Memorandum of Law in Support of Motion to Dismiss — No. 1:21-cv-00748 (Dkt. 33-1)

Summary

A memorandum of law filed November 9, 2021 as Document 33-1 by defendants Bank of America, N.A. and Megan Scholz in support of their motion to dismiss Natasha Athens d/b/a Favorite Things v. Bank of America and Megan Scholz, Civil Action No. 1:21-cv-00748-SM, in the U.S. District Court for the District of New Hampshire. It argues that the pro se complaint should be dismissed under Federal Rules of Civil Procedure 12(b)(6) and 9(b), that the CARES Act creates no private right of action, and that the fraud, breach of contract and emotional distress claims are inadequately pled. It states that the plaintiff's PPP loan of $18,625 was funded on May 14, 2020 and that forgiveness was denied because documents submitted with the forgiveness application showed she did not qualify. It is signed /s/ Thomas J. Pappas of Primmer Piper Eggleston & Cramer PC.

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“Memorandum of Law in Support of Motion to Dismiss — No. 1:21-cv-00748 (Dkt. 33-1).” Original at archive.org. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/memorandum-of-law-in-support-of-motion-to-dismiss-no-1-21-cv-00748-dkt-e6fb76b9e8/, SHA-256 ed591552ca6f4f94e0d2948d757638160e9cf02151d528a2e4d78f1e0384ca6e.

Full text

Case 1:21-cv-00748-SM Document 33-1 Filed 11/09/21 Page 1 of 20

UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE

)
NATASHA ATHENS d/b/a Favorite Things, )
)
Plaintiff, )
)
v. ) Civil Action No. 1:21-cv-00748-SM
)
BANK OF AMERICA and MEGAN SCHOLZ, )
)
Defendants. )
)

DEFENDANTS BANK OF AMERICA, N.A. AND MEGAN SCHOLZ’S
MEMORANDUM OF LAW IN SUPPORT OF DEFENDANTS’ MOTION TO DISMISS

Defendants Bank of America, N.A. (“BofA”)1 and Megan Scholz (“Scholz,” and together

with BofA, “Defendants”), by and through their attorneys, Primmer Piper Eggleston & Cramer

PC, respectfully submit this memorandum of law in support of their motion to dismiss the

September 3, 2021 Complaint (the “Complaint” or “Compl.”), filed by Natasha Athens d/b/a

Favorite Things (“Plaintiff”), appearing pro se. Plaintiff’s Complaint should be dismissed

pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b) because it fails to adequately plead

any cognizable claim for relief against Defendants.

I. INTRODUCTION

Plaintiff contends that Defendants improperly refused to forgive a loan she obtained

pursuant to the Paycheck Protection Program (“PPP” or “Program”). Compl. at 1. Although the

Complaint does not clearly delineate the claims it is asserting, in an October 4, 2021 Order, the

Court determined that pursuant to 28 U.S.C. § 1915(e)(2), Plaintiff’s Complaint, “[c]onstrued

1
Incorrectly named in Plaintiff’s Complaint as “Bank of America.”

1
Case 1:21-cv-00748-SM Document 33-1 Filed 11/09/21 Page 2 of 20

liberally,” contains state law claims for: “1) fraud;2 2) breach of contract; and 3) intentional

infliction of emotional distress.” Order, ECF No. 14, at 4.

Each of Plaintiff’s claims fails as a matter of law for numerous reasons. Fundamentally,

Plaintiff’s central contention—that Defendants improperly denied her PPP loan forgiveness

application—is baseless. Plaintiff’s loan forgiveness application was denied because the

documents she submitted in support of her forgiveness request—which were different documents

than the ones she submitted in support of her original loan application—confirmed she did not

qualify for the loan she received, and thus was not entitled to loan forgiveness pursuant to the clear

and unambiguous rules promulgated by the Small Business Administration (“SBA”). These

facts—which can be considered on a motion to dismiss because Plaintiff’s forgiveness application

is incorporated by reference into Plaintiff’s Complaint—undermine Plaintiff’s claims and warrant

dismissal of her Complaint.

Plaintiff’s Complaint suffers from several other fundamental defects as well. First,

Plaintiff’s fraud and breach of contract allegations effectively allege an entitlement to loan

forgiveness under the PPP, but the Coronavirus Aid, Relief, and Economic Security (“CARES”)

Act, which established the PPP, does not create a private right of action. And even if it did, the

CARES Act and its accompanying SBA regulations are clear and unequivocal that PPP loan

forgiveness is not guaranteed and any funds not eligible for forgiveness must be repaid. Plaintiff’s

PPP loan forgiveness documentation confirms that Plaintiff was not entitled to a PPP loan and,

therefore, not entitled to forgiveness of her already-disbursed PPP loan. Second, Plaintiff’s claims

2
As the Court notes, Plaintiff’s claim is for common law civil fraud, not criminal fraud. Order, ECF No.
14, at 4. Criminal fraud does not provide a private right of action. See Linda R.S. v. Richard D., 410 U.S.
614, 619 (1973) (“a private citizen lacks a judicially cognizable interest in the prosecution or
nonprosecution of another”).

