Johnson v. JPMorgan Chase Bank, N.A.
| Decision Date | 21 September 2020 |
| Docket Number | 20-cv-4144 (JSR),20-CV-4858 (JSR),20-cv-5311 (JSR),20-cv-4146 (JSR),20-CV-4145 (JSR),20-cv-4100 (JSR) |
| Citation | 488 F.Supp.3d 144 |
| Court | U.S. District Court — Southern District of New York |
| Parties | Robin JOHNSON d/b/a CG Johnson & Company ; James Quinn; Fahmia, Inc.; and Prinzo & Associates, LLC, individually and on behalf of all others similarly situated, Plaintiffs, v. JPMORGAN CHASE BANK, N.A., doing business as Chase Bank and JPMorgan Chase & Co., Defendants James Quinn, individually and on behalf of all others similarly situated, Plaintiff, v. Signature Bank; and Does 1 through 100, Defendants Fahmia, Inc., individually and on behalf of all others similarly situated, Plaintiff, v. MUFG Americas Holding Co.; MUFG Union Bank, N.A.; and Does 1 through 100, Defendants Fahmia, Inc., individually and on behalf of all others similarly situated, Plaintiff, v. Citibank, N.A.; Citigroup Inc.; and Does 1 through 100, Defendants Robin Johnson d/b/a CG Johnson & Company ; James Quinn; Fahmia, Inc.; and Prinzo & Associates, LLC, individually and on behalf of all others similarly situated, Plaintiffs, v. JPMorgan Chase Bank, N.A., doing business as Chase Bank and JPMorgan Chase & Co., Defendants Tax Divas, LLC; and Williams and J Bookkeeping, individually and on behalf of all others similarly situated, Plaintiffs, v. J.P. Morgan Chase Bank, Defendant |
Derek Y. Brandt, McCune Wright Arevalo, LLP, Edwardsville, IL, Richard D. McCune, Jr., Elaine Simek Kusel, McCune Wright Arevalo, LLP, Ontario, CA, Andrew R. Kaufman, Lieff Cabraser Heimann & Bernstein, LLP, Nashville, TN, for Plaintiffs Fahmia, Inc., Prinzo & Associates, LLC, James Quinn.
Jonathan D. Selbin, Lieff Cabraser Heimann & Bernstein, LLP, New York, NY, Michael W. Sobol, Roger Norton Heller, Anne B. Shaver, Lieff Cabraser Heimann & Bernstein, LLP, San Francisco, CA, Andrew R. Kaufman, Lieff Cabraser Heimann & Bernstein, LLP, Nashville, TN, for Plaintiff Robin Johnson.
Keith Hammeran, Noah Lindenfeld, Sylvia E. Simson, Greenberg Traurig, LLP, New York, NY, Paul J. Ferak, Greenberg Traurig, P.A., Chicago, IL, for Defendants JPMorgan Chase Bank, N.A., JPMorgan Chase & Co.
Elizabeth M. Sacksteder, Paul Weiss, New York, NY, for Defendant Signature Bank.
Andrew Soukup, Pro Hac Vice, Covington & Burling, LLP, Washington, DC, Ashley Margaret Simonsen, Covington & Burling LLP, Los Angeles, CA, Paul Fitzgerald Downs, Covington & Burling LLP, New York, NY, for Defendants MUFG Americas Holding Co., MUFG Union Bank, N.A.
Andrew Spadafora, Christopher Comstock, Pro Hac Vice, Lucia Nale, Pro Hac Vice, Thomas V. Panoff, Pro Hac Vice, Mayer Brown LLP, Chicago, IL, Christopher James Houpt, Mayer Brown LLP, New York, NY, for Defendants Citibank, N.A., Citigroup Inc.
