Opinion and Order on Motions to Dismiss — Greathouse v. Capital Plus (TXND) (N.D. Tex.)

Record facts

UNITED STATES DISTRICT COURT · No. 4:22-cv-00686-P · Doc. 82 · 2023-09-06 · Docket on CourtListener

Full text

UNITED STATES DISTRICT COURT 
FOR THE NORTHERN DISTRICT OF TEXAS 
FORT WORTH DIVISION 
 
ERIC GREATHOUSE, ET AL.,  
Plaintiffs,  
 
v. 
No. 4:22-CV-0686-P
CAPITAL PLUS FINANCIAL LLC, ET AL.,  
Defendants. 
 
OPINION & ORDER 
Before the Court are Defendants’ Motions to Dismiss (ECF Nos. 31, 
34, 36). For the reasons stated below, the motions are GRANTED IN 
PART and DENIED IN PART. Plaintiffs’ unjust enrichment claims 
against all Defendants are DISMISSED. To the extent Defendants seek 
to dismiss Plaintiffs’ other claims, the motions are DENIED.  
INTRODUCTION 
In 2020, Congress put their trust—to the tune of $800 billion—into 
private lenders to help alleviate the effects of the burdensome federal, 
state, and local regulations that crippled businesses and the livelihoods 
of millions of families across the country. As with any $800 billion 
government program, the trust placed in the actors carrying it out was 
often undeserved. Like magic, bad actors arrive wherever hundred-
billion-dollar government programs occur. 
In this case, Plaintiffs allege that Defendants were bad actors who 
capitalized on the exorbitant government fees given for approving PPP 
loans while never disbursing the funds to countless businesses in need. 
And because of the striking allegations in their complaint, this Court 
must allow many of Plaintiffs’ claims to proceed. When such an 
egregious abuse of public trust is apparent, the Court cannot dismiss 
this case on the pleadings alone.  
 
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 1 of 39   PageID 1883

2 
FACTUAL & PROCEDURAL BACKGROUND 
 
In 2020, Congress passed the CARES Act, which provided for the 
Payroll Protection Program (“PPP”)—a loan assistance program for 
businesses financially burdened by restrictions imposed on the country 
by local, state, and federal officials. This extraordinary act required a 
comprehensive plan to disburse billions of dollars to countless 
businesses in a very short window of time. Because of the logistical 
challenges that approving loans for millions of American businesses 
presented, the government worked with private lenders to streamline 
the approval process.  
 
The approval and loan disbursal process promulgated by the SBAs 
rulemaking followed a 7-step process: 
1. The business sent in the required information on an application 
to show eligibility for the PPP program. 
2. The lender approved the application and sent notice to the SBA. 
3. The SBA issues an “SBA number” to the loan, signifying its 
approval. 
4. The lender makes a one-time, full disbursement of the PPP funds 
within 10 days of loan approval.  
5. After disbursing the funds, the lender received the fees they are 
statutorily entitled to.  
6. The lender monitors the loan and reviews the businesses’ use of 
the funds to establish whether loan forgiveness applies.   
7. The loan is either forgiven, forgiven in part, or paid back in whole 
by the business.  
To assist lenders with the approval process, the Federal Reserve 
Bank of the United States also instituted the Paycheck Protection 
Program Liquidity Facility (“PPPFL”), which advanced funds through 
non-recourse loans to lenders who could provide proof of approvals and 
disbursements of PPP loans as collateral.  
Defendant Capital Plus Financial LLC (“Capital Plus”)—a wholly 
owned subsidiary of Defendant Crossroads Inc.—stepped up to the plate 
and began approving loans through the process authorized by the 
CARES Act and subsequent rulemaking procedures. And they did so at 
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 2 of 39   PageID 1884

3 
an astonishing pace. In less than five months, Capital Plus approved an 
astonishing 472,036 PPP loans. The volume of loans approved was so 
numerous that they were the second largest lender of PPP loans in 2021 
by volume—assigning more loans than the combined efforts of many 
major financial behemoths. Indeed, Capital Plus enlisted help from 
outside providers to process loans due to capacity constraints. To make 
monetary matters even more astonishing, Capital Plus—due to their 
massive quantity of “approved” loans—drew down nearly $7.5 billion in 
funding from the PPPFL program.  
The plan instituted by Capital Plus and its parent company, 
Crossroads, paid off as they amassed an astonishing $970.5 million in 
revenue—a 2,446% increase from the year before. In many shareholder 
letters and releases, Crossroads—through their directors including 
Defendants Alpert and Donnelly—talked about the success of the PPP 
lending craze and the income it was generating for the parent company. 
In some SEC filings directors touted the $930 million “windfall” from 
PPP lending. And they also often discussed strategies and other 
directives that Crossroads aimed toward regarding the lending 
program—often referring to Capital Plus and Crossroads as a single 
entity. One of the immediate strategies implemented with the new 
windfall of cash was a $238.9 million dividend that was quickly paid out 
after the PPP window closed. Most of the money went to insiders in the 
company like Defendants Alpert and Donnelly who together owned 
62.8% of outstanding shares. This resulted in a $149,918,480 payday 
between the two individuals. 
But while income soared for Capital Plus and Crossroads, complaints 
from individuals approved for loans did as well. Plaintiffs allege that—
although they received SBA numbers—funds were never disbursed to 
them and others. In effect, Capital Plus and Crossroads collected the 
fees associated with approval and interest on the $7.5 billion in PPPFL 
funds but never completed their obligation to countless individuals who 
were in dire straits financially. Even worse, Plaintiffs could not go to 
another lender as they were restricted from processing any other 
applications once a valid SBA number was assigned to them. And 
further, Plaintiffs allege that because the SBA number was assigned to 
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 3 of 39   PageID 1885

4 
them, they are still under legal obligations to pay back money that they 
never received.  
Because of the alleged faults of Crossroads, Capital Plus, and its 
directors, a group of Plaintiffs bring this suit under the Class Action 
Fairness Act seeking redress of their injuries under four theories: (1) 
Breach of Contract; (2) Unjust Enrichment; (3) California’s Unfair 
Competition Law (“UCL); and (4) North Carolina Unfair and Deceptive 
Trade Practices Act (“NCUDTPA”).   
B. The Parties 
1. Plaintiffs  
Plaintiff Eric Greathouse is a citizen of Arkansas who owns an 
insurance inspection business. Plaintiff Tiffany Sumrall is a citizen of 
Texas who owns a landscaping business. Plaintiff Cori Pericho is a 
citizen of Hawaii who owns a messenger and delivery service. Plaintiff 
John Pinkney is a citizen of Texas who owns a cable communications 
business. Plaintiff Alicia Mena is a citizen of Arizona who owns a 
housecleaning business. These Plaintiffs collectively seek to represent a 
nationwide class and bring two claims for breach-of-contract and unjust 
enrichment.  
Plaintiff Barbara Myles is a citizen of North Carolina who owns a 
business that assists independent artists. Myles seeks to represent a 
North Carolina subclass and brings a claim under the NCUDTPA in 
addition to claims for breach-of-contract and unjust enrichment.  
Lastly, Plaintiff Ernesto Covarrubias is a citizen of California who 
owns an auto repair business. Plaintiff Joshua Smith is also a citizen of 
California who is an operates a delivery and human resource and 
consulting business. Covarrubias and Smith seek to represent a 
California subclass and bring a claim under the UCL in addition to 
claims for breach-of-contract and unjust enrichment.  
All Plaintiffs were assigned an SBA number by Capital Plus, but 
never received PPP funds.  
 
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 4 of 39   PageID 1886

5 
2. Corporate Defendants 
Defendant Crossroads is a publicly traded Delaware corporation with 
its principal place of business in Dallas, Texas.  
Defendant Capital Plus is a Texas limited liability company with its 
principal place of business in Bedford, Texas. Capital Plus is a wholly 
owned subsidiary of Crossroads.  
3. Individual Defendants  
Defendant Donnelly has continually served as a Director and CEO of 
Defendant 
Crossroads 
since 
December 
2017. 
Donnelly 
also 
simultaneously served as CEO of Defendant Capital Plus from 2014 
until August 30, 2021.  
Defendant Alpert is the Chairman of the Board of Directors of 
Defendant Crossroads. Alpert has served in this role since 2017. Alpert 
also holds leadership positions with other Texas-based companies that 
engage in business with the Corporate Defendants through investment 
advisory services. 
LEGAL STANDARD 
A. Rule 12(b)(1)  
Article III of the Constitution limits federal-court jurisdiction to 
“cases” or “controversies.” U.S. CONST. art. III, § 2. To satisfy this 
requirement, a plaintiff must establish that he has a “personal stake” in 
the lawsuit. See Davis v. Fed. Election Comm’n, 554 U.S. 724, 732–33 
(2008). Because 
standing 
is 
a 
central 
concern 
of subject-
matter jurisdiction, it is properly addressed under Rule 12(b)(1). Lee v. 
Verizon Commc’ns, Inc., 837 F.3d 523, 533 (5th Cir. 2016). The party 
seeking 
federal 
jurisdiction 
has 
the 
burden 
of 
establishing 
standing.  Lujan v. Def. of Wildlife, 504 U.S. 555, 561 (1992). 
B. Rule 12(b)(2) 
After personal jurisdiction has been raised in a 12(b)(2) motion, “the 
party seeking jurisdiction bears the burden of proof but must only 
present a prima facie case.” Luv N’ care, Ltd. v. Insta–Mix, Inc., 438 F.3d 
465, 469 (5th Cir. 2006). In determining whether a plaintiff meets its 
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 5 of 39   PageID 1887

6 
burden, a district court must “accept the plaintiff’s uncontroverted 
allegations as true and resolve all conflicts of jurisdictional facts 
contained in the parties’ affidavits and other documentation in the 
plaintiff’s favor.” Jones v. Artists Rts. Enf’t Corp., 789 F. App’x 423, 425 
(5th Cir. 2019). 
 