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Case 1:21-cv-00748-SM Document 33-1 Filed 11/09/21 Page 3 of 20

are inadequately pled. Plaintiff’s fraud claim fails to state a claim on which relief can be granted

with the specificity required under Federal Rules of Civil Procedure 12(b)(6) and 9(b), as Plaintiff

fails to identify any fraudulent statement Defendants allegedly made, let alone the who, what,

where, and when regarding any such misrepresentation. Plaintiff’s breach of contract claim fails

to specify which contract—and the specific provision of the contract—Defendants allegedly

breached. And Plaintiff’s intentional infliction of emotional distress claim lacks any of the

requisite detail necessary to satisfy the high bar of asserting such a claim.

Accordingly, the Court should dismiss Plaintiff’s Complaint in its entirety.

II. FACTUAL BACKGROUND

A. PPP Background

In March 2020, governments began issuing shutdown orders to reduce the spread of the

novel coronavirus, COVID-19. See “Business Loan Program Temporary Changes; Paycheck

Protection Program,” 85 Fed. Reg 20,811 (Apr. 15, 2020).3 To assist businesses affected by these

shutdown orders, among other concerns, Congress passed the CARES Act. As is relevant here,

the CARES Act, passed on March 27, 2020, created the Paycheck Protection Program. Id. The

CARES Act called for private lenders to provide funding in the form of loans to small businesses,

which would be guaranteed by the SBA. Id.

The PPP ran from April 3 to April 15, 2020, from April 27 to August 8, 2020, and from

January 11 to May 31, 2021. See, e.g., “Covid-19 Relief Assistance to Small Businesses: Issues

3
Available at https://www.federalregister.gov/documents/2020/04/15/2020-07672/business-loan-
program-temporary-changes-paycheck-protection-program. “The contents of the Federal Register shall be
judicially noticed.” 44 U.S.C. § 1507. A court may consider evidence appropriate for judicial notice
without converting a motion to dismiss into a motion for summary judgment. Freeman v. Town of Hudson,
714 F.3d 29, 36 (1st Cir. 2013).

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and Policy Options,” Congressional Research Service, 2–5, 8, 10 (October 1, 2021).4 PPP

lending in the spring of 2020 was characterized by overwhelming demand. In the first two weeks

of the Program, 4,975 lenders had processed and funded 1,661,367 loans.5 As then-SBA

Administrator Jovita Carranza observed, this equaled fourteen years’ worth of SBA lending in

fourteen days.6 When the second round of PPP lending concluded on August 8, 2020, BofA had

funded 343,626 loans.7

The core principle of the PPP was that if a small business was entitled to a PPP loan and

used the loan to make payroll and other qualifying expenditures, then the loan would be forgiven,

and the private lender reimbursed by the federal government rather than by the borrower; if the

small business was not eligible for a PPP loan, then the small business would be required to pay

back the loan to the private lender at a one-percent interest rate. “Business Loan Program

Temporary Changes; Paycheck Protection Program as Amended by Economic Aid Act,” 86 Fed.

Reg. 3,692, 3,703–04 (Jan. 14, 2021). Over the course of the Program, the SBA implemented a

4
Available at https://crsreports.congress.gov/product/pdf/R/R46284. Judicial notice may be taken of
“reliable sources, such as the Congressional Research Service . . . reports.” Kareem v. Haspel, 986 F.3d
859, 867 n.7 (D.C. Cir. 2021).
5
“Paycheck Protection Program (PPP) Report,” Small Business Administration, 2 (Apr. 16, 2020),
available at https://home.treasury.gov/system/files/136/SBA%20PPP%20Loan%20Report%20Deck.pdf.
Courts may judicially notice reports of administrative bodies. See, e.g., Gent v. CUNA Mut. Ins. Soc’y, 611
F.3d 79, 84 n.5 (1st Cir. 2010) (taking judicial notice of reports by federal government agencies).
6
Jovita Carranza, “SBA: PPP processed more than 14 years worth of loans in less than 14 days,”
USAToday (Apr. 21, 2020), available at
https://www.usatoday.com/story/opinion/todaysdebate/2020/04/20/sba-ppp-14-years-worth-loans-14-
days-editorials-debates/5167961002/.
7
“Paycheck Protection Program (PPP) Report,” Small Business Administration, 1 (Aug. 8, 2020),
available at https://home.treasury.gov/system/files/136/SBA-Paycheck-Protection-Program-Loan-Report-
Round2.pdf.

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series of rules and guidance documents governing loan eligibility.8 Three rules are most relevant

to this case.

First, the Interim Final Rule (“IFR”) states that borrowers must calculate their maximum

PPP loan by calculating their total “[p]ayroll costs,” which consists of “compensation to [United

States-based] employees . . . in the form of salary, wages, commissions, or similar compensation,”

as well as related benefits. 85 Fed. Reg. 20,811, 20,812–13; id. at 20,815 (“Borrowers must submit

. . . documentation as is necessary to establish eligibility”).

Second, borrowers were required to certify, among other things, that the documentation

submitted to the lender accurately reflected payroll costs, and to acknowledge that “the lender will

confirm the eligible loan amount using tax documents that I have submitted.” Id. at 20,814–15.

