Carmen's Corner Store v. Small Bus. Admin.

520 F.Supp.3d 726

CARMEN'S CORNER STORE, et al.

v.SMALL BUSINESS ADMINISTRATION, et al.

Civil No. CCB-20-1736

United States District Court, D. Maryland.

Signed February 17, 2021

Jared McClain, The New Civil Liberties Alliance, Washington, DC, Ronald S. Canter, The Law Offices of Ronald S Canter LLC, Rockville, MD, for Carmen's Corner Store, Retail4Real, Altimont Mark Wilks.

James Jordan Gilligan, United States Department of Justice, Indraneel Sur, Washington, DC, for Small Business Administration, Jovita Carranza, Steven Mnuchin, The United States of America.

MEMORANDUM

Catherine C. Blake, United States District Judge

This is an action challenging several iterations of a Small Business Administration Interim Final Rule ("IFR") restricting certain businesses from receiving loans under the CARES Act's Paycheck Protection Program ("PPP") if they have a greater than 20 percent owner with a certain criminal history. Under the first two iterations of this rule, the plaintiffs—two businesses, Carmen's Corner Store and Retail4Retail, and their owner, Altimont Mark Wilks—were ineligible to receive PPP loans, but they became eligible under the third revision to the rule, albeit six days before the statutory application deadline for the PPP. The plaintiffs sought declaratory relief and to enjoin the enforcement of the IFRs, initially through a preliminary injunction. The court largely denied relief but granted a preliminary injunction to extend the deadline for the plaintiffs to apply for the PPP. (ECF 19). As a result, the plaintiffs sought and received PPP loans. (ECF 21). Now pending are defendants’ motion to dismiss for lack of subject-matter jurisdiction (ECF 24) and plaintiffs’ motion for summary judgment (ECF 25). The motions have been fully briefed and no oral argument is necessary. See Local Rule 105.6 (D. Md. 2018). For the following reasons, the court will grant the motion to dismiss for lack of subject-matter jurisdiction and deny the motion for summary judgment.

BACKGROUND

To resolve the court's jurisdiction, only a brief explanation of the facts and procedural history of this case is necessary. The court's earlier memorandum concerning the plaintiffs’ motion for a preliminary injunction provides a full account of the facts. See Defy Ventures, Inc. v. SBA , 469 F. Supp. 3d 459 (D.Md. 2020).¹

The plaintiffs’ complaint asserted that the first IFR, issued on April 15, 2020, exceeded the SBA's statutory authority, was arbitrary and capricious, and was a failure to carry out a ministerial duty in violation of the Administrative Procedure Act, 5 U.S.C. §§ 706(1), 706(2)(A), 706(2)(C). (ECF 1, Compl. ¶¶ 116–156). The plaintiffs sought a declaratory judgment that the IFR was unlawful, a temporary restraining order and preliminary and permanent injunctions enjoining the defendants from enforcing the IFR and ordering the defendants to secure PPP loans for the plaintiffs, and writs of mandamus ordering the defendants to administer PPP loans without regard to a business owners’ prior criminal history. (ECF 1, Prayer for Relief). The SBA revised the IFR twice during the litigation and before the plaintiffs’ motion for preliminary injunction was fully briefed. See Defy Ventures , 469 F. Supp. 3d at 466. The third iteration of the IFR, issued on June 24, 2020 (six days before the PPP application deadline of June 30, 2020), excluded only those businesses with a greater than 20 percent owner who was presently facing any felony charges or whose probation or parole commenced within the last five years for any felony involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance and within the last year for other felonies. See id. Under this rule, the plaintiffs became eligible for PPP funding. Id. at 468.

The court found the plaintiffs were likely to succeed only on their APA claim that the first two iterations of the rule were arbitrary and capricious. Id. at 475. Notwithstanding the plaintiffs’ eligibility under the third iteration of the rule, the court found that their exclusion from PPP loans under the first two iterations significantly frustrated their ability to obtain PPP loans within the statutory deadline. Id. at 477–79. Thus the court granted an injunction solely to extend the deadline for the plaintiffs to apply for PPP loans until July 21, 2020, and to reserve funds to guarantee loans for the plaintiffs should they obtain a lender and meet the eligibility criteria by the extended deadline. (ECF 19). Separately, on July 4, 2020, the President signed into law Public Law 116-147, 134 Stat. 660, which extended the deadline for PPP loan applications until August 8, 2020. The plaintiffs confirmed on August 14, 2020, that, because of these extensions, the plaintiffs applied for and received PPP loans. (ECF 21, Joint Status Report).

On August 28, 2020, the defendants moved to dismiss this action for lack of subject matter jurisdiction under Rule 12(b)(1), arguing that the plaintiff's receipt of PPP loans and the expiration of the PPP program meant that there was no further relief the court could order and thus the plaintiffs’ claims, which were solely for prospective relief, were moot. The plaintiffs opposed the motion and moved for summary judgment.

