COVID-19: Florida Federal Court First to Dismiss PPP Agent Fee Class Action
In a national bellwether case, the United States District Court for the Northern District of Florida dismissed a putative class action seeking the payment of “agent fees” for Paycheck Protection Program (PPP) loans under the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act.
The case, Sport & Wheat CPA, PA v. ServisFirst Bank, Inc., et al., No. 20-cv-05425 (N.D. Fla. 2020), is the first among at least 50 similar cases to reach a dispositive decision. These cases all raise the same central question: does the CARES Act entitle agents to any of the fees paid by the federal government to lenders who were tasked with administering hundreds of billions of dollars of loans under the PPP, where the agents assisted the borrowers in obtaining the loans but had no agreements with the lenders entitling them to payment? Here, the court concluded it does not. For background on this category of class action litigation more generally, please see our earlier alerts Developments in Class Action Litigation Surrounding the Paycheck Protection Program and COVID-19 Payment Protection Program: Lender Guidelines Subject to Litigation Risks.
Importantly, in this case, the lead plaintiff agent did not allege that it or the borrowers had contractual agreements with the defendant banks concerning the payment of agent fees. Instead, it asserted four classwide claims for unjust enrichment, breach of implied contract, conversion, and declaratory relief. The first two theories were based on an argument that the parties had reached an implied agreement on the payment of agent fees, and that the class of agents was entitled recover the monetary benefit conferred on the defendant banks when it helped the borrowers obtain PPP loans. The second two theories rested on a legal interpretation of the CARES Act that the PPP and its implementing regulation required lenders to pay the agent fees regardless of whether there was an agreement among the parties to do so.
The court’s analysis centered on this question of law – whether, absent any agreement with the agents, defendant banks are required to pay agent fees under the text of the CARES Act or its implementing regulations. The court concluded that nothing in the CARES Act or its implementing regulations required such payments, they only established restraints on the collection of agent fees. As a result, the court reasoned, the CARES Act does not require lenders to pay agent fees or create a private right of action for payment absent an express agreement among the parties.
Based on this statutory interpretation, the court dismissed plaintiff’s conversion claim because plaintiff could not demonstrate that it had a right to the property in question, the agent fees. Similarly, the court reasoned that the plaintiff’s unjust enrichment claim failed because it did not show a benefit that was conferred on the defendants, only the borrowers. And, even if an indirect benefit was conferred on the defendants, the court determined that this was insufficient to sustain claims for unjust enrichment or implied contract against the defendants. For these reasons, the court dismissed the complaint in its entirety.
Sport & Wheat may be the first of these PPP agent fee cases to be decided on its merits, but it certainly will not be the last. Dozens of other class action cases against PPP lenders are still in their early stages, and more filings are expected over the coming months. A motion to transfer these cases into a single MDL proceeding was denied by the Judicial Panel on Multidistrict Litigation last week. See In re Paycheck Protection Program (PPP) Agent Fees Litigation, MDL No. 2950 (J.P.M.L. Aug. 5, 2020). As a result, these cases will proceed on individual bases, and it is too early to rule out whether some will survive the motion to dismiss stage. For more information on that ruling, please see our earlier alert Judicial Panel on Multidistrict Litigation Refuses to Consolidate Class Action Litigation Concerning Paycheck Protection Program.