Borrowers that submitted PPP applications through BofA, like Plaintiff, were required to “certify

in good faith,” among other things, that the “Applicant is eligible to receive a loan under the rules

in effect at the time this application is submitted that have been issued by the [SBA].” Declaration

of George E. Driver IV (“Driver Decl.”) Exhibit 1.9 Upon approval, borrowers then signed a PPP

Promissory Note, which required the borrower to agree, among other things, that (1) “Borrower

was and remains eligible to receive a loan under the rules in effect at the time Borrower submitted

to Bank its [PPP] Application Form,” (2) “Borrower has provided to Bank all documentation

8
The first of these rules was released the evening of April 2, 2020, hours before the Program opened on
April 3, 2020. Business Loan Program Temporary Changes; Paycheck Protection Program, 85 Fed. Reg
23,450, 23,450 (Apr. 28, 2020).
9
A court may consider “documents incorporated by reference in the Complaint.” See Wilson v. HSBC
Mortg. Servs., Inc., 744 F.3d 1, 7 (1st Cir. 2014) (brackets omitted); Fed. R. Civ. P. 10(c). Though Plaintiff
did not attach her PPP application or PPP loan forgiveness application to her Complaint, the Complaint
discusses both at length. They are therefore documents “whose contents are alleged in a complaint and
whose authenticity no party questions, but which are not physically attached to the pleading,” and therefore
“may be considered in ruling on a Rule 12(b)(6) motion to dismiss.” Beddall v. State St. Bank & Tr. Co.,
137 F.3d 12, 17 (1st Cir. 1998).

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available to Borrower on a reasonable basis verifying the dollar amounts of average monthly

payroll costs for the calendar year 2019,” and (3) “[i]f the SBA does not confirm forgiveness of

the Loan, or only partly confirms forgiveness of the Loan, . . . Borrower will be obligated to repay

to the Bank the total outstanding balance remaining due under the Loan, . . . and in such case, Bank

will establish the terms for repayment of the Loan Balance.” Driver Decl. Exhibit 2 at 1.

Third, lenders’ “underwriting obligations” were “limited to”: (1) confirming receipt of

borrower documents; (2) confirming receipt of information that the borrower paid salaries and

payroll taxes on or around February 15, 2020; (3) confirming “the dollar amount of average

monthly payroll costs . . . by reviewing the payroll documentation submitted with the borrower’s

application”; and (4) adhering to certain anti-money laundering obligations. 85 Fed. Reg at

20,815. Indeed, lenders were explicitly permitted to “rely on borrower documentation for loan

forgiveness” and did “not need to conduct any verification if the borrower submits the

documentation supporting its request for loan forgiveness and attests that it has accurately verified

the payments for eligible costs.” Id. In a frequently asked question, the SBA clarified that the

obligation to review “the dollar amount of average monthly payroll costs . . . by reviewing the

payroll documentation submitted with the borrower’s application” did not “require the lender to

replicate each of the borrower’s calculations.” “Paycheck Protection Program Loans Frequently

Asked Questions,” Small Business Administration, 1 (June 8, 2021).10 Rather:

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

10
Available at https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-
Asked-Questions.pdf. This answer was originally posted on April 3, 2020. Id. at 1 n.2.

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indicate, lenders may rely on borrower representations, including with respect to
amounts required to be excluded from payroll costs.

Id. (emphasis added). This limited role is consistent with the CARES Act, which states that “[i]f

a lender has received the documentation required from this section from an eligible recipient

attesting that the eligible recipient has accurately verified the payments for payroll costs,” no

government action shall be taken against the lender. CARES Act, P.L. No. 11-136, § 1106(h). As

the IFR observed:

The intent of the Act is that SBA provide relief to America’s small businesses
expeditiously, which is expressed in the Act by giving all lenders delegated
authority and streamlining the requirements of the regular 7(a) loan program . . .
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. Lenders must comply with the
applicable lender obligations set forth in this interim final rule, but will be held
harmless for borrowers’ failure to comply with program criteria.

85 Fed. Reg. 20,811, 20,812 (emphasis added). See also Savage v. United States Small Bus.

Admin., No. 1:21-CV-0153-MSM-PAS, 2021 WL 3406387, at *1 (D.R.I. Aug. 4, 2021) (“Lenders

would . . . rely on certifications of the borrower made on the PPP Application Form and be assured

that the SBA would hold lenders harmless for any borrower error or misrepresentations.”

(quotation marks omitted)).

B. Plaintiff’s PPP Loan Application and Loan Forgiveness Application

Plaintiff is a sole proprietor, doing business as Favorite Things. Compl. at 2. Plaintiff

applied for a PPP loan in April 2020. Id. at 4. After declining an initial loan of $510, Plaintiff

submitted screenshots that purported to be various 2019 and 2020 tax documents and requested a

loan in the amount of $18,625. Compl. at 4–5. Based on Plaintiff’s representations (1) that her

net profits—as reflected in screenshots of her draft 2019 IRS Form 1040 Schedule C, line 31—

were $2,450 for one month of operation, and (2) that she paid $15,000 in wages in the first quarter

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of 2020—as reflected in screenshots of her 2020 IRS Form 941, Plaintiff’s PPP loan was funded

on May 14, 2020 in the amount of $18,625.11 Compl. at 4–5; Driver Decl. Exhibit 3.

