Archbishop of Agaña v. U.S. Small Bus. Admin. (In re Archbishop of Agaña)

In re: ARCHBISHOP OF AGAÑA, a Corporation Sole, Debtor.

ARCHBISHOP OF AGAÑA, a Corporation Sole, Plaintiff, v. The U.S. Small Business Administration and Tami Perriello, solely as the (Acting)

Administrator of the U.S. Small Business Administration, Defendants.

Bankruptcy Case No. 19-00010

Adversary Proceeding Case No. 20-00002

DISTRICT COURT OF GUAM

February 23, 2021

Chapter 11

DECISION AND ORDER RE DEFENDANTS' MOTION FOR SUMMARY JUDGMENT AND PLAINTIFF'S CROSS MOTION FOR SUMMARY JUDGMENT

Before the court is Defendants' Motion for Summary Judgment, ECF No. 34, and Plaintiff's Cross Motion for Summary Judgment, ECF No. 35. On December 4, 2020, the parties appeared before the court for a hearing on said motions. Thereafter, further briefing was ordered. For the reasons stated herein, the court hereby GRANTS Defendants' Motion for Summary Judgment and DENIES Plaintiff's Cross Motion for Summary Judgment.

I. PROCEDURAL BACKGROUND

On June 2, 2020, Plaintiff Archbishop of Agaña, a chapter 11 debtor, filed a Complaint against the U.S. Small Business Administration and the Administrator of the U.S. Small Business Administration in her official capacity (collectively, the "SBA" or "Defendants"). Plaintiff seeks declaratory and injunctive relief against Defendants based on the Administrative Procedures Act ("APA") (Counts 1 and 2), and Section 525 of the Bankruptcy Code (Count 3). Plaintiff also seeks a writ of mandamus under 28 U.S.C. § 1361 (Count 4).²

The factual basis of the Complaint is that SBA has set a criteria that excludes those in bankruptcy from qualifying for the Paycheck Protection Program ("PPP"). Accordingly, when Plaintiff attempted to obtain PPP loans in May 2020, the loan application was denied by a bank.

On June 16, 2020, Plaintiff filed a motion for preliminary injunction. The court granted said motion. Defendants have now filed their motion for summary judgment,³ and Plaintiff subsequently filed its cross motion for summary judgment. The court heard the motions on December 4, 2020. Thereafter, a case this court heavily relied on when it made its preliminary injunction decision was overturned by the United States Court of Appeals for the Eleventh Circuit on December 22, 2020. See In re Gateway Consultants, P.A., 983 F.3d 1239 (11th Cir. 2020). This court asked for further briefing from the parties no later than January 8, 2021. A Notice of Supplemental Authority was filed by Defendants onJanuary 28, 2021.

As the court had recognized in its decision granting the preliminary injunction, ECF No. 26, bankruptcy and district courts across the nation are dealing with the same legal issues that are currently before this court. Decisions are split among the courts. Prior to the Eleventh Circuit's decision, no other appellate courts have decided on these issues. The Eleventh Circuit's decision is the first, most recent, and highest authority available to date.

II. FACTUAL BACKGROUND

A. SBA, PPP and the CARES Act

SBA is "empowered" to make loans to any qualified small business, either directly or through financial institutions on an immediate or deferred (guarantee) basis. 15 U.S.C. § 636(a). Among the statutory requirements of an SBA loan is that all loans "shall be of such sound value or so secured as reasonably to assure repayment[.]" 15 U.S.C. § 636(a)(6). In considering whether a loan applicant is "creditworthy," SBA established a criteria that includes, among other things, the applicant's character, reputation, credit history, strength of the business, and ability to repay the loan with earnings from the business. 13 C.F.R. § 120.150(a)-(i). SBA's Section 7(a) loan application form, Form 1919, asks the applicant if it has ever filed for bankruptcy.

When the PPP was created, Congress added the loan program under 15 U.S.C. § 636(a), commonly known as the Section 7(a) of the Small Business Act. CARES Act⁴ § 1102(a). The SBA "Administrator may guarantee [PPP loans] under the same terms, conditions, and processes as a loan made under [Section 7(a)]." 15 U.S.C. § 636(a)(36)(B).An eligible recipient of the PPP may use the loan to cover payroll and other expenses, in addition to the existing allowable uses of the loan under Section 7(a). 15 U.S.C. § 636(a)(36)(F)(i). Under the PPP, Congress also increased the eligibility for certain small businesses and organizations, e.g., extending the PPP loans to nonprofit organizations, veterans organizations, and Tribal businesses; and relaxing the size limitation. 15 U.S.C. § 636(a)(36)(D).

