OHA Decision on Petition for Reconsideration — Continental Real Estate v. SBA

Record facts

U.S. Small Business Administration, Office of Hearings and Appeals (OHA) · No. 2:23-cv-01921-SDM-KAJ · Doc. 1-1 · 2023-04-14 · Docket on CourtListener

Full text

United States Small Business Administration 
Office of Hearings and Appeals 
 
 
Decided: April 14, 2023 
Decision No. PFR-5457717009 
 
 
 
 
 
APPEARANCES 
Katherine Dodson, Esq., Attorney for Petitioner  
Sameena Nabijee, Esq., Office of General Counsel, SBA, Respondent 
DECISION 
I. Introduction and Jurisdiction 
On March 30, 2023, the U.S. Small Business Administration (SBA) 
Office of Hearings and Appeals (OHA) received a petition for reconsideration 
(PFR) in the above-captioned matter from CONTINENTAL REAL ESTATE. 
The PFR seeks OHA’s reconsideration pertaining to a Paycheck Protection 
Program (PPP) Loan No. 5457717009 and OHA’s initial decision of March 21, 
2023, DENYING the appeal of the same PPP Loan No. 5457717009 
OHA has jurisdiction to decide this PFR. See 13 C.F.R. Part 134, 
Subpart L. 
 
II. Background 
A.  Cares Act of 2020 
 
 In March 2020, in response to the COVID-19 pandemic and the resulting economic 
upheaval, Congress passed the Coronavirus Aid, Relief, and Economic Security Act 
(CARES Act), Pub. L. 116-136, 134 Stat. 281 (2020). Section 1102 of this Act 
amends 15 U.S.C. § 636(a) to add another special Section 7(a) loan to the 
SBA's Section 7(a) loan portfolio, the Paycheck Protection Program 
(PPP) [emphasis added]. CARES Act, Pub. L. No. 116- 136,§1102, 134 Stat. 281, 286 
(2020) (codified in 15 U.S.C. §636(a)(36)).  
Congress expressly provided that "[e]xcept as otherwise provided in [15 
U.S.C. §636(a)(36)], the [SBA] Administrator may [ emphasis ad d ed ] 
guarantee [PPP] loans under the same terms, conditions, and processes as a 
loan made under [15 U.S.C. § 636(a)]." Id. at 287 (codified as 15 U.S.C. 
636(a)(36)(B)). 
The Paycheck Protection Program was aimed at helping businesses 
meet payroll costs and pay operating expenses to keep people employed 
through the economic downturn. Congress first authorized $349 billion in 
loans. CARES Act § 1102(b)(1). One month later, Congress increased this 
figure to more $600 billion. Paycheck Protection and Health Care 
Enhancement Act, Pub. L. No. 116-139, § 101(a)(1), 134 Stat. 620 (2020). 
 
 
 
Case: 2:23-cv-01921-SDM-KAJ Doc #: 1-1 Filed: 06/13/23 Page: 1 of 9  PAGEID #: 22

Docket No. PFR- 5457717009 
 
2 
 
Congress gave the SBA rulemaking power directly related to the PPP, 
specifying that SBA, not later than 15 days after the passage of the Cares Act 
“shall issue regulations to carry out this title,” and SBA implemented and 
issued several interim final rules (IFRs) under the Program. CARES Act, § 
1114, 134 Stat. at 312 (codified at 15 U.S.C. § 9012). 
A. PPP Loan Eligibility 
 
The PPP is directed at small businesses and its principal function is to 
provide potentially forgivable loans to them. See 15 USC § 636(a)(36)(D)(I). The 
PPP loans are made under the same terms, conditions, and processes as other 
SBA loans, although the scope of allowable borrowers was expanded for PPP 
loans to generally include sole proprietorships, independent contractors, non- 
profit organizations, and other specified businesses, if they were operating 
“small” business of not more than 500 employees. 15 USC § 636(a)(36)(B) and 15 
USC § 636(a) (36)(D). 
An Interim Final Rule lays out how one calculates the amount which can be 
borrowed. Amounts paid to independent contractors are not included in payroll 
costs. However, an independent contractor is eligible for a PPP loan on their own. 
As noted above, the Cares Act did not spell out loan restrictions but left it 
to the SBA to implement rules which would carry out Congressional intent. The 
First Interim Rule modifies several general Section 7(a) loan eligibility criteria 
as to PPP loans. 
 