Several months later, Plaintiff submitted finalized 2019 and 2020 tax documentation,

reflecting different numbers, in connection with her PPP Loan Forgiveness Application (SBA

Form 3508S). Driver Decl. Exhibit 4. Plaintiff alleges that BofA notified her in July 2021 that

her full PPP loan was eligible for forgiveness. Compl. at 9–10. Then, on August 9, 2021, Plaintiff

claims that Scholz “pulled and withdrew the [PPP] application” and reduced the amount eligible

for forgiveness to zero, “[u]pon closer review of the documents provided.” Id. at 10. BofA’s

review was based on SBA guidance, which instructs borrowers to calculate payroll costs based in

part on: (1) 2019 IRS Form 1040 Schedule C, lines 14, 19, and 31. Plaintiff’s Schedule C, lines

14, 19, and 31 are all “0” or blank. Driver Decl. Exhibit 5; and (2) 2019 IRS Form 941, Taxable

Medicare wages & tips, line 5c-column 1, which is also blank. Driver Decl. Exhibit 6. Plaintiff

submitted no additional documentation indicating she was entitled to forgiveness.

Based on a review of Plaintiff’s documents, BofA determined that Plaintiff’s PPP loan was

not eligible for forgiveness pursuant to the relevant SBA guidance on loan eligibility. BofA

therefore had no choice under SBA regulations but to instruct Plaintiff that she was ineligible for

forgiveness. See Compl. at 9–11. Finally, on August 23, 2021, Plaintiff alleges that Scholz again

changed the forgiveness amount to $1, in order to grant Plaintiff “an automatic right to an appeal.”

Id. at 11.

11
Office of Capital Access, How To Calculate Maximum Loan Amounts – By Business Type, Small
Business Administration (Apr. 24, 2020), https://www.sba.gov/sites/default/files/2020-04/How-to-
Calculate-Loan-Amounts.pdf. The SBA updated this document several times, most recently on March 12,
2021. See Office of Capital Access, How to Calculate Maximum Loan Amounts for First Draw PPP Loans
and What Documentation to Provide – by Business Type, Small Business Administration (March 12, 2021),
https://www.sba.gov/sites/default/files/2021-03/HowtoCalculateFirstDrawLoanAmountsFAQs-3.12.21-
508.pdf.

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C. Plaintiff’s Complaint

On September 3, 2021, Plaintiff filed a complaint in this Court. Plaintiff’s claims are

predicated on a belief that “as long as the [PPP] funds were used for the intended purposes, they

were 100% forgiven.” Compl. at 4. Based on this belief, Plaintiff alleges that she was

automatically entitled to a PPP loan, that Defendants had no legitimate reason to deny forgiveness

of the entire $18,625 PPP loan, and that such denial is evidence of fraud and a breach of the parties’

contract. Id. at 9. Plaintiff alleges that she lost her business and suffered severe emotional distress

because of Defendants’ actions. Id. 1–2.

Although the Complaint does not clearly delineate the claims it is asserting, the Court, in

an October 4, 2021 Order, determined that pursuant to 28 U.S.C. § 1915(e)(2), Plaintiff’s

Complaint, “[c]onstrued liberally,” contains state law claims for: “1) fraud; 2) breach of contract;

and 3) intentional infliction of emotional distress.” Order, ECF No. 14, at 4.

III. LEGAL STANDARD

Under Federal Rule of Civil Procedure 12(b)(6), a complaint must be dismissed where it

states no legal basis for relief. In deciding a motion to dismiss, this Court employs a two-pronged

approach. First, the Court “screen[s] the complaint for statements that ‘merely offer legal

conclusions couched as fact or threadbare recitals of the elements of a cause of action.’” Ruivo v.

Wells Fargo Bank, N.A., No. 11-CV-466-PB, 2012 WL 5845452, at *2 (D.N.H. Nov. 19, 2012)

(quoting Ocasio-Hernández v. Fortuño–Burset, 640 F.3d 1, 12 (1st Cir. 2011)). “[A]llegations

that merely parrot the elements of the cause of action may be dismissed.” Id.(quotation marks

omitted). Second, while this Court “credit[s] as true all non-conclusory factual allegations and the

reasonable inferences drawn from those allegations,” they still “‘must state a plausible, not a

merely conceivable, case for relief.’” Id. (quoting Sepúlveda-Villarini v. Dep’t of Educ., 628 F.3d

25, 29 (1st Cir. 2010)). Pro se complaints, while construed liberally, still require “sufficient factual

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matter . . . to state a claim to relief.” Bourne v. Arruda, No. 10-CV-393-LM, 2011 WL 2357504,

at *2–3 (D.N.H. June 10, 2011), aff’d (Oct. 1, 2013) (granting in part motion to dismiss a pro se

complaint).

Moreover, to the extent Plaintiff brings a fraud claim against Defendants, the claim must

be considered under Federal Rule of Civil Procedure 9(b) which provides that, “[i]n alleging fraud

or mistake, a party must state with particularity the circumstances constituting fraud or mistake.”

This heightened pleading standard, which “applies to state law fraud claims asserted in federal

court,” North American Catholic Educational Programming Foundation, Inc. v. Cardinale, 567

F.3d 8, 13 (1st Cir. 2009), “means that a complaint rooted in fraud must specify the who, what,

where, and when of the allegedly false or fraudulent representations,” Moore v. Mortg. Elec.

