214.
Once the loan applications of plaintiff Covarrubias and other similarly situated
members of the California subclass were approved by the SBA, these subclass member
borrowers had to rely exclusively on CPF to actually fund their PPP loans and were thereby
precluded from seeking PPP loans from other lenders, also as alleged above.
215.
CPF's failure to fund PPP loans of plaintiff Covarrubias and the other members of
the California subclass constitute unlawful and unfair business acts or practices within the
meaning of Cal. Bus. & Prof. Code § 17200.
216.
As a result of CPF's violations of the UCL, plaintiff Covarrubias and the
members of the California subclass are, in the alternative and to the extent that their breach of
contract claim fails to adequately award their damages for CPF's violations as alleged herein,
entitled to equitable relief, including specifically injunctive relief directing CPF to fund their
SBA-approved loans in full with applicable interest from the date the loans should have been
funded, or restitution for the amount of the wrongfully withheld PPP loan proceeds plus interest.
217.
Defendant Crossroads is liable to plaintiff Covarrubias and the members of the
California subclass by virtue of its control of CPF and it being CPF's alter ego and by virtue of
its direct participation in PPP lending and both Defendants' violations and failure to fund the
SBA-approved PPP loans at issue, all as also alleged more fully above.
51
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COUNT FIVE
North Carolina Unfair and Deceptive Trade Practices Act
N.C. Gen. Stat. Ann. §§ 75-1.1, et seq.
(Against Both Defendants)
218.
Plaintiffs incorporate the allegations from all previous paragraphs as if fully set
forth herein.
219.
Plaintiff Myles brings this claim individually and on behalf of the North Carolina
subclass, and plaintiff Myles has standing to bring this claim because she is and at all times
relevant was a resident of North Carolina subject to the protection of the North Carolina Unfair
and Deceptive Acts and Practices Act (the "NCUDTPA").
220.
The NCUDTPA broadly prohibits "unfair or deceptive acts or practices in or
affecting commerce."
221.
Defendants advertised, offered, or sold goods or services in North Carolina and
engaged in trade or commerce directly or indirectly affecting the people of North Carolina, as
defined by the NCUDPTA. See N.C. Gen. Stat. Ann.§ 75-1.l(b).
222.
Defendants engaged in unfair and deceptive acts and practices in or affecting
commerce, in violation ofN.C. Gen. Stat. Ann.§ 75-1.1, including:
a.
Representing 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; and
b.
Omitting, suppressing, and concealing the reasons why loans to plaintiff
Myles and members of the North Carolina subclass had not been
disbursed.
223.
Defendants' conduct constitutes "deceptive acts" in violation of the NCUDTPA.
224.
Defendants' conduct constitutes "unfair acts" in violation of the NCUDTPA.
225.
Defendants' representations and omissions and acts and omissions were material
because they were likely to deceive reasonable consumers about their ability to secure SBA-
52
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 52 of 129
approved loans from defendant CPF, and to preclude plaintiff Myles and other members of the
North Carolina subclass from seeking PPP loans from other lenders.
226.
Defendants intended to mislead plaintiff Myles and members of the North
Carolina subclass and induce them to rely on their misrepresentations and omissions.
227.
Had CPF which was controlled and dominated at all material times by defendant
Crossroads disclosed its intention to withhold the loan proceeds due to plaintiff Myles and
members of the North Carolina subclass, plaintiff Myles and the members of the North Carolina
subclass would not have done business with CPF. Plaintiff Myles and members of the North
Carolina subclass acted reasonably in relying on CPF' s misrepresentations and omissions and
acts and omissions in failing to fund their PPP loans, the truth of which they could not have
discovered before they were contractually bound to CPF, and thereby exclusively reliant upon
CPF's good faith in actually funding their SBA-approved PPP loans.
228.
Defendants acted intentionally, knowingly, and maliciously to violate the
NDUDTPA, and recklessly disregarded plaintiff Myles' and North Carolina subclass members'
rights.
229.
Plaintiff Myles and members of the North Carolina subclass have suffered
ascertainable losses of money or property, and monetary and non-monetary damages as a direct
and proximate result of Defendants' misrepresentations and their concealment of and failure to
disclose material information.
230.
Plaintiff Myles and members of the North Carolina subclass seek all monetary
and non-monetary relief allowed by law under the NCUDTP A, including actual damages, treble
damages, restitution, and attorneys' fees and costs.
53
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 53 of 129
Prayer for Relief
Plaintiffs, individually and on behalf of the proposed Class and subclasses as applicable,
respectfully request the following relief:
A.
an order certifying the Class and subclasses under Rule 23 of the Federal Rules of
Civil Procedure; naming Plaintiffs as representative of the proposed national Class; naming
plaintiffs Covarrubias and Myles as representatives of the proposed California and North
Carolina subclasses, respectively; and naming Plaintiffs' attorneys as counsel for the Class and
subclasses;
B.
judgment in favor of Plaintiffs and the Class and subclasses on all applicable
counts asserted herein;
C.
an award of compensatory, consequential and other damages to Plaintiffs and
members of the Class and subclasses in amounts to be determined at trial to the maximum extent
permissible by law, plus prejudgment interest;
D.
an accounting of all PPPLF advances CPF obtained for PPP lending and any other
federally-guaranteed proceeds CPF obtained for PPP lending, including the whereabouts of any
such proceeds they were not disbursed to SBA-approved borrowers, whether any such proceeds
were paid by CPF to Crossroads and/or any other person or entity, the amounts of such
payments, the identities of the recipients, and the date such proceeds were paid;
E.
an accounting of all PPP lender processing fees CPF and/or Crossroads obtained,
including for PPP loans it ultimately funded and for PPP loans it did not fund;
F.
an order of all other forms of monetary relief to the maximum extent permissible
by law, including payment to Plaintiffs and the Class and subclasses of all PPP loan proceeds
owed and due to Plaintiffs and the members of the Class and subclasses with interest, as well as
54
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 54 of 129
disgorgement of all fees CPF and/or Crossroads obtained in connection therewith to the
maximum extent permissible by law;
G.
an order requiring that Defendants, in the alternative and to the extent that
Plaintiffs' breach of contract claim fails to adequately award Plaintiffs and the Class and
subclasses their damages for the violations alleged herein, disgorge PPP loan fees and proceeds
that they unjustly received and pay into a common fund for the benefit of Plaintiffs and the Class
and subclasses;
H.
an award of punitive damages based on Defendants' intentional, wanton and
malicious conduct, or its reckless disregard of Plaintiffs' and the Class members' rights, in
amounts to be determined at trial to the maximum extent permissible by law;
I.
an order awarding Plaintiffs and the Class and subclasses their reasonable
attorneys' fees and expenses and costs of this lawsuit, including but not limited to expert fees
and costs, to the maximum extent permissible by law; and
J.
such other relief as the Court may deem just and proper.2
DEMAND FOR JURY TRIAL
Pursuant to Federal Rule of Civil Procedure 38(b), Plaintiffs demand a trial by jury of any
and all issues in this action so triable of right.
2
Plaintiffs file this Amended Complaint in accordance with the Court's Text Order on March 2,
2022, approving Plaintiff Greathouse's unopposed motion for an extension filed on March 2, 2022 (ECF
29). Attached as Exhibit B is a redline comparing Plaintiff Greathouse's original complaint to this
Amended Complaint.
55
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 55 of 129
Dated: March 28, 2022
Respectfully submitted,
FRIDAY, ELDREDGE & CLARK, LLP
Katherine C. Campbell, AR Bar 2013241
Marshall S. Ney, AR Bar 91108
3350 S Pinnacle Hills Pkwy, Suite 301
Rogers, AR 72758
T: (479) 695-6049
F: (501) 244-5389
kcampbell@fridayfirm.com
mney@fridayfirm.com
By:~
atheri
. Campbell
AND
BAILEY & GLASSER LLP
Lawrence J. Lederer ( admitted pro hac vice)
Michael L. Murphy ( admitted pro hac vice)
Bart D. Cohen (admitted pro hac vice)
1055 Thomas Jefferson Street NW, Suite 540
Washington, DC 20007
T: (202) 463-2101
F: (202) 463-2103
llederer@baileyglasser.com
mmurphy@baileyglasser.com
bcohen@baileyglasser.com
NOLAN HELLER KAUFFMAN LLP
Justin A. Heller (admitted pro hac vice)
Matthew M. Zapala (admitted pro hac vice)
80 State Street, 11th Floor
Albany, NY 12207
T: (518) 449-3300
F: (518) 432-3123
jheller@nhkllp.com
mzapala@nhkllp.com
56
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 56 of 129
Exhibit A
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 57 of 129
DocuS,gn En•,elope ID J,:24COB9-3987""1889-A86C-084668787A3F
U.S. Small Business Administration
NOTE
SBA Loan 1;
9988328700
SBA Loan Name
Paycheck Protection Program
Date
4/18/2021
Loan Amount
$ 15665
Interest Rate
1.00%
Borrower
Eric Greathouse
Operating Company
Eric Greathouse
Lender
Capital Plus Financial
I.
PROMISE TO PAY:
In n:tum for thc LoJn. l:3orrowcr pro:111,cs w r.i: 10th.: on.h:r ,lt l.cndcr thc a111,,un11lr"
~$_1~5~6~6~5~------------------------------ Dollar>.
interest 0:1 the unpaid principal balance. and ;111 other amounts required by this l\otc.
"
DEFl1':ITIO'.'JS:
"C:\RES ,\ct" means the C,m,na,·1rus ,\1d. Rdid. and Econon11.: Scrnrny .-\.:1. Puh. I.. '-i,l. I 16-136. U-1 S1.11 2S I
t ii.for. 27. 2020). as amended hy the Economic .-\id A.:1. Puh. L. "so. 116-269 I Dcc 27. 2020)
"Loan·· mcans thc loan cvide111:cd h) 1h1s :--:01c.
"Loan Dm:umcnt, .. mean, thc docu1nc111s rcla1cd 10 this loan ,1i,:ncd by Borr0wcr
"PPP" means thc Paycheck Prote.:tion Prngram under thc C,\RFS A.:1. including thc rulcs. rcgulntions and g111d:11i.:c
ofthc SBA with rcspcct thereto.
"SR:\" m.:ans thc Small Rusincss :\dnuni,tr..llion. an :\gcm;~ ,,:"thc L:mtcd S,a1c, of .-\mcn,·a.
P.1~.: i ,,
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 58 of 129
DocuS,gn Envelope ID 3':24CDB9-3987-48B9-A86C-DB46687B7A3F
~-
PA Y\IE~T TER\IS:
Bum1wcr mu,1 make all payments at thc pb,::.: Lender Jc,1gna1c,. The payment ti.:rms lt•r thi, Nute arc.
Thi, Loan i, made pur,uant h> th.: PPP. Rurruwcr agn.:c, that II 11111 comply 111th ,di SH:\ gwdancc under ti1c CARFS ,\..:t
and the PPP as II applies to 1l11s Loan. regardless whcn enacted ,ir ,upplcment~d.
Initial Ocfcrment Period: In acc,irdancc with the tcrm, uf thc l'l'I'. 1111 p:iym.:nts arc Jue un th1, Loan for ten I l 111 nll11nh,
from the date ,,r lirst di,hur..cmclll u( 1111, Loan. lntcn:,t ,, 111 i.:outmue tu ai.:cruc Junng the dcfi.:nncm peri,,J.
Loan Forgi\"cncss: Lo.in paymcnts will be dcli:m:d 11" thc Borrower appli" for forg11 encss uf tl11s Loan u1111I sud, 11111c
as 1.cnJcr rec.:i1c:s payotl of the Loan from the SBA. Burrnwcr may apply to Lender for forgiYcne,s under the PPP of the
amount due on thi, Loan 111 an amount e4ual 1,, the sum or the lullow111g allowable cusb. ,1, dclined in mnrc detail by the
SBA. incurred by Borrower during thc "'Co1ered Period", which shall be bctwccn X- and :!4-wcck,. beginning on the date·
,,r lir,t disbursement or thi, Luan.
a.
Paywll Costs
I-
•\ny payment ,if mtc.:rc,t on a cO\·en:d m,irtgage olil1gat1nn t wluch ,h,tll nut 111cludc.: any pn:paymcnt ul. ,11
payment oi. pnn..:1pal on ,1 co\·erc.:d mong.,gc.: ,,hltgation 1
,:
Any payment ,,n a cmcred rent ohligat11111
d.
Any etwered utiluy payment
c
Any co,crcd operating cxpend1ture:-
Any cu,·crcd uninsured propcny damage nisb
g.
.-\ny co\ crcd suppltcr rnsts
h
.-\ny cn,crcd wnrkcr prntcction c.:~pcnd11ur..:s
SubJCCI ll' the.: d1giblc torgm.:ness amount dc.:1em1111ed by the SB:\. Jny rcmain111g pnnc1pal and dcti:rred intcrcst II ill be
a111un1zed 01 cr the rcm.1111ing h:m, ot 1h1s i\ote in cqu;tl monthly payments ot" principal ,ind interest b.:ginnmg nn the
,;l,.:10.:mh ( 11 '" I month from tho.: Jato.: of the end of the CoYcrcd l'cri,1d. Lender ,hall prov1d.: th,.: i.:alculati1111 nf th.: month I~
amu111zatto11 amount Ill B11rrnwcr not later than ti.:11 ( I Ol business day, prior It• the dale on which the first paymcnt is due.
If the Burrower seeks forgi1 encs, under the PPP. it shall submit an application with ,uppu11mg docu111cn1ation in
accordance with the PPP. If the Loan 1s not Ii.illy forgiwn. Bnrwwcr will rcma111 liahlc for the Ii.ill and pun1:tual payment
and satisfaction of th.: r.:maining outstanding principal ha lance.: pf the L,,an plu~ accrued but unpaid mtcn:st.
\Jaturit~·: TI1is l\otc 11ill mature.: live (5) years from J:11c ,1ftirs1 di,hursc.:mcnl oftl11s Loan.
Repayment Terms: The ini.:rcst rati: on thi~ '.\me.: 1, onc pcr1:cnt ( l.llO"ol pcr ycar. ,:akul:11<:d on a nun-adJUSiahlc. non-
..:11mpounding ba,1s. TI1e interest rat,; i, tixcd and will nm hi: changcd during th,; life of the Loan.
BmTo\1cr must pay pnm:1pal and 1111ercs1 p:iymcnt" c,i:ry nrn111h. hcg111n111g the eli.:1 ,;nth t I I''') month from th,· datc.: ,,f
end of the CuwrcJ Period. Paym.:nts must be made un thc lirst calendar day m the months they arc due.
Lender will apply c;u:h 111stallmc111 payment tirsl w pay interc,t ,1,·crn..:d 1,, the day Lender r,,c.:111:s th:.: pa) mcm. then
10 brmg principal current. then 10 pay any lat.: t.:es. and will apply an) rc.:111a1111ng bal;111cc IU n:ducc principal.
All rcma1111ng principal and accrucd 1111.:rc,-11s due and payable 111 ti1c: 1:'i) year, from lirst J1,bur,crni.:11t of this l.uJn.
I.nan Rcpaymcnl: "Jotwuh,1a11d111g any pro11s1on 111 tlus Nut,.: 1<• the contrar~. Bomiwer may prepay this ,ate at any
time without penalt).
'\on-Recourse: Lender and SR..\ shall have no recourse ag;1in,t any 111dindual shareholder. member or pann..:r o(
Bun·ower for non-payment of th.: Loan. cxccpt to the ,;xtent th;1t ,u.:h ,harcholdcr. member or pann.:r uses the l .oan
proceeds for an unauthonl'cd purpose.
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 59 of 129
DocuS,gn Envelope ID J424CDB9-39!!7-4889-AB6C-D846687B7A3F
4.
DEF:\ULT
Bommer 1, 111 J,:fault under this "l,1h: ,f Bonower d,,es nut make a p.1yment 1, h..:n due unJ..:r thb "lllt..:. or 1f Burr,m er
or Opcratmg Curnp;in)
. .\
Fail, to do anyth111g n:qum:d hy this :--;oh: and othcr Loan Dncumem,.
13.
Dcbult, on .my uther loan \\Ith Lender:
C
Doc, ,wt Ji,du,c. ,,r anyone act111g on thi:ir bd1alf dui:s 11!>1 di,d,,,c .• 111y mati:nal 1,1ct tu l.i:11di:r or SB..\.
()
\lakes. or anyllne acung on th~1r bi:halfmakcs. a matcrially lalse ,1r mi-kad1ng rcr,rc,en1a111111 tn l..:ndcr or SB.-\:
E
Defaults on any l,1an ,11· agr..:cmcnt with another cr..:ditor. if Lend,:r bcl1e1·c., the default may maten.illy afkct
Anrrnwer·, ability lo pay this :',iuti:.
F.
Fails hl p,1y any taxes wh,:n Jue:
(i
Becomes th,: suhJCCI of a rroc,:,:d111g und.:r any bankruptc~ or 111sL1lv.:n..:~ l;1w:
II.
Has ;i rcc.:1vcr ur l11.1uiJatur appointcd for any pan ofth.:ir bus111ess ur property:
I.
\,lakes ,Ill assignment for the benefit ofercJitors:
J.
Ha, any mh-crsc ehang.: 111 linan.:ial condition or business upaation thal LcnJ..:r hclic,·c, lllil) mah;ri,llly affect
Borrowcr ·s ability to pay this f\01.::
K
R.:org;1111ze,. merge,. consuliJatcs. or otherwise changc~ oll'nerslup or ru,in.:s, slructure "uh,1u11.cnd..:r ·spnor
wri11.:11 ,on,e111. or
L..
