Court filing

Complaint for Declaratory and Injunctive Relief under the Administrative Procedure Act, 5 U.S.C. §701 et seq. — Blue Pacific Engineering & Construction, Inc. v. United States Small Business Administration (Dkt. 1, S.D. Cal.)

Summary

A complaint for declaratory and injunctive relief under the Administrative Procedure Act, 5 U.S.C. §701 et seq., filed September 6, 2024 as Document 1 by Shahram Elihu, d/b/a Blue Pacific Engineering & Construction, Inc., in the U.S. District Court for the Southern District of California, Case No. 3:24-cv-01594-RBM-JLB. The defendants are the Small Business Administration, Administrator Isabella Casillas Guzman, Treasury Secretary Janet Yellen and the United States. The complaint seeks judicial review of the SBA's final decision on the plaintiff's Paycheck Protection Program borrower application, alleging that the agency acted arbitrarily and capriciously and denied a fair opportunity for loan forgiveness because of the fraudulent actions of a third party. It states that administrative remedies are exhausted, cites 28 U.S.C. §1331 and 5 U.S.C. §704.

Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used

Filed September 6, 2024 in Blue Pacific Engineering & Construction, Inc. v. United States Small Business Administration; one of 1 filings from this case.

Record facts

Court	U.S. District Court for the Southern District of California
Filed	2024-09-06

Cite this document

“Complaint for Declaratory and Injunctive Relief under the Administrative Procedure Act, 5 U.S.C. §701 et seq. — Blue Pacific Engineering & Construction, Inc. v. United States Small Business Administration (Dkt. 1, S.D. Cal.).” U.S. District Court for the Southern District of California, No. 3:24-cv-01594, Doc. 1, filed 2024-09-06. Archived at Pandemic Darlings, https://pandemicdarlings.com/court-filings/full-docket-united-states-small-business-administration-casd-792961/2024-09-06-gov-uscourts-casd-792961-1-0-doc-1/, SHA-256 bb486be30da463278f0d062d864c0f0ab861117f0e30ed516794f75292afce76.

Full text

Case 3:24-cv-01594-RBM-JLB Document 1 Filed 09/06/24 PageID.1 Page 1 of 71

1 William A. Smelko (Bar No. 96970)
E-mail: bill.smelko@procopio.com
2 Janine W. Parchment (Bar No. 352004)
E-mail: janine.parchment@procopio.com
3 PROCOPIO, CORY, HARGREAVES &
SAVITCH LLP
4 525 B Street, Suite 2200
San Diego, CA 92101
5 Telephone: 619.238.1900
Facsimile: 619.235.0398
6
Attorneys for Plaintiff SHAHRAM ELIHU, an
7 individual d/b/a BLUE PACIFIC ENGINEERING
CONSTRUCTION, INC.
8
UNITED STATES DISTRICT COURT
9
FOR THE SOUTHERN DISTRICT OF CALIFORNIA
10
SHAHRAM ELIHU, an individual d/b/a Case No. '24CV1594 RBM JLB
11 BLUE PACIFIC ENGINEERING &
CONSTRUCTION, INC.
12 COMPLAINT FOR
Plaintiff, DECLARATORY AND
13 INJUNCTIVE RELIEF UNDER
v. THE ADMINISTRATIVE
14 PROCEDURE ACT, 5 U.S.C.
UNITED STATES SMALL BUSINESS §701 ET SEQ.
15 ADMINISTRATION; ISABELLA
CASILLAS GUZMAN, solely in her
16 official capacity as Administrator of the
Small Business Administration; JANET
17 YELLEN, in her official capacity as United
States Secretary of Treasury; and THE
18 UNITED STATES OF AMERICA,
19 Defendants.
20
21 Plaintiff, SHAHRAM ELIHU, an individual d/b/a BLUE PACIFIC
22 ENGINEERING CONSTRUCTION, INC. (“Plaintiff”), brings this action against
23 Defendants, UNITED STATES SMALL BUSINESS ADMINISTRATION (“SBA”),
24 and ISABELLA CASILLAS GUZMAN, solely in her official capacity as
25 Administrator of the Small Business Administration; JANET YELLEN, in her official
26 capacity as United States Secretary of Treasury; and THE UNITED STATES OF
27 AMERICA (“Defendants”).
28 Plaintiff alleges as follows:

COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF
CASE NO.

Case 3:24-cv-01594-RBM-JLB Document 1 Filed 09/06/24 PageID.2 Page 2 of 71

1 INTRODUCTION
2 1. This action arises under the Administrative Procedure Act (“APA”) for
3 judicial review of a Small Business Administration’s (“SBA”) final decision of
4 Plaintiff’s Paycheck Protection Plan (“PPP”)1 Borrower Application Form. This
5 proceeding was necessitated by the unjust, arbitrary, and capricious actions of the
6 SBA, which deprived Plaintiff of a fair opportunity for PPP loan forgiveness as a direct
7 result of the fraudulent actions of a third party.
8 2. Plaintiff has exhausted all administrative remedies available to Plaintiff.
9 JURISDICTION AND VENUE
10 3. Jurisdiction over this action is proper pursuant to 28 U.S.C. §1331,
11 because this is a civil action arising out of the laws of the United States.
12 4. Plaintiff has standing to seek review in this District Court of the SBA’s
13 Final Decision pursuant to 5 U.S.C. §704.
14 5. Venue is proper in the United States District Court for the Southern
15 District of California pursuant to 28 U.S.C. §1391 because this is the judicial district
16 of Plaintiff primary place of business, where a substantial part of the events or
17 omissions giving rise to the claim occurred, and because the defendants named herein
18 are officers or employees of the United States.
19 PARTIES
20 6. At all times relevant, SHAHRAM ELIHU, an individual, d/b/a Blue
21 Pacific Engineering and Construction, was acting as a sole proprietorship dedicated to
22 providing construction and engineering services in the State of California, including
23 in the City and County of San Diego.
24 7. Defendant, United States Small Business Administration (“SBA”), is an
25 independent federal agency created and authorized pursuant to 15 U.S.C. §633 et seq.
26
27 1
The references are to: Coronavirus Aid, Relief and Economic Security Act (the
“CARES Act”); the Paycheck Protection Program (“PPP”), enacted in §1102 of the
28 CARES Act; §7(a) of the Small Business Act (15 U.S.C.§636(a)).
8587986.1 2
COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF
CASE NO.

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1 8. Defendant, Isabella Casillas Guzman, is the Administrator of the SBA,
2 and is sued solely in her official capacity as the acting Administrator.
3 9. Defendant, Janet Yellen, is the Secretary of the United States Department
4 of Treasury, and is sued solely in her official capacity as the Secretary of the Treasury.
5 10. Defendant, United States of America, is a proper defendant under the
6 Agency Protection Act (“APA”) pursuant to 5 U.S.C. §702.
7 11. This action is for non-monetary relief on a claim that the Federal
8 Defendants acted or failed to act in an official capacity or under color of legal
9 authority. Therefore, the Federal Defendants have waived any claims of sovereign
10 immunity. See, 5 U.S.C. §702; The Presbyterian Church (U.S.A.) v. United States,870
11 F.2d 518, 525 (9th Cir. 1989) (recognizing that the APA provides “an unqualified
12 waiver of sovereign immunity in actions seeking nonmonetary relief against legal
13 wrongs which governmental agencies are accountable”); Clinton v. Babbitt, 180 F.3d
14 1081, 1087 (9th Cir. 1999) (stating that the APA “expressly waived sovereign
15 immunity in non-statutory review actions for nonmonetary relief brought under 28
16 U.S.C. §1331”).
17 BACKGROUND
18 A. CORONAVIRUS AID, RELIEF, AND ECONOMIC SECURITY
19 ACT AND PAYCHECK PROTECTION PROGRAM
20 12. The Coronavirus Aid, Relief, and Economic Security Act (“CARES
21 Act”) and the Coronavirus Response and Consolidated Appropriations Act (2021)
22 were created to “provided fast and direct economic assistance for American workers,
23 families, small businesses, and industries.”2 The CARES Act was passed by Congress
24 on March 25, 2020 and signed into law on March 27, 2020.3
25
26
2
U.S. Department of the Treasury, About the Cares Act and Consolidated
27 Appropriation Act, https://home.treasury.gov/policy-issues/coronavirus/about-the-
cares-act
28 3 Id. (last visited September 6, 2024).
8587986.1 3
COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF
CASE NO.

