Fruci & Associates PS v. A10 Capital LLC

• Court: District Court, W.D. Washington
• Decided: December 29, 2020
• Docket: 2:20-cv-00864
• Status: Unknown

Opinion

6 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON 7 AT SEATTLE

8 FRUCI & ASSOCIATES, PS, for itself and CASE NO. C20-864 RSM on behalf of a class of similarly situated 9 businesses and individuals, ORDER ON PENDING MOTIONS

10 Plaintiff,

11 v.

12 A10 CAPITAL LLC, et al.,

13 Defendants.

14 15 I. INTRODUCTION 16 This matter is before the Court on motions to dismiss filed by the defendants that have 17 appeared in this action. Dkts. #14, #64, and #66. The case presents the Court with a novel legal 18 claim arising out of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) 19 and the Paycheck Protection Program (“PPP”) that it created. Plaintiff asserts that it acted as an 20 agent for loan applicants seeking loans from defendant banks under the PPP and that it is 21 therefore entitled to “agent fees” that the banks have not paid. To date, at least ten courts have 22 dismissed claims similar to Plaintiff’s after finding them insufficiently plead or lacking an 23 adequate legal basis. Having considered the motions, the Court finds that Plaintiff’s Amended 24 Class Action Complaint is not adequately plead and dismisses the action with leave to amend. 1 II. BACKGROUND1 2 A. Section 7(a) Loans, the Paycheck Protection Program, and Agent Fees 3 Our country was caught flat-footed in responding to the emerging COVID-19 pandemic, 4 necessitating wide-spread closure of public spaces and choking our national economy to a trickle. 5 In an effort to shield some people from the immediate impacts of the economic upheaval,

6 Congress passed the Coronavirus Aid, Relief, and Economic Security Act, Pub. L. 116-136, 134 7 Stat. 281 (“CARES Act”). Relevant here, the CARES Act created the Paycheck Protection 8 Program (“PPP”) “to provide American small businesses with eight weeks of cash-flow 9 assistance.” Dkt. #5 at ¶ 25. These loans were backed by the Small Business Administration 10 (“SBA”) and by $349 billion allocated by Congress. Id. Further, to assure the loans were 11 distributed quickly, Congress temporarily added a new “loan product” to those offered by SBA 12 and “streamlin[ed] the requirements of the regular 7(a) loan program.” Business Loan Program 13 Temporary Changes; Paycheck Protection Program, 85 FED. REG. 20811-01, 20811–12 (April 14 15, 2020) (to be codified at 13 C.F.R. pt. 120) (“SBA Rule”).

15 Under most SBA loan programs borrowers can submit loan applications to qualified 16 lenders or to SBA directly. 13 C.F.R. § 120.190. Borrowers can seek the assistance of “agents”2 17 in preparing application materials and navigating the loan process. See id. at § 103.2(a) (no agent 18 is required to deal with SBA directly). Where an applicant works with an agent, regulations 19 govern the agent’s compensation. See id. at § 103.5. If the borrower will compensate the agent, 20 the regulations require a “compensation agreement” and caps allowable fees according to the 21

1 Throughout, the Court cites to the docket and page numbers applied by the Court’s CM/ECF 22 system. Where appropriate, the Court cites to numbered paragraphs or page and line numbers.

23 2 By regulation, an “agent” is an “authorized representative, including an attorney, accountant, consultant, packager, lender service provider, or any other individual or entity representing an 24 Applicant or Participant by conducting business with SBA.” 13 C.F.R. § 103.1. 1 amount of the loan. Id. at § 103.5(a)–(b). Where an agent is compensated by the lender, they 2 “must enter into a written agreement with each lender for whom it acts in that capacity” and 3 “compensation may not be charged to a” borrower. Id. at § 103.5(c). In either situation, SBA 4 requires submission of SBA Form 159: Fee Disclosure and Compensation Agreement. Dkt. #15- 5 1 at 2 (Form 159 requiring that it “be completed and signed by the SBA Lender and the Applicant

