Court filing

Robinson Motion to Dismiss — Pietschner v. Kabbage (E.D. Tex.)

Filed March 11, 2025 in Pietschner v. Kabbage; one of 17 filings from this case.

Record facts

Court	UNITED STATES DISTRICT COURT
Filed	2025-03-11

UNITED STATES DISTRICT COURT · No. 4:21-cv-00110-SDJ · Doc. 67 · 2025-03-11 · Docket on CourtListener

Full text

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION

UNITED STATES OF AMERICA
ex rel. PAUL PIETSCHNER,

Plaintiff,

KATHRYN PETRALIA;
ROBERT FROHWEIN; and
SPENCER ROBINSON,

Defendants.

Civil Action No.: 4:21-cv-110-SDJ

DEFENDANT SPENCER ROBINSON’S MOTION TO DISMISS
THE COMPLAINT IN INTERVENTION FOR IMPROPER VENUE,
LACK OF PERSONAL JURISDICTION AND FAILURE TO STATE A CLAIM

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TABLE OF CONTENTS
TABLE OF AUTHORITIES .......................................................................................................... ii

INTRODUCTION ...........................................................................................................................1

STATEMENT OF ISSUES .............................................................................................................2

ARGUMENT ...................................................................................................................................2

I.
THE COMPLAINT MUST BE DISMISSED FOR LACK OF PERSONAL
JURISDICTION AND IMPROPER VENUE. ..............................................................2

A. Legal Standards Under Federal Rules Of Civil Procedure 12(b)(2) And (3). .........3

B. Proper Venue Is A Prerequisite To Personal Jurisdiction Under 31 U.S.C.
§ 3732(a). .................................................................................................................3

C. Venue In This District Is Improper Under § 3732(a), And Personal
Jurisdiction Therefore Is Lacking ............................................................................5

II.
THE 100K ERROR AND SBA/AML ALLEGATIONS FAIL BECAUSE
KABBAGE’S AUTOMATED REVIEWS SATISFIED 3.b(i)-(iii) AND KNOW
YOUR CUSTOMER REQUIREMENTS....................................................................10

A. The Government Has Not Pled With Particularity How Kabbage’s Automated
System With Manual Backups Was Not a “Good Faith Review” Of Monthly
Payroll Costs Or Failed To Meet Some Unarticulated Fraud Detection
Standard In The Context Of SBA’s Controlling Guidance ...................................11

B. The Government Has Failed To Plausibly Plead Intent With Respect To The
100k Error Or BSA/AML Certifications ...............................................................14

C. The Government Has Failed To Plausibly Plead Intent With Respect To Any
Individual PPP Application....................................................................................14

D. The Complaint Fails To Allege Materiality For The 100k Error And
Inadequate Loan Review – SBA Continued To Pay Claims With Knowledge
That The PPP Program Allowed Substantial Numbers Of Fraudulent Loan
Applications ...........................................................................................................15

III.
BECAUSE KABBAGE DID NOT INCLUDE HEALTH INSURANCE OR
RETIREMENT BENEFITS IN ITS LOAN CALCULATIONS, THE
GOVERNMENT HAS NOT PLED WITH PARTICULARITY THAT THE
SALT OR 100K ERRORS ACTUALLY OVERSTATED LOAN AMOUNTS,
AND HAS ALSO FAILED TO PLAUSIBLY ALLEGE SCIENTER .......................16
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A. The Government Has Not Pled Any Particulars Demonstrating That Health
Insurance And Retirement Benefits Would Be Less Than SALT Errors ..............18

B. The Complaint’s Examples May Demonstrate A Few Applications Where The
100k Error “Likely” Exceeded Retirement And Health Insurance, But Do Not
Allege That Defendants Had Anything To Do With Those Examples ..................20

C. The Government Has Not Pled Particular Sufficient To Plausibly Allege
Scienter On The SALT Error .................................................................................21

IV.
DEFENDANTS LEFT KABBAGE BEFORE IT STARTED PROCESSING
FORGIVENESS APPLICATIONS, THE GOVERNMENT ADMITS THAT IT
KNEW ABOUT THE SALT AND 100K ERRORS, AND BORROWERS’
FALSE CERTIFICATIONS ON FORGIVENESS APPLICATIONS BROKE
THE CHAIN OF PROXIMATE CAUSATION..........................................................22

CONCLUSION ........................................................................................................................25

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iii

TABLE OF AUTHORITIES
Cases
Bellaire Gen. Hosp. v. Blue Cross Blue Shield of Michigan, 97 F.3d 822 (5th Cir. 1996) .............4

Busch v. Buchman, Buchman & O’Brien, Law Firm, 11 F.3d 1255 (5th Cir. 1994).......................4

Calder v. Jones, 465 U.S. 783 (1984) ..........................................................................................8, 9

Caldwell v. Palmetto State Sav. Bank of S. Carolina, 811 F.2d 916 (5th Cir. 1987) ......................7

Daniel v. Amer. Bd. of Emerg. Med., 428 F.3d 408 (2d Cir. 2005) .................................................4

Daughtry v. Silver Fern Chem., Inc., 2024 WL 2211005 (E.D. Tex. May 16, 2024) .....................3

Dixie Carriers, Inc. v. Nat’l Mar. Union of Amer., AFL-CIO, 35 F.R.D. 365
(S.D. Tex. 1964).............................................................................................................................6

DLR, LLC v. Montoya, 465 F. Supp. 3d 676 (N.D. Tex. 2020) .......................................................9

ESPOT, Inc. v. MyVue Media, LLC, 492 F. Supp. 3d 672 (E.D. Tex. 2020) .......................... 3, 7-9

Goodyear Dunlop Tires Oper., S.A. v. Brown, 564 U.S. 915 (2011) ..............................................8

GTE New Media Services, Inc. v. BellSouth Corp., 199 F.3d 1343 (D.C. Cir. 2000) .....................4

Hernandez v. Ciba-Geigy Corp. USA, 200 F.R.D. 285 (S.D. Tex. 2001) .....................................25

Int’l Shoe Co. v. Washington, 326 U.S. 310 (1945).........................................................................3

KM Enterprises, Inc. v. Global Traffic Tech., Inc., 725 F.3d 718 (7th Cir. 2013) ......................2, 3

Kristensen v. United States, 993 F.3d 363, 368 (5th Cir. 2021) ....................................................25

Langton v. Cbeyond Comm., L.L.C., 282 F. Supp. 2d 504 (E.D. Tex. 2003) ..................................3

Mgmt. Insights, Inc. v. CIC Enter., Inc., 194 F. Supp. 2d 520 (N.D. Tex. 2001) ............................4

Paroline v. United States, 572 U.S. 434 (2014).............................................................................24

Phan Son Van v. Pena, 990 S.W.2d 751 (Tex. 1999) ....................................................................25

Savoie v. Pritchard, 122 F.4th 185 (5th Cir. 2024) .....................................................................3, 8

Stuart v. Spademan, 772 F.2d 1185 (5th Cir. 1985) ..............................................................7, 8, 10
Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 4 of 33 PageID #: 524

United States v. King-Vassel, 728 F.3d 707 (7th Cir. 2013) ..........................................................24

U.S. ex rel. Gudur v. Deloitte Consulting LLP, 512 F. Supp. 2d 920 (S.D. Tex.
2007), aff’d sub nom., U.S. ex rel. Gudur v. Deloitte & Touche, 2008 WL 3244000
(5th Cir. Aug. 7, 2008) ...........................................................................................................10, 11

U.S. ex rel. Harman v. Trinity Indus. Inc., 872 F.3d 645 (5th Cir. 2017) ......................................16

U.S. ex rel. Hueseman v. Prof’l Compounding Centers of Am., Inc., 664 F. Supp. 3d 722
(W.D. Tex. 2023) .........................................................................................................................24