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1 13. The Paycheck Protection Program (“PPP”) was established by the
2 CARES Act and implemented by the Small Business Administration with support
3 from the Department of the Treasury. 15 U.S.C. §636(a). The program was formed to
4 provide forgivable loans to small businesses for applicable overhead such as payroll,
5 rent, and utilities. 15 U.S.C. §636(a).
6 14. The PPP loans were made available in two phases. The first phase,
7 referred to as the First Draw PPP ("First Draw") loan, began in April 2020. The second
8 phase, known as the Second Draw PPP ("Second Draw") loan, was established under
9 the Economic Aid Act and became available on January 13, 2021. The Second Draw
10 loan is what is at issue in this Complaint.
11 15. An organization was eligible for a First Draw loan if the organization was
12 a small business concern, as defined by Small Business Act 15 U.S.C. §632 and had
13 500 or fewer employees whose principal place of residence was in the United States.
14 15 U.S.C. §636 (a)(36)(D)(i). The organization must have been in operation on
15 February 15, 2020, and either had employees for whom they were paid salaries and
16 payroll taxes or paid independent contractors. Id. Parties, like Plaintiff, here, are also
17 eligible for a First Draw loan if they are an individual who operates under a sole
18 proprietorship. 15 U.S.C. §636 (a)(36)(D)(ii).
19 16. The CARES Act provides that “[a]n eligible entity shall be eligible for
20 forgiveness of indebtedness on a covered loan in an amount equal to the sum of the
21 following costs incurred or expenditures.” 15 U.S.C. §636 (a)(36)(J)(ii). Additionally,
22 the Fact Sheet, located on the website of the Treasury, states that “[a]ll loan terms will
23 be the same for everyone. The loan amounts will be forgiven as long as” certain
24 qualifications are met.4
25 17. Each eligible borrower was limited to one First Draw loan. 15 U.S.C.
26 §636 (a)(36)(F). In fact, a part of the application process requires an applicant to certify
27 4
U.S. Department of the Treasury, Paycheck Protection Program (PPP) Information
Sheet: Borrowers, https://home.treasury.gov/system/files/136/PPP (last visited
28 September 6, 2024).
8587986.1 4
COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF
CASE NO.

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1 that “During the period beginning on February 15, 2020 and ending on December 31,
2 2020, the Applicant has not and will not receive another loan under the Paycheck
3 Protection Program.”
4 18. The Second Draw loan had a different set of requirements. The borrower
5 must have received a First Draw loan and used the amount as authorized. The limit
6 was 300 employees, and the borrower must be able to “demonstrate at least a 25%
7 reduction in gross receipts between comparable quarters in 2019 and 2020.” 15 U.S.C.
8 §636 (a)(37)(A)(iv).
9 19. To qualify for full forgiveness of the Second Draw loan, borrowers must
10 show that “during the 8- to 24-week covered period following loan disbursement
11 employee and compensation levels are maintained in the same manner as required for
12 the First Draw loan.” 60 percent of the loan proceeds must have been spent on payroll
13 costs with the reaming on other eligible expenses.5 If a borrower meets these
14 qualifications, they are eligible for full forgiveness of the Second Draw loan.
15 B. SBA’S DENIAL OF PLAINTIFF’S SECOND DRAW LOAN
16 FORGIVENESS APPLICATION
17 20. On April 8, 2020, Plaintiff applied for and met the qualifications for a
18 First Draw loan in the amount of $853,000.00. On May 7, 2020, however, the bank
19 updated Plaintiff’s loan application for its First Draw loan for a corrected amount of
20 $853,000.00. The First Draw loan was funded on April 27, 2020, and disbursed on
21 May 12, 2020. Attached as Exhibit “A” (Plaintiff’s First Draw Loan Application).
22 21. Plaintiff is informed and believes that, on April 30, 2020, a fraudulent
23 First Draw loan application was not submitted by him but instead was improperly
24 submitted on his behalf and without his knowledge. This loan was funded and
25 disbursed on May 1, 2020.
26
27 5
U.S. Department of the Treasury, Paycheck Protection Program Second Draw
Loans: Top Line Overview, https://home.treasury.gov/system/files/136/Top-line-
28 Overview-of-Second-Draw-PPP.pdf (last visited September 6, 2024).
8587986.1 5
COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF
CASE NO.

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1 22. In November 2020, Shahram Elihu, as an individual, participated in
2 proceedings against his ex-spouse and determined that she fraudulently applied for a
3 First Draw loan using the Plaintiff’s credentials. This was the first occasion the
4 Plaintiff was informed of this incident. Once notified of the fraudulent loan and
5 determined that it was disbursed into one of his business accounts, the Plaintiff
6 promptly took steps to return the money. Attached as Exhibit “B” (Plaintiff’s
7 Declaration of Identify Theft).
8 23. On March 24, 2021, Plaintiff applied, and was subsequently approved
9 for, a Second Draw loan in the amount of $920,500.00, which was disbursed on April
10 8, 2021. Attached as Exhibit “C” (Plaintiff’s Second Draw Loan Application).
11 24. On June 8, 2021, Plaintiff applied for full forgiveness of its Second Draw
12 loan and was subsequently denied. In its denial, SBA cited that the Plaintiff was
13 ineligible to receive the Second Draw loan, because it received two First Draw loans.
14 Furthermore, that in Plaintiff’s corrected First Draw loan application, which was
15 completed after the disbursement of the fraudulent loan, Plaintiff certified that “The
16 Applicant has not and will not receive another loan under the Paycheck Protection
17 Program.” Attached as Exhibit “D” (July 10, 2024, SBA’s Office of Hearings and
18 Appeals Reconsidered Initial Decision).
19 25. When the Plaintiff made this certification, he was informed and believed
20 that the information provided in the amended First Draw loan application was correct.
21 As provided above, Plaintiff was not made aware of the fraudulent loan application
22 until November of 2020.
23 26. Indeed, the lender approved the Second Draw loan, which was not
24 flagged as a repeated submission. Further, SBA failed to prevent the issuing of the
25 fraudulent First Draw loan by flagging it as a duplicate loan and then mistakenly
26 approving Plaintiff’s Second Draw loan despite being aware of the fraudulent loan.
27 27. In its denial, SBA claims that there is no basis to grant relief to Plaintiff,
28 based on the fact that they returned the fraudulent First Draw loan, with interest. Id.
8587986.1 6
COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF
CASE NO.

