Sport & Wheat, CPA, PA v. Servisfirst Bank, Inc.

• Decision Date: 17 August 2020
• Docket Number: Case No. 3:20cv5425-TKW-HTC
• Citation: 479 F.Supp.3d 1247
• Parties: SPORT & WHEAT, CPA, PA, Plaintiff, v. SERVISFIRST BANK, INC., et al., Defendants.
• Court: U.S. District Court — Northern District of Florida

479 F.Supp.3d 1247

SPORT & WHEAT, CPA, PA, Plaintiff,

v.SERVISFIRST BANK, INC., et al., Defendants.

Case No. 3:20cv5425-TKW-HTC

United States District Court, N.D. Florida, Pensacola Division.

Signed August 17, 2020

Matthew David Schultz, Virginia M. Buchanan, William Franklin Cash, III, Levin Papantonio Thomas etc. PA, Pensacola, FL, Pamela Cocalas Wirt, Wirt & Wirt, Wilmette, IL, John Sidney Wirt, Wirt & Wirt, Destin, FL, for Plaintiff.

Logan T. Matthews, Robert Ashby Pate, Sara Ford, Lightfoot Franklin & White LLC, Birmingham, AL, for Defendant Servisfirst Bank Inc.

James E. Butler, Jr., Butler Wooten & Peak LLP, Columbus, GA, Paul J. Nathanson, Davis Polk & Wardwell LLP, Washington, DC, Philip A. Bates, Philip A. Bates PA, Pensacola, FL, Ramsey Prather, Butler Wooten & Peak LLP, Atlanta, GA, for Defendant Synovus Trust Company, National Association.

Antonio M. Haynes, Davis Polk & Wardwell, New York, NY, James E. Butler, Jr., Butler Wooten & Peak LLP, Columbus, GA, Paul J. Nathanson, Davis Polk & Wardwell LLP, Washington, DC, Philip A. Bates, Philip A. Bates PA, Pensacola, FL, Ramsey Prather, Butler Wooten & Peak LLP, Atlanta, GA, for Defendant Synovus Bank.

Christopher Allen Riley, Alston & Bird LLP, Atlanta, GA, for Defendant The First, a National Banking Association.

Meredith Laughlin Allen, Cheryl Haas, McGuireWoods LLP, Atlanta, GA, Emily Y. Rottmann, McGuireWoods LLP, Jacksonville, FL, Kathryn Margaret Barber, McGuireWoods LLP, Richmond, VA, for Defendant Truist Bank.

ORDER DISMISSING AMENDED COMPLAINT

T. KENT WETHERELL, II, UNITED STATES DISTRICT JUDGE

The central issue of first impression in this case is whether Plaintiff and others like it are entitled to any portion of the fees paid by the federal government to lenders like Defendants who were tasked with handing out hundreds of billions of dollars of "loans" under the Paycheck Protection Program (PPP).¹ The short answer is "no."

This issue arises in the context of Defendants' motions to dismiss Plaintiff's amended complaint under Fed. R. Civ. P. 12(b)(6). See Docs. 46, 49, 67, 69. The motions, responses (Docs. 56, 85), and reply (Doc. 65) were comprehensively (and ably) briefed, and no hearing is necessary to rule on the motions.

When ruling on a Rule 12(b)(6) motion to dismiss, the Court accepts the allegations in the operative complaint (here, the amended complaint, Doc. 21) as true and construes them in the light most favorable to the plaintiff under the "plausibility" standard adopted by the Supreme Court. See Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ; Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ; Crespo v. Coldwell Banker Mortg. , 599 F. App'x 868, 874 (11th Cir. 2014). Applying this standard, the Court finds for the reasons that follow that the motions to dismiss are due to be granted.

Factual and Procedural Background

Plaintiff is a small accounting firm that assisted its clients (the borrowers) in obtaining loans from Defendants under the PPP. Plaintiff alleges in the amended complaint that Defendants did not pay it the "agent fees" (totaling $4,526)² it was due under the PPP and its implementing regulation for helping the borrowers obtain the loans. Plaintiff does not allege that it or the borrowers had agreements with Defendants regarding payment of Plaintiff's agent fees.

The amended complaint asserts four counts and seeks monetary damages and injunctive relief against Defendants (and other "John Doe" lenders) on a class-wide basis. Count 1 ("unjust enrichment") and Count 2 ("contract implied in law") seek to recover the monetary benefit Plaintiff allegedly conferred on Defendants when it helped the borrowers obtain PPP loans through Defendants; Count 3 ("conversion") alleges the Defendants unlawfully retained the portion of the loan processing fees that Plaintiff was entitled to under the PPP and its implementing regulation; and Count 4 ("declaratory relief") seeks a declaration that Defendants violated federal law by not paying Plaintiff the portion of the loan processing fee it was entitled to under the PPP along with appropriate injunctive relief.