U.S. ex rel. Krohn v. Sun West Serv., Inc., 2000 WL 36739959
(D.N.M. Apr. 11, 2000) .................................................................................................................5

U.S. ex rel. Patel v. Cath. Health Initiatives, 792 F. App’x 296 (5th Cir. 2019) ....................15, 16

U.S. ex rel. Schutte v. SuperValu Inc., 598 U.S. 739 (2023) ...................................................11, 14

U.S. ex rel. Smith v. Athena Constr. Grp, Inc., 2018 WL 4110743 (M.D. Pa. Aug. 29, 2018) .......6

U.S. ex rel. Thistlethwaite v. Dowty Woodville Polymer, Ltd.,
110 F.3d 861 (2d Cir. 1997)...........................................................................................................5

U.S. ex rel. Thistlethwaite v. Dowty Woodville Polymer, Ltd.,
976 F. Supp. 207 (S.D.N.Y. 1997).................................................................................................5

U.S. ex rel. Wuestenhoefer v. Jefferson, 105 F. Supp. 3d 641 (N.D. Miss. 2015) .........................24

Virginia Innovation Sci., Inc. v. Amazon.com, Inc., 2019 WL 3082314
(E.D. Tex. July 15, 2019) ...............................................................................................................5

Walden v. Fiore, 571 U.S. 277 (2014) .........................................................................................7, 8

Statutes

31 U.S.C. § 3729(a)(1) ...................................................................................................................24

31 U.S.C. § 3729(a)(2) ...................................................................................................................24

31 U.S.C. § 3732(a) ................................................................................................................. 2-6, 9

Texas Civil Practice & Remedies Code Annotated § 17.042 ....................................................9, 10

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Rules

Federal Rule of Civil Procedure 4(k)(1)(C) .....................................................................................3

Federal Rule of Civil Procedure 9(b) .............................................................1, 2, 11, 14, 15, 22, 25

Federal Rule of Civil Procedure 12(b)(2) ....................................................................................2, 3

Federal Rule of Civil Procedure 12(b)(3) ....................................................................................2, 3

Federal Rule of Civil Procedure 12(b)(6) ........................................................................................2

Regulations

Small Business Administration Interim Final Rule, 85 Fed. Reg. 20811 (Apr. 15, 2020) ............16

Other Sources

Adamczyk, Alicia, The average employer 401(k) match is at an all-time high—see how yours
compares (June 10, 2019), https://www.cnbc.com/2019/06/10/this-is-the-average-401k-
employer-match.html .....................................................................................................................19

Benz, Christine, 100 Must-Know Statistics about 401(k) Plans (Jun 10 2019),
https://www.morningstar.com/retirement/100-must-know-statistics-about-401k-plans ...............19

Federal Reserve Bank of St. Louis, Median Personal Income in the United States
(Updated: Sep. 10, 2024), https://fred.stlouisfed.org/series/MEPAINUSA646N .........................19

Kaiser Family Foundation, 2019 Employer Health Benefits Survey (Sep. 25, 2019),
https://www.kff.org/report-section/ehbs-2019-summary-of-findings/ ........................................18

Keisler-Starkey, Katherine & Lisa N. Bunch, Health Insurance Coverage in the United States:
2019 (Sep. 15 2020), https://www.census.gov/library/publications/2020/demo/p60-
271.html#:~:text=.%20In%202019%2C%20the%20percentage%20of%20people,2019%2C%20d
own%20from%2020.5%20percent%20in%202018 ......................................................................18

Loughead, Katherine & Emma Wei, State Individual Income Tax Rates and Brackets 2019 (Mar.
20, 2019), https://taxfoundation.org/data/all/state/state-individual-income-tax-rates-brackets-
2019/ ..............................................................................................................................................19

Walczak, Jared, Local Income Taxes in 2019 (Jul. 30, 2019),
https://taxfoundation.org/research/all/state/local-income-taxes-2019/ ..........................................19
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INTRODUCTION
The Complaint in Intervention shows that Kabbage accomplished a remarkable feat during
a national emergency: It collected PPP loan applications and supporting documents from over
250,000 customers, transmitted those applications to SBA, and distributed over $7 billion in PPP
loan proceeds to American businesses between April and May 2020. “Employees were routinely
working sixteen hours per day, seven days a week. As [Defendant Spencer] Robinson commented
on or about April 4, 2020, ‘Everyday is basically Monday at the moment.’” Compl. ¶104.

Scapegoating Kabbage for the fraud or innocent mistakes of some PPP loan applicants, the
Government says Kabbage did three things wrong: 1) two employees with no tax experience
created application guidance telling customers to double count state and local income tax payments
as payroll expenses, and Kabbage failed to correct that innocent mistake fast enough (“the SALT
error”); 2) Kabbage accepted customer representations that they did not compensate any
employees more than $100,000 annually without building additional software reviews to check
customer math (“the $100k error”); and 3) Kabbage violated its duty to do a “good faith review”
because it used an automated review system that failed to catch a sufficient, unspecified percentage
of fraudulent applications, even though it triggered thousands of manual reviews.
Tellingly, the Government does not allege that any Kabbage manual reviewers ever
approved a loan they knew was fraudulent. Instead, the Government quoted internal emails
confirming Kabbage’s policy (utterly consistent with SBA guidance) to rely on customer
certifications of accuracy when employees could not confirm a loan was fraudulent. Compl. ¶217
(“Yes, we reviewed them but couldn’t confirm as fraud.”).

On the SALT issue, even though it did not satisfy Rule 9(b) and did not plausibly plead
intent, at least the Government can point to an innocent mistake by Kabbage employees that
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allegedly caused applicants to double count state and local tax payments. On the 100k error and
loan review process, however, the Government fails to demonstrate any violations of SBA
guidance. SBA made it clear from the jump that a lender’s primary function was to confirm receipt
of customer documents and maintain them for SBA reviews down the road. SBA issued controlling
guidance that lenders were entitled to rely on applicant certifications and should do a minimal
review with no obligation to replicate a customer’s loan calculations.
In the face of that guidance, the Complaint’s soundbite accusations melt into vague
Government expectations that Kabbage should have detected more fraud than it did. Where would
Kabbage have found clear guidelines about how much more fraud detection would have saved it
from accusations of “reckless disregard?” Where would the Court find those guidelines? Certainly
not in the Government’s Complaint.
STATEMENT OF ISSUES

This Court should dismiss the Complaint with prejudice under Federal Rules of Civil
Procedure 12(b)(2), (3), and (6) and Rule 9(b) because:
1.
The Complaint fails to allege venue and personal jurisdiction.
2.
The Complaint violates Rule 9(b) and fails to sufficiently and plausibly allege
falsity, materiality and scienter.
ARGUMENT
I.
THE COMPLAINT MUST BE DISMISSED FOR LACK OF PERSONAL
JURISDICTION AND IMPROPER VENUE.