Case 3:24-cv-01594-RBM-JLB Document 1 Filed 09/06/24 PageID.7 Page 7 of 71

1 However, the SBA.gov website provides that, “[e]xisting PPP borrowers that did not
2 receive loan forgiveness by December 27, 2020, may: Reapply for a First Draw PPP
3 loan if they previously returned some or all of their First Draw PPP loan funds.6 This
4 statement on SBA’s website demonstrates that if funds for a previous First Draw loan
5 are returned, borrowers are considered to have taken out only one First Draw loan.
6 28. Defendants’ denial of Plaintiff’s Second Draw loan was not in accordance
7 with the law, including the CARES Act and the APA. Plaintiffs are entitled to an order
8 declaring the same.
9 29. Plaintiff is entitled to a permanent injunction enjoining Defendants from
10 asserting that Plaintiff received two First Draw loans and falsified its loan application,
11 thereby rendering Plaintiff ineligible for forgiveness.
12 FIRST CLAIM FOR RELIEF
13 (Injunctive Relief)
14 30. Plaintiff incorporates by reference each and every allegation contained in
15 each paragraph above and below as though the same was set forth in full herein.
16 31. An actual and substantial controversy has arisen among the parties
17 regarding the denial of Plaintiff’s request for forgiveness of its Second Draw loan
18 application.
19 32. The APA authorizes judicial review of federal agency actions pursuant to
20 5 U.S.C. §702.
21 33. The APA provides that the District Court can “hold unlawful and set aside
22 agency action, findings, and conclusions found to be-- arbitrary, capricious, an abuse
23 of discretion” or “otherwise not in accordance with law or unsupported by substantial
24 evidence in a case.” 5 U.S.C. §§706 (A), (E).
25
26
27 6
First Draw PPP Loan, Reapplying and Loan Increases,
https://www.sba.gov/funding-programs/loans/covid-19-relief-options/paycheck-
28 protection-program/first-draw-ppp-loan (last visited September 6, 2024).
8587986.1 7
COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF
CASE NO.

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1 34. Plaintiff is entitled to a permanent injunction enjoining Defendants from
2 falsely claiming that Plaintiff is ineligible for full forgiveness of Plaintiff’s Second
3 Draw loan.
4 35. Plaintiff has no other adequate remedies at law or in equity to seek redress
5 for the Defendant’s denial of Plaintiff’s Second Draw loan.
6 SECOND CLAIM FOR RELIEF
7 (Declaratory Relief)
8 36. Plaintiff incorporates by reference each and every allegation contained in
9 each paragraph above and below as though the same was set forth in full herein.
10 37. An actual and substantial controversy has arisen among the parties
11 regarding the denial of Plaintiff’s Second Draw loan application.
12 38. The APA authorizes judicial review of federal agency actions pursuant to
13 5 U.S.C. §702.
14 39. The APA provides that the District Court can “hold unlawful and set aside
15 agency action, findings, and conclusions found to be-- arbitrary, capricious, an abuse
16 of discretion” or “otherwise not in accordance with law or unsupported by substantial
17 evidence in a case.” 5 U.S.C. §§706 (A), (E).
18 40. Defendants’ denial of Plaintiff’s forgiveness application, while granting
19 forgiveness to other similarly qualified businesses, is therefore arbitrary and capricious
20 and an abuse of discretion. Plaintiff is entitled to an order declaring the same.
21 41. Plaintiff faces a substantial risk of future harm if Defendants' adverse
22 ruling is not redressed. This caused $920,500.00 in U.S. government-secured loans to
23 go unforgiven while Plaintiff is trying to rebuild after enduring a tragic time in
24 America.
25 42. Such a declaration is necessary at this time so that the parties may
26 ascertain their rights and obligations, and it is appropriate because it will obviate the
27 need for future legal action between the parties regarding the same subject matter.
28
8587986.1 8
COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF
CASE NO.

Case 3:24-cv-01594-RBM-JLB Document 1 Filed 09/06/24 PageID.9 Page 9 of 71

1 PRAYER FOR RELIEF
2 WHEREFORE, Plaintiff prays for the following relief:
3 1. An order declaring Defendants acted in a manner that was arbitrary,
4 capricious, an abuse of discretion, not in accordance with the law, and in violation of
5 the ABA.
6 2. An order vacating the U.S. Small Business Administration Office of
7 Hearing and Appeals “Reconsidered Final Decision” issue of July 10, 2024, denying
8 Plaintiff’s Second Draw loan forgiveness.
9 3. An order declaring that Plaintiff did not make fraudulent claims on its
10 First Draw amended loan application and is thereby eligible for full forgiveness of its
11 Second Draw loan application.
12 4. For costs of suit incurred herein;
13 5. For attorneys’ fees, including expert fees; and,
14 6. For such other and further relief as the Court deems just and proper.
15
DATED: September 6, 2024 PROCOPIO, CORY, HARGREAVES &
16 SAVITCH LLP
17
18 By: /s/ William A. Smelko
William A. Smelko
19 Janine W. Parchment
Attorneys for Plaintiff SHAHRAM
20 ELIHU, an individual d/b/a BLUE
PACIFIC ENGINEERING
21 CONSTRUCTION, INC.
22
23
24
25
26
27
28
8587986.1 9
COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF
CASE NO.

Case 3:24-cv-01594-RBM-JLB Document 1 Filed 09/06/24 PageID.10 Page 10 of
71

1 EXHIBIT INDEX
2
Exhibit Description Page Nos.
3
4 A Plaintiff’s First Draw Loan Application 0001 - 0002

5 B Plaintiff’s Declaration of Identify Theft 0003 - 0007
6
C Plaintiff’s Second Draw Loan Application 0008 - 0051
7
8 D July 10, 2024, SBA’s Office of Hearings and 0052 - 0061
Appeals Reconsidered Initial Decision
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
8587986.1
EXHIBIT INDEX
CASE NO.

Case 3:24-cv-01594-RBM-JLB

Document 1 Filed 09/06/24

PageID.11

Exhibit A

Page 0001 Page 11 of

File: 1._PPP_Application_-_Blue_Pacific_Engineering-3533847202.pdf [2023/08/07 18:11:43] 562 of 726

Case 3:24-cv-01594-RBM-JLB

Document 1 Filed 09/06/24

PageID.12

Exhibit A

Page 0002 Page 12 of

File: 1._PPP_Application_-_Blue_Pacific_Engineering-3533847202.pdf [2023/08/07 18:11:43] 563 of 726

Case 3:24-cv-01594-RBM-JLB Document 1 Filed 09/06/24 PageID.13 Page 13 of
71

0MB Control Number 3245-0418
Expiration Date: 08/31/2024

United States Small Business Administration
Declaration of Identity Theft

Complete this form if you need the U.S. Small Business Administration to review an outstanding
loan or grant for identity theft. Before beginning, please note that a hand-written signature is
required for this declaration, as well as attachments.

Providing the information on this form is voluntary. However, if you do not provide the
information, it may be more difficult to assist you in resolving your identity theft issue. For
Identity Theft Declarations pertaining to direct SBA physical and economic injury disaster
loans, such as COVID Economic Injury Disaster Loans (EIDL), send the completed form
via email to: lDTheftRecords@sba.gov. For Identity Theft Declarations pertaining to
Paycheck Protection Program (PPP) loans, send the completed form via email to:
PPPidtheftinguiries@sba.gov.

Section A- Check the box below that applies to the situation you are reporting

I am submitting this Declaration for myself as a sole proprietor/individual or as the
authorized representative for a business named Blue Pacific Engineering and Construction
I am submitting this Declaration on behalf of my minor child (or I am the guardian of the
minor child).2
The identity theft victim is deceased, and I am submitting this Declaration as the
surviving spouse, Court-Appointed Personal Representative, Executor, or Administrator. 3
The identity theft victim is incapacitated, and I am submitting this Declaration as the
Power of Attorney, Court-Appointed Guardian, or Conservator.4

Section B - Representative, Conservator, Parent or Gnardian contact information5

Representative's Last Name: Elihu First Name: _s_h_ahra_ _m _______
Cur rent Street Mailing Address : _ 8 8_ 2_
5 _
A _
e o
r_ _D_ r
.
s_u_, i
t 0
e_3_
2_ _____________
_____
City: San Diego State:!::!:____ ZIP Code: _9_1_22_3 _____

Telephone Number:_B_19_-7_ 88 _-_94_ 2_8 _______ Alternate Telephone Number: _______
Email address: selihu@bluepacificeng.com

