American Video Duplicating Inc. et al v. Citigroup Inc. et al, No. 2:2020cv03815 - Document 131 (C.D. Cal. 2020)

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American Video Duplicating Inc. et al v. Citigroup Inc. et al Doc. 131 O 1 2 3 4 5 6 7 8 United States District Court Central District of California 9 10 11 12 AMERICAN VIDEO DUPLICATING INC. et al., Plaintiffs, 13 v. 14 15 Case 2:20-CV-03815-ODW (AGRx) ORDER GRANTING DEFENDANTS’ MOTIONS TO DISMISS [83] [117] CITIGROUP INC. et al., Defendants. 16 17 I. 18 Before the Court are (1) Defendant Citibank, N.A.’s (“Citibank”) Motion to 19 20 21 22 23 24 25 26 27 28 INTRODUCTION Dismiss (“Citibank’s Motion”) the First Amended Complaint (“FAC”), and (2) a joint Motion to Dismiss the FAC (“Joint Motion”) filed by Defendants U.S. Bank National Association; JPMorgan Chase Bank, N.A.; Wells Fargo Bank, N.A.; Bank of America, N.A.; Live Oak Banking Company; and Harvest Small Business Finance (collectively, “Defendants”).1 (Citibank’s Mot., ECF No. 83; Joint Mot., ECF No. 117.) For the following reasons, the Court GRANTS Defendants’ motions to dismiss the FAC with leave to amend.2 1 For purposes of this Order, references to “Defendants” include Citibank unless otherwise noted. After carefully considering the papers filed in connection with both Motions, the Court deemed the matters appropriate for decision without oral argument. Fed. R. Civ. P. 78; C.D. Cal. L.R. 7-15. 2 II. 1 BACKGROUND 2 Plaintiffs American Video Duplicating, Inc. (“AVD”), Tush Law, Ltd. (“TLL”), 3 and Kenneth M. Hahn dba Cal State Financial (“CSF”) (collectively, “Plaintiffs”) 4 provide consulting, legal, accounting and tax preparation services. (FAC ¶¶ 1–3, ECF 5 No. 80.) They bring this action on behalf of themselves and a putative class, seeking 6 “agent fees” from lenders under the Payment Protection Program (“PPP”), which was 7 established by the Coronavirus Aid, Relief, and Economic Security Act (“CARES 8 Act”), Pub. L. No. 116-136, § 1102, 134 Stat. 281, 286–294 (Mar. 27, 2020). (See 9 generally FAC.) 10 Plaintiffs allege they assisted clients in securing PPP loans from Defendants, 11 and Defendants were therefore required to pay Plaintiffs “agent fees” under the PPP. 12 (Id. ¶¶ 45–51.) Upon information and belief, Plaintiffs allege Defendants received 13 lender fees from the federal government and funded PPP loans for borrowers, some of 14 whom Plaintiffs represented, yet Defendants failed and refused to pay Plaintiffs any 15 agent fees. (Id. ¶¶ 43–44.) Plaintiffs claim that Defendants’ refusals to pay agent fees 16 constitute “unlawful actions” from which Plaintiffs suffered financial harm. 17 ¶¶ 53–54.) Based only on these general allegations, Plaintiffs assert three causes of 18 action against Defendants for: (1) declaratory relief; (2) violation of California 19 Business and Professions Code section 17200; and (3) unjust enrichment. (See id. 20 ¶¶ 66–96.) 21 III. (Id. REQUESTS FOR JUDICIAL NOTICE 22 Both parties request the Court take judicial notice of various documents that are 23 publicly available on official government websites. (Plaintiffs’ RJN, ECF No. 124; 24 Defendants’ RJN, ECF No. 117-3.) Both requests stand unopposed. The Court may 25 take judicial notice of “matters of public record” that are not “subject to reasonable 26 dispute.” Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001); accord 27 Daniels-Hall v. Nat’l Educ. Ass’n, 629 F.3d 992, 998–99 (9th Cir. 2010) (“It is 28 appropriate to take judicial notice of this information, as it was made publicly 2 1 available by government entities . . . and neither party disputes the authenticity of the 2 web sites or the accuracy of the information displayed therein.”); United States v. 3 14.02 Acres of Land More or Less in Fresno Cnty., 547 F.3d 943, 955 (9th Cir. 2008) 4 (“Judicial notice is appropriate for records and ‘reports of administrative bodies.’”). 