Court dismisses PPP discrimination claims against national bank

Courts SBA Covid-19 State Issues

On February 1, the U.S. District Court for the District of New Jersey issued an opinion letter granting defendants’ motion to dismiss for failure to state a claim in a matter concerning whether a national bank retaliated against minority- and women-owned businesses when they stopped honoring checks and electronic payments related to the businesses’ involvement with the Paycheck Protection Program (PPP). The plaintiffs (who operate companies that “provide ‘cash flow and investment opportunities to small and diverse businesses and individuals’”) obtained approval from the Small Business Administration to issue PPP loans to minority-owned businesses and deposited approximately $100 million into one of their business accounts at the defendant bank. The plaintiffs alleged discrimination and retaliation claims under 42 U.S.C. § 1981 and the New Jersey Law Against Discrimination and the New Jersey Civil Rights Act, claiming the bank began refusing to honor checks or electronic payments drawn from the account. In addition, the plaintiffs claimed the bank notified them that it was unable to support their efforts to participate in the PPP program but “‘never provided a legitimate, lawful or non-discriminatory reason’” for refusing to honor the plaintiffs’ checks and electronic payments. The plaintiffs claimed that they are members of a racial minority, and alleged, among other things, that the bank later froze and closed their business and personal accounts. The court disagreed, concluding the plaintiffs “fail[ed] to plead facts that show that Defendants intended to discriminate against them because of their race.” According to the court, the plaintiffs “do not plead that they were treated differently than any other individuals or businesses who are not members of a protected class. Rather, they conclude, without support, that [the bank’s] decision to decline Plaintiffs’ PPP Loan transactions was motivated solely by discriminatory intent. This is insufficient.” Because the federal claim was dismissed, the court declined to exercise jurisdiction over the plaintiffs’ state law claims of breach of contract.