Becomes the sub1ec1 of a ci\·il or cnminal action that L..:ndcr b.:licw, rmy mat..:nally Jffccl Romm .:r· s abil11y t,1
pay this :--ote
5.
LEi\DER'S RIGHTS IF THERE IS ADEF:\LLT:
Without nullcc or Ji:m,111d JnJ wnhuut giving up any of its righ1s. LcnJcr 111;1v:
A.
Require irnmed1ate payment of all amounts owing und.:r thi- \:otc:
B
C,,11..:cl all amount~ ownmg from the Borrow.:r; or
C
File ,uit and ootain _1udg111e111
6.
LE:\DER ·s GENERAL POWERS:
Without no11c.: and without Borru,,cr's consem. Lendcr may:
A
Incur expenses to colkct amnunts duc under this \:otc . .:111orce th..: terms nf this 'loll! or ,Ill} othcr I nan Docmn.:nt If
Among other things. the cxpensc:s may include reasonable anom.:y· s ll:CS and wst~. Lender 1111.:ur, any such
.:xpcnses. it may demand immediate r.:paymcnt from Rorrower or add the exp.:nscs to the principal balam:e:
B
Tr:msfcr or s.:11 thi, :--m..::
C
RdeaM: anyone obligated to pay tlus :,Juu:,and
n.
Take any a,tlOn necessary lo .:olkct amounts owing on this :-Sole.
7.
WHEN FEDERAL LAW APPLIES:
\\'hen SR·\ i, the huld.:r. this l'\ote will be imerpr.:tcd and enfon:cd unJ.:r f.:der.tl law. including SB.·\ n:gula111ui-.
Lender or SB.-\ may 11.sc ,talc or l,1cal procedures for filing papcrs. rccording do,um.:111,. gr\ mg Jhll!Ct:. forcdu,mg
liens. anJ other purp,,ses. Ry using ~ud1 proci:dures. SAA dues not wai,e any federal immunil} !rum swt.: ,,r lu,al
control. penalty. tux. or habilny . .-\, 10 this \:oh:. Borrowcr may not .:la1m or a,s.:rt against SB:\ any local or ,tall! law
10 Jcny any ohligat1011. dekat any cla11n of SRA. or prc.:mpt li:di:ral law
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 60 of 129
DocuS,gn Envelope ID: 3424CDB9-3987-4889-A.86C-D84668787A3F
s
SUCCESSORS AND ASSIG'.'\S:
Undcr this :--;oh:. Borro\\cr and Opcrallng Company 111clude the su.:cc,sors of cach. and 1.cndcr mcludcs its succc,s,,r,
and assign,.
<i_
CiENERAL PRO\'ISIO~S:
.\. .-\II indi\"lduals and cm111cs signmg tl11s Sotc an.: J1)11llly and scv.:rally liablc.
R.
Rorrowcr waivc, all ,urctysh,p ddi:nscs:
C
Horrowe1 mu,1 Mgn all J,,.:ument, ncce,,ary al any time to ,,,mply \\ uh the Loan Do.:umcnh and to cnahle I ender Ill
comply with SB.-\ rc<Juiremcnts pursuant to the CARES :\ct and 1hc PPP:
f)
I.ender may excn:1se any Ill° Its rights separatcly 0r tllgethcr. as many ttmcs and 111 .my order It choose, Lendcr 111;1~
Jclay or forgo cnfon;mg any uf !ls righb wuhout gi,mg up any ofthcm:
F.
Burrower may not use an ,,ral ,i!ah:mcnt of I cmkr or SR.-\ that cnntr.iJ1c1 or alter the\\ riuen 1cr111s uf th 1, ,u1c.
F
If any part ofth1s \.'ote 1s unenforceable. all n1her parts remain 111 cffccl:
(i. To 1he extent allowcd hy law. Borrowc:r wai,cs all dcmamb and not11.:c, 111 co1111c,·11on w11h 1h1, i\01c. includlll!,!
prcsentment. demand. protest. and notice of dishonor. Rormwer alsl, wa1,cs any ddi:11,cs b,1scd upon any cla11111hat
Lender did not obtain any guarantee.
IIJ ASSIGNMENT: AGREF.ME'.\T TO MAKE CIIAI\GES TO THIS '.':OTE.
This ~011: is assagnahl.: by Lcndcr in whole or in pan without thi.: CtlllSClll nt" Borruwcr 1111clud111g. without l11mtat1on. an:
a~signmelll to SBA or an:, third-pany at SRA ·s din:clion) and is assignable bj Borrower with the wriuen wnsent of
Lender. Borrower ackno\\ ledge, that in order to disburse the loan proceed, to Bom,wcr al the .:arli::,t possible tune.
l...:ndcr has prcparcd thi, '-lute ha,ed on 11, cum:nt understanding ul the PPP. Homl\\cr agrees that. if Li.:nda dci:nis ii
nece:..,ary or appropn.itc to .imend 1h1, Soto: in any re,pcct 111 ord.:r for tlm, '\oti.: to comply with the PPP ,ir for thi: SB.-\ Ill
guaranti:c all or any pon1u11 of the amounts oubL.mding under tlus 1'otc. Romiw er w1 II sign and Jclt, .:r Ill 1..:ndi.:r .iny
amendment to this :--Jote or a new note in rc:placcmc:nt of this Note. w11h the ti:nn, of any ,nncndmcnt or ncw ,01.:
rclroa-:tive to the dale of this ~Ole Blirrowcr will alsti execute any additional Joc11111elllation the Lender t•r SRA re4uc,rs
that Lender or SBA hi:laevcs 1s i:onsastent with th.: purpose, of the PPP.
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 61 of 129
Oo~uS !Jn Er,,-~lope ID :\!2-IC0B9-3987..:8B9-A~5C-;:Jd-l666787A3F
~T \ TF-SPFl"IFIC PIW\"ISll •'-,;
Unless otherwise proh1b,1ed oy law. the foliow1ng add1honal provIs1ons w:11 apply
Release of Lender in consIderat1cn of the agreement of the Lender 10 pr01,:de tt·,,s Note. ano other gooa ana
valuable cons,deratIon. which cons1dera11on Is agreed by Borrower to oe good and sufficient. Borrower RELEASES.
ACQUITS AND FOREVER DISCHARGES the Lender its directors officers. shareholders agents. contractors
empIoyees affiliates attorneys successors ano assigns frorr any 3r.a a:I cairns demands !1ens dan·ages actiors
or suits of whatsoever nature or cnaracter whether statu:ar, ,,,..cIuaIr.g without hm1ta~on usury ar.o decep:,ve trade
practices cla:msj In :ontract 0' :n tort Known or unknown w~•cl· have accrueO or may accrue to Borro.·1er or any
crec11tcr er affiliate of Borrower on account of ar.y In1ur:es aarr-ages or losses or other1V1se ans,ng out of or ,r. a~)·
way connected to (1) an~ extens,on of credit oy tne Lender :o Borro~,er on or pr,or to the :late rereof er ,:ii an~
matter or thing done omitted or suffereo to oe done by the Lender its directors officers shareno:ders agents
employees affiliates attorneys predecessors or assignors on or prior to the date hereof
Notw1thstar.d1ng anything else contained herein. this Note Is not secJred ana tr.ere are no guarantors
!•,.::.: '.•
"H '.. I
;.;~ Hu.:::, iL::J.. •II.:.:.:,:. 1
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 62 of 129
DocuS,gn Envelope 10 3-12-ICOB9-3987-48B9-A86C-0646687B7A3F
12.
BORROWER'S N:\:\IE(SI A"IDSf(i:,..;A TUKE(Sl:
Ry signing hd,,w. ca.:h ind1\·1dual or cm11y hc.:omcs ,1t>hga1i:d undi:r !111s :\nll: ,1, B,mm\i:r
BORROWER: Eric Greathouse
By _____________ _
By _____________ _
By _____________ _
SU.-\ Forni H - lliannu H,rnk d I Z1 ;u: l,
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 63 of 129
OocuS,gn Envelope ID 342-IC089-3987-4889-A86C-D84668787AJF
RE:
ADDITIONAL AND CORRECTION DOCUMENTS AGREEMENT
(ERRORS AND OMISSIONS AGREEMENT)
Loan by Lender, Capital Plus Financial, LLC to Eric Greathouse
, a(n)
_ln_d_e_p_e_n_de_n_t_C_o_n_tr_a_ct_o_r ________ , in the amount of S..:1..,_56:.:6:..5'---------
ln consideration of Capital Plus Financial. LLC, located at 2247 Central Drive. Bedford. Texas 76021, (hereinafter
called ·Lender") making the above loan. each of the undersigned, Jointly and severally, do hereby agree as follows:
1.
In the event the promissory note or any other document or other writing evidencing. securing or pertaining
to the above loan is misplaced or lost or incorrectly reflects the true and correct terms, conditions or provisions of the loan
in the opinion of Lender. each of the undersigned shall execute. acknowledge, initial and deliver lo Lender all documents
and other writings that Lender requests which Lender deems necessary to replace or correct any misplaced. lost or incorrect
document or other writing: and
·
2.
In the event Lender deems 1I necessary that any additional documents or other writings be executed by any
of the undersigned in connection with or pertaining to the above loan which have not been requested to be executed by the
undersigned on or before the date hereof (or which were requested but not executed for any reason whatsoever), each of
the undersigned shall execute, acknowledge. initial and deliver to Lender all such additional documents or other writings
that Lender may reasonably request in connection with such loan: and
3.
Each of the undersigned further agrees to execute, acknowledge, initial and deliver to Lender all such
documents and writings and pay such additional sums requested by Lender within ten (10) days after Lender requests
same. Any request by Lender shall be deemed given and received on the earlier of (i) the date such request is actually
received by one of the undersigned or (ii) three (3) days after such request is mailed. postage prepaid and addressed to
any of the undersigned at the last known address of the undersigned in accordance with the records of Lender. whichever
date occurs first; and
4.
If any of the undersigned refuses or fails within such ten ( 10) day period to (i) execute. acknowledge, initial
and deliver any such document or other writing requested by Lender. or (ii) pay any such fees, expenses, costs or interest.
each of the undersigned. jointly and severally, agree to pay to Lender all losses, damages and expenses paid or incurred
by Lender in any manner emanating therefrom or connected therewith, including (but not limited to) reasonable attorney's
fees, and each of the undersigned further agree that any such failure or refusal shall constitute a default and an Event of
Default under the note and all other writings evidencing. securing or pertaining to said loan; and
5.
Each of the undersigned hereby acknowledges that Lender is relying upon this agreement in making the
above loan and that Lender would not make such loan unless each of the undersigned execute and deliver this agreement;
and each of the undersigned further agree that this agreement (i) shall inure to the benefit of Lender and each subsequent
holder of the note evidencing such loan. and (ii) shall be binding upon each of the undersigned and upon each of the heirs.
personal representatives. successors and assigns of each of the undersigned.
EXECUTED 4/18/2021
BORROWER:
Eric Greathouse
A(n)
Independent Contractor
~-Sig- by.
By:
_.he Dr'/•
1114'1~181'0&'
Name: Eric Greathouse
Title: Owner
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 64 of 129
DocuS1gn Envelope ID 342-ICDB9-3987--48B9-A86C-D846687B7AJF
I. Enc Greathouse
BUSINESS PURPOSE STATEMENT
(SBA Paycheck Protection Program)
. Owner
of
Eric Greathouse
-=a:.:.;;:;.;._ __
a(n) _______
l:.a.;nc::dc:ec.pe;::;;n:..;.;d"'e:c.:.n:..:.t-=C'-"o;.;.n;.:;tr~a;.:::c.:.:::to;.;.r ____ . state as follows:
1.
To induce Capital Plus Financial, LLC, 2247 Central Drive, Bedfiord, Texas 76021, to
extend credit to Eric Greathouse
. a(n) ______
ln_d_e~p~e_n_d~en_t_C~c_n_t~ra~c~to~r_.
I represent that the proceeds of the loan in the amount of 5_1;..;:5;..;:6;.;;6;.;;5 _________ will
be
used
only for the following purpose(s):
Business related purposes as authorized by the U.S. Small Business Administration Paycheck
Protection Program and as specified in the loan application.
2.
I understand that the above-stated purpose is for business or commercial purposes only
and that you are relying upon these representations in not making Truth-in-lending disclosures pursuant
to 15 U.S.C. Section 1601, in connection with this loan.
EXECUTED 4/18/2021
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 65 of 129
OocuS,gn Envelope ID· J424CDB9-3987-48B9-A86C-0846687B7A3F
NOTICE • NO ORAL AGREEMENTS
RE:
Loan by Lender, Capital Plus Financial, LLC to Borrower, -=E._ri=c_,G __ re=a..,t..,ho...,u.,.s=e _____ _
a(n) _____
___.l'""nd..,e..,p=e..,nd=e=n..,_t..,.C=o_.nt._ra=c,..to=r __ , in the amount of $_.1..,56 .... 6 .... 5 _______ _
THE WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR. CONTEMPORANEOUS. OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
"Loan Agreement" means one or more promises, promissory notes, agreements, undertakings.
security agreements. deeds of trust or other documents or commitments. or any combination of those
actions or documents, pursuant to which a financial institution loans or delays repayment of or agrees to
loan or delay repayment of money, goods. or another thing of value or to otherwise extend credit or make
a financial accommodation.
EXECUTED 4/18/2021
LENDER:
CAPITAL PLUS FINANCIAL. LLC
By:
Name:
Farzana Giga
Title:
CFO
---------------
BORROWER:
Eric Greathouse
A(n)
Independent Contractor
By:
711"7"'2BIB:l'O' ..
Name:
Eric Greathouse
Title:
Owner
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 66 of 129
OowS1gn Er.velope 10 3424C0B9-3987-48B9-A86C-0846687B7A3F
WRITTEN CONSENT OF GOVERNING BODY
(SBA PPP loan)
Pursuant to applicable law, the undersigned, being the appropriate governing body pursuant to the
governing documents for the borrowing entity designated on the signature page hereof ("Company"),
hereby consent to the adoption of and do hereby adopt the following resolutions and acknowledge that
Capital Plus Financial, LLC ("~") is relying on the effectiveness hereof in making a loan to Company
under the Paycheck Protection Program Second Draw Loans of the Small Business Administration ("SBA")
as authorized under Section 311 of the Economic Aid to Hard-Hit Small Businesses. Nonprofits. and
Venues Act ("Economic Aid Act"):
RESOLVED, that the undersigned hereby authorizes the Authorized Person named below as the
appropriate person pursuant to the governing documents of the Company ("Authorized Person").
for and on behalf and in the name of the Company, to take such action necessary for the Company
to borrow money and to obtain credit from the Lender, with its principal office located in Dallas.
Texas, in the amount stated in the promissory note executed by Company and payable to Lender
(the "Loan") and dated on or about the date hereof, hereinafter called the "Loan··. including any
renewals, extensions. consolidations or rearrangements of such indebtedness. upon such terms
and at such rates as he or she deems reasonable;
BE IT FURTHER RESOLVED, that the undersigned hereby authorizes the Authorized Person. for
and on behalf and in the name of the Company to prepare, execute and deliver any and all
applications. certifications. promissory notes. loan agreements and any and all other documents
and to perform any and all acts which may be necessary or proper to effect the borrowing and to
execute and deliver any and all instruments and perform any and all acts required by the Lender
and/or the SBA in connection with any matters herein contained, including any renewals.
extensions, consolidations or rearrangements of such indebtedness. upon such terms and at such
rates as the Authorized Person, in his or her sole discretion, deems reasonable:
BE IT FURTHER RESOLVED, that all the acts and deeds done or to be done by the Authorized
Person, in connection with the execution and delivery of any promissory notes, loan agreements.
and any and all other documents. and any and all acts which may be necessary or proper to effect
the borrowing, are hereby authorized. adopted, ratified, confirmed and approved as the acts and
deeds of Company;
BE IT FURTHER RESOLVED, that the Authorized Person be and is hereby authorized and
directed to take such other action and deliver such additional instruments in the name of and on
behalf of Company, or otherwise to do all such further acts and things that the Authorized Person
shall deem necessary or proper in order to effectively perform all of the obligations and agreements
expressed to be kept and performed by Company, pursuant to the provisions of any promissory
notes, loan agreements and any and all other documents and to perform any and all acts which
may be necessary or proper to effect the borrowing described above:
BE IT FURTHER RESOLVED, that any government agency, including but not limited to. the SBA,
may also rely on this Written Consent when identifying any Authorized Person for purposes of any
loan guaranty. loan forgiveness. or other government program related to the Loan; and
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to this Written Consent
and performed prior to the execution of this Written Consent are hereby ratified and approved.
This Written Consent shall be continuing and shall remain in full force and effect until written notice
of its revocation shall have been delivered to the Lender and receipt acknowledged by the Lender
in writing.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK - SIGNATURES ON FOLLOWING PAGE]
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 67 of 129
DocuS,gn Envelope ID 3424CDB9-3987-l889-A86C-084668787A3F
IN WITNESS WHEREOF, the undersigned have executed this consent effective as of 4/1812021
AUTHORIZED PERSON:
Enc Greathouse
A(n)
Independent Contractor
IRSIGMCl"1:
By
l:,:!2:a,a~4
Name:
Eric Greathouse
Title:
Owner
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 68 of 129
DocuS1gn Envelope ID· 3424CD89-3987-48B9-AB6C-DB4668787A3F
Form W•9
!Re,. :Xtote, 20181
O~rtrnent ct 1he-T1e.1s1.I,·
Internal ~evenue Sernce
Request for Taxpayer
Identification Number and Certification
Give Form to the
requester. Do not
send to the IRS.
• Go to www.irs.gov/FormW9 for instructions and the latest information.
