Full text
Case 3:23-cv-01034-GMM Document 162-5 Filed 09/09/24 Page 1 of 32
Exhibit D
Case 3:23-cv-01034-GMM Document 162-5 Filed 09/09/24 Page 2 of 32
1 Jorge L. Piedra (Florida Bar No. 88315)
1
2 (Pro Hac Vice)
32 jpiedra@kttlaw.com
4 Dwayne A. Robinson (Florida Bar No. 99976)
35 (Pro Hac Vice)
6 drobinson@kttlaw.com
4
7 Michael R. Lorigas (Florida Bar No. 123597)
85 (Pro Hac Vice)
9 mlorigas@kttlaw.com
106 KOZYAK TROPIN & THROCKMORTON
117 2525 Ponce de Leon Boulevard, 9th Floor
12 Miami, Florida 33134
138 Telephone: 305-372-1800
14
159 Simon S. Grille (State Bar No. 294914)
16
10 sgrille@girardsharp.com
17 GIRARD SHARP LLP
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18 601 California Street, Suite 1400
19 San Francisco, CA 94108
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20 Telephone: (415) 981-4800
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22 Attorneys for Benworth Capital Partners, LLC
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16 UNITED STATES DISTRICT COURT
27 NORTHERN DISTRICT OF CALIFORNIA
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28 SAN FRANCISCO DIVISION
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19 OTO ANALYTICS, LLC f/k/a OTO Case No. 3:24-cv-03975-AMO
ANALYTICS, INC. d/b/a WOMPLY,
20 OPPOSITION TO MOTION TO CONFIRM
Petitioner, ARBITRATION AWARD AND FOR
21
ENTRY OF JUDGMENT
22 v.
Hon. Araceli Martínez-Olguín
23 BENWORTH CAPITAL PARTNERS, LLC,
24
Respondent.
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28
OPPOSITION TO MOTION TO CONFIRM
ARBITRATION AWARD AND FOR ENTRY OF JUDGMENT
Case 3:23-cv-01034-GMM Document 162-5 Filed 09/09/24 Page 3 of 32
1 TABLE OF CONTENTS
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4 TABLE OF AUTHORITIES .......................................................................................................... ii
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INTRODUCTION ...........................................................................................................................1
6
4
7 ARGUMENT ...................................................................................................................................3
85
9 I. THE AWARD MUST BE VACATED BECAUSE THE ARBITRATOR
106 EXCEEDED HIS POWERS. ...................................................................................3
117
12 A. The Arbitrator’s Application Of The Agent Fee Cap Is Legally
138 Irreconcilable With The Undisputed Facts. ................................................5
14
159 B. The Arbitrator Manifestly Disregarded The Law When He
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10 Admittedly Refused To Apply The Controlling SOPs. .............................12
17
11
18 C. The Final Award Grants Relief Not Permitted by the Agreements. ..........21
19
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20 II. THE FINAL AWARD IS UNENFORCEABLE BECAUSE IT
21 COMPELS BENWORTH TO VIOLATE PUBLIC POLICY. .............................24
13
22
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23 III. THE ARBITRATOR IS GUILTY OF MISCONDUCT FOR REFUSING
24 TO POSTPONE THE PROCEEDINGS UNTIL THE SBA COMPLETES
15
25 ITS INVESTIGATION. .........................................................................................24
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16 CONCLUSION ..............................................................................................................................25
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1 TABLE OF AUTHORITIES
2
32 Page(s)
4
35 Cases
6
4 300 DeHaro St.,
7
85 161 Cal. App. 4th ....................................................................................................................... 14
9
106 Am. Postal Workers Union AFL-CIO v. U.S. Postal Serv.,
117 682 F.2d 1280 (9th Cir. 1982) ............................................................................................. Passim
12
138 Aramark Facility Servs. v. Serv. Emps. Int’l Union, Loc. 1877, AFL CIO,
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159 530 F.3d 817 (9th Cir. 2008) ...................................................................................................... 24
16
10 Aspic Eng’g & Constr. Co. v. ECC Centcom Constructors LLC,
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11
18 913 F.3d 1162 (9th Cir. 2019) .......................................................................................... 3, 19, 23
19
12
20 Aspic Eng’g & Constr. Co. v. ECC Centcom Constructors, LLC,
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13 268 F. Supp. 3d 1053 (N.D. Cal. 2017) ..................................................................................... 14
22
14
23 Coutee v. Barington Cap. Grp., L.P.,
24
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25 336 F.3d 1128 (9th Cir. 2003) .................................................................................................. 4, 9
26
16 Dewan v. Walia,
27
17
28 544 F. App’x 240 (4th Cir. 2013) ............................................................................................... 17
18 Garvey v. Roberts,
19 203 F.3d 580 (9th Cir. 2000) ................................................................................................ 13, 21
20 HayDay Farms, Inc. v. FeeDx Holdings, Inc.,
21 55 F.4th 1232 (9th Cir. 2022)....................................................................................................... 4
22 Karczewski v. DCH Mission Valley LLC,
23 862 F.3d 1006 (9th Cir. 2017) .................................................................................................... 18
24 Michigan Mut. Ins. Co. v. Unigard Sec. Ins. Co.,
25 44 F.3d 826 (9th Cir. 1995) ...................................................................................................... 3, 4
26 Naing Int’l Enters., Ltd. v. Ellsworth Assocs., Inc.,
27 961 F. Supp. 1 (D.D.C. 1997). ............................................................................................. 24, 25
28
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1 Navcom Tech., Inc. v. Oki Elec. Indus. Co., Ltd.,
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32 2017 WL 2617977 (N.D. Cal. June 16, 2017) ........................................................................... 20
4
35 OTO Analytics, Inc. v. Capital Plus Financial, LLC,
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4 2022 WL 1488441 (N.D. Tex. May 11, 2022) ..................................................................... 10, 21
7
85 Pac. Motor Trucking Co. v. Auto. Machinists Union,
9
106 702 F.2d 176 (9th Cir. 1983) ............................................................................................ 4, 11, 21
117 Phoenix Newspapers, Inc. v. Phoenix Mailers Union Loc. 752, Int’l Bhd. of Teamsters,
12
138 989 F.2d 1077 (9th Cir. 1993) .................................................................................................... 24
14
159 S. G. Borello & Sons, Inc. v. Dep’t of Indus. Rels.,
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10 48 Cal. 3d 341 (1989) ................................................................................................................ 20
17
11
18 Secci v. United Independant Taxi Drivers, Inc.,
19
12
20 8 Cal. App. 5th 846 (2017) ........................................................................................................ 20
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13 Serv. Emps. Int’l Union, Loc. 99 v. Options—A Child Care & Hum. Servs. Agency,
22
14
23 200 Cal. App. 4th 869 (2011) ................................................................................................ 5, 14
24
15
25 United Food & Com. Workers Union, Loc. 1119, AFL-CIO v. United Markets, Inc.,
26
16 784 F.2d 1413 (9th Cir. 1986) .................................................................................................... 14
27
17
28 United Transp. Union v. Union Pac. R. Co.,
18 116 F.3d 430 (9th Cir. 1997) ..................................................................................................... 24
19
20 Statutes
21 9 U.S.C. § 9 ................................................................................................................................. 1, 4
22 9 U.S.C. § 10(a)(3) ........................................................................................................................ 24
23 9 U.S.C. § 10(a)(4) .......................................................................................................................... 3
24 Cal. Civ. Code § 1856(c)............................................................................................................... 20
25
26 Regulations
27 13 C.F.R. 103.5(a) ......................................................................................................................... 21
28 13 C.F.R. § 103.1(d).................................................................................................... 12, 15, 16, 18
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1 13 C.F.R. § 103.1(f) ...................................................................................................................... 19
2
32 13 C.F.R. § 103.5(c) ...................................................................................................................... 21
4
35 Paycheck Protection Program as Amended by Economic Aid Act,
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4 86 Fed. Reg., (Jan. 14, 2021) ....................................................................................................... 5
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1 INTRODUCTION
2
32 This Court should deny Womply’s Motion to Confirm Arbitration Award and For Entry of
4
35 Judgment (ECF No. 41) (the “Motion”). Under the FAA,1 this Court cannot confirm an award that is
6
4 vacated. In the related case, which the parties agree should be consolidated with this action (see ECF
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85 No. 50), Benworth petitioned this Court to vacate the same award at issue here (the “Petition to Vacate”).
9
106 See Petition to Vacate, Benworth Capital Partners, LLC v. Oto Analytics, LLC, Case No.3:24-cv-4840-
117 AMO (N.D. Calif. Aug. 7, 2024), ECF No. 1 (the “Vacatur Proceedings”). The Petition to Vacate details
12
138 the reasons why the Court should vacate the Final Award. This Court thus cannot confirm the Final
14
159 Award until it resolves the Petition to Vacate.
16
10 The grounds to oppose confirmation are essentially the same grounds for vacatur. See 9 U.S.C.
17
11
18 § 9 (stating that the FAA requires confirmation of an award only if it has not been vacated, modified, or
19
12
20 corrected). So, Benworth summarizes here the three grounds for vacatur set forth in the Petition to
21
13 Vacate: (1) under Section 10(a)(4) of the FAA, the Arbitrator “exceeded [his] powers” by ignoring
22
14
23 undisputed, legally dispositive facts in manifest disregard of the law while also disregarding controlling
24
15
25 federal regulations that were incorporated into the parties’ agreements to achieve a result the Arbitrator
26
16 believed was fair, resulting in an irrational award that does not draw its essence from the parties’
27
17
28 agreements; (2) the Final Award is unenforceable because it compels Benworth to violate an explicit,
18 well-defined Federal law that specifically prohibits the relief ordered by the Arbitrator; and (3) under
19 Section 10(a)(3) of the FAA, the Arbitrator is “guilty of misconduct in refusing to postpone” the
20 proceedings until the federal government completes its investigation of Womply concerning the same
21 issues that were decided in the Final Award, which foreclosed Benworth from presenting evidence
22 pertinent and material to its defenses and counterclaims.2
23 Benworth acknowledges that review of an arbitration award is generally limited and deferential.
24 But the circumstances here fall within two long-recognized exceptions to this general rule, both
25 1
Unless otherwise defined herein, all capitalized terms have the same meaning as in the Motion.