The operative personal jurisdiction and venue statute in this False Claims Act (“FCA”) suit
is 31 U.S.C. § 3732(a). Personal jurisdiction and venue are a “package deal” – i.e., only a court
with proper venue over the action is authorized to issue a summons on a nationwide basis to secure
personal jurisdiction over a non-resident defendant. Cf. KM Enterprises, Inc. v. Global Traffic
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Tech., Inc., 725 F.3d 718, 730 (7th Cir. 2013) (jurisdiction and venue under Clayton Act were “a
package deal;” plaintiff must satisfy venue to avail itself of nationwide service of process).
Because the Eastern District of Texas is not a proper venue for any of the three defendants under
§ 3732(a), the Court cannot obtain personal jurisdiction over Mr. Robinson, domiciled and resident
in Florida, by way of nationwide service of process. The court should dismiss on both grounds.1
A. Legal Standards Under Federal Rules Of Civil Procedure 12(b)(2) And (3)
On a motion to dismiss for lack of personal jurisdiction under Rule 12(b)(2), “the party
seeking to invoke federal court jurisdiction over the nonresident defendant has the burden of
showing that the exercise of personal jurisdiction is proper.” Daughtry v. Silver Fern Chem., Inc.,
2024 WL 2211005, at *6 (E.D. Tex. May 16, 2024). The same is true for a motion to dismiss for
improper venue under Rule 12(b)(3). Langton v. Cbeyond Comm., L.L.C., 282 F. Supp. 2d 504,
508 (E.D. Tex. 2003). The plaintiff must present a prima facie case for personal jurisdiction and
venue. Savoie v. Pritchard, 122 F.4th 185, 190 (5th Cir. 2024); Langton, 282 F. Supp. 2d at 508.
B. Proper Venue Is A Prerequisite To Personal Jurisdiction Under 31 U.S.C.
§ 3732(a).

“Normally, federal courts establish personal jurisdiction over defendants based on their
minimum contacts with the forum state.” ESPOT, Inc. v. MyVue Media, LLC, 492 F. Supp. 3d
672, 684 (E.D. Tex. 2020). See generally Int’l Shoe Co. v. Washington, 326 U.S. 310 (1945). An
exception arises “when cases are brought under a federal statute with a nationwide-service-of-
process provision.” ESPOT, 492 F. Supp. 3d at 684. See Fed. R. Civ. P. 4(k)(1)(C) (serving a
summons establishes personal jurisdiction “when authorized by a federal statute”). Under some
statutes authorizing nationwide service, the Fifth Circuit has applied a “national contacts”

1 Defendants Kathryn Petralia and Robert Frohwein are filing separate motions to dismiss for
lack of personal jurisdiction and improper venue.
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approach (albeit with some reluctance), which holds that “the relevant inquiry [under the Fifth
Amendment due process clause] is whether the defendant has had minimum contacts with the
United States.” Busch v. Buchman, Buchman & O’Brien, Law Firm, 11 F.3d 1255, 1258 (5th Cir.
1994) (addressing Securities Exchange Act and upholding national contacts approach over a
dissent). See Bellaire Gen. Hosp. v. Blue Cross Blue Shield of Michigan, 97 F.3d 822, 826 (5th
Cir. 1996) (following Busch in context of ERISA but “with grave misgivings regarding the
authority upon which we rely”).
Not all federal statutes authorizing nationwide service are identical, however. Some
condition the privilege of securing personal jurisdiction through nationwide service on satisfaction
of specific venue requirements. See, e.g., Daniel v. Amer. Bd. of Emerg. Med., 428 F.3d 408, 423
(2d Cir. 2005) (holding that Clayton Act “indicates that its service of process provision applies
(and, therefore, establishes personal jurisdiction) only in cases in which its venue provision is
satisfied”); GTE New Media Services, Inc. v. BellSouth Corp., 199 F.3d 1343, 1351 (D.C. Cir.
2000) (“A party seeking to take advantage of [Clayton Act]’s liberalized service provisions must
follow the dictates of both of its clauses.”); Mgmt. Insights, Inc. v. CIC Enter., Inc., 194 F. Supp.
2d 520, 530-33 (N.D. Tex. 2001) (nationwide service was not available under Clayton Act where
plaintiff failed to satisfy “venue prong” of statute). Where a federal statute authorizing nationwide
service limits venue to districts with which one or more defendants have certain connections, the
Fifth Amendment “national contacts” approach is effectively eclipsed by a more traditional
Fourteenth Amendment “minimum contacts with the forum” analysis.
The FCA is such a statute. In pertinent part, 31 U.S.C. § 3732 (“False claims jurisdiction”)
provides:
(a) Actions under section 3730.—Any action under section 3730 may be brought
in any judicial district in which the defendant or, in the case of multiple
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defendants, any one defendant can be found, resides, transacts business, or in
which any act proscribed by section 3729 occurred. A summons as required by
the Federal Rules of Civil Procedure shall be issued by the appropriate district
court and served at any place within or outside the United States.

The first sentence of § 3732(a) is a venue provision “concerned principally with the location in
which an action under § 3730 may be commenced.” U.S. ex rel. Thistlethwaite v. Dowty Woodville
Polymer, Ltd., 110 F.3d 861, 865 (2d Cir. 1997). “The second sentence limits the exercise of
personal jurisdiction by providing that while a summons may be served anywhere, it may issue
only from an ‘appropriate’ district court.” U.S. ex rel. Thistlethwaite v. Dowty Woodville Polymer,
Ltd., 976 F. Supp. 207, 210 (S.D.N.Y. 1997) (emphasis added). As the Southern District of New
York explained: “The statute does not define ‘appropriate,’ but it appears from the context that
‘appropriate’ refers back to the first sentence of section 3732(a), which describes where venue is
appropriate.” Id. Accord U.S. ex rel. Krohn v. Sun West Serv., Inc., 2000 WL 36739959, at *6
(D.N.M. Apr. 11, 2000). Accordingly, the Court has personal jurisdiction over Mr. Robinson only
if venue in this district is proper under § 3732(a). Because this venue is improper, dismissal is
required both for improper venue and lack of personal jurisdiction.
C. Venue In This District Is Improper Under § 3732(a), And Personal Jurisdiction
Therefore Is Lacking.

“[W]hen determining whether venue is proper, the Court is to look at the time the complaint
is filed.” Virginia Innovation Sci., Inc. v. Amazon.com, Inc., 2019 WL 3082314, at *8 (E.D. Tex.
July 15, 2019). In addition, because three of the conditions for venue in § 3732(a) are framed in
the present tense (action may be brought where defendant “can be found, resides, [or] transacts
business”), those conditions must “exist at the time of filing of suit for venue to be proper.” See
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Dixie Carriers, Inc. v. Nat’l Mar. Union of Amer., AFL-CIO, 35 F.R.D. 365, 370 (S.D. Tex. 1964)
(analyzing venue for suits involving labor organizations).2
The Complaint admits that Mr. Robinson “resides in the State of Florida” and does not
allege that he was otherwise “found in” the Eastern District of Texas when the Complaint was filed
on December 20, 2024. Compl. ¶12. The only basis on which the Complaint alleges that venue
and personal jurisdiction are proper is that “Defendants transacted business in this district” and,
more specifically, that “Defendants, through Kabbage, transacted business in this district” because
“Kabbage, under the direction and control of Defendants, approved and disbursed hundreds of
PPP loans in this district[.]” Compl. ¶¶6-7 (emphases added). These allegations do not get the
Government close to the finish line under § 3732(a).
For one thing, even if Kabbage’s corporate activities were relevant (they are not), Kabbage
could not have been transacting business in the Eastern District of Texas when the Complaint was
filed – because it no longer existed. See U.S. ex rel. Smith v. Athena Constr. Grp, Inc., 2018 WL
4110743, at *3 (M.D. Pa. Aug. 29, 2018) (evaluating venue under the FCA and noting that it was
not clear from complaint whether “Defendant currently transacts business into Pennsylvania”
(emphasis in original)). The Complaint confirms that Kabbage was liquidated long before then
and, on May 7, 2024, its successor entity (KServicing Wind Down Corp.) “executed a settlement
agreement with the DOJ to resolve its False Claims Act liability[.]” Compl. ¶146.
More fundamentally, though, Kabbage is not a “defendant” in this action. Section 3732(a)
provides that proper venue must be established as to “the defendant or, in the case of multiple
defendants, any one defendant[.]” 31 U.S.C. § 3732(a). In ESPOT, this Court determined that a