NJme (as sro·J.m on your 1nco:-ne t.n. retum). Na.'11e 1s reQuirea ori this hne; do not 1ea1,,e tr.is 1.ne bllt1k.
Eric Greathouse
; 2 B•.;s•ness nameld1.5regarded en?lty name, ,f different from abc·,e
Eric Greathouse
M,
- -·-- ----- -------- -----
- -----~-------
&; 3 ~~e::,( appr0fJ•1ate box to• 'ederaJ tax cia~s .. ~ic.at,on ot tr:e person wr:ose ~a~e 1~ e,1.,eo en hre , . C'lccii.:. on:y one o~ th; j 4 E.11.~np! 0•1> 1coces app;•,- onl·i :o
[ I
c ow.r:g s.e·.ren coxes.
I ceruin entities, not 1r:d v;cJuals: suo
5 ~ lnd1v:Oual"sole propnetor or
C CorpcrJt·c:--
~ S Co,:oration
t._; Par:nersn1p
:J Trus'..Jesta:c
; !rSlruc::io'"s on page 31
e) ~ :
s:~gle-m~ber LLC
i E"emct P.'.i.\'t."'f ccc:~ ii! ,'.ln/1
~0 •
I
1: ~ ]
L 1r-11ted habd1ty company Entu, the tax clas~1ltca11on iC:::C corporatiun. S=S c.,;rpora1.on. P=Pa•tn:rs'11p1 •
!
0 2
Note: Cneck t,..e a,:propr1ate box •n tre l.ne above tor tnd tax daSS1flcat:on of :hd s·!'lgle-me-no~, :.-.•.ne~ Do no· C"ec11: ! E11iern,:~ 0,. r,v~ F,\ TC,\. moon~;
:g i
LLC 11 t!"e LLC ;S class1':00 JS a singla-rr~ber UC tt-at 15 orsreg.arded from tre O'hncr unles.s 1"t: o~-..ne-r ot the LLC s l
,
~ -
3no_ther LLC that ,snot disregarded from tne owner fer U.S. federal tax pi...rposes. Othermse. a s.rgle-membe-' LLC tnatl' coc:e 11' an"/J
0. .g •
1s d1s,ega,C!ed from lhe owr:~ should CT'ed< the appropri.1te bo( for tt·.e ~ax class.hc.1t1on of ,ts o't.rt!,.
,
]
LJ ou,~ tsee .~str.;ct.onst •
8; j S Andress {number. street. ar,d ~1. or su1!e no.) S!e 1n5truct:ons.
RequC?ste,·s name ~d addr~s-s 1opt1onali ____
--·
]
2103 W 5th St
--~-- - -----------
; 6 c,1y_ stJle. ard ZIP code
Russellville
AR
72801
7 List accoun: number(s) hero (cct,onali
•@I•
Taxpayer Identification Number [TIN)
Enter your TIN in the appropriate box. The TIN prov,ded must matcn the name given on l,ne 1 to avoid
backup w1thhold1ng. For 1nd1V1duals, this ,s generally your social security number (SSN). However. for a
resident alien. sole propnetor. or disregarded entity. see the instructions lor Part I, later. For ott-.er
entities. It Is your employer 1dent1lication number (EIN). II you do not have a number. see How to get a
TIN, later.
Note: If the account 1s m more than one name. see the ins1ruct1ons tor line 1. Also see Whar Name and
Number To Grve the Requesrer for gu,del,nes on whose number to enter.
Employer idont1ficalion number
77-1
i@jj•
Certification
--- -- -- -- ---------------------
Under penalties of per1ury. I certify that
1. The number shown on this form Is my correct taxpayer 1dent1t,ca11on number (or I am waI1,ng io• :i nurrber to tle issued to me, ano
2. I am not sub1ect to backup w,thholOing because: ta) I am exempt from backup ,•,11hholO,ng. or Ib) I have not been not,t,ed by 11,e Internal Revenue
Service (IRS) that I am subIect to backup w,thholcing as a result of a failure to 1eport all interest or d1111dends. or (c) the IRS has notified me that I am
no longer sub1ect to backup withholding; and
3. I am a U.S. citizen o• other U.S. person (defined below!. and
4. The FATCA cadets) entered on th,s form (ti any) 1nd1cat111g that I am exempt from FATCA reporting ,s correct.
Certification instructions. You must cross out item 2 abo~e ,t you have been notified by the IRS that you are currently sucIect to backup withholc,ng because
you have failed to repor. all interest and d,v,dends on your ta• ret1.,m. For real estate transactions. ,tem 2 does no: apply. For mortgage nterest paid.
acqu&S,t,on or abandonment of secvreo property, cancellation of debt. contnbutions to an ,nd,vidual retirement arrangement !IRA,. and generally, payments
other than interest and d1v1dends. )'OU are not reouireel to Stgn the cert1ficat1on. but you must provide yoor correct TIN. See the Instruc1,ons for Part 11. later.
Sign
Here
Section references are to the lntcmal Revenue Code unless otherwise
noted.
Future developments. For the latest 1ntormat,on about oevelopments
related to Form W-9 and ,ts instructions. such as leg1slat1on enacted
after they were published. go to www.irs.gov/FormW9
Purpose of Form
An individual or ent,ty 1Forrn W-9 requester) who ,s required to file an
iriformation return with the IRS must obtain your correct taxpayer
1centificat,on number (TIN) wn,ch may be yowr social security numoer
(SSN). 1nd1vidual taxpayer idenhf1calion number tlTINI. adoption
taxpayer identification number (ATIN). er employer identification number
(EIN). to report on an ,nformation return the amount paid to you. er other
amount reponable on an informat,on return. Examples of ,ntormat,on
returns include, but are not hmiled to, tho followmg.
• Form 1099-INT (interest eamed or paid)
Cat. No. 1023-x
Dale• 4/18/2021
• Form 1099-DIV (d1v1dends, mclucing those from stocks or mutual
tur,ds)
• Fo,m 1099-MISC (various types of ,ncome. pnzes. awards. or gross
proceeds)
• Form 1099-8 (stock or mutual fun::I sales and ce'1aIn other
transactions by bro<crs)
• Form 1099-S (pro:eeds from real estate transactions)
• Form t 099-K (merchant card and third party networK transactions)
• Form 1098 (name mortgage interest). 1098-E (student loan interes:I.
1 098-T (tuition)
• Fo-m 1099-C !canceled deot1
• Form 1099-A (acqu1s1tIon or abandonment of secured property)
Lse Form V/-9 only ,f you are a U.S. person (in:lud,ng a resident
al,en). to provide your correct TIN.
11 you do not rerum Form W-9 to f/le requester wnh a TIN, you m1ghc
be subject to backup withholding. See What Is backup withholding.
larer
Form W-9 ,Rev. 10-201 e,
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 69 of 129
DocuS1gn Envelope ID 3424CDB9-3987-4889-A86C-08466B787A3F
Information and Bank Account Certification and Authorization:
I ao.:knU\\ lcJge 1hat lhc knJer ha~ Ill 11S ho.:,t ab1li1y o.:untinneJ 11:.: ,1\\'nl.:ri,lup Jnd ao.:ti\"c :.1a1u, uf 1hc 1.kpu~lll•I)
account al the F111anc1al Institution listed a.~ requm:d in the d,).:u111ents submitted to the SB.-\ tor PPP loan
approval. I understand, a.:knowkJge. and agree 1ha1 the L:nder or us· panncrs can ~hare an:, linanciul
informauon thal I ha\'c pm\'ided wi1h along w11h the SB:\'s au1h,m7,:d represc111a1i,·es. 111clud111g au1h11rizcd
reprcsentati\'es of 1he SBA Olfo:e of lnspec1ur licncral. ur an~ of its alliliate~ or pannc~ for 1h.: pu1110,e of
compliance, accuracy. and venlicallon of good standing 10 comply w11h all SBA Loan l'rngram Re4um:menL~
and or any and all SBA reviews.
I. Enc Greathouse
o.:emfy III gooil tauh Ill th.: b..:lu\\ ir.formauon ll• bc 1hc ngh1ful and
o.:orrect owner of tho: a.:o.:ount and am responsible for the a.:curac~ and mli1rma111111 pnw1dcd bclm\ and auth,,rize
thc lcnJcr and or 11, allihates or partncrs 10 dcp,1s11 the: loan pw.:c.:c.:Js on the .:,,mp.my·, bc.:halt: I furth.:r c.:nir~-
thal 1hc account 111formation provided below is tru.: and ac.:.:ura1e 111 .ill ma1enal respects.
BANK NAME:
Evolve Bank & Trust
ACCOUNT NAME: Eric Greathouse
ACCOUNT NUMBER:
ROUTING NUMBER:
084106768
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 70 of 129
Exhibit B
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 71 of 129
IN THE UNITED STA TES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
CENTRA,L DIVISION
CENTRAL DIVISION
ERIC GREATHOUSE, ERNESTO
COVARRUBIAS. TIFFANY SUMRALL
and BARBARA MYLES, individually and
on behalf of all others similarly situated,
Plaintiff,
v.
CAPITAL PLUS FINANCIAL, LLC and
CROSSROADS SYSTEMS, INC.,
Defendants.
Case No. ===============-:-:'.±,:;:2=..1!.:-~CVY.:-
1243-BR W
COMPLAINT AMENDED CLASS
ACTION COMPLAINT
JURY TRIAL DEMANDED
PlaintiffPlaintiffs Eric Greathouse ("Plaintiff" or '·Greathouse"), Ernesto Covarrubias
{""Covarrubias'"). Tiffanv Sumrall {""Sumrall'") and Barbara Myles { .. Myles"") (collectively,
.. Plaintiffs""), individually and on behalf of all others similarly situated, -Alesfile this Amended
Class Action Complaint for damages. an accounting. and equitable relief against Capital Plus
Financial, LLC ("CPF") and CPF's corporate parent, Crossroads Systems, Inc. ("Crossroads"
and, together with CPF, "Defendants"), for failure to fund U.S. Small Business Association {the
.. SBA "')-approved Paycheck Protection Program ("PPP" or the "Program") loans that CPF was
contractually obligated to fund. In support, Plaintiff rnakesPlaintiffs make the following
allegations based upon information and belief except as to the allegations pertaining to the
Plaintitlthemselves which are based on personal knowledge. Plaintiff sPlaintiffs· information
and belief is based on the ongoing investigation of his undersignedtheir counsel~ which included~
among other things, a review of applicable documents, information from other litigation against
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 72 of 129
Defendants and one of Defendants' senior executives. publ~cly available information concerning
the PPP and PPP loans. filings with the U.S. Securities and Exchange Commission (the
"SEC~:}, and media and other reports available on the Internet.
Summary of the Claims
1.
Following the worldwide outbreak ofCOVID-19. Congress passed the
Coronavirus Aid. Relief and Economic Security Act f!!( the ·'CARES Act") to, among Rli¼f!Y-Other
things. provide some relief to America's small businesses and sole proprietors through the
estaelisl'llfieRtcreation of the PPP.
2.
Administered by the United States Small Business Administration ("SBA"), the
PPP was established to provide hundreds of billions of dollars of potentially forgivable loans to
small businesses and sole proprietors in a quick and efficient manner using the same standard
form note and accompanying loan agreement documents that Plaintiffs and other PPP borrowers
entered into with CPF.
3.
To ensure that small businesses and sole proprietors received PPP loan proceeds
quickly, the applicable provisions of the PPP required lenders to fund PPP loans within ten days
of SBA approval.
4.
Lenders that participated in the Program were entitled to fees payable by the SBA
for each PPP loan the lenders processed.
5.
Defendant CPF was one of the SSA's authorized PPP lenders.
6.
Before the PPP, CPF was a small lender in the Texas area with less than $40
million in total revenue in fiscal year 2020.
7.
Defendant CPF is, or at all times relevant in 2021 was, defendant Crossroads's
only operating subsidiary. Crossroads is a publiclv-traded for-profit holding company. CPF is.
2
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 73 of 129
and at all times relevant in 2021 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 companv.
~8 . ____ In 2021, after the SBA substantially increased the fees lenders would receive for
PPP loans made that yearin 2021, Crossroads caused CPF to exploit that increased fee
opportunity by dramatically ramping up its participation in PPP lending. It was hugely successful
in that respect.
• .-9.
In particular. CPF reportedly processed 472,036 PPP loans totaling over $-7.5
billion through May 31, 2021 -= the second most PPP loans by any other lender in 2021, and
more than the total number of PPP loans made in 2021 by Bank of America, PNC Bank, TD
Bank and Wells Fargo combined. See Pa,•eheek PreteetieR Pregram (PPP) Repert: Appre'.•als
thr01:1gh QS/31 /2Q2 I, at p.7, aYailable at https://www.sba.ge'.•/sites/defa1:1lt/files/2Q21
Q6/PPP Repert P1:1blie 21 Q53 I 5Q8.pdfSee Paycheck Protection Program (PPP) Report:
Approvals through 05/31/2021. at p. 7. available at https://www.sba.gov/sites/default/files/2021-
06/PPP Report Public 210531-508.pdf(lastaccessedSept.21,2021).
I 0.
As a res1:1lt,Although only CPF and/er its eerperate pareRt, the p1:1bliely traded,
fer prefit eempaRy not Crossroads. repertedly was the SBA-qualified PPP lender. Crossroads
was the alter ego ofCPF, and thus CPF upstreamed all or the vast bulk of its PPP lending fees
directly to Crossroads.
e:11.
Accordingly, in its SEC filings, Crossroads reported that ·'the Company"" received
$970.5 million in total revenue of which $930 million -mwas PPP loan fees in 2021. IA faet.
3
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thmtgh not an SBA appro•,red PPP lender, Crossroads compared to just $27.5 million in total
revenue the prior year. As stated in +tsCrossroads 's quarterly report filed with the SEC for the
period ending July 31, 2021 as follo:ws:
:'.Total revenue from operations for the nine months ended July 31, 2021, was
$970.5 million compared to $27.5 million for the same period of 2020. The
increase in revenue was the result of the Company participating in the Payment
Protection Program (PPP) administered by the Small Business Administration
(''SBA '').{"SBA '). The Company earned fees from the program totaling
approximately $930.0 million."
See http://www.crossroads.com/wp-content/uploads/202 l/09/CRSS O3-2021-OTC-Disclosure-
Statement.pdf (accessed Dec. 23, 2021) ( emphasis added).
+-e_ll,._Jn flagrant disregard of its contractual loan agreement obligations to
PlaintiftPlaintiffs and the other eligible class member borrowers, however, CPF failed to actually
fund those borrowers' SBA-approved PPP loans.
8-:-.ll...._PlaintiffPlaintiffs and numerous other business owners across the country each
timely applied for PPP loans with CPF, had their loans approved by the SBA and assigned PPP
loan numbers, and yet never received their PPP loan funds.
14.
further, and forFor its role in owning and controlling CPF and in directing the
conduct and exploiting CPF's status as an SBA-approved PPP lender, Crossroads not only
received hundreds of millions of dollars in PPP loan fees-= including loan fees on the backs of
the PPP loans of Plaintiffs and other putative borrower members of the proposed class across the
country that CPF ne¥er funded
and, in turn, distril:Juted A'lillions of dollars in sush feesfailed to
fund. It also. less than two months from when the PPP lending window closed on Mav 31. 2021.
announced that as a result of its sorporate insiders""windfall associated with the PPP loan
program" it was ""now overcapitalized'' and would pay out a special dividend of $40 per share to
shareholders of record as of July 19, 2021 totaling over $238 million, $157 million of which was
4
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 75 of 129
rushed out and paid to the handful of senior executives and directors of Defendants wh0;-
collectively, then owned approximately 66% of CF0ssFoa0'sCrossroads's equity.
9-:-15.
In sum, while purporting to ""promote economic vitalitv and community
development"" and ""'hav[ing] seen firsthand the impact that the pandemic has had on minoritv-
owned businesses in low-to-moderate income tracts··· as Crossroads stated in its January 11.
2021 news release (see Capital Plus Financial Partners with Blueacorn to Expedite PPP Loan
Relief to Small Businesses - Jan 11, 2021 ), Defendants and their senior executives shamelessly
enriched themselves off the backs of PPP loans to which Plaintiffs and other class member
borrowers were contractually entitled but CPF failed to fund.
Parties
.W.12,_Plaintiff Greathouse, a natural person residing in Russellville, Arkansas, is a sole
proprietor of an insurance inspection business.
17.
Plaintiff Covarrubias, a natural person residing in Santee, California, is a sole
proprietor of an auto repair business.
18.
Plaintiff Sumrall, a natural person residing in El Paso. Texas, is a sole proprietor
of a landscape architectural business.
19.
Plaintiff Myles, a natural person residing in Raeford, North Carolina. is a sole
proprietor of a business involving independent artists. writers and performers.
+-h20. Defendant CPF is a limited liability company organized under the laws of the
state of Texas with its principal place of business at 2247 Central Drive, Bedford, Texas 76021.
H-:.£!.,_Defendant Crossroads is a corporation organized under the laws of Delaware with
its principal place of business at 4514 Cole Avenue, Suite 1600, Dallas, Texas 75205.
5
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 76 of 129
Jurisdiction & Venue
22.
This Court has subject matter jurisdiction under 28 U.S.C. § 1332(a)(l) because
the aggregate amount in controversy exceeds $75,000.00, exclusive of interest and costs, and is
between citizens of different states. This Court also has jurisdiction under the Class Action
Fairness Act because at least one member of the proposed class is a citizen of a different state
than defendant CPF; there are more than 100 members of the proposed class; and the aggregate
amount in controversy exceeds $5,000,000.00 exclusive of interest and costs. See 28 U.S.C.
§ 1332(d)(2)(A).
23.