5 Thus, both Plaintiffs’ and Defendants’ requests are GRANTED to the extent that the 6 Court relies on the submitted documents. 7 IV. LEGAL STANDARDS 8 Federal Rule of Civil Procedure (“Rule”) 12(b)(1) provides for dismissal of a 9 complaint for lack of subject matter jurisdiction. The Article III case or controversy 10 requirement limits a federal court's subject matter jurisdiction, which includes the 11 requirement that plaintiffs have standing to bring their claims. Chandler v. State 12 Farm Mut. Auto. Ins. Co., 598 F.3d 1115, 1121–22 (9th Cir. 2010). Rule 12(b)(1) 13 jurisdictional attacks can be either facial or factual. White v. Lee, 227 F.3d 1214, 1242 14 (9th Cir. 2000). When a motion to dismiss attacks subject matter jurisdiction on the 15 face of the complaint, the court assumes the factual allegations in the complaint are 16 true and draws all reasonable inferences in the plaintiff's favor. Doe v. Holy See, 557 17 F.3d 1066, 1073 (9th Cir. 2009). Moreover, the standards set forth in Bell Atlantic 18 Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), 19 apply with equal force to Article III standing when it is being challenged on the face 20 of the complaint. See Terenkian v. Republic of Iraq, 694 F.3d 1122, 1131 (9th Cir. 21 2012). Thus, in terms of Article III standing, the complaint must allege “sufficient 22 factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” 23 Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). 24 A court may also dismiss a complaint under Rule 12(b)(6) for lack of a 25 cognizable legal theory or insufficient facts pleaded to support an otherwise 26 cognizable legal theory. 27 (9th Cir. 1988). To survive a dismissal motion, a complaint need only satisfy the 28 minimal notice pleading requirements of Rule 8(a)(2)—a short and plain statement of Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 3 1 the claim. Porter v. Jones, 319 F.3d 483, 494 (9th Cir. 2003). The factual 2 “allegations must be enough to raise a right to relief above the speculative level.” 3 Twombly, 550 U.S. at 555. Thus, again, the complaint must “contain sufficient factual 4 matter, accepted as true, to state a claim to relief that is plausible on its face.” Iqbal, 5 556 U.S. at 678 (internal quotation marks omitted). 6 The determination of whether a complaint satisfies the plausibility standard is a 7 “context-specific task that requires the reviewing court to draw on its judicial 8 experience and common sense.” Id. at 679. A court is generally limited to the 9 pleadings and must construe all “factual allegations set forth in the complaint . . . as 10 true and . . . in the light most favorable” to the plaintiff. Lee, 250 F.3d at 679. 11 However, a court need not blindly accept conclusory allegations, unwarranted 12 deductions of fact, and unreasonable inferences. Sprewell v. Golden State Warriors, 13 266 F.3d 979, 988 (9th Cir. 2001). 14 Where a district court grants a motion to dismiss, it should generally provide 15 leave to amend unless it is clear the complaint could not be saved by any amendment. 16 See Fed. R. Civ. P. 15(a); Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 17 1025, 1031 (9th Cir. 2008). 18 determines that the allegation of other facts consistent with the challenged pleading 19 could not possibly cure the deficiency.” Schreiber Distrib. Co. v. Serv-Well Furniture 20 Co., 806 F.2d 1393, 1401 (9th Cir. 1986). 21 denied . . . if amendment would be futile.” Carrico v. City and Cty. of San Francisco, 22 656 F.3d 1002, 1008 (9th Cir. 2011). 23 V. Leave to amend may be denied when “the court Thus, leave to amend “is properly DISCUSSION 24 Defendants move to dismiss Plaintiffs’ FAC under Rule 12(b)(1) for lack of 25 standing and under Rule 12(b)(6) for failure to state a claim. (Citibank’s Mot. 7; Joint 26 Mot. 1.) The Court addresses each ground in turn. 27 28 4 1 A. Article III Standing 2 First, whether Plaintiffs have standing to bring their claims is a threshold matter. 