This means that Section 1114 of the CARES Act waived the requirement for 
the First IFR to be published in the Federal Register. Thus, the First IFR was 
effective without publication in the Federal Register and was issued for the 
immediate implementation of the PPP through publication on SBA’s and 
Treasury’s websites on April 2, 2020. Consequently, publication of the rule in 
the Federal Register was not required, but SBA did so in furtherance of the 
intent of the requirement that it issue regulations to carry out the PPP. 
The IFR had both an effective date and an applicability date. April 15, 
2020 is the date the IFR was published in the Federal Register, and the 
applicability date indicates that the IFR applies to applications submitted under 
the PPP through June 30, 2020, or until funds are exhausted. 85 Fed. Reg, 
Page 20812. 
 
Some individuals are precluded from receiving PPP loans or being a participant 
in receiving a PPP loan. Thus, for example, persons “debarred” under the SBA or Government- 
wide debarment regulations may not conduct business with SBA. 13 CFR §103.2(b). Individuals 
are precluded if they recently were convicted of or had a civil judgment rendered against them 
for commission of fraud or a criminal offense in connection with a public transaction or 
contract, violation of Federal or State antitrust statutes or commission of embezzlement, theft, 
forgery, bribery, falsification, or destruction of records, making false statements, or receiving 
stolen property. Executive Order 12549, 13 CFR part 145. Also, if a borrower or 20% or more 
owner of a borrower is presently involved in a bankruptcy proceeding, the borrower is ineligible 
for a PPP loan. SBA Form 2483-SD or SBA Form 2483-SD-C; FAQ issued April 9, 2021. 
PPP loans were given only if, considering the COVID-19 pandemic, the borrowed funds 
were necessary to support the ongoing operations of the eligible recipient; and that the funds 
would be used to retain workers and maintain payroll or make mortgage payments, lease 
payments, and utility payments. 15 USC §636(a)(36)(F) and (G). PPP funds could not be used for 
compensation of employees whose principal place of residence was outside the United States, 
Case: 2:23-cv-01921-SDM-KAJ Doc #: 1-1 Filed: 06/13/23 Page: 2 of 9  PAGEID #: 23

Docket No. PFR- 5457717009 
 
3 
 
and, further, salary expenditures were capped at the equivalent of no more than $100,000 
annually per employee. 15 U.S.C. § 636(a)(36)(A)(viii)(II). 
As to PPP Loan Forgiveness, “[if] the loaned funds are used for specified expenses,” 
the borrowing business could receive forgiveness of its loan. See 15 USC § 636m. 
Application for, and receipt of, a PPP loan is a wholly separate process from 
application for, and receipt of, forgiveness of that loan. Loan forgiveness is provided 
for under a different, but related, statutory provision. See 15 USC 636(a)(36)(J) 
which makes applicable the provisions of 15 USC §636m, (that is applicable to non- 
PPP loans) with limitations specified for PPP loans. 
 
 
The PPP loan recipient can receive loan forgiveness if it uses the funds to cover 
payroll and certain other expenses like mortgage interest or rent payments and utility 
expenses. Generally, the amount of the loan that is forgiven is the amount used to pay 
those costs. But the bulk of the funds, at least 60 percent, must be spent on payroll. 15 USC 
§636(a)(36)(J)(iv). 
 
The list of allowable uses for PPP loan funds [15 USC § 636(a)(36)(F)] is not 
the same as the list of uses eligible for loan forgiveness [15 USC § 636(a)(36)(J)]. 
Significantly, the statutory list of allowable uses of loan funds is different from the 
list of uses that qualify for loan forgiveness; thus, all forgivable uses are allowable, 
but not all allowable uses are forgivable. For example, payments related to health 
care benefits and interest on debt obligations are allowable uses of loan funds, but 
the portion of the loan used for those payments will not be forgiven. See 15 USC 
§636(a)(36)(F)(i)(I) -(VII); and 15 USC §636(a)(36)(J)(iii)(I)-(VIII). Gateway at 1247. 
Only an eligible recipient of a PPP loan may receive loan forgiveness. 15 USC 
§636(a)(36)(A)(ii) and (iv); 15 USC §636m(a)(1) and (10)). 
 