Registration Sys., Inc., 848 F. Supp. 2d 107, 130 (D.N.H. 2012). Pro se plaintiffs must still set

forth “specific facts” to sustain a fraud claim under Rule 9(b). Moody v. PennyMac Loan Servs.,

LLC, No. 16-CV-021-JL, 2018 WL 10812614, at *8 (D.N.H. Mar. 27, 2018).

IV. ARGUMENT

Plaintiff’s Complaint should be dismissed for failure to state a claim for two primary

reasons. First, Plaintiff’s breach of contract and fraud claims are, at their core, merely disguised

claims to enforce a purported automatic right to forgiveness under the CARES Act for any

approved PPP loan provided its funds were used according to SBA regulations. This claim is

deficient for three fundamental reasons: (1) The CARES Act does not create a private right of

action; (2) Even if it did, Plaintiff’s assertion that the CARES Act guarantees forgiveness of any

approved PPP loan that is properly spent is incorrect as a matter of law; and (3) Plaintiff’s PPP

loan forgiveness application documentation, which is incorporated by reference into her Complaint

and can be considered on a motion to dismiss, confirms that she is not entitled to forgiveness under

the clear and unambiguous CARES Act and accompanying SBA regulations. Plaintiff cannot

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parlay her disappointment over the CARES Act-mandated limitations on loan forgiveness into

common law claims against its PPP lender. Second, all of Plaintiff’s claims also fail for the

additional reason that they are inadequately pled. The Court should therefore dismiss Plaintiff’s

Complaint for failure to state a claim.

A. Plaintiff’s Fraud and Breach of Contract Claims Fail to State
Cognizable Claims

i. The CARES Act Does Not Recognize a Private Right of Action

Plaintiff’s fraud and breach of contract claims suffer from a fatal flaw. These claims are

at their core disguised claims to enforce a purported right under the CARES Act. See, e.g., Compl.

at 17 (“Defendant [BofA] owes the Plaintiff $1 Million dollars [for] . . . the right she had to access

federal funds from the CARES [A]ct.”). But the CARES Act does not recognize any private right

of action.

“[P]rivate rights of action to enforce federal laws must be created by Congress.” Alexander

v. Sandoval, 532 U.S. 275, 286 (2001). Courts deciding this issue uniformly hold that the CARES

Act does not create a private right of action against PPP lenders. See, e.g., Profiles, Inc. v. Bank

of Am. Corp., 453 F. Supp. 3d 742, 751 (D. Md. 2020) (in a lawsuit against BofA as a PPP lender,

finding nothing in the CARES Act that “evidences the requisite congressional intent to create a

private right of action”); Shehan v. U.S. Dep’t of Just., No. 1:20-CV-00500, 2020 WL 7711635,

at *11 (S.D. Ohio Dec. 29, 2020) (collecting cases).

Though Plaintiff may be disappointed with the CARES Act requirements that prevent

BofA from forgiving Plaintiff’s loan, she cannot generate common law fraud or breach of contract

liability on the part of a PPP lender. For this reason alone, the fraud and breach of contract claims

should be dismissed.

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ii. The CARES Act and SBA Regulations Make Clear That PPP
Loan Forgiveness Is Not Guaranteed and Any Funds That Do
Not Qualify for Forgiveness Must Be Repaid

Even if the CARES Act recognized a private right of action, Plaintiff’s fraud and breach of

contract claims would still fail because, contrary to Plaintiff’s assertions otherwise, the CARES

Act does not guarantee the forgiveness of disbursed funds, even if the PPP recipient spent the funds

in accordance with SBA guidance. Rather, the PPP forgiveness process requires that borrowers

be eligible to receive the funds in the first place, based on clear requirements laid out in the CARES

Act and SBA regulations. If a borrower is ineligible to receive already-disbursed PPP funds, those

funds become ineligible for forgiveness and must be repaid back to the lender. There are no

exceptions.

PPP borrowers are eligible for forgiveness of “up to the full principal amount” of their loan,

subject to SBA rules. April 15, 2020 Interim Final Rule, 85 Fed. Reg. 20,811–12; 15 U.S.C.

§ 636m(f). Consistent with Plaintiff’s certifications on its Promissory Note, Driver Decl. Exhibit

2, SBA regulations clearly and unequivocally required that borrowers (and not lenders) accurately

determine whether they are eligible for a PPP loan. As the IFR observed:

Can lenders rely on borrower documentation for loan forgiveness? Yes. The
lender does not need to conduct any verification if the borrower submits
documentation supporting its request for loan forgiveness and attests that it has
accurately verified the payments for eligible costs. The Administrator will hold
harmless any lender that relies on such borrower documents and attestation from a
borrower.

April 15, 2020 Interim Final Rule, 85 Fed. Reg. 20,811, 20,815 (emphasis added); June 1, 2020

Interim Final Rule, 85 Fed. Reg. 33,010, 33,013 (“Providing an accurate calculation of the loan

forgiveness amount is the responsibility of the borrower, and the borrower attests to the accuracy

of its reported information and calculations on the Loan Forgiveness Application.”); February 5,

2021 Interim Final Rule, 86 Fed. Reg. 8,284, 8,285 (describing the PPP as a program “in which

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loans and loan forgiveness are provided based on the borrower’s certifications and documentation

provided by the borrower”); Savage, No. 1:21-CV-0153-MSM-PAS, 2021 WL 3406387, at *1

(“Lenders would . . . rely on certifications of the borrower made on the PPP Application Form and

be assured that the SBA would hold lenders harmless for any borrower error or

misrepresentations.” (quotation marks omitted)).