6 whenever an Agent is paid by either the Applicant or the SBA Lender in connection with the 7 SBA loan application”) (available at: www.sba.gov/document/sbaform159feedisclosure- 8 compensationagreement). 9 Loans under the PPP are not entirely different as they are guaranteed by SBA “under the 10 same terms, conditions, and processes” as other 7(a) SBA loans, unless “otherwise provided” by 11 the CARES Act. 15 U.S.C. § 636(a)(36)(B). To disperse money more rapidly, lenders are the 12 primary point of contact for PPP loans. In order to attract an adequate number of participating 13 lenders, the PPP provides for guaranteed lender fees based on the amount of the loan funded: 14 (i) IN GENERAL.—The Administrator shall reimburse a lender authorized to make a covered loan at a rate, based on the balance of the financing 15 outstanding at the time of disbursement of the covered loan, of—

16 (I) 5 percent for loans of not more than $350,000;

17 (II) 3 percent for loans of more than $350,000 and less than $2,000,000; and

18 (III) 1 percent for loans of not less than $2,000,000.

19 Id. at § 636(a)(36)(P). As for agents, the PPP provides that “[a]n agent that assists an eligible 20 recipient to prepare an application for a covered loan may not collect a fee in excess of the limits 21 established by the Administrator.” Interim rules established by SBA further address agent fees: 22 c. Who pays the fee to an agent who assists a borrower?

23 Agent fees will be paid by the lender out of the fees the lender receives from SBA. Agents may not collect fees from the borrower or be paid out of the PPP loan 24 proceeds. The total amount that an agent may collect from the lender for assistance 1 in preparing an application for a PPP loan (including referral to the lender) may not exceed: 2 i. One (1) percent for loans of not more than $350,000; 3 ii. 0.50 percent for loans of more than $350,000 and less than $2 million; and 4 iii. 0.25 percent for loans of at least $2 million. 5 The Act authorizes the Administrator to establish limits on agent fees. The 6 Administrator, in consultation with the Secretary [of Treasury], determined that the agent fee limits set forth above are reasonable based upon the application 7 requirements and the fees that lenders receive for making PPP loans.

8 SBA Rule, 85 FED. REG. at 20816 (bold typeface in original). Due, again, to the necessity of 9 dispersing money rapidly, “[t]he program requirements of the PPP identified in this rule 10 temporarily supersede any conflicting Loan Program Requirement (as defined in [13 C.F.R. 11 § 120.10]).” Id. at 20812. 12 B. Plaintiff’s Action 13 Plaintiff initiated this action against eleven defendant banks which acted as lenders3 under 14 the PPP for agent fees defendants allegedly owed Plaintiff. Plaintiff did not lodge separate 15 allegations as to each defendant. Rather, in the parts most relevant to this motion, Plaintiff makes 16 allegations, based on its “information and belief,” against all of the defendants: 17 36. Based on information and belief, Defendants funded PPP loans for Borrowers represented by Plaintiff and the proposed Class, received their Lender Fees 18 from the Federal Government, and failed to pay the Agent Fees earned by the Plaintiff and proposed Class out of the Lender Fees received. 19 37. Defendants have either failed and refused to pay, or are willing to pay only a 20 partial percentage of, the monies owed in Agent Fees to Plaintiff and the proposed Class, thus retaining for themselves all of the statutory fees allotted 21

3 The action was brought against A10 Capital LLC, First Interstate Bank, Keybank N.A., 22 Mountain West Bank, Numerica Credit Union, Sound Community Bank, State Bank Northwest, U.S. Bank N.A., Washington Trust Bank, Wells Fargo Bank N.A., and Wheatland Bank, Inc. 23 Dkt. #5 at 1. Plaintiff has since dismissed its claims against Wheatland Bank, Inc. and A10 Capital LLC. Dkts. #12 and #62. Defendants Numerica Credit Union and State Bank Northwest 24 have not appeared in this action. 1 by the Government for Agents as part of the PPP despite the work performed by the Agents in assisting the Borrowers in securing their PPP loans. 2

