Earlier this year, Balch & Bingham reported on the wave of “Agent Fee” class actions against lenders who made PPP loans under the CARES Act. At one point, there were over sixty such lawsuits, spread across the federal courts, alleging that banks were required to pay CPAs and others who assisted borrowers with loan applications. Since then, however, virtually every ruling has been in favor of the banks, and now there is real reason to question whether these suits will continue.
The Judicial Panel on Multidistrict Litigation dealt plaintiffs their first defeat on August 5, 2020, when it rejected efforts to drag over 100 unrelated banks across the country and consolidate all 62 then-pending putative class actions in a multidistrict litigation (“MDL”). You can read more about the banks’ (including two Balch clients) defeat of the MDL here.
More importantly, four separate judges have now granted motions to dismiss. The first ruling came in Sport & Wheat CPA, PA v. Servisfirst Bank et al., No. 3:20-cv-05425 (N.D. Fla.), which dismissed the claims and held the CARES Act does not guarantee any right to payment of agent fees unless the alleged agent executed a separate compensation agreement with each bank (and very few have). In a second case, Judge Jed S. Rakoff, a very well-known and respected jurist, granted a motion to dismiss in Johnson, et al v. JPMorgan Chase, et al., 20-cv-4100 (S.D.N.Y.), reasoning that “absent an agreement between agent and lender, defendant banks are not required to pay agent fees under the text of the CARES Act or its implementing regulations.” A third court dismissed essentially the same allegations in Steven L. Steward & Associates, P.A. v. Truist Bank and Truist Financial Corp., 6:20-cv-1083 (M.D. Fla.). There, the court held that work for the borrower did not translate into an unjust enrichment claim against the lender. The court also found it “doubtful’ that there was a private cause of action under the CARES Act. And most recently, a Texas district court dismissed virtually identical claims in Sanchez v. Bank of South Texas, 7:20-cv-00139 (S.D. Tex.).
In addition to their mounting losses on the merits, plaintiffs have been dealt a significant procedural blow. In Unbehagen Tax & Accounting, Inc. v. JP Morgan Chase Bank, NA, 8:20-cv-01709 (M.D. Fla.), three separate plaintiffs sought relief for themselves and others against 26 different defendant banks. On its own initiative, the court ordered the plaintiffs to show cause why those claims should not be severed into individual actions. After briefing, the court ruled that because each plaintiff’s claim for agent fees was based on a different loan, made by a different bank, to a different borrower, the defendants could not be joined in a single lawsuit. The court severed the claims and ordered plaintiffs to dismiss their omnibus lawsuit and refile separate actions against each bank. (A Balch client was initially sued in Unbehagen but was dismissed before the court issued its severance order.). The court gave plaintiffs the option of refiling separate lawsuits or waiting on the outcome of the pending appeal in Sport & Wheat, the first-filed agent fees lawsuit and the first to hold agent fees are not mandatory, before deciding whether to refile.
The court’s ruling in Unbehagen imposed significant (but warranted) logistical burdens on plaintiffs to manage over two-dozen cases. Previously, plaintiffs’ strength lied in numbers and the confusion created by joining so many unrelated banks in a single lawsuit. The basic factual differences in each claim were staggering and all but precluded efficient case administration because some banks are actually paying agent fees while others publicly announced they are not.
In a final court filing following the dismissal of the Unbehagen lawsuit, plaintiffs signaled their intention to await the Eleventh Circuit’s decision in Sport & Wheat, which they hope will reverse the trend and provide some clear path to victory. Plaintiffs’ gamble is risky. Eleventh Circuit case law clearly holds there is no private cause of action for alleged violations of the Small Business Act (“SBA”) – the overarching law under which the PPP program was established. Moreover, the Sport & Wheat decision makes clear nothing in the PPP’s plain language requires payment of agent fees.
Like the Unbehagen plaintiffs, other plaintiffs are dismissing their actions voluntarily. Some of the dismissed actions are merely duplicative of cases against the same defendant, even by the same set of plaintiffs’ counsel. However, some of the actions are against defendants who have alleged that they pay agent fees when supported by proper documentation.
The remaining plaintiffs’ best hope to turn the tide of defeat in these agent fees cases is a favorable ruling in one of the more “plaintiff-friendly” forums. Several cases have dispositive motions set for hearing in the Ninth Circuit in the coming weeks; plaintiffs, however, will also need to have any favorable decision upheld on appeal. Given the unanimity of the decisions thus far and the consistency of the reasoning by the courts, however, this would seem to be a difficult goal. Perhaps this wave of lawsuits is coming to an end.
Please call Gregory C. Cook, Balch & Bingham Partner, if you have questions.