Litigation Guides

Paycheck Protection Program (PPP) Class Action Litigation Guide

Created as part of the $2 trillion CARES Act stimulus package, the Paycheck Protection Program (PPP) was introduced to provide vital aid to small businesses amidst the COVID-19 crisis. Described by the Small Business Administration (SBA) as, “a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll,” the intent of the program was to help these businesses weather the coronavirus response and preserve jobs. However, the program ran into difficulties not long after it launched. This included a total drain of the $349 billion in funding available for small businesses before administrators had finished processing all loan applications. Questions also arose on whether properly qualified businesses were receiving these emergency funds. While Congress acted to re-fund the PPP with an additional $310 billion and address certification issues, several class action lawsuits have already been filed against banks responsible for processing PPP loan applications. As you prepare PPP-related lawsuits, here’s what you need to know on potential loan missteps.

Written By

Zach Barreto


What is the Paycheck Protection Program?

The Paycheck Protection Program was signed into law as part of the CARES Act on March 27, 2020. On April 3, 2020 the program began accepting applications, however, the $349 billion in initial funding ran out after just 13 days. In that short window, the loan application process was dominated by confusion and frustration. Many business owners turned to the banks where they already had existing relationships to apply. But for others, the path to apply was not so clear. Bank of America initially turned away any applicants that were not current account holders. Wells Fargo told customers to apply to other institutions. Other large banks would not accept applications from new customers. The result of a hastily prepared loan program was mismanagement of applications and roadblocks to many businesses that needed funds the most.

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Allegations Against Loan Processing Banks

Class action lawsuits have quickly emerged related to bank conduct while processing PPP loan applications. The largest area of complaint has been the process—or lack thereof—banks used to process applications. A common thread among the plaintiff parties has been the influence of financial gains banks stand to gain by prioritizing larger loans for larger companies—larger within the small business scale.

Lawsuits have also called into question the validity of prioritizing current bank customers or simply refusing new customers. Banks, both big and small, are key agents in securing a PPP loan. As a result, many business owners have been left frustrated by the opaque application process and are seeking answers from these financial institutions.


Active PPP Loan Lawsuits

Maryland Business Owners vs. Bank of America

Several Maryland small businesses filed one of the first class action lawsuits against a bank, seeking a temporary restraining order and a preliminary injunction against Bank of America. The class sought to prevent Bank of America “from imposing restrictions on borrowing under the Payroll Protection Program.” The plaintiffs alleged that, despite being Bank of America customers, the bank had refused to process PPP loan applications for at least two plaintiffs because neither business had a borrowing relationship with Bank of America.

The Maryland district court, however, rejected the plaintiffs’ request for a temporary restraining order and an injunction. The court noted that there is no private cause of action under the CARES Act, which meant that the plaintiffs were unlikely to succeed on the merits of this claim.

California Business Owners vs. PNC

In California, a business owner filed a class action lawsuit against PNC Bank in the Northern District of California. In the complaint, the plaintiff and proposed class alleges that PNC delayed submitting plaintiffs’ applications. The bank then claimed it could not process those applications at all. The lawsuit also claims that PNC gave high-value loans and certain clients preferential treatment in order to maximize its own fees generated from processing the PPP loan applications.

Additional class action lawsuits have since been filed in California courts against Bank of America, JPMorgan Chase, U.S. Bank, and Wells Fargo. These complaints, filed by common representation, attack the banks’ alleged preference for larger origination fees generated by larger loan requests. This, the lawsuits argue, are in violation of California’s Unfair Competition Law and False Advertising Law for “fraudulent concealment” of loan processes.

Florida CPA Firm vs. ServisFirst Bank

In the Northern District of Florida, an accounting firm filed a class action lawsuit against ServisFirst Bank and financial planning company, Synovus Trust Corporation. The complaint alleges that these financial institutions had violated terms of the CARES Act by failing to pay the accounting firm for its role in preparing PPP applications.

The complaint further asserts that the CARES Act explicitly states that “agents,” including accountants, attorneys, loan brokers, and similar financial consultants, who help small businesses apply for PPP loans are owed a fee by the lender who then processes the application. The plaintiff accounting firm states that they acted as such an agent for certain clients, only to have the defendants refuse to pay the required fee.