3 “[T]he irreducible constitutional minimum of standing” consists of three elements: 4 (1) an injury in fact; (2) a causal connection between the injury and the conduct 5 complained of; and (3) it must be likely that the injury will be redressed by a favorable 6 decision. Lujan v. Defs. of Wildlife, 504 U.S. 555, 560–61 (1992). The injury-in-fact 7 element requires a plaintiff to show “‘an invasion of a legally protected interest’ that is 8 ‘concrete and particularized’ and ‘actual or imminent, not conjectural or 9 hypothetical.’” Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1548, as revised (May 24, 10 2016) (quoting Lujan, 504 U.S. at 560). And the alleged injury must be “fairly 11 traceable to the challenged conduct of the defendant.” 12 invoking federal jurisdiction bears the burden of establishing these elements.” Lujan, 13 504 U.S. at 561. Id. at 1547. “The party 14 Defendants insist Plaintiffs lack standing because Plaintiffs’ conclusory 15 allegations fail to allege an injury-in-fact traceable to any Defendant’s alleged 16 conduct, and “Plaintiffs fail to identify even a single PPP loan application with which 17 they assisted and that was submitted to and approved by any of the Defendants.” 18 (Joint Mot. 8–9; see Citibank’s Mot. 8–9.)3 19 Plaintiffs appear to acknowledge the FAC does not identify a PPP loan 20 applicant or application for which any specific Defendant failed to pay agent fees, but 21 they contend nonetheless that (1) the FAC adequately sets out the role each Defendant 22 played in the alleged general harm; and (2) Plaintiffs provided more specific 23 allegations after filing the FAC, as reflected in a Declaration by TLL’s CEO filed 24 concurrently with Plaintiffs’ Opposition to Citibank’s Motion. (Opp’n to Citibank’s 25 26 27 28 3 Beyond Defendants’ collective argument, Citibank further contends that Plaintiffs’ claims are not ripe because, without identifying any instance in which an alleged injury occurred, the claims are prospective at best. (Citibank’s Mot. 10–11.) However, as the Court finds Plaintiffs fail to allege an injury-in-fact fairly traceable to any single Defendant’s conduct, it need not consider whether Plaintiffs’ claims are ripe and declines to do so. 5 1 Mot. 5–7, ECF No. 95 (“While the Complaint standing alone is sufficient to establish 2 standing . . . Plaintiffs offered to provide Citi[bank] with the very information it 3 claims is missing from the Complaint.” (citations omitted)); see also Opp’n to Joint 4 Mot. 5–6, ECF No. 122;4 Decl. of Alan S. Turlington, (“TLL Decl.”), ECF No. 95-2.) 5 Plaintiffs thus contend they have established standing “both through the allegations in 6 the Complaint and the information Plaintiffs subsequently offered to provide to Citi.” 7 (Opp’n to Citibank’s Mot. 6.) 8 What matters here, however, is that the allegations in the FAC are too 9 conclusory to say Plaintiffs’ alleged injuries are “fairly traceable to the challenged 10 conduct” of any given Defendant. See Spokeo, 136 S. Ct. at 1547. The FAC does not 11 inform any Defendant of its particular role in the alleged general harm; it relies merely 12 on generalized, conclusory allegations. 13 bolster their allegations with more specific claims in their Oppositions and 14 accompanying TLL Declaration. 15 perhaps helped demonstrate a concrete and particularized injury-in-fact traceable to 16 Citibank. But those allegations are not in the FAC.5 Plaintiffs improperly try to retroactively Indeed, such specific allegations would have Because Plaintiffs fail to clearly allege facts sufficient to establish Article III 17 18 standing, the Court lacks jurisdiction over this action. See Chandler, 598 F.3d 19 at 1121–22. Therefore, both motions to dismiss the FAC are GRANTED to the 20 extent they rely on Rule 12(b)(1). 