B. 
PPP Loan Forgiveness Denial and Appeal 
The PPP loan forgiveness process includes an application for forgiveness for a 
specified dollar amount, which may be less than the full loan proceeds. The 
forgiveness application is made to the lender, which issues a decision on the amount 
of forgiveness, if any. 15 USC §636m (e), (f) and (g). Thereafter, SBA reviews the 
lender’s decision, and if there is a denial of forgiveness, then SBA issues a FLRD. 
There are four possible bases for appeal of a denial of PPP loan forgiveness. 
The FLRD will show forgiveness denial because the borrower: 
1. 
Was ineligible for a PPP loan. 
2. 
Was ineligible for the PPP loan amount received or used the PPP loan 
proceeds for unauthorized uses. 
3. 
Was ineligible for PPP loan forgiveness in the amount determined by the 
lender in its full approval or partial approval decision issued to SBA. 
4. 
Was ineligible for PPP loan forgiveness in any amount when the lender has 
issued a full denial decision to SBA. 13 CFR §134.1201(b). 
These denial bases may be stated on different terms. Thus, a forgiveness denial may 
be because: 
1. 
The borrower was ineligible to have acquire the loan (and thus because of 
some characteristic of the borrower, all the loan funds were received 
inappropriately, and no forgiveness is warranted), or 
2. 
The borrower was ineligible for the full amount received or that some or all 
Case: 2:23-cv-01921-SDM-KAJ Doc #: 1-1 Filed: 06/13/23 Page: 3 of 9  PAGEID #: 24

Docket No. PFR- 5457717009 
 
4 
 
loan proceeds were used for a non-forgivable purpose (and thus because of some 
characteristic of the amount or use of the funds received, some or all the funds 
received do not warrant forgiveness), or 
3. 
The lender found that forgiveness was warranted (in full or in part), but the 
SBA found that the borrower was ineligible for some, or all the amount allowed by 
the lender (and thus the amount of allowable forgiveness is smaller than the lender 
determined), or 
4. 
That the lender found that forgiveness was not warranted in any amount, and 
the SBA also found that the borrower was ineligible for forgiveness in any amount 
(and thus no amount of forgiveness is allowed). [Emphasis added] 
The SBA’s Office of Hearings and Appeals (OHA) conducts PPP appeals 
under the authority of 13 CFR Part 134 Subpart L. However, for OHA to have 
jurisdiction, SBA must have issued a Final Loan Review Decision regarding the loan 
at issue, as the appeal is taken from the decision contained in that Final SBA Loan 
Review Decision. 13 CFR §134.1201(a) - (c). The SBA’s Office of Capital Access 
issues a Final SBA Loan Review Decision on whole or partial denials of forgiveness 
of PPP loans. To file and manage an appeal of a Final SBA Loan Review Decision 
with OHA, Petitioners must use the OHA Case Portal (the Portal) at 
https://appeals.sba.gov. 13 CFR §134.1202(a). 
The appeal petition must include “[a] full and specific statement as to why 
the final SBA loan review decision is alleged to be erroneous, together with all 
factual information and legal arguments supporting the allegations.” 13 CFR 
134.1204 (a)(2). And further, “[g]enerally, the Judge may not admit evidence 
beyond the administrative record. 13 CFR 134.1209 (a). 
C. 
Authority of Administrative or Administrative Law Judges 
An Administrative Judge or Administrative Law Judge has no 
constitutionally based judicial power, see Ramspecky. Federal Trial 
Examiners Conference, 345 U.S. 128, 132-33 (1953), but are employees of the 
executive branch department or agency employing them. See e.g., 20 U.S.C. 
§1234(c) (statute establishing the Office of Administrative Law Judges within the 
Department of Education provides that ALJs “shall be officers or employees of the 
Department”). As such ALJs are bound by all policy directives and rules 
promulgated by their agency, including the agency’s interpretations of those policies 
and rules [emphasis added]. See Nash v. Bowen, 869 F.2d 675, 680(2d Cir.), cert, 
denied, 493 U.S. 813 (1989); Mullen v. Bowen, 800 F.2d 535, 540-41 n.5 (6th 
Cir.1986); Brennan v. Department of Health and Human Services, 787 F.2d 1559 
(Fed. Cir.), cert.denied, 479 U.S. 985 (1986); Goodman v. Svahn, 614 F. Supp. 726, 
728 (D.D.C. 1985);Association of Administrative Law Judges, Inc. v. Heckler, 594 F. 
Supp.1132, 1141 (D.D.C.1984); c f D'Amico v. Schweiker, 698 F.2d 903, 906 (7th Cir. 
1983). Accord 34 CFR §81.5(b) (embodying in Department regulations the 
requirement that ALJs adhere to policies and rules of the agency) [emphasis added]. 
Thus, an Administrative Judge has no authority to decide the 
constitutionality of an SBA law, regulation, or policy or to interpret such 
contrary to SBA’s established regulation or policy [emphasis added]. 
The task at hand is to determine whether the adopted regulations and 
policies have been appropriately applied to the facts of the case. Neither initial nor 
final decisions rendered by the SBA’s Office of Hearings and Appeals (OHA) under 
this subpart are precedential, and thus decisions in other PPP cases are not 
persuasive in this matter. 13 CFR §134.1212. 
 
