Leigh King Norton & Underwood, LLC v. Regions Fin. Corp.

• Decision Date: 26 October 2020
• Docket Number: 2:20-cv-00591-ACA
• Citation: 497 F.Supp.3d 1098
• Parties: LEIGH KING NORTON & UNDERWOOD, LLC, on behalf of itself and all others similarly situated in the United States of America, Plaintiff, v. REGIONS FINANCIAL CORPORATION, et al., Defendants.
• Court: U.S. District Court — Northern District of Alabama

497 F.Supp.3d 1098

LEIGH KING NORTON & UNDERWOOD, LLC, on behalf of itself and all others similarly situated in the United States of America, Plaintiff,

v.REGIONS FINANCIAL CORPORATION, et al., Defendants.

2:20-cv-00591-ACA

United States District Court, N.D. Alabama, Southern Division.

Signed October 26, 2020

Adam Brandon Burchell, Johnson, Paseur & Medley, LLC, Florence, AL, Jay Aughtman, The Aughtman Law Firm, Richard D. Morrison, Morrison Law Firm, Montgomery, AL, for Plaintiff.

Larry B. Childs, Charles Walton Prueter, Helen Lynne Eckinger, Waller Lansden Dortch & Davis LLP, Birmingham, AL, for Defendants.

MEMORANDUM OPINION

ANNEMARIE CARNEY AXON, UNITED STATES DISTRICT JUDGE

Before the court is Defendant Regions Bank's ("Regions") motion to dismiss the amended complaint for lack of jurisdiction, under Federal Rule of Civil Procedure 12(b)(1) or, alternatively, for failure to state a claim, under Rule 12(b)(6). (Doc. 15). Plaintiff Leigh, King, Norton & Underwood, LLC ("LKNU") is an accounting firm that assisted a borrower to take out a loan under the Paycheck Protection Program, a part of the Small Business Act, 15 U.S.C. § 636(a)(36). (Doc. 13). LKNU asserts that Regions’ failure to pay an agent fee for LKNU's services and the bank's requirement that agents fill out a certain fee disclosure form violate the Small Business Act and amount to conversion and unjust enrichment. (Id. ).

After considering the briefs as well as arguments presented at a hearing held on October 13, 2020, the court WILL GRANT the motion to dismiss the amended complaint in part as moot, in part for lack of standing, and in part for failure to state a claim.¹

I. BACKGROUND

Regions has moved to dismiss this case not only for lack of subject matter jurisdiction, but also for failure to state a claim. (Doc. 15). In considering a Federal Rule of Civil Procedure 12(b)(6) motion to dismiss for failure to state a claim, the court must accept as true the factual allegations in the complaint and construe them in the light most favorable to the plaintiff. Butler v. Sheriff of Palm Beach Cty. , 685 F.3d 1261, 1265 (11th Cir. 2012). But a court deciding a Rule 12(b)(1) motion to dismiss for lack of jurisdiction is not so constrained. If a defendant argues only that a complaint does not sufficiently allege a basis for subject matter jurisdiction, the court takes the complaint's allegations as true, just as in a Rule 12(b)(6) motion. Houston v. Marod Supermarkets, Inc. , 733 F.3d 1323, 1336 (11th Cir. 2013). But "when a defendant mounts a factual challenge to subject matter jurisdiction, a district court may consider extrinsic evidence and weigh the facts to determine whether it may exercise jurisdiction." Id. Because Regions mounts a factual challenge to this court's subject matter jurisdiction, the standards that the court must use in evaluating the Rule 12(b)(1) motion and the Rule 12(b)(6) motion differ. The court will therefore first describe the allegations made in the amended complaint, and then separately describe the evidence that the parties have submitted.

1. Allegations Made in the Amended Complaint

In March 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") ¸ Pub. L. 116-136, 134 Stat. 281. Section 1102 of the CARES Act created the Paycheck Protection Program to provide loans to small business suffering from the effects of the COVID-19 pandemic by amending the Small Business Act, 15 U.S.C. § 636(a)(36). (Doc. 13 at 4 ¶ 17). The Paycheck Protection Program requires the Small Business Administration to "reimburse a lender authorized to make a covered loan" in various percentages based on the size of the loan. 15 U.S.C. § 636(a)(36)(P)(i). It also 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." Id. § 636(a)(36)(P)(ii). An interim regulation establishes that "[a]gent fees will be paid by the lender out of the fees the lender receives from [the Small Business Administration]." 85 Fed. Reg. 20811-01(III) (4)(c); (Doc. 13 at 8 ¶ 29). The same interim regulation sets a cap on fees that the lender may pay an agent. 85 Fed. Reg. 20811-01(III) (4)(c) ("The total amount that an agent may collect from the lender for assistance in preparing an application for a [Paycheck Protection Plan] loan (including referral to the lender) may not exceed [specified percentages of the loan depending on the size of the loan].").

