June 25, 2020

By: Michael W. Ross and Jacob D. Alderdice

COVID19The implementation of the Paycheck Protection Program (PPP) under Title I of the Coronavirus Aid, Relief and Economic Security Act (the CARES Act) amidst the COVID-19 economic downturn has spawned a growing cottage industry of litigation, including several waves of cases against different defendants—primarily bank and non-bank lenders, and the United States Small Business Administration (SBA).  The nature of the cases has varied.  In the first cases filed, borrowers excluded from PPP sued banks for imposing additional restrictions on their applications, and for prioritizing bigger, institutional clients.  The second wave of lawsuits saw different categories of borrowers, such as companies owned by borrowers with criminal records, companies in bankruptcy, and others, suing the SBA for excluding them from the program entirely.  Finally, the latest round of cases involve financial services firms, accountants, and other borrowers’ agents initiating class actions against lenders for the failure to pay agent fees to those parties.  These three “waves” encompass the bulk of PPP litigation to date, but there have been some lawsuits of other varieties as well, including at least one civil enforcement action by the Federal Trade Commission alleging unfair and deceptive practices.[1]

In a prior update, we described one of the first court rulings in the PPP cases, in which on April 13, a federal district court in Maryland denied relief to a borrower who had sued Bank of America for imposing its own eligibility requirements on PPP borrowers.  See Profiles, Inc. v. Bank of Am. Corp., No. CV SAG-20-0894, 2020 WL 1849710, at *1 (D. Md. Apr. 13, 2020).  The court held that the CARES Act did not authorize a private right of action for borrowers to sue private lenders, and that the Act permitted banks to impose their own lending restrictions.  Soon after, a California federal court denied relief in a similar suit, denying a temporary restraining order for borrowers alleging that JPMorgan Chase and other large banks improperly accepted PPP applications from only existing customers.  Legendary Transp., LLC v. JPMorgan Chase & Co., No. 220CV03636ODWGJSX, 2020 WL 1975366, at *2 (C.D. Cal. Apr. 24, 2020).  Although no court has yet ruled in favor of borrowers in this type of lawsuit, similar lawsuits have continued to be filed and remain pending, alleging violations of state laws.[2]

By contrast, borrowers excluded from PPP by SBA regulations have had some early successes in lawsuits against the SBA.  These lawsuits have challenged an array of rules and regulations that the SBA has issued in its implementation of the CARES Act.  While the majority of the courts that have issued opinions in these cases have sided with the plaintiffs,[3] the SBA has scored some initial victories as well,[4] and several key cases remain pending.[5]

Finally, plaintiffs have more recently brought several class actions against bank and non-bank lenders alleging that the lenders violated the CARES Act and various state laws by not paying them “agent fees” when those plaintiffs allegedly assisted borrowers in applying for the loans.  These claims allege a wide array of state law claims, but the primary complaint is that in implementing the PPP, the SBA allegedly required lenders to pay fees to agents who assisted in facilitating borrower loan applications.[6]  There have been over a dozen such lawsuits filed in various courts across the country, and plaintiffs in several of the cases have moved to consolidate the cases before the Judicial Panel on Multidistrict Litigation.[7]  Courts have yet to speak to the merits of these claims.


[1] See Federal Trade Commission v. Ponte Investments, LLC et al, No. 1:20-cv-0017 (D.R.I.) (filed April 17, 2020) (alleging that the defendants deceptively represented themselves as a direct lender for PPP when they were not); Beechwood Lakeland Hotel, LLC v. U.S. Bank NA,, No. 8:20-cv-01022 (M.D. Fla.) (filed May 1, 2020) (later dismissed voluntarily); Beechwood Plaza Hotel of Appleton, LLC et al. v. Wilmington Trust, NA, No. 1:20-cv-03424 (filed May 1, 2020) (later dismissed voluntarily).

[2] See, e.g., KPA Promotions & Awards, Inc. et al. v. JPMorgan Chase & Co., et al., No. 1:20-cv-3910 (S.D.N.Y.) (filed May 19, 2020) (alleging that bank defendants committed unfair business practices under New York law by, among other things, “prioritizing the processing of larger loans over smaller loans” and providing “preferential ‘concierge’ treatment for their wealthiest clients”); Karen’s Custom Grooming LLC v. Wells Fargo & Company, No. 20-cv-0956 (S.D. Cal.) (filed May 22, 2020) (alleging on behalf of a class that Wells Fargo violated state consumer protection laws by prioritizing larger clients, among other acts of malfeasance).

[3] See, e.g., In re: USA Gymnastics, No. 18-09108-RLM-11 (Bankr. S. D. Ind. Jun. 12, 2020) (holding that it was arbitrary and capricious for the SBA to exclude debtor from the PPP) (Jenner & Block LLP as counsel for debtor); In re Gateway Radiology Consultants, P.A., No. 8:19-BK-04971-MGW, 2020 WL 3048197, at *11 (Bankr. M.D. Fla. June 8, 2020) (enjoining the SBA’s exclusion of bankruptcy debtors from the PPP as to debtor); DV Diamond Club of Flint, LLC v. United States Small Business Administration, No. 20-CV-10899, 2020 WL 2315880 (E.D. Mich. May 11, 2020) (granting preliminary injunction against SBA enjoining its exclusion of plaintiff strip clubs from PPP); Camelot Banquet Rooms, Inc. v. United States Small Business Administration, No. 20-C-0601, 2020 WL 2088637 (E.D. Wis. May 1, 2020) (same).

[4] See, e.g., In re Penobscot Valley Hosp., No. 19-10034, 2020 WL 3032939, at *9 (Bankr. D. Me. June 3, 2020) (holding that the SBA could exclude bankruptcy debtors from PPP); Am. Ass'n of Political Consultants v. United States Small Bus. Admin., No. CV 20-970, 2020 WL 1935525, at *3 (D.D.C. Apr. 21, 2020) (denying plaintiff’s motion for injunctive relief challenging SBA’s exclusion of political lobbyists, but only considering constitutional claims).

[5] See, e.g., Defy Ventures, Inc. et al. v. United States Small Business Administration et al., No. 1:20-cv-01838-CBB (D. Md.) (alleging that SBA cannot exclude individuals and businesses from PPP on the basis of having criminal records) (Jenner & Block LLP as counsel for the plaintiffs); Admiral Theater, Inc. v. United States Small Business Administration, et al., No. 1:20-cv-02807 (N.D. Ill.) (alleging that the SBA cannot exclude the plaintiff gentlemen’s club from the PPP).

[6] See James Quinn d/b/a Q Financial Services, et al. v. JPMorgan Chase Bank N.A., et al., No. 20-cv-4100 (S.D.N.Y. (filed May 28, 2020).

[7] See, e.g., Full Compliance LLC et al. v. Amerant Bank, N.A., et al., No. 1:20-cv-22339 (S.D. Fla.) (filed June 5, 2020); Juan Antonio Sanchez, PC, v. Bank of South Texas, et al., No. 20-cv-00139 (S.D. Tex.) (filed May 29, 2020); Fahmia, Inc. v. Pacific Premier Bancorp, Inc. et al., No. 8:20-cv-00965 (C.D. Cal.) (filed May 26, 2020).