Bankers

Discovery at a Crossroads Over Jurisdiction in Arkansas

In the latest federal filing, the PPP Lenders from Texas Are Being Obtuse with Opposing Counsel and Plaintiffs seek to clarify their claims.

Greathouse v. Capital Plus Financial LLC

(4:21-cv-01243)

District Court, E.D. Arkansas

APR 6, 2022 | REPUBLISHED BY LIT: APR 8, 2022

PLAINTIFFS’ MEMORANDUM IN PARTIAL OPPOSITION TO DEFENDANTS’ MOTION TO EXTEND DISCOVERY DEADLINES

Defendants’ pending Motion to Extend Discovery Deadlines (the “Motion”) seeks a stay of all discovery pending the Court’s resolution of Defendants’ forthcoming response or motion to dismiss Plaintiffs’ Amended Class Action Complaint.

Plaintiffs object to the stay the Motion seeks only in one narrow respect.

In particular, to the extent Defendants file a motion to dismiss the Amended Complaint that raises arguments regarding this Court’s jurisdiction to adjudicate this case, Plaintiffs should be entitled to discovery relating to the many activities Plaintiffs allege in their Amended Complaint that Defendants undertook in this District relating to the claims in this case.

See ECF 31 ¶¶ 23-38.

Plaintiffs advised Defendants of their position prior to Defendants’ filing their Motion.

Accordingly, and as detailed herein, Plaintiffs oppose Defendants’ pending Motion strictly on that basis.

FACTUAL BACKGROUND

Plaintiff Eric Greathouse filed the initial complaint in this action on December 29, 2021

(ECF 1).

Defendants moved to dismiss that complaint on February 25, 2022

(ECF 25).

Defendants argued at length in support of that motion that the Court lacks for personal jurisdiction over them.

Id., at 7-22.

Rather than oppose that motion, Plaintiffs filed an Amended Class Complaint Action (ECF 31), which includes substantial new and additional detailed facts and allegations regarding Defendants’ contacts with Arkansas and in particular this judicial District.

See ECF 31 ¶¶ 23-38.

Among other things, Defendant Capital Plus Financial, LLC (“CPF”):

• Entered into Paycheck Protection Program (“PPP”) loan agreements with thousands of Arkansas residents;

• Committed to fund those loans—totaling over $38 million—via those agreements;

• Collected, at a minimum, nearly $7 million in fees attributable to those loans;

• Conducted wide-ranging reviews of each of those loan applications;

and

• Maintained extensive dealings with the Small Business Administration’s Little Rock Commercial Loan Service Center, with respect to PPP loans to borrowers in Arkansas and numerous other states and U.S. territories

That Commercial Loan Service Center was one of only two such facilities nationwide, serving not only the East Coast but also Texas, where both Defendants are based.

ECF 31 ¶¶ 23-37.

CPF is or during all relevant times was the only operating subsidiary of its parent company, Defendant Crossroads Systems, Inc. (“Crossroads”).

Crossroads extracted the above-referenced loan processing fees from CPF;

shared overlapping websites and certain senior executives with PPP duties with CPF;

communicated with the SBA’s Little Rock Commercial Loan Service Center in the course of servicing PPP loans;

and

otherwise acted as CPF’s alter ego with respect to the companies’ PPP lending, including directly in this District.

Id. ¶ 38.

The Amended Complaint also not only includes a request that Plaintiffs be allowed to take jurisdictional discovery in the event that the Court deems the existing proof in that context insufficient; it also specifies many of the precise topics of that discovery based on the arguments that Defendants made in their original motion to dismiss.

Id. ¶ 37 n.1.

Upon being served with the Amended Complaint, Defendants informed Plaintiffs of their intention to seek from the Court an extension of their due date to respond to the Amended Complaint, and an extension of the dates for the parties’ Rule 26(f) report and conference to some point after the Court rules on their forthcoming motion to dismiss or other “response” they represent they intend to file.

Plaintiffs agreed in principle to those requests, and asked Defendants to draft an appropriate motion. Upon reviewing the draft motion, Plaintiffs requested only that Defendants include a provision asking that the Court leave open the possibility of allowing jurisdictional discovery to go forward absent the resolution of Defendants’ motion to dismiss.

Rather than accommodate that request, Defendants filed two separate motions.

The first motion seeks only an extension of the due dates for Defendants’ motion to dismiss and Plaintiffs’ opposition to that motion, and is unopposed.

See ECF 36.