2 The Complaint does not attempt to allege that venue is proper in this District under the final
hook of § 3732(a), which allows an FCA action to be brought in a judicial district “in which any
act proscribed by section 3729 occurred.”
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similar venue prerequisite to personal jurisdiction under RICO’s nationwide service provision –
i.e., that the action be brought in a district in which at least one defendant was conducting business
– required a traditional constitutional “minimum contacts” personal jurisdiction analysis. ESPOT,
492 F. Supp. 3d at 686 (citing Caldwell v. Palmetto State Sav. Bank of S. Carolina, 811 F.2d 916,
918 (5th Cir. 1987)). See id. (“Thus, so long as at least one defendant has engaged in sufficient
minimum contacts with Texas related to the alleged RICO claim, its nationwide service-of-process
provision will grant personal jurisdiction over all other defendants when the ‘ends of justice’ so
require under section 1965(b).”). The “transacts business” condition of § 3732(a) likewise asks
whether any one of the three defendants “has ‘minimum contacts’ with the forum state such that
exercising personal jurisdiction over the defendant would not offend ‘traditional notions of fair
play and substantial justice.’” ESPOT, 492 F. Supp. 3d at 687. The answer is no.
“A minimum-contacts analysis involves more than counting the nonresident’s contacts
with the forum.” Stuart v. Spademan, 772 F.2d 1185, 1189-90 (5th Cir. 1985). The Court “must
look to see whether there has been some act by which the nonresident purposefully avails itself of
the privilege of conducting activities within the forum state, thus invoking the benefits and
protection of its laws[]” so that the nonresident “should reasonably anticipate being haled into
court in the forum state.” Id. at 1190 (emphasis added; internal quotations and citations omitted).
As in ESPOT, the only conceivable basis for personal jurisdiction over Mr. Robinson is
“specific” or “case linked” jurisdiction, under which “the defendant’s suit-related conduct must
create a substantial connection with the forum State.” Walden v. Fiore, 571 U.S. 277, 284 (2014)
(emphasis added).3 Critically, “it is the defendant’s conduct that must form the necessary

3 The alternative to “specific” jurisdiction is “general” or “all purpose” jurisdiction, which allows
a court “to hear any and all claims” against a defendant if that defendant’s “affiliations with the
State are so continuous and systematic as to render [the defendant] essentially at home in the forum
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connection with the forum State that is the basis for its jurisdiction over him.” Id. at 285 (emphasis
added). “Due process requires that a defendant be haled into court in a forum State based on his
own affiliation with the State, not based on the ‘random, fortuitous, or attenuated’ contacts he
makes by interacting with other persons affiliated with the State.” Id. at 286 (emphasis added;
citation omitted). For example, in Stuart, the Fifth Circuit found that “[t]he random use of
interstate commerce to negotiate and close a particular contract, the isolated shipment of goods to
the forum at the instigation of the resident plaintiffs, and the mailing of payments to the forum
[did] not constitute the minimum contacts necessary to constitutionally exercise jurisdiction over”
an individual defendant. Stuart, 772 F.2d at 1194.
Moreover, an individual’s contacts with the forum State “are not to be judged according to
their employer’s activities there.” Calder v. Jones, 465 U.S. 783, 790 (1984). A Texas state-law
corollary to this principle is the “fiduciary shield” doctrine, which “prevents the exercise of
personal jurisdiction based solely on acts undertaken in a defendant’s corporate capacity.” Savoie,
122 F.4th at 191.
Applying these principles, the Complaint fails to state a prima facie case for personal
jurisdiction over Mr. Robinson. The Complaint contains barely any references to Texas and no
allegations that Mr. Robinson purposely forged a substantial connection with Texas, much less
with the Eastern District of Texas. The Complaint does not allege that Mr. Robinson traveled to
Texas, communicated with PPP borrowers in Texas, reviewed PPP loan applications for any such
borrowers, or took any action in Texas related to the claims in this lawsuit. Cf. ESPOT, 492 F.
Supp. 3d at 689 (finding specific jurisdiction over defendant who made fraudulent

State.” Goodyear Dunlop Tires Oper., S.A. v. Brown, 564 U.S. 915, 919 (2011) (internal quotation
marks omitted). For individuals, “the paradigm forum for the exercise of general jurisdiction is
the individual’s domicile[.]” Id. at 924. Mr. Robinson’s domicile is Florida, not Texas.
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misrepresentations giving rise to the cause of action via personal “phone calls and text messages”
to an individual “whom he knew to be in Texas and the co-founder of ESPOT, a Texas company”).
According to the Complaint, Mr. Robinson’s alleged conduct occurred, without exception, outside
Texas and purely in Mr. Robinson’s capacity as an officer of Atlanta-based and Delaware-
incorporated Kabbage.
Those allegations fail to state a prima facie case for personal jurisdiction for two
interrelated reasons. First, the Complaint alleges no individual conduct by Mr. Robinson – whether
in his corporate capacity or not – that created a purposeful and substantial connection to Texas.4
Second, even the minuscule connection that the Complaint alleges between the claims at issue and
Texas is based solely on Kabbage’s alleged facilitation of certain loans to borrowers in the Eastern
District of Texas.5 And Mr. Robinson’s contacts with Texas “are not to be judged according to
[his] employers’ activities there.” Calder, 465 U.S. at 790. Because the Complaint fails to allege
that Mr. Robinson, through his own activities, purposefully forged a substantial connection with
the Eastern District of Texas, venue is improper under § 3732(a) and the Court lacks personal
jurisdiction over Mr. Robinson.6 Moreover, for the reasons stated in the individual brief filed by
Mr. Frohwein, dismissal rather than transfer is appropriate.

4 Even if the Complaint had alleged actions by Mr. Robinson in his corporate capacity with a
purposeful connection to Texas, they would be disregarded for purposes of assessing personal
jurisdiction under the fiduciary shield doctrine. See DLR, LLC v. Montoya, 465 F. Supp. 3d 676,
682 (N.D. Tex. 2020) (applying fiduciary shield doctrine, court excluded from specific jurisdiction
analysis defendant’s “contacts with Texas that were on behalf of [his employer], such as his 63
trips to his office in Dallas”).
5 The Complaint alleges that Kabbage facilitated PPP loans to 235,000 accounts and that the
loans to borrowers in the Eastern District of Texas numbered in the “hundreds.” Compl. ¶¶6, 285.
Even assuming “hundreds” means 999 loans, those loans would amount to just .4 percent of the
total loans allegedly facilitated by Kabbage. Curiously, neither the Relator nor his counsel appear
to have any connection to the Eastern District of Texas either.
6 For similar reasons, Mr. Robinson lacks the “minimum contacts” with Texas necessary for
personal jurisdiction and service under the Texas long-arm statute. See Tex. Civ. Prac. & Rem.
Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 15 of 33 PageID #: 535

II.
THE 100K ERROR AND SBA/AML ALLEGATIONS FAIL BECAUSE
KABBAGE’S AUTOMATED REVIEWS SATISFIED 3.b.(i)-(iii) AND KNOW
YOUR CUSTOMER REQUIREMENTS.

The central allegation in the Complaint is that Kabbage’s Form 2484 applications for loan
guaranties were false claims because Kabbage did not comply with paragraphs 3.b(i)-(iii) of the
April 15, 2020, Interim Final Rule (“IFR”):
PPP lenders were also required to: (a) “confirm receipt of borrower certifications,”
(b) “confirm receipt of information demonstrating that a borrower had employees
for whom the borrower paid salaries and payroll taxes on or around February 15,
2020,” and (c) confirm, by performing a good faith review, “the dollar amount of
average monthly payroll costs for the preceding calendar year by reviewing the
payroll documentation submitted with the borrower’s application.” 85 Fed. Reg.
20811, 20815 (Apr. 15, 2020). SBA guidance referred to these requirements as
“paragraphs 3.b(i)-(iii) of the April 15 Interim Final Rule.” (Compl. ¶26).