3 Dkt. #5 at ¶¶ 36–37. 4 III. DISCUSSION 5 A. Plaintiff Does Not Adequately Establish Standing 6 1. Legal Standard 7 Pursuant to Article III of the U.S. Constitution, federal courts have limited jurisdiction to 8 hear only live “cases” and “controversies.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 559 9 (1992); U.S. CONST. art. III, § 2. Accordingly, “Article III standing is a necessary component of 10 subject matter jurisdiction.” In re Palmdale Hills Prop., LLC, 654 F.3d 868, 873 (9th Cir. 2011). 11 To satisfy the case-or-controversy requirement, “a plaintiff must show (1) it has suffered an 12 ‘injury in fact’ that is (a) concrete and particularized and (b) actual or imminent, not conjectural 13 or hypothetical; (2) the injury is fairly traceable to the challenged action of the defendant; and 14 (3) it is likely, as opposed to merely speculative, that the injury will be redressed by a favorable 15 decision.” Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 180–81 16 (2000). When a plaintiff lacks standing, dismissal under Federal Rule of Civil Procedure 12(b)(1) 17 is appropriate. See Maya v. Centex Corp., 658 F.3d 1060, 1067 (9th Cir. 2011); Walsh v. 18 Microsoft Corp., 63 F. Supp. 3d 1312, 1317–18 (W.D. Wash. 2014). 19 A motion to dismiss under Rule 12(b)(1) can attack the factual allegations establishing 20 standing or can attack plaintiff’s standing facially. Leite v. Crane Co., 749 F.3d 1117, 1121 (9th 21 Cir. 2014). “The district court resolves a facial attack as it would a motion to dismiss under Rule 22 12(b)(6): Accepting the plaintiff’s allegations as true and drawing all reasonable inferences in 23 the plaintiff’s favor, the court determines whether the allegations are sufficient as a legal matter 24 to invoke the court’s jurisdiction.” Id. at 1121 (citing Pride v. Correa, 719 F.3d 1130, 1133 (9th 1 Cir. 2013)). At the pleading stage, a plaintiff need not satisfy Iqbal/Twombly’s plausibility 2 standard,4 but “must ‘clearly . . . allege facts demonstrating’ each element” of standing. Spokeo, 3 Inc. v. Robins, ___ U.S. ___, 136 S. Ct. 1540, 1547 (2016) (citing Warth v. Seldin, 422 U.S. 490, 4 518 (1975)). As such, the inquiry does not touch directly on the merits of plaintiff’s case. See 5 Maya, 658 F.3d at 1068 (contrasting with consideration of a Rule 12(b)(6) motion which

6 “necessarily assesses the merits of plaintiff’s case”). 7 2. Plaintiff’s Allegations Are Insufficient 8 Even under the more liberal standards of the standing inquiry, Plaintiff fails to establish 9 standing in this matter. The Court concludes that Plaintiff has adequately alleged an injury in 10 fact as Plaintiff has alleged that defendant banks have not paid it funds that it is entitled to. See 11 Dkt. #5 at ¶ 37 (defendant banks “failed or refused to pay” and unlawfully retained agent’s fees). 12 These simple allegations are sufficient. See Van v. LLR, Inc., 962 F.3d 1160 (9th Cir. 2020) 13 (“district court erred by concluding that $3.76 is ‘too little to support Article III standing’” and 14 gathering cases finding adequate financial losses).

15 Plaintiff cannot, however, establish causation and redressability. Plaintiff establishes that 16 PPP agents were to be paid, if at all, from the lender fees paid lending banks. SBA Rule, 85 FED. 17 REG. at 20816 (“Agent fees will be paid by the lender out of the fees the lender receives from 18 SBA.”). In this regard, Plaintiff alleges that, “[b]ased on information and belief, Defendants 19 funded PPP loans for Borrowers represented by Plaintiff . . ., received their Lender Fees from the 20 Federal Government,” and improperly retained funds owed to Plaintiff. Dkt. #5 at ¶ 36. But 21 Plaintiff’s allegations fail to establish that it represented applicants receiving PPP loans or that 22 those applicants obtained funding from the defendant banks. As such, Plaintiff’s allegations do 23

24 4 See Ashcroft v. Iqbal, 556 U.S. 662 (2009) and Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007). 1 not establish whether these defendants—or other lenders—have caused Plaintiff’s alleged 2 injuries. 3 Defendant banks also object that Plaintiff’s allegations are based upon its “information 4 and belief.” There is nothing inherently objectionable to pleading on information and belief and 5 doing so is often necessary “where facts are peculiarly within the possession and control of the

