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Citibank, JPMorgan Win Dismissal of Suit Seeking PPP Loan Fees

Nov. 17, 2020, 7:24 PM

Bank of America, Citibank, JPMorgan Chase, and other banks notched another court win against loan agents seeking fees for helping small businesses apply for emergency pandemic loans earlier this year.

The U.S. District Court for the Central District of California on Monday granted the banks motion to dismiss the case after finding that the plaintiffs lacked standing because their original allegations were “too generalized” to link back to a specific defendant.

The banks aren’t completely in the clear. Judge Otis Wright II granted the plaintiffs a chance to refile their complaint, but said their suit faced high hurdles.

The CARES Act, the legislation enacted earlier this year to provide government-backed loans to struggling small businesses, doesn’t provide a private cause of action to recover agent fees absent an agreement between agent and lender, the judge said.

“However, because Plaintiffs could conceivably allege more facts to support a proper claim for agent fees, the Court cannot say any amendment would be futile,” Wright said in his order.

The suit was brought in June by American Video Duplicating, Inc., Tush Law, Ltd., and Kenneth M. Hahn, doing business as Cal State financial. The plaintiffs provided consulting, legal, accounting or tax preparation services to Paycheck Protection Program applicants.

It is one of several suits that allege the CARES Act and longstanding Small Business Administration rules entitled agents to receive up to 1% of the fees the government paid lenders for processing the PPP loans. Federal courts in Florida , New York and Texas have said banks aren’t required to share fees.

A new amended complaint is due within 21 days of Monday’s order. The other defendants include Wells Fargo, U.S. Bank, Live Oak Banking Company, and Harvest Small Business Finance.

The case is American Video Duplicating Inc. v. Citigroup Inc., C.D. Cal., No. 20-cv-03815-ODW-AGR, order, 11/16/20.

To contact the reporter on this story: Lydia Beyoud in Washington at lbeyoud@bloomberglaw.com

To contact the editors responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com; Roger Yu at ryu@bloomberglaw.com