Texas Lawyer vs. Frost Bank

In Texas, a lawyer filed a class action suit against Frost Bank. Here, the plaintiff is a lawyer representing his own firm and other small firms similarly situated. The proposed class applied for PPP funding, only to face problems such as loan applications that were not processed before the funding ran out on April 16, 2020.

The complaint also alleges that the defendant violated the Texas Deceptive Trade Practices Act by prioritizing certain loan applications and refusing to process others. The Texas Deceptive Trade Practices Act allows for a private cause of action for plaintiffs. It covers a broad range of “false, misleading, or deceptive acts or practices in the conduct of any trade or commerce.”


What Constitutes PPP Loan Fraud

The uproar associated with the PPP loan process has turned a critical eye on just who has secured these loans—and their eligibility. In response, the SBA released additional guidelines on qualifications for receiving loans including business size standards and review protocols for loans over $2 million. The agency also tightened up terms of loan “forgivability” and repayment schedules. Businesses such as Ruth’s Chris Steakhouse, the Los Angeles Lakers, and Shake Shack have since voluntarily returned millions in PPP loans.

In a less voluntary instance, two men were arrested in Rhode Island and charged in the first case of PPP fraud. David A. Staveley and David Butziger were charged for seeking $544,000 in PPP loans. The duo falsely claimed to employ employees at four different business locations. There were, in fact, zero employees. The men have been charged with conspiracy to make false statements to influence the SBA and conspiracy to commit bank fraud. Assistant Attorney General Brian A. Benczkowski, who is leading enforcement on this front, stated his team is investigating a number of similar fraud claims “in the double digits.”

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PPP Class Action Outlook

The Maryland district court’s memorandum opinion has set an important precedent for cases attempting to use a similar “private cause of action” argument. While not a binding ruling outside of Maryland, it does present an initial hurdle for attorneys seeking to bring PPP claims to court.

The Texas case, however, may offer a solution to the problem. While the CARES Act may provide no private cause of action, statutes like the Texas Deceptive Trade Practices Act often do. Many states have such laws, which may provide grounds for arguing that the claim should be allowed to proceed.

A single unified strategy for dealing with PPP claims nationwide may be difficult to achieve. However, PPP claims may have greater viability under state trade laws. The approach taken in each case should be tailored to that state’s trade practices act and any related precedent.


Expert Witnesses in PPP Class Action Lawsuits

Lawsuits seeking to hold banks accountable for their approach to the Paycheck Protection Program will rely on the assistance of expert witnesses as well. Experts may be needed to explain how the Paycheck Protection Program was intended to be administered, how banks allegedly deviated from those intentions, and how those deviations affected the plaintiffs. Experts in finance, accounting, and lending will be critical to establish the mechanics of banking relationships and lending programs. Experts in the administration of government programs will also be key for exploring the setup and potential errors in the creation of the PPP.

About the author

Zach Barreto

Zach Barreto

Zach Barreto is a distinguished professional in the legal industry, currently serving as the Senior Vice President of Research at the Expert Institute. With a deep understanding of a broad range of legal practice areas, Zach's expertise encompasses personal injury, medical malpractice, mass torts, defective products, and many other sectors. His skills are particularly evident in handling complex litigation matters, including high-profile cases like the Opioids litigation, NFL Concussion Litigation, California Wildfires, 3M earplugs, Elmiron, Transvaginal Mesh, NFL Concussion Litigation, Roundup, Camp Lejeune, Hernia Mesh, IVC filters, Paraquat, Paragard, Talcum Powder, Zantac, and many others.

Under his leadership, the Expert Institute’s research team has expanded impressively from a single member to a robust team of 100 professionals over the last decade. This growth reflects his ability to navigate the intricate and demanding landscape of legal research and expert recruitment effectively. Zach has been instrumental in working on nationally significant litigation matters, including cases involving pharmaceuticals, medical devices, toxic chemical exposure, and wrongful death, among others.

At the Expert Institute, Zach is responsible for managing all aspects of the research department and developing strategic institutional relationships. He plays a key role in equipping attorneys for success through expert consulting, case management, strategic research, and expert due diligence provided by the Institute’s cloud-based legal services platform, Expert iQ.

Educationally, Zach holds a Bachelor's degree in Political Science and European History from Vanderbilt University.

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