Plaintiffs, a collection of accountants and accounting firms, brought these putative class actions arising out of the Paycheck Protection Program ("PPP") created under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). The central legal question presented in this case is whether the PPP entitles plaintiffs to some portion of the fees paid by the federal government to the defendant banks that administered hundreds of billions of dollars of loans under the PPP, where plaintiffs allegedly assisted borrowers in securing the loans but had no agreements with the banks entitling them to payment. On the theory that the PPP and its implementing regulations automatically entitle them to some portion of these fees regardless of whether they entered into an agreement with the banks, plaintiffs filed these six complaints, now consolidated for all pretrial purposes, seeking declaratory relief that they are entitled to such funds under the CARES Act and asserting common law and state law claims largely premised on the same theory. Defendants, in turn, moved to dismiss all six complaints.
The Court holds 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.1 For that reason, among others to be discussed below, the Court grants defendants’ motions to dismiss.
The PPP is embedded in an already-existing statutory scheme - the Section 7(a) program of the Small Business Administration (the "SBA"). The Court therefore outlines the Section 7(a) program before delving into the PPP.
The SBA administers several programs to support small businesses, including the Section 7(a) loan guaranty program, which is designed to encourage lenders to provide loans to small businesses. Under that program, the SBA guarantees a portion of loans made to small businesses if certain conditions are satisfied. See generally 15 U.S.C. § 636(a).
Under the governing regulations, a small business applying for a Section 7(a) loan may – but is not required to – use an "agent" for assistance with the application process. 13 C.F.R. § 103.2.2 An "agent" is defined as an "authorized representative, including an attorney, accountant, consultant, packager, lender service provider, or any other individual or entity representing an Applicant or Participant by conducting business with SBA." Id. § 103.1. These agents can be empowered to prepare or submit the application on behalf of the applicant. Id. § 103.1(a), (b).
When a small business chooses to use an agent, the SBA and its accompanying regulations set out a comprehensive scheme regulating how and how much an agent is to be paid. First, the statute makes clear that "[n]o loan shall be made" unless the applicant "certif[ies] to the Administration the names of any attorneys, agents, or other persons engaged by or on behalf of such [applicant] for the purpose of expediting applications made to the Administration for assistance of any sort, and the fees paid or to be paid to any such persons." 15 U.S.C. § 642. The governing regulations, in turn, clarify that an agent "must execute and provide to SBA a compensation agreement," which "governs the compensation charged for services rendered or to be rendered to the Applicant or lender in any matter involving SBA assistance." 13 C.F.R. § 103.5(a).
The SBA "provides the form of compensation agreement ... to be used by Agents." Id. That form is called a Form 159 Fee Disclosure and Compensation Agreement. See 20-cv-4100, Dkt. No. 55-1 ("Form 159"). The Form 159 must "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." Form 159 at 1. In addition, the "Agent must be identified, all services provided must be listed, and the party paying the fee and amount paid must also be disclosed." Id.
The governing regulations also impose limits on how much an agent can be paid:
On March 27, 2020, in response to coronavirus pandemic, Congress passed the CARES Act to "provide emergency assistance and health care response for individuals, families, and businesses affected by the ... pandemic." Amounting to approximately $2 trillion, the CARES Act is the largest single economic stimulus bill in American history. See Second Amended Class Action Complaint ("Quinn Compl."), 20-cv-4100, Dkt. No. 43, ¶ 20. Among other things, the CARES Act created the Paycheck Protection Program (the "PPP"), a $659 billion forgivable loan program for eligible small businesses. Id. ¶ 21.
PPP loans are "guarantee[d]" by the SBA "under the same terms, conditions, and processes as a loan made under" the above-described Section 7(a) loan program, "except as otherwise provided in this paragraph." 15 U.S.C. § 636(a)(36)(B). One notable difference is that the PPP, unlike the Section 7(a) program, provides that lenders "shall" receive from the federal government a specified percentage of the loans they originate:
Id. § 636(a)(36)(P)(i). With respect to agent fees, the PPP further provides:
The PPP implementing regulations provide more details on loan applications and agent compensation. The regulations first clarify that the "program requirements of the PPP identified in this rule temporarily supersede any conflicting Loan Program Requirement." SBA Interim Final Rule, 85 Fed. Reg. 20811, 20816 (Apr. 15, 2020). The regulations then restate that the "SBA will pay lenders fees for processing PPP loans" in the amounts specified in the statute. Id.
Next, the regulations address agent fees:
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