26
2
In the Motion, Womply preemptively argues that there is no basis to vacate the Final Award on the
27 ground of an impartial arbitrator. (Motion at 11.) No response to that argument is necessary because
28 Benworth does not seek to vacate the Final Award because of the Arbitrator’s bias.
1
OPPOSITION TO MOTION TO CONFIRM
ARBITRATION AWARD AND FOR ENTRY OF JUDGMENT
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1 established by Ninth Circuit precedent. One of those exceptions involves awards that conflict with
2
32 federal law. The Ninth Circuit draws a distinction between arbitrations that merely determine “the
4
35 competing interests of two opposing parties” from those that also “require[] an adjudication of the
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4 coverage and application of a federal law passed by Congress . . . .” Am. Postal Workers Union AFL-
7
85 CIO v. U.S. Postal Serv., 682 F.2d 1280, 1285 (9th Cir. 1982). Where an arbitrator’s decision conflicts
9
106 with federal law, it cannot stand: “We cannot empower the arbitrator to nullify the mandates of
117 Congress . . . .” Id. (emphasis added).
12
138 The Arbitrator here did not simply misconstrue an agreement between two private parties. As
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159 detailed below, the Final Award jeopardizes a federally authorized loan program that the Arbitrator
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10 swore to uphold. And the Arbitrator jeopardizes that federal relief program by expressly ignoring the
17
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18 implementing federal regulations he agreed to faithfully apply. In fact, in one instance, the Arbitrator
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20 indicated he would refuse to enforce federal regulations even if he thought they were applicable. This
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13 Court cannot allow a single private arbitrator to have the unreviewable power to nullify the mandates of
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14
23 Congress and redefine federal law. Otherwise, private parties may, through private arbitration
24
15
25 agreements, not only thwart federal law but also compromise the integrity of federal regimes.
26
16 The second exception recognized by the Ninth Circuit involves the deference owed to an
27
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28 arbitrator’s conclusions. Although courts generally “must defer to an arbitrator’s conclusions even
18 where they are erroneous[,]” an “arbitrator’s conclusions” are not “entitled to the deference ordinarily
19 accorded” and do “not bind” this Court where, like here, an award is legally irreconcilable with the
20 undisputed facts. Am. Postal Workers, 682 F.2d at 1284–85. The undisputed, legally dispositive facts,
21 along with the factual findings in the Final Award and the statements of the Arbitrator, all firmly
22 establish that Womply is not entitled to additional compensation from Benworth. And this Court owes
23 no deference to the Arbitrator’s contrary conclusions.
24 Benworth’s position in the Arbitration was corroborated by a comprehensive 128-page
25 congressional report titled, “We Are Not the Fraud Police”: How Fintechs Facilitated Fraud In The
26 Paycheck Protection Program (the “Congressional Report”). The Congressional Report, published after
27 an independent investigation spanning more than a year, exposed Womply’s improper conduct in
28 connection with the PPP. As a result of the Congressional Report, the SBA immediately suspended
2
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1 Womply from doing any business with it and launched an investigation into Womply’s compliance with
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32 PPP loan program requirements. Womply remains suspended from doing business with the SBA.
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35 Benworth repeatedly moved the Arbitrator to postpone the hearing or defer ruling on the merits
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4 of the parties’ dispute pending the completion of the SBA’s investigation. The results of the SBA’s
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85 investigation were pertinent and material to Benworth’s defenses and counterclaims in the Arbitration.
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106 Despite acknowledging that the results of the SBA’s investigation of Womply may render his award
117 “advisory,” the Arbitrator refused to await the results of the investigation and rendered the Final Award
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138 without the benefit of the SBA’s conclusions.
14
159 The Final Award is not the product of the Arbitrator interpreting the parties’ agreements and
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10 applying the controlling law to the facts. Instead, the Final Award reflects that the Arbitrator appointed
17
11
18 himself as the final decisionmaker on SBA policies so he could dispense his own brand of industrial
19
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20 justice and reach a result he believed was fair to Womply. But the Arbitrator had no power to nullify the
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13 mandates of the SBA or Congress or to revise the parties’ agreements.
22
14
23 For these reasons, as detailed below, the Court should deny the Motion.
24
15
25 ARGUMENT
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16 I. THE AWARD MUST BE VACATED BECAUSE THE ARBITRATOR EXCEEDED HIS
27 POWERS.
17
28
Vacatur of an arbitration award is appropriate where the arbitrator exceeds his powers. 9 U.S.C.
18
§ 10(a)(4). Ninth Circuit precedent establishes that an arbitrator exceeds his powers “when the award is
19
‘completely irrational’ or exhibits a ‘manifest disregard of the law.’” Aspic Eng’g & Constr. Co. v. ECC
20
Centcom Constructors LLC, 913 F.3d 1162, 1166 (9th Cir. 2019) (Aspic).
21
An award is “completely irrational” if “the arbitration decision fails to draw its essence from the
22
agreement.” Aspic, 913 F.3d at 1166 (internal quotations omitted). “To consider whether an award drew
23
its essence from the agreement, the court must ensure that the arbitrator looked to the words of the
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contract and to the conduct of the parties.” Mich. Mut. Ins. Co. v. Unigard Sec. Ins. Co., 44 F.3d 826,
25
831 (9th Cir. 1995) (cleaned up). Courts only “enforce an arbitration award if it represents a plausible
26
interpretation of the contract in the context of the parties’ conduct.” Pac. Motor Trucking Co. v. Auto.
27
28
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1 Machinists Union, 702 F.2d 176, 177 (9th Cir. 1983) (internal quotations omitted). “An award that
2
32 conflicts directly with the contract cannot be a ‘plausible interpretation.’” Id.
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35 “To demonstrate manifest disregard, the moving party must show that the arbitrator understood
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4 and correctly stated the law, but proceeded to disregard the same.” HayDay Farms, Inc. v. FeeDx
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85 Holdings, Inc., 55 F.4th 1232, 1241 (9th Cir. 2022) (internal quotations omitted). “There must be some
9
106 evidence in the record, other than the result, that the arbitrators were aware of the law and intentionally
117 disregarded it.” Id. “[A]n arbitrator’s failure to recognize undisputed, legally dispositive facts may
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138 properly be deemed a manifest disregard for the law.” Coutee v. Barington Cap. Grp., L.P., 336 F.3d
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159 1128, 1133 (9th Cir. 2003).
16
10 Under either the completely irrational or manifest disregard of the law standards of review, courts
17
11
18 generally “must defer to an arbitrator’s conclusions even where they are erroneous.” Am. Postal
19
12
20 Workers, 682 F.2d at 1284–85. However, an “arbitrator’s conclusions” are not “entitled to the deference
21
13 ordinarily accorded” and do “not bind” this Court where, like here, an award is legally irreconcilable
22
14
23 with the undisputed facts. Id. at 1285. Moreover, “[a]lthough an arbitrator has great freedom in
24
15
25 determining an award, he may not ‘dispense his own brand of industrial justice.’” Pacific Motor
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16 Trucking Co. v. Auto. Machinists Union, 702 F.2d 176, 177 (9th Cir. 1983).
27
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28 An arbitrator further exceeds his powers when he “stray[s] from the limitations imposed by the
18 parties.” Michigan Mut. Ins. Co. v. Unigard Sec. Ins. Co., 44 F.3d 826, 830 (9th Cir. 1995). The choice
19 of law clauses in the Agreements limited the scope of the Arbitrator’s powers by imposing three critical
20 rules. The first rule required the Arbitrator to apply California law and “SBA Regulations,” as that term
21 is defined in the Agreements.3 The second rule compelled the Arbitrator to give controlling effect to
22 SBA Regulations, notwithstanding any provision of the Agreements or California law to the contrary.
23 And the third rule obligated the Arbitrator to treat the SBA Regulations as express terms of the parties’
24
3
The Referral Agreement defines “SBA Regulations” to include “applicable SBA loan requirements,
25
including those codified in 13 CFR part 120 . . . .” (ECF No. 41-3, § 9.) “SBA loan requirements,” in
26 turn, is defined to include “SBA Standard Operating Procedures (SOPs)[.]” 13 C.F.R. § 120.10. The
Order Form adopted the Referral Agreement’s definition of “SBA Regulations.” (ECF No. 41-4 at 2
27 (“Unless set forth otherwise, undefined capitalized terms are defined in the MDA or Amended and
28 Restated PPP Loan Referral Agreement between the Parties (the ‘Referral Agreement’).”).)
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ARBITRATION AWARD AND FOR ENTRY OF JUDGMENT
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1 bargain because they were specifically incorporated in the Agreements. See Serv. Emps. Int’l Union,
2
32 Loc. 99 v. Options—A Child Care & Hum. Servs. Agency, 200 Cal. App. 4th 869, 879 n.6 (2011) (“When
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35 language of a statute or regulations is incorporated in a contract, such language establishes contractual
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4 rights and obligations apart from its legal identity as part of a statute or regulation.”).