C. Rule 12(b)(6) 
To survive a motion to dismiss under Rule 12(b)(6), a plaintiff must 
plead “enough facts to state a claim to relief that is plausible on its face.” 
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). The Court, in turn, 
must accept all well-pleaded facts in the complaint as true and view 
them in the light most favorable to the plaintiff. Sonnier v. State Farm 
Mut. Auto. Ins., 509 F.3d 673, 675 (5th Cir. 2007). If there are well-plead 
factual allegations, the Court assumes their veracity and then 
determines whether they plausibly give rise to an entitlement to relief. 
Id. 
ANALYSIS 
Due to the many arguments contained in Defendants’ three motions, 
the Court proceeds to address them in the following order: (1) Article III 
standing; (2) arguments particular to the Individual Defendants; (3) 
arguments particular to the Corporate Defendants; and (4) arguments 
applicable to claims brought against all Defendants. The Court 
addresses each issue in turn.  
A. Article III Standing  
Article III’s case-or-controversy requirement demands that a 
plaintiff show he has standing to sue. This prevents courts from “being 
used to usurp the powers of the [other] political branches.” Clapper v. 
Amnesty Int’l USA, 568 U.S. 398, 408 (2013). This doctrine thus 
preserves the “proper—and properly limited—role of the courts in a 
democratic society.” Warth v. Seldin, 422 U.S. 490, 498 (1975). 
Historically, this concept meant that a plaintiff only needed a “legally 
cognizable cause of action.” Sierra v. City of Hallandale Beach, Fla., 996 
F.3d 1110, 1115 (11th Cir. 2021) (Newsom, J., concurring). But over 
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 6 of 39   PageID 1888

7 
many decades, the Supreme Court jumbled together an opaque standing 
doctrine that came to its full fruition in 1992. Like most cobbled together 
doctrines not found in the text of the Constitution, this standard has 
provided no modicum of predictability or clarity to the lower courts other 
than the ability to shrink the size of their dockets.1  
Regardless of the nature of this doctrine, “it is now all but gospel”2 
that a plaintiff must show “(1) an injury in fact, (2) that is fairly 
traceable to the challenged conduct of the defendant, and (3) that is 
likely to be redressed by a favorable judicial decision.”  Spokeo, Inc. v. 
Robins, 578 U.S. 330, 341 (2016). Failure to establish these elements 
“deprives the federal courts of jurisdiction to hear the suit.” Rivera v. 
Wyeth–Ayerst Labs., 283 F.3d 315, 319 (5th Cir. 2002). But courts must 
“assume, for purposes of the standing analysis, that [Plaintiffs are] 
correct on the merits of [their] claim.” Texas v. Equal Emp. Opportunity 
Comm’n, 933 F.3d 433, 447 (5th Cir. 2019). 
Defendants argue that Plaintiffs lack Article III standing to pursue 
their claims. Their specific arguments are addressed below under each 
corresponding element.  
1. Injury in Fact  
Defendants assert that Plaintiffs suffered no injury. “Injury in fact” 
requires that a plaintiff allege an invasion of a legally protected interest. 
See Lujan, 504 U.S. at 560. This inquiry further divides into several 
nebulous subtests—an injury in fact must be (1) concrete, not abstract, 
(2) particularized, not generalized, and (3) actual or imminent, not 
conjectural or hypothetical. Id. at 1548; see also Clapper v. Amnesty Int’l 
USA, 568 U.S. 398, 408–09 (2013); Schlesinger v. Reservists Comm. to 
Stop the War, 418 U.S. 208 (1974). Though neatly organized, these 
 
1 See Cass R. Sunstein, Standing and the Privatization of Public Law, 88 COLUM. 
L. REV. 1432, 1436-38 (1988); see also Robert J. Pushaw Jr., Bridging the Enforcement 
Gap in Constitutional Law: A Critique of the Supreme Court’s Theory That Self-
Restraint Promotes Federalism, 46 Wm. & Mary L. Rev. 1289, 1327 (2005) (“[T]he 
Court’s refusal to admit explicitly that it was acting on policy rather than 
constitutional grounds resulted in further analytical confusion.”). 
2 See Sierra, 996 F.3d at 1115 (Newsom, J., concurring).  
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 7 of 39   PageID 1889

8 
categories are often better suited to acquit Clodius rather than forming 
a solid basis for dismissal.3   
Plaintiffs allege that their concrete injuries are (1) the deprivation of 
the use of their PPP loan funds, (2) the inability to seek alternative 
funding for their PPP loan after Defendants failed to fund the loans, (3) 
the lost opportunities incident upon Capital Plus’s failure to fund 
Plaintiffs’ loans during the pandemic, and (4) the continuing obligation 
to repay loan funds that they never received.4  
These injuries are concrete because they already happened when 
payments were not remitted; particularized because they deal with each 
Plaintiffs’ individual loan; actual because the payment has not occurred; 
or—in the case of the obligation to repay with interest—imminent as the 
loan repayments continue to loom over Plaintiffs. And though 
Defendants may have qualms about why the payments were not 
remitted, the Court must assume that Plaintiffs are correct on the 
merits at this stage.  
Injury in fact is present.  
2. Causation 
A plaintiff has standing if he can demonstrate a “personal injury 
fairly traceable to the defendant’s allegedly unlawful conduct.” 
California v. Texas, 141 S. Ct. 2104, 2113 (2021). Causation does not 
“require a showing of proximate cause or that ‘the defendant’s actions 
are the very last step in the chain of causation.’” Inclusive Communities 
Project, Inc. v. Dep’t of Treasury, 946 F.3d 649, 655 (5th Cir. 2019) (citing 
Bennett v. Spear, 520 U.S. 154, 169 (1997)). But a plaintiff’s injuries 
 
3 “Clodius, at any rate, escaped; most of the judges giving their opinions so written 
as to be illegible that they might not be in danger from the people by condemning him, 
nor in disgrace with the nobility by acquitting him.” Plutarch, John Langhorne & 
William Langhorne, PLUTARCH’S LIVES 272 (1804).  
4 Plaintiffs also potentially lost the opportunity to apply for loan forgiveness. 
Borrowers can apply for loan forgiveness any time up to the maturity date of the loan. 
It is unclear whether the maturity date of the loan was set when SBA approved 
Plaintiffs’ PPP loan request and released the funds to Capital Plus for disbursal to 
Plaintiffs or whether the maturity date is not finalized until Plaintiffs receive the loan 
funds. Still, Plaintiffs injuries are enough to stand on their own.  
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 8 of 39   PageID 1890

9 
can’t be “the result of the independent action of some third party not 
before the court.” Bennett, 520 U.S. at 167. 
Plaintiffs argue that Capital Plus’s actions caused their injuries 
because they received the PPP loan funding from the government but 
failed to release it to Plaintiffs even though the SBA had approved their 
PPP loan applications. Defendants counter that they tried to release the 
funds to Plaintiffs’ accounts but could not do so because of account blocks 
or faulty paperwork submitted by Plaintiffs. And while Defendants’ 
arguments may have merit, the Court must accept the merits of 
Plaintiffs’ arguments as true. At bottom, Plaintiffs plausibly claim that 
Defendants’ refusal or failure to remit the loan payments they were 
entitled to caused their injuries. 
Causation is met.  
3. Redressability  
Redressability “limits the relief that a plaintiff may seek to that 
which is likely to remedy the plaintiff’s alleged injuries.” Stringer v. 
Whitley, 942 F.3d 715, 720 (5th Cir. 2019). And this requires a plaintiff 
to show that a favorable decision will likely redress the injury. Inclusive 
Communities Project, Inc. v. Dep’t. of Treasury, 946 F.3d 649, 655 (5th 
Cir. 2019). A plaintiff need only allege the recovery to which they are 
entitled and “[w]hether recovery for such a claim is permitted under 
governing law is a separate question.” Cole v. Gen. Motors Corp., 484 
F.3d 717, 723 (5th Cir. 2007). It is thus “sufficient for standing purposes 
that the plaintiffs seek recovery for an economic harm that they allege 
they have suffered.” Id.  
Defendants assert that redressability is not met for two reasons. 
First, the relief requested in the complaint exceeds Plaintiffs’ alleged 
injuries. And second, Plaintiffs have not shown or alleged that their PPP 
loans would be forgiven—making any payment insignificant. The Court 
disagrees.  
As to the first assertion, the Court finds that the requested relief does 
not exceed Plaintiffs’ alleged injuries. Plaintiffs plead multiple causes of 
action in the alternative—which they could do at this stage. 
Defendants—as a result—seek to improperly dive into the merits of 
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 9 of 39   PageID 1891

10 
Plaintiffs’ claims at a time when they only need to allege redressability 
in line with the claims they assert. Cole, 484 F.3d at 723. 
As to the second assertion, it does not matter whether the loans are 
forgivable or not. In Sprint Communications, Justice Breyer—writing 
for the majority—held that an assignee had standing to sue even when 
the assignee was contractually obligated to remit the litigation proceeds 
to an assignor. Sprint Communs. Co., L.P. v. APCC Servs., 554 U.S. 269, 
286-87, 128 S. Ct. 2531, 2542 (2008). The majority opinion reasoned that 
redressability focuses on “whether the injury that a plaintiff alleges is 
likely to be redressed through the ligation—not on what the plaintiff 
ultimately intends to do with the money he recovers.” Id. Redressability 
was met even though the plaintiff would be required to hot-potato the 
money away to a non-party immediately. Id.  
Here, a legal victory would redress the injuries for which the 
Plaintiffs bring suit. Plaintiffs’ injuries relate to the failure to receive 
the PPP loans they were entitled to after they received an SBA loan 
number. Indeed, one of the injuries alleged includes the debt now owed 
to the SBA by Plaintiffs. And if the Plaintiffs prevail, the fact that they 
might hot-potato any recovery to the SBA is irrelevant under current 
precedent.   
Redressability is met. And having met all the elements of Article III 
standing, the Court next turns to Defendants’ objections.  
B. Individual Defendants: Donnelly & Alpert  
Donnelly and Alpert (“Individual Defendants”) assert arguments and 
defenses related to their positions within the corporate framework of 
Crossroads and Capital Plus. The Court addresses each argument in 
turn.  
Donnelly first asserts that this Court does not have personal 
jurisdiction over him. But before analyzing personal jurisdiction, the 
Court must address whether the fiduciary-shield doctrine applies to 
Donnelly.  
 