21 B. Failure to State a Claim 22 Even assuming, for argument’s sake, that Plaintiffs adequately establish 23 standing, the FAC must be dismissed under Rule 12(b)(6). As discussed below, 24 Defendants correctly argue that Plaintiffs’ claims fail as a matter of law because, 25 26 27 28 4 Plaintiffs do not raise any standing-related arguments in their Opposition to the Joint Motion that were not raised in the Opposition to Citibank’s Motion. (Opp’n to Joint Mot. 5–6 (“As to standing, Defendants’ [Joint] Motion to Dismiss directly tracks co-Defendant Citi[bank]’s Motion to Dismiss. For purposes of brevity, Plaintiffs incorporate by reference their Opposition to Citi[bank]’s Motion to Dismiss . . . as if fully set forth herein.”).) 5 Moreover, the subsequently provided specific facts pertain only to Citibank, not all Defendants. 6 1 among other reasons, the CARES Act does not create an entitlement or private right of 2 action to collect agent fees. (See Citibank’s Mot. 12–19; Joint Mot. 9–23.) 3 It must be noted at the outset of this analysis that the parties’ dispute turns on 4 interpretation of an interim final rule by the Small Business Administration (“SBA”), 5 issued to provide guidance on the administration of PPP loans. See Interim Final Rule 6 (“IFR”), 85 Fed. Reg. 20,811, 20,816 (April 15, 2020). The IFR explains that the PPP 7 was temporarily added to the SBA’s Section 7(a) Loan Program, and it states, “The 8 program requirements of the PPP identified in this [IFR] temporarily supersede any 9 conflicting Loan Program Requirement . . . .” Id. (emphasis added). 10 Under the existing Section 7(a) Loan Program, parties must agree to agent fees 11 using a “Fee Disclosure and Compensation Agreement,” otherwise known as a “Form 12 159.” See 13 C.F.R. § 103.5(a) (“Any Applicant, Agent, or Packager must execute 13 and provide to SBA a compensation agreement . . . . SBA provides the form of 14 compensation agreement . . . to be used by Agents.”); see also SBA Form 159 (rev. 15 Apr. 9, 2018).6 The IFR does not mention Form 159, but it does answer the question, “Who 16 17 pays the fee to an agent who assists a borrower?” as follows: 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 proceeds. The total amount that an agent may collect from the lender for assistance in preparing an application for a PPP loan (including referral to the lender) may not exceed: 18 19 20 21 i. ii. 22 23 One (1) percent for loans of not more than $350,000; 0.50 percent for loans of more than $350,000 and less than $2 million; and 0.25 percent for loans of at least $2 million. 24 iii. 25 IFR, 85 Fed. Reg. at 20,816. 26 27 28 6 SBA Form 159 is available online at 7 1 From this language arises the central issue in this case: whether the IFR calls 2 for payment of agent fees on all PPP loans, thereby superseding the existing 3 Section 7(a) requirement that agent fees be designated in a Form 159. This precise 4 question has sparked over fifty similar lawsuits across the country with plaintiffs 5 alleging unpaid agent fees under the PPP. See In re Paycheck Prot. Program Agent 6 Fees Litig., No. MDL 2950, 2020 WL 4673430, at *3 (J.P.M.L. Aug. 5, 2020) 7 (declining to consolidate the present action with others but acknowledging the 8 common legal question). 9 It appears every court that has decided this issue has held that the CARES Act 10 does not require lenders to pay agent fees absent an agreement to do so, nor does it 11 create a corresponding private right of action. See, e.g., Sanchez, PC v. Bank of S. 12 Tex., No. CV-20-00139, 2020 WL 6060868, at *7 (S.D. Tex. Oct. 14, 2020) (“The 13 Court joins the preexisting consensus that ‘there is no private cause of action to 14 enforce this [agent fee] provision of the CARES Act.’” (alteration in original) (quoting 15 Johnson v. JPMorgan Chase Bank, N.A., No. CV-20-4100 (JSRx), 2020 WL 16 5608683, at *8 (S.D.N.Y. Sept. 21, 2020)); Sport & Wheat, CPA, PA v. ServisFirst 17 Bank, Inc., No. 3:20-cv-05425-TKW-HTC, 2020 WL 4882416, at *3 (N.D. Fla. Aug. 18 17, 2020) (“The CARES Act does not require lenders to pay the agent’s fees absent an 19 agreement to do so . . . .”). The Court sees no reason to depart from these conclusions. 