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85 The Arbitrator failed to follow the rules imposed by the parties. Specifically, the Arbitrator
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106 exceeded his powers on three issues. First, the Arbitrator manifestly disregarded the law by ignoring
117 undisputed, legally dispositive facts when he concluded that the Agent Fee Cap does not apply to the
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138 Technology Fees. Second, and for similar reasons, the Arbitrator manifestly disregarded the law and the
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159 Agreements when he concluded that Womply is not a lender service provider. Finally, the Final Award
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10 is unenforceable because it grants relief that is disallowed under the Agreements.
17
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18 A. The Arbitrator’s Application Of The Agent Fee Cap Is Legally Irreconcilable
19 With The Undisputed Facts.
12
20 The Agent Fee Cap limited the “total amount that an agent may collect from the lender for
21
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22 assistance in preparing an application for a PPP loan (including referral to the lender)” to “[o]ne (1)
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24 percent for loans of not more than $350,000[.]” Paycheck Protection Program as Amended by Economic
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25 Aid Act, 86 Fed. Reg. 3709, (Jan. 14, 2021). There was no dispute that Womply relied on the Technology
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16
27 Services to prepare PPP loan applications and refer PPP loan applicants to Benworth. In fact, during
17
28
closing arguments, Benworth posed the following question that the Arbitrator must resolve: “Did any
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of Womply’s technology assist in either referring or preparing PPP loan applications?” (Ex. 1 at
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1721:15-16.)4 The Arbitrator’s response was unequivocal: “And the answer to that question is, yes, we
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don’t have to argue that.” (Id. at 1721:17-18 (emphasis added).) The Arbitrator also understood, and
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Womply agreed, that the Technology Services “verif[ied] the information in the -- in the application.”
22
(Id. at 1646:7-13.) The Arbitrator ignored Womply’s own instructional videos that showed its
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technology preparing PPP loan applications. Thus, there was no evidentiary dispute about the functions
24
25
26
4
All references to “Ex.” refer to exhibits attached to the accompanying declaration of Dwayne A.
27 Robinson, Esq. in support of Benworth’s Opposition to the Motion to Confirm Arbitration Award and
28 for Entry of Judgment, dated September 6, 2024.
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1 the Technology Services performed. The only dispute centered on the conclusions to be drawn from
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32 those undisputed facts.
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35 As shown below, the Arbitrator’s conclusion that the Agent Fee Cap does not apply to the
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4 Technology Fees is legally irreconcilable with the undisputed facts. Benworth first describes the
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85 information that must be included in a PPP loan application along with the documents that must
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106 accompany the application. See infra Part I.A.1. Benworth next surveys the undisputed facts establishing
117 that Womply used the Technology Services to prepare and refer PPP loan applications. See infra
12
138 Part I.A.2. Finally, Benworth explains how the Arbitrator manifestly disregarded the law by failing to
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159 apply the Agent Fee Cap to the Technology Fees. See infra Part I.A.3.
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10 1. The PPP loan application requirements.
17
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18 The Interim Final Rule established the requirements for submitting a PPP loan application. PPP
19
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20 loan applicants were required to provide various categories of information and documents substantiating
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13 that information. Specifically, applicants were required to “submit Paycheck Protection Program
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23 Borrower Application Form (SBA Form 2483), or lender’s equivalent form, and payroll documentation,
24
15
25 as described” in the Interim Final Rule. (Ex. 2 at art. III.B.10.) Each category of information and payroll
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16 documentation is addressed below.
27
17
28 Borrower Identification Information. PPP applicants were first required to provide
18 identification and contact information, including their name, social security number, address, phone
19 number, and email address. (Ex. 3 at 1 (PPP First Draw Application Form); see also Ex. 4 at 1 (PPP
20 Second Draw Application Form); Final Award (ECF No. 41-5) at 22-23; Ex. 2 at art. III.B.10.)
21 Financial Criteria. PPP applicants were next required to provide financial information,
22 including their average monthly payroll, the requested loan amount, and purpose(s) of the PPP loan.
23 (Ex. 3 at 1; see also Ex. 4 at 1; Final Award at 23; Ex. 2 at art. III.B.4.b.)
24 Bank Records. The Interim Final Rule required PPP applicants to submit banking records for
25 two purposes. First, applicants were required to provide documentation from 2019 or 2020, such as a
26 “bank statement,” to establish that they were “self-employed.” (Ex. 2 art. III.B.4.b.) Second, applicants
27 were required to “provide a 2020 invoice, bank statement, or book of record to establish [they] were in
28 operation on or around February 15, 2020.” (Id.)
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1 Tax Documents. The Interim Final Rule states that applicants “must provide the 2019 or 2020
2
32 (whichever [they] used to calculate loan amount) Form 1040 Schedule C with [their] PPP loan
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35 application to substantiate the applied-for PPP loan amount . . . .” (Id. at art. III.B.4.b.)
6
4 Eligibility Questions. PPP applicants were also required to answer “yes” or “no” to multiple
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85 questions that determined their eligibility for a PPP loan. Such as whether the applicant was suspended
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106 from participation or whether the applicant has a prior felony involving deception (Ex. 3 at 2; see also
117 Ex. 4 at 2; Final Award at 22-23; Ex. 2 at art. III.B.10.)
12
138 PPP Certifications. The Interim Final Rule further directed that applicants “must certify in good
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159 faith” to various attestations concerning, inter alia, the accuracy of the information provided in, and the
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10 documentation accompanying, the PPP loan application. (Ex. 3 at 2-3; see also Ex. 4 at 2-3; Final Award
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18 at 22-23; Ex. 2 at art. III.B.12.)
19
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20 KYC/BSA/AML Compliance. PPP loan applications could be submitted to the SBA only after
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13 the information in the application is verified. For example, the PPP applicant’s identifying information,
22
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23 such as date of birth, address, and taxpayer identification number, must be verified to confirm the
24
15
25 applicant’s identity. (Ex. 2 at art. III.C.3.d.ii.)
26
16 2. Womply’s technology assisted in preparing and referring PPP loan
27 applications.
17
28
As the Arbitrator admitted, there was no dispute that Womply’s technology assisted in preparing
18
and referring PPP loan applications. Womply’s own witnesses and documents established that most of
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the Technology Services were used to collect, analyze, and verify the information and supporting
20
documents required by the Interim Final Rule to submit a PPP loan application. The Technology
21
Services “were performed using technology from third-party service providers that were linked to or
22
integrated into Womply’s technology platform[.]” (Final Award at 24.) The Technology Services
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identified in the Order Form include Plaid, Docusign, LexisNexis, Inscribe, Ocrolus, Mindee, Persona,
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Twilio, and Sendgrid. (Order Form, § 1.2.) Each of these technologies were used to help borrowers
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prepare PPP loan applications and refer PPP loan application packages to Benworth.
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Borrower Identity Information. Fast Lane prompted applicants to enter their email addresses,
27
phone numbers, and physical addresses, which would later be populated into the PPP application form.
28
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1
1 (Final Award at 23.) Womply verified email addresses using SendGrid, phone numbers using Twilio,
2
32 and the existence of physical addresses using Google Maps. (Id. at 24.) Applicants could not continue
4
35 applying for a PPP loan through Fast Lane unless this information was verified by Womply. (Ex. 5 at
6
4 20 (“We verify emails for 100% of applications.”); id. at 10 (“We verify mobile phones for 100% of
7
85 applications.”).)
9
106 Financial Criteria. Using information extracted from the tax documents provided by applicants,
117 Womply, through Fast Lane, automatically calculated the loan amounts available to the applicants. (Ex.
12
138 5 at 20; Ex. 6 at 362:12-19; id. at 366:7-23; Ex. 7.)
14
159 Bank Records. Womply also allowed applicants to connect their bank accounts to Fast Lane.
16
10 (Ex. 6 at 369:3-6.) Womply “extracted bank account information and transaction history” using Plaid.
17
11
18 (Ex. 8 at ¶ 18(g); Ex. 9 at 1.) Womply would then analyze the banking data to determine, among other
19
12
20 things, applicants’ eligibility for a PPP loan based on whether they were in business on or before
21
13 February 15, 2020. (Ex. 6 at 408:21-24; Ex. 18 (“We analyze bank data to verify identity and determine
22
14
23 whether the business was in operations on 2/15/20.”); Ex. 5 at 21 (same).)
24
15
25 Tax Documents. Fast Lane also directed applicants to upload the tax documents that must
26
16 accompany the PPP loan application required by the Interim Final Rule. (Ex. 6 at 352:25 – 353:11.)
27
17
28 Scammell explained that the tax documents were “useful for determining and validating the loan size
18 the applicant was seeking” as well as verifying that the applicant was a business. (Id. at 352:20 – 353:18.)
19 Womply used Mindee, Inscribe, and Ocrolus “to make this flow seamless for borrowers.” (Id. at 354:19-
20 25.) Importantly, Applicants could not continue applying through Fast Lane until they uploaded the
21 correct tax documents. (Ex. 5 at 19; see also Ex. 9 at 2.)