 
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 10 of 39   PageID 1892

11 
1. Fiduciary-Shield Doctrine 
The fiduciary-shield doctrine prohibits a court from exercising 
personal jurisdiction over an individual whose only actions in the forum 
state were taken in the individual’s capacity as a corporate 
representative—even if the court has personal jurisdiction over the 
corporation itself. See Stuart v. Spademan, 772 F.2d 1185, 1197 (5th Cir. 
1985). But the fiduciary-shield doctrine is “removed if the individual’s 
personal interests motivate his actions.” Lewis v. Fresne, 252 F.3d 352, 
359 n.6 (5th Cir. 2001). To prove this, a plaintiff must allege “individual 
participation in the unlawful conduct challenged in the Complaint.” Fed. 
Trade Comm’n v. Educare Ctr. Servs., Inc., 414 F. Supp. 3d 960, 980 
(W.D. Tex. 2019). As a result, Plaintiffs must plead Donnelly’s (1) 
individual participation in the unlawful conduct and (2) personal 
interest in the unlawful conduct. 
The operative facts of the complaint allege Donnelly’s individual 
participation:  
• “[Donnelly] controlled and directed Crossroads’s and CPF’s PPP 
lending activities and directly participated in CPF’s and Crossroads’s 
violations and failure to fund the SBA-approved PPP loans at issue 
and personally profited therefore.”5  
• “Donnelly and Alpert controlled both Crossroads and CPF. 
Defendants Donnelly and Alpert also controlled and directed 
Crossroads’s and CPF’s PPP lending activities.”6 
• “As a direct and proximate result of defendants Donnelly’s and 
Alpert’s conduct, Plaintiffs and the Class have suffered and continue 
to suffer injury.”7 
The complaint also paints a picture rife with personal interest. 
Donnelly owned 37.8% of outstanding shares of a company where a 
$238.9 million dividend was up streamed from Capital Plus after profits 
went from $26 million to $997 million in one year.  Donnelly personally 
earned $90,227,080 in dividends as a result. This qualifies as a personal 
 
5 ECF No. 1 at 62, 65 
6 ECF No. 1 at 58.  
7 ECF No. 1 at 59.  
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 11 of 39   PageID 1893

12 
benefit. And combined with the context that Crossroads, through a small 
regional Community Development Financial Institution, processed 
more PPP loans than Bank of America, PNC Bank, TD Bank and Wells 
Fargo combined—despite similar financial incentives—also suggests 
that this was something beyond “business as usual.” 
The fiduciary-shield doctrine does not apply to Donnelly. So the 
Court turns to personal jurisdiction.  
1. Personal Jurisdiction – Donnelly  
Donnelly argues that this Court does not have personal jurisdiction 
over him because he is a nonresident of Texas and his only contacts with 
the state come in his official capacity with Capital Plus and Crossroads. 
The Court disagrees. 
Federal courts sitting in diversity may exercise personal jurisdiction 
if: “(1) the long-arm statute of the forum state creates personal 
jurisdiction over the defendant; and (2) the exercise of personal 
jurisdiction is consistent with the due process guarantees of the United 
States Constitution.” Clemens v. McNamee, 615 F.3d 374, 378 (5th Cir. 
2010).  And because Texas’s long-arm statute “extends as far as 
constitutional due process allows,” courts only need to consider the due 
process inquiry. McFadin v. Gerber, 587 F.3d 753, 759 (5th Cir. 2009).  
This requires a plaintiff to show: (1) minimum contacts between the 
defendant and the forum state and; (2) that the assertion of jurisdiction 
is fair and reasonable. Int’l Shoe Co. v. Washington, 326 U.S. 310, 316, 
(1945); Sangha v. Navig8 ShipManagement Private Ltd., 882 F.3d 96, 
102 (5th Cir. 2018). The Court thus addresses both elements.  
a. Minimum Contacts 
While physical presence or residency are not required for personal 
jurisdiction, a defendant must have “certain minimum contacts . . . such 
that the maintenance of the suit does not offend traditional notions of 
fair play and substantial justice.” Int’l Shoe, 326 U.S. at 316. 
A court may assert specific jurisdiction over a nonresident defendant 
“whose contacts with the forum state are singular or sporadic only if the 
cause of action asserted arises out of or is related to those contacts.” Int’l 
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 12 of 39   PageID 1894

13 
Energy Ventures Mgmt. v. United Energy Grp., Ltd., 818 F.3d 193, 212 
(5th Cir. 2016) (citing Daimler AG v. Bauman, 571 U.S. 117, 126 (2014)). 
The Court considers three prongs in making this determination:  
(1) whether the defendant has minimum contacts with the 
forum state, i.e., whether it purposely directed its activities 
toward the forum state or purposefully availed itself of the 
privileges of conducting activities there; (2) whether the 
plaintiff’s cause of action arises out of or results from the 
defendant’s forum-related contacts; and (3) whether the 
exercise of personal jurisdiction is fair and reasonable. 
Seiferth v. Helicopteros Atuneros, Inc., 472 F.3d 266, 271 (5th Cir. 2006).  
The first prong requires that the contacts asserted are not “random, 
fortuitous, or attenuated.” Moncrief Oil, Int’l. Inc. v. OAO Gazprom, 481 
F.3d 309, 312 (5th Cir. 2007). But a single act by the defendant directed 
at the forum state can be enough to confer personal jurisdiction if that 
act gives rise to the claim being asserted. Ruston Gas Turbines, Inc. v. 
Donaldson Co., 9 F.3d 415, 418 (5th Cir. 1993). This analysis must “look 
to the defendant’s contacts with the forum State itself, not the 
defendant’s contacts with persons who reside there.” Walden v. Fiore, 
571 U.S. 277, 285 (2014). Put simply, “the plaintiff cannot be the only 
link between the defendant and the forum. Rather, it is a defendant’s 
conduct that must form the necessary connection with the forum State 
that is the basis for its jurisdiction over him.” Id. 
Donnelly argues that his contacts with Texas are limited and 
sporadic. The Court disagrees.  
Donnelly’s conduct surrounding this suit directs and avails itself of 
the privileges of conducting business in Texas. Donnelly attended 
meetings in Texas, directed communications into Texas, and performed 
work for Texas entities8 that served many citizens of Texas. Indeed, his 
 
8 Donnelly continues to serve as a manager and director of Capital Plus. See Texas 
Comptroller 
of 
Public 
Accounts, 
Capital 
Plus 
Financial, 
LLC 
Report, 
https://mycpa.cpa.state.tx.us/coa/coaSearchBtn.  
Donnelly also serves as CEO, director, and board member of Crossroads which is 
headquartered in Dallas, Texas (¶ 26), and has served as CEO and director since 
December 2017. See see also Texas Comptroller of Public Accounts, Crossroads 
Systems, Inc. Report, https://mycpa.cpa.state.tx.us/coa/coaSearchBtn. 
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 13 of 39   PageID 1895

14 
status as a “registered” agent for Capital Plus requires that he must 
“continuously maintain” a presence in the state and “maintain a 
business office at the same address as the entity’s registered office.” TEX. 
BUS. ORGS. CODE ANN. § 5.201. Notwithstanding his choice to live in a 
different state, these contacts are systematically intertwined with and 
avail himself to Texas. The first element is met.  
The second prong requires “a connection between the forum and the 
specific claims at issue.” Bristol-Myers Squibb Co. v. Sup. Ct. of Cal., 137 
S. Ct. 1773, 1781 (2017). At bottom, “there must be . . . [a related] activity 
or an occurrence that takes place in the forum State and is therefore 
subject to the State’s regulation.” Ford Motor Co., 141 S. Ct. at 1025.                                     
According to Plaintiffs’ complaint, Donnelly—as the dual CEO of 
Crossroads and Capital Plus—orchestrated a plan to fund over 472,000 
PPP loans. As a result, Donnelly’s companies received over $930 million 
in loan processing fees. The complaint further alleges that Donnelly 
exercised significant control over Capital Plus and Crossroads and 
directed decisions on PPP lending. This included establishing corporate 
policies and supervising Capital Plus’s PPP lending activities. Under 
Donnelly’s direction, Capital Plus ratcheted up its participation in PPP 
lending to exploit higher lender fees and to use unfunded and other PPP 
loans as collateral to secure billions of dollars in PPPLF loan advances. 
Donnelly’s contacts that avail him of Texas’s privileges are intertwined 
with the facts that give rise to this suit. His position in a Texas company 
and direction and control over it are both the basis for his availment and 
central to the facts alleged in Plaintiffs’ complaint.  
 
Plaintiff thus meets its burden of satisfying the first two elements. 
Because of this, the burden now shifts to Donnelly to prove that it would 
be unfair to exercise personal jurisdiction over him. To meet this burden, 
the defendant must make a “compelling case” that exercising 
jurisdiction would be unfair.  See Wien Air Alaska, Inc. v. Brandt, 195 
F.3d 208, 215 (5th Cir. 1999) (“[O]nce minimum contacts are 
established, the interests of the forum and the plaintiff justify even large 
burdens on the defendant.”). Courts make the fairness determination by 
 
 
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 14 of 39   PageID 1896

15 
assessing five factors: (1) the burden on the defendant having to litigate 
in the forum; (2) the forum state’s interests in the lawsuit; (3) the 
plaintiff’s interests in convenient and effective relief; (4) the judicial 
system’s interest in efficient resolution of controversies; and (5) the 
state’s shared interest in furthering fundamental social policies. See 
Ruston Gas Turbines, Inc. v. Donaldson Co., 9 F.3d 415, 421 (5th Cir. 
1993). 
 
First, Donnelly notes that he travels to Texas for business and other 
matters. Additional trips for the occasional hearing or trial are not 
unduly burdensome. Indeed, Donnelly is litigating in this district 
already—in a case in which he did not challenge personal jurisdiction. 
See Oto Analytics Inc. v. Capital Plus Fin. LLC, Case No. 3:21-cv-2636 
(N.D. Tex.) (Boyle, J.). And even if it were “inconvenient” for Donnelly 
to make the occasional trip to Fort Worth, “once minimum contacts are 
established, the interests of the forum and the plaintiff justify even large 
burdens on the defendant.” Wien Air Alaska, Inc., 195 F.3d at 215. 
Second, Texas is interested in protecting its consumers and ensuring 
that companies within its borders comply with its law. And this case 
involves allegations of harm done to Texas citizens by Texas companies. 
Third, Plaintiffs are interested in relief from harm allegedly done to 
them, and this forum is appropriate for redressing the harm. Fourth, the 
judicial system’s interest is met as this Court affords a proper forum for 
this suit where alleged harms can be remedied. Fifth, the states share 
an interest in the efficient resolution of cases, especially ones that 
allegedly caused harm on a national scale.  
 