On December 27, 2020, the Economic Aid to Hard-Hit Small Business, Nonprofits, and Venues Act ("Economic Aid Act") became law, as Title III of Division N of the Consolidated Appropriations Act of 2021. Pub. L. 116-260, 134 Stat. 1182, 1993–2052 (2020). The Economic Aid Act authorizes additional PPP loan applications through March 31, 2021, including second loans to certain small businesses who received a PPP loan under the CARES Act. See id. §§ 311(a), 323(a)(1). And, like the CARES Act, the Economic Aid Act grants the SBA emergency rulemaking powers to administer the PPP. Id. § 303. The SBA has now issued two IFRs implementing the extended PPP—one concerning PPP loans to businesses that did not receive a loan under the first program ("First Draw IFR"), 86 Fed. Reg. 3692 (Jan. 14, 2021), and one concerning PPP loans to businesses that, like the plaintiffs, received PPP loans under the initial program ("Second Draw IFR"), 86 Fed. Reg. 3712 (Jan. 14, 2021). Under these rules, the plaintiffs are eligible for a Second Draw PPP loan. The Second Draw IFR adopts eligibility restrictions for second draw loans identical to those promulgated under the First Draw IFR for first draw loans. See 86 Fed. Reg. 3718 (subsection (IV)(e)(1)) ("An applicant is not eligible for a Second Draw PPP Loan ... if the applicant is ... [e]xcluded from eligibility under the [First Draw IFR][.]"). The First Draw IFR maintains the same criminal history restrictions as the June 24 IFR. 86 Fed. Reg. 3698 (subsection (III)(B)(2)(a)(iii)).

STANDARD OF REVIEW

Issues of mootness are properly the subject of a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction as the doctrine "constitutes a part of the constitutional limits of federal court jurisdiction." Simmons v. United Mortg. & Loan Inv., LLC , 634 F.3d 754, 763 (4th Cir. 2011) (quoting United States v. Hardy , 545 F.3d 280, 283 (4th Cir. 2008) ). A federal court's jurisdiction over a case depends on the presence, "at all stages of review," on the existence of an actual controversy between the parties. Arizonans for Official English v. Arizona , 520 U.S. 43, 67, 117 S.Ct. 1055, 137 L.Ed.2d 170 (1997). "[A] case is moot when the issues presented are no longer ‘live’ or the parties lack a legally cognizable interest in the outcome," Porter v. Clarke , 852 F.3d 358, 363 (4th Cir. 2017) (citations omitted), or, in other words, when the court's "resolution of an issue could not possibly have any practical effect on the outcome of the matter." Norfolk S. Ry. Co. v. City of Alexandria , 608 F.3d 150, 161 (4th Cir. 2010).

A motion pursuant to Federal Rule of Civil Procedure 12(b)(1) should be granted "only if the material jurisdictional facts are not in dispute and the moving party is entitled to prevail as a matter of law." Evans v. B.F. Perkins Co. , 166 F.3d 642, 647 (4th Cir. 1999) ; see also United States ex rel. Vuyyuru v. Jadhav , 555 F.3d 337, 347–48 (4th Cir. 2009). The plaintiffs have the burden of proving that subject matter jurisdiction exists. Piney Run Preservation Ass'n v. Cnty. Comm'rs of Carroll Cnty., Md. , 523 F.3d 453, 459 (4th Cir. 2008). "When a defendant challenges subject matter jurisdiction via a Rule 12(b)(1) motion to dismiss, the district court may regard the pleadings as mere evidence on the issue and may consider evidence outside the pleadings...." Blitz v. Napolitano , 700 F.3d 733, 736 n.3 (4th Cir. 2012) (quoting Velasco v. Gov't of Indonesia , 370 F.3d 392, 398 (4th Cir. 2004) ).

DISCUSSION

The plaintiffs’ claims in this case are based on their initial exclusion from the PPP under two IFRs that were superseded by a June 24 IFR that rendered them eligible for PPP loans. At the preliminary injunction stage, the court held that the plaintiffs’ eligibility under the June 24 IFR did not moot the case because the plaintiffs were still experiencing difficulties applying for a loan under the new rule. Defy Ventures , 469 F. Supp. 3d at 469. The June 24 IFR was implemented close to the original PPP application deadline, and many banks were no longer accepting applications or were using outdated forms with the criminal history exclusions from prior IFRs. Id. In other words, at that stage of the litigation, there was an ongoing harm because of the allegedly unlawful prior iterations of the rule. Now that the statutory deadline for the original PPP has passed, the June 24 IFR has itself expired, and the plaintiffs have received PPP loans, the defendants argue that no controversy remains, the plaintiffs have no remaining concrete interest in this case, and there is no further relief the court can order. The plaintiffs...