Defendants' motion to dismiss contends that plaintiff Greathouse·s initial
complaint .. fail[ed] to plead that Defendants' conduct relating to the claims he asserts in this case
created any connection with Arkansas. and. indeed. no such connection exists." Dkt. 25 at ECF
p. 8 (emphasis added). Defendants are incorrect because they have many connections here.
24.
As a threshold matter. Defendants premise their challenge to personal jurisdiction
on a single self-serving declaration (ECF 24-1 ), and assert exclusively facts regarding what they
did outside Arkansas. In doing so. Defendants would have the Court ignore entirely other
publicly available facts they omit which clearly demonstrate. even at this pleading stage without
the benefit of any discovery. that Defendants purposefully availed themselves of, and benefitted
directly from. substantial business in Arkansas and this judicial District at all relevant times
concerning the claims at issue.
25.
This Court has personal jurisdiction over defendant CPF because CPF had
substantial and direct contacts in this District by virtue of its entering into its agreement to fund
plaintiff Greathouse· s PPP loan: by entering into PPP loan agreements with thousands of other
PPP borrowers in this District; by committing to fund the PPP loans under the contractual loan
6
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 77 of 129
agreements it entered into with plaintiff Greathouse and other PPP borrowers in this District; by
its loan and borrower review and underwriting activities Defendants admit accompanied, and
were a part of. each such PPP loan. including the thousands of loans to borrowers in this District;
by its obtaining PPP lender fees from PPP loans committed to borrowers in Arkansas and this
District; by virtue of ongoing PPP loan advance reporting requirements to the SBA directly in
this District concerning the PPP loans of borrowers not only in this District and Arkansas. but
also borrowers from 23 other states and the District of Columbia, Puerto Rico and the U.S.
Virgin Islands; and by virtue of its communications and activities it undertook in this District
with the SBA relating to many of the PPP loans, PPP loan forgiveness, interest on PPP loans and
PPP loan fees at issue in this case.
26.
More particularly, and for further detail. although Defendants· motion to dismiss
implies it did business in this District only with plaintiff Greathouse. CPF in fact committed to
fund at least 2.134 separate SBA-approved PPP loans in 2021 for qualified borrowers residing in
this District alone. for total PPP loan proceeds of at least $32. 770.618.00 according to the SBA· s
own publicly-available PPP loan data. See website https://data.sba.gov/dataset/ppp-foia
(public up to 150k 1 220102.csv). In addition. and also based on the SBA ·s publicly available
SBA PPP loan data. CPF committed to fund at least 2,578 separate SBA-approved PPP loans in
2021 for qualified borrowers residing in the State of Arkansas, for total PPP loan proceeds of at
least $38.715.478.00. Id.
27.
Assuming that each such PPP loan generated PPP loan processing fees of at least
$2,500.00 per loan. this means that CPF obtained at least $5,335.000.00 in total PPP loan fees on
the backs of resident business owners located directly in this District (2,134 x $2,500.00), and
7
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 78 of 129
$6,895.000.00 in total PPP loan fees from loans to resident business owners in Arkansas (2.578 x
$2,500.00).
28.
In connection with each of the thousands of PPP loan agreements and millions of
dollars in lender processing fees with borrowers in this District, CPF purposefully availed itself
of substantial and direct business activitv in this District sufficient to subject itself to the personal
jurisdiction of this Court. In fact, for each such PPP loan. CPF"s role was not limited to entering
into the loan agreement contracts and funding the loans for Plaintiffs and other putative class
member borrowers.
29.
In addition. CPF"s role as the SBA-approved lender of PPP loans required it to
underwrite and review each PPP loan individually, wherever the borrower was located.
Defendants even admit that CPF had to review each such loan and apply its underwriting
requirements to each such loan. See, e.g .• ECF 25 at ECF p. 16 c-·CPF"s role in PPP lending is
thus limited to applying its own internal undenvriting requirements to loan applications ... ,
making a decision of whether to fund loan, and then ultimately funding the loan if appropriate."")
(emphasis added). Similarlv, in other currentlv pending litigation involving a claim that
Defendants failed to share PPP lender processing fees with one of its agents. Defendants stated
the following regarding CPF"s undenvriting obligations as to each PPP loan:
·The lender. however. must do some basic ·underwriting.· Specifically, the PPP
Regulations contain a section titled. ""What do lenders have to do in terms of loan
underwriting?"" [86 Fed. Reg.] at 3707-08. The regulations enumerate four
'undenvriting· steps:
( I)
(2)
confirm receipt of the borrower certifications in the Form 2483
application:
confirm receipt of documentation showing employment status of the
applicant or if a business. documents showing employees as of February
2020:
8
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 79 of 129
(3)
(4)
confirm the historic payroll (if the applicant had employees) by examining
the documentation submitted; and
comply with the Bank Secrecy Act (
0 BSA '") or similar anti-money
laundering procedures. such as a customer identification program
,--cop··), designed to make sure the lender confirms the identity of the
applicant.
Id In addition to the above steps. the lender was obligated to ·review· each
application. Id at 3708 ("Each lender's underwriting obligation under the PPP is
limited to the items above and reviewing the 'Paycheck Protection Borrower
Application Form.").""
Quoting Defendants· Memorandum of Law in Oto Analytics, Inc. dlb/a Womply v. Capital Plus
Financial, LLC, et al., Case No. 3:21-cv-2636-B (N.D. Tex.) (ECF 43 at ECF pp·s 9-10).
30.
Further, Defendants" attempt to argue that thev outsourced and relied on third-
party PPP agent firms and thereby were distanced from actively undertaking its own
underwriting and review obligations (see ECF 25 at ECF pp"s. 15-16), is contradicted bv
Crossroads"s own statements to shareholders in describing its involvement in PPP. For example,
in a letter accompanying Crossroads's report to shareholders for the three months ended
April 30, 2021, Crossroads's Chairman Robert Alpert and Crossroads"s and CPF"s then dual
CEO and Crossroads Board member Eric Donnelly stated that
0 [t]hough 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, which is evidenced by a negligible rate of active fraud
cases of less than .25bps:· (emphasis added).
31.
This Court has personal jurisdiction over defendant CPF by virtue of the
underwriting and review process that CPF necessarily had to do as to each PPP borrower in this
9
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 80 of 129
District, including but not limited to plaintiff Greathouse and the thousands of additional PPP
borrowers in this District.
32.
The Court also has personal jurisdiction over defendant CPF also by virtue of
CPF's substantial and direct connections to, and communications and activities regarding PPP
lending with, the SBA Commercial Loan Service Center located directly in this District -- some
three miles from this Court and the of/ices ofone o(Defendants · counsel.
33.
Again although omitted from Defendants' motion to dismiss. the SBA has two
Commercial Loan Service Centers in the United States that service all of the SBA ·s commercial
loans. one in Fresno. California that services business primarily in the western half of the United
States, and the other actually located in Little Rock, Arkansas at 2120 Riverfront Drive, that
services business primarily in the eastern half of the United States. See
https://www.sba.gov/LittleRockCLSC. The SBA ·s Little Rock Commercial Loan Service Center
"was created in 1995 to centralize the servicing of SBA ·s 7(a). 504 Debenture and Disaster
Business loans for Regions 1-4 (Eastern Seaboard) and most of Region 6 (Central Southern
States Oklahoma and Texas)": "covers 24 states. the District of Columbia as well as Puerto Rico
and the US Virgin Islands"; and "is one of two Centers nationwide that handles all of SBA 's
commercial loans." See https://www.sba.gov/content/mission-clsc-ar (emphasis added).
34.
The SBA ·s Little Rock Commercial Loan Service Center includes Texas-based
qualified PPP and other SBA-approved lenders including CPF. See
https:/ /www .sba.gov/sites/default/fi les/2021-02/Procedural%20Notice%205000-20091 %20-
%202nd%20 U pdated%20 PPP%20Processing%20 F ee%20and%20 I 502%20 Report in g-508 .pdf at
6 n. 4 ("'The geographic coverage of the Fresno Servicing Center is SBA Regions 5, 6 (except for
10
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 81 of 129
Arkansas, Oklahoma and Texas) 7. 8, 9, and I 0. The geographic coverage of the Little Rock
Servicing Center is SBA Regions I. 2. 3. 4. and 6 (except New Mexico and Louisiana).""
35.
PPP and PPP lending was part of the SBA 's commercial loan servicing. In
connection with the PPP and PPP lending, CPF engaged in substantial and direct
communications with personnel in the SBA ·s Little Rock Commercial Loan Service Center
regarding PPP loan applicants, SBA-approved borrowers including Plaintiffs and the other
putative members of the proposed class, PPP lender fees and other aspects of the PPP. The SBA
even directed that questions relating to aspects of PPP lending should be made to either of the
two Service Centers. See, e.g .• https://www.sba.gov/sites/default/files/2021-
02/Procedural%20Notice%205000-2009 I %20-
%202nd%20Updated%20PPP%20Processing%20Fee%20and%20 I 502%20Reporting-508.pdf at
p. 6 ( .. Questions on voluntarv termination can be emailed to: For the Fresno Servicing Center:
fsc.servicing(ii)sba.gov: for the Little Rock Servicing Center: lrsc.servicing(@sba.gov ... ).
36.
CPF accordingly communicated substantially and directly with personnel from
the Little Rock Commercial Loan Service Center not only in connection with the PPP loans of
plaintiff Greathouse and other SBA PPP borrowers residing directly in this District, but also in
connection with PPP borrowers from the additional 23 states and other territories within the
SBA ·s Little Rock Commercial Loan Service Center coverage areas -- which, collectively,
represents many thousands of additional SBA-approved borrowers. including Plaintiffs and
numerous other similarly situated SBA-approved but unfunded borrowers of the proposed class.
37.
Although these facts demonstrate that CPF has sufficient contacts in this District
relating to the PPP lending at issue. jurisdictional discovery regarding CPF"s and likely both
Defendants· direct dealings and communications with borrowers in this District and with the
11
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 82 of 129
SBA Little Rock Servicing Center and the lender processing fees CPF generated thereby will
provide additional evidence regarding the substantial and direct business Defendants did at all
relevant times in this District. 1
~38. The Court has personal jurisdiction over defendant Crossroads because
Crossroads controlled and directed CPF"s conduct in PPP lending even though onlv CPF was the
SBA-approved and qualified PPP lender: Crossroads directed CPF to, and CPF did, in fact,
--upstream·· to Crossroads the PPP loan processing fees CPF obtained from the PPP loans of
Plaintiffs, class members and other borrowers as if Crossroads and CPF were one and the same
company: Crossroads and CPF shared senior executives and overlapping websites that referred to
each other; the shared executives of Crossroads and CPF participated directly or indirectly in the
PPP lending process and in regularly communicating with personnel from the SBA ·s Little Rock
Commercial Loan Service Center in connection with the PPP loans at issue; Crossroads's SEC
disclosures and other statements referred to the companies as if they were one and the same: CPF
was Crossroads"s only operating subsidian· in 2021 and Crossroads was CPF"s alter ego at all
Defendants moved on Februan· 25, 2022 to basically stay discovery under the guise of
extending the Court"s scheduling deadlines pending the Courfs ruling on their motion to
dismiss. premised largely on their false contention that this Court lacks jurisdiction. See ECF 26.
27. The Court granted that motion by Order on March 2, 2022. See ECF 30. If the Court has anv
doubt it may properly exercise personal jurisdiction over both Defendants. Plaintiffs request thev
be permitted to take jurisdictional discovery concerning Defendants· contacts with the Little
Rock Service Center regarding Plaintiffs" PPP loans and the PPP loans of other PPP applicants
and borrowers within the Little Rock Service Center·s coverage area; the total number of such
applicants and borrowers ofCPF and amounts of PPP proceeds and PPP lender processing fees
at issue within that coverage area: the number of SBA-approved but unfunded class member PPP
borrowers and total loan proceeds and the potential disposition by Defendants or whereabouts of
those unfunded proceeds. including for unfunded borrowers in this District, Arkansas and other
such borrowers within that coverage area: and the written and oral communications Defendants
had with PPP borrowers in reviewing and underwriting PPP loan applications from borrowers in
this District and the SBA coverage area. Jurisdictional discovery will further support Plaintiffs"
allegations that the Court" s exercise of personal jurisdiction over both Defendants in this case is
fair.
12
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 83 of 129
times relevant in connection with all aspects of PPP lending; and CPF · s contacts in this District
in connection with the claims at issue are also imputed to its corporate parent Crossroads.
-14.39. Venue is proper in this judicial District under 28 U.S.C. § 1391(b)(2) because a
substantial part of the events giving rise to the claims occurred in this District.
Additional Factual Allegations
Background Concerning the
COVID-19 Pandemic and the PPP
~0. On March 11, 2020, the World Health Organization declared the COVID-19
outbreak a "pandemic." Two days later, on March 13, 2020, the United States declared a national
emergency due to the COVID-19 pandemic.
-144_.l., ... Jn response, on March 27, 2020, the United States Congress passed the largest
economic stimulus package in the nation's history-the CARES Act. The CARES Act
amounted to over $2 trillion in aid, equivalent to roughly $6,000 per American, or 45% of all
federal government spending for 2019.
++:42. The CARES Act was enacted to provide immediate assistance to individuals,
families, and businesses affected by the COVID-19 emergency.
+8-:43. One facet of the CARES Act's approach to economic relief was the PPP.
Recognizing the huge strain that the COVID-19 pandemic would likely impose on American
small businesses, the PPP initially allocated $349 billion for loans to small businesses, sole
proprietors, and nonprofit organizations, among others. These loans were intended to pay up to
eight weeks of payroll costs (including benefits) and could also be used to pay interest on
mortgages, rent, and utilities .
.J.9.A4. PPP loans are guaranteed by the SBA, and the PPP provides for loan forgiveness
if the borrower demonstrates that the funds were used in compliance with PPP regulations.
13
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 84 of 129
™5. The PPP has eeeR the s1:1ejeet ofreceived several legislative renewals,
modifications, and extensions. On April 24, 2020, the President signed the Paycheck Protection
Program and Health Care Enhancement Act, which provided additional funding and authority for
the PPP. On June 5, 2020, the Paycheck Protection Program Flexibility Act of2020 was enacted,
extending the deferral period for PPP loans, among other provisions. On July 4, 2020, the PPP
was further amended to guarantee PPP loans to August 8, 2020. On December 27, 2020, the
Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the "Economic Aid
Act") was enacted, which further extended the PPP and allowed for the SBA to authorize
second-draw PPP loans through March 31, 2021, available to borrowers who already used their
previous PPP loan proceeds for permitted expenditures. On March 11, 2021, the American
Rescue Plan Act was signed into law, adding an additional $7.25 billion for PPP loans, bringing
total appropriations for the program to $813.7 billion. Finally, on March 30, 2021, the PPP
Extension Act was enacted, which extended the PPP application deadline to May 31, 2021, and
gave the SBA until June 30, 2021 to process loan applications.
~6. PPP loans are generally available to businesses in operation as of February 15,
2020 that had paid employees, as well as self-employed individuals. Businesses receiving PPP
loans cannot have more than 500 employees and cannot be in bankruptcy. Further, applicants are
required to certify that the "current economic uncertainty makes this loan request necessary to
support the ongoing operations of the Applicant." Currently, at least 60% of the proceeds must
be used for payroll costs. The entire amount of any PPP loan is subject to forgiveness so long as
the proceeds are used for eligible expenses.
22.47. Under the Economic Aid Act, a PPP borrower is entitled to a second draw under
narrower conditions than its first draw. For example, a second draw borrower must have 300 or
14
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 85 of 129
fewer employees, must demonstrate that it sustained a certain percentage reduction in its gross
receipts compared to 2019, and must have used its entire first draw proceeds prior to
disbursement of its second draw proceeds. Second draw loans -- like first draw loans -- are also
subject to forgiveness.
i3-:48. Given the anticipated volume of PPP loan applications, Congress provided for
PPP loan processing and funding through private lenders, with the SBA paying these lenders a
fee for each processed PPP loan.
~9. For their participation, the PPP originally provided that lenders would receive fees
at a rate of five percent for loans $350,000.00 or less, three percent for loans between
$350,000.00 and $2,000,000.00, and one percent for loans over $2,000,000.00. See SBA
Procedural Notice, Control No. 5000-20091 (Feb. 8, 2021), available at
https:/ /www .sba.gov/sites/default/files/202 l-02/Procedural%20Notice%205000-2009 l %20-
%202nd%20Updated%20PPP%20Processing%20F ee%20and%20 l 502%20Reporting-508.pdf
(last accessed Sept. 17, 2021 ).
~50. To address institutional lenders' Regleetneglecting of PPP loan applications from
many small businesses - especially minority, underserved, veteran, and women-owned
businesses -- in favor of larger PPP loans, the Economic Aid Act added that lenders processing
loans ofup to $50,000.00 would receive an increased fee of fifty percent or $2,500.00,
whichever is less, per PPP loan beginning December 27, 2020.
~iL.._As the vast majority of PPP loans - even those to the smallest businesses and sole
proprietors - exceeded $5,000.00, PPP lenders received a flat fee of $2,500 for virtually every
PPP loan less than $50,000.00.
15
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~52. On February 8, 2021, the SBA issued a new notice setting forth the procedure for
how lenders would be paid PPP loan fees by the SBA. Id.
~53. To apply for a PPP loan, a prospective borrower would have to submit a
standardized Borrower Application Form issued by the SBA (SBA Form 2483 for first time
borrowers and SBA Form 2483-SD for second draw borrowers), together with relevant payroll
documentation, to a lender. Once the lender reviewed and approved the loan application, the
lender would submit the application to the SBA for approval.
~54. Following SBA approval ofan application, the SBA would issue a ten-digit loan
identification number (known as a "GP [General Program] number") for the borrower's loan.