All fairness factors thus favor personal jurisdiction. And the Court 
thus has personal jurisdiction over Donnelly.  
2. Liability Shield – Alpert and Donnelly  
The Individual Defendants next contend they should be dismissed 
from the case as their companies’ liability shields cover them. The Court 
disagrees.  
Under Texas law, the shareholder or affiliate of a corporation:  
may not be held liable to the corporation or its obligees with 
respect to . . . any contractual obligation of the corporation 
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 15 of 39   PageID 1897

16 
or any matter relating to or arising from the obligation on 
the basis that the holder, beneficial owner, subscriber, or 
affiliate is or was the alter ego of the corporation or on the 
basis of actual or constructive fraud, a sham to perpetrate 
a fraud, or other similar theory. 
TEX. BUS. ORGS. CODE § 21.223(a)(2) (emphasis added).9 An exception 
exists if the defendant “caused the corporation to be used for the purpose 
of perpetrating and did perpetrate an actual fraud on the obligee 
primarily for the direct personal benefit of the holder, beneficial owner, 
subscriber, or affiliate.” Id. § 21.223(b).  
Here, Donnelly and Alpert both fall into affiliate shareholder status. 
And because they fall into the text of the statute, the Court must address 
two things: (1) whether the claims against them “arise out of” or “relate 
to” a contractual obligation of the corporation; and (2) whether the 
complaint 
sufficiently 
alleges 
that 
the 
Individual Defendants 
perpetrated an actual fraud.  
i. 
“Relating to” or “arising out of” 
The first issue is whether the claims against Donnelly and Alpert 
“arise out of” or “relate to” a contractual obligation. The terms “relating 
to” and “arising out of” are broad and flexible and should be construed 
as such.  
 
Plaintiffs assert that because they do not make any contractual 
claims against the Individual Defendants, the liability shield afforded 
by § 21.223(a)(2) does not apply. The Court disagrees.   
Plaintiff’s claims are noncontractual in nature and relate to three 
causes of action: unjust enrichment, the UCL, and the NCUDTPA. 
Plaintiffs allege that the Individual Defendants led, directed, and 
controlled their companies to engage in business practices leading to 
their unjust enrichment at the expense of the SBA and the loss of 
Plaintiffs. And while Plaintiffs attempt to creatively plead around the 
liability shield by claiming that they are only concerned with the 
dividend and SBA fees, it does not change the proximity of the 
 
9 Although § 21.223 refers only to corporations, TEX. BUS. ORGS. CODE ANN. § 
101.002(a) extends its reach to limited liability companies as well.  
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 16 of 39   PageID 1898

17 
Individual Defendants’ actions to the contractual issue. Plaintiffs’ only 
tie to the SBA fees at issue is their contractual relationship with Capital 
Plus. At bottom, the gravamen of Plaintiffs’ claims arise from the 
unfulfilled loans, which they assert is a breach of contract in the same 
complaint. Without this contractual relationship, Plaintiffs have no 
ground to stand on as to why the Individual Defendants were unjustly 
enriched or engaged in unfair business practices related to them. Thus, 
all of Plaintiffs’ noncontractual claims relate to or arise from the conduct 
surrounding the unfulfilled loan agreements—which are contractual in 
nature.    
Plaintiffs’ claims fall under § 21.223(a)(2). And thus, for their claims 
against the Individual Defendants to survive, they must show that 
actual fraud is present.  
ii. 
Actual Fraud & Direct Personal Benefit 
Evading limited liability requires a plaintiff to show that: “(1) the 
affiliate caused the corporation to be used to perpetrate and did 
perpetrate an actual fraud on the obligee; and (2) the fraud was 
primarily for the direct personal benefit of the holder, beneficial owner, 
subscriber, or affiliate.” Thomas v. Hughes, 27 F.4th 995, 1016 (5th Cir. 
2022) (citing TEX. BUS. ORGS. CODE § 21.223(a)(2)).   
“Actual fraud”—as required by § 21.223(a)(2)—is distinct from the 
tort of fraud and only requires a plaintiff to show “dishonesty of purpose 
or intent to deceive.” Archer v. Griffith, 390 S.W.2d 735, 740 (Tex. 1964); 
Latham v. Burgher, 320 S.W.3d 602, 607 (Tex. App.—Dallas 2010, no 
pet.). Because Rule 9(b) states that “conditions of a person’s mind may 
be alleged generally,” actual fraud is evaluated under Rule 12(b)(6) and 
not the more restrictive Rule 9 standard. Weston Grp., Inc. v. Sw. Home 
Health Care, LP, No. 3:12-CV-1964-G, 2014 WL 940329, at *2 (N.D. Tex. 
Mar. 11, 2014) (Fitzwater, J.). As a result, courts “may deduce 
fraudulent intent from all of the facts and circumstances.” Spring St. 
Partners, 730 F.3d 427, 443 (5th Cir. 2013) (emphasis in original). And 
“courts generally look at the totality of a shareholder’s actions to 
determine whether he committed actual fraud.”  Weston Grp., 2014 WL 
940329, at *2. Thus, “all that is required at the pleading stage is a 
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 17 of 39   PageID 1899

18 
general allegation of [a defendant’s] dishonest purpose or deceitful 
intent with respect to [the company] and its transactions.” AHBP LLC 
v. Lynd Co., No. SA-22-CV-00096-XR, 2023 WL 139149, at *7 (W.D. Tex. 
Jan. 9, 2023) (citing Archer, 390 S.W.2d at 740 (Tex. 1964)).  
Defendants assert that Plaintiff does not plead actual fraud with 
enough specificity and only relies on a conclusory statement that Alpert 
and Donnelly “directed” and “controlled” the companies. The Court 
disagrees.  
Considering the full context of the complaint and all allegations in it, 
actual fraud is met. Plaintiffs allege that Alpert and Donnelly 
“controlled and directed Crossroads’s and CPF’s PPP lending activities,” 
including a lending scheme where the company acted “acted 
intentionally, knowingly, and maliciously” to maximize SBA fees and 
disregard loan obligations to Plaintiffs. ECF No. 65 at ¶¶ 303, 306. 
Indeed, despite having fewer resources than more prominent financial 
institutions, a modest regional LLC under Donnelly and Alpert’s control 
managed to process a larger volume of PPP loans than Bank of America, 
PNC Bank, TD Bank, and Wells Fargo combined. This resulted in the 
approval of “472,036 PPP loans totaling over $7.5 billion in funds” in a 
very short time window. ¶¶ 9, 75, 79, 87, 90. And while Plaintiffs do not 
allege fraud in the complaint, the “overarching theme of the [Plaintiffs’] 
complaint, regardless of the accompanying legal labels,” is that Alpert 
and Donnelly led and directed CFP and Crossroads to maximize fees in 
order to enrich themselves and other insiders in the company. Gold 
Coast Commodities, Inc. v. Crum, 68 F.4th 963, 969 (5th Cir. 2023). But 
doing so was at the detriment of those who applied for loans. Indeed, the 
only people enriched by the alleged scheme were insiders after issuing 
the dividend. And while Plaintiffs use no magic words in their 
complaint, “all the facts and circumstances” surrounding the conduct 
alleged support a finding of actual fraud.10 Latham, 320 S.W.3d at 607 
 
10 See also Spring St. Partners, 730 F.3d at 445 (finding actual fraud where the 
context of the complaint showed that defendant created an LLC to shift assets and 
allowed the company’s charter to lapse after litigation began); In re Arnette, 454 B.R. 
663, 694–95 (Bankr. N.D. Tex. 2011) (holding that a party committed actual fraud by 
making material misrepresentations, failing to disclose important information, and 
never intending to comply with the terms of the parties’ agreement); Latham, 320 
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 18 of 39   PageID 1900

19 
(“[A]ctual fraud means conduct involving either dishonesty of purpose 
or intent to deceive.” (emphasis added)).  
Personal benefit requires a plaintiff to plead that “funds derived from 
the corporations’ allegedly fraudulent conduct were pocketed by or 
diverted to the individual defendant.” Bates Energy Oil & Gas v. 
Complete Oilfield Svcs., 361 F. Supp. 3d 633, 665 (W.D. Tex. 2019). If 
funds are only used for a corporation’s benefit or are diverted to other 
ventures, a plaintiff’s claim fails. Id.  
Here, personal benefit is met for a hundred-million reasons. The 
Individual Defendants both received paydays in a quickly announced 
dividend—equal to nearly 80% of the outstanding share price at the 
time. Alpert (25%) and Donnelly (37.8%) together owned 62.8% of a 
company’s outstanding shares where the $238.9 million dividend was 
quickly upstreamed and paid out to shareholders after the PPP window 
closed. In the end, Alpert and Donnelly collectively pocketed 
$149,918,480 in cash from the special dividend. This easily meets the 
standard of a personal benefit. 
*     *     * 
Because actual fraud is present in the context of Plaintiffs’ complaint 
and the Individual Defendants personally benefited from their alleged 
conduct, the liability shield does not apply to the Individual Defendants, 
and they must face the claims brought against them.   
The Court now addresses the jurisdictional and preliminary issues 
brought by the Corporate Defendants’ motions.  
C. Capital Plus Financial & Crossroads  
1. Alter Ego - Crossroads 
Crossroads asserts that it must be dismissed from the case because 
they are a member of Capital Plus and shielded under limited liability.   
 
S.W.3d at 610 (“A rational juror could also have decided Latham’s contextual conduct 
represented dishonesty of purpose or an intent to deceive, i.e., actual fraud.”). 
 
