CHICAGO — A new federal class action lawsuit is targeting a big bank, accusing it of wrongly steering COVID-19 economic recovery funds to large companies at the expense of small businesses.
Sha-Poppin Gourmet Popcorn filed a complaint April 24 in Chicago against JPMorgan Chase Bank and two of its larger clients, Ruth’s Chris Steakhouse and Phunware, alleging efforts to cheat it “and countless small businesses out of their right to apply for and receive” federal money intended to compensate for the economic effects of forced closures aimed at stemming the spread of coronavirus.
The complaint details a $349 billion forgivable loan effort, the Paycheck Protection Program, which it said Congress enacted in late March to “provide a critical and immediate life raft” to affected businesses trying to navigate government-mandated closures and economic fallout from the response to COVID-19.
Westchester-based Sha Poppin, with five employees, has a Chase Business Banking account, but accused the bank of prioritizing its “favored clients” by working to “make sure their loan applications were submitted quickly, accurately and without a hitch. Everyone else, meanwhile, would have to try to submit an application through a non-functional web portal — or look elsewhere.”
Sha Poppin said at one point Chase “implicitly encouraged” it to seek its loan elsewhere instead of allowing it to apply through Chase on April 3, resulting in “a far smaller loan than it would have otherwise received.” The complaint said only 6% of 300,000 companies using Business Banking services had successful PPP loan applications, while nearly all Commercial Banking clients that applied were approved.
Ruth’s Chris entities already announced plans to return their two $10 million PPP loans. Phunware, according to the complaint, “is a multi-million vendor for the president’s re-election campaign that named a former JPMorgan Chase as its corporate board chair on March 30,” the day after Congress passed PPP legislation. The complaint said Phunware got its $3 million loan within two days of applying, while smaller companies “sat for hours furiously attempting to access Chase’s website” five days earlier.
The complaint lumped other companies in with the defendant class, “national operations with billions of dollars in combined revenue” like Shake Shack, MannKind and Potbelly.
According to the complaint, “Congress added a juicy carrot to the stick” in PPP legislation, the Coronavirus Aid, Relief and Economic Security Act. In addition to the first-come, first-served priority process, which favored lenders like Chase that already had Small Business Association Approval, the Act provided for loan origination fees to banks “of 5 percent on loans up to $350,000; 3 percent on loans between $350,000 and $2 million; and 1 percent on loans between $2 million and $10 million.”
Sha Poppin accused Chase of not treating its own customers based on order of application, but prioritizing commercial and private banking clients over small businesses. While Chase did help secure $14 billion in loans, more than any other bank, that was “less than half of the $36 billion that customers had sought.”
Stacy Hawkins-Armstrong, Sha Poppin founder and manager, said she eventually went through Seaway, a division of Self-Help Federal Credit Union, to get a $6,000 loan. The business now cannot apply for another loan if Congress makes further PPP allocations.
The complaint calls for creating a nationwide class of Chase Business Banking customers, as well as an Illinois subclass. Formal allegations include a count of negligence, fraudulent concealment, tortious interference with prospective economic advantage, unfair and deceptive business practices and unjust enrichment against Chase, as well as unjust enrichment against Ruth’s Chris, Phunware and the loan recipient defendant class.
In addition to class certification and a jury trial, the complaint seeks damages and “disgorgement of PPP loan funds improperly received.”
Sha Poppin is represented in the matter by Edelson PC, of Chicago, which also seeks to represent the plaintiff class.