~55. Provided that the borrower had executed the loan documents, the lender was
required to disburse the PPP funds within ten days of SBA approval and assignment of the loan
number.
3-h56. Jfthe PPP borrower did not sign and submit all of the required documents to the
lender, then the PPP lender was required to report the loan and corresponding loan number as
cancelled no later than twenty days from the SBA approval and assignment of the loan number.
:'.H-:-57. Lenders' compliance with the above PPP funding requirement was of paramount
importance to applicants and borrowers for reasons beyond their need to get the PPP loan
proceeds in a timely manner.
~58. Once the SBA approved a PPP loan and assigned it a loan number, the applicant
could not apply for a PPP loan with any other lender because the applicant could not make all of
the required certifications on another PPP loan application. Thus, once approved, the borrower
was essentially bouRd to""stuck"" with the lender to whom it applied for the PPP loan, fftmeaning
that the borrower had to rely exclusively on the good faith of the lender to actual Iv fund the loan.
16
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M-:-59. For both first draw and second draw PPP loans, a PPP loan applicant had to
certify that they had not and would not receive another first draw or second draw loan,
respectively.
~O. Since the lender's obligation to fund a PPP loan ran from the date the SBA
approved and assigned a loan number, an applicant could not certify to another lender that they
would not receive the first loan even if the first lender had failed to timely fund the loan.
¾-:-fil.,_Once a PPP loan was funded, the lender had ten days to submit an SBA Form
1502 to report to the SBA that the loan proceeds had been disbursed. After the lender submitted a
Form 1502, the SBA would initiate payment of the processing fee to the lender.
~2. By submitting a Form 1502, the lender represented to the SBA that the PPP loan
had been fully funded. Further, a lender was required to update the SBA with monthly Form
1502 reports detailing each PPP loan's status.
Background Concerning Defendants CPF eed CFessFeeds
"'8-:-63. CPF is a certified community development financial institution ("CDFI").
~64. CPF states on its website that it purports to "serv[e] the Hispanic community in
the state of Texas." See http://www.crossroads.com/wp-content/uploads/2021/09/CRSS O3-
2021-OTC-Disclosure-Statement.pdf (accessed Dec. 23, 2021 ).
~5. CD Fis were established as part of the Riegle Community Development and
Regulatory Improvement Act of 1994. See What Are CDFis, available at
https://www.cdfifund.gov/sites/cdfi/files/documents/cdfi infographic v08a.pdf (last accessed
Sept. 17, 2021 ). There are reportedly 1,000 CD Fis operating nationwide. Id.
4-h66. Although it is a CDFI, CPF was acquired by the for-profit, publicly-traded
company Crossroads in 2017 (OTCQB: CRSS ).
17
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 88 of 129
~67. Crossroads states in media releases and on its website that it is a holding company
that focuses on investing in businesses that promote economic vitality and community
development. See, e.g., https:/ /capitalplusfin.com/in-the-news/.
~8. Since many sole proprietors' PPP loans were in amounts less than $10,000.00,
PPP lenders were generating processing fees of only several hundred dollars for making those
loans in 2020.
#.69. Pursuant to the new 2021 increased fee schedule, however, lenders like CPF could
count on collecting a $2,500.00 flat fee for every PPP loan less than $50,000.00.
~70. Taking into consideration the incredible demand for PPP loans less than
$50,000.00 by sole proprietors, independent contractors, self-employed individuals and other
underserved small businesses together with the more lucrative fee schedule, CPF fand its
corporate parent Crossroads-) saw an opportunity to generate enormous amounts of lender fees by
booking a high volume of PPP loans under $50,000.00.
4&:-1..L_CPF and/or Crossroads reportedly contracted with Blue Acom PPP, LLC (and/or
its affiliate, FinCap, Inc. or their affiliates) ("Blueacom") in 2021 to help identify borrowers to
whom CPF could make PPP loans and assist in the PPP paperwork process. Blueacorn
reportedly. in turn, contracted with others such as Oto Anahtics. Inc. d/b/a Womply (""Womply"")
to also help identify and assist additional potential PPP borrowers.
'17.
Blueacom was estaelisheacreated in 2020.
72.
Neither Blueacom or Womply is Reither a bank HeF-aOr the SBA-qualified lender
and, therefore, cannot actually make PPP loans.
~73. Defendants assert in their motion to dismiss that ··CPF is committed to its
borro\\ers· satisfaction and takes seriouslv anv concerns that are raised about its services:· ECF
18
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 89 of 129
25 at ECF p. 9. In truth, Defendants' PPP lending services have embroiled it not only in this
litigation but also as noted above a separate lawsuit from its own direct or indirect partner,
Womply, which alleges that both Defendants and one of their senior executives. Eric Donnelly
("'Donnelly"). defrauded Womply out of its share of PPP lender processing fees and other
pavments. See Oto Analytics. Inc. d/b/a Womply v. Capital Plus Financial. LLC. Crossroads
Systems, Inc., Eric Donnelly, Ba Fin Orion, LLC d/bla Blueacorn, and Barry Calhoun, Case No.
3:2 l-cv-2636-8 (N.D. Tex.). More specificallv, Womplv alleges that it referred 86,521 PPP
loans to CPF totaling more than $950 million in total PPP loan proceeds that resulted in CPF
receiving $186.882.946 in lender processing fees. but that defendants there actually committed
fraud and conspired in failing to pay Womply its share of those and other fees.
~74. In general, only SBA section 7(a)-approved lenders were approved to make PPP
loans, together with any additional lenders determined by the Administrator of the SBA and the
Secretary of the U.S. Treasury to also be qualified to make such loans. See 86 Fed. Reg. 3692
(Jan. 14, 2021), available at https://www.federalregister.gov/documents/2021/01/14/2021-
00451/business-loan-program-temporary-changes-paycheck-protection-program-as-amended-by-
econ om ic-aid-act (last accessed Sept. 17, 2021 ).
~75. Accordingly, PlaiAtiffl>laintiffs and other similarly situated class member
borrowers contracted with CPF as the lender obligated to make the PPP loans.
M-:-76. For +tstheir role in identifying potential borrowers and helping with the PPP
paperwork, Blueacom. Womply and other PPP agent firms were reportedly Fesei1reaentitled to a
part of the lender's fees pursuant to atheir separate contractual FelatioAship betweeA the leAaeF
aAa Blueasornrelationships. See THE NEW YORK TIMES, How Two Start-Ups Reaped Billions in
Fees on Small Business Relief Loans (June 27, 2021), available at
19
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 90 of 129
https://www .nytimes.com/2021 /06/27 /business/ppp-rel ief-loans-blueacom-womply.htm I (last
accessed Sept. 17, 2021 ).
Defendants' Exploit PPP Lending
77.
Before becoming a PPP lender, Capital Plus was a small. regional lender whose
total revenue from operations for the fiscal year ending October 31, 2020 was $36.6 million.
~
78. At the direction and under the control of its corporate parent Crossroads, CPF
exploited the increased fees to be paid by the SBA on smaller PPP loans in 2021 by reportedly
agreeing to fund 472,036 PPP loans totaling over $7 .5 billion in loan proceeds - again the
second highest number of loans by any lender in 2021, and more loans than Bank of America,
PNC Bank, TD Bank and Wells Fargo combined. See SBA, Paycheck Protection Program (PPP)
Report, Approvals through 5/31/2021, p. 7, available at
https://www.sba.gov/sites/default/files/2021-06/PPP Report Public 210531-508.pdf (last
accessed Sept. 17, 2021).
~79. As a result, Crossroads (not CPF) publicly reported that it "earned fees from the
[PPP] totaling approximately $930 million" according to its quarterly report filed with the SEC
for the period ending July 31, 2021. See http://www.crossroads.com/wp-
content/uploads/2021 /09/CRSS O3-2021-OTC-Disclosure-Statement.pdf (accessed Dec. 23,
2021).
80.
On June 14, 2021. Crossroads released its consolidated financial results for the
second quarter of 2021, ending April 30. 2021. Crossroads disclosed that its ·'[g]ross origination
fees associated with PPP loans totaled $464.1 million for the quarter:· and that Crossroads
""[e]xpects to accrue a total of$ I. I billion in deferred gross origination fees from the [PPP]."" It
20
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 91 of 129
also disclosed that as of April 30, 2021, Crossroads ""held a cash balance of $213.1 million
compared to $2.6 million as of October 31, 2020.''
added):
81.
The June 14. 2021 release of its financial results also states as follows (emphasis
In the last several months, Capital Plus has transformed from a regional single-
family mortgage-based lending institution into one ofthe country's largest
providers of small business loans ... said Eric A. Donnelly, Chief Executive
Officer of Crossroads Systems. When the SBA announced its reopening of the
program in Januarv, we immediatelv identified strong svnergies between the
program's focus on small businesses and Capital Pius's core mission as a CDFI.
Together with our loan service providers, we established early incumbency as the
go-to institution for small business owners, independent contractors, and sole
proprietors. Financially. our success in the program has put us into the best
position we have ever been in, netting us more than $150 million in operating
income for the quarter. At a record cash position, we are well-capitalized to
support the future growth initiatives that will drive our double bottom line. We
will provide a more detailed review of the quarter and these growth initiatives in
the near future upon the completion of PPP.'' ( emphasis added).
82.
In a July 8, 2021 letter to Crossroads' shareholders, Donnelly again touted the
success of its exploitation of PPP lending via its control and domination over its SBA-qualified
PPP lending subsidiary CPF. stating as follows:
·'Within just five months. we have approved 472,036 loans at an average amount
of $16.062. In total. this amounts to .... As a result of our early dominance in PPP
lending, Capital Plus was ranked the fourth largest PPP lender bv net dollar
amount and the second largest by the number of loans approved:·
83.
According to a July 2021 investor presentation, corporate insiders of Crossroads
own (or then owned) approximately 66% of Crossroads' equity including specifically as follows:
Robert Alpert ("Alpert"), Chairman of the Board of Crossroads and principal of 210/CRDS
Investment LLC, 1,492,285 shares, or 25% of Crossroad's total outstanding shares; efie
Donnelly ( .. Donnelly"),.,_ CEO and board member of beff½-Crossroads and also CEO of CPF until
August 30, 2021, 2,255,677 shares, or 37.8% of Crossroad's total outstanding shares; and
21
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 92 of 129
Farzana Giga ("Giga"), whose declaration Defendants filed with their motion to dismiss (ECF
24-1 ), CFO of both Crossroads and CPF and director of Crossroads, and Crossroads board
members James Perez Foster, Claire Gogel, Ray Kembel and Clark C. Webb ("Webb"), 194,440
shares, or 3.3% of Crossroad's total outstanding shares. See http://www.crossroads.com/wp-
content/uploads/202 I /0 I /Crossroads-CRSS-Investor-Presentation 2021.pdf.
M-:-84. Thus, in sum, the corporate insiders and directors of Crossroads owned 3,942,402
shares, or approximately 66%, of the 6,171,984 total outstanding shares as ofJuly 2021-;---Jd;, with
Albert and Donnelly together owning approximately 62.8%. Id.
~85. On July 8, 2021 --:: following its receipt of hundreds of millions of dollars in PPP
loan fees, including for Plaintiff' sPlaintiffs and numerous other class member PPP loans CPF
failed to actually fund --:: Crossroads announced in a letter to shareholders that, based on its
""windfall associated with the PPP loan program .. it was "now overcapitalized" and would pay
out a special dividend of $40 per share to its shareholders on July 26, 2021. See
http://www.crossroads.com/wp-content/uploads/2021 /07 /CRSS-FO2-202 I-Shareholder-
Letter.pdf (at p. 4).
~86. On July 15, 2021, Crossroads issued a news release stating the special dividend of
$40 per share weHkiwill be payable on July 26, 2021 to stockholders of record at the close of
business on July 19, 2021, and that the total amount of the dividend would be approximately
$238.9 million based on the number of Crossroads shares outstanding. See
https://crossroads.mediaroom.com/2021-07-15-Crossroads-Systems-Provides-Additional-
lnformation-on-Special-Dividend?pagetemplate=widgetpopup&printable.
~87. As a result, and based on the respective equity interests in Crossroads, Chairman
Alpert received $59,691,400 in cash from the special dividend; Crossroads's and CPF's then-
22
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 93 of 129
dual CEO Donnelly received $90,227,080; and Alpert, Donnelly and other corporate insiders and
directors collectively received $157,696,080 of the approximately $238.9 million total special
dividend.
~88. On December 14, 2021, Crossroads issued a news release reporting its fiscal year
2021 financial results. In that news release, Crossroads stated that its total fiscal year "revenues
increased 2,446% to $932.7 million, up from $36.6 million in the comparative 2020 period"; that
"(r]emoving PPP impact from the year's operations, total revenues were $34.9 million compared
to $36.6 million in 2020"; that "( o ]perating income increased 4, 127% to $243.4 million, up from
$5.8 million in 2020"; that "[t]he substantial increase in operating income was primarily due to
origination fees associated with the Company's participation in the PPP loan program"; and that
"(c]ash EPS (operating income less income to non-controlling interests) was $36.19, which was
a 4,820% increase compared to $0.74 during the same period in 2020." See
https://www .prnewswire.com/news-releases/crossroads-systems-reports-fiscal-fourth-guarter-
and-fiscal-year-2021-financial-results-301443835 .htm I (last accessed December 29, 2021).
~89. Crossroads Board Chairman Alpert is also Chairman and Co-CEO of PIO
Holdings, Inc-:-:. ( .. Pl ff"). a publicly traded investment firm that provides investment advisory
services to Crossroads, and is also headquartered at the same corporate headquarters as
Crossroads, 4514 Cole Avenue, Suite 1600, Dallas, Texas 75205. See
https://www.pIOalts.com/team.
~90. Crossroads controlled and directed the activities ofCPF, and its management even
referred to the companies as if they were one specifically in the context of the PPP in public
communications to shareholders, among other things. For example, in a letter to shareholders
accompanying its fiscal second quarter report to shareholders for the three months ended
23
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 94 of 129
April-_30, 2021, Crossroads Board Chair Alpert and Crossroads's and CPF's then-dual CEO
Donnelly stated that "[w]e were well equipped to lead the charge for the program's second draw
as a result of our CDFI status" ( emphasis added); that "[l]ast quarter we highlighted our
intention to participate in the second federal PPP program" (emphasis added); that ''we were able
to issue and approve loan applications at an unprecedently rapid pace'':" (emphasis added); and
that, "[w]ithinjust five months, we have approved 472,036 loans at an average amount of
$16,062. In total, this amounts to $7.6 billion in funding, more than 80% of which went directly
to companies and independent contractors of color.") (emphasis added). See
http://www.crossroads.com/wp-content/uploads/2021 /07 /CRSS-F02-202 I -Shareholder-
Letter .pdf (last accessed December 29, 2021).
61.
In sum, Crossroads participated directly and indirectly in GPHthe PPP loan
processing through its common management and control and I 00% ownership of CPF:----l¼R4~
exploited CPF's status as an SBA-approved CDFI PPP lender to enrich itself and its corporate
insiders ey oetainingto obtain fees on PPP loans CPF never funded, and PPP loan J')roeeeds frofl'I
the PPP J')rografl'I.
~2L.._Alti:io1:1gi:i Crossroads eontrolled and direetedincluding the aetiYitiesPPP loans of
CPF as alleged A'lore fully aem,'e. in faet CPF (01:1t not Crossroads) 'Nas Plaintiffs and the
q1:1alified SBA aJ')J')ro>,•ed Sl:IJ')ePlised lender fur 1')1:trJ')osesother putative members of the
~proposed class; obtained millions of dollars in PPP lender processing fees including on the
backs of the unfunded loans of Plaintiffs and the other putative members of the proposed class:
and. in turn, improperlv enriched itself and its senior leadership from a federally-backed program
designed actually to help struggling small minority, women and other business owners whose
businesses were struggling amid the COVID-19 pandemic.
24
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 95 of 129
CPF's Direct Participation in the
PPP Liquidity Facility
Q.;-92. To facilitate lending under the SBA's PPP, the Federal Reserve supplied liquidity
to CPF and other participating financial institutions through tenn financing to be secured by the
PPP loans. See Board of Governors of the Federal Reserve System, Paycheck Protection
Program Liquidity Facility (PPPLF), available at
https://www.federalreserve.gov/monetarypolicy/ppplf.htm (last accessed Sept. 17, 2021).
M-:-93. In particular, the Paycheck Protection Program Liquidity Facility ("PPPLF") was
authorized under§ 13(3) of the Federal Reserve Act ''to facilitate lending by eligible borrowers
[i.e., PPP lenders] to small businesses under the [PPP] .... Under the Facility, the Federal
Reserve Banks ('Reserve Banks') will lend to eligible borrowers [i.e., PPP lenders] on a non-
recourse basis, taking PPP Loans as collateral." See Paycheck Protection Program Liquidity
Facility Tenn Sheet, available at
https://www.federalreserve.gov/newsevents/pressreleases/fi les/monetary202 I 0625a l .pdf (last
accessed Sept. 17, 2021 ).
~94. Further, "[a]ll lenders that are eligible to originate PPP Loans are eligible to
borrow under the Facility." Id.
&&-:-95. For CPF and other qualified CDFI PPP lenders, the lending Federal Reserve Bank
was the Federal Reserve Bank of Cleveland. Id.
e-7.96. Only SBA-guaranteed PPP loans are eligible to serve as collateral for PPPLF
advances, and the principal amount advanced under the PPPLF was to be equal to the principal
amount of the PPP loan pledged to secure the extension of credit. Id.
~97. CPF received billions of dollars of advances through the PPPLF as specified more
fully below, in addition to other PPP advances.