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 19 of 39   PageID 1901

20 
Federal district courts sitting in diversity must “apply the conflict of 
laws rule of the state in which it sits to determine which state’s 
substantive law should be applied.” Because the forum state is Texas, 
the Court applies Texas’ conflict of laws to its alter ego analysis. Texas 
law dictates that the state of incorporation controls. See TEX. BUS. ORG. 
CODE ANN. § 1.104; Alberto v. Diversified Grp. Inc., 55 F.3d 201, 203 (5th 
Cir. 1995). Where the claim seeks to hold a parent company liable for 
the obligations of a subsidiary, the subsidiary’s state of incorporation 
provides the applicable law. See ASARCO LLC v. Americas Min. Corp., 
382 B.R. 49, 64–65 (S.D. Tex. 2007). And as Capital Plus—the subsidiary 
in this situation—is organized under the laws of Texas, the Court looks 
to Texas law.  
As stated before, Texas law dictates that the shareholder or affiliate 
of a corporation “may not be held liable to the corporation or its obligees 
with respect to . . . any contractual obligation of the corporation or any 
matter relating to or arising from the obligation on the basis that the 
holder, beneficial owner, subscriber, or affiliate is or was the alter ego of 
the corporation.” TEX. BUS. ORGS. CODE § 21.223(a)(2) (emphasis 
added).11 To defeat this, Plaintiffs must show that a defendant “caused 
the corporation to be used for the purpose of perpetrating and did 
perpetrate an actual fraud on the obligee primarily for the direct 
personal benefit of the holder, beneficial owner, subscriber, or 
affiliate.” Id. § 21.223(b).  
Here, Crossroads is a shareholder/member, so the statute applies. 
So—once again—the Court must address two things: (1) whether the 
claims against them “arise out of” or “relate to” a contractual obligation 
of the corporation; and (2) whether the complaint sufficiently alleges 
that the Individual Defendants perpetrated an actual fraud.  
i. 
“Relating to” or “arising out of” 
The first issue is whether the claims against Crossroads “arise out 
of” or “relate to” a contractual obligation. As established in the section 
 
11 Although § 21.223 refers only to corporations, TEX. BUS. ORGS. CODE 
§101.002(a) extends its reach to limited liability companies as well.  
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 20 of 39   PageID 1902

21 
dealing with the Individual Defendants, the claims asserted by 
Plaintiffs are contractual in nature.   
As stated in depth before, the breach-of-contract claim is clearly 
contractual, and the other claims arise out of and relate to the alleged 
contractual relationship with Capital Plus.12 At issue is the conduct 
surrounding the unfulfilled loan agreements—which are contractual in 
nature.    
Plaintiffs’ claims thus fall under § 21.223(a)(2). And for their claims 
against Crossroads to survive, they must show that actual fraud is 
present.  
ii. 
Actual Fraud & Direct Personal Benefit 
Once again, to evade limited liability a plaintiff to show that “(1) the 
affiliate caused the corporation to be used to perpetrate and did 
perpetrate an actual fraud on the obligee; and (2) the fraud was 
primarily for the direct personal benefit of the holder, beneficial owner, 
subscriber, or affiliate.” Thomas, 27 F.4th at 1016 (citing TEX. BUS. 
ORGS. CODE § 21.223(a)(2)).   
Crossroads asserts that Plaintiffs do not plead actual fraud with 
enough specificity and that they only rely on conclusory statements of 
regular business activity—insufficient to pierce the corporate veil of 
Capital Plus. The Court disagrees.  
As stated before “actual fraud” requires a plaintiff to show 
“dishonesty of purpose or intent to deceive.” Archer, 390 S.W.2d at 740; 
Latham, 320 S.W.3d at 607 (Tex. App.—Dallas 2010, no pet.). Courts 
“may deduce fraudulent intent from all of the facts and circumstances.” 
Spring St. Partners, 730 F.3d at 443 (emphasis in original). And “all that 
is required at the pleading stage is a general allegation of [a defendant’s] 
dishonest purpose or deceitful intent with respect to [the company] and 
its transactions.” AHBP LLC, 2023 WL 139149, at *7 (citing Archer, 390 
S.W.2d at 740). In a business-transaction context that might be routine 
in a vacuum, actual fraud can be inferred from the proximity or volume 
of transactions in context with other circumstances. See Spring St. 
 
12 See supra at p. 16.   
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 21 of 39   PageID 1903

22 
Partners, 730 F.3d at 445 (finding actual fraud where the context of the 
complaint showed that defendant created an LLC to shift assets and 
allowed the company’s charter to lapse after litigation began); In re 
Arnette, 454 B.R. at 694–95 (holding that a party committed actual fraud 
by making material misrepresentations, failing to disclose important 
information, and never intending to comply with the terms of the 
parties’ agreement).  
In Weston Group, the court found that a plaintiff’s allegations were 
sufficient to plead actual fraud. Weston Grp, 2014 WL 940329, at *5. 
There the plaintiffs alleged that (1) a business promised to pay but never 
followed through, (2) an LLC was used to funnel money between 
different companies, and (3) the corporate defendant received 
government benefits that were supposed to go to plaintiffs but were 
funneled upstream to insiders instead. Id. The court reasoned that even 
though the regular movement of money between companies is not 
enough to plead actual fraud, the movements of money alongside the 
other allegations and circumstances “[rose] above the level of a 
conclusory description.” Id. (citing Shandong Yinguang Chem. Indus. 
Joint Stock Company, Ltd. v. Potter, 607 F.3d 1029, 1032–33 (5th Cir. 
2010)). 
Like the pleadings in Weston Group, which alleged (1) unfulfilled 
payments, (2) upstreamed money, and (3) improperly used government 
benefits, here, Plaintiffs allege the same but on a grander scale. 
Plaintiffs allege that Crossroads exercised its control over Capital Plus 
and its PPP lending scheme. The primary purpose of the alleged plan 
was to maximize SBA fees to the detriment of loan obligations it owed 
to Plaintiffs. ECF No. 65 at ¶¶ 303, 306. Captial Plus approved “472,036 
PPP loans totaling over $7.5 billion in funds” in a short time window. ¶¶ 
9, 75, 79, 87, 90. Again, the “overarching theme of the [Plaintiffs’] 
complaint, regardless of the accompanying legal labels,” is that 
Crossroads saw a window to maximize fees earned at the detriment of 
those who applied for loans to enrich itself and other insiders in the 
company. Gold Coast Commodities, 68 F.4th at 969. An awareness of the 
nearly half-a-million loan agreements was often noted in Crossroads 
financial statements and shareholder letters. And Crossroads also often 
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 22 of 39   PageID 1904

23 
noted strategies and timelines on the company’s policy toward these 
loans. So this was anything but a regular business transaction or 
transfer between parent and subsidiary—it was a transformational plan 
executed with the full knowledge and control of Crossroads. 
Indeed, Crossroads’s involvement in the PPP became the main event 
as it 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.” ECF No. 1 at 4. The 
subsidiary LLCs’ profits on the back of the PPP program dwarfed those 
of the parent corporation. It was a modern-day gold rush as 
Crossroads—knowing that many of Plaintiffs’ loans remained 
unfunded—upstreamed hundreds of millions of dollars in PPP-related 
loan processing fees and PPPLF loan advances. And once the PPP 
window closed, Crossroads paid out a $238.9 million dividend to its 
insiders and kept the rest of the profit for the corporation’s benefit. 
Lastly, the funds at issue were not corporate funds owned by 
Crossroads. These funds were earned because of Capital Plus and 
Crossroads engaging in an emergency government benefit program. 
Plaintiffs allege that Crossroads kept fees for processing the loans and 
sat on PPPFL advances from the federal reserve and milked interest on 
the nearly $7.5 billion in cash it gained from that was intended to cover 
loan disbursements that Plaintiffs were entitled to. Plaintiffs even 
allege that the PPPFL funds were obtained by lying about loans that 
were never completed. Considering the full context of the complaint that 
alleges (1) unfulfilled payments, (2) upstreamed money, (3) a wild 
lending spree that overhauled the nature of Crossroads’s business 
model, and (4) improperly used government programming funds, actual 
fraud is met.  
Again, Personal benefit requires a plaintiff to plead that “funds 
derived from the corporations’ allegedly fraudulent conduct were 
pocketed by or diverted to the individual defendant.” Bates Energy Oil 
& Gas v. Complete Oilfield Svcs., 361 F. Supp. 3d 633, 665 (W.D. Tex. 
2019). If funds are only used for a corporation’s benefit or are diverted 
to other ventures, a plaintiff’s claim fails. Id.  
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 23 of 39   PageID 1905

24 
As discussed above, personal benefit is met for a hundred-million 
reasons present in Crossroads’ income statements and its insiders’ bank 
accounts.  
*      *      * 
Because actual fraud is present in the context of Plaintiffs’ complaint 
and Crossroads personally benefited from its alleged conduct, the 
liability shield does not apply, and it must face the claims brought by 
Plaintiffs.  
2. Statutory Standing - Negotiable Instruments & Breach of 
Contract 
Defendants next argue that Plaintiffs lack statutory standing to sue 
for breach of contract because the contract is a negotiable instrument 
held by Defendants.  
A 
negotiable 
instrument 
is 
created 
where 
there 
is 
“an unconditional promise or order to pay a fixed amount of money, with 
or without interest or other charges described in the promise or 
order.” TEX. BUS. & COM. CODE § 3.104(a). Only holders of negotiable 
instruments may enforce their terms.  Id. § 3.301; see also Maldonado 
v. CitiMortgage, Inc., 676 F. App’x 282, 284 (5th Cir. 2017). Because 
Capital Plus is the holder of the agreement, if it is negotiable, Plaintiffs 
will be unable to enforce it.  
Plaintiffs assert that the note is not a negotiable instrument because 
it is forgivable, thus calling the fixed nature of the note into question.  
They are correct.  
Notes are not negotiable where there is uncertainty as to the amount 
or where they incorporate methods that establish the value of the note 
and its forgivability from outside the agreement. See Cobb Bank & Tr. 
Co. v. Am. Mfrs. Mut. Ins., 624 F.2d 722, 725 (5th Cir. 1980) (holding 
that the instrument was not negotiable where the amount to be paid was 
uncertain); Fed. Deposit Ins. Corp. v. Eagle Props., Ltd., 664 F. Supp. 
1027, 1035 (W.D. Tex. 1985) (note is not negotiable if a “provision leaves 
a possibility of reduction in the amount collectible on the note”); FFP 
Mktg. Co. v. Long Lane Master Tr. IV, 169 S.W.3d 402, 408 (Tex. App. 
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 24 of 39   PageID 1906