22 Eligibility Questions. Fast Lane further required applicants to “confirm” that they could answer
23 “yes” or “no” to the eligibility questions in the PPP loan application. (Ex. 10 at 5:22 – 8:8 (Womply
24 informing users that they must confirm the necessary answers to the eligibility questions in the PPP loan
25 applications forms); see also Ex. 3 at 2 (eligibility questions in First Draw PPP Loan Application); Ex.
26 4 at 2 (eligibility questions in Second Draw PPP Loan Application).) As with the tax records, applicants
27 could not continue applying through Fast Lane unless they could “confirm” the necessary answers to
28 satisfy the eligibility requirements for a PPP loan. (Ex. 6 at 499:8-24.)
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1
1 PPP Certifications. Fast Lane also required applicants to confirm that they could make the
2
32 requisite PPP certifications. Once more, applicants were not permitted to proceed with the workflow to
4
35 submit a PPP application through Fast Lane without these certifications. (See Ex. 5 at 17-18; Ex. 10 at
6
4 644:25 – 646:9; Ex. 6 at 500:10-21; Ex. 11 (4:09:00 to 6:47:00).) After the borrower was referred to a
7
85 lender, DocuSign was used (1) to generate the PPP application populated with the information provided
9
106 through Fast Lane and (2) to collect the PPP certifications and applicants’ signatures. (Ex. 9 at 3; Ex.
117 10 at 575:13-21; id. at 660:15 – 661:1; Ex. 6 at 489:9-13.)
12
138 KYC/BSA/AML Compliance. During the Fast Lane application process and before borrowers
14
159 were referred to lenders, Womply used multiple third-party technologies, including Twilio, SendGrid,
16
10 Persona, LexisNexis, and Docusign, to verify borrowers’ identities. (Ex. 6 at 344:1-20; 337:5-5, 359:14-
17
11
18 25; 403:15 – 404:11.) Indeed, Womply’s technology platform was designed to refer legitimate PPP loans
19
12
20 that were eligible for funding. For instance, Womply admitted that its technology filtered out applicants
21
13 who would not be eligible for PPP applications because their identities could not be verified. (See, e.g.,
22
14
23 Ex. 10 at 669:17 – 670:13.) Womply also designed Fast Lane to exclude from its referred loans those
24
15
25 applicants who did not meet general eligibility requirements of the PPP. (Ex. 14 at 789:21 – 790:16.)
26
16 According to Womply, an applicant would not be referred to a lender until the applicant completed
27
17
28 Womply’s “KYC review process.” (Ex. 12 at 1; see also Ex. 5 at 42-46.) In a declaration admitted into
18 evidence, Womply’s CEO testified that Womply did not refer applicants to lenders until after performing
19 these services. (Ex. 8 at ¶¶ 18-19.)
20 3. The Arbitrator failed to recognize undisputed, legally dispositive facts.
21 Although manifest disregard of the facts is not an independent ground for vacatur, when “legally
22 dispositive facts are so firmly established . . . an arbitrator cannot fail to recognize them without
23 manifestly disregarding the law.” Coutee v. Barington Cap. Grp., L.P., 336 F.3d 1128, 1133 (9th Cir.
24 2003) (citing Am. Postal Workers Union v. U.S. Postal Serv., 682 F.2d 1280, 1284–86 (9th Cir. 1982),
25 cert. denied, 459 U.S. 1200 (1983)). The Arbitrator manifestly disregarded the law here because he
26 failed to recognize the undisputed, legally dispositive facts firmly establishing that the Technology
27 Services, whether in whole or in part, were performed to assist “in preparing an application for a PPP
28 loan (including referral to the lender).” (Ex. 2 at art. III.D.4.)
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1
1 The undisputed facts, the Arbitrator’s own statements during closing arguments, and the findings
2
32 in the Final Award all establish that the Technology Services related to preparing, or making ready, a
4
35 PPP loan application. Except as to Teslar (which Benworth conceded was not subject to the Agent Fee
6
4 Cap), Womply’s witnesses, its videos, and its other documents established that Womply’s Technology
7
85 Services made ready PPP loan applications that were then submitted (or referred) to Benworth. See
9
106 supra, Part I.A.2; compare id. (detailing how Womply’s technology assisted in preparing PPP loan
117 applications including by deploying identity verification and other fraud prevention measures) with
12
138 OTO Analytics, Inc. v. Capital Plus Financial, LLC, 2022 WL 1488441 *6 (N.D. Tex. May 11, 2022)
14
159 (explaining that Womply “made ready” PPP loan applications for approval by a lender “by verifying
16
10 information to prevent fraud”). Again, incomplete applications—or those that were not eligible for
17
11
18 PPP—were never filtered to lenders like Benworth. See supra, Part I.A.2. The Arbitrator agreed that it
19
12
20 was so firmly established that “Womply’s technology assist[ed] in either referring or preparing PPP loan
21
13 applications” that there was no need for Benworth’s counsel to even “argue that” issue. (Ex. 1 at
22
14
23 1721:15-18.) And the Final Award characterizes the Referral Fee as payment “for applicant information
24
15
25 collection and referral services[,]” (Final Award at 20), while also finding that Womply’s Technology
26
16 Services “allowed a prospective applicant to enter the necessary information to populate the SBA
27
17
28 required application form for a PPP loan and to provide the documentation or certifications lenders
18 used to evaluate each application[,]” (id. at 22-23 (emphasis added)). There is no way to reconcile the
19 foregoing with the Final Award’s conclusory statement that the Technology Services were principally
20 related to underwriting, not preparing and referring PPP loans.
21 American Postal demonstrates why this Court should disregard the Arbitrator’s conclusion that
22 the Agent Fee Cap does not apply to the Technology Fees and vacate the Final Award. In American
23 Postal, the Ninth Circuit vacated an arbitration award that required the U.S. Postal Service to reinstate
24 a former employee. The arbitrator awarded reinstatement based on the former employee’s erroneous
25 belief that his picketing activities were sanctioned by the union. However, “[b]y statute, a worker may
26 not hold a government position if the individual has participated in a strike against the government.”
27 American Postal, 682 F.2d at 1283 (citing 5 U.S.C. § 7311). The arbitrator’s award included findings
28 demonstrating that the former employee participated in a strike. Id. In support of vacating the award, the
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1
1 court found it was “not necessary for an arbitrator to state the precise words that an employee
2
32 ‘participates in a strike’ in order to conclude that his employment would violate section 7311.” Id.
4
35 In declining to remand the matter to the arbitrator, the court emphasized that the arbitration did
6
4 not merely involve a dispute between private parties:
7
85 This case requires more than the resolution of the competing interests of two opposing
9 private parties. It also requires an adjudication of the coverage and application of a federal
106 law passed by Congress to insure a stable work force for the government and agencies of
117 the United States. We therefore cannot treat the issues raised by this dispute merely as
12 matters of conflict between an employer and its employees. In light of the undisputed
138 facts of this case, we could not confirm an award of arbitration simply because the
14 arbitrator stated that Murphy did not strike. To confirm such an award in this case
159 would be to confer upon the arbitrator unreviewable power to construe and apply
16
10 section 7311. … We cannot empower the arbitrator to nullify the mandates of Congress
17 simply by stating that an individual did not strike when, as here, his actions, as presented
11
18 in undisputed facts, constitute a strike for purposes of the section.
19
12 Id. at 1285 (emphases added). Like in American Postal, this Court cannot accept the Arbitrator’s
20
21
13 conclusion that the Agent Fee Cap does not apply at all to the Technology Fees by simply stating that
22
14
23 the Technology Services did not constitute preparing and referring PPP loan applications when, as here,
24
15 the Technology Services, as presented in undisputed facts, constitute services that prepared and made
25
26
16 ready a PPP loan application for submission to the SBA. See supra, Part I.A.2.
27
17
28 Nor can this Court accept the Arbitrator’s reliance on “extrinsic evidence” and the terms of the
18 Agreements to justify charging Benworth in excess of 1% for services that are “[a]bsolutely” and without
19 “dispute” subject to the Agent Fee Cap. (Ex. 1 at 1720:19.) As noted above, the Parties incorporated the
20 SBA Regulations into the Agreements and, further, granted those provisions precedence over anything
21 else. The Arbitrator was not permitted to disregard that rule and apply a rough sense of justice and ignore
22 (or downgrade) provisions of the Agreements the Parties agreed would take precedence. See Pacific
23 Motor, 702 F.2d at 177 (an arbitrator may not “disregard[] a specific contract provision” or “dispense
24 his own brand of industrial justice.”). Otherwise, this Court would “confer upon the arbitrator
25 unreviewable power to construe and apply” the Agent Fee Cap and “empower the arbitrator to nullify
26 the mandates of” the SBA. See American Postal, 682 F.2d at 1285.
27
28
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1 B. The Arbitrator Manifestly Disregarded The Law When He Admittedly Refused To
1
2 Apply The Controlling SOPs.
32
The Final Award reflects that the Arbitrator understood “it is not” his “role to decide what is
4
35 ‘fair;’ he is instead merely tasked with interpreting the contract provisions.” (Final Award at 54.) One
6
4 such contract provision the Arbitrator was tasked with interpreting was the SOPs’ clause on
7
85
compensating lender service providers (which, again, the Parties expressly incorporated into their
9
106 Agreements, see supra, pp. 4-5): “An LSP may only receive compensation from the 7(a) Lender for
117
12 services provided under an SBA-reviewed LSP Agreement.” (Ex. 13 at 185, § 6(c).)