25
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 96 of 129
~98. In fact, although the PPP application period ended on May 31, 2021 and the life
cycle of a PPP loan application should only take a few business days, CPF continued to receive
substantial advances through the PPPLF between June 30, 2021 and July 30, 2021, after the
deadline for processing loan applications.
1'}.99. For example, between July 1, 2021 and July 30, 2021, CPF received at least three
PPPLF cash advances each exceeding $30,000,000.00, and also received a total of
$134,119,585.79 in PPP loan advances for the month of July 2021 alone.
++-:JOO.
In particular, according to a report by the Federal Reserve to the U.S.
Congress dated December 13, 2021 "PPPLF Transaction-specific Disclosures (XLSX)." CPF
received the following specific cash advances from the PPPLF:
Date of Advance
Amount
2021-02-02
$2,178,040.41
2021-02-02
$627,622.00
2021-02-11
$5,708,115.06
2021-02-11
$273,968.00
2021-02-11
$2,710,413.00
2021-02-11
$273,579.59
2021-02-11
$2,129,648.45
2021-02-11
$3,693,488.60
2021-02-11
$5,512,672.14
2021-02-25
$1,191,862.00
2021-02-25
$1,906,418.00
2021-02-25
$34,357.00
2021-02-25
$1,291,742.00
2021-02-25
$2,976,057.35
2021-02-25
$541,239.00
2021-02-25
$372,863.50
2021-02-25
$57,626.00
2021-03-01
$354,159.11
2021-03-01
$5,647,969.98
2021-03-02
$325,669.00
2021-03-02
$4,378,004.32
2021-03-02
$1,460,686.27
2021-03-02
$182, 176.50
26
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 97 of 129
Date of Advance
Amount
2021-03-02
$215,785.00
2021-03-02
$10,184,988.00
2021-03-02
$586,175.75
2021-03-03
$452,683.05
2021-03-03
$2,161,402.00
2021-03-04
$5,273,526.10
2021-03-09
$5,825,425.32
2021-03-09
$5,502,974.02
2021-03-09
$791,045.97
2021-03-09
$7,966,408.33
2021-03-10
$4,144,182.85
2021-03-11
$3,279,707.66
2021-03-15
$22,298,842.23
2021-03-16
$764,647.00
2021-03-16
$17,845,001.09
2021-03-16
$902,196.50
2021-03-16
$1,794,125.60
2021-03-17
$19,604,711.14
2021-03-18
$14,608,755.33
2021-03-18
$1,091,038.95
2021-03-19
$12,415,131.15
2021-03-22
$82,131,881.16
2021-03-23
$54,386,988.50
2021-03-23
$16,861,162.00
2021-03-23
$27,003,647.85
2021-03-24
$98, 770,508.82
2021-03-25
$10,147,992.90
2021-03-29
$479,593.40
2021-03-29
$6,760,457.63
2021-03-29
$11,671,507.38
2021-03-29
$11,310,627.52
2021-03-29
$8,987,367.00
2021-03-29
$8,840,001.43
2021-03-29
$8,036,480.35
2021-03-29
$7,579,378.00
2021-03-29
$7,687,847.70
2021-03-29
$5,476,010.00
2021-03-29
$3,022,105.50
2021-03-29
$2,097,367.75
2021-03-29
$7,343,229.25
2021-03-29
$5,352,732.72
27
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 98 of 129
Date of Advance
Amount
2021-03-29
$3,907,229.00
2021-03-29
$3,074,780.48
2021-03-29
$2,324,503.09
2021-03-29
$947,087.00
2021-03-29
$2,505,979.50
2021-03-29
$1,170,854.10
2021-03-29
$4,357,560.50
2021-03-30
$79,562,983.00
2021-03-30
$102,496,216.00
2021-03-30
$72,574,056.00
2021-03-30
$84,507,665.00
2021-03-31
$75,764,259.00
2021-04-01
$9,549,671.89
2021-04-01
$39,612,141.00
2021-04-02
$243,075,429.00
2021-04-06
$257,472,124.33
2021-04-06
$132,444,399.00
2021-04-07
$10,927,697.00
2021-04-07
$62,021,483.00
2021-04-08
$85,339,435.12
2021-04-08
$259,374,000.00
2021-04-16
$126,501,443.00
2021-04-16
$181,211,831.00
2021-04-16
$162,256,760.73
2021-04-16
$16,005,416.00
2021-04-16
$176,063,638.00
2021-04-20
$15,295,725.00
2021-04-21
$12,171,969.60
2021-04-21
$5,953,438.16
2021-04-21
$38,643,341.00
2021-04-21
$96,987,237.00
2021-04-21
$48,105,810.00
2021-04-23
$58,507,134.00
2021-04-23
$368,780,681.00
2021-04-23
$327,135,009.82
2021-04-23
$70,865,658.00
2021-04-26
$114,086,044.00
2021-04-30
$5,717,971.00
2021-05-03
$1,765,216.00
2021-05-03
$2,944,483.47
2021-05-03
$2,096,650.00
28
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 99 of 129
Date of Advance
Amount
2021-05-04
$2,293,625.00
2021-05-04
$34,802,766.00
2021-05-06
$2,125,832.00
2021-05-06
$1,070,106.00
2021-05-06
$616,115.00
2021-05-06
$835,290.00
2021-05-07
$365,435.00
2021-05-12
$263,080,394.00
2021-05-12
$33,579,305.00
2021-05-12
$16,088,836.00
2021-05-12
$5,443,630.00
2021-05-12
$890,741.00
2021-05-12
$1,413,197.00
2021-05-17
$1,851,188.00
2021-05-17
$1,577,688.00
2021-05-17
$1,581,021.00
2021-05-17
$8,630,450.25
2021-05-18
$1,101,950.00
2021-05-18
$577,710.00
2021-05-18
$535,369,687.12
2021-05-20
$33,419,154.94
2021-05-20
$46,027,570.00
2021-05-24
$11,859,766.00
2021-05-25
$9,886,972.00
2021-05-25
$2,365,516.00
2021-05-25
$600,024.00
2021-05-25
$1,831,023.00
2021-05-28
$1,902,346.00
2021-05-28
$5,249,415.00
2021-05-28
$1,677,600.00
2021-06-02
$2,478,525.99
2021-06-02
$395,067.00
2021-06-02
$574,919.00
2021-06-04
$2,086,894.92
2021-06-04
$834,823.00
2021-06-04
$1,120,999.32
2021-06-04
$80,299,469.78
2021-06-04
$147,886,129.00
2021-06-10
$1,805,560.00
2021-06-10
$700,921.00
2021-06-10
$1,143,936.00
29
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 100 of 129
Date of Advance
Amount
2021-06-10
$12,226,237.00
2021-06-10
$968,115.00
2021-06-16
$1,729,026.00
2021-06-16
$933,469.00
2021-06-16
$46,130,527.00
2021-06-17
$484,266.07
2021-06-17
$542,102.00
2021-06-17
$807,337.00
2021-06-18
$49,044,789.00
2021-06-22
$16,783,373.00
2021-06-23
$515,136,782.00
2021-06-23
$312,406,138.00
2021-06-24
$8,087,276.00
2021-06-24
$15,750,200.00
2021-06-24
$23,444,948.00
2021-06-25
$1,627,318.00
2021-06-25
$1,400,035.00
2021-06-25
$2,004,933.00
2021-06-25
$1,331,199.00
2021-06-25
$1,303,819.32
2021-06-25
$149,773.00
2021-06-29
$2,496,951.63
2021-06-29
$538,849.00
2021-06-29
$41,636.00
2021-06-29
$126,344.00
2021-06-29
$1,119,986.00
2021-06-29
$179,504.00
2021-06-29
$244,511.00
2021-06-29
$26,324.00
2021-06-29
$127,795.00
2021-06-29
$144,425.00
2021-06-29
$39,294.00
2021-06-29
$114,014.00
2021-06-29
$5,000.00
2021-06-29
$1,140,000.00
2021-06-29
$7,642,798.00
2021-06-29
$101,233,693.33
2021-06-30
$194, 761.00
2021-07-01
$35,891,616.00
2021-07-01
$217,926.00
2021-07-01
$436,360.00
30
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 101 of 129
Date of Advance
Amount
2021-07-06
$38,610,016.00
2021-07-06
$1,025,508.00
2021-07-06
$62,496.00
2021-07-07
$7,098,589.00
2021-07-13
$1,219,924.00
2021-07-13
$452,164.00
2021-07-14
$385,525.00
2021-07-14
$41,193,415.00
2021-07-29
$239,725.00
2021-07-30
$72,735.00
2021-07-30
$6,304,677.00
2021-07-30
$858,609.79
2021-07-30
$32,930.00
2021-07-30
$17,370.00
Total
$6,4S8,8S7, 7S9.43
See Board of Governors of the Federal Reserve System, Paycheck Protection Program Liquidity
Facility (PPPLF), available at https://www.federalreserve.gov/monetarypolicy/ppplf.htm (last
accessed Dec. 23, 2021).
~IOI.
As alleged below, while CPF reportedly received over $6.4 billion from
the PPPLF in 2021 alone, CPF failed to actually fund PPP loans approved by the SBA for
PlaiAtiftPlaintiffs and numerous other SBA-approved borrower members of the proposed class.
CPF failed to fund class member approved loans, moreover, despite having actually received the
unfunded PPP loan proceeds via advances from the PPPLF~ secured by the PPP loans. including
the PPP loans it failed to fund.
I 02.
Although no discovery has occurred yet in this case. emails produced in
Womply"s litigation against Defendants reflect Defendants knew of CPF"s failure to fund SBA-
approved PPP loans. For example, one such unfunded borrower wrote an email to Christopher
Dalton ( .. Dalton .. ) of the SBA on June 24. 2021 stating as follows:
31
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 102 of 129
--Hi Christopher, This is Minority women own small business for 14 years Covid
19 destroyed my business. SBA approved ppp loan . I email to Ms .Faranza giga
capital plus, I got respond from Greg Jacobson i give him my information still no
respond. •J NEED HELP.' My lender is Capital Plus My loan no is. First draw
ppp loan . Amount of loan is not big but for me is really helpful to restart mv
business . Thank you."
Dalton forwarded that email to Donnelly and CPF employee Greg Jacobson ("Jacobson'') on
June 25. 2021 and Jacobson. in turn. forwarded it to representatives of Womply also on June 25.
2021. stating "please see below a request for status from the SBA" and --also confirm all else is
getting funded .. . :· Another email dated June 18. 2021 by CPF's CFO Farzana Giga to Connie
Spencer-Adams of Womplv stated as follows: .. Any loans not sent to BA/CPF by 6/23 will not
be able to get funds and none of us want to deal with that."
I 03.
Furthermore. Defendants cite totally distinguishable cases involving prospective
PPP loan applicants rather than, as here, SBA-approved borrowers, delayed PPP loan payments,
and PPP loan processing fee ·'agent" cases ( ECF 25 at ECF pp· s I 0-11 ). and then glibly and
callously assert that ··Plaintiff's misleading claim in this case, that CPF •failed to fund' a loan it
agreed to make. suggests that litigants seeking to exploit the PPP for private gain are simplv
running out of ideas:· Id. at ECF p. 11. In truth, Plaintiffs -- who are small business owners
involved, respectivelv, in insurance inspection, auto repair, landscaping and support for artists
and writers -- are among the very intended beneficiaries that Congress designed the PPP to assist
and CPF was contractually obligated but failed to fund.
CPF's Failure to Fund
Plaintiff Greathouse's PPP Loan
~104.
When the pandemic began, Plaintiff Greathouse was, and continues to be,
in the business of providing insurance inspection services in the Russellville, Arkansas area.
32
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 103 of 129
-1+.105.
Due to the pandemic, Plaintiff was not able to provide these services with
the same frequency and, as a result, lost significant income.
+S-cl06.
On or about April 8, 2021, Greathouse applied for a PPP loan with CPF.
Greathouse submitted all requested documentation and information.
+e:107.
On or about April 9, 2021, the SBA approved Greathouse's PPP loan
application and assigned it a loan number (SBA Loan Number 9988328700).
+l-:108.
The SBA appF01t•ed Greathouse was approved for a PPP loan in the
amount of$15,665.00.
+&-109.
On April 18, 2021, Greathouse received the standard form PPP promissory
note (the ''Note") and accompanying documents for him to sign.
+9-: 110.
The Note identified the SBA loan number and amount, Defendant CPF as
the lender and Plaintiff Greathouse as the borrower; set forth payment terms, potential events of
default, CPF's rights in the event of default, and other terms and conditions; and provided the
terms for Plaintiff Greathouse to repay the loan to CPF if it was not forgiven.
~I 11.
The Note also included afta standard form Additional and Correction
Documents Agreement (Errors and Omissions Agreement) between CPF and Plaintiff
Greathouse; a Business Purpose Statement; a Notice - No Oral Agreements bearing the signature
ef.CPF Chief Financial Officer Giga and Plaintiff Greathouse; a Written Consent of Governing
Body form for Greathouse to represent that he is authorized to receive the loan and on which
CPF may rely; an IRS W-9 Request for Taxpayer Identification Number and Certification; and
an Information and Bank Account Certification and Authorization form identifying the bank or
other account to which CPF was obligated to send the funds (collectively, the "Loan
Documents").
33
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 104 of 129
8+:I 12.
On April 18, 2021, Greathouse signed and returned the Loan Documents
in order to obtain the $15,665.00 PPP loan.
~113.
Also on April 18, 2021, Greathouse was advised by email that his loan
was approved and •Houle eeis being funded.
~114.
Despite properly and timely completing, signing and submitting the Loan
Documents and additional attempts to obtain the loan proceeds, however, Greathouse never
received the proceeds of his SBA-approved PPP loan.
84:115.
For example, Greathouse contacted and consulted with his local SBA
office about CPF's failure to fund his PPP loan, and sent emails and made numerous telephone
calls to CPF and Blueacom to try to follow--:up and get funded, all to no avail.
~116.
On July 19, 2021, and following his complaints to the local SBA office
and telephone calls again seeking funding, Greathouse was advised on July 19, 2021 that his PPP
loan was being funded within an estimated three to six days.
~117.
Although the SBA's records reported that Greathouse's PPP loan had
actually been funded, Greathouse never received any PPP loan proceeds.
~I 18.
The SBA's record of the alleged disbursement of Greathouse's loan
proceeds was based on data CPF provided to the SBA.
38-:119.
CPF's failure to fund Greathouse's SBA-approved PPP loan deprived
Greathouse of funds that would have directly assisted in the operation of his iRsfJectioR business
and resulted in lost opportunities and other consequential damages.
34
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 105 of 129
CPF's Failure to Fund
Plaintiff Covarrubias's PPP Loan
120.
When the pandemic began. plaintiff Covarrubias was. and continues to be. in the
business of providing auto repair services in the Santee. California area.
121.
Due to the pandemic. plaintiff Covarrubias·s business lost significant income.
122.
In or about May 2021. Covarrubias applied for a PPP loan with CPF. Covarrubias
submitted all requested documentation and information.
123.
In May 2021. the SBA approved Covarrubias·s PPP loan application and assigned
it a loan number (SBA Loan Number 4 713608906).
124.
Covarrubias was approved for a PPP loan in the amount of $8,332.00.
125.
On May 21, 2021. Covarrubias received the same standard form PPP prom is son·
Note and accompanying standard form Loan Documents for him to sign that plaintiff Greathouse
also received and signed.
126.
On Mav 21, 2021, Covarrubias signed and returned the Loan Documents in order
to obtain the $8.332.00 PPP loan.
127.
Also on May 21, 2021, Covarrubias was advised by email that his loan was
approved and is being funded.
128.
Despite properly and timely completing, signing and submitting the Loan
Documents and additional attempts to obtain the loan proceeds. however, Covarrubias never
received the proceeds of his SBA-approved PPP loan. Covarrubias attempted to contact CPF
directly to get his loan funded. but was unable to reach anyone live with whom to speak. As he
stated in a December 8. 2021 email to an SBA representative, there was a ··lack of customer
service and being able to get ahold of a live person being nonexistent made things worse:·
35
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 106 of 129
129.
Covarrubias also contacted the SBA directly about CPF's failure to fund his PPP
loan, and sent emails and made numerous telephone calls to CPF and SBA to try to follow-up
and get funded, all to no avail.
I 30.
For example, Covarrubias sent an email to a SBA representative on November 29,
2021 stating .. ff the loan had been canceled and return whv was I able to get approved for my
loan to be forgiven. Someone kept that money knowing that if I didn't get my loan forgiven I
would be on the hook for paying it back. I would've been out of time to apply for the loan to be
forgiven [] I would've been responsible for paying loan back if the loan was still in limbo." The
SBA representative replied to him that same day by email stating .. , understand this has
happened to a lot of individuals, but therefore the SBA is program -- the bank utilize [sic] just
like a mortgage done by Fanny/Freddie. Yes, it is backed by a Government program, but it is
managed and held with a bank or lending institution. We don't approve, deny, or withdraw any
requests, because they are not our loans."
131.
Similarly, in a September 29, 2021 email Covarrubias sent to the Blueacorn portal
after Blueacorn refused to assist in getting CPF to fund his loan, Covarrubias sought further
information regarding the whereabouts of the PPP loan proceeds he was approved by the SBA to
receive, and which SBA records falsely showed were disbursed to him and as to which he was be
obligated to repay plus interest:
.. First and foremost those documents I originally sent in where prove enough for
the SBA to approve my loan and give me a loan number. Second had my loan
been denied I wouldn't ofreceived an email reminding me about the loan
forgiveness. Why haven't I received an email from you or my lender telling me to
get my loan forgiven. I know why because than you would be committing a fraud.
