Lopez v. Bank of Am., N.A.

• Decision Date: 04 December 2020
• Docket Number: Case No. 20-cv-04172-JST
• Citation: 505 F.Supp.3d 961
• Court: U.S. District Court — Northern District of California
• Parties: Francis LOPEZ, Plaintiff, v. BANK OF AMERICA, N.A., Defendant.

505 F.Supp.3d 961

Francis LOPEZ, Plaintiff,

v.BANK OF AMERICA, N.A., Defendant.

Case No. 20-cv-04172-JST

United States District Court, N.D. California.

Signed December 4, 2020

Hassan Ali Zavareei, Andrea R. Gold, Katherine Marie Aizpuru, Tycko & Zavareei LLP, Washington, DC, for Plaintiff.

Arlene R. Yang, Janice P. Brown, Meyers, Nave, Riback, Silver & Wilson, Stacy Lynne Fode, Nukk-Freeman & Cerra, P.C., San Diego, CA, Craig D. Singer, Pro Hac Vice, Enu A. Mainigi, Pro Hac Vice, Jesse T. Smallwood, Pro Hac Vice, Kenneth C. Smurzynski, Pro Hac Vice, Williams and Connolly LLP, Washington, DC, Matthew Bryan Nazareth, Meyers Nave, Los Angeles, CA, for Defendant.

ORDER GRANTING MOTION TO DISMISS

Re: ECF No. 28

JON S. TIGAR, United States District Judge Bookkeeper Francis Lopez brings this lawsuit against Bank of America, N.A. ("BANA") on behalf of a putative class. He claims that he and others like him are entitled to receive agent's fees for providing assistance to businesses that received Paycheck Protection Program ("PPP") loans funded by BANA and guaranteed by the Small Business Administration ("SBA").

BANA now moves to dismiss Lopez's complaint on the ground that neither the PPP nor any other statutory or common law rule provides a right to the agent fee Lopez is seeking. ECF No. 28. As set forth below, the Court will grant the motion.

I. BACKGROUND

A. Statutory and Regulatory Background

The PPP at the center of this case was enacted as part of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which Congress passed in March 2020 to provide relief to the American economy during the COVID-19 pandemic. Complaint ("Compl."), ECF No. 1 ¶¶ 1-2; see also Pub. L. 116-136, 134 Stat. 281 (2020). The purpose of the PPP was to provide financial assistance to small businesses and other concerns to keep them afloat during the economic downturn. Compl. ¶ 2; see also Pub. L. 116-136, § 1102, 134 Stat. at 286 (codified at 15 U.S.C. § 636(a)(36) (2020) ).

Congress didn't create the PPP from whole cloth. Rather, it "temporarily add[ed] a new product, titled the ‘Paycheck Protection Program,’ to the U.S. Small Business Administration's (SBA's) [existing] 7(a) Loan Program." Business Loan Program Temporary Changes; Paycheck Protection Program Interim Final Rule (the "SBA Rule"), 85 Fed. Reg. 20811 (Apr. 15, 2020). Understanding the PPP therefore requires a brief overview of the SBA's 7(a) Loan Program.

1. The SBA's Section 7(a) Small Business Loan Program

Congress passed the Small Business Act of 1953 to ensure the sustainability of the "American economic system of private enterprise," including "free markets, free entry into business, and opportunities for the expression and growth of personal initiative and individual judgment." Pub. L. 83-163, 67 Stat. 232 (1953) (codified at 15 U.S.C. § 631(a) ). The Small Business Act created the SBA, with the declared policy that "the Government should aid, counsel, assist, and protect, insofar as is possible, the interests of small-business concerns." Id. ; see also 15 U.S.C. § 633(a). Through the Act, Congress gave the SBA "extraordinarily broad powers," including the authority to "lend[ ] money to small businesses whenever they could not get necessary loans on reasonable terms from private lenders." Small Bus. Admin. v. McClellan , 364 U.S. 446, 447, 81 S.Ct. 191, 5 L.Ed.2d 200 (1960).

Section 7(a) loans are the core of this program. "Section 7(a) of the Small Business Act ... permits extension of financial assistance to small businesses when funds are ‘not otherwise available on reasonable terms from non-Federal sources.’ "

United States v. Kimbell Foods, Inc. , 440 U.S. 715, 719 n.3, 99 S.Ct. 1448, 59 L.Ed.2d 711 (1979). "Such financings may be made either directly or in cooperation with banks or other financial institutions through agreements to participate on an immediate or deferred (guaranteed) basis," subject to certain conditions. 15 U.S.C. § 636(a) ; see also 13 C.F.R. § 120.2(a).

