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Law360 (November 10, 2020, 5:44 PM EST ) Bank of America on Monday asked a New Jersey federal judge to toss a lawsuit that claims the bank discriminated against minorities and women when it closed accounts holding $100 million in federal Paycheck Protection Program funds, saying it did so because of unauthorized lending out of a deposit account.
The August lawsuit alleges Bank of America NA and Merrill Lynch & Co. Inc. was discriminatory in closing the bank account holding the $100 million approved by the Small Business Administration, and further retaliated against the minority couple and their companies by closing unrelated accounts they also had at the bank.
Those closures breached the banks' contracts, the lawsuit alleges.
But Bank of America closed the accounts because of suspicious activity unrelated to the account holders' race or gender, Monday's motion to dismiss said.
"Plaintiffs' inflammatory claims are meritless and have no basis in fact," the banks said. "The accounts were closed not due to any racial or gender animus, but because plaintiffs were attempting to use their small business account to engage in banking and loan-making activities without prior authorization and in direct contravention of the bank's policies."
The plaintiffs, Rafael and Chelsea Martinez and their companies Republic Group LLC, MBE Capital Partners LLC and Reaching New Heights Corp., allege MBE was approved by the Small Business Administration to issue loans to small minority-owned businesses as part of the federal Paycheck Protection Program.
They claim they got $100 million for the PPP loans and were using Republic's Bank of America business account to disperse the loans.
On May 20, one of Republic's customers attempted to cash a check from that account but BofA "refused to honor the check and instead humiliated and degraded the customer and client of Republic and MBE, claiming the check was fraudulent," according to the complaint. BofA then froze the account.
Rafael Martinez gave written notice to Bank of America that he understood its position that it would not honor checks or electronic items presented for payment and that the funds should be transferred to another financial institution, the bank said.
Republic transferred the funds for the PPP to another institution, and later BofA closed Republic's business account, Rafael and Chelsea Martinez personal bank accounts and the business account of nonprofit Reaching New Heights, where the Martinezes are officers, BofA said.
The plaintiffs allege closing these accounts was retaliation against them "as minority and women-owned businesses whose management had the nerve to seek to defend its civil and contractual rights."
The banks argued the plaintiffs don't show that they or the minority-owned business was treated any differently than other non-minority BofA customers.
"These conclusory allegations contain no facts that would allow the court to infer that any of the conduct they allege was motivated by race or gender," the bank said in its motion.
Also, their breach of contract claim doesn't identify the contract or specific provisions the banks allegedly breached, the motion said.
Instead, the bank deposit agreement on the plaintiffs' accounts gives "BofA broad discretion to refuse checks and to freeze or close its customers' accounts," the banks said.
"Plaintiffs make the conclusory assertion that BofA's handling of their accounts amounts to a breach of contract, but as the terms of the deposit agreement make clear, BofA has ample discretion to take the actions it allegedly took," the motion said.
Shannon Garrahan of Law Offices of Shannon Garrahan PC, counsel for the plaintiffs, told Law360 Tuesday they have "pled sufficient facts to prove that Bank of America and Merrill have acted in the manner set forth in the complaint."
Counsel for BofA declined to comment through a bank spokesperson.
Plaintiffs are represented by Shannon Garrahan of Law Offices of Shannon Garrahan PC.
Bank of America and Merrill Lynch are represented by Philip S. Rosen of Zeichner Ellman & Krause LLP and Enu A. Mainigi, Kenneth C. Smurzynski, Craig D. Singer and Jesse T. Smallwood of Williams & Connolly LLP.
The case is Republic Group LLC et al., v. Bank of America NA et al., case number 2:20-cv-12081, in U.S. District Court for the District of New Jersey.
--Editing by Amy Rowe.
For a reprint of this article, please contact reprints@law360.com.