20 Plaintiffs insist the traditional Form 159 requirement is inapplicable here 21 because it conflicts with the PPP loan program requirements. (Opp’n to Citibank’s 22 Mot. 14–16; Opp’n to Joint Mot. 2.) Their primary argument is that the PPP borrower 23 application form (SBA Form 2483)7 omits what is normally “Question 10” on a 24 Section 7(a) loan application form (SBA Form 1919),8 which asks whether an agent 25 assisted with preparing the loan application. (See Opp’n to Citibank’s Mot. 15–16; id. 26 27 28 7 SBA Form 2483 is available online at 8 SBA Form 1919 is available online at 8 1 App’x A (“First Comp. Chart”) R15, ECF No. 95-1; Opp’n to Joint Mot. App’x A 2 (“Second Comp. Chart”) R16, ECF No. 122-1.) 3 But this argument misses the mark. The question before the Court is whether 4 the IFR conflicts with the Section 7(a) requirement that a Form 159 must be executed 5 and submitted to the SBA, not whether the application form for a PPP loan appears 6 different than the application form for a standard Section 7(a) loan. See generally 7 Sanchez, 2020 WL 6060868, at *8 (“The question is whether the PPP supersedes 13 8 C.F.R. § 103.5(a), not the form compensation agreement promulgated under that 9 regulation.”). Moreover, the PPP borrower application Form 2483, which is 10 submitted to the lender, need not inquire about an agent because under the PPP, “the 11 lender is the party that will have agreed to compensate that third party.” (Joint 12 Mot. 14.) “By contrast, the Lender Application Form (SBA Form 2484), which a 13 lender must complete for each approved loan submitted to the SBA, specifically asks 14 whether a third party was used to assist in the preparation of the loan application.”9 15 (Id. at 13–14 (internal quotation marks omitted).) Indeed, the fact that the PPP lender 16 application form asks whether the lender used an agent to assist with the application— 17 in a system where agent fees can only be recovered from lenders, not borrowers— 18 shows that the SBA contemplated certain PPP loans would not involve agent fees. 19 Pressing onward, Plaintiffs argue that Form 159 is not required for a PPP loan 20 because it is “only used if the borrower or lender pays the agent fees, which is not the 21 case here where the SBA is paying it.” (Opp’n to Citibank’s Mot. 16.) Plaintiffs 22 further note, “Even if it were determined that the Agent is not being paid by the SBA 23 but is being paid by the SBA Lender, Plaintiffs are not required to sign or submit 24 Form 159. The Lender is responsible for completing Form 159 when it pays an 25 Agent.” 26 unpersuasive because the IFR clearly instructs that “[a]gent fees will be paid by the (Opp’n to Citibank’s Mot. at 16 n.9.) To start, these arguments are 27 28 9 SBA Form 2484 is available online at 9 1 lender.” IFR, 85 Fed. Reg. at 20,816 (emphasis added). Moreover, Plaintiffs appear 2 to admit that a lender must still submit Form 159 if agent fees under the PPP are to be 3 paid by the lender. (See Opp’n to Citibank’s Mot. at 16 n.9; First Comp. Chart R8, 4 R15; Second Comp. Chart R8, R16.) Tellingly, Plaintiffs’ argument loses sight of the 5 relevant question here, which is whether a Form 159 must be submitted at all. 6 Beyond this, Plaintiffs advance arguments that merely invite the Court to rule in 7 their favor based on conjecture, as none of the purported conflicts are evident on the 8 face of the IFR. For instance, Plaintiffs contend the SBA obviated the need to use 9 Form 159 when it deemed 0.25% to 1% agent fees as reasonable under the PPP. (See 10 Opp’n to Citibank’s Mot. 15–16; First Comp. Chart R15; Second Comp. Chart R16.) 