MDL Denied For Suits Against Banks Over PPP Agent Fees

By Carolina Bolado
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Law360 (August 6, 2020, 3:09 PM EDT) -- The Judicial Panel on Multidistrict Litigation said it will not consolidate class actions accusing more than 100 banks of withholding processing fees to agents that helped small businesses apply for federal coronavirus relief loans, ruling centralization would not help resolve the claims.

The JPML on Wednesday denied a request to centralize dozens of lawsuits that claim bank lenders should share the processing fees paid out to them under the Coronavirus Aid, Relief and Economic Security Act with agents like accounting firms and lawyers that helped small businesses apply for loans under the federal Paycheck Protection Program.

The JPML said that though the lawsuits are similar, common factual questions are lacking because the policies and practices for paying agent fees are unique to each lender.

"The actions undoubtedly allege similar policies and practices by the defendant banks," the JPML said. "But the actions involve dozens of different lenders, and there is no common or predominant defendant across all actions."

In addition to rejecting an industrywide MDL, the panel also declined to create lender-specific MDLs, which the panel said would create "significant inefficiencies." Many of the lawsuit are multilender actions, and lender-specific MDLs would require the separation and transfer of claims to the correct MDLs, according to the JPML.

"This would have the effect of significantly multiplying the number of judges presiding over the claims in a single action," the JPML said. "This degree of separation and remand likely would diminish, rather than enhance, efficiencies."

Instead of centralization, the JPML suggested that the parties organize the actions before a single judge in each district, which has already happened in the Southern District of New York, the District of South Carolina and the Southern District of Florida, according to the order. The panel also noted that just four groups of plaintiffs' counsel represent plaintiffs in 50 of the 62 pending actions, so informal coordination has already begun.

The plaintiffs in the lawsuits claim they should be receiving a cut of the processing fees that the government is paying to lenders to incentivize them to administer PPP loans because they helped small businesses get these loans. The fees are based on a percentage of each loan's amount.

Congress established the PPP in late March as part of the CARES Act to provide small businesses with eight weeks of cash to cover payroll through 100% federally backed loans administered by private banks. If a recipient continues to pay its employees through the two-month period, the loans would be either entirely or mostly forgiven.

Under the Small Business Administration's rules, a PPP agent can be an accountant; an attorney; a consultant; someone who prepares a business's application and is employed and compensated by the applicant; someone who assists a lender with administering or litigating SBA loans; a loan broker; or "any other individual or entity representing an applicant by conducting business with the SBA," according to one of the proposed class actions filed in the Northern District of Florida.

The banks have argued that the CARES Act only directed the SBA to set a cap on agent fees but did not create an entitlement to fees.

In June, Treasury Secretary Steven Mnuchin told House lawmakers that he's open to releasing more guidance to clear up "any confusion" about agent fees.

"What our guidance did say is that banks could pay agent fees out of the fees that they received," Mnuchin said at a House Financial Services Committee oversight hearing. "That was intended to be based upon a contractual relationship between the agent and the bank, and to the extent there's any confusion on that, we'll look at clarifying that."

The case is In re: Paycheck Protection Program Agent Fees Litigation, MDL No. 2950, in the U.S. Judicial Panel on Multidistrict Litigation.

--Additional reporting by Hailey Konnath. Editing by Abbie Sarfo.

For a reprint of this article, please contact reprints@law360.com.

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Case Information

Case Title

SPORT & WHEAT CPA PA v. SERVISFIRST BANK INC. et al


Case Number

3:20-cv-05425

Court

Florida Northern

Nature of Suit

Other Fraud

Judge

T KENT WETHERELL II

Date Filed

August 05, 2020

Government Agencies

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