Client Alerts, News Articles & Blog Posts

Everything you need to know about BMD and the industry.

CARES Act and Financial Institutions – Litigation Update

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and the Paycheck Protection Program (“PPP”) have allowed some businesses to remain operational during the COVID-19 pandemic. For these businesses, obtaining access to funds under these programs has proved vital.

The U.S. Small Business Administration (“SBA”) closed new applications for PPP funds on April 16, 2020, except for a brief re-opening period on April 29 for financial institutions with asset sizes less than $1 billion. Although the SBA is not accepting new PPP applications, for financial institutions, litigation risk remains.

This alert provides an update on current CARES Act financial services litigation and issues on the horizon for Ohio financial institutions.

Does the CARES Act Contain a Private Right of Action for PPP Applicants?

Though it is still early, at least one court has determined that the CARES Act itself does not contain an explicit or implied private right of action. In Profiles, Inc. v. Bank of America Corp., No. CV SAG-20-0894, 2020 WL 1849710, at *8 (D. Md. Apr. 13, 2020), the plaintiffs brought suit against Bank of America for allegedly refusing to process their applications for PPP funds, and, thus, improperly restricting their access to the PPP funds.

Under the CARES Act, lenders “shall consider” whether the borrower (1) “was in operation on February 15, 2020,” and (2) either “had employees for whom the borrower paid salaries and payroll taxes,” or “paid independent contractors.” P.L. No. 11-136, § 1102(a)(2). In Profiles, Inc., Bank of America required additionally that the plaintiffs seek PPP applications though other institutions with which they had previous credit relationships, its so-called “credit elsewhere” requirement.

The U.S. District Court for the Maryland District determined that the CARES Act does not contain a private right of action, but, even if it did, Bank of America’s actions did not run afoul of the Act. The court stated that Bank of America’s “credit elsewhere” eligibility disqualifier was not contrary to the CARES Act language, and, thus, the plaintiffs' claims for injunctive relief were meritless.

Other pending cases will have to address whether the CARES Act contains a private right of action. See Scherer v. Wells Fargo Bank, N.A., 2020 WL 1864840 (S.D.Tex. filed April 11, 2020) (including claims under the CARES Act as a private cause of action). As Profiles, Inc. is currently on appeal and Scherer is pending, it will be interesting to see how the private right of action issue plays out.

If the CARES Act does not contain a private right of action, Ohio financial institutions still may face litigation risk for CARES Act issues through conventional litigation vehicles, such as:

  • Contractual theories
  • Ohio’s deceptive trade practices law (R.C. 4165.01, et seq.)
  • Unfair or Deceptive Acts or Practices (“UDAP”) claims
  • Fair lending laws claims
  • Fraudulent concealment
  • False advertising

Debt Collection Issues

If the financial institution engages in debt collection or mortgage services, realize that COVID-19 related Fair Debt Collection Practices Act and state collection law violations are likely inevitable, and be prepared for inability to pay requests and additional (sometimes, federal- and state-mandated) flexibility around repayment.

Some states have already tried to ban all debt collection proceedings during the pandemic. See ACA Int'l v. Healey, No. CV 20-10767-RGS, 2020 WL 2198366, at *10 (D. Mass. May 6, 2020) (enjoining the Massachusetts Attorney General from enforcing a law prohibiting all debt collection proceedings during the pandemic). Whether any state can successfully ban debt collection proceedings during the COVID-19 pandemic remains to be seen.

Finally, in Taylor v. JPMorgan Chase Bank, N.A., No. 17-3019, 2020 WL 2079164, at *7 (7th Cir. Apr. 30, 2020), the court affirmed dismissal of the plaintiff mortgagor’s breach of contract, promissory estoppel, and fraud claims, among others. The mortgagor’s claims were based on a proposed loan modification plan for payments during the 2008-2009 housing crisis that Chase Bank sent to him, but that Chase later did not execute. Chase Bank argued that its execution of the application materials was a condition precedent to the modification contract.

The Taylor dissent noted that this decision could have relevance in light of the COVID-19 pandemic. The dissent further stated that there could have been enough for the mortgagor to sustain his claims in light of Chase Bank’s representations, the loan modification application materials, and whether Chase Bank’s execution of the documents was a true condition precedent to the parties’ modification contract.

These cases provide some insight into how courts may tackle COVID-19 pandemic with respect to financial institutions, but the coming weeks will tell us much more about COVID-19 and CARES Act litigation.

Richard L. Hilbrich is a member of Brennan, Manna & Diamond’s Litigation team and is available to assist you with minimizing litigation risk. Richard can be reached at 330.253.4766, or rlhilbrich@bmdllc.com.

Provider Relief Funds – Continued Confusion Regarding Reporting Requirements and Lost Revenues

In Fall 2020, HHS issued multiple rounds of guidance and FAQs regarding the reporting requirements for the Provider Relief Funds, the most recently published notice being November 2, 2020 and December 11, 2020. Specifically, the reporting portal for the use of the funds in 2020 was scheduled to open on January 15, 2021. Although there was much speculation as to whether this would occur. And, as of the date of this article, the portal was not opened.

Ohio S.B. 310 Loosens Practice Barrier for Advanced Practice Providers

S.B. 310, signed by Ohio Governor DeWine and effective from December 29, 2020 until May 1, 2021, provides flexibility regarding the regulatorily mandated supervision and collaboration agreements for physician assistants, certified nurse-midwives, clinical nurse specialists and certified nurse practitioners working in a hospital or other health care facility. Originally drafted as a bill to distribute federal COVID funding to local subdivisions, the healthcare related provisions were added to help relieve some of the stresses hospitals and other healthcare facilities are facing during the COVID-19 pandemic.

HHS Issues Opinion Regarding Illegal Attempts by Drug Manufacturers to Deny 340B Discounts under Contract Pharmacy Arrangements

The federal 340B discount drug program is a safety net for many federally qualified health centers, disproportionate share hospitals, and other covered entities. This program allows these providers to obtain discount pricing on drugs which in turn allows the providers to better serve their patient populations and provide their patients with access to vital health care services. Over the years, the 340B program has undergone intense scrutiny, particularly by drug manufacturers who are required by federal law to provide the discounted pricing.

S.B. 263 Protects 340B Covered Entities from Predatory Practices in Ohio

Just before the end of calendar year 2020 and at the end of its two-year legislative session, the Ohio General Assembly passed Senate Bill 263, which prohibits insurance companies and pharmacy benefit managers (“PBMs”) from imposing on 340B Covered Entities discriminatory pricing and other contract terms. This is a win for safety net providers and the people they serve, as 340B savings are crucial to their ability to provide high quality, affordable programs and services to patients.

DOL Finalizes New Rule Regarding Independent Contractor Status, But Its Future Is In Jeopardy

On January 6, 2021, the Department of Labor announced its final rule regarding independent contractor status under the Fair Labor Standards Act. As described in a prior BMD client alert, this new rule was fast-tracked by the Trump administration after its proposal in September 2020. The new rule is set to take effect on March 8, 2021, and contains several key developments related to the "economic reality" test used to determine whether an individual is an independent contractor or an employee under the FLSA.