Fruci & Assocs. v. A10 Capital LLC, CASE NO. C20-864 RSM

Decision Date29 December 2020
Docket NumberCASE NO. C20-864 RSM
Citation510 F.Supp.3d 962
Parties FRUCI & ASSOCIATES, PS, for itself and on behalf of a class of similarly situated businesses and individuals, Plaintiff, v. A10 CAPITAL LLC, et al., Defendants.
CourtU.S. District Court — Western District of Washington

510 F.Supp.3d 962

FRUCI & ASSOCIATES, PS, for itself and on behalf of a class of similarly situated businesses and individuals, Plaintiff,
v.
A10 CAPITAL LLC, et al., Defendants.

CASE NO. C20-864 RSM

United States District Court, W.D. Washington, at Seattle.

Signed December 29, 2020


510 F.Supp.3d 964

Harmeet K. Dhillon, Pro Hac Vice, Dhillon Law Group Inc., San Francisco, CA, Michael E. Adler, Pro Hac Vice, Graylaw Group Inc., Calabasas, CA, Angus Ni, Afn Law PLLC, Seattle, WA, for Plaintiff.

Christopher M. McLaughlin, Pro Hac Vice, Tracy K. Stratford, Pro Hac Vice, Jones Day, Cleveland, OH, Michael Peter Conway, Pro Hac Vice, Jones Day, Chicago, IL, Steven A. Miller, Miller Nash Graham & Dunn LLP, Seattle, WA, for Defendant KeyBank NA.

Dale R. Cockrell, Pro Hac Vice, Moore Cockrell Goicoechea & Johnson PC, Kalispell, MT, Kellen Andrew Hade, Steven A. Miller, Miller Nash Graham & Dunn LLP, Seattle, WA, for Defendant Mountain West Bank.

Fred B. Burnside, Davis Wright Tremaine, Seattle, WA, for Defendants Sound Community Bank, Washington Trust Bank.

Michael Stephan Kraut, Pro Hac Vice, Morgan Lewis & Bockius, New York, NY, Shawn J. Larsen-Bright, Dorsey & Whitney, Seattle, WA, for Defendant U.S. Bank NA.

Brendan P. Cullen, Pro Hac Vice, Sullivan & Cromwell LLP, Palo Alto, CA, Christopher Michael Viapiano, Pro Hac Vice, Sullivan & Cromwell LLP, Washington, DC, Clifford Scott Davidson, Tanya Kaye Noreen Lewis, Snell & Wilmer, Bellevue, WA, Roman D. Hernandez, Troutman Pepper Hamilton Sanders LLP, Portland, OR, for Defendant Wells Fargo Bank NA.

Gregory Michael Taube, Pro Hac Vice, Samuel Wade Malone, Pro Hac Vice, Nelson Mullins Riley & Scarborough, Atlanta, GA, Christopher E. Hawk, Tanya O'Neil, Gordon Rees Scully Mansukhani LLP, Portland, OR, for Defendant First Interstate Bank.

ORDER ON PENDING MOTIONS

RICARDO S. MARTINEZ, CHIEF UNITED STATES DISTRICT JUDGE

510 F.Supp.3d 965

I. INTRODUCTION

This matter is before the Court on motions to dismiss filed by the defendants that have appeared in this action. Dkts. #14, #64, and #66. The case presents the Court with a novel legal claim arising out of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") and the Paycheck Protection Program ("PPP") that it created. Plaintiff asserts that it acted as an agent for loan applicants seeking loans from defendant banks under the PPP and that it is therefore entitled to "agent fees" that the banks have not paid. To date, at least ten courts have dismissed claims similar to Plaintiff's after finding them insufficiently plead or lacking an adequate legal basis. Having considered the motions, the Court finds that Plaintiff's Amended Class Action Complaint is not adequately plead and dismisses the action with leave to amend.

II. BACKGROUND1

A. Section 7(a) Loans, the Paycheck Protection Program, and Agent Fees

Our country was caught flat-footed in responding to the emerging COVID-19 pandemic, necessitating wide-spread closure of public spaces and choking our national economy to a trickle. In an effort to shield some people from the immediate impacts of the economic upheaval, Congress passed the Coronavirus Aid, Relief, and Economic Security Act, Pub. L. 116-136, 134 Stat. 281 ("CARES Act"). Relevant here, the CARES Act created the Paycheck Protection Program ("PPP") "to provide American small businesses with eight weeks of cash-flow assistance." Dkt. #5 at ¶ 25. These loans were backed by the Small Business Administration ("SBA") and by $349 billion allocated by Congress. Id. Further, to assure the loans were distributed quickly, Congress temporarily added a new "loan product" to those offered by SBA and "streamlin[ed] the requirements of the regular 7(a) loan program." Business Loan Program Temporary Changes; Paycheck Protection Program, 85 FED. REG. 20811-01, 20811–12 (April 15, 2020) (to be codified at 13 C.F.R. pt. 120) ("SBA Rule").