Section C - Name and contact information of Identity Theft Victim

Victim's Last Name: Elihu Shahram
First Name: -----------
Social Security Number (Please provide 9-digit Social Security Number): _552_ _ -_ 0-_45_8 _73______
Current Street Mailing Address: _12"'3,_,8,_,8'-"'
B,_,ra,,,s,,_,s"-ic,,,,aS'--'t. _______________
City: San Djeqo State: CA Zip Code:92129 ____
Telephone Number: 619-788-9428 Alternate Telephone Number: _________
Email address: selihu@lbluepacificenq.com

SBA Form 3513 (08-21)

Exhibit B
Page 0003

Case 3:24-cv-01594-RBM-JLB Document 1 Filed 09/06/24 PageID.14 Page 14 of
71

Complete if applicable:
Victim's Business Name: Shahram Elihu dba Blue Pacific Engineering &Construction
Business Owner(s) Name(s): _S_hah
_ r_ _am_E l_ih_u_____________________ _
Taxpayer Identification Number (EIN, TIN, or ITIN): _a_41 _6_50_63_1 ___________ _
Business Street Mailing Address: _B_B _2 5_A_ e_ro_or_.,_s_u_i 2_o
te_3_
_________ _ _______
City: San Diego State: CA ZJP Code: ...,,9=2=--=1=2=3'-----------

Section D - Declaration

Please carefully review the information you have provided in this form. Then review the statement
provided below and, if appropriate, sign and date in the fields provided. Please remember you must sign
f
this declaration by hand. Electronic signatures will not be accepted. I additional space is needed for any
items, please attach additional pages.

I, Shahram Elihu , residing at _s_ a_n _D_ ie _;;;go,
_ C_ _ A______________
hereby declare under penalty of p 1juF s follows:
Please check and complete a a 'rJpriate:
0 On or about 04/30/24-1' 'Z-C' , I allege that someone used my personal identifying information
(PII) or the identifying information of my business without my permission or knowledge
to obtain a loan(s) in my name from the U.S. Small Business Administration or from a
PPP Lender. Please include any known information about the Loan (the loan or
application number(s), arnount(s) or any other details).
SBA Loan Number 5649057300 in the amount of $84, 508.00. Disbursed on 04/30/20fromCross River Bank.
Loan was repaid on 12/ 8/20
Loan was requested by my ex-wife Shiva Moradfar

0 State how you became aware that your identity was used to obtain this/these loan(s):
My ex-wife accused me of stealing her PPP loan during a support hearing in November 2 023. This was the first
time I became aware of who requested this second first draw loan. She had all my personal and business information to make this
fraudulent attempt, except my monthly payroll, which was off by a factor of 10. Fortunately, the loan was disbursed to
my business, Blue Pacific Engineering &Construction, so I was able to return the funds toCross River Bank.

0 1 hereby confirm that the loan was not requested by me (or my business) nor did I
authorize anyone to submit an application for me (or my business).

CJ I hereby confirm that none of the proceeds of the loan were used by me (or my business)
or for my benefit or any other purpose that could benefit me (or my business)..:.L

D Are you aware of any other uses of your identity to borrow any other money, including
obtaining credit cards, or to file state or federal income tax returns, if so please describe:

SBA Form 3513 (08-21)

Exhibit B
Page 0004

Case 3:24-cv-01594-RBM-JLB Document 1 Filed 09/06/24 PageID.15 Page 15 of
71

D You are required to attach and send with this form an official copy of a police
report or an official report filed with a Federal law enforcement agency such as the
FTC, FBI or United States Secret Service regarding this matter.

0 You are required to attach and send with this form a copy of a valid driver license,
U.S. Passport, U.S. Military ID, or other valid ID issued by a state or federal agency.

I declare under penalty ofpe1jury pursuant to 28 U.S.C. § 1746 that the in on ation provided in
this Declaration is based on my personal informat 1 and is tru and correct.
t [J
05/23/24
Date ignature of Declarant

PRIVACY ACT (5 U.S.C. § 552a)

The information provided in this form is protected by the Privacy Act, 5 U.S.C 552a, which prohibits the
federal government from disclosing personal information about an individual without the individual's
consent. The Privacy Act authorizes SBA to make certain routine uses of information protected by the
Act as set forth in its System of Records Notices, 69 F.R. 58598. This form or the information provided in
this form may be made available to federal, state, and/or local law enforcement agencies charged with
responsibility for or otherwise involved in investigation, prosecution, enforcement or prevention of such
violations of law.

Under the provisions of the Privacy Act, you are not required to provide social security numbers.
However, if you do not provide the information, it may be more difficult to assist you in resolvingyour
identity theft issue. Note: Any person concerned with the collection, use and disclosure of information,
under the Privacy Act may contact the Chief, FOIi PA Office, 409 3rd Street, SW, Suite 5900,
Washington, DC 20416 or by e-mail at foia@sba.gov for information about the Agency's procedures
relating to the Privacy Act and the Freedom of Information Act.

PLEASE NOTE: According to the Paperwork Reduction Act, you are not required to respond to this
collection of information unless it displays a currently valid 0MB Control Number. The estimated burden
for completing this form, including time for reviewing instructions, gathering data needed, and
completing and reviewing the form is 15 minutes. Comments or questions on the bmden estimates should
be sent to U.S. Small Business Administration, Director, Records Management Division, 409 3rd St., SW,
Washington DC 20416, and/or SBA Desk Officer, Office of Management and Budget, New Executive
Office Building, Rm. 10202, Washington DC 20503. PLEASE DO NOT SEND THE FORM TO
THESE ADDRESSES.

SBA Form 3513 (08-21)

Exhibit B
Page 0005

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71

1 If you are submitting this form for your business, by checking this box and signing the Declaration, you are

indicating that you are an authorized representative of the business or the legal owner of the business.
2 By checking this box and signing the Declaration, you are indicating that you are an authorized representative (as a

parent, guardian, or legal guardian) to submit and sign on the minor's behalf.
3
By checking this box and signing the Declaration, you are indicating that you are the surviving spouse, the Court
Appointed or personal representative, Executor, or Administrator and that you are authorized to submit and sign the
Declaration.
4
By checking this box and signing the Declaration, you are indicating that you have a Power of Attorney or are the
Court-Appointed Guardian, or Conservator and that you are the authorized to submit and sign the Declaration.
5
Complete if someone other than the Identity Theft Victim is submitting the Declaration.
6WARNING: In addition, any false statement or misrepresentation to SBA may result in criminal, civil or

administrative sanctions including, but not limited to: 1) fines, imprisonment, or both, under 15 U.S.C. 645, 18
U.S.C. 645, 18 U.S.C. 1001, 18 U.S.C. I 014, 18 U.S.C. I 040, 18 U.S.C. 3571, and any other applicable laws; 2)
treble damages and civil penalties under the False Claims Act, 31 U.S.C. 3729; 3) double damages and civil DD
penalties under the Program Fraud Civil Remedies Act, 31 U.S.C. 3802; and 4) suspension and/or debarment from
all Federal procurement and non-procurement transactions. Statutory fines may increase if amended by the Federal
Civil Penalties Inflation Adjustment Act Improvements Act of 2015.

SBA Form 3513 (08-21)

Exhibit B
Page 0006

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71

Exhibit B
Page 0007

Case 3:24-cv-01594-RBM-JLB Document 1 Filed 09/06/24 PageID.18 Page 18 of
71

United States Small Business Administration
Office of Hearings and Appeals

PAYCHECK PROTECTION
PROGRAM APPEAL OF:
Issued: July 10, 2024
SHAHRAM ELIHU d/b/a
BLUE PACIFIC ENGINEERING & CONSTRUCTION Docket No. PPP-8685148703

APPELLANT

Appealed from:

SBA PPP Loan Number 8685148703

RECONSIDERED INITIAL DECISION

The final U.S. Small Business Administration (SBA) loan review decision is AFFIRMED.

