Radix Law PLC v. JPMorgan Chase Bank NA

• Decision Date: 21 December 2020
• Docket Number: No. CV-20-01810-PHX-SRB,CV-20-01810-PHX-SRB
• Citation: 508 F.Supp.3d 515
• Parties: RADIX LAW PLC, Plaintiff, v. JPMORGAN CHASE BANK NA, Defendant.
• Court: U.S. District Court — District of Arizona

508 F.Supp.3d 515

RADIX LAW PLC, Plaintiff,

v.JPMORGAN CHASE BANK NA, Defendant.

No. CV-20-01810-PHX-SRB

United States District Court, D. Arizona.

Signed December 21, 2020

Jonathan B. Frutkin, Robert Neil Mann, Radix Law PLC, Scottsdale, AZ, for Plaintiff.

Adrianna Griego Gorton, Nicole Maroulakos Goodwin, Greenberg Traurig LLP, Phoenix, AZ, Gregory E. Ostfeld, Pro Hac Vice, Jonathan H. Claydon, Pro Hac Vice, Greenberg Traurig LLP, Chicago, IL, for Defendant.

ORDER

Susan R. Bolton, United States District Judge

Pending before the Court is Defendant JPMorgan Chase Bank National Association ("Defendant")’s Motion to Dismiss Plaintiff's Complaint ("Motion"). (Doc. 6, Mot. to Dismiss Pl.’s Compl. ("Mot.").) The Court heard oral argument on December 17, 2020.

I. BACKGROUND

On January 31, 2020, the federal government declared a public-health emergency based on the widespread proliferation of a novel coronavirus which causes the disease COVID-19. See U.S. Dep't of Heath & Hum. Servs., Secretary Azar Declares Public Health Emergency for United States for 2019 Novel Coronavirus (Jan. 31, 2020), https://bit-ly.sw.library.ntpu.edu.tw:8443/3mP3551. In the time since, COVID-19 has taken a devastating toll on the health of individuals and the economy.

In legislative response, Congress passed the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). See Pub. L. No. 116-136, 134 Stat. 281 (Mar. 27, 2020). The CARES Act creates the Paycheck Protection Program ("PPP"), which provides the Small Business Administration ("SBA") with the funding and authority to operate a loan program to keep small businesses afloat. See id. § 1102; 15 U.S.C. § 636. Specifically, the CARES Act amends Section 7(a) of the Small Business Act, a preexisting statutory scheme that authorizes the SBA to issue loans, and guarantee loans made by private lenders, to qualifying businesses. See 15 U.S.C. § 636(a) ; 13 C.F.R. § 120.2(a).

Unlike typical Section 7(a) loans, PPP loans are 100% guaranteed by the SBA. See Business Loan Program Temporary Changes; Paycheck Protection Program — Revisions to First Interim Final Rule, 85 Fed. Reg. 36308, 36311 (June 16, 2020). To obtain a PPP loan, a business must apply by submitting certain documents to a lending institution and self-certifying that (a) it is eligible and (b) the current economic "uncertainty" has made a loan "necessary" to support its operations. 15 U.S.C. § 636(a)(36)(G)(i). Businesses may apply directly or through an agent.¹ See 13 C.F.R. § 103.2.

Plaintiff Radix Law, PLC ("Plaintiff") is a law firm that helped ten small businesses secure PPP loans from Defendant. (Doc. 1-1, Compl. ¶¶ 6, 18.) Plaintiff alleges that the PPP requires Defendant to compensate Plaintiff for its agent fees, in an amount equal to 1% of each loan. (Id. ¶ 23.) Plaintiff does not allege that it entered into a written agreement with Defendant mandating such payment or that it completed any form memorializing such an agreement. (See Compl.; infra Section III.A.1.)

On August 26, 2020, Plaintiff filed suit in state court. (Compl.) On September 16, 2020, Defendant removed. (Doc. 1, Not. of Rem.) Plaintiff seeks: (1) a declaratory judgment stating that the PPP requires Defendant to pay Plaintiff's agent fees; (2) damages for violation of the Arizona Consumer Fraud Act, A.R.S. § 44-1522 et seq. ; and (3) damages for unjust enrichment. (Compl. ¶¶ 20–37.) On October 23, 2020, Defendant filed its Motion requesting dismissal with prejudice of each claim under Federal Rule of Civil Procedure 12(b)(6). (Mot. at 1.) On November 16, 2020, Plaintiff filed its Response. (Doc. 12, Pl.’s Resp. in Opp'n to Mot. ("Resp.").) On December 3, 2020, Defendant filed its Reply. (Doc. 15, Def.’s Reply in Support of its Mot. ("Reply").) On December 17, 2020, the Court heard oral argument.