As the Government alleges,
SBA Form 2484 required lenders to certify that they had complied with paragraphs
3.b(i)-(iii) of the April 15 Interim Final Rule and that “[t]he Lender has obtained
and reviewed the required application (including documents demonstrating
qualifying payroll amounts) of the Applicant and will retain copies of such
documents in the Applicant’s loan file.” (Compl. ¶27).7

The Fifth Circuit has held that “general statement[s] of adherence to all regulations or
statutes governing participation in a program through which federal funds are received is an
insufficient basis on which to premise FCA liability.” U.S. ex rel. Gudur v. Deloitte Consulting

Code Ann. § 17.042 (authorizing jurisdiction over those “doing business” in Texas). The Texas
long-arm statute extends to the limits of due process, which make its minimum-contacts inquiry
identical to the constitutional test. Stuart, 772 F.2d at 1189.
7 A fair reading of Form 2484 indicates its central purpose was to ensure that the lender had
collected numerous specific certifications from borrowers required for loan eligibility, and that the
lender would retain the “Applicant’s loan file” for any SBA review in the future. See
https://www.sba.gov/document/sba-form-2484-lender-application-form-paycheck-protection-
program-loan-guaranty.

Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 16 of 33 PageID #: 536

LLP, 512 F. Supp. 2d 920, 932 (S.D. Tex. 2007), aff’d sub nom., U.S. ex rel. Gudur v. Deloitte &
Touche, 2008 WL 3244000 (5th Cir. Aug. 7, 2008)
A.
The Government Has Not Pled With Particularity How Kabbage’s Automated
System With Manual Backups Was Not A “Good Faith Review” Of Monthly
Payroll Costs Or Failed To Meet Some Unarticulated Fraud Detection
Standard In The Context Of SBA’s Controlling Guidance.

Two essential elements of an FCA violation are (1) the falsity of the claim and (2) the
defendant's knowledge of the claim's falsity. U.S. ex rel. Schutte v. SuperValu Inc., 598 U.S. 739,
742-43 (2023). Under Rule 9(b), the Government has not pled the “what” of Kabbage’s alleged
fraudulent failure to comply with 3.b(i)-(iii) in this context.
The “what” of the alleged falsity in Kabbage’s Form 2484 certifications has to begin with
controlling guidance from SBA at the outset of the PPP program. As the Complaint admits:
Recognizing the time sensitive nature of businesses’ financial needs, the SBA
permitted PPP lenders to rely on borrower certifications for certain components of
the loan application and to rely on documents borrowers provided to determine
qualifying loan amounts. See 85 Fed. Reg. 20811, 20812 (Apr. 15, 2020) (“SBA
will allow lenders to rely on certifications of the borrower in order to determine
eligibility of the borrower and use of loan proceeds and to rely on specified
documents provided by the borrower to determine qualifying loan amount and
eligibility for loan forgiveness.”) . . . (Compl. ¶21).

SBA issued and updated a “PAYCHECK PROTECTION PROGRAM LOANS Frequently
Asked Questions (FAQs)” document as controlling guidance to the public:
Borrowers and lenders may rely on the guidance provided in this document as
SBA’s interpretation of the Coronavirus Aid, Relief, and Economic Security Act
(CARES Act) (as amended), the Economic Aid to Hard-Hit Small Businesses,
Nonprofits, and Venues Act (Economic Aid Act), and of the Paycheck Protection
Program Interim Final Rules (“PPP Interim Final Rules”)(link). The U.S.
government will not challenge lender PPP actions that conform to this guidance,
and to the PPP Interim Final Rules and any subsequent rulemaking in effect at the
time the lender’s action is taken.

FAQ Question 1 confirmed that lenders could rely on borrower certifications and
supporting documentation, and did not need to replicate an applicant’s loan calculations:
Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 17 of 33 PageID #: 537

Providing an accurate calculation of payroll costs is the responsibility of the
borrower, and the borrower attests to the accuracy of those calculations on the
Borrower Application Form . . .. Lenders are expected to perform a good faith
review, in a reasonable time, of the borrower’s calculations and supporting
documents concerning average monthly payroll cost. For example, minimal review
of calculations based on a payroll report by a recognized third-party payroll
processor would be reasonable. In addition, as the PPP Interim Final Rules indicate,
lenders may rely on borrower representations, including with respect to amounts
required to be excluded from payroll costs.8

SBA’s FAQs allowed lenders to rely on borrower certifications for other compliance issues
as well. See FAQ 4 (“It is the responsibility of the borrower to determine which entities (if any)
are its affiliates and determine the employee headcount of the borrower and its affiliates. Lenders
are permitted to rely on borrowers’ certifications.”); FAQ 31 (“Lenders may rely on a borrower’s
certification regarding the necessity of the loan request.”).
The Complaint demonstrates that Kabbage’s automated reviews with manual backups met
these standards. Kabbage confirmed receipt of borrower certifications, relied on them, and did
automated reviews of supporting documentation. In the words of 3.b.(iii), Kabbage “[c]onfirm[ed]
the dollar amount of average monthly payroll costs . . . by reviewing the payroll documentation
submitted with the borrower’s application.” Paragraph 90 of the Complaint admits: “Kabbage then
used an automated program to scan the tax documents, extract data, and compare them against the
borrowers’ entries. At times, Kabbage employees manually reviewed the supporting
documentation.”
For 3.b.(ii), all successful borrowers certified under penalty of perjury that they were in
operation on around February 15, 2020. Kabbage relied on those certifications and supporting
payroll information without specifically searching for a pre-February date. Compl. ¶204. And the

8 PPP FAQ #1, revised Mar. 12, 2021, referenced, but not quoted in full, at Compl. ¶40;
https://www.sba.gov/document/support-faq-ppp-borrowers-lenders.

Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 18 of 33 PageID #: 538

Government does not attempt to deny that Kabbage “[c]onfirm[ed] receipt of borrower
certifications” as required by 3.b.(i).
With respect to the 100k error, again, the Government concedes that Kabbage had a review
process and relied on borrower certifications:
In the loan calculation methodology designed by S.A. and N.G., which Robinson
approved, Kabbage asked borrowers whether they had any employees who made
more than $100,000 annually. If the borrower answered yes, they were required to
upload IRS Forms W-2 of those employees to Kabbage’s website. Manual
reviewers then reviewed any such self-reported applications. (Compl. ¶149).

If applicants responded that they did not have any employees with compensation
exceeding $100,000 (whether that was true or not), Kabbage took no further steps
to verify applicants’ representations and the borrower’s loan calculation. (Compl.
¶150).

The Government also concedes that Kabbage had an automated fraud review process to
comply with “Know Your Customer” (“KYC”) requirements:
Kabbage also used a primarily automated process to “review” PPP loan applications
to confirm the borrower’s eligibility and in an attempt to comply with KYB/KYC
requirements, as required under PPP regulations. At a high level, Kabbage
processed the information submitted by the borrower through several software
programs designed to verify borrowers’ identities and business information and
evaluate their documents for fraud concerns. If a borrower’s information was
flagged in Kabbage’s automated process, the application was sent for manual
review by a Kabbage employee or contractor, who then reviewed the submitted
materials, requested additional documentation, and decided whether to decline or
approve the application. (Compl. ¶94).

The Government generally alleges that these automated review procedures failed to prevent
some unspecified, unacceptable percentage of fraudulent applications. But SBA did not require
Kabbage to certify that its review procedures stopped enough fraud to satisfy Government lawyers.
Kabbage certified accurately that it gathered customer certifications and reviewed their
applications and supporting documents. The borrowers caused false claims, not Kabbage. The
Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 19 of 33 PageID #: 539

Government has failed to sufficiently allege that Kabbage’s certifications of compliance were
actually false.