Plaintiffs now oppose only the latter motion—the Motion to Extend Discovery Deadlines—and only because it makes no allowance for discovery related to the Court’s personal jurisdiction over Defendants, assuming Defendants again raise those issues in any motion to dismiss they may file.

It bears emphasis that Plaintiffs are not by virtue of this opposition now formally requesting jurisdictional discovery, but are asking only that the Court recognize in its forthcoming order that jurisdictional issues alone may give the Court reason to open discovery earlier than it otherwise would pursuant to Defendants’ Motion.

ARGUMENT

Jurisdictional discovery should be permitted where a plaintiff offers “documentary evidence, and not merely speculations or conclusory allegations” regarding a defendant’s contacts with the forum state.

Steinbuch v. Cutler, 518 F.3d 580, 589 (8th Cir. 2008).

See also Valley View Agri, LLC v. Producers Co-op. Oil Mill, 2015 WL 853277, at *4

(E.D. Ark. Feb. 26, 2015) (allowing jurisdictional discovery).

Such discovery is particularly appropriate where the defendant is a corporation.

Tishner v. Wright Med. Grp., Inc., 2017 WL 1520424, at *1 (E.D. Ark. Apr. 25, 2017) (citation omitted).

Plaintiffs anticipate they may seek to proffer documentary and other evidence reflecting Defendants’ connections to Arkansas and this District in opposing any motion to dismiss that Defendants may file.

Plaintiffs’ allegations in the Amended Complaint give the Court reason to anticipate that such evidence is in fact forthcoming.

For those reasons, the Court at a minimum should deny Defendants’ request for an order that Defendants might subsequently cite as grounds to preclude jurisdictional discovery.

Defendants’ refusal to either consider or reference Plaintiffs’ request for an exception in the order tends to suggest that Defendants have exactly that argument in mind.

Plaintiffs therefore respectfully request that any order the Court enters in response to Defendants’ Motion specify that the Court’s ruling shall have no bearing on Plaintiffs’ ability to seek leave to conduct jurisdictional discovery.

Dated: April 6, 2022

Respectfully submitted,

FRIDAY, ELDREDGE & CLARK, LLP
Katherine C. Campbell,
AR Bar 2013241
Marshall S. Ney,
AR Bar 91108
3350 S Pinnacle Hills Pkwy,
Suite 301 Rogers, AR 72758
T: (479) 695-6049
F: (501) 244-5389
kcampbell@fridayfirm.com
Mmney@fridayfirm.com

BAILEY & GLASSER LLP
Lawrence J. Lederer (admitted pro hac vice)
Michael L. Murphy (admitted pro hac vice)
Bart D. Cohen (admitted pro hac vice)
1055 Thomas Jefferson Street NW,
Suite 540 Washington, DC 20007
T: (202) 463-2101
F: (202) 463-2103
llederer@baileyglasser.com
mmurphy@baileyglasser.com
bcohen@baileyglasser.com

NOLAN HELLER KAUFFMAN LLP
Justin A. Heller (admitted pro hac vice)
Matthew M. Zapala (admitted pro hac vice)
80 State Street, 11th Floor
Albany, NY 12207
T: (518) 449-3300
F: (518) 432-3123
jheller@nhkllp.com
mzapala@nhkllp.com

PPP Loan Vendor Obtained a Forgivable Loan for Itself Now Seeking Federal Dismissal of Class Action

Capital Plus Financial received $376,800 in a forgivable PPP loan and has yet to repay it despite colossal earnings.

Hispanic Community Bankers Becoming Super-Rich on Undisbursed PPP Loan Fees

Robert Alpert received $60M+ in cash from the special dividend; Eric Donnelly received $91M out of a total $238M PPP-induced dividend.

U.S. District Court
Eastern District of Arkansas (Central Division)
CIVIL DOCKET FOR CASE #: 4:21-cv-01243-BRW