Counts 3 and 4 are premised on the assumption that the PPP and its implementing regulation require lenders to pay the agent's fee irrespective of whether there is an agreement between the agent or borrower and the lender to do so. By contrast, Counts 1 and 2 are premised on equitable principles (rather than legal entitlement under the PPP and its implementing regulation) under state common law based on Plaintiff's allegations that Defendants were aware of and benefitted from the work Plaintiff did on the borrowers' PPP loan applications.

Analysis

The crux of this case is in Count 4, which seeks a declaration that Defendants are required to pay "agent fees" to Plaintiff for the work it performed on behalf of the borrowers who obtained PPP loans from Defendants. The claim is premised on the assumption that the CARES Act³ and its implementing regulation require lenders to pay the borrowers' agent fees. This assumption, however, finds no support in the plain language of the statute or the regulation.

Section 1102 of the CARES Act created the PPP as part of the Section 7(a) Loan Program administered by the SBA. The PPP was intended to help small businesses impacted by the COVID-19 pandemic by providing loans⁴ that could be used to cover payroll and other costs. The loans were administered by the private sector (e.g., banks, credit unions, existing SBA Section 7(a) lenders), but they were fully funded and guaranteed by the federal government.

The CARES Act mandated that the SBA Administrator "shall reimburse a lender authorized to make a covered loan" and it established the fees that the lender will be paid for making the loans. See Pub. L. No. 116-136, § 1102(a)(2) (to be codified at 15 U.S.C. § 636(a)(36)(P)(i) ). The Act further provided 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 [SBA] Administrator." Id. (to be codified at 15 U.S.C. § 636(a)(36)(P)(ii) ).

In April 2020, pursuant to the authority delegated by the statutory language quoted above, the SBA issued an interim final rule (IFR) to implement the PPP. See Business Loan Program Temporary Changes; Paycheck Protection Program, 85 Fed. Reg. 20,811 (Apr. 15, 2020).⁵ The IFR provides in pertinent part:

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.

Id. at 20,816. The IFR also states that its provisions "temporarily supersede any conflicting Loan Program Requirement (as defined in 13 CFR 120.10 )." Id. at 20,812.

The CARES Act does not require lenders to pay the agent's fees absent an agreement to do so (or create a private right of action for payment⁶ ) because the statutory language does not even speak to who pays the agent's fees; it merely provides that the agent cannot collect a fee from anyone in excess of the amount established by the SBA Administrator. Indeed, the different language used by Congress in mandating payment of lenders ("shall reimburse") and limiting agent fees ("may not collect") is indicative of an intent not to require lenders to pay agent fees. See In re Failla , 838 F.3d 1170, 1176-77 (11th Cir. 2016) (quoting Antonin Scalia & Bryan A. Garner, Reading Law 170 (2012)) ("The presumption of consistent usage instructs that ‘[a] word or phrase is presumed to bear the same meaning throughout a text’ and that ‘a material variation in terms suggest a variation in meaning.’ "). Thus, if lenders have any legal obligation to pay agent fees absent an agreement to do so, that obligation must come from the IFR.

The IFR asks—and then answers—the question of "[w]ho pays the fee to an agent who assists a borrower" by stating that payment is to be made "by the lender out of the fees the lender receives from SBA" and not "from the borrower or ... out of the PPP loan proceeds." 85 Fed. Reg. 20,816. This language does not require that lenders share their fees—nor does it (or could it⁷ ) create or provide a right of action for agents to collect fees from the lender; instead, the language simply explains that, if an agent is to be paid a fee, the fee must be paid by the lender from the fee it receives from the SBA. This, then, begs the question of whether an agreement between the lender and the agent is necessary for the lender to be required to pay the agent fees.

Defendants argue that the existing Section 7(a) regulations require such an agreement as a prerequisite to the lender's payment of agent fees. Plaintiff conceded this point in the amended complaint, but it now argues that an agreement with the lender is not required under the PPP.⁸ The Court agrees with Defendants.

The PPP was added to and exists within the framework of Section 7(a) of the Small Business Act, see Pub. L. No. 116-136, § 1102(a), and the IFR states that it only supersedes "conflicting" Section 7(a) program requirements, see 85 Fed. Reg. 20,812. Accordingly, it follows that all non-conflicting program requirements continue to apply.

The existing Section 7(a) program requirements provide that the fees charged by an agent must be "reasonable" and they establish presumptively reasonable amounts for the fees. See 13 C.F.R. § 103.5(b). The applicant or agent must execute a "compensation agreement" and provide it to the SBA on a specific form. See 13 C.F.R. § 103.5(a) ; SBA Form 159 (rev. Apr. 9, 2018).⁹ The form must...