PROCEDURAL HISTORY

SBA PPP Loan Number: 8685148703

Approved Loan Amount: $920,500.00

SBA Final Forgiveness Amount: $0.00

Appellant filed a Paycheck Protection Program (PPP) loan forgiveness application
(Administrative Record (AR), Pages 549-551) 1, 2, 3.

SBA issued a final loan review decision denying the application after determining Appellant was
ineligible for a Second Draw PPP loan because it 4 received two (2) First Draw PPP loans (AR,
Pages 18-19).

Appellant filed an appeal petition.

1
Unless otherwise indicated, all documents referenced or cited to in this decision, except Appellant’s petition for
reconsideration (PFR), are contained in the case record maintained in the OHA Case Portal for Appellant’s
original appeal filed on April 22, 2024.
2
The PFR is contained in the case record maintained in the OHA Case Portal for Appellant’s reconsideration
request/appeal filed on July 3, 2024.
3
A copy of this decision will be filed in both case records maintained in the OHA Case Portal.
4
For purposes of this decision, the pronouns used for Appellant are for the d/b/a entity of Blue Pacific Engineering
& Construction.

Exhibit C
Page 0008

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71
Docket No. PPP-8685148703

The Office of Hearings and Appeals (OHA) issued a Notice and Order setting deadlines for the
administrative record, Appellant objections to the administrative record, SBA appeal response,
and record closing.

SBA filed the administrative record.

Appellant filed objections.

SBA did not file a response.

The record closed June 17, 2024.

OHA issued an initial decision affirming the final SBA loan review decision.

Appellant filed a petition for reconsideration (PFR) 5.

ISSUE(S)

Does the PFR clearly show an error of fact or law material to OHA’s initial decision?

APPLICABLE LAW AND POLICY

The Coronavirus Aid, Relief, And Economic Security Act (CARES Act) (Public Law 116-36)
(enacted March 27, 2020), Small Business Act (15 United States Code (USC), Chapter 14A,
Section 631 et seq) 6, and Administrative Procedure Act (APA) (5 USC, Chapter 5, Section 500
et seq) contain the controlling statutes; Title 13 of the Code of Federal Regulations (CFR), Interim
Final Rule (IFR) #1 (Federal Register, Vol. 85, No. 73, Pages 20811-20817) (effective April 15,
2020), IFR #4 (Federal Register, Vol. 85, No. 82, Pages 23450-23452) (effective April 28, 2020),
IRF #9 (Federal Register, Vol. 85, No. 97, Pages 29845-29847) (effective May 19, 2020), IRF #13
(Federal Register, Vol. 85, No. 101, Pages 31357-31359) (effective May 26, 2020), IFR #26
(Federal Register, Vol. 86, No. 9, Pages 3692-3712) (effective January 12, 2021), IFR #27
(Federal Register, Vol. 86, No. 9, Pages 3712-3723) (effective January 12, 2021), and IFR #28
(Federal Register, Vol. 86, No. 23, Pages 8283-8299) (effective February 3, 2021) contain the
controlling regulations; Paycheck Protection Program Loans Frequently Asked Questions (FAQs)
(PPP-FAQs) (effective May 5, 2020, May 13, 2020)7 contain applicable policy.

Section 1102 of the CARES Act amends Section 7(A) of the Small Business Act (15 USC
§636(a)) to establish the Paycheck Protection Program (PPP) (P.L. 116-36, §1102; see also 15
USC §636(a)(36)).

5
SBA did not file a reconsideration request.
6
The portion(s) of the CARES Act not amending other laws/acts is codified at 15 USC, Chapter 116, Section 9001
et seq.
7
This guidance is available from SBA’s website at https://www.sba.gov/document/support-faq-ppp-borrowers-
lenders.

-2-
Exhibit C
Page 0009

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71
Docket No. PPP-8685148703

Section 1106 of the CARES Act amends Section 7 of the Small Business Act (15 USC §636)
to establish PPP loan forgiveness (P.L. 116-36, §1106; see also 15 USC §636m) 8, 9, 10, 11.

It is the declared policy of Congress that the Federal Government, through the Administrator of
SBA, in cooperation with the Department of Commerce (DOC) and other relevant State and
Federal agencies, should aid and assist small business, as defined by the Small Business Act (15
USC §631(b)(1)).

SBA is to carry out the policies of the Small Business Act (15 USC §633(a)).

The management of SBA is vested in an Administrator appointed by the President, by and with
the advice and consent of the Senate (15 USC §633(b)(1)).

The Administrator may make such rules and regulations as (s)he deems necessary to carry out
the authority vested in him or her by or pursuant to the Small Business Act (15 USC §634(b)(6)).

SBA is empowered to the extent and in such amounts as provided in advance in appropriation
Acts to make loans to any qualified small business concern for purposes of the Small Business
Act (15 USC §636(a)).

SBA small business loans may be made either directly or in cooperation with banks or other
financial institutions through agreements to participate on an immediate or deferred (guaranteed)
basis (15 USC §636(a)).

For First Draw PPP loans, covered loan means a loan made under the paragraph 36 (i.e.,
Paycheck Protection Program (PPP) (15 USC §636(a)(36)) during the covered period (15 USC
§636(a)(36)(A)(ii)).

An eligible recipient of a First Draw PPP loan must certify it does not have an application
pending for a First Draw PPP loan for the same purpose and duplicative amount applied for or
received under a First Draw PPP loan (15 UCC §636(a)(36)(G)(i)(III)).

For Second Draw PPP loans, covered loan means a loan made under paragraph 37 (15 USC
§636(a)(37)) (15 USC §636(a)(37)(A)(ii)).

8
The CARES Act initially authorized lending under the PPP for February 15, 2020 – June 30, 2020 (P. L. 116-36,
Section 1102, Paragraph (b)) (enacted March 27, 2020).
9
The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the Economic Aid Act) (P. L. 116-
260) reauthorized lending under the PPP (15 USC §636(a)(36) through March 31, 2021 (P. L. 116-260, Section
323) (enacted December 27, 2020).
10
The Economic Aid Act also authorizes Second Draw PPP loans under 15 USC §636(a)(37) (P. L. 116-260,
Section 311).
11
The CARES Act was amended to authorize lending for First Draw and Second Draw PPP loans for February 15,
2020 – June 30, 2021 (P. L. 116-36, Section 1102, Paragraph (b)) (enacted December 10, 2021)).
-3-
Exhibit C
Page 0010

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71
Docket No. PPP-8685148703

(I) Eligible entity means any business concern, nonprofit organization, housing cooperative,
veterans organization, Tribal business concern, eligible self-employed individual, sole proprietor,
independent contractor, or small agricultural cooperative that –

(aa) employs not more than 300 employees; and

(bb)
(AA) except as provided in subitems (BB), (CC), and (DD), had gross receipts during the
first (1st), second (2nd), third (3rd), or, only with respect to an application submitted on or
after January 1, 2021, fourth (4th) quarter in 2020 that demonstrates not less than a 25
percent reduction from the gross receipts of the entity during the same quarter in 2019;

(BB) if the entity was not in business during the 1st or 2nd quarter of 2019, but was in
business during the 3rd and 4th quarter of 2019, had gross receipts during the 1st, 2nd, 3rd,
or, only with respect to an application submitted on or after January 1, 2021, 4th quarter
of 2020 that demonstrates not less than 25 percent reduction from the gross receipts of
the entity during the 3rd or 4th quarter of 2019;

(CC) if the entity was not in business during the 1st, 2nd, or 3rd quarter of 2019, but was in
business during the 4th quarter of 2019, had gross receipts during the 1st, 2nd, 3rd, or, only
with respect to an application submitted on or after January 1, 2021, 4th quarter of 2020
that demonstrate not less than a 25 percent reduction from the gross receipts of the entity
during the 4th quarter of 2019; or