138 Prior to issuing the Interim Award, the Arbitrator announced his interpretation of the provision:
14
159 “That seems pretty emphatic. That seems to say, if you don’t have an approved agreement, you don’t
16
10
17 get paid.” (Ex. 1 at 1746:12-18.) And it was undisputed that the Agreements were not submitted to the
11
18 SBA. But the Arbitrator believed that enforcing this provision “would result in a disproportionately
19
12
20 harsh penalty” to Womply. (Final Award at 47.) So, the Arbitrator concocted an array of implausible
21
13
22 justifications to conclude that Womply was not a lender service provider.
14
23 SBA regulations define a lender service provider as “an Agent who carries out lender functions
24
15
25 in originating, disbursing, servicing, or liquidating a specific SBA business loan or loan portfolio for
26
16
27 compensation from the lender.” 13 C.F.R. § 103.1(d). In the SOPs, the SBA clarified the meaning of
17
28 “lender service provider” by enumerating a non-exhaustive list of “examples of when SBA considers an
18 Agent to meet the definition of an LSP [, i.e., a lender service provider].” (Ex. 13 at 185, § 6(e).) Those
19 examples include:
20 i. An individual or entity engaged by a 7(a) Lender to provide services for the
21 purposes of obtaining Federal financial assistance that include interaction with the Applicant
either in person or through the use of technology, to request or obtain eligibility and/or financial
22 information that will be provided to the 7(a) Lender. This includes Agents who:
23 a) Perform any pre-qualification review based on SBA’s eligibility and credit criteria
. . . prior to submitting the Applicant’s information to the 7(a) Lender; or
24
b) Provide to the 7(a) Lender an underwritten application, whether through the use of
25 technology or otherwise.
26 ii. Entities providing technology services to a 7(a) Lender that include
underwriting.
27
28
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1 iii. An individual or entity generates a significant number of 7(a) Lender’s loan
1
2 originations. As a general rule, SBA considers a “significant number” to be two-thirds (66%) or
32 more of the 7(a) Lender’s loan originations for the prior 12 months.
4
35 (Id. (emphasis added).)
6 Benworth argued, and the undisputed facts established, that Womply was a lender service
4
7
85 provider under each of these examples. For example, Womply interacted with applicants through
9
technology (Fast Lane) to obtain eligibility and financial information that would be provided to
106
117 Benworth. See supra, Part I.A.2. Benworth retained Womply under the Agreements to submit to
12
138 Benworth complete loan packages through Fast Lane, which collected, verified, and determined
14 eligibility for PPP applicants seeking PPP loans. (See Ex. 13 at 185, § 6(e)(i); Referral Agreement at 1-
159
16
10 4; Ex. 8 at ¶¶ 15-18; Ex. 14 at 789:21 – 790:7; Ex. 10 at 708:14-17.) At the very least, Womply’s
17
11
18 services to applicants constituted “pre-qualification review based on SBA’s eligibility” criteria, a role
19 assigned to lender service providers. (Ex. 13 at 185, § 6(e)(i)(a)); Ex. 14 at 789:21 – 790:1; see also
12
20
21
13 supra Part I.A.2.) Womply also generated more than 90% of Benworth’s loan originations—much more
22
14
23 than two-thirds. (Ex. 15 at 11.)
24 Despite the undisputed facts firmly establishing that Womply was a lender service provider
15
25
26
16 under the SOPs, the Arbitrator reached the opposite conclusion. The Arbitrator gave four reasons why
27
17
28 he concluded that Womply is not a lender service provider: (1) Womply did not originate PPP loans; (2)
18 Womply did not engage in underwriting; (3) the Arbitrator was not required to apply the SOPs and (4)
19 the parties’ course of conduct suggests Womply was not a lender service provider. (Final Award at 41-
20 45.) None of these reasons draw their essence from the Agreements or the governing SBA Regulations.
21 Instead, the Arbitrator’s reasons for his award lead “inexorably to the conclusion that in reaching his
22 decision the arbitrator ‘dispensed his own brand of industrial justice.’” Garvey v. Roberts, 203 F.3d 580,
23 589 (9th Cir. 2000).
24 1. The Arbitrator crafted a definition of origination with the sole intent of
excluding Womply from the plain language of the SBA Regulations.
25
The Arbitrator first determined that Womply was not a lender service provider because it did not
26
originate loans. (Final Award at 42.) And the Arbitrator made that determination by creating his own
27
definition of origination: “underwriting and approving a loan and submitting it to the SBA for final
28
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1
1 approval.” (Id.) It is unclear from where the Arbitrator derived that definition, but it certainly did not
2
32 come from the Agreements, the evidence, the parties’ arguments, or the ordinary meaning of that term.
4
35 In fact, not even Womply advanced such a narrow definition of origination. During closing arguments,
6
4 Womply argued “originating appears to be viewed as all of the steps up until approval of a loan.” (Ex.
7
85 1 at 1667:15-17.) According to Womply, then, “originating” would include not only underwriting but
9
106 also collecting borrower information to prepare a PPP loan application. Benworth agrees.
117 The parties’ interpretation of “originating” is consistent with the SBA’s. In an SBA form
12
138 Benworth was required to submit to the SBA, the SBA characterized “Origination Activities” as
14
159 “application evaluation, gathering documents, processing, etc.” (Ex. 16 at 2.) The Arbitrator purportedly
16
10 considered this form on multiple occasions, including in Benworth’s Response to Womply’s Post-
17
11
18 Hearing Brief (Ex. 20 at 6-7) and in its Motion for Reconsideration of the Interim Award (Ex. 17 at 12).
19
12
20 And Womply provided no evidence or other authority to dispute the SBA’s definition. The Arbitrator
21
13 found in the Final Award that the evidence proved that Womply “collect[ed] data from potential
22
14
23 applicants to refer those applicants to Benworth.” (Final Award at 42.) Thus, contrary to the Arbitrator’s
24
15
25 statement in the Final Award, Womply’s Technology Services do “fall within even a layman’s
26
16 understanding of what origination of a loan to the SBA means.” (Id.)
27
17
28 The Arbitrator’s definition of origination is also implausible because it directly conflicts with
18 the terms of the Agreements. See Aspic Eng’g & Constr. Co. v. ECC Centcom Constructors, LLC, 268
19 F. Supp. 3d 1053, 1058 (N.D. Cal. 2017) (“[A]n award that conflicts directly with the contract cannot
20 be a plausible interpretation.”); see also United Food & Com. Workers Union, Loc. 1119, AFL-CIO v.
21 United Markets, Inc., 784 F.2d 1413, 1416 (9th Cir. 1986) (“This direct conflict with the language of
22 the agreement renders the arbitrator’s interpretation implausible.”). The Agreements not only
23 specifically defined “SBA Regulation” to include the SOPs, but the SOPs were also express terms of
24 the parties’ bargain because they were specifically incorporated in the Agreements. See Serv. Emps.,
25 200 Cal. App. 4th at 879 n.6 (“When language of a statute or regulations is incorporated in a contract,
26 such language establishes contractual rights and obligations apart from its legal identity as part of a
27 statute or regulation.”); 300 DeHaro St. Invs., 161 Cal. App. 4th at 1256 (“When statutory language is
28 included in a contract, it assumes a new legal identity: that of contractual language.”).
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1
1 Notwithstanding, the Final Award states that the Arbitrator’s definition of origination is
2
32 “strongly supported” by the Agreements because “Benworth contracted to pay Womply Technology
4
35 Fees ‘for each loan originated by [Benworth] under the PPP resulting from a Referral.’” (Final Award
6
4 at 42.) Based on that contract language, the Arbitrator found that “the parties understood and agreed that
7
85 it was Benworth that originated the loans, not Womply.” (Id.) But the interpretation of origination
9
106 advanced by the parties and reflected in the SBA’s form (Ex. 16 at 2) gives effect to that provision as
117 well, while also conforming to the SBA Regulations on the matter, which were themselves incorporated
12
138 in the Agreements and which take precedence over any other term in the Agreements.
14
159 As stated in the Referral Agreement, Benworth has the “ultimate”—not sole—responsibility for
16
10 all loan decisions, including approvals and underwriting. (Referral Agreement at 1.) Because the SBA
17
11
18 regulations define a lender service provider to include an “Agent who carries out lender functions in
19
12
20 originating,” 13 C.F.R. § 103.1(d) (emphasis added), Womply may still be considered a lender service
21
13 provider even if it did not have the sole (or ultimate) responsibility for all loan decisions leading to loan
22
14
23 originations and instead only carried out certain lender origination functions, like underwriting. And the
24
15
25 Arbitrator specifically found that “Womply’s technology to some extent electronically performed the[]
26
16 functions” of underwriting a PPP loan. (Final Award at 43.) Yet the Arbitrator still concluded that
27
17
28 Womply’s technology did not include underwriting. (Id.) This, too, is an irrational conclusion that is
18 untethered to the undisputed facts and the SBA Regulations incorporated into the Agreements.