6 defendant or where the belief is based on factual information that” gives rise to an inference of 7 plausibility. Soo Park v. Thompson, 851 F.3d 910, 928 (9th Cir. 2017) (citing Arista Records, 8 LLC v. Does 3, 604 F.3d 110, 120 (2d Cir. 2010); Concha v. London, 62 F.3d 1493, 1503 (9th 9 Cir. 1995)). But that is not the case here, as Plaintiff presumably has access to necessary facts 10 or at least to contextual facts that could lend further support to its “information and belief” 11 claims.5 Yet, as two of the defendant banks note, Plaintiff has “sued eleven financial institutions 12 to demand payment for work Plaintiff does not identify, for clients it does not name, taken out of 13 fees Plaintiff does not allege Defendants have received, under an agreement that does not exist.” 14 Dkt. #14 at 6. The Court agrees that Plaintiff has failed to sufficiently allege that its injuries are

15 fairly traceable to the actions of any defendant bank. 16 Lastly, Plaintiff’s failure to adequately establish causation dooms its arguments for 17 redressability. Even if Plaintiff proves its legal claims, it does not establish that it has brought 18 the proper lenders before the Court such that Plaintiff’s injuries can be redressed. As Plaintiff’s 19 Amended Class Action Complaint fails to allege facts giving rise to standing, it must be 20 dismissed. Accord Am. Video Duplicating Inc. v. Citigroup Inc., Case No. 2:20-cv-03815-ODW 21 (AGRx), 2020 WL 6712232, at *3 (C.D. Cal. Nov. 16, 2020) (similarly concluding that plaintiff 22

5 The Court also notes that Plaintiff does not argue that it lacked access to facts needed to more 23 specifically plead its claims. Plaintiff’s counsel, of course, is the one that certified to the Court that “an inquiry reasonable under the circumstances” yielded evidentiary support for the factual 24 contentions. See FED. R. CIV. P. 11(b). 1 lacked standing where only conclusory statements linked defendants with plaintiff’s alleged 2 injuries). 3 B. Plaintiff Also Fails to State a Claim Upon Which Relief Can Be Granted 4 Having failed to establish standing, Plaintiffs Amended Class Action Complaint also fails 5 under Federal Rule of Civil Procedure 12(b)(6)’s plausibility standard. Dismissal under Federal

6 Rule of Civil Procedure 12(b)(6) “can be based on the lack of a cognizable legal theory or the 7 absence of sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police 8 Dep’t, 901 F.2d 696, 699 (9th Cir. 1990); see also FED. R. CIV. P. 8(a)(2). Accordingly, “a 9 complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that 10 is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. 11 Twombly, 550 U.S. 544, 570 (2007)). This requirement is met when the plaintiff “pleads factual 12 content that allows the court to draw the reasonable inference that the defendant is liable for the 13 misconduct alleged.” Id. (quoting Twombly, 550 U.S. at 556). “The plausibility standard is not 14 akin to a probability requirement, but it asks for more than a sheer possibility that a defendant

15 has acted unlawfully. . . . Where a complaint pleads facts that are merely consistent with a 16 defendant’s liability, it stops short of the line between possibility and plausibility of entitlement 17 to relief.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556, 557). Absent facial 18 plausibility, a plaintiff’s claims must be dismissed. 19 Plaintiff has failed to make factual allegations supporting the plausibility of its alleged 20 claims. As noted above, Plaintiff’s Amended Complaint omits, other than in conclusory fashion, 21 allegations specific to any defendant and provides no indication of the number of clients it 22 assisted with PPP loans, whether its clients obtained loans from defendant banks, the amount of 23 the loans obtained, the amount of fees defendants owe it, or whether it has sought those fees from 24 defendant banks. Plaintiff’s Amended Class Action Complaint establishes the possibility that 1 defendant banks may be liable to Plaintiff, but lacks allegations establishing why defendant 2 banks’ liability is plausible.6 3 Having found that Plaintiff has not adequately alleged that defendant banks are 4 responsible for its alleged harms, the Court does not consider Plaintiff’s additional legal claims7 5 separately. Those claims fail on account of the same inadequate pleading.