Case: 2:23-cv-01921-SDM-KAJ Doc #: 1-1 Filed: 06/13/23 Page: 4 of 9  PAGEID #: 25

Docket No. PFR- 5457717009 
 
5 
 
D. 
PPP Loan Application, Forgiveness, FLRD and Appeal 
On April 17, 2020, Appellant applied for a PPP loan of $2,922,700.00 
with The Huntington National Bank (“Lender”) Administrative Record “AR” 
at 2995-3001. On April 23, 2020, Lender approved the loan in full and 
disbursed the funds. AR at 3002. On September 16, 2021, Appellant applied 
for PPP loan forgiveness in the amount of $2,872,765.70. Supplemental 
Administrative Record “SAR” at Exhibit A, Page 1.  
On November 1, 2021, SBA notified Appellant through its lender that 
it was conducting a review of the loan. AR at 2976-2977. On January 21, 
2021, SBA notified Appellant through its lender that it was potentially 
recommending a full denial based on affiliation rules. AR at 2978-2982. A 
follow-up request for additional information was sent on February 22, 2022. 
AR at 2983-2987. Another follow-up was sent April 4, 2022. AR at 2988-
2989.  
Documentation was provided to SBA, but was deemed insufficient to 
overcome the affiliation rules. So, on September 12, 2022, SBA issued a Final 
Loan Review Decision (“FLRD”) based on that, which it ultimately dismissed 
after withdrawal of the decision. (I was the judge assigned to the initial 
appeal as well).  
A petition for reconsideration of that appeal was filed by Appellant 
alleging that it was not given an opportunity to respond to the motion to 
dismiss, and further questioned SBA’s authority to withdraw the FLRD. I 
dismissed the Appeal as the withdrawal of the FLRD removed jurisdiction 
from OHA.  
After withdrawal of the FLRD, SBA on December 10, 2022 issued the 
FLRD which is the subject of the instant appeal. Dkt. No. 21 , AR at 27-28.  
On January 6, 2023, Appellant timely filed the instant appeal. Dkt No. 
1. On January 25, 2023, I issued a Notice and Order requiring SBA to 
produce the AR by February 14, 2023. Dkt. No. 10. The AR, as well as the 
SAR, were timely filed on February 14, 2023. Dkt. No. 11 and 12. Appellant 
was permitted to object to the AR until February 24, 2023. No response was 
filed. SBA could, but was not required, to respond to the appeal until March 
13, 2023. SBA timely filed its response on March 13, 2023. Dkt. No. 13.  On 
March 21, 2023, I issued the initial decision denying the Appeal.  
  