What your trying to do is wait everyone out until the very last minute who has
$8332 just laying around to pay the loan back when it could all just go away with
the loan forgiveness, oh but wait what happens to the $8332 dollars of mine that
the SBA approved who gets that monev. Well that money who knows where it
went it just disappeared it vanished along with thousands of other people's PPP
36
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 107 of 129
funded.
loans that BLUE ACORN AND CAPITAL PLUS FINANCIAL HAVE STOLEN
LIED ABOUT BEING DISBURSED. I NEVER RECEIVED NOT ONE PHONE
CALL FROM EITHER BLUE ACORN OR CAPITAL PLUS FINANCIAL:·
(emphasis in original)
132.
Covarrubias still persisted in his efforts to actually get his SBA-approved loan
133.
Although the SBA 's records reported that Covarrubias·s PPP loan had actually
been funded. Covarrubias never received any PPP loan proceeds.
134.
The SBA ·s record of the alleged disbursement of Covarrubias·s loan proceeds
was based on data CPF provided to the SBA.
135.
CPF's failure to fund Covarrubias·s SBA-approved PPP loan deprived
Covarrubias of funds that would have directly assisted in the operation of his business and
resulted in lost opportunities and other consequential damages.
CPF's Failure to Fund
Plaintiff Sumrall's PPP Loan
136.
When the pandemic began. plaintiff Sumrall was, and continues to be. in the
business of providing landscape architectural services in the El Paso. Texas area.
137.
Due to the pandemic. plaintiff Sumrall was not able to provide these services with
the same frequency and, as a result, lost significant income.
138.
On or about May 18. 2021, Sumrall applied for a PPP loan with CPF. Sumrall
submitted all requested documentation and information.
139.
In May 2021. the SBA approved Sumrall's PPP loan application and assigned it a
loan number (SBA Loan Number 51264890 I 0).
140.
Sumrall was approved for a PPP loan in the amount of $4,095.00.
37
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 108 of 129
141.
Also in May 2021, Sumrall received the same standard form Note and
accompanying Loan Documents for her to sign that plaintiff Greathouse received. and Sumrall
signed and returned the Loan Documents in order to obtain the $4,095.00 PPP loan.
142.
Despite properly and timely completing. signing and submitting the Loan
Documents and additional attempts to obtain the loan proceeds, however, Sumrall never received
the proceeds of her SBA-approved PPP loan.
143.
For example, Sumrall contacted the Blueacorn for any information it had about
CPF"s obligation to fund her loan and, by email on May 29, 2021, was told that •·[i]f your
application is SBA approved, you can be rest assured that your funds are secure and they will be
transferred to your account:· Sumrall replied as follows:
··J understand you may be verv busy but I have lost 2 people to COVID my
business home and family a on the brink. There has been no light in sight. I have
passed every identity verification process. I never once stated anything about
fraud. Please explain why I was approved and signed your promissory note and
have no money and now this. Please explain:·
144.
Although the SBA 's records reported that Sumratrs PPP loan had actually been
funded. Sumrall never received any PPP loan proceeds.
145.
The SBA ·s record of the alleged disbursement of Sum rail's loan proceeds was
based on data CPF provided to the SBA.
146.
CPF's failure to fund Sumratrs SBA-approved PPP loan deprived Sumrall of
funds that would have directly assisted in the operation of her business and resulted in lost
opportunities and other consequential damages.
38
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 109 of 129
CPF's Failure to Fund
Plaintiff Myles's PPP Loan
147.
When the pandemic began. plaintiff Myles was. and continues to be. in the
business of providing services to independent artists. writers and performers in the Raeford.
North Carolina area.
148.
Due to the pandemic. plaintiff Myles's business was damaged and. as a result. lost
significant income.
149.
In or about May 2021. Myles applied for a PPP loan with CPF.
150.
Also in May 2021. the SBA approved Myles's PPP loan application and assigned
it a loan number (SBA Loan Number 5742309006).
151.
Myles was approved for a PPP loan in the amount of $11,497.00.
152.
In May 2021. Myles received and properly signed and returned the same standard
form Note and accompanying Loan Documents that plaintiff Greathouse received.
153.
Despite properly and timelv completing. signing and submitting the Loan
Documents and additional attempts to obtain the loan proceeds. however. Myles never received
the proceeds of her SBA-approved PPP loan.
154.
For example. in an email on August 11. 2021. Mvles summarized her experience
as follows:
"I also can show text messages beginning in 10/2019 unti I this year. I began
proceedings for this singing competition in October 2019, communicated with the
Director at Cole Auditorium in Februao' 2020. I have the messages. Also, if you
requested all of the information that you stated I did not present to you, I would
like to know when. how. and a completed copy of what you were requesting. I
was never to start the business because of the pandemic so there wasn't any taxes
to file. no revenue. nothing. And finally. if you needed all of the documentation
that you claim I did not submit. why was I ever approved and sent a check to my
bank account?
39
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 110 of 129
I will expect answers, I will not allow you all to treat me this way, and I will fight
for my right to have the check that was sent to me, returned. My account had not
been negative for a long time, but because I was informed that I had been
approved, I went in debt to open a business bank account. pay over $2000 for a
website. and many meetings.
I want the funds I was approved for returned to me or we will be in the news. And
don·t say I am threatening you because I am not.... this is a promise. You will not
give and then take back. and think vou·re going to get away with it:·
155.
Although the SBA ·s records reported that Mvles·s PPP loan had actually been
funded, Mvles never received any PPP loan proceeds.
156.
The SBA ·s record of the alleged disbursement of Myles·s loan proceeds was
based on data CPF provided to the SBA.
157.
CPF"s failure to t~nd Myles"s SBA-approved PPP loan deprived Myles of funds
that would have directly assisted in the operation of her business and resulted in lost
opportunities and other consequential damages.
CPF's Failure to Fund Other
SBA-Approved Class Member
Borrower PPP Loans
89.
Other similarly situatea l=lorro•wers haYe l=leeA aamagea 13~, CPf's failure to fuAa
their SBA appro1,'e0 PPP loans aHa ha,•e complaiHea al=lout their experieHces iA social meaia sites.
9Q.
for eirnmple. pul=llicly postea complaiAts l=ly other coAsumers OR the internet tell
similar stories:
158.
Again while Defendants contend that --cpr is committed to its borrowers'
satisfaction·· and that ·'the vast majority of CPF"s borrowers have reported no issues receiving
their loans"" (ECF 25 at ECF p. 9). the truth is that, in addition to Plaintiffs" experiences,
numerous other PPP borrowers across the United States have complained publicly about CPF's
failure to fund their PPP loans, examples of which include the following:
40
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 111 of 129
a.
"Capital Plus Financial has kept hundreds of people's PPP loans that were already
approved by the SBA." (Consumer Financial Protection Bureau Complaint
Database, Complaint No. 4409176, May 26, 2021,
https:/ /www.consumerfinance.gov/data-research/consumer-complaints/, last
accessed Dec. 23, 2021 );
b.
"I hope capital plus financial is shut down after this, and that's on god. They
deserve to lose all of their financial accreditations and business licenses. I have
never in my life been in a situation like this with a financial institution that cuts
off all methods of contact/communication for months at a time with zero
explanation." (Consumer complaint, June 2020,
https://www.reddit.com/r/Blueacom/comments/nci8lm/just got off the phone w
ith an sba rep in tx/, last accessed Dec. 23, 2021 );
c.
"[11 they don't have a ET A on when my funds will be sent to my account. They
do not have a phone to contact them, the lender Capital Plus Financial doesn't
have a way for me to contact. I have emailed the CEO of capital plus financial
every single day which is the lender and I have not heard anything from them at
all." (Consumer Financial Protection Bureau Complaint Database, Complaint No.
4348481, May 4, 2021, https://www.consumerfinance.gov/data-
research/consumer-complaints/, last accessed Dec. 23, 2021 );
d.
"I signed on April 8th and it says that my friends have been transferred or
deposited and I have not seen a dime has anybody reported this to the SBA?"
(June 2021 Consumer Complaint,
https:/ /www .reddit.com/r/PPPLoans/comments/ms0pzr/anybody been funded by
capital plus financial/gz92tah/?utm source=reddit&utm medium=web2x&cont
ext=3, last accessed Dec. 23, 2021 );
e.
"If they broke they really need to just say that and send me to another lender or
something because at this point they owe me." (Consumer complaint, May 2021,
Facebook Group PPP Funding Group,
https://www.facebook.com/groups/442306946857529/posts/456065 I 48815042,
last accessed Dec. 23, 2021 );
f.
"They are making up the rules as they go, holding money that doesn't belong to
them. This is not what SBA intended." (Consumer complaint June 2021,
change.org, https://www .change.org/p/ppp-fraud-by-blueacom-and-capital-plus-
financial-failure-to-deliver-sba-
funds?utm source=share petition&utm medium=custom url&recruited by id=9
da43a80-c0d6-0 I 2f-2f2f-4040496dcccb, last accessed Dec. 23, 2021 ); and
g.
"Other delay tactics are mistakes on bank account information you ~idn't
make, an inability to correct mistakes you did make and an inability to reach
anyone at both companies. They are holding funds and not delivering money to
borrowers. SBA tells you to resolve with a lender you ea&tcan 't reach directly
41
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 112 of 129
9-1-:159.
and never returns calls." (Change.org Petition: Report PPP fraud by Blueacom
and Capital Plus Financial Failure to Deliver SBA Funds, 147 supporters, last
accessed Dec. 23, 2021 ).
CPF haslndeed. Defendants have reportedly received so many complaints
about ttsCPF's failure to fund SBA-approved PPP loans. IA faet, CPF states that they actuallv
had to add a warning to CPF·s website about communications to CPF regarding PPP lending
which stated as follows oA its welJsite:
NOTICE CONCERNING THREA TENINO OR HARASSING
COMMUNICATIONS
The partnership of Capital Plus Financial and Blue Acom has successfully served
hundreds of thousands of individuals and small businesses through the funding of
Paycheck Protection Program (PPP) loans.
Feedback from customers is always appreciated. Customer service remains our
top priority.
However, we will not tolerate any threatening or harassing actions or
communications from customers in any form.
Any communication from an applicant we deem threatening, harassing or
intimidating will result in the immediate withdrawal of the loan.
Additionally, we will pursue all available criminal and civil legal avenues to
defend and protect our companies and our associates. Our team includes former
federal agents and prosecutors. We are working closely with federal, state, and
local law enforcement to identify and prosecute those who would make threats
against our companies or our associates. We will pursue these options to the
fullest extent of the law.
See https://capitalplusfin.com/home/ (visited Dec. 26, 2021).
~160.
CPF failed to fund the SBA-approved PPP loans of PlaiAtiffPlaintiffs and
other elasselass member borrowers despite the fact that CPF itself participated in the Program
directly also as a beneficiary, having received the PPP loan on April 13, 2020 of reportedly
$376,800. See, e.g., Capital Plus Financial LLC in Bedford, TX - SBA PPP Loan Data (Paycheck
Protection Program) (federalpay.org) (accessed on Dec. 28, 2021).
42
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 113 of 129
Class Action Allegations
~161.
Plaintiff bringsPlaintiffs bring this action individually and on behalf of the
following national class (the "Class'-+.-"") and subclasses:
National Class: All persons and entities in the United States who, in 2021, ~
applied for PPP loans with defendant CPF as the lender for whom the SBA
provided an SBA loan number, and who kaaexecuted and submitted their -leafls
ilf)f)F0¥ea by the SBA Loan Documents but did not receive the PPP loan proceeds.
California Subclass: All persons and entities in California who, in 2021. applied
for PPP loans with defendant CPF as the lender for whom the SBA provided an
SBA loan number, and who executed and submitted their Loan Documents but
did not receive the PPP loan proceeds.
North Carolina Subclass: All persons and entities in North Carolina who, in
2021, applied for PPP loans with defendant CPF as the lender for whom the SBA
provided an SBA loan number, and who executed and submitted their Loan
Documents but did not receive the PPP loan proceeds.
9+.162.
Excluded from the Class and subclasses are Defendants, any entities in
which Defendants have a controlling interest, Defendants' agents and employees, any Judge to
whom this action is assigned, and any member of such Judge's staff and immediate family.
~163.
There is a well-defined community of interest among members of the
Class and subclasses, and the disposition of their claims in a single action will benefit the parties
and the Court.
%-:164.
The proposed Class ffteeffiand subclasses meet each applicable
requirement offed. R. Civ. P. 23(a) ana 23(b)(3) . .,_
.1)..7.,165.
Numerosity: While the exact number of members of the Class tsand
subclasses are unknown at this time and can be determined by appropriate discovery, the Class
and each subclass includes numerous members such thatjoinder of all members is impracticable
within the meaning of Rule 23(a)(l).
43
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-9&166.
Ascertainabllity: Names and addresses of members of the Class and
subclasses are available from Defendant CPF's records and potentially other sources including
publicly available databases. Notice can be provided to the members of the Class and subclasses
through direct mailing, publication, or otherwise using techniques and a form of notice similar to
those customarily used in class action litigation.
99-:-167.
Typicality: PlaiRtiffsPlaintiffs" claims are based on the same facts and
legal theories as those of the other members of the Class and subclasses which PlaiRtiff
seek-sPlaintiffs seek to represent. PlaiRtiffl>laintiffs and the members of the Class and subclasses
all similarly applied for PPP loans, had their loans approved by the SBA, but did not receive
their PPP loan proceeds from CPF despite the parties' loan contracts.
~168.
Adequacy: PlaiRtiffi>laintiffs will fairly and adequately represent the
interests of the members of the Class. PlaiRtiff is aR and respective subclasses. Plaintiffs are
adequate ref)reseRtati•,cerepresentatives of the Class and respective subclasses as Ri5their interests
align with the interests of the members of the Class. aRd PlaiRtiff is and respective subclasses.
and Plaintiffs are represented by counsel skilled and experienced in class actions, including
financial consumer and other class action litigation.
Wl-:169.
Superiority: A class action is superior to all other available methods of the
fair and efficient adjudication of the claims asserted in this action because the expense and
burden ofindividual litigation makes it economically unfeasible for members of the Class and
subclasses to seek to redress their claims other than through a class action; if separate actions
were brought by individual members of the Class and subclasses, the resulting duplicity of
lawsuits could lead to differing and inconsistent adjudications; and, absent a class action, ~
44
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+sDefendants are unlikely to be held accountable for ttsCPF"s failure to actually fund all
applicable SBA-approved PPP loans.
~170.
Predominance and Commonality: Common questions of law and fact
exist and predominate over any questions which affect individual members of the Class~ and
subclasses. Common questions of fact and law include, but are not limited to:
a.
whether defendant CPF failed to fund SBA-approved PPP loans to
PlaintiftPlaintiffs and other members of the Class and subclasses in breach
of its obligations to actually fund such loans;
b.
whether CPF and Crossroads obtained fees for PPP loans that CPF did not
diseursemake;
C.
d.
e.
~171.
whether CPF's corporate parent, Crossroads, controlled CPF and was
unjustly enriched by obtaining fees for PPP loans;
whether CPF's failure to fund SBA-approved PPP loans violated the Loan
Documents it entered into with Plaintiffl>laintiffs and other members of
the Class and subclasses; and
whether defendant CPF's failure to fund SBA-approved PPP loans and
Crossroads's receipt of PPP loan fees damaged PlaintiftPlaintiffs and the
members of the Class and subclasses.
Plai,Hiff reser,•esPlaintiffs reserve the right to amend the definition of the
Class and subclasses if discovery or further investigation reveals that the definition of the Class
or subclasses should be amended.
-I-M:172.
COUNT ONE
Breach of Contract
{Against CPF}
Plaintiff ineorporatesPlaintiffs incorporate the allegations from all
previous paragraphs as if fully set forth herein.
~173.
This Count is alleged bv all Plaintiffs against only defendant CPF.
45
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~174.
The standard fonn promissory Note and accompanying Loan Documents
that CPF and the members of the proposed Class entered into are binding, enforceable
agreements. Among other provisions, the Note identifies the specific PPP loan, loan number and
amount of the loan; specifies that the parties to the Note are, respectively, the Class member
borrower and the "Lender" CPF; provides that, "[t]his loan is made pursuant to the PPP";
requires the borrower to pay back the principal of the loan plus interest if the PPP loan is not
forgiven; contains other PPP loan repayment tenns and events of default and the lender's rights
in the event of the borrower's default; and contains general provisions, including specifically that
"[a]II individuals and entities signing this Note are jointly and severally liable[.]"
~
.... 17
__ 5 __ . __ In addition, the Additional and Correction Documents Agreement (Errors
and Omissions Agreement) that accompanies the promissory Note between the Plaintiff class
member borrowers and CPF provides additional tenns and states, at the outset, explicitly as
follows:
:_:In consideration of Capital Plus Financial, LLC, located at 2247 Central Drive,
Bedford, Texas 76021 (hereinafter called ··Lender··)·Lender") making the above
loan, each of the undersigned, jointly and severally, do hereby agree as follows
+9&176.
The Loan Document contracts entered into by CPF and the putative
members of the Plaintiffalleged borrower Class also include a ''Notice - No Oral Agreements"
document that governs the "Loan by Lender, Capital Plus Financial, LLC to Borrower";
identifies each Class member borrower; and is executed by both CPF via its CFO Giga, and each
putative Class member borrower.
~177.
A complete copy of the Loan Document plaintiff Greathouse agreed to is
attached to this Complaint as Exhibit A (with only Plaintiffsplaintiff Greathouse's Social
Security and bank account numbers redacted).
46
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4--14178.
Through its agreement to make PPP loans via the Loan Documents and as
the counterparty to the Loan Documents, CPF entered into a-binding agreementagreements with
PlaintiffPlaintiffs and the members of the proposed Class to fund their respective PPP loans.
-1-1-hl 79.