6 C. Mountain West’s Motion 7 In addition to joining a motion to dismiss, Defendant Mountain West Bank files a separate 8 motion seeking dismissal on the basis that Plaintiff’s claims are not ripe. Dkt. #66. However, 9 Defendant Mountain West Bank indicates that “[t]he Court need not reach this motion unless it 10 denies the” defendants’ motion to dismiss. Id. at 1. As the Court grants the defendants’ motion 11 to dismiss, the Court denies Defendant Mountain West Bank’s motion as moot. 12 13 14

6 Because the Court finds the allegations of Plaintiff’s Amended Class Action Complaint 15 insufficient, the Court does not reach the underlying question of whether Plaintiff’s legal claim is cognizable. The Court does note, however, that the several U.S. District Courts to consider 16 claims similar to Plaintiff’s have concluded that such claims are not actionable. See Sport & Wheat, CPA, PA v. ServisFirst Bank, Inc., 2020 WL 4882416 (N.D. Fla. Aug. 17, 2020) (Dkt. 17 #57); Johnson v. JPMorgan Chase Bank, N.A., 2020 WL 5608683 (S.D.N.Y. Sept. 21, 2020) (Dkt. #75); Steven L. Steward & Associates, P.A. v. Truist Bank, 2020 WL 5939150 (M.D. Fla. 18 Oct. 6, 2020) (Dkt. #79); Leigh King Norton & Underwood, LLC v. Regions Financial Corp., 2020 WL 6273739 (N.D. Ala. Oct. 26, 2020) (Dkt. #84); American Video Duplicating, Inc. v. 19 Citigroup Inc., 2020 WL 6712232 (C.D. Cal. Nov. 16, 2020) (Dkt. #84); American Video Duplicating, Inc. v. City National Bank, 2020 WL 6882735 (C.D. Cal. Nov. 20, 2020) (Dkt. #85); 20 Lopez v. Bank of America, N.A., 2020 WL 7136254 (N.D. Cal. Dec. 4, 2020) (Dkt. #86); Radix Law PLC v. Silicon Valley Bank, 2020 WL 7388488 (D. Ariz. Dec. 16, 2020) (Dkt. #90); Brunner 21 Accounting Group v. SVB Financial Group et al., No. 2:20-cv-04235-GW-E (N.D. Cal. Dec. 17, 2020) (Dkt. #90). See also Juan Antonio Sanchez, PC v. Bank of S. Tex., 2020 WL 6060868 (S.D. 22 Tex. Oct. 14, 2020).

23 7 In all, Plaintiff states claims for declaratory relief, tortious interference with economic relations, unjust enrichment, conversion, and violation of Washington’s Consumer Protection Act. Dkt. 24 #5 at ¶¶ 59–114. 1 D. Leave to Amend 2 Where a complaint is dismissed for failure to state a claim, “leave to amend should be 3 granted unless the court determines that the allegation of other facts consistent with the 4 challenged pleading could not possibly cure the deficiency.” Schreiber Distrib. Co. v. Serv-Well 5 Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986). Here, Plaintiff has amended its complaint

6 once as a matter of right. See Dkts. #1 and #5. Plaintiff has requested that if the Court dismiss 7 the action “in full or in part” that it be granted “leave to amend to file a second amended 8 Complaint. Dkt. #46 at 29. The Court finds that Plaintiff may be able to allege additional facts, 9 consistent with the challenged pleading, which could survive dismissal. Accordingly, the Court 10 grants Plaintiff leave to amend. 11 IV. CONCLUSION 12 Having reviewed defendants’ motions to dismiss, the briefing of the parties, the 13 supplemental authorities, and the remainder of the record, the Court hereby finds and ORDERS: 14 1. Sound Community Bank and Washington Trust Bank’s Motion to Dismiss Amended

15 Complaint for Failure to State a Claim Under Fed. R. Civ. P. 12(b)(1) and 12(b)(6) (Dkt. 16 #14) is GRANTED. 17 2. Defendants’ Motion to Dismiss Amended Complaint (Dkt. #64) is GRANTED. 18 3. Defendant Mountain West Bank’s Motion to Dismiss Amended Complaint Under FRCP 19 12(b)(1) (Dkt. #66) is DENIED as moot. 20 4. Plaintiff is GRANTED leave to amend. Within thirty (30) days of the date of this order, 21 Plaintiff may file an amended complaint curing the deficiencies identified above. 22 23 24 1 Dated this 29th day of December, 2020. 2 3 A 4 RICARDO S. MARTINEZ 5 CHIEF UNITED STATES DISTRICT JUDGE

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