19 It is also an irrational conclusion that conflicts with the Final Award itself. Recall, in seeking to
20 excuse Womply from the Agent Fee Cap, the Arbitrator concluded that Womply’s Technology Services
21 were primarily related to underwriting, not preparing or referring PPP loans. However, when the
22 Arbitrator sought to excuse Womply from the applicability of provisions relating to lender service
23 providers, the Arbitrator denied that Womply was engaged in underwriting.
24 2. Womply carried out lender functions in underwriting PPP loans.
25 The Arbitrator concluded that it “was Benworth, not Womply, that was underwriting the PPP
26 loans” because “Benworth was required to take the information developed by the Womply technology
27 and make a final determination that all necessary criteria had been met before submitting a loan to the
28
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1
1 SBA for approval.” (Final Award at 43.) This conclusion is irreconcilable with the plain language of the
2
32 SBA Regulations as well as the undisputed, legally dispositive facts and the findings in the Final Award.
4
35 First, the SBA Regulations do not require that lender service providers perform all (or the
6
4 ultimate) underwriting functions. The regulations merely require that the agent “carries out lender
7
85 functions in originating . . . .” SBA loans. 13 C.F.R. § 103.1(d) (emphasis added). The SOPs further
9
106 include examples of lender service providers who perform functions short of rendering the ultimate
117 underwriting decision of whether to fund a loan. (Ex. 13 at 185, § 6(e)(i)(b) (defining as “lender service
12
138 providers” entities that merely provide an underwritten application to an SBA lender).) The Arbitrator
14
159 cannot adopt a definition of “underwriting” that would obliterate federal regulations or the terms of the
16
10 parties’ Agreements that incorporate those regulations.
17
11
18 Further, the SBA limited the underwriting requirements for PPP loans through the Interim Final
19
12
20 Rule. Under the Interim Final Rule, underwriting was limited to:
21
13 • Confirming receipt of borrower certifications contained in the borrower’s PPP application
22 form, (Ex. 2 at art. III.C.3.a);
14
23
24 • Confirming receipt of information that a borrower had employees for whom the borrower paid
15
25 salaries and payroll taxes on or around February 15, 2020, (id. at art. III.C.3.b);
26
16 • Confirming the dollar amount of average monthly payroll costs for the preceding calendar
27 year by reviewing payroll documentation submitted with the borrower’s application, (id. at
17
28 art. III.C.3.c);
18 • Following applicable Bank Secrecy Act (BSA) requirements, (id. at art. III.C.3.d).
19
The Interim Final Rule further provides that “[e]ach lender’s underwriting obligation under the PPP is
20
limited to the items listed above [i.e., in article III.C.3] and reviewing the ‘Paycheck Protection
21
Application Form.’” (Id. at 17.) The Arbitrator conceded, as he must, that “it is true that Womply’s
22
technology to some extent electronically performed some of these functions . . . .” (Final Award at 43.)
23
The undisputed facts corroborate that and establish that Womply performed PPP underwriting functions.
24
First, Fast Lane required applicants to confirm that they could make the requisite PPP
25
certifications; otherwise, they were not permitted to proceed with the workflow to submit a PPP
26
application through Fast Lane. (Ex. 10 at 644:25 – 646:9; Ex. 11 (4:09:00 to 6:47:00); Ex. 5 at 17-18.)
27
28
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1
1 Second, Womply “extracted bank account information and transaction history” from applicants’
2
32 bank accounts using Plaid and then analyzed that data to determine, among other things, applicants’
4
35 eligibility for a PPP loan based on whether they were in business on or before February 15, 2020. (Ex. 8
6
4 at ¶ 18(g); Ex. 6 at 408:21-24; Ex. 18; Ex. 5 at 21.)
7
85 Third, Fast Lane automatically calculated the applicant’s average monthly payroll by extracting
9
106 information from the tax documents the applicant submitted to Womply. (Ex. 5 at 20.) Applicants could
117 not continue applying through Fast Lane until they uploaded the correct tax documents. (Id. at 19.)
12
138 Finally, Womply’s technology followed applicable BSA requirements. For instance, Womply
14
159 admitted that its technology filtered out applicants who would not be eligible for PPP applications
16
10 because their identities could not be verified. (See, e.g., Ex. 10 at 669:17 – 670:13.) According to
17
11
18 Womply, an applicant would not be referred to a lender until the applicant completed Womply’s “KYC
19
12
20 review process.” (Ex. 12 at 1; see also Ex. 5 at 43-46.)
21
13 The Final Award also leads to the inescapable conclusion that Womply performed underwriting.
22
14
23 The Arbitrator found that “the Technology Services served the purpose of benefitting Benworth in
24
15
25 accomplishing its underwriting functions as a lender under the SBA regulations.” (Final Award at 37.)
26
16 “Indeed, it is undisputed that without Womply’s Technology Services, Benworth would have had to
27
17
28 conduct manual reviews of each PPP loan applicant’s information.” (Id.) And Womply’s technology
18 “greatly increased the likelihood that a loan would be approved and funded.” (Id. at 39.)
19 Like in American Postal, see supra pp. 10-11, this Court is not bound by the Arbitrator’s
20 conclusion that Womply is not a lender service provider when the findings in the Final Award and the
21 undisputed facts presented to the Arbitrator confirm that Womply acted as a lender service provider under
22 the Agreements. See also Dewan v. Walia, 544 F. App’x 240, 248 (4th Cir. 2013) (“Accordingly, we hold
23 that the Arbitrator manifestly disregarded the law by holding the Release valid and enforceable but
24 nevertheless arbitrating Walia’s counterclaims arising out of his employment with the Company.”).
25 3. The Arbitrator’s reasoning for not applying the SOPs is inexplicable.
26 The Arbitrator further manifestly disregarded the law by expressly declining to rely on the SBA’s
27 examples of lender service providers. (See Final Award at 43-44.) In the Final Award, the Arbitrator
28 declined to apply the examples of lender service providers because the SBA included those examples in
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1 SOPs rather than a rule or the Code of Federal Regulations. (Id.) As noted above (see supra, Part I.B.),
2
32 the parties’ Agreements expressly incorporated all SBA Regulations, including those contained in SOPs.
4
35 The Arbitrator, however, employed “conflict of law” principles to ignore the binding SBA
6
4 Regulations. Specifically, the Arbitrator stated that “when an SOP conflicts with a regulation or rule, it
7
85 is the language of the regulation or rule that ultimately prevails.” (Final Award at 43.) That conflict of
9
106 law principle has no application to the SOPs’ examples of lender service providers. There is no conflict
117 between the SOPs (which lists examples of lender service providers) and the definition of lender service
12
138 providers contained in the Code of Federal Regulations. The regulation defines a lender service provider
14
159 as “an Agent who carries out lender functions in originating, disbursing, servicing, or liquidating a
16
10 specific SBA business loan or loan portfolio for compensation from the lender.” 13 C.F.R. § 103.1(d). In
17
11
18 the SOPs, the SBA did what a federal agency does: it put further flesh on a regulatory definition by,
19
12
20 among other things, giving examples. That is not a conflict. See Karczewski v. DCH Mission Valley LLC,
21
13 862 F.3d 1006, 1016 (9th Cir. 2017) (applying “the familiar rule of construction that, where possible,
22
14
23 provisions of a regulation should be read so as not to create a conflict”) (cleaned up).
24
15
25 The reasons cited by the Arbitrator in the Final Award for refusing to apply the SOPs still amount
26
16 to a manifest disregard of the SBA Regulations (incorporated into the Agreements) for two reasons. First,
27
17
28 the Arbitrator omitted critical language in the SOPs’ example of a lender service provider that purportedly
18 conflicts with other SBA regulations defining the different types of agents. Specifically, the Arbitrator
19 quoted the example of a lender service provider that includes an entity that “‘provide[s] services for the
20 purposes of obtaining Federal financial assistance that include[s] interaction with the Applicant either in-
21 person or through the use of technology. . . .’” (Final Award at 44 (alteration in original).) But the
22 Arbitrator blatantly omitted the critical language concerning the purpose of the interaction with the
23 applicant: “. . . to request or obtain eligibility and/or financial information that will be provided to the
24 7(a) Lender.” (Ex. 13 at 185.) Not every entity involved in the PPP interacted with applicants to request
25 or obtain eligibility and/or financial information. For example, during the first round of PPP funding,
26 Womply simply collected the contact information from potential borrowers, so it could refer just that
27 information to a lender. (See Final Award at 16.)
28
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1 Second, and for similar reasons, the SOPs’ example of a lender service provider does not conflict
2
32 with other SBA regulations that define and differentiate between the different types of agents. Sticking
4
35 with Womply’s role during the first round of PPP funding, Womply was a “Referral Agent.” SBA
6
4 regulations define a “Referral Agent” as “a person or entity who identifies and refers an Applicant to a
7
85 lender or a lender to an Applicant. The Referral Agent may be employed and compensated by either an
9
106 Applicant or a lender.” 13 C.F.R. § 103.1(f). No conflict exists here because the entity’s status as a
117 Referral Agent does not require that it interact with the applicant for the purpose of obtaining eligibility
12
138 and/or financial information. And unlike a lender service provider, which is limited to an entity that
14
159 contracts with and is compensated by a lender, id. at § 103.1(d), the Referral Agent may be employed
16
10 and compensated by either an applicant or a lender. The same is true with respect to a “Packager”—the
17
11
18 only other type of agent identified in SBA regulations. See id. at 103.1(e) (“Packager means an Agent
19
12
20 who is employed and compensated by an Applicant or lender to prepare the Applicant’s application for
21
13 financial assistance from SBA.” (emphasis added)).