(DD) if the entity was not in business during 2019, but was in operation on February 15,
2020, had gross receipts during the 2nd, 3rd, or, only with respect to an application
submitted on or after January 1, 2021, 4th quarter of 2020 that demonstrate not less than
25 percent reduction from the gross receipts of the entity during the 1st quarter of 2020;

(II) includes a business concern or organization made eligible for a loan under 15 USC
§36(a)(36)(D)(iii)(II) [news organizations], (III) [nonprofit organization], or (IV) [internet
publishing organizations] or 15 USC §36(a)(36)(D)(iv), (IV)(aa) [broadcast business concern
with North American Industry Classification (NAICS) code beginning with 511110 or 5151 or
15 USC §36(a)(36)(D)(iv), (IV)(bb) [nonprofit organization with NAICS code beginning with
5151] or 15 USC §36(a)(36)(D)(iv)(V) [internet-only news or periodical publisher that was
not eligible to receive a covered loan the day before March 11, 2021, with NAICS code of
51930] or 15 USC §36(a)(36)(D)(vii) [certain 501(c)(6) organizations] or 15 USC
§36(a)(36)(D)(ix) [additional covered nonprofit entity] and that meets the requirements
described 15 USC §636(a)(37)(A)(iv)(I)(aa) and (bb) 12, 13, 14.

12
The small business size standards of the North American Industry Classification System (NAICS) used by
SBA are listed in a table “Small Business Size Standards by NAICS Industry” at 13 CFR §121.20l.
13
The NAICS table and 13 CFR Part 121 are available through the National Archives eCFR system at
https://www.ecfr.gov/current/title-13/chapter-I/part-121#121.201.
14
A searchable NAICS website is maintained by the U.S. Census Bureau at https://www.census.gov/naics/?99967.
-4-
Exhibit C
Page 0011

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71
Docket No. PPP-8685148703

(III) does not include—

(aa) any business concern described in 13 CFR §120.110 (or any successor regulation or
guidance issued by the Administrator), other than business described in 13 CFR
§120.110(a) or (k); or

(bb) any business concern or entity primarily engaged in political or lobbying activities;
or

(cc) any business concern or entity –

(AA) created in or organized under the laws of the People’s Republic of China or
the Special Administrative Region of Hong Kong, has significant operations in
China or Hong Kong; or

(BB) that retains a board member that is a resident of China;

(dd) any person required to submit a registration statement under 22 USC §612; or

(ee) an eligible person or entity that receives a grant under 15 USC §9009a (15 USC
§636(a)(37)(A)(iv)(I)-(III)).

Except as otherwise provided in 15 USC §636(a)(37), the Administrator may guarantee
covered loans to eligible entities under the same terms, conditions, and processes as a loan made
under 15 USC §636(a)(36) (15 USC §636(a)(37)(B)).

Maximum loan amount –

(i) In general – the maximum covered loan amount made to an eligible entity is the
lesser of—

(I) The product obtained by multiplying

(aa) at the election of the eligible entity, the average total monthly payment
for payroll costs incurred or paid by the entity during—

(AA) the 1-year period before the date on which the loan is made; or

(BB) calendar year 2019; by

(bb) 2.5; or

(II) $2,000,000 (15 USC §636(a)(37)(C)(i)(I)-(II)).

An eligible entity may only receive one (1) Second Draw PPP loan (15 USC §636(a)(37)(F)).

-5-
Exhibit C
Page 0012

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71
Docket No. PPP-8685148703

Loan forgiveness –

(i) Covered period has the meaning given the term in 15 USC §636m(a)).

(ii) Forgiveness generally – Except as otherwise provided in this subparagraph (15 USC
§636(a)(37)(J)), an eligible entity shall be eligible for forgiveness of a covered loan in
the same manner with respect to a loan under 15 USC §636(a)(36), as described in 15
USC §636(m)).

(iii) Forgiveness amount – An eligible entity shall be eligible for forgiveness of
indebtedness on a covered loan in an amount equal of the sum of the following costs
or expenditures made during the covered period:

(I) Payroll costs, excluding payroll costs listed in 15 USC
§636(a)(37)(J)(iii)(I)(aa)-(cc).
(II) Any payment of interest on any covered mortgage obligation.
(III) Any covered operations expenditure.
(IV) Any covered property damage cost.
(V) Any payment on any covered rent obligation.
(VI) Any covered utility payment.
(VII) Any covered supplier cost.
(VIII) Any covered worker protection expenditure.

(iv) Limitation on forgiveness for all eligible entities – Subject to any reductions under
15 USC §636(m)(d), the forgiveness amount shall be equal to the lesser of –

(I) The amount described in 15 USC §636(a)(37)(J)(ii); and
(II) the amount equal to the quotient obtained by dividing –

(aa) the amount of the covered loan used for payroll costs during the covered
period; and

(bb) 0.60

(v) Submission of material for forgiveness – For purposes of applying 15 USC
§636(m)(I)(1) to a covered loan of not more than $150,000, an eligible entity may be
required to provide, at the time of the application for forgiveness, documentation
required to substantiate revenue loss in accordance with 15 USC §636(a)(37)(I) (15
USC §636(a)(37)(J)(i)-(v)).

A Second Draw PPP loan may only be made to an eligible entity that ---

(i) has received a First Draw PPP loan; and

(ii) on or before the expected dated on which the Second Draw PPP loan is disbursed, has
used, or will use, the full amount of the First Draw PPP (15 USC §636(a)(37)(O)(i)-
(ii)).

-6-
Exhibit C
Page 0013

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71
Docket No. PPP-8685148703

Payroll costs –

(I) means-
(aa) the sum of payments of any compensation with respect to employees that is a-
(AA) salary, wage, commission, or similar compensation;
(BB) payment of cash tip or equivalent;
(CC) payment for vacation, parental, family, medical, or sick leave;
(DD) allowance for dismissal or separation;
(EE) payment required for the provisions of group health care or group life,
disability, vision, or dental benefits, including premiums;
(FF) payment of any retirements benefits;
(GG) payment of State or local tax assessed on the compensation of employees;
and

(bb) the sum of payments of any compensation to or income of a sole proprietor or
independent contractor that is a wage, commission, income, net earnings from self-
employment, or similar compensation and that is in an amount that is not more than
$100,000 on an annualized basis, as prorated for the period during which the
payments are made or the obligation to make payments is incurred; and

(II) shall not include—

(aa) the compensation of an individual employee in excess of $100,000 on an annualized
basis, as prorated for the period during which compensation is paid or the obligation to
pay the compensation is incurred;

(bb) Federal employment taxes imposed or withheld under Title 26 USC Chapters 21, 22,
or 24 during the applicable period;
(cc) any compensation to an employee whose principal place of residence is outside of
the United States;

(dd) qualified sick leave wages for which credit is allowed under Section 7001 of the
Families First Coronavirus Response Act (Public Law 116-127);

(ee) qualified family leave wages for which a credit is allowed under Section 7003 of the
Families First Coronavirus Response Act (Public Law 116-127) (15 USC
§636(a)(36)(A)(viii).

For loan forgiveness, the term covered period means the period-

(A) beginning on the date of the origination of a covered loan; and,

(B) ending on a dated selected by the eligible recipient of the covered loan that occurs during
the period-

(i) beginning on the date that is 8-weeks after such date of origination; and

(ii) ending on the date that is 24-weeks after such date of origination (15 USC
§636m(a)(4)).
-7-
Exhibit C
Page 0014

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71
Docket No. PPP-8685148703

For loan forgiveness, the term eligible recipient means the recipient of a covered loan (15 USC
§636m(a)(10)).