Pursuant to SBA regulation, a small business applicant may be eligible for an SBA business loan if it is an operating business organized for profit, located in the United States, that satisfies certain size requirements and demonstrates "a need for the desired credit." 13 C.F.R. § 120.100. A small business applicant may apply either to the SBA for a direct loan or to a lender for a guaranteed or immediate participation loan. Id. § 120.190. Lenders are restricted in the type and amount of fees they may collect from a loan applicant. Id. § 120.221.

No small business is ever required to use an agent or other intermediary to conduct business with the SBA. Id. § 103.2(a) ("If you are an Applicant, a Participant, a partner of an Applicant or Participant partnership, or serve as an officer of an Applicant, Participant corporation, or limited liability company, you may conduct business with SBA without a representative."). But an SBA loan applicant may utilize the assistance of an agent if it wishes, subject to any other requirements of law. Id. § 103.2(b). 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. A small business applicant must "certify to the Administration the names of any attorneys, agents, or other persons engaged by or on behalf of such business enterprise 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 ; see also 13 C.F.R. § 120.195 ("An Applicant for a business loan must identify to SBA the name of each Agent ... that helped the applicant obtain the loan, describing the services performed, and disclosing the amount of each fee paid or to be paid."). Additionally, the SBA may require the agent to "supply written evidence of his or her authority to act on behalf of an Applicant, Participant, or lender." 13 C.F.R. § 103.2(b).

If a small business applicant receives an agent's help in submitting its loan application, regulations dictate how that agent may be compensated. See 13 C.F.R. § 103.5. First, 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." Id. § 103.5(a). The SBA "provides the form of compensation agreement and a suggested form of Lender Service Provider agreement to be used by Agents." Id. This form is the SBA Form 159 Fee Disclosure and Compensation Agreement, which is used to "identify Agents and the fees and/or compensation paid to Agents by or on behalf of a small business applicant." ECF No. 28-4 at 2; see also https://www.sba.gov/document/sba-form-159-fee-disclosure-compensation-agreement (downloadable form) (last visited Dec. 2, 2020). The form "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." ECF No. 28-4 at 2. Completing the form takes five minutes. Id. at 3 ("The estimated burden for completion of this form is 5 minutes per response.").

Second, regulations limit the amount an agent can collect for his or her services:

Total compensation charged by an Agent or Agents to an Applicant for services rendered in connection with obtaining an SBA-guaranteed loan must be reasonable. In cases where an Agent or Agents charge any fee to an Applicant in excess of those specified in this part, the Agent(s) must reduce the charge and refund to the Applicant any amount in excess of the fee permitted by SBA. SBA considers the following amounts to be reasonable for the total compensation that an Applicant can be charged by one or more Agents:

(1) For loans up to and including $500,000: A maximum of 3.5 percent of the loan amount, or $10,000, whichever is less;

(2) For loans $500,001-$1,000,000: A maximum of 2 percent of the loan amount, or $15,000, whichever is less; and

(3) For loans over $1,000,000: A maximum of 1.5 percent of the loan amount, or $30,000, whichever is less.

13 C.F.R. § 103.5(b). Form 159 requires itemization and supporting documentation if the compensation paid to the agent exceeds $2,500. ECF No. 28-4 at 3.

2. The CARES Act and the PPP

The CARES Act was an approximately $2 trillion stimulus bill, authorized by Congress on March 25, 2020 and signed by the President on March 27, 2020, in response to urgent requests from state and local governments, businesses, and individuals impacted by the economic consequences of the COVID-19 pandemic. Compl. ¶ 24. One part of the Act, the PPP, authorized $659 billion for a small business loan program. Id. ¶ 25. The PPP amended the Small Business Act at 15 U.S.C. § 636(a)(36) providing for a "new 7(a) loan program." 85 Fed. Reg. at 20811-12 ("Section 1102 of the Act temporarily add[ed] a new product, titled the ‘Paycheck Protection Program,’ to the [SBA's] 7(a) Loan Program."). The intent of these provisions was to "provide relief to America's small businesses expeditiously, which is expressed in the Act by giving all lenders delegated authority and streamlining the requirements of the regular 7(a) loan program." Id. at 20812.

Loans issued under the PPP are guaranteed by the SBA "under the same terms, conditions, and processes" as any other Section 7(a) loan, unless "otherwise provided" by the Act. 15 U.S.C. § 636(a)(36)(B). A key aspect of the PPP is that lenders received guaranteed fees, calculated based on the size of the loan, in order to secure lender participation in the program. See Compl. ¶ 28; 15 U.S.C. § 636(a)(36)(P)(i) ("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").

The...