11 But accepting this argument would require the Court to assume, among other things, 12 that the SBA does not care what agent fees are paid in connection with any PPP loan 13 as long as the fee falls within the range limits—a proposition for which Plaintiffs 14 provide no support. In short, the Court agrees with other district courts that have already decided 15 16 that: 20 Form 159 does not conflict with the IFR because . . . there is nothing in the IFR that prohibits the SBA Administrator from requiring use of the form (or the disclosure of agent fees) and the form clearly states that it is to be used “whenever an Agent is paid by either the [borrower] or the SBA Lender in connection with the SBA loan application.” 21 Sport & Wheat, 2020 WL 4882416, at *3–4 (quoting IFR, 85 Fed. Reg. at 20,816). 22 “[A]gents must simply comply with 13 C.F.R. § 103.5(a) in executing and delivering a 23 compensation agreement, in addition to all other applicable requirements.” Sanchez, 24 2020 WL 6060868, at *9. 17 18 19 25 Having concluded there is no private cause of action to retrieve agent fees under 26 the PPP absent an agreement between agent and lender, the Court briefly turns to 27 Plaintiffs’ individual claims. First, Plaintiffs’ declaratory judgment claim fails because 28 it is premised on the alleged mandatory agent fees discussed above, which are not 10 1 automatically mandated under the PPP. See Saterbak v. Nat’l Default Servicing Corp., 2 No. 3:15-cv-00956-WQH-BGS, 2016 WL 4430922, at *15 (S.D. Cal. Aug. 22, 2016) 3 (“A claim for declaratory relief is not a stand-alone claim.”). 4 allegations that Plaintiffs entered into agreements with Defendants to receive agent 5 fees, Plaintiffs’ UCL claim is dependent on a private cause of action in the PPP which 6 does not exist. See Stokes v. CitiMortgage, Inc., No. CV 14-00278 BRO (SHx), 2014 7 WL 4359193, at *11 (C.D. Cal. Sept. 3, 2014) (a UCL claim “must be ‘tethered’ to 8 specific constitutional, statutory, or regulatory provisions.”); accord Hodsdon v. Mars, 9 Inc., 891 F.3d 857, 866 (9th Cir. 2018). Second, absent 10 Finally, under California law, unjust enrichment is neither a standalone cause of 11 action nor a remedy, but rather a “general principle, underlying various legal doctrines 12 and remedies” synonymous with restitution. Rutherford Holdings, LLC v. Plaza Del 13 Rey, 223 Cal. App. 4th 221, 231 (2014); see also Lil’ Man In the Boat, Inc. v. City & 14 Cnty. of San Francisco, No. 17-cv-00904-JST, 2018 WL 4207260, at *4 (“When a 15 plaintiff lacks a private right of action under a particular statute, she cannot argue 16 around that limitation by bootstrapping her cause of action onto an unjust enrichment 17 claim or declaratory relief claim based on the same statute.”). Just as Plaintiffs’ 18 declaratory judgment claim must be dismissed for lack of an underlying substantive 19 claim, so too must their claim for unjust enrichment. 20 21 22 For these reasons, Defendants’ motions to dismiss the FAC are also GRANTED to the extent they rely on Rule 12(b)(6). VI. CONCLUSION 23 In summary, the Court GRANTS Citibank’s Motion and the Joint Motion to 24 Dismiss Plaintiffs’ FAC. (ECF Nos. 83, 117). Because the CARES Act does not 25 provide a private cause of action to recover agent fees absent an agreement between 26 agent and lender, it appears unlikely that Plaintiffs can overcome the deficiencies 27 identified above. However, because Plaintiffs could conceivably allege more facts to 28 support a proper claim for agent fees, the Court cannot say any amendment would be 11 1 futile. Thus, the Court GRANTS Plaintiffs LEAVE TO AMEND by filing a Second 2 Amended Complaint, rectifying the deficiencies identified above, no later than 3 twenty-one (21) days from the date of this Order. Failure to timely amend will result 4 in dismissal with prejudice and closing of the case. 5 6 IT IS SO ORDERED. 7 8 November 16, 2020 9 10 11 ____________________________________ OTIS D. WRIGHT, II UNITED STATES DISTRICT JUDGE 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 12