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Bank accused of PPP loan error

Where a company alleged a bank failed to properly process its application for a loan pursuant to the government’s Paycheck Protection Program, or PPP, and it alleged facts showing consideration, a benefit to the bank and detriment to the company, it alleged a plausible claim.


Ironworks Development LLC filed a complaint against Truist Bank based upon the defendant’s alleged failure to properly process plaintiff’s application for a second-round PPP loan. The court dismissed the original complaint in its entirety and granting plaintiff’s “leave to move to amend” its complaint within 14 days.

Plaintiff then filed a motion to amend and attached its proposed amended complaint thereto. The magistrate judge issued a report and recommendation, or R&R, which concluded that amending the complaint would be futile because plaintiff “has not plausibly alleged any consideration in support of its contract with [defendant].” Plaintiff has filed objections to the R&R.


The R&R noted that plaintiff agreed to a lower loan amount and received the benefit “that its application could be processed more quickly ….” The R&R concluded that the “alleged benefit to [defendant],” that is, submitting earlier in a time-sensitive process and foregoing the need to wait for and review additional financial documentation, “is illusory,” offering not even “a trifling inconvenience” to defendant.

Plaintiff raises several arguments to support its objection. As plaintiff alleges, defendant required plaintiff to agree to the contract “within 3 calendar days,” and explained the importance of moving quickly because “the funding for the [PPP] Program is limited to and being processed by the SBA on a first-come, first-served basis ….” Thus, plaintiff argues that defendant “both recognized and received the benefit of submitting the application to the SBA more quickly.” Further, plaintiff argues that defendant benefited just as plaintiff did by “getting in line sooner for a limited-time benefit” as defendant “made money off each loan that it successfully processed.”

Plaintiff also argues that defendant “benefited from [plaintiff’s] agreement to forego the additional money because it removed the corresponding obligation to ‘[s]ubmit a revised Borrower Worksheet and/or supporting documentation’ in support of those funds which [defendant] no longer had to review and could instead move forward immediately.” Plaintiff asserts that the R&R “addressed [plaintiff] and [defendant]’s benefit of submitting the application to the SBA early but did not address [1] [defendant’s] benefit of not having to review additional documentation, [2] the detriment undertaken by [plaintiff], or [3] the detriment undertaken by [defendant] to shepherd the application through the SBA process.” The court rejects the R&R’s conclusion that the amended complaint alleges only illusory consideration.


Plaintiff also disagrees with the R&R’s conclusion that there was no consideration because “although the SBA issued PPP loans on a first come, first served basis, merely because an application is submitted earlier does not automatically make it more likely to be approved,” so, “while [plaintiff] alleged ‘that it had satisfied all of the eligibility requirements,’ because [plaintiff] does not offer any factual support for these conclusions’ it ‘cannot reasonably be inferred’ that lowering the loan amount would result in [defendant] enjoy[ing] the benefit of an increased likelihood that it would profit from [plaintiff]’s loan.” The court finds that plaintiff has alleged enough facts “to raise a right to relief above the speculative level.”


Finally, plaintiff argues that the R&R failed to address that consideration existed based on detriments that both parties incurred. Plaintiff argues that it suffers a detriment because (1) it agreed to the lower loan amount and (2) plaintiff could not apply for second-round PPP loans with any other lenders after having submitted its loan application through defendant. The court agrees.

Fraud claim

The R&R concluded that plaintiff’s proposed fraud claim is futile. The court agrees. Plaintiff fails to allege what defendant, who allegedly made the misrepresentation, ‘obtained thereby.’ Plaintiff further fails to meet the Rule 9(b) pleading standard due to failing to plausibly allege with particularity that the representations at issue were false or made with knowledge of falsity — much less that the representations at issue caused plaintiff never to receive second-round PPP loans.

Plaintiff’s objections to R&R sustained in part, overruled in part.

Ironworks Development LLC v. Truist Bank, Case No. 3:21-cv-00032, Sept. 30, 2022. WDVA at Charlottesville (Moon). VLW 022-3-451. 19 pp.

VLW 022-3-451