Court filing
Information - United States v. Shibley companion docket
Record facts
| Court | U.S. District Court for the Western District of Washington |
|---|---|
| Filed | 2021-11-12 |
Summary
A defense supplemental memorandum on the materiality of the "probation status" question, filed November 12, 2021 in United States v. Eric Shibley, No. CR20-174 JCC, in the U.S. District Court for the Western District of Washington. The defense argues that the defendant's statement in PPP loan applications that he was not on probation, when he was on misdemeanor probation, is not material as a matter of law. It states that on June 12, 2020 the SBA amended its First Interim Final Rule to limit the restriction to felony offenses, and that the revised application form asks no question about misdemeanor probation. It cites Defy Ventures v. U.S. Small Business Administration, 469 F. Supp. 3d 459 (D.Md. 2020). It asks that the government be precluded at trial from presenting proof or argument on the probation question, and is signed by Michael Nance.
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Full text
Honorable John Coughenour
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON, SEATTLE
UNITED STATES OF AMERICA, )
) No. CR20-174 JCC
Plaintiff,
)
) DEFENSE SUPPLEMENTAL
) MEMORANDUM RE: MATERIALITY
v.
) OF “PROBATION STATUS”
) QUESTION
ERIC SHIBLEY,
)
)
Defendant.
)
_______________________________)
Defendant Eric Shibley, through undersigned counsel, supplements previous
briefing on the issue of the materiality of his representation in various PPP Loan
applications that he was not “on probation”, when he was, in fact, on misdemeanor
probation out of Anacortes Municipal Court for a previous violation of a no contact order
issued in family court.
1
The Small Business Administration, itself, does not consider such a conviction
material, and, on June 12, 2020, after construing Congressional intent in enacting the
CARES Act, expressly rescinded its prior interim final rule and narrowed the type of
criminal history which served to disqualify a PPP loan applicant. Subsequently, it revised
The court’s filing deadline for in limine motions and responses has passed. This matter
1
just came to the attention of defense counsel. Because it concerns a key issue and will
inform the court’s decision, it is presented now, still in advance of trial. Of course, the
government should be afforded a chance to respond.
1
Michael Nance
Attorney at Law
P.O. Box 11276
Bainbridge Island, WA 98110
(206) 624-3211
its PPP application forms to include questions about criminal history that would not
required an affirmative response from Mr. Shibley. Under the reconsidered interpretation
of the CARES Act, Mr. Shibley’s criminal history - his misdemeanor probation - would
not disqualify him from seeking a PPP loan.
Background
The CARES Act was enacted in March 2020 to provide immediate assistance to
individuals, families, and businesses affected by the COVID-19 emergency. Among
the provisions contained in the CARES Act are provisions authorizing SBA to
temporarily guarantee loans under a new 7(a) loan program titled the “Paycheck
Protection Program.” Loans guaranteed under the Paycheck Protection Program (PPP)
will be 100 percent guaranteed by SBA, and the full principal amount of the loans may
qualify for loan forgiveness.
To implement the PPP program the SBA formulated its First Interim Final Rule
(IFR) that provided, among other things, that a PPP loan would not be approved if an
owner of 20 percent or more of the equity of the applicant has been convicted of a felony
within the last five years or was presently subject to an indictment, criminal information,
arraignment, or other means by which formal criminal charges are brought in any
jurisdiction. This policy was reflected in one of the questions appearing in the online PPP
application forms that Mr. Shibley answered in the negative and that constitutes a
significant part of the government’s wire and bank fraud allegations:
2
Michael Nance
Attorney at Law
P.O. Box 11276
Bainbridge Island, WA 98110
(206) 624-3211
Is the Applicant (if an individual) or any individual owning 20% or more of
the equity of the Applicant subject to an indictment, criminal information,
arraignment, or other means by which formal criminal charges are brought
in any jurisdiction, or presently incarcerated, or on probation or parole?
On June 12, 2020, the First Interim Final Rule was amended after the SBA
Administrator, in consultation with the Secretary of the Treasury (the Secretary),
determined that a shorter time frame for felonies that did not involve fraud, bribery,
embezzlement, or a false statement in a loan application or an application for federal
financial assistance was more consistent with Congressional intent to provide relief to
small businesses and also promoted the important policies underlying the First Step Act
of 2018 (Pub. L. 115-391). The Administrator also determined that the restriction should
be limited to pending criminal charges for felony offenses, which aligned with the
Administrator’s prior determination that only felony convictions (but not convictions for
other types of offenses) should count. See attached copy of Small Business
Administration 13 CFR Part 120 Docket No. SBA-2020-0039 RIN 3245-AH53.
Subsequently, the PPP loan application was revised to reflect SBA’s new
interpretation of Congressional intent. See attached copy. Relevant questions on the
new form ask:
5. Is the Applicant (if an individual) or any individual owning 20% or more of
the equity of the Applicant presently incarcerated or, for any felony, presently
subject to an indictment, criminal information, arraignment, or other means by
which formal criminal charges are brought in any jurisdiction?
3
Michael Nance
Attorney at Law
P.O. Box 11276
Bainbridge Island, WA 98110
(206) 624-3211
Initial here to confirm your response to question 5 →
_____________________
6. Within the last 5 years, for any felony involving fraud, bribery,
embezzlement, or a false statement in a loan application or an
application for federal financial assistance, has the Applicant (if an individual)
or any owner of the Applicant 1) been convicted; 2) pleaded guilty; 3) pleaded
nolo contendere; or 4) commenced any form of parole or probation (including
probation before judgment)?
Initial here to confirm your response to question 6 →
Conspicuously absent is any question relating to misdemeanor probation or any
requirement that such status be revealed.
The SBA’s change of position came in the wake of a civil suit challenging the
breadth of the first IFR, issued on April 15, 2020. The suit alleged that the first IFR
exceeded the SBA's statutory authority, was arbitrary and capricious, and failed 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). See Defy Ventures v. U.S. Small Business Administration,
469 F. Supp. 3d 459 (D.Md. 2020). 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 SBA to
administer PPP loans without regard to a business owners' prior criminal history. The
SBA revised the IFR twice during the litigation and before the plaintiffs' motion for
preliminary injunction was fully briefed. Id., 469 F. Supp. 3d at 466. The third iteration
4
Michael Nance
Attorney at Law
P.O. Box 11276
Bainbridge Island, WA 98110
(206) 624-3211
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. The court found the plaintiffs were likely to succeed on
their APA claim that the first two iterations of the rule were arbitrary and capricious. Id.
at 475.
The present prosecution has the government (the SBA) alleging Mr. Shibley’s
material misrepresentation on a matter (his misdemeanor probation status) that its own
revised guidelines do not consider material and at least one federal court has determined
to have been improperly asked in the first place.
In addition to being inherently prejudicial, Mr. Shibley’s misdemeanor probation
status is not material as a matter of law. In enacting the CARES Act, Congress did not
intend to exclude applicants in that status, and it was overreach on the part of the SBA to
act contrary to that intent. SBA’s revision of its policy in June 2020 and its PPP
application form to reflect that intent are clear evidence that a misdemeanant’s
probationary status is simply not material to a PPP loan application. At trial the
government should be precluded from presenting any proof or argument concerning Mr.
Shibley’s response to the probation question.
5
Michael Nance
Attorney at Law
P.O. Box 11276
Bainbridge Island, WA 98110
(206) 624-3211
Respectfully submitted this 12th day of November, 2021.
/s/ Michael Nance
Attorney for defendant Eric Shibley
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Michael Nance
Attorney at Law
P.O. Box 11276
Bainbridge Island, WA 98110
(206) 624-3211File and source
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