Defendant Spencer Robinson's Motion to Dismiss: United States ex rel. Pietschner v. Petralia

Summary

Defendant Spencer Robinson's motion to dismiss, filed March 11, 2025, in the Eastern District of Texas, Sherman Division, in the case brought by the United States ex rel. Paul Pietschner against Kathryn Petralia, Robert Frohwein and Robinson. It asks the court to dismiss the complaint in intervention for improper venue, lack of personal jurisdiction and failure to state a claim. Robinson argues that the district is not a proper venue under 31 U.S.C. § 3732(a), so nationwide service cannot support jurisdiction over him as a Florida resident. He also argues that the False Claims Act allegations about Kabbage's PPP loan reviews, the SALT error and the 100k error lack particularity, intent and materiality, and asks that all claims be dismissed with prejudice.

Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used

Cite this document

“Defendant Spencer Robinson's Motion to Dismiss: United States ex rel. Pietschner v. Petralia.” Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/67-81e3ba5d8c/, SHA-256 4b2c4fafe139a0f525d1ac4438c09aaba5beadbf3354b9af1ad954ac97c8c380.

Full text

Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 1 of 33 PageID #: 521

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

UNITED STATES OF AMERICA
ex rel. PAUL PIETSCHNER,

Plaintiff,
Civil Action No.: 4:21-cv-110-SDJ
v.

KATHRYN PETRALIA;
ROBERT FROHWEIN; and
SPENCER ROBINSON,

Defendants.

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

Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 2 of 33 PageID #: 522

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

Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 3 of 33 PageID #: 523

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

Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 4 of 33 PageID #: 524

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

iii

Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 5 of 33 PageID #: 525

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

Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 6 of 33 PageID #: 526

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

Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 7 of 33 PageID #: 527

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

Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 8 of 33 PageID #: 528

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

Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 9 of 33 PageID #: 529

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.
3

Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 10 of 33 PageID #: 530

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

Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 11 of 33 PageID #: 531

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

Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 12 of 33 PageID #: 532

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.”
6

Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 13 of 33 PageID #: 533

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
7

Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 14 of 33 PageID #: 534

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.
8

Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 15 of 33 PageID #: 535

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.
9

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

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 17 of 33 PageID #: 537

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 18 of 33 PageID #: 538

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 19 of 33 PageID #: 539

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 20 of 33 PageID #: 540

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 21 of 33 PageID #: 541

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 issues 9

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 22 of 33 PageID #: 542

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.”).
16

Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 23 of 33 PageID #: 543

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 24 of 33 PageID #: 544

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.
18

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

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 26 of 33 PageID #: 546

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 statistics 23 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.

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.
20

Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 27 of 33 PageID #: 547

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 28 of 33 PageID #: 548

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.
22

Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 29 of 33 PageID #: 549

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.
23

Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 30 of 33 PageID #: 550

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.
24

Case 4:21-cv-00110-SDJ Document 67 Filed 03/11/25 Page 31 of 33 PageID #: 551

“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.
25

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

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 33 of 33 PageID #: 553

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.

Dated March 11, 2025 Respectfully Submitted,

By: /s/ Henry W. Asbill

Henry W. Asbill (admitted Pro Hac Vice)
DC Bar # 938811
hasbill@schertlerlaw.com
SCHERTLER ONORATO MEAD & SEARS
555 13th Street NW Suite 500W
Washington DC 20004
Telephone: 202-628-4199
Facsimile: 202-628-4177

File and source

File: 67.pdf
Size: 425,604 bytes
SHA-256: 4b2c4fafe139a0f525d1ac4438c09aaba5beadbf3354b9af1ad954ac97c8c380
Our copy: 67.pdf
Original: No public link identified.