22
14
23 The Arbitrator stretched to find a means to invalidate federal regulations that were plainly
24
15
25 applicable to Womply’s activities. The Final Award’s summary disposal of the SOPs’ examples of lender
26
16 service providers shows that the Arbitrator never intended to apply the terms of the Agreements because
27
17
28 it would be inescapable that Womply is a lender service provider according to the SOPs—which the
18 Arbitrator conceded contains “policies and procedures governing the PPP” (Final Award at 9 (emphasis
19 added))—that the parties agreed would govern. The Arbitrator had no authority to disregard the SOPs
20 and his refusal to apply them to the undisputed facts constitutes a manifest disregard of the law that
21 requires vacatur. See Aspic Eng’g & Constr. Co. v. ECC Centcom Constructors LLC, 913 F.3d 1162,
22 1166-68 (9th Cir. 2019) (affirming vacatur of arbitration award where the arbitrator failed to give
23 controlling effect to federal regulations incorporated into the parties’ agreement); see also American
24 Postal, supra at pp. 45-46. The Final Award must be vacated.
25 4. Womply’s course of conduct establishes it was a lender service provider.
26 Finally, the Arbitrator determined that the “parties’ course of conduct strongly points to the fact
27 that Womply was not” a lender service provider. (Final Award at 44.) The Arbitrator first cited the
28 boilerplate language Womply included in the Agreements disclaiming that it was a lender service
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1 provider. (Id.) The Arbitrator also noted that the CEO of Benworth sent a letter to the SBA stating
2
32 “‘Womply is not an LSP-they are an Agent.’” (Id.) Neither fact can support the conclusion that Womply
4
35 is not a lender service provider here.
6
4 As a matter of California law, the “label placed by the parties on their relationship is not
7
85 dispositive.” S. G. Borello & Sons, Inc. v. Dep’t of Indus. Rels., 48 Cal. 3d 341, 349 (1989); see also
9
106 Secci v. United Independent Taxi Drivers, Inc., 8 Cal. App. 5th 846, 862 (2017) (evidence of the parties’
117 relationship was sufficient to sustain jury’s finding that the plaintiff-driver was an employee of the
12
138 defendant-company even though the parties’ contract stated the driver was an independent contractor).
14
159 Beyond that, the Agreements required the Arbitrator to give controlling effect to “SBA Regulations,”
16
10 which includes the SOPs, notwithstanding any provision of the Agreements to the contrary. (See Referral
17
11
18 Agreement, § 9 (providing that “SBA Regulations” govern over contrary provisions of the agreement).)
19
12
20 No resort to course of performance or other extrinsic evidence is permissible to alter unambiguous
21
13 terms of the Agreements (i.e., the federal regulations that define lender service providers). See Navcom
22
14
23 Tech., Inc. v. Oki Elec. Indus. Co., Ltd., No. 5:12-cv-04175-EJD, 2017 WL 2617977 at *3 (N.D. Cal.
24
15
25 June 16, 2017) (“Course of performance evidence may only be used to explain or supplement the terms
26
16 of a contract (Cal. Civ. Code § 1856(c)); not ‘to prove a meaning to which the language of the instrument
27
17
28 is reasonably susceptible.’ It also cannot be used to ‘vary or contradict the unambiguous terms of a written
18 agreement.’” (internal citations omitted)). The Arbitrator seemed to suggest that he could avoid applying
19 the unambiguous terms of the Agreements based on the prior litigation (or pre-litigation) positions of
20 Benworth or its principal. (Final Award at 44.) But the fully integrated Agreements deem the SBA
21 Regulations to control their contractual relationship, not extrinsic evidence. (Referral Agreement, § 9; id.
22 at § 16 (“No waiver by either party, whether express or implied, of any provisions of this Agreement . . .
23 shall constitute a continuing waiver of such provision or a breach or waiver of any other provision of this
24 Agreement.”).)
25 * * *
26 For the foregoing reasons, the undisputed, legally dispositive facts and the Arbitrator’s findings
27 in the Final Award do not permit any conclusion other than that Womply is a lender service provider.
28 This Court is thus presented “with the extraordinary circumstance in which the arbitrator’s own rulings
20
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1
1 make clear that, more than being simply erroneous, his finding is completely inexplicable and borders
2
32 on the irrational.” Garvey, 203 F.3d at 590. “In this circumstance, given the arbitrator’s professional
4
35 experience, the decision can be explained only by his desire to dispense his own brand of industrial
6
4 justice.” Id. at 590-91. “No other plausible explanation exists.” Id. at 591.
7
85 C. The Final Award Grants Relief Not Permitted by the Agreements.
9
The Agent Fee Cap applies to the Technology Fees. See supra, Part I.A. Womply is a lender
106
117 service provider. See supra, Part I.B. Notwithstanding, the Arbitrator ordered Benworth to pay Womply
12
138 additional fees in violation of the controlling SBA Regulations incorporated in the Agreements. In doing
14
so, the Arbitrator disregarded “specific contract provision[s] to correct what he perceived as an
159
16
10 injustice.” Pacific Motor, 702 F.2d at 177. The result is an award that should be vacated because it
17
11
18 “conflicts directly with the contract.” Id.
19 Two SBA Regulations that the parties agreed to be bound by govern Womply’s entitlement to
12
20
21
13 fees under the Agreements. The first SBA Regulation requires Agents, including lender service
22
14
23 providers, to provide compensation agreements to the SBA for its review. 13 C.F.R. 103.5(a). With
24 respect to Agents other than lender service providers, the Agent must submit Form 159 to the SBA.
15
25
26
16 Capital Plus, 2022 WL 1488441 at *7 (citing 13 C.F.R. § 103.5(a)). Womply and Benworth “did not
27
17
28 submit Form 159 to the SBA and courts uniformly hold this precludes any recovery of SBA fees.” Id.
18 Next, with respect to lender service provider agreements, the SOPs state a lender service provider
19 “may only receive compensation” from the lender “for services provided under an SBA-reviewed”
20 lender service provider agreement. (Ex. 13 at 185; see also 13 C.F.R. § 103.5(c) (“Each Lender Service
21 Provider must enter into a written agreement with each lender for whom it acts in that capacity. SBA
22 will review all such agreements.”).)5 Again, the Arbitrator already stated his opinion on what this
23 provision means: “That seems pretty emphatic. That seems to say, if you don’t have an approved
24 agreement, you don’t get paid.” (Ex. 1 at 1746:12-18.)
25 5
SBA regulations require Benworth to comply with this provision of the SOPs. See 13 C.F.R. § 120.180
26 (providing SBA lenders “must comply” with “Loan Program Requirements for the 7(a) Loan Program”);
see also 13 C.F.R. 120.10 (defining “Loan Program Requirements” to include “SBA Standard Operating
27 Procedures (SOPs)”).
28
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1 There is no dispute that the Agreements were not submitted to the SBA. (Final Award at 19.) If
2
32 the Arbitrator had enforced the terms of the Agreements, as he pledged to do, then the Final Award
4
35 would reflect that Womply is not entitled to any further fees. But the Arbitrator failed to do so.6
6
4 Notwithstanding the fact that the Agreements were not submitted to the SBA, the Arbitrator held
7
85 that, even if he concluded Womply was a lender service provider, he still would have awarded Womply
9
106 additional fees under the Agreements. (Final Award at 45-47.) That decision was not based on the terms
117 of the Agreements. Rather, the Arbitrator employed equitable principles, noting that Womply introduced
12
138 “copious evidence of the efforts that went into developing its Fast Lane and related Teslar systems and
14
159 the various application within those systems for which Womply had to pay a fee.” (Id. at 47.) The
16
10 Arbitrator then reasoned that “[f]ailing to compensate Womply for these efforts would result in a
17
11
18 disproportionately harsh penalty.” (Id.) The Arbitrator also concluded that Womply is still entitled to
19
12
20 additional fees because the SOPs do not state that an agreement is illegal or invalid if it is not submitted
21
13 to the SBA. (Id. at 45-46.) The Arbitrator missed the point.
22
14
23 The Agreements were not simply entered into with the backdrop of SBA Regulations. The
24
15
25 Agreements clearly and expressly—as the Final Award admits (id. at 53)—incorporate SBA
26
16 Regulations. The Agreements also provide that the SBA Regulations would supersede contrary
27
17
28 provisions in the Agreements. See supra, pp. 4-5. Moreover, the Arbitrator had no authority to employ
18 equitable principles to save Womply’s breach of contract claims. Specifically with respect to whether
19 Benworth had a legal obligation to pay further fees (i.e., the third element of Womply’s breach of
20 contract claims), as a matter of California law and the Parties’ governing Agreements, equity cannot
21 save Womply, authorizing further compensation by using equitable principles to eviscerate an express
22 provision of the Agreements. Put differently, the Arbitrator had no discretion to permit additional fees
23 under Agreements that did not comply with SBA Regulations.
24 Worse, the Arbitrator ruled that Womply would still be entitled to additional compensation
25 because California law provides an exception to the general rule that contracts made in violation of a
26
6
In fact, the Final Award does not even acknowledge Benworth’s argument that, because the Referral
27 Agreement was not submitted to the SBA, no additional Referral Fees are owed to Womply. (Ex. 19 at
28 18; Ex. 15 at 29; Ex. 20 at 6-10.)
