Litigation Policies, Pleadings & Legal Fee Reimbursement

Lenders who engage in litigation involving SBA loans must adhere to the following requirements:

• Submit a litigation plan for prior approval (PLP Lenders included) for

• Non-routine litigation; and

• Routine litigation involving estimated legal costs exceeding $5,000.

• Ensure that engagement of counsel is cost effective and legal fees are reasonable and customary

• Ensure there are no conflicts of interest between lender and SBA

Do not name the SBA as a plaintiff in any case.

Lenders must sue in their own name. If you will be naming the SBA as a defendant for any reason, notify SBA before filing the action.

We frequently run into problems when a lender sends us general billings that do not show hourly work performed by counsel.  The budget should include a fair estimate of the total cost of the litigation with itemized costs and hourly fees.

The following pleadings should be submitted to the SBA contemporaneously with their filing and or receipt by lenders counsel:

• Complaints

• Answers

• Motions (such as motions for relief from the automatic stay in bankruptcy)

• Orders

• Judgments

• Proposed Bankruptcy Plans and Disclosure Statements

• Confirmed Bankruptcy Plans

• Opposing Pleadings

For all loans, counsel will review attorney’s fees and actual legal bills (even those under $5,000) to ensure that they are necessary, reasonable and customary (this includes post purchase reviews).  If expenses are determined to be unreasonable, unnecessary or not customary they will be deducted from any purchase request.  If the lender has already deducted them from recoveries, lender will be requested to reimburse the SBA for those fees and expenses deemed to be either unnecessary or unreasonable.

The following legal fees and expenses will not be reimbursed by the SBA;

• Any legal fees and costs incurred in an action brought against the SBA or in defending an action brought by the SBA.

• Any legal fees and costs incurred in joining SBA in the litigation by way of cross claim or counter claim.

• Any legal fees and costs incurred by lender’s outside counsel for performing non-legal liquidation services.

• Actions which solely benefit lender as determined by SBA counsel.

• Defense of lender liability cases except where the lender’s actions were expressly approved by SBA

• Attorney’s fees not proposed in a Litigation Plan, unless determined by SBA counsel to be necessary, reasonable and customary in the locality in question.

For LowDoc loans the following rule also applies:
The SBA will not reimburse legal fees and costs incurred in excess of recovery, with the exception of bankruptcy litigation.  Reimbursement for bankruptcy litigation is solely at the discretion of SBA counsel (SOP 50 51 Chapter 10 Paragraph 1(e)).

For PLP loans the following rule also applies:
The SBA will share in reasonable and necessary expenses incurred by the lender on a pro-rata basis up to SBA’s share of total recoveries.  The SBA may agree to pay more on a case by case basis (SOP 50 51 Chapter 10 Paragraph 5(k)(1)(d)).