SBA regulations mandate that PPP loan forgiveness is contingent on the accuracy of the

borrower’s representations in its loan application regarding total payroll costs. Where a borrower

was ineligible to receive disbursed PPP funds, those funds “will not be eligible for [PPP] loan

forgiveness.” June 1, 2020 Interim Final Rule, 85 Fed. Reg. 33,004, 33,005. The January 15,

2021 SBA Lender Procedural Notice, Control No. 5000-2007812, elaborates:

A borrower may not receive loan forgiveness for any amount that exceeds the
correct maximum loan amount permitted by statute for that borrower. This is
true whether the excess loan amount was caused by borrower error or lender
error. . . . If the lender or SBA, as applicable, determines a borrower was ineligible
for any portion of its loan amount, forgiveness will be denied for the ineligible
portion and the borrower must begin making payments on the remaining loan
amount. Any unforgiven loan amounts remain obligations of the borrower, even if
the borrower was ineligible to receive some or all of the loan.

Id. at 2–3 (emphasis added). There is no exception to this rule for borrowers that nevertheless use

excess disbursed amounts for the benefit of their business or employees. June 26, 2020 Interim

Final Rule, 85 Fed. Reg. 38,304, 38,306.

iii. Plaintiff’s PPP Loan Forgiveness Application Confirms That
Plaintiff Was Not Entitled to a PPP Loan

The CARES Act and SBA regulations do not guarantee forgiveness of PPP loans and, as

discussed more fully above, the documentation Plaintiff submitted with her PPP Loan Forgiveness

12
Available at https://www.sba.gov/sites/default/files/2021-01/5000-20078-508.pdf.

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Application confirmed that she was ineligible for PPP funding based on the relevant SBA

regulations. See supra section II.B. As a result, Plaintiff must pay back the $18,625 balance of

her PPP loan. See Driver Decl. Exhibit 2 at 1 (“If the SBA does not confirm forgiveness of the

Loan, or only partly confirms forgiveness of the Loan, . . . Borrower will be obligated to repay to

the Bank the total outstanding balance remaining due under the Loan, . . . and in such case, Bank

will establish the terms for repayment of the Loan Balance.”); January 15, 2021 SBA Lender

Procedural Notice, Control No. 5000-20078 (“If the lender or SBA, as applicable, determines a

borrower was ineligible for any portion of its loan amount, forgiveness will be denied for the

ineligible portion and the borrower must begin making payments on the remaining loan amount.”);

June 1, 2020 Interim Final Rule, 85 Fed. Reg. 33,010, 33,012 (“Section 1106(b) of the CARES

Act provides for forgiveness of a PPP loan only if the borrower is an ‘eligible recipient.’”); 15

U.S.C. § 636(a)(36)(A)(iv) (“the term ‘eligible recipient’ means an individual or entity that is

eligible to receive a covered loan”). The PPP does not permit (nor would it make sense for a

program with limited resources to permit) applicants that received excess PPP funds to avoid

repayment of such funds for any reason.

Plaintiff’s core theory underpinning her Complaint is that she is entitled to full PPP

forgiveness. Because this has no basis under the CARES Act or its implementing regulations,

Plaintiff’s fraud and breach of contract claims should be dismissed.

B. All of Plaintiff’s Claims Are Inadequately Pled

All of Plaintiffs’ claims fail for an additional, equally fundamental reason: Plaintiff fails

to adequately plead facts supporting her claims. They should, therefore, be dismissed.

i. Plaintiff Fails to State a Claim for Fraud

Plaintiff’s fraud claim fails to state a claim on which relief can be granted with the

specificity required under Federal Rules of Civil Procedure 12(b)(6) and 9(b). Plaintiff fails to

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identify any fraudulent statement Defendants allegedly made, let alone the who, what, where, and

when regarding any such misrepresentation.

To state a claim for fraud, a plaintiff must allege that: (1) the defendant misrepresented a

material fact to the plaintiff, knowing it to be false; (2) the defendant did so with fraudulent intent

that the plaintiff act on it; and (3) the plaintiff, without knowledge of its falsity, detrimentally relied

on the misrepresentation. Alexander v. Fujitsu Bus. Commc’n Sys., Inc., 818 F. Supp. 462, 467

(D.N.H. 1993); see also Obi v. Exeter Health Res., Inc., 2018 WL 5557062, at *4 (D.N.H. Oct. 2,

2018), report and recommendation adopted, 2018 WL 5456503 (D.N.H. Oct. 27, 2018)

(dismissing fraud claim in pro se complaint). “[A] complaint’s general averment of the

defendant’s ‘knowledge’ of material falsity” is inadequate unless the complaint “also sets forth

specific facts that make it reasonable to believe that [the] defendant knew that a statement was

materially false or misleading.” North American Catholic Educational Programming Foundation,

Inc., 567 F.3d at 13 (citing Greenstone v. Cambex Corp., 975 F.2d 22, 25 (1st Cir. 1992)).