To plead the “what” of Kabbage’s fraud under Rule 9(b), the Government would have to
specify authority to establish that automated reviews did not meet paragraphs 3.b.(i)-(iii), specify
what review processes would have been sufficient, and specify how Kabbage failed to satisfy those
standards. The Government has not met that pleading standard. This Court should dismiss the 100k
error and SBA/AML allegations for failure to plausibly establish or plead actual falsity.
B.
The Government Has Failed To Plausibly Plead Intent With Respect To The
100k Error Or BSA/AML Certifications.

When laws, regulations, or contracts are ambiguous, the Government may still establish
scienter under the FCA if the Defendant had a subjective understanding that he was acting in
reckless disregard of a potential interpretation. SuperValu, 598 U.S. at 753-54. But here, the
Government has failed to plausibly allege that Defendants knew that Kabbage’s automated
processes failed to meet SBA’s requirements.

As discussed in the next section, the Government alleges that Defendants learned about
specific instances of fraudulent applications after the fact. But it does not allege that they received
notice, or admitted, that Kabbage’s automated processes failed to meet SBA’s definitions for
“review” or “confirmation.” See Defendants’ Joint Motion to Dismiss (“Joint Motion”) at 16-18.
C.
The Government Has Failed To Plausibly Plead Intent With Respect To Any
Individual PPP Application.

For the 100k error and BSA/AML claims, the Government alleges that Defendants “knew”
that Kabbage’s automated processes failed to prevent some fraudulent or incorrect applications.
The Government also alleges generally that Kabbage learned about some fraudulent applications
Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 20 of 33 PageID #: 540

after the fact. But the Government does not allege that Defendants knew that any particular PPP
loan application was false before Kabbage submitted it.

The Government’s “examples” of false claims under the 100k error and BSA/AML issues9
demonstrate the Government’s failure to plausibly plead wrongful intent. None of the examples
meet Rule 9(b) pleading standards because they do not allege that there were manual reviews of
the applications, or whether anyone at Kabbage knew the loans were fraudulent before they were
submitted.10 The examples do not allege the who—they do not allege that any Defendant had
personal knowledge of the applications.

At most, the Government alleges that Defendants knew that some fraudulent applications
were getting through Kabbage’s reviews. As discussed below, if the falsity alleged here is that
Kabbage’s systems for reviewing and confirming applications (and relying on borrower
certifications) were somehow deficient because they failed to catch some unspecified percentage
of loan applications, that falsity was not material—because SBA knew that for all lenders, and
continued to pay claims with that knowledge throughout the PPP program.
D. The Complaint Fails To Allege Materiality For The 100k Error And Inadequate
Loan Review—SBA Continued To Pay Claims With Knowledge That The PPP
Program Allowed Substantial Numbers Of Fraudulent Loan Applications.

To plead materiality, an FCA plaintiff must allege facts indicating “‘the government would
[not] pay the claim … if it knew of the claimant’s violation.’” U.S. ex rel. Patel v. Cath. Health

9 Compl. ¶¶315-20, 325-29.
10 The Complaint vaguely suggests that Kabbage failed to take unspecified corrective actions when
it learned about some inaccurate applications after the fact. See Compl. ¶183 (“(What actions were
taken is unclear, but subsequent reviews of Kabbage’s loan data revealed numerous loans affected
by the $100k Error, which Kabbage had not fixed.”) But the Complaint’s substantive counts do
not allege failures to correct after the fact. And to the extent the Government alleges that some
Kabbage forgiveness applications restated errors, those allegations utterly fail to meet 9(b)
standards. See section III below.

Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 21 of 33 PageID #: 541

Initiatives, 792 F. App’x 296, 301 (5th Cir. 2019). And “continued payment by the federal
government after it learns of the alleged fraud substantially increases the burden on the [FCA
plaintiff] in establishing materiality.” U.S. ex rel. Harman v. Trinity Indus. Inc., 872 F.3d 645,
663 (5th Cir. 2017). See Joint Motion at 18-19.
Here, the Government has not, and cannot, plead with particularity that SBA would not
have paid claims if it knew that some unspecified percentage of a lender’s applications contained
fraud. That was true for all lenders, and SBA knew it. Most tellingly, from the outset, SBA
proclaimed that PPP lenders would “be held harmless for borrowers’ failure to comply with
program criteria[.]”11 That proclamation made clear that SBA understood that lenders would be
reluctant to process PPP loans quickly enough if they were potentially liable for fraudulent loans
that got through their reviews. SBA knew there would be fraud, and announced that fraudulent
borrowers would be individually prosecuted for their own wrongdoing.12
The Complaint’s materiality allegations are entirely conclusory and ignore the context of
SBA’s conscious decisions to trade speed for minimal reviews and reliance on borrower
certifications. See Joint Motion at 19-21. Because the Complaint fails to allege the requisite
materiality as to all Defendants for the 100k error and alleged inadequate loan review, those
allegations should be dismissed.
III.
BECAUSE KABBAGE DID NOT INCLUDE HEALTH INSURANCE OR
RETIREMENT
BENEFITS
IN
ITS
LOAN
CALCULATIONS,
THE
GOVERNMENT HAS NOT PLED WITH PARTICULARITY THAT THE SALT
OR 100K ERRORS ACTUALLY OVERSTATED LOAN AMOUNTS, AND HAS
ALSO FAILED TO PLAUSIBLY ALLEGE SCIENTER.

11 IFR, 85 Fed. Reg. 20811, 20812 (Apr. 15, 2020) (emphasis added).
12 Id. at 20814 (“If you knowingly use the funds for unauthorized purposes, you will be subject to
additional liability such as charges for fraud.”).
Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 22 of 33 PageID #: 542

SBA Form 2483, the Paycheck Protection Program Borrower Application Form, required
applicants to state their “Average Monthly Payroll.” The form did not require applicants to itemize
the components of those monthly payroll costs. Under the PPP program, average monthly payroll
included not just wages, “but some eligible non-wage payroll costs, such as healthcare and
retirement payments.”13 However, “Kabbage’s automated PPP loan calculation methodology
relied on documents that could be easily scanned, which required them to be uniform.” Compl.
¶105. Because Kabbage could not readily scan non-standard retirement and health benefit
documentation, it told applicants: “To verify your information as quickly as possible, we’re not
currently including employee-paid group health benefits or retirement contributions in loan
calculations.”14
As the Government concedes, this means that it is only “likely” that a 100k error overstated
an applicant’s actual loan eligibility. See Compl. ¶153 (“non-wage payroll costs [such as retirement
and health insurance] could cause an applicant’s loan amount to exceed $20,833.33 per
employee”), ¶¶315-20 (each “borrower likely was not eligible for the loan in the amount” approved
by Kabbage) (emphasis added). The same logic applies to the SALT error. If an applicant’s
retirement and health insurance benefits were higher than her SALT withholdings, the loan amount
was not actually overstated. Tellingly, however, the Government does not even allege that the
SALT error was “likely” to exceed health insurance and retirement benefits.

13 Compl. ¶153. See https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-
Application-3-30-2020-v3.pdf.
14 See How We Calculate Your Potential Loan Amount, KABBAGE.COM (June 22, 2020, 7:31
PM)
[https://web.archive.org/web/20200622193136/https://www.kabbage.com/paycheck-
protection-program-loans/]. The Complaint referred to Kabbage’s website and its web portal for
receiving applications and supporting documentation, ¶¶82-83, so this Court may consider the
site’s full contents on a motion to dismiss.
Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 23 of 33 PageID #: 543

A.
The Government Has Not Pled Any Particulars Demonstrating That Health
Insurance And Retirement Benefits Would Be Less Than SALT Errors.

