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Law360 (April 30, 2020, 6:30 PM EDT ) A cupcake decorating company has sued JPMorgan Chase in Colorado federal court over what it calls "self-serving" distribution of Paycheck Protection Program loans to businesses during the COVID-19 pandemic, saying it would have sought help elsewhere if it knew the bank was prioritizing big clients.
Edgewater, Colorado-based Ladaga Ventures LLC's proposed class action alleges that JPMorgan Chase Bank N.A. approved only about 6% of its 300,000 smaller business banking customers that tried to apply for the PPP loans administered by the federal Small Business Administration, and that Chase gave the go-ahead on such loans to nearly 100% of its large commercial banking clients.
"Had Chase disclosed its self-serving prioritization, plaintiff could have, and would have, submitted their PPP applications to other financial institutions that were actually processing applications on a first-come, first-served basis," according to Ladaga's complaint filed Wednesday.
The suit proposes a class of thousands of Colorado businesses with Chase accounts that tried but failed to get PPP loans via the bank.
According to the suit, when Congress enacted the PPP on March 27 under the Coronavirus Aid, Relief and Economic Security, or CARES, Act, it initially provided $349 billion in forgivable emergency loans to small businesses so they could cover payroll and other expenses.
But what was supposed to be a life raft for small businesses trying to survive states' "stay at home" orders resulted in Chase's decision to take advantage of its status as an SBA-approved lender, according to the suit. The bank approved PPP loans for its favored commercial clients at the expense of small-business applicants who desperately needed the funds, the suit said.
Chase then hid from the public its decision not to prioritize PPP applications on a first-come, first-served basis, and instead profited by generating hefty loan origination fees from the deals it inked with the bank's large commercial clients, the suit said.
A spokesperson for Chase, Maura Cordova, declined Thursday to comment on the lawsuit. Cordova pointed to a PPP notice that Chase provided to its business bank customers, saying that more than 300,000 clients applied for loans and the bank was unable to process all the applications before SBA funds were depleted in the government's first round.
"Chase served clients as they came to us, and no business or client segment was prioritized over another," the notice said. "In Chase Business Banking, we serve millions of smaller businesses. We set up a digital application to process as many loans as possible from our queue, understanding that a given loan may take more or less time to review. We made every effort to serve as many clients as possible, in a race against time and limited funding."
Ladaga Ventures, a small business that sells cupcake decorating kits, baking directions and tutorials, claims that it relied on Chase's false advertising and deceptive loan application processing scheme when it learned of the CARES Act.
It jumped on the chance to obtain a PPP loan through a financial institution and filed its complete and timely application with Chase on April 6, the suit said. Ladaga received a confirmation email a few hours later, but then nothing more happened, according to the suit.
"In response to multiple requests for a status update, Ladaga Ventures was told each time by Chase representatives that 'I can't see the status of your application, no one else at Chase can either, we are processing applications as fast as we can,'" the suit alleges.
Ladaga Ventures' loan was not funded by Chase, which ultimately told the business on April 21 that although the bank had submitted the application to the SBA on April 10, it did not receive an SBA approval "for some reason," the suit said. Chase said it had "a bunch of people to call whose applications were not processed correctly and were not even submitted to the SBA," according to the suit.
Meanwhile, Chase refused to follow SBA regulations on distributing PPP loans and moved high-dollar applications from its large and mid-sized companies to the front of the line so it could maximize its profits on loan origination fees, the suit said.
The complaint alleges violations of the Colorado Consumer Protection Act, fraudulent concealment, negligence and tortious interference with prospective contractual relations. It seeks an award of compensatory, statutory and other damages.
A lawyer for Ladaga, Thomas Erskine Ice of Ice Legal PA, declined Thursday to comment on the case.
Ladaga is represented by Ariane M. Ice and Thomas Erskine Ice of Ice Legal PA.
JPMorgan Chase is represented by Greenberg Traurig LLP.
The case is Ladaga Ventures LLC v. JPMorgan Chase Bank NA, case number 1:20-cv-01204, in the U.S. District Court for the District of Colorado.
--Editing by Peter Rozovsky.
For a reprint of this article, please contact reprints@law360.com.