Moreover, Rule 9(b) of the Federal Rules of Civil Procedure provides that, “[i]n alleging fraud or

mistake, a party must state with particularity the circumstances constituting fraud or mistake.” In

other words, Plaintiff must “specify the who, what, where, and when of the allegedly false or

fraudulent representations.” Moore, 848 F. Supp. 2d at 130. To survive a motion to dismiss, “the

plaintiff must specify the essential elements of the fraud, and specifically allege the facts of the

defendant’s fraudulent actions.” Jay Edwards, Inc. v. Baker, 130 N.H. 41, 46–47 (1987).

Plaintiff’s Complaint comes nowhere close to satisfying these pleading requirements, as it

is devoid of any of the factual allegations necessary to make out a claim for fraud. Plaintiff fails

to specify the who, what, where, and when details of the alleged fraud, which appears to be based

on Plaintiff’s generalized assertions that (1) Defendants are “canceling [PPP] loans” during the

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PPP loan forgiveness process, Compl. at 2; (2) Defendants are reducing the amount eligible for

forgiveness, id. at 7; and (3) Defendants are changing the terms of the PPP loan “once the borrower

has received the funds,” id. at 9.

These conclusory assertions fail to plead fraud with the requisite level of specificity.

Although Plaintiff generally alleges that Defendants are engaged in a “nationwide scam,” id. at 12,

she fails to identify what the fraud is. See, e.g., Moore, 848 F. Supp. 2d at 130. And although

Plaintiff uses the word “fraud” several times, she fails to point to a single allegedly fraudulent

representation made by either Defendant to Plaintiff—not one. Federal Rule of Civil Procedure

9(b) requires more than generalized and conclusory references to fraud, which is all that Plaintiff’s

Complaint contains. Furthermore, even if Plaintiff had alleged specific facts, she fails to explain

how Defendants’ policy to forgive only those PPP loans eligible for forgiveness under the relevant

CARES Act and SBA regulations could possibly constitute fraud. And, as detailed above, supra

section IV.A, Defendants’ actions with respect to Plaintiff’s forgiveness application are inarguably

in line with the law. Because Plaintiff fails to plead even the basic contours of a fraud claim, the

claim should be dismissed.

ii. Plaintiff Fails to State a Claim for Breach of Contract

In her breach of contract claim, Plaintiff contends that Defendants breached the parties’

contract by refusing to forgive Plaintiff’s $18,625 PPP loan. Compl. at 10. But nowhere in her

Complaint does Plaintiff specify any contractual provision Defendants allegedly breached. As

such, Plaintiff’s claim fails as a matter of law.

In order to state a breach of contract claim under New Hampshire law, a plaintiff must

allege sufficient facts to show (1) that a valid, binding contract existed between the parties, and (2)

that the defendant breached the terms of the contract. Wilcox Indus. Corp. v. Hansen, 870 F. Supp.

2d. 296, 311 (D.N.H. 2012); Lassonde v. Stanton, 956 A.2d 332, 338 (N.H. 2008) (holding “[a]

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breach of contract occurs when there is a failure without legal excuse to perform any promise

which forms the whole or part of a contract.”). Numerous cases in the First Circuit require that a

successful breach of contract claim reference a specific provision allegedly breached in a valid

contract. See, e.g., Brooks v. AIG SunAmerica Life Assur. Co., 480 F.3d 579, 586 (1st Cir. 2007)

(regarding Massachusetts law, holding that “Plaintiffs also must do more than allege, in conclusory

fashion, that the defendant breached the contract, by describing, with ‘substantial certainty,’ the

specific contractual promise the defendant failed to keep.”); Burt v. Bd. of Trustees of Univ. of

Rhode Island, 523 F. Supp. 3d 214, 220 (D.R.I. 2021) (regarding Rhode Island law); cf. Wilcox

Indus. Corp., 870 F. Supp. 2d at 311 (finding that plaintiff plausibly alleged a breach of a specific

provision of a valid contract).

Here, Plaintiff does not specify what agreement was allegedly breached, let alone the

specific provision of the agreement. Plaintiff’s silence on this issue is fatal to her breach of contract

claim, and it should therefore be dismissed on this ground.

Nor could Plaintiff allege any such breach. Plaintiff claims that if “a bank gives out the

‘wrong change’ to a customer, that loss is on the bank.” Compl. at 10. But this analogy has it

backwards. As discussed above, the CARES Act, SBA regulations, and Plaintiff’s own

representations all confirm that it was expressly Plaintiff’s (and not Defendants’) duty to verify

Plaintiff’s supporting documentation. See April 15, 2020 Interim Final Rule, 85 Fed. Reg. 20,811,

20,815 (“Can lenders rely on borrower documentation for loan forgiveness? Yes. The lender

does not need to conduct any verification if the borrower submits documentation supporting its

request for loan forgiveness and attests that it has accurately verified the payments for eligible

costs.” (emphasis added)); see also Driver Decl. Exhibit 1 (containing Plaintiff’s certification that

the “Applicant is eligible to receive a loan under the rules in effect at the time this application is

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submitted that have been issued by the [SBA] implementing the [PPP]”); Driver Decl. Exhibit 2

(containing Plaintiff’s agreement that “[i]f the SBA does not confirm forgiveness of the Loan, or

only partly confirms forgiveness of the Loan, . . . Borrower will be obligated to repay to the Bank

the total outstanding balance remaining due under the Loan”).