The Complaint’s “examples” of SALT errors do not include particulars demonstrating that
those applicants’ SALT withholdings were less than their retirement and health insurance
expenses. Compl. ¶¶302-05. The Complaint does not allege any particulars indicating that SALT
withholdings generally exceed retirement and health insurance expenses for all customers, some
customers, or zero customers. The Complaint does not allege any particulars for loan applications
where the SALT error exceeded a particular applicant’s retirement and health insurance benefits.
The Government has thus failed to allege with particularity that Kabbage approved and submitted
loan amounts that were overstated as a result of the SALT error.
This is not just an arcane pleading failure; it is actually likely that SALT withholdings
exceeded health insurance and retirement benefits. In 2019, average annual premiums for
employer-sponsored health insurance were $7,188 for single coverage and $20,576 for family
coverage.15 On average, covered workers contributed $1,242 for single coverage and $6,015 for
family coverage.16 Therefore, on average, employers paid $5,946 in premiums for single coverage
plans and $14,561 in premiums for family coverage.
Of course, some employers do not offer health insurance, others offer health insurance only
to some workers, and some offer limited benefits. In 2019, roughly 55.4% percent of workers had
health care coverage from their employers.17

15 Kaiser Family Foundation, 2019 Employer Health Benefits Survey (Sep. 25, 2019),
https://www.kff.org/report-section/ehbs-2019-summary-of-findings/.
16 Id.
17 Katherine Keisler-Starkey & Lisa N. Bunch, Health Insurance Coverage in the United States:
2019
(Sep.
15
2020),
https://www.census.gov/library/publications/2020/demo/p60-
271.html#:~:text=.%20In%202019%2C%20the%20percentage%20of%20people,2019%2C%20d
own%20from%2020.5%20percent%20in%202018.
Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 24 of 33 PageID #: 544

In 2019, 56% of workers participated in some form of workplace retirement programs.18
According to a Fidelity survey, employers who matched 401(k) benefits averaged matching up to
4.7% of income in 2019.19 Of course, some employers did not offer retirement benefits, and some
employees did not take advantage of matching retirement benefits.
In 2019, median personal income in the U.S. was $35,980.20 That year, 4,964 taxing
jurisdictions across 17 states imposed local income taxes.21 As just three examples, in 2019 a
median-wage worker in Philadelphia would have paid approximately $2,500.93 in SALT; a
median-wage employee in Detroit would have paid approximately $2,392.67 in SALT; and a
median-wage worker in Baltimore would have paid approximately $2,807.91 in SALT.22
Thus, an employer paying average single coverage premiums for median wage earners in
Philadelphia, Detroit or Baltimore would have paid almost twice as much in health care benefits
as it would have withheld in SALT. Of course, state and local income tax rates vary, and some
states and localities impose increasingly progressive tax rates as income increases. Many workers
claim deductions that would reduce their SALT withholdings below standard state and local tax
rates. SALT withholdings go up for higher wage-earners, while health insurance premiums stay

18 Christine Benz, 100 Must-Know Statistics about 401(k) Plans (Jun 10 2019),
https://www.morningstar.com/retirement/100-must-know-statistics-about-401k-plans.
19 Alicia Adamczyk, The average employer 401(k) match is at an all-time high—see how yours
compares
(June
10,
2019),
https://www.cnbc.com/2019/06/10/this-is-the-average-401k-
employer-match.html.
20 Federal Reserve Bank of St. Louis, Median Personal Income in the United States (Updated:
Sep. 10, 2024), https://fred.stlouisfed.org/series/MEPAINUSA646N.
21
Jared
Walczak,
Local
Income
Taxes
in
2019
(Jul.
30,
2019),
https://taxfoundation.org/research/all/state/local-income-taxes-2019/.
22 Id.; Katherine Loughead & Emma Wei, State Individual Income Tax Rates and Brackets 2019
(Mar.
20,
2019),
https://taxfoundation.org/data/all/state/state-individual-income-tax-rates-
brackets-2019/.

Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 25 of 33 PageID #: 545

constant across all income levels. On the other hand, higher earners are more likely to receive
health care benefits.
In the face of these annual statistics23 and common sense, it matters that the Government
could not allege that it was “likely” that health insurance and retirement benefits exceeded SALT
withholdings. The Government has not, and cannot, plausibly allege that Defendants should have
known that SALT withholdings exceeded retirement and health insurance for any particular
borrower, and thus could not have known that any particular loan application was “likely” inflated
by the SALT error at the time of submission.
B.
The Complaint’s Examples May Demonstrate A Few Applications Where The
100k Error “Likely” Exceeded Retirement And Health Insurance, But Do Not
Allege That Defendants Had Anything To Do With Those Examples.

The Complaint alleges six examples of 100k errors. Compl. ¶¶315-20. The math on those
examples may support the allegations that each “borrower likely was not eligible for the loan in
the amount approved by Kabbage.” However, the Complaint does not allege that Defendants knew
about, or had anything to do with, those six examples.
And as with the SALT issue, the rest of the Complaint does not allege any particulars
indicating that 100k errors generally exceeded retirement and health insurance expenses for all
customers, some customers, or zero customers. The Complaint does not allege any particulars for
loan applications where the 100k error exceeded a particular applicant’s retirement and health
insurance benefits. The Government has thus failed to allege with particularity that Defendants
caused Kabbage to approve and submit loan amounts that were overstated as a result of the 100k
error, and has failed to plausibly allege that Defendants acted in reckless disregard of the truth.

23 We do not ask the Court to take judicial notice of these statistics or rely on them as undisputed
facts. They just illustrate the significance of the Government’s failure of pleading at the motion
to dismiss stage.
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C.
The Government Has Not Pled Particulars Sufficient To Plausibly Allege
Scienter On The SALT Error.

Kabbage’s exclusion of retirement and health insurance benefits from its loan calculations
severely undercuts the Government’s allegations of scienter in two ways. First, the Government
alleges that Defendants greedily approved loan applications with the intent to inflate their loan
processing fees, in reckless disregard of whether Kabbage’s review processes were sufficient. If
Defendants intended Kabbage’s reviews to be fig leaves, why care that Kabbage couldn’t do an
automated review of retirement and health insurance documents? Why not just accept customer
certifications about those expenses, and inflate your processing fees that way? Defendants did just
the opposite.
Second, the Government concedes that the SALT error began as an innocent mistake.
Compl. ¶¶102, 114, 117 (employees with no tax background “misapprehended these tax
documents” and mistakenly included SALT withholdings in loan calculations). The Government’s
allegations of intent focus on Defendants receiving notice about the SALT error, and their alleged
failures to correct it. Compl. ¶¶127, 129, 132.
However, the Complaint does not allege that Defendants received notice that the SALT
errors exceeded applicants’ retirement and health care expenses. To the contrary, the Government
alleges an email exchange suggesting that Defendants did not believe the SALT error was
significant in the context of Kabbage’s overall loan application calculations. When told that a CPA
had called Kabbage to say that the SALT error was a “HUGE mistake” that could get Kabbage “in
serious trouble,” Mr. Robinson responded: “We’ve heard it all before . . . What we were tasked to
Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 27 of 33 PageID #: 547

do by SBA is not possible and our calc gets as close as possible. It’s not perfect but its what we
can do at a semblance of scale.” Compl. ¶¶137-38.24
The Complaint fails to allege facts to plausibly contradict Mr. Robinson’s statement that
Defendants believed that the SALT error did not materially overstate loan calculations.
IV.
DEFENDANTS LEFT KABBAGE BEFORE IT STARTED PROCESSING
FORGIVENESS APPLICATIONS, THE GOVERNMENT ADMITS THAT IT
KNEW ABOUT THE SALT AND 100K ERRORS, AND BORROWERS’ FALSE
CERTIFICATIONS ON FORGIVENESS APPLICATIONS BROKE THE CHAIN
OF PROXIMATE CAUSATION.