25 
2005—Fort Worth 2005, no pet.) (note is not negotiable where “one 
cannot determine from the face of [the] note the extent of the maker’s 
liability”); Hinckley v. Eggers, 587 S.W.2d 448, 451 (Tex. Civ. App. 
1979—Dallas 1979, no writ) (note is not for a fixed amount where the 
amount to be paid could only “be determined only from sources outside 
the instrument”).  
The centrality of forgiveness to the nature of the PPP loan process 
meets this uncertainty. And while Defendants assert that all notes are 
forgivable at the holder’s discretion, they again fail to distinguish the 
unique posture of PPP loans. As other courts have noted, “forgiveness is 
the essential characteristic of the debtor’s obligation under the PPP 
Note and the PPP requirements. But for forgiveness, there is no PPP.” 
In re Parking Mgmt., 620 B.R. 544, 558 (Bankr. D. Md. 2020).  Indeed, 
“[t]he debtor’s liability to repay the PPP relies on some future extrinsic 
event which may never occur.” Id. (cleaned up).  And the agreement is 
“subject to a triggering event or occurrence reasonably contemplated by 
the debtor and creditor at the time the debtor applied for and obtained 
the PPP funds.” Id.  
On top of the amount being uncertain, the note is not unconditional. 
A promise is not unconditional if a promissory note incorporates other 
provisions. See Resol. Tr. Corp. v. 1601 Partners, Ltd., 796 F. Supp. 238, 
239-40 (N.D. Tex. 1992) (Sanders, J.) (“[W]hen an instrument 
incorporates by reference the terms of another document the … promise 
contained within the instrument, therefore, is rendered conditional.”). 
Here, the entire forgiveness or partial forgiveness mechanism 
associated with the PPP loans came from agency rulemaking that fell 
outside the promissory note and had the potential to change any minute 
the SBA issued a new guidance. So the terms that make the note 
uncertain as to the amount also make the note conditional.  
Defendants’ objections on statutory standing are meritless.  
3. Breach of Contract    
Crossroads and CFP assert that the documents signed by Plaintiffs 
do not give rise to a contractual obligation because they were unilateral 
and binding only on Plaintiffs. The Court disagrees.  
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 25 of 39   PageID 1907

26 
Documents “executed at the same time, with the same purpose, and 
in the course of the same transaction, [are] construe[d] . . . together.” NC 
Lear Servs., Inc. v. Kingdom of Saudi Arabia, 581 F.3d 210, 216 (5th Cir. 
2009). And “[i]t is well settled that courts must enforce the unambiguous 
language in a contract as written, and the applicable standard is the 
objective intent evidenced by the language used, rather than by the 
subjective intent of the parties.” Dresser-Rand Co. v. Virtual 
Automation, Inc., 361 F.3d 831, 845 (5th Cir. 2004) (citations omitted).  
Capital Plus executed a “Notice – No Oral Agreements” clause, which 
refers to the notes as a “Loan Agreement.” It then defines “Loan 
Agreement” as “one or more promises, promissory notes, agreements . . 
.  pursuant to which a financial institution loans . . .  or agrees to loan 
money.” ECF No. 4 at 10. Further, the SBA PPP lending rule was 
incorporated into the documents governing the contract. The lending 
rule states: “[t]he lender must make a one-time, full disbursement of the 
PPP loan within 10 calendar days of loan approval; for the purposes of 
this rule, a loan is considered approved when the loan is assigned a loan 
number by SBA.” 86 FED. REG. 3692, 3710. Taken together, the 
documents contain unambiguous language that provides CFP a duty to 
disburse funding upon issuing an SBA number—regardless of CFPs 
subjective intent surrounding the agreement. 
Plaintiffs have a proper breach-of-contract claim.  
4. Release   
Defendants next contend that Plaintiffs’ contractual claims are 
barred by a validly signed release covering all claims brought under the 
“loan agreement.” The parties collectively whiffed on briefing this issue. 
Plaintiffs claim that the release didn’t include future acts, and 
Defendants claim that the release was a complete forfeiture of all claims 
stemming from the agreement. And yet, neither party recognizes the 
unique relationship embedded in this specific contract.  
Texas law holds that “parties have the right to contract as they see 
fit as long as their agreement does not violate the law or public 
policy.” In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 129 (Tex. 2004). 
And “it is by now axiomatic that legislative enactments generally 
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 26 of 39   PageID 1908

27 
establish public policy.” Royston, Rayzor, Vickery, & Williams, LLP v. 
Lopez, 467 S.W.3d 494, 504 (Tex. 2015).  So when lawmakers impose a 
statutory restriction, “the issue for the courts is whether the contract 
violates the statute, not whether it violates public policy.”  Marsh USA 
Inc. v. Cook, 354 S.W.3d 764, 771 (Tex. 2011) (discussing whether the 
contract meets statutory “requirement for enforceability under the 
Act”); see also Woolsey v. Panhandle Ref. Co., 131 Tex. 449, 116 S.W.2d 
675, 678 (Tex. 1938) (“[A]n agreement which violates a valid statute is 
illegal and void.”). 
The Court thus identifies the issue here as “whether public policy 
embedded in [the PPP program and SBA Lending Rules] precludes 
enforcement of [the exculpatory clause].” Phila. Indem. Ins. Co. v. White, 
490 S.W.3d 468, 471 (Tex. 2016).  
While private parties can contract around many laws, Texas looks to 
their relationship to determine whether the provisions violate public 
policy. Crowell v. Hous. Auth. of Dall., 495 S.W.2d 887, 889 (Tex. 1973). 
Courts regularly enforce exculpatory agreements between private 
persons of equal bargaining strength. Id. But when one party has 
substantially less bargaining power in the relationship, the exculpatory 
agreement will be declared void. Id.  
In Crowell, the Texas Supreme Court held that an exculpatory clause 
exempting the Dallas Housing Authority (“DHA”) from premises 
liability was against public policy. Crowell, 495 S.W.2d at 889. The court 
reasoned that because the DHA’s legislative purpose rested on providing 
safe dwelling accommodations to low-income families, the provision 
directly violated the nature of the statutory relationship between the 
contracting parties. Id.; see also Lone Star Gas Co. v. Veal, 378 S.W.2d 
89, 93 (Tex. Civ. App.—Eastland 1964, writ ref’d n.r.e.) (holding that 
exculpatory clause invalid where a public utility contracted out of 
liability for negligence in the performance of public service).  
Like the DHA—a creature of specific legislative enactment—Capital 
Plus was a component of a government assistance program and not a 
freewheeling lender. For PPP loan agreements, there is no 
customization or negotiation of the core terms of the agreement because 
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 27 of 39   PageID 1909

28 
it is prescribed by statute. Plaintiffs could not take to the marketplace 
to hunt down a better rate or deal. Indeed, Capital Plus’s only job was 
mechanical—to approve or deny the loan and then release the funds. 
And while the exculpatory clause may cover conduct outside the 
regulation, its primary function reserves the right to directly violate 
statutorily enacted public policy—the only basis for the relationship 
between Capital Plus and Plaintiffs.  
Thus, the exculpatory clause is void.   
5. Damages  
Defendants next argue that Plaintiffs’ claims should be dismissed 
because they inconsistently or improperly pleaded the damages they are 
allegedly entitled to. The Court disagrees. 
A 12(b)(6) motion concerns causes of action, not remedies. So 
“[w]hether a claim for relief should be dismissed under Rule 12(b)(6) 
turns not on whether all of the relief asked for can be granted, but 
whether the plaintiff is entitled to any relief.” Mott’s, LLP v. 
Comercializadora Eloro, S.A., 507 F. Supp. 3d 780, 791 (W.D. Tex. 2020). 
And courts “have consistently interpreted [Rule 8] to allow a plaintiff 
any relief that the pleaded claim supports; requesting an improper 
remedy is not fatal.” Laird v. Integrated Res., Inc., 897 F.2d 826, 841 
(5th Cir. 1990). Indeed, “[I]t need not appear that the plaintiff can obtain 
the particular relief prayed for in the complaint, as long as the district 
judge can ascertain from what has been alleged that some relief may be 
granted by the court.” Mott’s, 507 F. Supp. 3d at 791 (citing 5B Charles 
A. Wright & Arthur R. Miller, FEDERAL PRACTICE AND PROCEDURE § 
1357 (3d ed. 2004)).  
At this stage, Plaintiffs can plead alternative causes of action with 
different damage theories. And while some are debatably wrong, (1) this 
is not the time to address them, and (2) they are not fatal to Plaintiffs 
claims.  
 
 
 
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 28 of 39   PageID 1910

29 
D. All Defendants 
1. Unjust Enrichment 
Plaintiffs state a claim for unjust enrichment against all Defendants 
due to the millions of SBA fees the Corporate Defendants received and 
the dividend payments the Individual Defendants received. They argue 
that because Defendants received the fees associated with processing 
their loans from the SBA and never disbursed the money, this entitles 
them to restitution. This argument misses the whole point of unjust 
enrichment.  
Unjust enrichment requires a party to make restitution to another if 
they have been enriched at the other party’s expense. See Penick v. 
Penick, 783 S.W.2d 194, 197 (Tex. 1988) (“one receiving benefits which 
are unjust for him to retain ought to make restitution or pay the value 
of the benefit to the party contributing the benefit.”) This means that 
the benefit received by a defendant must come directly from a plaintiff. 
Id. Unjust enrichment does not operate on a but-for-causation benefit 
scheme, the benefit must be directly conferred. Id.  
Here, Defendants were enriched from the fees they obtained from 
processing loan applications. These fees came directly from the 
government, not from Plaintiffs. And this rule is the same in every state 
from which Plaintiffs bring a claim.13 Therefore, Plaintiffs conferred no 
benefit or enrichment. Therefore, Plaintiffs’ unjust enrichment claims 
fail.  
Plaintiffs’ unjust enrichment claims are thus DISMISSED.  
 