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1
1 regulation are void. (Final Award at 46-47.) There is no way to reconcile this ruling with the unequivocal
2
32 requirement in the Agreements that SBA regulations control in the case of any conflict with California
4
35 law. The Arbitrator applied his own rough sense of justice in disregarding the SBA Regulations to avoid
6
4 imposing what he perceived as a “disproportionately harsh penalty” on Womply (id. at 47)—rather than
7
85 applying the contractual regime the Parties agreed would govern
9
106 This led the Ninth Circuit to affirm the vacatur of arbitration awards in Aspic and American
117 Postal. Aspic involved a dispute between an Afghan subcontractor and a contractor, who was engaged
12
138 by the U.S. government for construction projects in Afghanistan. 913 F.3d at 1164. The subcontracts
14
159 between the parties incorporated federal regulations by reference, with those regulations governing the
16
10 performance of the work and the requirements for obtaining compensation. Id. One of those regulations
17
11
18 required the Afghan subcontractor to submit its documents supporting reimbursement in the English
19
12
20 language, which it did not do. Id. at 1168. The arbitrator determined that strictly enforcing the regulatory
21
13 requirements “would result in a forfeiture and unfairness” to the Afghan subcontractor. Id. The Ninth
22
14
23 Circuit held that, “[b]y concluding that [the Afghan subcontractor] need not comply with the FAR
24
15
25 requirements, the Arbitrator exceeded his authority and failed to draw the essence of the Award from
26
16 the Subcontracts.” Id. “The Award disregarded specific provisions of the plaint text in an effort to
27
17
28 prevent what the Arbitrator deemed an unfair result.” Id. “Such an award is ‘irrational.’” Id.7
18 Similarly, as discussed above, see supra pp. 10-11, in American Postal, the Ninth Circuit
19 considered the vacatur of an arbitral award that ordered the Postal Service to reinstate a former employee
20 who participated in a strike. There, the arbitrator ordered reinstatement because he believed the “penalty
21 of discharge” would be “too severe.” 682 F.2d at 1284. In affirming vacatur, the Ninth Circuit held that
22 the “district judge properly denied enforcement of the arbitrator’s award” because reinstatement “would
23 violate 5 U.S.C. s. 7311.” Id. at 1286.
24
7
The Ninth Circuit also emphasized that it is a “serious matter when an arbitral award determines that a
25
(sub)contractor need not comply with the federal contracting regulations when no past practices
26 demonstrate variation from those requirements.” Id. at 1168. “To allow contractors and subcontractors,
foreign or domestic, to evade the FAR provisions because a subcontractor was too unsophisticated or
27 inexperienced to fully understand them would potentially cripple the government’s ability to contract
28 with private entities, and would violate controlling federal law.” Id. at 1168-69.
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1
1 Here, the SBA has determined that Agents, including lender service providers, may only receive
2
32 compensation from a lender when the SBA has reviewed the agreements. It is undisputed that the SBA
4
35 did not review the Agreements. The Arbitrator had no authority to override federal law and dispense his
6
4 own brand of industrial justice. This Court must vacate the Final Award.
7
85 II. THE FINAL AWARD IS UNENFORCEABLE BECAUSE IT COMPELS BENWORTH
9 TO VIOLATE PUBLIC POLICY.
106
“Judicial deference to an arbitrator’s remedy is not required where a remedy violates an explicit,
117
12 well-defined public policy.” Phoenix Newspapers, Inc. v. Phoenix Mailers Union Loc. 752, Int’l Bhd. of
138
14 Teamsters, 989 F.2d 1077, 1083 (9th Cir. 1993). “To vacate an arbitration award on public policy
159
grounds, the court must find (1) an explicit, well-defined policy and (2) that the policy is one that
16
10
17 specifically militates against the relief ordered by the arbitrator.” United Transp. Union, 116 F.3d at 433.
11
18
19 Examples of explicit, well-defined public policies include statutes, implementing regulations, and case
12
20 law interpreting the statutes and regulations. See Aramark Facility Servs. v. Serv. Emps. Int’l Union, Loc.
21
13
22 1877, AFL CIO, 530 F.3d 817, 824 (9th Cir. 2008).
14
23
24 For the same reasons discussed above, see supra, Part I.C., the SBA Regulations (and the
15
25 interpretations of those regulations) are explicit, well-defined policies that specifically militate against
26
16
27 the relief ordered by the Arbitrator. Under similar circumstances, the Ninth Circuit has vacated awards
17
28
on public policy grounds and this Court should do so here. See, e.g., Phoenix Newspapers, 989 F.2d at
18
1083-84 (directing district court to vacate arbitral award that required the parties to agree on a higher
19
wage rate in violation of a statute that required the parties to engage in only good faith bargaining); see
20
also supra, p. 23 (discussing American Postal and Aspic).
21
III. THE ARBITRATOR IS GUILTY OF MISCONDUCT FOR REFUSING TO POSTPONE
22 THE PROCEEDINGS UNTIL THE SBA COMPLETES ITS INVESTIGATION.
23 Courts may also vacate an arbitral award “where the arbitrators were guilty of misconduct in
24 refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent
25 and material to the controversy; or of any other misbehavior by which the rights of any party have been
26 prejudiced[.]” 9 U.S.C. § 10(a)(3). “The arbitrary denial of a reasonable request for a postponement may
27 serve as grounds for vacating an arbitration award.” Naing Int’l Enters. Ltd. v. Ellsworth Assocs., Inc.,
28 961 F. Supp. 1, 3 (D.D.C. 1997). Although arbitrators are accorded a degree of discretion, “if the failure
24
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1 of an arbitrator to grant a postponement or adjournment results in the foreclosure of the presentation of
2
32 ‘pertinent and material evidence,’ it is an abuse of discretion.” Id. Such is the case here.
4
35 There can be no dispute that the results of the SBA’s investigation into Womply constitute
6
4 pertinent and material evidence. The Agreements expressly contemplated that the SBA’s determinations
7
85 would be dispositive of any dispute. (See Referral Agreement, § 2.3 (providing that Womply shall return
9
106 to Benworth any fees that the SBA “determines were not in compliance with applicable SBA and/or
117 PPP Loan Program Requirements”); Order Form, § 2.3.) The SBA’s investigation specifically concerned
12
138 “the fees that Womply charged and its representations as to their nature and what services Womply
14
159 rendered to earn them . . . .” (Ex. 21 at Ex. A.) And the Arbitrator himself acknowledged that the results
16
10 of the investigation may render any award “advisory.” (See Ex. 14 at 829:24 – 831:24.) The SBA’s
17
11
18 investigation would likely also produce material evidence as to whether Womply was a lender service
19
12
20 provider. The SBA initiated its investigation of Womply in response to the Congressional Report, which
21
13 concluded that Womply avoided characterizing itself as a lender service provider. (Ex. 22 at 4-6.)
22
14
23 Womply argues that Naing—a case where the court vacated an award because the arbitrators
24
15
25 refused to continue the arbitration pending the completion of an SBA investigation—has no application
26
16 here because, in Naing, the record contained a date certain by when the SBA would complete its
27
17
28 investigation whereas the SBA has not yet completed its investigation of Womply. (Motion at 11-12.)
18 However, as Naing observed, “neither this Court nor the arbitration panel can allow the pursuit of an
19 expedient adjudication to outweigh its obligation to ensure a just and fair one.” 961 F. Supp. at 5-6.
20 Here, the Arbitrator allowed expediency to outweigh his obligation to ensure a fundamentally
21 fair hearing. Despite acknowledging the materiality of the results of the SBA’s investigation to the issues
22 in the Arbitration and the prospect that those results could render his award “advisory,” the Arbitrator
23 refused to defer his ruling until the SBA completed its investigation of Womply. In so doing, the
24 Arbitrator not only foreclosed Benworth from presenting pertinent evidence and material, but the
25 Arbitrator also usurped the role of the SBA and granted himself the authority to make final policy
26 decisions about one of the most unprecedented government relief programs in American history.
27 CONCLUSION
28 For the foregoing reasons, the Court should deny the Motion.
25
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Case 3:23-cv-01034-GMM Document 162-5 Filed 09/09/24 Page 32 of 32
1 Dated: September 6, 2024. Respectfully submitted,
1
2
32 /s/ Dwayne A. Robinson
4 Jorge L. Piedra (Florida Bar No. 88315)
35 (Pro Hac Vice)
6 jpiedra@kttlaw.com
4
7 Dwayne A. Robinson (Florida Bar No. 99976)
85 (Pro Hac Vice)
9 drobinson@kttlaw.com
106 Michael R. Lorigas (Florida Bar No. 123597)
117 (Pro Hac Vice)
12 mlorigas@kttlaw.com
138 KOZYAK TROPIN & THROCKMORTON
14 2525 Ponce de Leon Boulevard, 9th Floor
159 Miami, Florida 33134
16
10 Telephone: 305-372-1800
17
11
18 -and-
19
12
20 Simon S. Grille (State Bar No. 294914)
21
13 sgrille@girardsharp.com
22 GIRARD SHARP LLP
14
23 601 California Street, Suite 1400
24 San Francisco, CA 94108
15
25 Telephone: (415) 981-4800
26
16
27 Attorneys for Benworth Capital Partners, LLC
17
28
18
19
20
21
22
23
24
25
26
27
28
26
OPPOSITION TO MOTION TO CONFIRM
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