A lender approved to make Section 7(a) loans are delegated the authority by SBA to make and approve PPP loans. 15 U.S.C. § 636(a)(36)(F)(ii)(I). In evaluating the eligibility of a borrower, a lender considers whether the borrower was in operation on February 15, 2020, and had employees for whom the borrower paid salaries and payroll taxes. 15 U.S.C. § 636(a)(36)(F)(ii)(II)(aa) and (bb)(AA). A borrower ("eligible recipient") is required to certify, inter alia, that its business was affected by the current economic conditions and that such funds will be used for payroll and other certain expenses. 15 U.S.C. § 636(a)(36)(G)(i).

The PPP loan is 100 percent guaranteed by SBA. 15 U.S.C. § 636(a)(2)(F). The loan is forgiven if certain criteria are met. 15 U.S.C. §§ 9005(b)(1)-(4) and 9005(d). Any amounts that are forgiven under the PPP, plus any interest, are remitted by the SBA to the lender. 15 U.S.C. § 9005(c)(3). Amounts that are not forgiven will continue to be guaranteed by SBA. 15 U.S.C. § 636(a)(36)(K).

To implement the PPP, Congress granted "emergency rulemaking authority" to the Administrator of the SBA, authorizing the Administrator to "issue regulations to carry out" the loan program "without regard to the notice requirements under section 553(b) of Title 5." 15 U.S.C. § 9012. SBA had 15 days after March 27, 2020, to issue said regulations. Id.At the time the CARES Act was passed in March 2020, the "covered loan" was a loan made under the PPP between February 15, 2020 and June 30, 2020. 15 U.S.C. § 636(a)(36)(A)(ii)-(iii).

B. SBA's Interim Rules

Pursuant to the authority granted to it by Congress, SBA issued four interim final rules on the PPP program. Of relevance in this case are the first and fourth interim final rules. The First Interim Final Rule did not address the eligibility of bankruptcy debtors but required applicants to submit an "SBA Form 2483 (Paycheck Protection Program Application Form)." 85 FR 20811 (April 15, 2020). Therein, if the applicant answers "Yes" to the question of being involved in any active bankruptcy, then the PPP loan will not be approved.

The Fourth Interim Final Rule specifically provides that bankruptcy debtors are not eligible for PPP loans. 85 FR 23450 (April 28, 2020).

III. SUMMARY JUDGMENT STANDARD

"The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a).

For APA claims, judicial review is limited to the administrative record, 5 U.S.C. § 706, and the scope of review is typically focused on "the administrative record in existence at the time of the [agency] decision and does not encompass any part of the record that is made initially in the reviewing court."⁵ Lands Council v. Powell, 395 F.3d 1019, 1029 (9thCir. 2005) (citation omitted). Thus, the usual standard set forth in Rule 56(c) does not apply.

For the discriminatory claim under 11 U.S.C. § 525(a), that count may also be determined as a matter of law. When asked at the hearing, neither party argued that there are genuine disputes as to any material fact on Defendants' motion for summary judgment and Plaintiff's cross motion for summary judgment.⁶ As such, the court finds that summary judgment is appropriate in this case.

IV. DISCUSSION

A. Count 1: Administrative Procedure Act - Exceeds Statutory Authority

Count 1 of the Complaint asserts that Defendants' implementation of the PPP which excludes debtors in bankruptcy is "in excess of statutory jurisdiction, authority, or limitations, or short of statutory right," and in violation of Section 706(2)(C). Compl. at 8-10, ECF No. 1.

In the preliminary injunction decision, this court mainly relied on the analysis in In re Gateway Radiology Consultants, P.A., 2020 WL 3048197 (Bankr. M.D. Fla. June 8, 2020). Prelim. Inj. Order at 8-10, ECF No. 26. This court skipped the two-step Chevron analysis, in favor of the standard used in King v. Burnell and as relied upon by the Gateway bankruptcy court. Gateway has since been overturned by the Eleventh Circuit in In re Gateway Consultants, P.A., 983 F.3d 1239 (11th Cir. 2020). Although persuasive in authority, it is the only appellate decision available to this court on the same legal issues surrounding the PPP loan and SBA's exclusion of bankruptcy debtors. The Ninth Circuithas yet to decide on these issues.

The APA requires that the court "hold unlawful and set aside agency action, findings, and conclusions found to be—. . . in excess of statutory jurisdiction, authority, or limitations, or short of statutory right[.]" 5 U.S.C. § 706(2)(C). The Supreme Court sets forth a two-step test for judicial review of administrative agency interpretations of federal law. The court must first determine "whether Congress has directly spoken to the question at issue." Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842 (1984). "[I]f the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute." Id. An agency's interpretation is permissible, unless it is "arbitrary, capricious, or manifestly contrary to the statute." Id. at 844.

Here, Plaintiff sets forth several arguments. Plaintiff argues that the interim final rules were made without any notice or comment period. Pl.'s Mot. at 9, ECF No. 35. This argument has no merit. Under the CARES...