Greathouse v. Capital Plus Financial LLC et al
Assigned to: Judge Billy Roy Wilson
Cause: 28:1332 Diversity-Contract Dispute
Date Filed: 12/29/2021
Jury Demand: Plaintiff
Nature of Suit: 140 Negotiable Instrument
Jurisdiction: Diversity
Plaintiff
Eric Greathouse
Individually and on behalf of all others similarly situated
represented by Bart D. Cohen
Bailey & Glasser LLP
1055 Thomas Jefferson Street NW
Suite 540
Washington, DC 20007
202-463-2101
LEAD ATTORNEY
ATTORNEY TO BE NOTICEDJustin A. Heller
Nolan Heller Kauffman LLP
80 State Street
11th Floor
Albany, NY 12207
518-449-3300
LEAD ATTORNEY
ATTORNEY TO BE NOTICEDKatherine Church Campbell
Friday, Eldredge & Clark, LLP
3350 South Pinnacle Hills Parkway
Suite 301
Rogers, AR 72758
479-695-6040
Email: kcampbell@fridayfirm.com
LEAD ATTORNEY
ATTORNEY TO BE NOTICEDLawrence J. Lederer
Bailey & Glasser LLP
1055 Thomas Jefferson Street NW
Suite 540
Washington, DC 20007
202-463-2101
LEAD ATTORNEY
ATTORNEY TO BE NOTICEDMarshall S. Ney
Friday, Eldredge & Clark, LLP
3350 South Pinnacle Hills Parkway
Suite 301
Rogers, AR 72758
479-659-6049
Fax: 501-244-5389
Email: mney@fridayfirm.com
LEAD ATTORNEY
ATTORNEY TO BE NOTICEDMatthew M. Zapala
Nolan Heller Kauffman LLP
80 State Street
11th Floor
Albany, NY 12207
518-449-3300
LEAD ATTORNEY
ATTORNEY TO BE NOTICEDMichael L. Murphy
Bailey & Glasser LLP
1055 Thomas Jefferson Street NW
Suite 540
Washington, DC 20007
202-463-2101
LEAD ATTORNEY
ATTORNEY TO BE NOTICED
V.
Defendant
Capital Plus Financial LLC
Defendant
Crossroads Systems Inc

 

Date Filed # Docket Text
12/29/2021 1 COMPLAINT – CLASS ACTION with Jury Demand against All Defendants, filed by Eric Greathouse. Summons issued and returned to counsel. (Fee of $402. Receipt Number LIT085022.) (Attachments: # 1 Civil Cover Sheet) (jbh) (Entered: 12/29/2021)

Aug. 19, 2021

Vines v. Welspun Pipes Inc

(4:18-cv-00509-BRW)

District Court, E.D. Arkansas

A federal appeals court has vacated a federal judge’s $1 attorney fee award to a law firm that he thought was engaged in “incorrigible practices.”

The 8th U.S. Circuit Court of Appeals at St. Louis said U.S. District Judge Billy Roy Wilson of the Eastern District of Arkansas should have calculated lodestar attorney fees before reducing the award to the Sanford Law Firm, report Reuters and Bloomberg Law.

The lodestar is calculated by multiplying the reasonable number of hours worked by the prevailing hourly rate.

The judge had the authority to reduce the award for unprofessional conduct, but it shouldn’t be considered until after the lodestar calculation, the appeals court said in its 2-1 decision.

“Based on the record before us, it is unlikely that a $1.00 attorneys’ fee is reasonable,” Chief Judge Lavenski Smith wrote for the majority. “The plaintiffs obtained an almost $270,000 settlement, and SLF likely performed some reasonably expended hours.”

The law firm had represented Anthony Vines and Dominique Lewis in an overtime suit against Welspun Pipes Inc. and other Welspun companies. The company had agreed to pay $96,000 in attorney fees and an estimated $270,000 settlement.

Wilson sent the parties back for new negotiations because they had failed to negotiate attorney fees separately from the settlement. The parties returned with the same settlement amount and no agreement on attorney fees. The law firm again sought $96,000.

Wilson awarded only $1 in attorney fees after concluding that the law firm overstaffed the case and performed very little legal work, according to prior coverage by Law360 and the Arkansas Democrat-Gazette.

Wilson said he came to the conclusion after considering the firm’s “incorrigible practices” and the “attempted extortion of $96,000 in unearned fees” from the company during the simultaneous fee and damages negotiations.

Dissenting 8th Circuit Judge Steven Colloton would not have disturbed the $1 fee award.

The basic problem, Colloton said, is that there is a significant conflict of interest between a lawyer and client when the lawyer negotiates a settlement with an employer while at the same time negotiating fees.

An employer is looking only at the total payout, and “there is little to deter plaintiffs’ counsel from urging ‘settlement at a low figure or on a less-than-optimal basis in exchange for red-carpet treatment on fees,’” Colloton wrote, citing a decision by another federal appeals court.

LIT UPDATE: It’s on appeal again as the judge reaffirmed his order on remand….

Discovery at a Crossroads Over Jurisdiction in Arkansas
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