 
 
13 See First Union Nat. Bank, 168 S.W.3d 917, 931 (Tex. App.––Dallas 2005, no 
pet.); Hartness v. Nuckles, 2015 Ark. 444, 475 (2015); D.W.H Painting Co., Inc. v. D.W. 
Ward Constr. Co., Inc., 174 N.C.App. 327, 334 (2005); State v. Ariz. Pension Planning, 
154 Ariz. 56, 58 (1987) (en banc); Small v. Badenhop, 67 Haw. 626, 636 (1985). 
In addition to other states not recognizing claims where a benefit is not conferred 
by the plaintiff, California does not recognize unjust enrichment claims at all.  
Therefore, the California subclass claim fails under this theory were California law to 
apply. See Hooked Media Grp., Inc. v. Apple, Inc., 55 Cal.App.5th 323, 336 (2020) 
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 29 of 39   PageID 1911

30 
2. North Carolina Unfair and Deceptive Trade Practices Act 
Defendants next argue that Plaintiff failed to bring a proper claim 
under the NCUDTPA. The Court disagrees.  
The NCUDTPA states that “[u]nfair methods of competition in or 
affecting commerce, and unfair or deceptive acts or practices in or 
affecting commerce, are declared unlawful.” N.C. GEN. STAT. ANN. § 75–
1.1(a). In applying North Carolina law, federal district courts in the 
Fifth Circuit are bound by the North Carolina Supreme Court’s 
decisions. Camacho v. Ford Motor Co., 993 F.3d 308, 311 (5th Cir. 2021). 
And when interpreting a North Carolina statute, we use the same 
methods of statutory interpretation used by the North Carolina 
Supreme Court. Id.  
To establish a claim for unfair trade practices under the NCUDTPA, 
a plaintiff must meet three elements: (1) that the defendant 
committed an unfair or deceptive act or practice; (2) that the action was 
in or affecting commerce; and (3) that the act proximately caused injury 
to the plaintiff. Dalton v. Camp, 353 N.C. 647, 656–57 (2001) (citation 
omitted).  
As to the first element, “[a] practice is unfair if it is unethical or 
unscrupulous, and it is deceptive if it has a tendency to deceive.” Id. 
(citing Polo Fashions, Inc. v. Craftex, Inc., 816 F.2d 145, 148 (4th Cir. 
1987)). Determining whether an act is unfair or deceptive is a question 
of law for the court. Gray v. N.C. Ins. Underwriting Ass’n, 352 N.C. 61, 
68 (2000).  
 
Whether the Court uses the words unfair, deceptive, unethical, or 
unscrupulous, the facts before it meet this standard. Plaintiffs allege 
that in a national crisis—where Congress entrusted private actors with 
approving PPP loans—Alpert and Donnelly controlled and directed 
Capital Plus and Crossroads to process an unattainable number of 
applications designed to skim fees off the top. They allegedly did this 
while owning a majority of the company’s outstanding shares. And the 
second the PPP window closed, Alpert and Donnelly paid themselves 
millions in dividends while thousands of loans remained unprocessed—
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 30 of 39   PageID 1912

31 
leaving businesses hung out to dry in their time of need. These facts on 
the face of the complaint mean that the first element is met.   
 As to the second element, “in or affecting commerce,” the statute 
defines “commerce” inclusively as “business activity, however 
denominated.” § 75-1.1(b). But from this expansive definition, the North 
Carolina Supreme Court has somehow gathered that “[the Act] is not 
intended to apply to all wrongs in a business setting.” Dalton, 
353 N.C. at 658. Business activities that fall beyond the statute’s scope 
include professional services, most employer-employee disputes, and 
securities transactions. Id. This is because the Act concerns only two 
types of business transactions: “(1) interactions between businesses, and 
(2) interactions between businesses and consumers.” Nobel v. Foxmoor 
Grp., 380 N.C. 116, 121 (2022).  
This case fits neatly into the second category as it involves an 
interaction between a private company and a large class of individual 
consumers. And because the conduct here falls within the statute’s 
scope, the second element is met.  
Turning to the third element, the Act requires more than just proving 
simple 
causation. 
It 
also 
requires 
that 
“some 
type 
of egregious or aggravating circumstances must be alleged” for the Act’s 
provisions to take effect. Dalton, 353 N.C. 647, 656–57 (2001).  
Plaintiffs properly allege that the act was partly caused by Alpert 
and Donnelly because they controlled and directed the Crossroads and 
Capital Plus. And the facts and allegations contained in the complaint 
are egregious and aggravating. At risk of sounding repetitive, hundreds 
of thousands of loans remained unprocessed while the Corporate 
Defendants and insiders were enriched by a large dividend earned by 
approving an absurd amount of loans. Holding the facts alleged by 
Plaintiffs as true, this was an egregious abuse of private and public 
trust.  
 
Plaintiffs have a valid NCUDTPA claim.  
 
 
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 31 of 39   PageID 1913

32 
3. California Unfair Competition Law  
Defendants next argue that Plaintiffs failed to bring a proper claim 
under California’s Unfair Competition Law (“UCL”). The Court 
disagrees. 
Once again, in diversity cases, courts must apply state substantive 
law and federal procedural rules. Camacho, 993 F.3d at 311. State 
statutes promulgated by the California legislature—like the UCL—are 
substantive. Id. In applying California law, federal district courts in the 
Fifth Circuit are bound by the Supreme Court of California’s decisions. 
Id. And when interpreting a California statute, we use the same 
methods of statutory interpretation used by the Supreme Court of 
California. Id.  
The UCL prohibits “unlawful, unfair or fraudulent” business 
practices. CAL. BUS. & PROF. CODE § 17200. Each of these three 
categories come with their own requirements. Here, Plaintiffs only 
allege (1) “unlawful” and (2) “unfair” conduct. The Court thus addresses 
both.  
i. 
“Unlawful” Business Practices 
Defendants argue that Plaintiff fails to state a claim for unlawful 
business practices under the UCL. The Court disagrees.  
To be “unlawful,” the UCL requires a plaintiff to allege a business 
practice that resulted in the independent violation of “any law.”  See 
Hamilton v. Bank of Blue Valley, 746 F. Supp. 2d 1160, 1180 (E.D. Cal. 
2010) (“The UCL ‘borrows’ violations of other laws and treats them as 
unlawful practices independently actionable.”). Under this broadly 
drawn statute, “[a] business act or practice is unlawful under the [UCL] 
if it violates a rule contained in some other state or federal statute.” 
Sandoz Inc. v. Amgen Inc., 137 S. Ct. 1664, 1673 (2017) (citing Rose v. 
Bank of Am., N. A., 57 Cal. 4th 390, 396 (2013)). And the predicate laws 
in question can be “civil, criminal, federal, state, or municipal, statutory, 
regulatory, or court-made.” See Sybersound Recs., Inc. v. UAV Corp., 517 
F.3d 1137, 1151 (9th Cir. 2008) (cleaned up).  In short, an alleged 
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 32 of 39   PageID 1914

33 
violation of almost any law—save the law of the jungle—is enough to 
state a claim.  
Defendants assert that Plaintiffs failed to allege a predicate violation 
of another law because a breach-of-contract claim does not provide an 
independent violation of a law unless there is an independent basis to 
make the breach unlawful. See Sybersound Recs., 517 F.3d at 1152. But 
Plaintiffs correctly argue that they properly pleaded a regulatory 
violation—existing independent of their contractual relationship.  
Plaintiffs’ complaint points to a violation of the SBA “lending rule.” 
The rule states: “[t]he lender must make a one-time, full disbursement 
of the PPP loan within 10 calendar days of loan approval; for the 
purposes of this rule, a loan is considered approved when the loan is 
assigned a loan number by SBA.” 86 FED. REG. 3692, 3710 (emphasis 
added).  
Because a predicate law can be regulatory14 in nature, Plaintiffs 
maintain a valid UCL claim for unlawful business practices.15 See 
Sybersound Recs., 517 F.3d at 1151.  
   ii.      “Unfair” Business Practices 
Defendants next argue that Plaintiffs fail to state a claim for an 
unfair business practice under the UCL. They are wrong.  
There is a current three-way split in California appellate courts as to 
what constitutes an “unfair” business practice in the consumer context. 
See Nationwide Biweekly Admin., Inc. v. Superior Court, 9 Cal. 5th 279, 
284 (2020) (acknowledging the split among the appellate courts but 
declining to resolve it). So this Court must make an Erie guess as to 
which test the Supreme Court of California would adopt.   
 
14  Defendants’ contention that this interim final rule issued by the SBA does not 
qualify as a law under the UCL is incorrect. Administrative rule making is a valid 
predicate law under the UCL. See Sybersound Recs., 517 F.3d at 1151.  
15 The Complaint also alleges a violation of the NCUDTPA—which is a state 
enacted law. See Sandoz Inc., 137 S. Ct. 1664, 1673 (2017). Though not raised by either 
party, this is arguably enough to state a valid and independently actionable UCL 
claim. So, in a strange way, one poorly drawn statute—plagued with vagueness—could 
give rise to another.  
 
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 33 of 39   PageID 1915

34 
Erie guesses “treat state intermediate courts’ decisions as the 
strongest indicator of what a state supreme court would do, absent a 
compelling reason to believe that the state supreme court would reject 
the lower courts’ reasoning.” Kelly v. Nichamoff, 868 F.3d 371, 375 (5th 
Cir. 2017). But an Erie guess may also consider the following factors: 
(1) decisions of the state supreme court in analogous cases, 
(2) the rationales and analyses underlying state supreme 
court decisions on related issues, (3) dicta by the state 
supreme court, (4) lower state court decisions, (5) the 
general rule on the question, (6) the rulings of courts of 
other states to which state courts look when formulating 
substantive law[,] and (7) other available sources, such as 
treatises and legal commentaries. 
Weatherly v. Pershing, L.L.C., 945 F.3d 915, 920 (5th Cir. 2019), cert. 
denied, 141 S. Ct. 236 (2020).  
Many of these factors offer little help—California appellate and 
lower courts are split more than three ways on the issue, the Supreme 
Court of California has so far ducked resolving the issue, and treatises 
acknowledge the split with no resolution. But the “rationales and 
analyses underlying state supreme court decisions on related issues” 
highlight how broadly the California Supreme Court is willing to 
interpret this statute. As a result, this Court will turn to the statute’s 
text and utilize “the same methods of statutory interpretation used by 
the California Supreme Court” to interpret the text of the UCL. Id. After 
this, the Court will determine which test has the most fidelity to the text 
of the UCL.  
It does not appear that the Supreme Court of California has any 
consistent principles of statutory interpretation beyond pondering the 
orb of legislative history. See Almond All. of Cal. v. Fish & Game Com., 
No. S275412, 2022 Cal. LEXIS 5573, at *2 (Sep. 21, 2022) (denying 
review of appellate court opinion finding that bumble bees were fish); 
Ferra v. Loews Hollywood Hotel, LLC, 11 Cal. 5th 858, 879 (2021) 
(“[C]anons of construction . . . will not be applied so as to defeat the 
underlying legislative intent otherwise determined.”). Indeed, the court 
has embraced the chaotic results of “divining” legislative intent from 
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 34 of 39   PageID 1916