II. LEGAL STANDARD

A rule 12(b)(6) dismissal for failure to state a claim can be based on either (1) the lack of a cognizable legal theory or (2) insufficient facts to support a cognizable legal claim. Conservation Force v. Salazar , 646 F.3d 1240, 1242 (9th Cir. 2011). In determining whether an asserted claim can be sustained, "[a]ll of the facts alleged in the complaint are presumed true, and the pleadings are construed in the light most favorable to the nonmoving party." Bates v. Mortg. Elec. Registration Sys., Inc. , 694 F.3d 1076, 1080 (9th Cir. 2012). "[A] well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and ‘that a recovery is very remote and unlikely.’ " Bell Atl. Corp. v. Twombly , 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (quoting Scheuer v. Rhodes , 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974) ). However, "for a complaint to survive a motion to dismiss, the nonconclusory ‘factual content,’ and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief." Moss v. U.S. Secret Serv. , 572 F.3d 962, 969 (9th Cir. 2009) (quoting Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ). In other words, the complaint must contain enough factual content "to raise a reasonable expectation that discovery will reveal evidence" of the claim. Twombly , 550 U.S. at 556, 127 S.Ct. 1955.

III. ANALYSIS

Defendant argues that: (1) the PPP does not require lenders to pay agent fees absent a written contract, specifically one memorialized by Form 159; (2) the PPP does not provide for a private right of action; and (3) Arizona law does not provide a private right of action for either of Plaintiff's state law claims. (Mot. at 2–3, 9 n.6, 14.) The Court groups Defendant's arguments by claim and addresses them below.

A. Federal Law Claim

All Section 7(a) Program requirements that do not conflict with the CARES Act amendments apply to PPP loans. See Business Loan Program Temporary Changes; Paycheck Protection Program, 85 Fed. Reg. 20811, 20812 (April 15, 2020) ; Lopez v. Bank of Am., N.A. , No. 20-CV-04172-JST, 505 F.Supp.3d 961, 971–73 (N.D. Cal. Dec. 4, 2020) ; Sport & Wheat, CPA, PA v. ServisFirst Bank, Inc. , 479 F.Supp.3d 1247, 1251–52 (N.D. Fla. 2020). The Court details relevant provisions of the Section 7(a) Program before turning to the PPP.

1. Section 7(a) Program

When a business applies for a Section 7(a) loan through an agent, a "comprehensive scheme" governs how and how much that agent is paid. Johnson v. JPMorgan Chase Bank, N.A. , No. 20-CV-4100 (JSR), 488 F.Supp.3d 144, 150–51 (S.D.N.Y. Sept. 21, 2020). Under this scheme, the business must "certify to the [SBA] the names of any attorneys, agents, or other persons engaged by or on behalf of such [applicant] ... and the fees paid or to be paid to any such persons." 15 U.S.C. § 642. For any person so named, the business must "execute and provide to SBA a compensation agreement" which "governs the compensation charged for services rendered or to be rendered to the Applicant[.]" 13 C.F.R. § 103.5(a). This agreement must be memorialized by Form 159.² The parties agree that in a typical Section 7(a) loan, completion of Form 159 is a prerequisite to agent compensation. (See Resp. at 8; Mot. at 3–5); 15 U.S.C. § 642 ; 13 C.F.R. § 103.5.

2. PPP

Resolution of Plaintiff's PPP claim turns on whether any provision of the PPP conflicts with, and therefore dispenses with, Section 7(a)’s Form 159-completion requirement. Defendant argues that there is no conflict. (Mot. at 3–4.) Plaintiff disagrees.

First, Plaintiff argues that 15 U.S.C. § 636(a)(36)(P)(i), read in conjunction with 85 Fed. Reg. 20811,³ requires lenders to pay borrowers’ agent fees irrespective of Form 159's completion. (Resp. at 3–4.) Section 636(a)(36)(P)(i), 15 U.S.C., reads in full:

(P) Reimbursement for processing

(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.

85 Fed. Reg. 20811 provides in relevant part:

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, 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.

Read together, these provisions require that the SBA reimburse PPP lenders in specified amounts, and, when agent fees are paid, that they be paid out of these sums and in a reasonable amount. These requirements in no way conflict with Section 7(a)’s requirement that an agent seeking compensation submit Form 159 prior to the loan's disbursement. Accord Am. Video Duplicating, Inc., v. City Nat. Bank , No. 220CV04036JFWJPR, 2020 WL 6882735, at *1 (C.D. Cal. Nov. 20, 2020) (" Am. Video Duplicating, Inc. I ") ("[T]he CARES Act does not require lenders to pay agent fees absent an agreement to do so."); Am. Video Duplicating Inc. v. Citigroup Inc. , No. 220CV03815ODWAGRX, 2020 WL 6712232, at *4 (C.D. Cal. Nov. 16, 2020) (" Am. Video Duplicating, Inc. II ") (same); Leigh King Norton & Underwood, LLC v. Regions Fin. Corp. , No. 2:20-CV-00591-ACA, 497 F.Supp.3d 1098, 1109–10 (N.D. Ala. Oct. 26, 2020) (same); Sanchez v. Bank of South...