E. 
PFR of Petitioner, CONTINENTAL REAL ESTATE 
On March 30, 2023, Petitioner timely filed the instant PFR.  PFR Dkt. No. 
12. Petitioner argued in relevant part: 
The SBA’s regulations, in 13 C.F.R. §120.110, set forth a listing 
of businesses that are ineligible for SBA loans. The OHA’s 
March 21, 2023 Decision determined that the Appellant was 
ineligible for a PPP loan or related forgiveness pursuant to 13 
 
1 Docket. No. refers to the order in which documents were uploaded to the OHA Case Portal (the Portal) in 
the original Appeal. 
2 PFR Docket No. refers to the order in which documents were uploaded to the OHA PFR Case Portal (“the 
PFR Portal”). 
Case: 2:23-cv-01921-SDM-KAJ Doc #: 1-1 Filed: 06/13/23 Page: 5 of 9  PAGEID #: 26

Docket No. PFR- 5457717009 
 
6 
 
CFR §120.110(c). This regulation provides that the following 
type of business is ineligible for a SBA loan: “[p]assive business 
owned by developers and landlords that do not actively use or 
occupy the assets acquired or improved with the loan 
proceeds.” (Emphasis added).  
The SBA’s Standard Operating Procedure (SOP 50 10 6) 
provides further clarification on what constitutes a “passive 
business.” Specifically, SOP 50 10 6, Part 2, Section A, Chapter 
3(A)(3) provides a listing of seven business types that are 
considered “passive businesses.” The SBA’s loan review 
decision is based upon a finding that the Appellant meets the 
first definition of a “passive business” set forth in SOP 50 10 6, 
Part 2, Section A, Chapter 3(A)(3)(a), which defines an 
ineligible business to include “[p]assive businesses owned by 
developers and landlords that do not actively use or occupy the 
assets acquired or improved with the loan proceeds are not 
eligible.” (Emphasis added).  
The plain language of this regulation, and the SBA’s SOP, does 
NOT identify developers and landlords as ineligible passive 
entities for the SBA loans. Rather, this regulation (and the 
SBA’s own SOP) precludes SBA’s loans to passive businesses 
OWNED BY developers and landlords. The subject of this 
exclusion is NOT the developer. It is the passive businesses 
owned by the developer. The plain language of 13 CFR 
§120.110(c) provides that in order to be deemed ineligible for a 
SBA loan, the business must (1) be passive, (2) be owned by a 
developer or landlord, and (3) not actively use or occupy the 
assets purchased or improved with the loan proceeds.  
In its appeal, the Appellant argued that it was not a passive 
business or developer. As to the passive business argument- the 
Appellant provided extensive documentation to establish that 
it[s] business operations were active (i.e.[,] providing proof of 
substantial wages paid to employees providing professional 
development services to clientele, identifying and describing 
the Appellant’s sources of income related to providing services 
to its clients). 
With respect to the developer argument, the Appellant 
distinguished its business operations from a business that 
merely owns real estate for development. Specifically, the 
Appellant argued that it was not a developer or landlord, as 
those terms are contemplated in 13 CFR §120.110, because it 
does not own real estate or develop land on its own accord. 
Rather, much like an1 architectural firm, engineering firm, or 
law firm, the Appellant provides development services, for a 
fee, to its clientele. So, unlike the “developer or landlord” 
contemplated in the Regulations, Continental is providing 
active professional services.  
In the March 21, 2023 Decision, the OHA held that the 
Appellant was a developer and therefore ineligible for the PPP 
loan or forgiveness. This is an incorrect statement of the 
regulation. Assuming solely for purposes of this argument that 
the Appellant is a developer, such finding is not sufficient to 
Case: 2:23-cv-01921-SDM-KAJ Doc #: 1-1 Filed: 06/13/23 Page: 6 of 9  PAGEID #: 27

Docket No. PFR- 5457717009 
 
7 
 
end the inquiry as to whether the Appellant is ineligible for the 
PPP loan or forgiveness. Rather, the regulations set forth in 13 
CFR §120.110(c) deem only the passive businesses that are 
owned by the developer to be ineligible. The ineligible 
business is not the developer. Rather, it is the business owned 
by the developer, and only if such business is passive. And, 
then, only if the passive business does not actively use or 
occupy the assets acquired with the loan proceeds.  
The SBA’s loan review decision denies the Appellant its loan 
forgiveness because it deems that Continental is a developer. 
Specifically, in the SBA’s March 13, 2023 Response to the 
Appeal, the SBA argues “[b]y its own admission, the Appellant 
is a developer, which is a passive entity under the regulations, 
and ineligible for a PPP.” The SBA’s loan review decision and 
denial of loan forgiveness is solely based upon a finding that 
the Appellant is a developer. In fact, the SBA’s Response to the 
Appeal agrees that the other examples of passive businesses as 
set forth in SOP 50 10 6, Section A, Chapter 3(A)(3) do not 
apply. 
 
