Lenders Score Big Victory in Resisting MDL Consolidation in Class Action Against PPP Agent Fees | Balch & Bingham srl
The Multidistrict Litigation Judicial Panel on Wednesday dismissed the consolidation of 62 class actions involving Paycheck Protection Program (“PPP”) loans under the Federal Aid, Relief and Economic Security Act (“CARES”) in a multidistrict litigation (“MDL”). These actions purport to represent a category of accounting firms (and other consultants) that have allegedly worked as agents on behalf of PPP loan applicants – typically small business clients. The plaintiffs argue that the CARES Act and implementing regulations require lenders to pay them “agent fees” for preparing loan applications.
In these cases, plaintiffs attempt to turn regulatory language setting caps on agent compensation into a rock-solid obligation for banks to pay agents – even if the bank has never heard of the agent, never did not know that the agent was preparing a borrower’s application or did not ask for the agent’s help.
A handful of plaintiff corporate groups have sued more than 133 banks and their holding companies in 62 class actions filed in 20 federal courts across the country. More than two-thirds of all shares were filed by just two groups of plaintiff companies. Some lawyers have prosecuted the same defendants multiple times in the same states.
The Judicial Panel on Multidistrict Litigation consists of seven judges who decide whether or not to consolidate different cases from across the country into a single federal court as MDL. The panel held a hearing on the transfer request on July 30, 2020 after examining 350 pleadings filed on the roll.
Balch and Bingham’s attorneys Gregory C. Cook (Birmingham), L. Conrad Anderson, IV (Birmingham) and Tyler P. Bishop (Atlanta) prepared a brief in opposition to the MDL on behalf of two of Balch’s clients. Many other banks have joined Balch’s case. At the hearing, Mr. Cook appeared on behalf of clients of Balch as well as seven other banks.
The Panel correctly held that there were no common questions of fact between the claims against each bank.
The Panel issued its decision to refuse consolidation in an MDL Wednesday. This decision came just three working days after the hearing. Timing signaled a resounding reprimand from the Panel to the complaining companies. In its ruling, the Panel correctly held that the basic elements of an MDL were not met. MDLs require common questions of made to exist between cases and to show that an MDL would be more effective than allowing cases to unfold individually. The Panel correctly held that there were no common questions of fact between the claims against each bank. Each claim would vary depending on the alleged agent, loan, borrower and bank, as a lawyer for the claimant appeared to admit during the hearing. The Panel also considered that consolidation would not increase efficiency, believing that informal coordination between cases was achievable since the same complainant companies filed most of the lawsuits, and that this informal coordination would provide all the necessary efficiency. .
The Panel’s ruling is likely to have several practical effects. First, the complainant companies will likely be forced to reduce the total number of cases currently filed. It’s hard to see how the same plaintiff firms can continue to plead so many separate actions, many of which have overlapping defendants. Some cases (and the defendant banks) may be willfully dismissed. Second, since cases will remain in local federal courts, judges will soon rule on pending dismissal motions in the coming months and rule on other cases and claims. For example, it seems clear that there is no private right of action under the CARES Act. In addition, some banks do in fact pay agent fees, although there is no legal obligation to do so, subject only to receiving a completed SBA 159 form and a W-9. This form is generally required for agent compensation under a Section 7 (a) SBA loan and should be applicable to PPP as well.
Even if some claims survived a motion to dismiss, it seems difficult to imagine how a group could be certified. Banks keep their records by borrowers – not alleged agents. Additionally, each claim should vary by agent, loan, and borrower. For example, did the defendant bank even know that an agent was involved? Has there ever been a request from the agent; did the borrower acknowledge that the alleged agent was his agent; has the bank already agreed to pay fees; what work (if any) was performed by the alleged agent; has the alleged agent been paid by other means.
It seems that the fastest resolution of these cases would come from Congress or the SBA
It appears that the fastest resolution of these cases would come from Congress or the SBA clarifying that banks do not owe borrower’s agents fees or that the SBA 159 form is required, or reiterating that agent fees are not not obligatory. This clarification could be forthcoming. In his testimony before the House Financial Services Committee on June 30, 2020, Treasury Secretary Steven Mnuchin reaffirmed that “[Treasury] advice [said] that banks could pay agent fees out of the fees they collected. This was to be based on a contractual relationship between the agent and the bank.
While defeating the MDL was a great victory for the banks, the battle is not over. Banks must remain vigilant to defend against any remaining or new class actions.