35 
whatever sources are available—even where it leads to an absurd result 
contrary to the text:  
Careful analysis of a statute to divine legislative intent can 
sometimes yield results that might seem surprising at first 
blush. Courts engaged in this task have interpreted “less” 
as “more” and “unlawful” as “lawful” Long ago, the United 
States Supreme Court concluded that the “seas” referenced 
in one statute required no water at all; quite recently, it 
determined that a fish is not a “‘tangible object.’” 
These kinds of seemingly illogical outcomes can in fact best 
capture the enacting Legislature’s intent in a variety of 
circumstances. A statute may be construed in a manner 
that goes beyond the literal meaning of its text to avoid an 
absurd result the Legislature could not possibly have 
contemplated. 
Almond All. of Cal., 2022 Cal. LEXIS 5573, at *2 (cleaned up). And while 
this Court strongly disagrees with this judicial philosophy, it will do its 
best to implement and impersonate it here.16  
The UCL is all about equity. In the Supreme Court of California’s 
decisions applying the UCL, it consistently emphasizes that “the section 
was intentionally framed in its broad, sweeping language, precisely to 
enable judicial tribunals to deal with the innumerable . . . new schemes 
which the fertility of man’s invention would contrive.” Barquis v. 
Merchants Collection Ass’n, 7 Cal. 3d 94, 112 (1972) (cleaned up). This 
means that “[w]hen a scheme is evolved which on its face violates the 
 
16 Rather than looking to the one thing that the legislature adopted—the text—
Courts who adopt this philosophy find themselves reviewing everything besides that 
which was agreed and voted on. While this method requires judges to pretend that the 
legislature contains some Borg-like consciousness, it usually results in picking and 
choosing whatever fits a judge’s sensibilities. Justice Scalia noted that:  
[L]egislative history has facilitated rather than deterred decisions that 
are based upon the courts’ policy preferences, rather than neutral 
principles of law . . . . In any major piece of legislation, the legislative 
history is extensive, and there is something for everybody. As 
Judge Harold Leventhal used to say, the trick is to look over the heads 
of the crowd and pick out your friends. The variety and specificity of 
result that legislative history can achieve is unparalleled. 
Antonin Scalia, A MATTER OF INTERPRETATION 21 (1997).   
 
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 35 of 39   PageID 1917

36 
fundamental rules of honesty and fair dealing, a court of equity is not 
impotent to frustrate its consummation because the scheme is an 
original one.” Id. at 112. And “there is a maxim as old as law that there 
can be no right without a remedy, and in searching for a precise 
precedent, an equity court must not lose sight, not only of its power, but 
of its duty to arrive at a just solution of the problem.” Id.  The California 
Supreme Court states a court’s role in equity as follows:  
[Equity is] much more elastic and capable of expansion and 
extension to new cases than the common law. Its very 
central principles, its foundation upon the eternal verities 
of right and justice, its resting upon the truths of morality 
rather than upon arbitrary customs and rigid dogmas, 
necessarily gave it this character of flexibility, and 
permitted its doctrines to be enlarged so as to embrace new 
cases as they constantly arose. It has, therefore, as an 
essential part of its nature, a capacity of orderly and 
regular growth—a growth not arbitrary, according to the 
will of individual judges—but in the direction of its already 
settled principles.  It is ever reaching out and expanding 
its doctrines so as to cover new facts and relations, but still 
without any break or change in the principles or doctrines 
themselves.17 
Nationwide Biweekly, 9 Cal. 5th at 300. Indeed, “the flexible equitable 
powers of the modern trial judge derive from the role of the trained and 
experienced chancellor and depend upon skills and wisdom acquired 
through years of study, training and experience which are not 
susceptible of adequate transmission through instructions to a lay jury.” 
Id.  
 
17 “Men should use common words to say uncommon things, but they do the 
reverse. We find them trying to envelop trivial ideas in grand words and to dress their 
very ordinary thoughts in the most extraordinary expressions and the most outlandish, 
artificial, and rarest phrases. Their sentences perpetually stalk about on stilts. [They] 
delight in bombast, and to their writing generally in a grand, puffed-up, unreal, 
hyperbolical, and acrobatic style.” Arthur Schopenhauer, Essays of Schopenhauer – 
“On Authorship and Style” 150 (1890).  
To put this passage on equity commonly, judges can do whatever they want when 
sitting in equity so long as the subjective taste of the judges who review their work 
agree with them as well.  
 
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 36 of 39   PageID 1918

37 
After engaging with this flexible understanding of the law, the Court 
now turns to the three tests before it—analyzing which one best fits this 
judicial philosophy.  
The first test—adopted by the Supreme Court of California in cases 
between direct competitors—boxes the definition of “unfair” into a small 
corner. This is because it requires the business conduct to violate 
antitrust or “the spirit” of antitrust law. See Scripps Clinic v. Superior 
Court, 108 Cal. App. 4th 917, 939 (2003). But the UCL was 
“intentionally framed in its broad, sweeping language, precisely to 
enable judicial tribunals to deal with the innumerable new schemes 
which the fertility of man’s invention would contrive.” Barquis, 7 Cal. 
3d at 112. Applying this narrow definition in all consumer cases would 
extinguish numerous actions based on unfair business practices. This 
would allow companies to fly above the great penumbras of the UCL—
enacted to give little clarity and to allow judges maximum leeway to 
channel the spirit of the great muses of justice outside of “arbitrary 
customs and rigid dogmas.” Nationwide Biweekly, 9 Cal. 5th at 300. The 
first test does not apply as it intrudes on the divinely appointed territory 
of the “great chancellor” to determine right and wrong.18 Id.  
Under the second test, courts apply the definition of “unfair” from 
Section 5 of the Federal Trade Commission Act (“FTCA”). See Camacho 
v. Auto. Club of S. Cal., 142 Cal. App. 4th 1394, 1403 (2006). This 
requires the plaintiff to prove three elements: (1) that the consumer 
injury is substantial; (2) that the injury is not outweighed by any 
countervailing benefits or consumers or competition; and (3) that it must 
be an injury that consumers themselves could not reasonably have 
avoided. Id. Such a constricting definition would chain down the “eternal 
verities of right and justice” and allow the “fertility of man’s invention” 
to scheme of ways to escape the divine fate of justice. Barquis, 7 Cal.3d 
at 112. Thus, a rigid application of elements made with mere words 
 
18 The Court notes that some circuits that apply this test also allow a violation of 
statutory or administrative laws. However, the Court still finds this standard too 
restrictive given the California Supreme Court’s comments on the purpose and 
meaning of the statute.  
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 37 of 39   PageID 1919

38 
would despoil the lofty cause of the legislature—bringing it earthbound. 
The second test does not apply.19   
Under the third test, an act or practice is “unfair” when it “offends 
an established public policy or when the practice is immoral, unethical, 
oppressive, unscrupulous, or substantially injurious to consumers.” 
Smith v. State Farm Mutual Auto. Ins. Co., 93 Cal. App. 4th 700, 719 
(2001); see also Ticconi v. Blue Shield of California Life & Health Ins. 
Co., 160 Cal. App. 4th 528, 539 (2008); Candelore v. Tinder, Inc., 19 Cal. 
App. 5th 1138, 1156 (2018). This test simply restates the words of the 
UCL. And it remains flexible enough for judges to continue “reaching 
out and expanding its doctrines so as to cover new facts and relations.” 
Nationwide Biweekly, 9 Cal. 5th at 300. After all, what is unfair? What 
is injurious? What is unethical? What is public policy? These decisions 
are not for ordinary men to make. Nay, they are for “the trained and 
experienced chancellor . . . [with] skills and wisdom acquired through 
years of study, training and experience which are not susceptible of 
adequate transmission through instructions to a lay jury.” Id. And this 
test keeps skyward the ethereal wings of the legislature’s intent, laying 
waste to any “arbitrary customs and rigid dogmas” such as elements, 
factors, or a predictable application of the law over time.  Id.  
Having adopted the third test in line with the Supreme Court of 
California’s reasoning, the Court now analyzes Defendants’ alleged 
conduct to see if it was substantially injurious, unethical, or against 
public policy.  
Defendants alleged conduct was against public policy as it violates 
the federally enacted PPP program’s intended benefit. Defendants’ 
alleged conduct was also injurious. By ignoring loan obligations and 
refusing to disburse the funds the individuals were entitled to, Plaintiffs 
 
19 The Court further notes that even if the California Supreme Court adopted the 
FTCA test, its elements are still met. Plaintiffs’ injuries are substantial because they 
are deprived of funds they are entitled to and must pay them back. There are no 
countervailing benefits to consumers or competition as this was a government program 
and other lenders were not able to process loans as a result of Capital Plus’s aggressive 
lending practices. And lastly, consumers could not have reasonably avoided the 
mistake as Capital Plus was a credible lender under the PPP program.  
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 38 of 39   PageID 1920

39 
businesses were harmed, and they remain on the hook for the needed 
payments they never received. See Gibson v. World Sav. & Loan Assn., 
103 Cal. App. 4th 1291, 1306–1307 (2002) (holding that a lender’s failure 
to comply with trust-deed provisions was an unfair business practice). 
Lastly, Defendants’ alleged conduct was also unethical. Scheming to 
keep government fees and shirking statutorily enacted responsibilities 
to disburse loans to individuals is unethical and violative of the public 
and private trust even under a narrow textualist reading of the UCL. 
Plaintiffs thus state a valid UCL claim for unfair business practices 
against all Defendants.  
CONCLUSION 
Defendants make many arguments in their defense that may be true 
but cannot be considered at this stage in the case. These issues are 
appropriately resolved at the summary judgment stage. 
 
Bound by precedent, Defendants’ Motions to Dismiss (ECF Nos. 31, 
34, 36) are GRANTED IN PART and DENIED IN PART. Plaintiffs’ 
unjust enrichment claims against all Defendants are DISMISSED. And 
to the extent Defendants seek to dismiss any other claims, their motions 
are DENIED.  
SO ORDERED on this 6th day of September 2023. 
Case 4:22-cv-00686-P   Document 82   Filed 09/06/23    Page 39 of 39   PageID 1921

File and source

File

gov.uscourts.txnd.365934.82.0.pdf

Size

402,830 bytes

SHA-256

afccf1af11e83592b33fc42d541315c944dc12c31b3f9bc7f820ceb7f6c3b901

Our copy

gov.uscourts.txnd.365934.82.0.pdf

Original

storage.courtlistener.com