The SBA’s loan review decision is based upon a clear error of 
both fact (Continental is not a passive business owned by 
developer or landlord) and law (developers are not per se 
passive business that are ineligible for SBA loans,[sic] it is the 
passive businesses that owned by the developers that do not 
actively use assets obtained from the loan proceeds that are 
ineligible). On these grounds, we request that the OHA 
reconsider its March 21, 2023 Decision. 
 
F. 
Respondent’s Reply to PFR 
 
SBA, as respondent, was permitted to respond to the PFR until April 
17, 2023.  PFR Dkt. No. 2.  Respondent timely filed its response to the PFR 
on April 12, 2023.  In its reply, SBA argued as follows: 
 
On reconsideration, Appellant alleges material errors of fact 
and law by OHA, both of which stem from Appellant’s 
erroneous reading of 13 C.F.R. § 120.110(c), which states 
“[p]assive businesses owned by developers and landlords that 
do not actively use or occupy the assets acquired or improved 
with the loan proceeds (except Eligible Passive Companies 
under 120.111)” are ineligible for SBA business loans.  
Appellant argues that under this regulation, developers and 
landlords themselves are not passive entities, but only the 
businesses that the developers and landlords own. This is a 
crabbed, nonsensical reading of the provision. The owners of 
Appellant – Frank Kass and John Luck – are developers, as 
they own a self-described development company. (AR 2995-97; 
Response, pp. 10-11; CONTINENTAL REAL ESTATE, p. 16) In 
other words, Appellant is a passive business owned by two 
developers, and therefore was ineligible for a PPP loan and loan 
forgiveness.  
Case: 2:23-cv-01921-SDM-KAJ Doc #: 1-1 Filed: 06/13/23 Page: 7 of 9  PAGEID #: 28

Docket No. PFR- 5457717009 
 
8 
 
Finally, for purposes of this appeal, it is irrelevant how 
Appellant used the loan proceeds. In the PPP context, unlike 
other SBA business loan programs, loan proceeds are not used 
to acquire or improve assets: they are used for payroll costs. 
Therefore, the portion of section 120.110(c) stating that passive 
businesses do not use the “assets acquired or improved with 
loan proceeds” is inapplicable in the PPP context. It is sufficient 
that Appellant does not use or occupy the assets it acquires or 
improves in the course of its business to render it passive and 
ineligible. (Response, p. 10) 
III. Discussion 
A. Standard of Review 
 
A PFR may be granted by OHA upon a “clear showing of an error of 
fact or law material to the decision.” 13 CFR §134.1211(c)(1).  
 
A PFR does not allow an unsuccessful party an additional opportunity 
to argue its position, and the PFR must rise from a manifest error of law or mistake 
of fact. Size Appeal of Envtl. Prot. Cert. Co., Inc., SBA No. SIZ-4935, at 2 (2008) 
(PFR). “A [PFR] is appropriate only in limited circumstances, such as situations 
where OHA has misunderstood a party, or has made a decision outside the 
adversarial issues presented by the parties.” Id., citing Quaker Alloy Casting Co. v. 
Gulfco Indus., Inc., 123 F.R.D. 282, 288 (N.D. Ill. 1988) (quoting Above The Belt, Inc. 
v. Mel Bohannan Roofing, Inc., 99 F.R.D. 99, 101 (E.D. Va. 1983)). Thus, “[t]he 
moving party’s argument must leave the Administrative Judge with the definite and 
firm conviction that key findings of fact or conclusions of law of the earlier decision 
were mistaken.” Size Appeal of TKTM Corp., SBA No. SIZ-4905 (2008) (citing Size 
Appeal of Taylor Consultants, Inc., SBA No. SIZ-4775, at 11-12 (2006)); Size Appeal 
of KVA Elec., Inc., SBA No. SIZ-5057 (2009). 
 
