August 4, 2020

Volume X, Number 217

August 04, 2020

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August 03, 2020

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Class Actions Begin: Plaintiffs Target Banks for PPP Loan Processing

A number of class-action lawsuits have been filed targeting national and community banks for their processing of loans under the Small Business Administration’s Paycheck Protection Program (PPP). It is not surprising that disputes have already arisen, given the swift creation of the vital relief program and equally rapid depletion of the $349 billion in initial funding. The suits allege that banks violated the CARES Act and state law by prioritizing high-value and existing customers over other small businesses.  More suits are likely to follow, whether based on similar theories or new ones that arise out of the next round of funding.

Plaintiffs in these class actions have accused banks of inappropriately processing and funding larger loans for “bigger business” clients and favoring current customers over other applicants who were unable to obtain loans before the funding ran out. One of the first class actions, filed in federal court in Maryland, sought a temporary restraining order and preliminary injunction to prevent banks from prioritizing current bank customers over individuals and businesses that were not current customers of the bank. The court denied plaintiffs’ request for emergency relief, concluded that there is no private right of action under the CARES Act, and found that plaintiffs’ claims were unlikely to survive. See here for a link to the decision. Plaintiffs have appealed to the Fourth Circuit. Two similar class actions have been filed in Texas federal court.

Another class action was filed this week in state court in Texas against a community bank, alleging fraud, breach of contract, breach of fiduciary duty, negligence and violations of the Texas Deceptive Trade Practices Act, all arising out of claims that the bank gave preference to customers eligible for larger loans in order to obtain more lucrative fees. Similarly, several small businesses have filed federal class actions in California and New York, accusing banks of false advertising, fraud, violations of state unfair competition law and deceptive trade practices, among others. Additional disputes are likely to arise as small businesses continue to face unprecedented circumstances; reportedly up to 80% of small businesses were unable to obtain loans during the first round of the program.

© 2020 Bracewell LLPNational Law Review, Volume X, Number 114


About this Author

Bryan S. Dumesnil, Bracewell, commercial litigation attorney, contingent fees lawyer

Bryan Dumesnil has nearly 20 years of experience as a trial attorney.  He handles complex litigation matters, with an emphasis on three primary areas: commercial litigation, contingent fee litigation, and lender liability litigation.

His practice includes representation of commercial clients in diverse civil litigation matters, including contractual disputes, business torts, and energy-related litigation.  Bryan also represents commercial and individual clients as plaintiffs on a contingency basis.  This practice includes the representation of...

Rachel goldman, complex commercial litigation, attorney, Bracewell law

Rachel Goldman is an experienced litigator in both federal and state courts, at the trial and appellate levels. Her practice focuses on complex commercial matters, including claims for breach of contract, post-acquisition disputes, class actions, False Claims Act cases, insurance coverage disputes, contested bankruptcy matters, challenges under the Commerce Clause and the Supremacy Clause, government regulation, securities litigation, construction law, First Amendment and libel actions. Additionally, Rachel's tenure as in-house counsel provides a valuable perspective of client objectives, including dispute resolution prior to litigation.

Christopher L. Dodson Environmental Litigation Attorney Bracewell Houston, TX

Chris Dodson focuses his trial practice on high-risk and high-value business disputes and environmental matters. He maintains an active commercial trial docket and also co-chairs Bracewell’s environmental litigation practice. Chris’ clients range from Fortune 500 businesses to high net-worth individuals. He has first-chair jury and non-jury trial experience representing plaintiffs and defendants in state and federal district courts. A native Houstonian, Chris has practiced with Bracewell for his entire legal career.

Chambers USA (2019) ranks Chris among the leading...

David Shargel, commercial litigation, white collar criminal defense attorney, Bracewell Law firm

David Shargel is a senior counsel in the trial section of Bracewell's New York office. His litigation practice focuses general commercial litigation, internal investigations and white collar criminal defense. Mr. Shargel's practice also involves issues surrounding electronic discovery and data management.

Mr. Shargel has litigated complex commercial disputes involving contract, business torts, insurance coverage, technology and fraud, and has litigated disputes concerning federal and state constitutional law, including the Commerce and Due...

David Ball, Intellectual Property Attorney, Bracewell Giuliani, law firm

David J. Ball is a partner in Bracewell's litigation practice. David has experience in the areas of intellectual property litigation (patent, copyright, trademark, trade dress, and IP theft), bankruptcy litigation, and state and federal appeals.  He also regularly represents financial services firms (international banks, regional banks, hedge funds, etc.) in complex commercial disputes.  David routinely draws on his litigation experience to counsel clients in all manner of business transactions, including risk analysis, contract formation, mergers and acquisitions, and...