For these reasons, the Court should dismiss Plaintiff’s breach of contract claim.

iii. Plaintiff Fails to State a Claim for Intentional Infliction of
Emotional Distress

“In order to make out a claim for intentional infliction of emotional distress, a plaintiff

must allege that a defendant ‘by extreme and outrageous conduct, intentionally or recklessly

cause[d] severe emotional distress to another.’” Tessier v. Rockefeller, 162 N.H. 324 (2011)

(quoting Morancy v. Morancy, 134 N.H. 493, 496 (1991)). “In determining whether conduct is

extreme and outrageous, it is not enough that a person has acted with an intent which is tortious or

even criminal, or that he has intended to inflict emotional distress, or even that his conduct has

been characterized by malice.” Mikell v. Sch. Admin. Unit No. 33, 158 N.H. 723, 729 (2009)

(quotation marks omitted). “Liability has been found only where the conduct has been so

outrageous in character, and so extreme in degree, as to go beyond all possible bounds of decency,

and to be regarded as atrocious, and utterly intolerable in a civilized community.” Id.; see also

Godfrey v. Perkin-Elmer Corp., 794 F. Supp. 1179, 1189 (D.N.H. 1992). “The standard for

making a claim of intentional infliction of emotional distress is very high.” Moss v. Camp

Pemigewassett, Inc., 312 F.3d 503, 511 (1st Cir. 2002); see also Beaudette v. Bank of Am., Inc.,

No. 11-CV-569-JD, 2012 WL 139223, at *2 (D.N.H. Jan. 18, 2012) (dismissing pro se complaint

because “courts have not found that banks’ activities in obtaining mortgages that result in

foreclosure meet the high standard require to state a claim for intentional infliction of emotional

distress”).

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Plaintiff’s allegations fall far short of meeting this high standard. In support of this claim,

Plaintiff alleges in generalized terms that: (1) that she suffered “vicious personal slander,

defamation, and [the false] reporting” of an unidentified crime, Compl. at 8; (2) that BofA mailed

a letter regarding PPP loan forgiveness to customers, including Plaintiff, in an attempt to “scare”

them, id. at 12; (3) that Scholz has “assaulted the character, standing and integrity of the Plaintiff’s

entire life’s work,” id. at 15; and (4) that Defendants engaged in “harassment, discrimination, [and]

verbal abuse,” against Plaintiff, id. at 17.

These allegations are utterly baseless. But even accepting them as true for purposes of a

motion to dismiss, Plaintiff’s generalized allegations lack any of the requisite detail necessary to

satisfy the high bar of asserting a claim for intentional infliction of emotional distress. Apart from

general assertions of wrongdoing, Plaintiff fails to explain what Defendants did that caused

Plaintiff emotional distress. She does not explain (1) what Defendants did to defame or slander

her, (2) what she is referring to with respect to the false reporting of a crime, or (3) what Scholz

did to assault her character and integrity. Indeed, Plaintiff fails to plead that she even suffered any

emotional distress aside from referencing the phrase “Infliction of Emotional Distress during a

Crisis” one time. Compl. at 2. A list of conclusory accusations, without any factual assertions

constituting the elements of an intentional infliction of emotional distress claim, is not enough to

meet the “very high” standard required here. Moss, 312 F.3d at 511; Ruivo, No. 11-CV-466-PB,

2012 WL 5845452, at *2 (plaintiff “must state a plausible, not a merely conceivable, case for

relief” (quotation marks omitted)).

The few specifics Plaintiff does include only serve to undermine, rather than support, her

claim. For instance, Plaintiff quotes from email communications she allegedly received from

Defendants, see id. at 5, 10, 11, but the emails are basic explanations of the PPP process and

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contain nothing that could even arguably be construed as “atrocious[] and utterly intolerable in a

civilized community,” see Mikell, 158 N.H. at 729. Further, Plaintiff references a PPP loan

forgiveness letter sent to customers to “scare” them. Compl. at 12. A copy of this form letter

makes clear that no such scare tactics were used. Driver Decl. Exhibit 7.

For these reasons, the Court should dismiss Plaintiff’s intentional infliction of emotional

distress claim.

V. CONCLUSION

For the foregoing reasons, the Court should grant Defendants’ motion and dismiss

Plaintiff’s Complaint in its entirety pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b).

Respectfully submitted,

BANK OF AMERICA, N.A. and MEGAN SCHOLZ

By their attorneys,

PRIMMER PIPER EGGLESTON & CRAMER PC

/s/ Thomas J. Pappas
Dated: November 9, 2021 By: Thomas J. Pappas, Esq., N.H. Bar No. 4111
P.O. Box 3600
Manchester, NH 03105-3600
(603) 626-3300
tpappas@primmer.com

CERTIFICATE OF SERVICE

I hereby certify that a copy of the foregoing MEMORANDUM OF LAW IN SUPPORT

OF DEFENDANTS BANK OF AMERICA, N.A. AND MEGAN SCHOLZ’S MOTION TO

DISMISS has this day been forwarded via the Court’s Electronic Case Filing System to:

Natasha Athens
Natasha4NHGov@protonmail.com

Dated: November 9, 2021 By: /s/ Thomas J. Pappas
Thomas J. Pappas, Esq., (N.H. Bar No. 4111)

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