The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) is the largest economic rescue measure in the history of the United States, making $2.2 trillion available to the public and businesses affected by the coronavirus (“COVID-19”) pandemic. Where there is money, there will be lawsuits by those who did not get it. A class action filed on April 12 by an aggrieved small business owner against Frost Bank is one of the first in a potential wave of litigation.

In his lawsuit filed in the United States District Court for the Southern District of Texas, Edward Scherer challenges Frost Bank’s lending practices which, according to Scherer, prevent qualifying small businesses from obtaining federal funding under the CARES Act. Scherer alleges that he owns a small business that is eligible for a Paycheck Protection Program (“PPP”) loan under the CARES Act and the Small Business Administration’s loan program. Scherer was unable to apply for a PPP loan with Frost Bank because of Frost Bank’s “self-declared criterion that created an impermissible restriction upon, and violated, the CARES Act.” Namely, Scherer alleges that Frost Bank has refused to accept PPP loan applications unless the small business applicant had an established business checking account with Frost Bank as of April 1, 2020.

Based on these allegations, Scherer is seeking to certify a class of all individuals and entities who qualify for a loan under the PPP and were prevented from applying for a PPP loan by Frost Bank solely because they do not have pre-existing business checking and/or debt relationships with Frost Bank. Scherer is asking for $10 million in damages to plaintiff and each class member. He also requests that the Court declare Frost Bank’s lending practices unlawful.

The most obvious impediment to Scherer’s success on his claims is that neither the CARES Act nor the SBA’s loan program provide for a private cause of action. However, this has not deterred Scherer, who argues in his complaint that an “implied cause of action” exists under the CARES Act and the loan program. Scherer appears to have an uphill battle because courts have been very reluctant to infer an implied cause of action under federal statutes and regulations. It remains to be seen whether the Court will get to decide this question in Scherer’s case but, even if Scherer’s claims fail in this Court, other rejected applicants likely will test a similar theory in other jurisdictions as those who did not receive federal money start seeking redress from bank and non-bank lenders.