LKNU is a public accounting firm that operates as an agent preparing loan applications for small businesses under the Paycheck Protection Program. (Doc. 13 at 2 ¶ 6, 9 ¶ 32). LKNU, on behalf of itself and a class of similarly situated agents, sued Regions after Regions refused to pay an agent fee for at least one loan application made under the Paycheck Protection Program. (Id. at 9–10 ¶¶ 33–37).

According to LKNU, on April 6 and 7, 2020, it submitted two complete loan applications to Regions. (Doc. 13 at 9 ¶¶ 33–34). In response to the first application, a Regions executive emailed LKNU to inform it that "Regions is not paying agent fees for PPP loans" and to ask whether LKNU still wanted Regions to process the application. (Id. at 9 ¶ 35). LKNU "expressed to [Regions] that the agent fee is required to be paid by the lender," but "in light of the urgency of getting the applications processed on behalf of clients, [LKNU] directed Regions to process the loan, informed Regions of the other loan application that LKNU had submitted as an agent, and directed that it be processed too." (Id. at 9–10 ¶ 36).

In May 2020—after LKNU filed its initial complaint in this case—Regions began asking borrowers who had been assisted by agents to fill out a fee disclosure form known as Small Business Administration Form 159, representing to borrowers that no agent fees could be paid unless the borrower first completed that form. (Doc. 13 at 11 ¶ 42). Form 159 explains that the lender and the borrower must always fill out the form. (Id. at 11 ¶ 43). In addition, whenever a borrower pays an agent, the agent must also fill out Form 159. ( Id. ). But because the Paycheck Protection Program prohibits agents from accepting payments from borrowers and requires the lenders to pay agent fees out of funds received from the Small Business Administration, agents need not fill out Form 159 when submitting Payment Protection Program applications.² ( Id. ).

Regions approved the first of LKNU's two loan applications in early May 2020, and that loan closed in mid-May. (Doc. 13 at 10 ¶ 37). The Small Business Administration has paid the processing fees it owes to Regions for that loan. (Id. at 10 ¶ 40). Yet, according to LKNU, Regions has not paid the agent fees and is conditioning payment of those fees on agents filling out Form 159, despite the fact that agents are not required to fill out that form in connection with applications made under the Payment Protection Program. ( Id. ).

LKNU asserts state law claims for unjust enrichment and conversion and a federal claim for violation of the Small Business Act 7(a) Loan Program. (Doc. 13 at 17–19). It seeks compensatory damages, punitive damages, and permanent injunctive relief enjoining Regions from "failing and refusing to pay agent fees and/or conditioning payment upon an inapplicable Fee Disclosure Form [Form 159]." (Id. at 20–21).

2. Jurisdictional Evidence

After LKNU filed its initial complaint in this case, Regions submitted a declaration from Timothy Monte, an executive vice president. (Doc. 6-1). Mr. Monte attests that "[s]ince the beginning of the [Paycheck Protection Program], Regions has planned to pay agents’ fees ... provided that the agents provide appropriate documentation verifying their services to borrowers and compliance with applicable requirements." (Id. at 2 ¶ 8). But as of June 4, 2020, although Regions had funded about $4.8 billion worth of loans under the Paycheck Protection Program, the Small Business Administration had not paid Regions any fees. (Id. at 2 ¶ 5, 3 ¶ 4). Mr. Monte explained that Regions intended to "promptly" pay agent fees once it received the fees owed by the Small Business Administration. (Id. at 3 ¶ 11).

After LKNU filed its amended complaint, Regions submitted an affidavit by John Johnson, a senior vice president and the Head of Small Business Administration Operations at Regions. (Doc. 15-1). He confirms that Regions asks agents to complete Form 159. (Id. at 2–3 ¶ 7). He attests that Regions received the first of its payments from the Small Business Administration on June 15, 2020 and has started disbursing agent fees. (Id. at 2 ¶ 6).

Mr. Johnson states that LKNU provided Regions with a completed Form 159 in April 2020, seeking an agent fee of $488. (Doc. 15-1 at 3 ¶ 8). That form was signed only by LKNU. (Id. at 13–14). After the borrower signed a Form 159 in June 2020, Regions sent LKNU a check for the $488 agent fee in July. (Doc. 15-1 at 3 ¶¶ 8, 10; see also id. at 10–11, 16). LKNU has since deposited the check. (Doc. 18-1). According to Mr. Johnson, Regions is not aware of any other application that LKNU has submitted for payment of agent fees under the Paycheck Protection Program. (Doc. 15-1 at 4 ¶ 11). LKNU has not provided any evidence indicating that it made any other application for agent fees, and indeed has stated outside the pleadings that it withdrew the second loan application based on Regions’ failure to timely fund the loan, which meant that LKNU was not entitled to a fee for that loan. (Doc. 26).

II. DISCUSSION

Regions seeks the dismissal of the case as moot, for lack of standing, and in the alternative, for failure to state a claim. (Doc. 15; Doc. 18 at 6–8.) A Rule 12(b)(1) motion to dismiss attacks the court's subject matter jurisdiction over case. By contrast, a Rule 12(b)(6) motion to dismiss attacks the legal sufficiency of the complaint. "To survive a [ Rule 12(b)(6) ] motion to dismiss, ...