An eligible recipient shall be eligible for forgiveness of a covered loan in an amount equal to the
sum of the following costs and payments made during the covered period:

(1) Payroll costs.
(2) Any payment of interest on any covered mortgage obligation.
(3) Any payment on any covered rent obligation.
(4) Any covered utility payment.
(5) Any covered operations expenditure.
(6) Any covered property damage cost.
(7) Any covered supplier cost.
(8) Any covered worker protection expenditure (15 USC §636m(b)(1)-(8)).

Application – An eligible recipient shall submit to the lender a forgiveness application that shall
include –

(1) documentation verifying the number of full-time equivalent employees on payroll and
pay rates for the periods…including –
(A) payroll tax filings reported to the IRS; and
(B) State income, payroll, and unemployment insurance filings;

(2) documentation verifying payments for covered nonpayroll costs;

(3) a certification from a representative of the eligible recipient authorized to make such
certifications that –

(A) the documentation presented is true and accurate; and

(B) the amount of forgiveness requested was used to retain employees and make covered
nonpayroll payments; and

(4) any other documentation the Administrator determines necessary (15 USC §636m(e)(1)-
(4)).

Hold Harmless

(1) Definition

The term initial or second draw PPP loan means a covered loan or loan under 15 USC §636(a),
paragraph 37 (15 USC §636m(h)(1)).

(2) Reliance

A lender may rely on any certification or documentation submitted by an applicant for an initial
or second draw PPP loan or an eligible recipient or eligible entity receiving initial or second
draw PPP loan that—

-8-
Exhibit C
Page 0015

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71
Docket No. PPP-8685148703

(A) is submitted pursuant to all applicable statutory requirements, regulations, and guidance
related to initial or second draw PPP loan, including under 15 USC §636(a), paragraphs
36 or 37, and 15 USC §636m; and

(B) attests that the applicant, eligible recipient, or eligible entity, as applicable, has accurately
provided the certification or documentation to the lender in accordance with statutory
requirements, regulations, and guidance (15 USC §636m(h)(2)(A)-(B)).

(3) No Enforcement Action

With respect to a lender that relies on a certification or documentation related to an initial or
second draw PPP loan, an enforcement action may not be taken against the lender, and the lender
shall not be subject to any penalties relating to loan origination or forgiveness of the initial or
second draw PPP loan, if—

(A) the lender acts in good faith relating to loan origination or forgiveness of the initial or
second draw PPP loan based on that reliance; and

(B) all other relevant Federal, State, local, and other statutory and regulatory requirements
applicable to the lender are satisfied with respect to the initial or second draw PPP loan
(15 USC §636m(h)(3)(A)-(B)).

No later than 30 days after March 27, 2020, the Administrator shall issue guidance and
regulations implementing the loan forgiveness section (i.e., paragraph 636m) of the Small
Business Act (15 USC §636m(k)).

Section 1114 of the CARES Act grants the Administrator emergency rulemaking authority
and provides no later than fifteen (15) days after March 27, 2020, the Administrator shall issue
regulations to carry out the Act and amendments made to the Act without regard to the notice
requirements of 5 USC §553(b) 15 (15 USC §9012).

The purpose of IFR #1 is to implement Sections 1102 and 1106 of the CARES Act (IFR #1, 85
Fed. Reg. Page 20811).

IFR #1 applies to applications submitted under the PPP through June 30, 2020, or until available
funds are exhausted (IFR #1, 85 Fed. Reg. Page 20811).

No eligible borrower may receive more than one (1) First Draw PPP loan (IFR #1, 85 Fed.
Reg. Page 20811).

To apply for a PPP loan, the applicant must submit SBA Form 2483 (Paycheck Protection
Program Application Form) and required payroll documentation (IFR #1, 85 Fed. Reg. Page
20814).

The purpose of IFR #4 is to supplement previous regulations and guidance issued and to allow
for the immediate implementation of the PPP (IFR #4, 85 Fed. Reg. Page 23450).

15
Federal rulemaking regulations require notice of a proposed rule be published in the Federal Register (5 USC
§553(b)).
-9-
Exhibit C
Page 0016

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71
Docket No. PPP-8685148703

IFR #4 applies to applications submitted under the PPP through June 30, 2020, or until available
funds are exhausted (IFR #4, 85 Fed. Reg. Page 23450).

Limited Safe Harbor. Any borrower that applied for a PPP loan prior to the issuance of this
regulation [on April 28, 2020] and repays the loan in full by May 7, 2020, will be deemed by
SBA to have made the required certification in good faith (IFR #4, 85 Fed. Reg. Page 23451).

The Administrator determined safe harbor is necessary and appropriate to ensure borrowers
promptly repay PPP loan funds the borrower obtained based on a misunderstanding or
misapplication of the required certification standard (IFR #4, 85 Fed. Reg. Pages 23451-23452).

The purpose of IFR #9 is to revise IFR #4 by extending the safe harbor date to May 14, 2020
(IFR #9, 85 Fed. Reg. Page 29845).

Limited Safe Harbor Extended. Any borrower that applied for a PPP loan and repays the loan
in full by May 14, 2020, will be deemed to have made the required certification in good faith
(IFR #9, 85 Fed. Reg. Page 29846).

The purpose of IFR #13 is to revise IFR #9 by extending the safe harbor date to May 18, 2020
(IFR #9, 85 Fed. Reg. Page 31357).

Limited Safe Harbor Extended. Any borrower that applied for a PPP loan and repays the loan
in full by May 18, 2020, will be deemed to have made the required certification in good faith
(IFR #9, 85 Fed. Reg. Page 31358).

SBA is extending the repayment date for safe harbor to May 14, 2020 (PPP-FAQs, Question
#43 (May 5, 2020)).

SBA is extending the repayment date for safe harbor to May 18, 2020 (PPP-FAQs, Question
#47 (May 13, 2020)).

The purpose of IFR #26 is to implement the Economic Aid Act reauthorizing lending under the
PPP (IFR #26, 86 Fed. Reg., Pages 3692, 3703).

IFR #26 applies to PPP loans applications submitted under the PPP after the Economic Aid Act
(IFR #26, 86 Fed. Reg., Pages 3692).

IFR #26 also applies to PPP loans forgiveness applications submitted under the PPP before
enactment of the Economic Aid Act where SBA has not remitted forgiveness payment (IFR #26,
86 Fed. Reg., Pages 3692).

Qualifying payroll costs consist of compensation to employees (whose principal place of
residence is the United States in the form of salary, wages, commissions, or similar
compensation; cash tips or the equivalent (based on employer records of past tips or, in the
absence of such records, a reasonable, good-faith employer estimate of such tips); payment for
vacation, parental, family, medical, or sick leave; allowance for separation or dismissal;
payment for the provision of employee benefits consisting of group health care coverage,
including insurance premiums, and retirement; payment of state and local taxes assessed on
- 10 -
Exhibit C
Page 0017

Case 3:24-cv-01594-RBM-JLB Document 1 Filed 09/06/24 PageID.28 Page 28 of
71
Docket No. PPP-8685148703

compensation of employees; and for an independent contractor or sole proprietor, wages,
commissions, income, or net earnings from self-employment, or similar compensation (IFR
#26, 86 Fed. Reg., Para. B(4)(g), Page 3703).

All PPP loans will be processed by all lenders under delegated authority and lenders will be
permitted to rely on certifications of the borrower in order to determine eligibility of the
borrower and the use of loan proceeds (IFR #26, 86 Fed. Reg., Para. D(1)(3), Page 3709).

The purpose of IFR #27 is to implement Section 311 Economic Aid Act authorizing Second
Draw PPP loans under Section 7(A) of the Small Business Act (15 USC §636(a)(37) (IFR #27,
86 Fed. Reg., Page 3712).

A borrower is eligible for a Second Draw PPP loan only if it has 300 or fewer employees and
experienced a revenue reduction in 2020 relative to 2019 (IFR #27, 86 Fed. Reg., Pt. III, Para.
(A)(1), Page 3713).
A Second Draw PPP loan may only be made available to an eligible borrower that (i)
received a First Draw PPP loan, and (ii) has used, or will use, the full amount of the First Draw
PPP loan on or before the expected date on which the Second Draw PPP loan is disbursed to the
borrower (IFR #27, 86 Fed. Reg., Pt. III, Para. (A)(1), Page 3713).

