Paycheck Protection Program Litigation Update: No MDL Consolidation of Cases
In March, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act—the CARES Act—to help small businesses suffering economic damage from COVID-related shutdowns. Among other new policies and programs, the CARES Act created the Paycheck Protection Program—a loan program designed to provide immediate assistance to small businesses. Private banks and lenders process PPP loans, while the Small Business Administration is responsible for their administration.
The inevitable class action lawsuits
Foreseeably, the PPP has spawned two sets of nationwide class actions: the first set involving application processing and the second concerning agent fees. The first category of class actions includes about 100 lawsuits against lenders for allegedly failing to properly process applications for loans. Generally, the cases allege that lenders failed to process the loans on a “first come, first served basis,” as the PPP requires. Many of the cases further allege that the lenders engaged in self-dealing by giving processing priority to current deposit holders, existing businesses borrowers, and other businesses with debts owed to the lender.
Plaintiffs also filed a second wave of class action lawsuits concerning unpaid agent fees. These cases broadly allege that the lenders failed to pay fees to agents—both individuals and businesses—who had assisted PPP applicants, contrary to the provisions of the CARES Act and applicable regulations. There are about 60 similar cases filed across 26 federal district courts around the country.
Motions to consolidate are denied
Recently, the United States Judicial Panel on Multidistrict Litigation issued orders denying motions—primarily filed by class plaintiffs—to consolidate both types of PPP cases into a single MDL. Most banks and lending institutions opposed the plaintiffs’ efforts to consolidate the cases (though some banks supported lender-specific consolidation).
With respect to the cases involving allegations of improper PPP processing, the panel agreed that overlapping factual questions existed about how the lenders processed their applications. But the panel found broad differences in the individualized factual questions and circumstances for each loan application existed beyond that. The panel concluded that centralization of the cases would not “serve the convenience of the parties and witnesses or further the just and efficient conduct of the litigation.” The panel encouraged voluntary coordination among the parties and the judges involved. See, e.g., In re: Wells Fargo Paycheck Protection Program Litigation, MDL No. 2954 (MDL August 5, 2020).
The panel also denied efforts to consolidate the PPP agent fee class actions. See In re: Paycheck Protection Program Agent Fees Litigation, MDL No. 2950 (MDL August 5, 2020). Denying the plaintiffs’ various motions to consolidate, the panel noted that the cases lacked common factual questions, that lenders lacked common policies and practices for paying agent fees, and no predominant defendant existed across all actions because few lenders were named in more than a single action. For these reasons, the MDL panel concluded that consolidation would be not convenient or be efficient.
Contact Johnston Clem Gifford PLLC
Contact us for more information. Our lawyers have extensive experience in business and finance law and complex commercial litigation. Contact us online or by calling 214-974-8000.