The Complaint alleges that Defendants are responsible for false loan forgiveness claims
affected by the SALT and 100k errors. Compl. ¶¶296, 298-99 (SALT error); 308, 310-13 (100k
error). The Government apparently does not assert claims related to forgiveness applications based
on alleged violations of lender loan review requirements. Compl. ¶¶321-28.
As the Joint Motion details, the Complaint admits that the Government was on notice of
Kabbage’s alleged processing errors at least as early as November 2020, and the Government
failed under Rule 9(b) to plead when it stopped processing Kabbage’s forgiveness applications.
The Complaint’s vagueness about timing is even worse because the Government admits that
Defendants left Kabbage in October 2020. Compl. ¶¶10-12, 59. The Complaint also failed under
Rule 9(b) to plead the particulars of Mr. Robinson’s participation in the forgiveness application
process. Joint Motion at 18, 21.
The Government’s failure under Rule 9(b) to describe PPP Loan Forgiveness Form
Application Form 3508 is understandable—it contradicts the Government’s case. SBA first offered

24 As discussed more fully in Defendant Frohwein and Petralia’s individual briefs, the full email
chain indicates that Defendants also believed that Kabbage had consulted counsel on this issue.
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Form 3508 with attached instructions and worksheets on May 15, 2020.25 That form required
numerous certifications from borrowers subject to criminal prosecution for false statements.
Borrowers had to check boxes certifying:
The dollar amount for which forgiveness is requested:
• was used to pay costs that are eligible for forgiveness (payroll costs to
retain employees; business mortgage interest payments; business rent or lease
payments; or business utility payments);

• includes all applicable reductions due to decreases in the number of full-
time equivalent employees and salary/hourly wage reductions;
• does not include nonpayroll costs in excess of 25% of the amount
requested; and
• does not exceed eight weeks’ worth of 2019 compensation for any owner-
employee or self-employed individual/general partner, capped at $15,385 per
individual.
I understand that if the funds were knowingly used for unauthorized purposes, the
federal government may pursue recovery of loan amounts and/or civil or criminal
fraud charges.
The Borrower has accurately verified the payments for the eligible payroll and
nonpayroll costs for which the Borrower is requesting forgiveness.
I have submitted to the Lender the required documentation verifying payroll costs,
the existence of obligations and service (as applicable) prior to February 15, 2020,
and eligible business mortgage interest payments, business rent or lease payments,
and business utility payments.
The information provided in this application and the information provided in all
supporting documents and forms is true and correct in all material respects. I
understand that knowingly making a false statement to obtain forgiveness of an
SBA-guaranteed loan is punishable under the law, including 18 USC 1001 and 3571
by imprisonment of not more than five years and/or a fine of up to $250,000; under
15 USC 645 by imprisonment of not more than two years and/or a fine of not more
than $5,000; and, if submitted to a Federally insured institution, under 18 USC 1014
by imprisonment of not more than thirty years and/or a fine of not more than
$1,000,000.

The form instructions required borrowers to fill out a Schedule A worksheet Table 2 listing
all employees paid more than $100,000 a year and provided instructions about not calculating
forgiveness payments on compensation paid to any employee above a $100,000 annual rate. SBA

25
See
https://www.sba.gov/document/sba-form-3508-ppp-loan-forgiveness-application-
instructions.
Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 29 of 33 PageID #: 549

issued five versions of Form 3508 with instructions between May 15 and October 31, 2020
reflecting minor changes in forgiveness rules, but all versions retained the same borrower
certifications.
Beginning October 8, 2020, SBA offered a simplified PPP Loan Forgiveness Application
Form 3508S for loans less than $150,000.26 That form required the same certifications from
borrowers, but added the underlined phrase to the certification that “The Borrower has accurately
verified the payments for the eligible payroll and nonpayroll costs for which the Borrower is
requesting forgiveness, and has accurately calculated the forgiveness amount requested.”
The FCA carefully defines proscribed conduct: (1) knowingly presenting or “caus[ing] to
be presented” a false claim for payment; and (2) knowingly making, using, or “caus[ing] to be
made or used” a false record or statement. See 31 U.S.C. § 3729(a)(1)-(2) (emphasis added). “The
[FCA] causation standard employs traditional notions of proximate causation ‘to determine
whether there is a sufficient nexus between the conduct of the party and the ultimate presentation
of the false claim[.]’” U.S. ex rel. Wuestenhoefer v. Jefferson, 105 F. Supp. 3d 641, 681 (N.D.
Miss. 2015). An action that breaks the chain of causation would relieve a defendant of liability.
United States v. King-Vassel, 728 F.3d 707, 714 (7th Cir. 2013).
“Causation under the FCA requires proximate cause, not merely ‘but for’ cause.” U.S. ex
rel. Hueseman v. Prof’l Compounding Centers of Am., Inc., 664 F. Supp. 3d 722, 752 (W.D. Tex.
2023) (citation omitted). Proximate cause is a common-law concept focused on the scope of risk
and foreseeability. See Paroline v. United States, 572 U.S. 434, 445 (2014).

26 See https://www.sba.gov/document/sba-form-3508s-ppp-3508s-loan-forgiveness-application-
instructions.
Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 30 of 33 PageID #: 550

“Generally, a person’s criminal conduct is a superseding cause extinguishing liability of a
negligent actor unless the criminal conduct was a foreseeable result of that negligence.” Kristensen
v. United States, 993 F.3d 363, 368 (5th Cir. 2021) (internal quotations omitted). The intervening
criminal acts of a third party are a superseding cause of harm to another, unless that harm is a
normal consequence of a situation created by the actor’s conduct. See id.; Phan Son Van v. Pena,
990 S.W.2d 751, 753 (Tex. 1999). In addition, causation must be pled with particularity under
Rule 9(b). See Hernandez v. Ciba-Geigy Corp. USA, 200 F.R.D. 285, 292 (S.D. Tex. 2001).
As discussed above, the Complaint lacks specific allegations that Defendants participated
in the submission of false loan forgiveness applications. Loan forgiveness applications required
extensive certifications from borrowers, whose false statements broke the chain of proximate
causation. To the extent that the Government alleges Defendants failed to catch fraudsters, the law
of proximate causation has a common sense answer—go after the liars. To the extent the
Government alleges that Defendants acted in reckless disregard and failed to prevent foreseeable
criminal conduct, Rule 9(b) has a common sense requirement—plead it with particularity.27
CONCLUSION

The Government’s FCA and common law claims, and Relator’s superseded Complaint, all
rely on the same inadequate factual allegations and unfounded legal claims. The Court should
dismiss all claims with prejudice.

27 Mr. Robinson incorporates by reference the legal arguments made in co-Defendants’ individual
motions, to the extent they relate to him, particularly with respect to the common law claims that
depend on the same inadequate pleading foundations as the FCA claims.
Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 31 of 33 PageID #: 551

Dated March 11, 2025

Respectfully Submitted,

By: /s/ Henry W. Asbill

Henry W. Asbill (admitted Pro Hac Vice)

DC Bar #938811

hasbill@schertlerlaw.com

Christopher B. Mead (admitted Pro Hac Vice)

MD Bar #8512010419

cmead@schertlerlaw.com

Lisa H. Schertler (admitted Pro Hac Vice)

DC Bar #430754
lschertler@schertlerlaw.com
Paola Pinto (admitted Pro Hac Vice)
FL Bar #1013933
ppinto@schertlerlaw.com

SCHERTLER ONORATO MEAD & SEARS
555 13th Street NW Suite 500W
Washington DC 20004
Telephone: 202-628-4199
Facsimile: 202-628-4177

Attorneys for Defendant Spencer Robinson

Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 32 of 33 PageID #: 552

CERTIFICATE OF SERVICE

I certify that on March 11, 2025, this document was served on counsel of record via the Court’s
CM/ECF Document Filing System.