For the reasons set forth below, I DENY the Petition For 
Reconsideration of CONTINENTAL REAL ESTATE and AFFIRM the OHA 
Appeal Decision and the final SBA loan review decision. 
B. Analysis 
 
Regarding the Small Business Act, a Federal Court has stated: “The 
SBA is a federal agency created by Congress to ‘aid, counsel, assist, and 
protect insofar as it is possible the interests of small-business concerns.’ 
SBA v. McClellan, 364 U.S. 446, 447 (1960) (quoting Small Business Act of 
1953, Pub. L. No. 83-163, §202, 67 Stat. 232, 232 (1953)). Among the 
"extraordinarily broad powers" that Congress gave to the agency to 
accomplish this objective was "lending money to small businesses whenever 
they could not get necessary loans on reasonable [**4] terms from private 
lenders." Id. The primary mechanism through which the SBA does so is a 
Section 7(a) loan [emphasis added], named after the section of the Small 
Business Act of 1958 that authorizes its issuance. These loans "may be 
[*823] made either directly or in cooperation with banks or other financial 
institutions through agreements to participate on an immediate or deferred 
(guaranteed) basis." 15 U.S.C. § 636(a). In practice, the SBA prefers the 
latter, indirect approach. United States v. Kimbell Foods, Inc., 440 U.S. 715, 
719 n.3 (1979).  
Case: 2:23-cv-01921-SDM-KAJ Doc #: 1-1 Filed: 06/13/23 Page: 8 of 9  PAGEID #: 29

Docket No. PFR- 5457717009 
 
9 
 
 
Congress created the Small Business Act in 1958, and has periodically 
amended it, providing a broad statutory regime for Section 7(a) loans. See 
Small Business Act of 1958, Pub L. No. 85-536, § 7(a), 72 Stat. 
384, 387-88 (1958) (codified in 15 U.S.C. § 636(a)).” Over time, Congress has 
also created several special Section 7(a) loans and exempted them from 
statutory requirements that apply to ordinary Section 7(a) loans.” 
(Emphasis added) 632 B.R. 816- 822.  
 
 
In addition to the statutes, and as noted above under Section II, 
Subsection C. of this decision on the PFR, I am bound by all policy directives 
and rules promulgated by the SBA, including its interpretation of those rules 
and policies. 
 
 
In the instant petition, Petitioner argues that SBA’s decision (FLRD) and the initial 
decision of OHA are clearly erroneous, as it alleges that the documentation it provided 
established that Petitioner was an active business.  However, that conclusion is simply 
wrong, pursuant to 13 C.F.R. § 120.110(c), which states “[p]assive businesses owned by 
developers and landlords that do not actively use or occupy the assets acquired or 
improved with the loan proceeds (except Eligible Passive Companies under 120.111)” are 
ineligible for SBA business loans. 
 
Petitioner specifically identifies itself as a development company in all of its 
documentation.   Owners Frank Kass and John Luck are self-identified as 
developers.  Passive businesses owners like Petitioner are ineligible for PPP loans, 
pursuant to 13 C.F.R. § 120.110(c). 
C. Conclusion 
For the foregoing reasons, the instant PFR is DENIED. 13 C.F.R. § 
134.1211(c).  
Unless the SBA Administrator, solely within her discretion, elects to 
review and/or reverse this decision per 13 C.F.R. §134.1211(d), this decision 
will become the SBA’s final decision 30 calendar days after it is served. See 
13 C.F.R. § 134.1211(b).  
The discretionary authority of the Administrator to review and/or 
reverse a decision does not create any additional rights of appeal on the part 
of an appellant not otherwise specified in SBA regulations in this chapter. 
See id.  
Once the OHA decision becomes final or the Administrator issues a 
final decision, the final decision may be appealed to the appropriate Federal 
district court. 13 C.F.R. §134.1211(d).  
This decision is non-precedential but may be published. 13 C.F.R. § 
134.1211(e) and (f). 
 
 
 
 
CLIFFORD STUREK 
Administrative Judge 
Case: 2:23-cv-01921-SDM-KAJ Doc #: 1-1 Filed: 06/13/23 Page: 9 of 9  PAGEID #: 30

File and source

File

continental_real_estate_sba__docket-67497540__doc-1_att-1__id-408739926__Exhibit_A-OHA_Decision_4.14.23.pdf

Size

314,572 bytes

SHA-256

290449cce2c43a710e2e0028df93332e8727fd230fe99b69f811405a31f8b16f

Our copy

continental_real_estate_sba__docket-67497540__doc-1_att-1__id-408739926__Exhibit_A-OHA_Decision_4.14.23.pdf

Original

storage.courtlistener.com