Further, CPF had an implied duty to act in good faith and in accordance
with fair dealing to take all steps necessary to fund PlaintiffsPlaintiffs' and the Class members'
PPP loans pursuant to the Loan Documents.
112.
Plaintiff and the Class memeers performed all their oeligations 1:1nder the Loan
Doe1:1ments.
180.
In addition. CPF and its corporate parent Crossroads also acted consistent with.
reaped the benefits of and made numerous representations confirming CPF"s agreement to fund
Plaintiffs" loans. For example. defendant Crossroads reported that .. the Company" made $930
million in PPP loan fees by representing to the SBA that it had funded Plaintiffs" and other PPP
loans. Defendant CPF also obtained billions of dollars from the PPPFL by pledging Plaintiffs'
and other borrowers· loans as collateral. Defendant CPF could not properly secure PPPLF
advances on loans it would not fund. Defendant CPF also consistentlv reported to the SBA that it
had funded class members· loans.
+H-:181.
Defendant CPF breached its obligations to fund Plaintiff sPlaintiffs' and
the Class members' PPP loans under the Loan Documents by failing to fund the loans ,,.,ithin IQ
da~'s of the SBA' s appro,.,al of the loans and assignment of loan n1:1meers. or at an~' time
thereafiertheir loans.
+I+. I 82.
Moreover, all PPP loan applications require applicants to certify that they
have not, and will not, receive other PPP loans.
47
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As a result, once PlaintiffPlaintiffs and the other members of the Class
applied for PPP loans and their loan applications were approved by the SBA and assigned PPP
loan numbers pursuant to the Loan Documents, PlaintiffPlaintiffs and the Class members were
no longer able to apply for PPP loans with other PPP lenders as they would not be able to certify
that they would not receive another PPP loan.
-1-14184.
PlaintitlPlaintiffs and the Class members were therefore effectively bound
to, and had to rely exclusively on, CPF to actually abide by their Loan Document commitments
to provide them with the PPP loan funds that the SBA had already approved.
~
..... 18=5"""'. _____ As a result, CPF harmed PlaintiffPlaintiffs and the members of the Class
in an amount to be determined at trial, but not less than the amount of the wrongfully withheld
PPP loan proceeds plus all other applicable damages to the full extent permissible by law.
+l-8:186.
COUNTTWO
Breach of Contract
{Against Crossroads)
Plaintiff ineorJ')oratesPlaintiffs incorporate the allegations from all
previous paragraphs as if fully set forth herein.
+1-9-al 87.
~188.
This Count is alleged by all Plaintiffs against only defendant Crossroads.
As more fully described above, Crossroads exercised substantial control
over CPF, operated with CPF as a single enterprise, held out in its SEC filings and other public
statements that it was one and the same companies. participated in CPF's PPP loan processing
practices, and exploited CPF' s status as an SBA-approved CDFI lender to enrich itself and its
corporate insiders through improperly obtained funds.
~189.
Crossroads also exercised its control over CPF to cause CPF to
forv.-ard··upstream ·· to Crossroads hundreds of millions of dollars in PPP-:related .ftmesloan
48
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processing fees and PPPLF loan advances, notwithstanding that CPF had not funded
PlaiRtiff sPlaintiffs' and Class members' loans on account of which CPF received those funds .
~190.
.\::maefAccordingly. Crossroads also breached the Loan Agreement
contracts Plaintiffs entered into with CPF because Crossroads controlled the conduct of. and is
thus also liable for. CPF's breaches of those contracts. In addition, under the principles of equity
and good conscience, Crossroads should not be permitted to retain the funds it received as a
result of PlaiRtiffsCPF's breaches of contract and Plaintiffs' and Class members' unfunded
leaRs, 'Nithm:1t hai,'iRg first ca1:1sed CPf te disb1:1rse the PlaiRtiff s aRd Class members loans.
~191.
As a result of the foregoing, Crossroads is liable to PlaiRtiffPlaintiffs and
Class members as CPF's alter ego, for the amount of the wrongfully withheld PPP loan proceeds
plus all other applicable damages to the full extent permissible by law.
-I-U:192.
As a result of the foregoing, the corporate veil of CPF should be pierced,
and Crossroads should be held liable to Plaintiff aftdsand Class members for the amount of the
wrongfully withheld PPP loan proceeds plus all other applicable damages to the full extent
permissible by law.
~193.
COUNT THREE
Unjust Enrichment
(Against Both Defendants)
PlaiRtiff iRc0rt10ratesPlaintiffs incorporate the allegations from all
previous paragraphs as if fully set forth herein.
~194.
PlaiRtiff alleges,'\11 Plaintiffs allege this Count against both Defendants.
Plaintiffs allege this Count only in the alternative, to the extent PlaiRtiffsPlaintiffs' breach of
contract claims fail to adequately compensate PlaiRtiffPlaintiffs and Class members for the
Defendants' violations as alleged herein.
49
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H-1-:195.
PlaiAtiffPlaintiffs and Class members conferred a monetary benefit on
Defendants. Specifically, they chose CPF to process and fund their PPP loans. In exchange,~
appro't'al of their loaAs. PlaiAtiffPlaintiffs and Class members should have received the funds to
which they were entitled.
~196.
Defendants received PPPLF advances and PPP loan processing fees based,
at least in part, on the unfunded loans of the PlaiAtiffPlaintiffs and Class members.
~197.
Defendants appreciated or had knowledge of the benefits they received as
a result of the PlaiAtiff sPlaintiffs' and Class members' approved loans and they accepted and
retained those benefits. Defendants profited from PlaiAtiff sPlaintiffs' and Class members'
busiAessPPP loan transactions and used the funds resulting therefrom for business purposes and
for the personal gain of Crossroads's shareholders, as alleged more fully above.
~
l 98.
Crossroads controlled and directed the activities of CPF for purposes of
the PPP also as alleged more fully above, and CPF should have timely and properly funded
PlaiAtiff sPlaintiffs' and Class members' PPP loans.
H-hl99.
Under the principles of equity and good conscience, Defendants should
not be permitted to retain the funds they received as a result of PlaiAtiffsPlaintiffs' and Class
members' unfunded loans, without having disbursed those or other funds to fund the loans to
which PlaiAtiffPlaintiffs and Class members were entitled.
~=20=0=·-- CPF did not fund those loans, and therefore did not provide full
compensation for the benefit PlaiAtiffPlaintiffs and Class members provided.
H,;;-20 I.
As a direct and proximate result of Defendants' conduct, PlaiAtiffi>laintiffs
and Class members have suffered and will suffer injury.
50
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H+.202.
Defendants should not be permitted to unjustly enrich themselves at the
expense of PlaiRtiftPlaintiffs and Class members, but in equity and good conscience should be
required to make restitution for all funds acquired as a result of Defendants' unlawful conduct.
~203.
Defendants should be compelled to disgorge into a common fund or
constructive trust, for the benefit of PlaiRtiffl>laintiffs and Class members, proceeds that it
unjustly received as a result of PlaiRtiffsPlaintiffs" and Class members' PPP loans.
COUNT FOUR
Violation of California's Unfair Competition Law
Cal. Bus. & Prof. Code § 17200, et seq.
(Against Both Defendants)
204.
Plaintiffs incorporate the allegations from all previous paragraphs as if fully set
forth herein.
205.
The California Unfair Competition Law (
0 UCL"') defines unfair business
competition to include any --unlawful, unfair, or fraudulent"" act or practice. Cal. Bus. & Prof.
Code § 17200.
206.
A business act or practice is --unlawfur· under the UCL if it violates any other law
or regulation.
207.
Plaintiff Covarrubias brings this claim individually and on behalf of the California
subclass and has standing to bring this claim because he is and at all times relevant was a
resident of California and is subject to the protection of the UCL.
208.
CPF's failure to fund SBA-approved PPP loans breached the Loan Documents
and accompanying legal duties it owed plaintiff Covarrubias and the other members of the
California subclass.
209.
As a result of its failure to fund the SBA-approved PPP loans. CPF obtained fees
and other compensation to which it was not entitled. including fees on loans it never funded and
51
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 122 of 129
loan proceeds rightfully belonging to plaintiff Covarrubias and the California subclass, and
wrongfully deprived plaintiff Covarrubias and the members of the California subclass of PPP
loan proceeds.
210.
When the PPP loans of plaintiff Covarrubias and the California subclass were
approved bv the SBA. these SBA-approved borrowers had a vested interest in the PPP loan
proceeds which CPF wrongfully withheld.
211.
CPF"s failures to fund these PPP loans thereby constitute a violation under the
--unlawful .. prong of the UCL.
212.
Similarly. CPF"s failure to fund SBA-approved loans also constitutes --unfair ..
acts and practices under the UCL because CPF"s acts and practices as alleged offend public
policy and are immoral, unethical, oppressive, unscrupulous and substantially injurious to
plaintiff Covarrubias and the members of the California subclass.
213.
CPF"s breaches of contract -- including not disbursing SBA-approved loan funds
and ··locking .. these borrowers into CPF -- constitute an unfair practice because those breaches
are immoral, unethical. oppressive. unscrupulous, or substantially injurious.
214.
Once the loan applications of plaintiff Covarrubias and other similarly situated
members of the California subclass were approved bv the SBA, these subclass member
borrowers had to rely exclusively on CPF to actually fund their PPP loans and were thereby
precluded from seeking PPP loans from other lenders, also as alleged above.
215.
CPF"s failure to fund PPP loans of plaintiff Covarrubias and the other members of
the California subclass constitute unlawful and unfair business acts or practices within the
meaning of Cal. Bus. & Prof. Code § 17200.
52
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216.
As a result of CPF's violations of the UCL, plaintiff Covarrubias and the
members of the California subclass are. in the alternative and to the extent that their breach of
contract claim fails to adequately award their damages for CPF's violations as alleged herein.
entitled to equitable relief, including specifically injunctive relief directing CPF to fund their
SBA-approved loans in full with applicable interest from the date the loans should have been
funded, or restitution for the amount of the wrongfully withheld PPP loan proceeds plus interest.
217.
Defendant Crossroads is liable to plaintiff Covarrubias and the members of the
California subclass by virtue of its control of CPF and it being CPF's alter ego and by virtue of
its direct participation in PPP lending and both Defendants· violations and failure to fund the
SBA-approved PPP loans at issue. all as also alleged more fullv above.
COUNT FIVE
North Carolina Unfair and Deceptive Trade Practices Act
N.C. Gen. Stat. Ann.§§ 75-1.1, et seg.
(Against Both Defendants)
218.
Plaintiffs incorporate the allegations from all previous paragraphs as if fully set
forth herein.
219.
Plaintiff Myles brings this claim individually and on behalf of the North Carolina
subclass. and plaintiff Myles has standing to bring this claim because she is and at all times
relevant was a resident of North Carolina subject to the protection of the North Carolina Unfair
and Deceptive Acts and Practices Act (the ··NCUDTPA '").
220.
The NCUDTPA broadly prohibits ""unfair or deceptive acts or practices in or
affecting commerce.'"
221.
Defendants advertised, offered. or sold goods or services in North Carolina and
engaged in trade or commerce directly or indirectly affecting the people of North Carolina, as
defined by the NCUDPTA. See N.C. Gen. Stat. Ann. § 75-1.1 (b).
53
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222.
Defendants engaged in unfair and deceptive acts and practices in or affecting
commerce. in violation of N .C. Gen. Stat. Ann. § 75-1.1, including:
a.
b.
Representing to plaintiff Myles and members of the North Carolina
subclass their willingness to disburse SBA-approved loans by delivering
to plaintiff Mvles and members of the North Carolina subclass copies of
the Note for their signatures. and accepting the signed Notes: and
Omitting, suppressing, and concealing the reasons why loans to plaintiff
Myles and members of the North Carolina subclass had not been
disbursed.
223.
Defendants· conduct constitutes ·'deceptive acts·· in violation of the NCUDTPA.
114.
Defendants· conduct constitutes ··unfair acts·· in violation of the NCUDTPA.
225.
Defendants' representations and omissions and acts and omissions were material
because thev were likely to deceive reasonable consumers about their abilitv to secure SBA-
approved loans from defendant CPF. and to preclude plaintiff Myles and other members of the
North Carolina subclass from seeking PPP loans from other lenders.
116.
Defendants intended to mislead plaintiff Myles and members of the North
Carolina subclass and induce them to rely on their misrepresentations and omissions.
227.
Had CPF which was controlled and dominated at all material times bv defendant
Crossroads disclosed its intention to withhold the loan proceeds due to plaintiff Myles and
members of the North Carolina subclass. plaintiff Myles and the members of the North Carolina
subclass would not have done business with CPF. Plaintiff Myles and members of the North
Carolina subclass acted reasonably in relying on CPF"s misrepresentations and omissions and
acts and omissions in failing to fund their PPP loans. the truth of which they could not have
discovered before they were contractually bound to CPF. and thereby exclusively reliant upon
CPF's good faith in actually funding their SBA-approved PPP loans.
54
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 125 of 129
228.
Defendants acted intentionally, knowingly. and maliciously to violate the
NDUDTPA. and recklessly disregarded plaintiff Myles· and North Carolina subclass members·
229.
Plaintiff Myles and members of the North Carolina subclass have suffered
ascertainable losses of monev or propertv, and monetarv and non-monetarv damages as a direct
and proximate result of Defendants· misrepresentations and their concealment of and failure to
disclose material information.
230.
Plaintiff Myles and members of the North Carolina subclass seek all monetary
and non-monetao· relief allowed by law under the NCUDTPA. including actual damages. treble
damages. restitution. and attorneys· fees and costs.
Prayer for Relief
PlaintitlPlaintiffs, individually and on behalf of the proposed Class and subclasses as
applicable, respectfully reql:lestsreguest the following relief:
A.
an order certifying the Class and subclasses under Rule 23 of the Federal Rules of
Civil Procedure; naming PlaintiftPlaintiffs as representative of the proposed national Class; aHa
naming Plaintiffsplaintiffs Covarrubias and Myles as representatives of the proposed California
and North Carolina subclasses, respectivelv: and naming Plaintiffs" attorneys as counsel for the
Class and subclasses;
B.
judgment in favor of PlaintiffPlaintiffs and the Class and subclasses on all
applicable counts asserted herein;
C.
an award of compensatory, consequential and other damages to PlaintiffPlaintiffs
and members of the Class and subclasses in amounts to be determined at trial to the maximum
extent permissible by law, plus prejudgment interest;
55
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 126 of 129
D.
an accounting of all PPPLF advances CPF obtained for PPP lending and anv other
federallv-guaranteed proceeds CPF obtained for PPP lending. including the whereabouts of any
such proceeds they were not disbursed to SBA-approved borrowers. whether any such proceeds
were paid by CPF to Crossroads and/or any other person or entity, the amounts of such
pavments. the identities of the recipients, and the date such proceeds were paid;
E.
an accounting of all PPP lender processing fees CPF and/or Crossroads obtained,
including for PPP loans it ultimately funded and for PPP loans it did not fund;
~L_an order of all other forms of monetary relief to the maximum extent permissible
by law, including payment to PlaintiffPlaintiffs and the Class and subclasses of all PPP loan
proceeds owed and due to PlaintiffPlaintiffs and the members of the Class and subclasses with
interest, as well as disgorgement of all fees CPF and/or Crossroads obtained in connection
therewith to the maximum extent permissible by law;
~an order requiring that Defendants, in the alternative and to the extent that
Plaintiff sPlaintiffs" breach of contract claim fails to adequately award PlaintiffPlaintiffs and the
Class and subclasses their damages for the violations alleged herein, disgorge PPP loan fees and
proceeds that they unjustly received and pay into a common fund for the benefit of
PlaintiffPlaintiffs and the Class and subclasses;
h!L.._an award of punitive damages based on Defendants' intentional, wanton and
malicious conduct, or theff:its reckless disregard of PlaintiffsPlaintiffs· and the Class members'
rights, in amounts to be determined at trial to the maximum extent permissible by law;
G:_l._an order awarding PlaintiffPlaintiffs and the Class and subclasses their reasonable
attorneys' fees and expenses and costs of this lawsuit, including but not limited to expert fees
and costs, to the maximum extent permissible by law; and
56
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 127 of 129
H:L.._such other relief as the Court may deem just and proper.
DEMAND FOR JURY TRIAL
Pursuant to Federal Rule of Civil Procedure 38(b), Plaintiff demandsPlaintiffs demand a
trial by jury of any and all issues in this action so triable of right.
57
Case 4:21-cv-01243-BRW Document 31 Filed 03/28/22 Page 128 of 129
Dated: March 28, 2022
Respectfully submitted,
FRIDAY, ELDREDGE & CLARK, LLP
Katherine C. Campbell, AR Bar 2013241
Marshall S. Ney, AR Bar 91108
3350 S Pinnacle Hills Pkwy, Suite 301
Rogers, AR 72758
T: (479) 695-6049
F: (501) 244-5389
kcampbell@fridayfirm.com
mney@fridayfirm.com
By:~
BAILEY & GLASSER LLP
Lawrence J. Lederer (admitted pro hac vice)
Michael L. Murphy (admitted pro hac vice)
Bart D. Cohen (admitted pro hac vice)
1055 Thomas Jefferson Street NW, Suite 540
Washington, DC 20007
T: (202) 463-210 I
F: (202) 463-2103
llederer@baileyglasser.com
mmurphy@baileyglasser.com
bcohen@baileyglasser.com
NOLAN HELLER KAUFFMAN LLP
Justin A. Heller (admitted pro hac vice)
Matthew M. Zapata (admitted pro hac vice)
80 State Street, 11th Floor
Albany, NY 12207
T: (518) 449-3300
F: (518) 432-3123
jheller@nhkllp.com
mzapala@nhkllp.com
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