Under most SBA loan programs borrowers can submit loan applications to qualified lenders or to SBA directly. 13 C.F.R. § 120.190. Borrowers can seek the assistance of "agents"2 in preparing application materials and navigating the loan process.

510 F.Supp.3d 966

See id. at § 103.2(a) (no agent is required to deal with SBA directly). Where an applicant works with an agent, regulations govern the agent's compensation. See id. at § 103.5. If the borrower will compensate the agent, the regulations require a "compensation agreement" and caps allowable fees according to the amount of the loan. Id. at § 103.5(a)–(b). Where an agent is compensated by the lender, they "must enter into a written agreement with each lender for whom it acts in that capacity" and "compensation may not be charged to a" borrower. Id. at § 103.5(c). In either situation, SBA requires submission of SBA Form 159: Fee Disclosure and Compensation Agreement. Dkt. #15-1 at 2 (Form 159 requiring that it "be completed and signed by the SBA Lender and the Applicant whenever an Agent is paid by either the Applicant or the SBA Lender in connection with the SBA loan application") (available at: www.sba.gov/document/sbaform159feedisclosure-compensationagreement).

Loans under the PPP are not entirely different as they are guaranteed by SBA "under the same terms, conditions, and processes" as other 7(a) SBA loans, unless "otherwise provided" by the CARES Act. 15 U.S.C. § 636(a)(36)(B). To disperse money more rapidly, lenders are the primary point of contact for PPP loans. In order to attract an adequate number of participating lenders, the PPP provides for guaranteed lender fees based on the amount of the loan funded:

(i) IN GENERAL.—The Administrator shall reimburse a lender authorized to make a covered loan at a rate, based on the balance of the financing outstanding at the time of disbursement of the covered loan, of—

(I) 5 percent for loans of not more than $350,000;

(II) 3 percent for loans of more than $350,000 and less than $2,000,000; and

(III) 1 percent for loans of not less than $2,000,000.

Id. at § 636(a)(36)(P). As for agents, the PPP provides that "[a]n agent that assists an eligible recipient to prepare an application for a covered loan may not collect a fee in excess of the limits established by the Administrator." Interim rules established by SBA further address agent fees:

c. Who pays the fee to an agent who assists a borrower?

Agent fees will be paid by the lender out of the fees the lender receives from SBA. Agents may not collect fees from the borrower or be paid out of the PPP loan proceeds. The total amount that an agent may collect from the lender for assistance in preparing an application for a PPP loan (including referral to the lender) may not exceed:

i. One (1) percent for loans of not more than $350,000;

ii. 0.50 percent for loans of more than $350,000 and less than $2 million; and

iii. 0.25 percent for loans of at least $2 million.

The Act authorizes the Administrator to establish limits on agent fees. The Administrator, in consultation with the Secretary [of Treasury], determined that the agent fee limits set forth above are reasonable based upon the application requirements and the fees that lenders receive for making PPP loans.

SBA Rule, 85 FED. REG. at 20816 (bold typeface in original). Due, again, to the necessity of dispersing money rapidly, "[t]he program requirements of the PPP identified in this rule temporarily supersede any conflicting Loan Program Requirement (as defined in [ 13 C.F.R. § 120.10 ])." Id. at 20812.

510 F.Supp.3d 967

B. Plaintiff's Action

Plaintiff initiated this action against eleven defendant banks which acted as lenders3 under the PPP for agent fees defendants allegedly owed Plaintiff. Plaintiff did not lodge separate allegations as to each defendant. Rather, in the parts most relevant to this motion, Plaintiff makes allegations, based on its "information and belief," against all of the defendants:

36. Based on information and belief, Defendants funded PPP loans for Borrowers represented by Plaintiff and the proposed Class, received their Lender Fees from the Federal Government, and failed to pay the Agent Fees earned by the Plaintiff and proposed Class out of the Lender Fees received.

37. Defendants have either failed and refused to pay, or are willing to pay only a partial percentage of, the monies owed in Agent Fees to Plaintiff and the proposed Class, thus retaining for themselves all of the statutory fees allotted by the Government for Agents as part of the PPP despite the work performed by the Agents in assisting the Borrowers in securing their PPP loans.

Dkt. #5 at ¶¶ 36–37.

III. DISCUSSION

A. Plaintiff Does Not Adequately Establish Standing

1. Legal Standard

Pursuant to...

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