In general, the maximum loan amount for a Second Draw PPP loan is equal to the lesser of
2.5 months of the borrower’s average payroll costs or $2 million (IFR #27, 86 Fed. Reg., Pt. III,
Para. (D), Page 3715).

An applicant is eligible for a Second Draw PPP loan if it is an eligible entity that:

(i) Previously received a First Draw PPP loan;

(ii) Has used, or will use, the full amount of its First Draw PPP loan on or before the
expected date the Second Draw PPP loan will be disbursed;

(iii) Employees not more than 300 employees, unless it satisfies alternative criteria for
businesses with a NAICS code beginning with 72 and eligible news organizations;
and

(iv) (A) Experienced a qualifying reduction in revenue in calendar year 2020 as follows:

(1) Had gross receipts in the 1st, 2nd, 3rd, or 4th quarter in 2020, that demonstrate at
least a 25 percent reduction from the applicant’s gross receipts during the same
quarter in 2019;

(2) If applicant was not in business during 1st or 2nd quarter of 2019, but was in
business during the 3rd and 4th quarters of 2019, had gross receipts during the 1st,
2nd, 3rd, or 4th quarter of 2020 that demonstrates at least a 25 percent reduction in
gross receipts during the 3rd or 4th quarter of 2019;

(3) If applicant was not in business during the 1st, 2nd, or 3rd quarter of 2019, but was
in business during the 4th quarter of 2019, had gross receipts during the 1st, 2nd,

- 11 -
Exhibit C
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Docket No. PPP-8685148703

3rd, or 4th quarter of 2020 that demonstrate at least 25 percent reduction from 4th
quarter of 2019; or

(4) If applicant was not in business during 2019, but was in operation on February 15,
2020, had gross receipts during the 2nd, 3rd, or 4th quarter of 2020 that demonstrate
at least a 25 percent reduction from gross receipts of the 1st quarter of 2020 (IFR
#27, 86 Fed. Reg., Pt. IV, Para. (c)(1)(i)-(iv)(A)(1)-(4), Pages 3717-3718).

(B) (1)An applicant that was in operation in all four (4) quarters of 2019 is deemed to
have experienced the required revenue reduction if it experienced a reduction in
annual receipts of 25 percent or greater in 2020 compared to 2019, and the
borrower submits copies of its annual tax forms substantiating the revenue
decline.

(2)(i) Gross receipts includes all revenue whatever formed received or accrued from
whatever source, including from the sales of products or services, interest,
dividends, rents, royalties, fees, or commissions, reduced by returns and allowance
(IFR #27, 86 Fed. Reg., Pt. IV, Para. (c)(1)(i)-(iv)(A)-(B)(2)(i), Pages 3717-3718).

An applicant is not eligible for a Second Draw PPP loan if it is an entity that has previously
received a Second Draw PPP loan (IFR #27, 86 Fed. Reg., Pt. IV, Para. (e)(8), Pages 3718-
3719).

In general, the maximum loan amount for a Second Draw PPP loan is equal of the lesser of
2.5 months of the borrower’s average monthly payroll costs or $2 million (IFR #27, 86 Fed.
Reg., Pt. IV, Para. (f)(1), Page 3719).

Payroll costs has the same meaning as in IFR #26 (IFR #27, 86 Fed. Reg., Pt. IV, Para. (f)(1),
Page 3719).

To apply for a Second Draw PPP loan, the applicant must submit SBA Form 2483-SD
(Paycheck Protection Program Second Draw Borrower Application Form) or the lender’s
equivalent form (IFR #27, 86 Fed. Reg., Pt. IV., Para. (g)(1), Page 3720).

Second Draw PPP loans are eligible for loan forgiveness (IFR #27, 86 Fed. Reg., Pt. IV, Para.
(j), Page 3722).

SBA may provide further guidance, if needed, through SBA notices and a program guide
which will be posted on SBA’s website at www.sba.gov (IFR #27, 86 Fed. Reg., Pt. V, Page
3722).

The purpose of IFR #28 is to implement the Economic Aid Act requirements for PPP loan
forgiveness (IFR #28, 86 Fed. Reg., Pages 8283-8284).

For forgiveness, eligible Payroll costs consist of compensation to employees (whose principal
place of residence is the United States in the form of salary, wages, commissions, or similar
compensation; cash tips or the equivalent (based on employer records of past tips or, in the
absence of such records, a reasonable, good-faith employer estimate of such tips); payment for
vacation, parental, family, medical, or sick leave; allowance for separation or dismissal;
- 12 -
Exhibit C
Page 0019

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Docket No. PPP-8685148703

payment for the provision of employee benefits consisting of group health care coverage,
including insurance premiums, and retirement; payment of state and local taxes assessed on
compensation of employees; and for an independent contractor or sole proprietor, wages,
commissions, income, or net earnings from self-employment, or similar compensation (IFR
#28, 86 Fed. Reg., Pt. IV, Para 1(a)(1), Page 8286).

For forgiveness, eligible Non-payroll costs consist of:

(2) Any payment of interest on any covered mortgage obligation.
(3) Any payment on any covered rent obligation.
(4) Any covered utility payment.
(5) Any covered operations expenditure.
(6) Any covered property damage cost.
(7) Any covered supplier cost.
(8) Any covered worker protection expenditure (IFR #28, 86 Fed. Reg., Pt. IV, Para 1(a)(1),
Page 8286).

The loan forgiveness form details the documentation each borrower must submit with its
Loan Forgiveness Application (SBA Form 3508, 3508EZ, 3508S as applicable, or lender
equivalent (IFR #28, 86 Fed. Reg., Pt. IV, Para. 6, Page 8293).

SBA may review any PPP loan the Administrator deems appropriate (IFR #28, 86 Fed. Reg., Pt.
V, Para. 1(a), Page 8294).
Eligible nonpayroll costs cannot exceed 40 percent of the loan forgiveness (IFR #28, 86 Fed.
Reg., Pt. IV, Para. 1(a)(8)(C), Page 8297)

Borrower Eligibility: SBA may review whether a borrower is eligible for the PPP loan based on
the provisions of the CARES Act, the Economic Aid Act, rules and guidance available at the
time of the borrower’s PPP loan application, and the terms of the borrower’s loan application
(IFR #28, 86 Fed. Reg., Pt. V, Para. 1(b), Page 8294).

Loan Amounts and Use of Proceeds: SBA may review whether the borrower calculated the loan
amount correctly and used loan proceeds for the allowable uses specified in the CARES Act
(IFR #28, 86 Fed. Reg., Pt. V, Para. 1(b), Page 8294).

Loan Forgiveness Amounts: SBA may review whether a borrower is entitled to the loan
forgiveness amount claimed on the borrower’s PPP loan forgives application (IFR #28, 86 Fed.
Reg., Pt. V, Para. 1(b), Page 8294).

An SBA determination a borrower is ineligible for a First Draw PPP loan may also result in an
SBA determination the borrower is ineligible for any Second Draw PPP loan, and SBA may
direct the lender to deny any loan forgiveness application submitted for the Second Draw PPP
loan (IFR #28, 86 Fed. Reg., Pt. V, Para. 1(e), Page 8295).

If SBA determines the borrower is ineligible for the loan amount or loan forgiveness amount
claimed by the borrower, SBA will direct the lender to deny the loan forgiveness application in
whole or in part, as appropriate (IFR #28, 86 Fed. Reg., Pt. V, Para. 1(e), Page 8295).

- 13 -
Exhibit C
Page 0020

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Docket No. PPP-8685148703

SBA may seek repayment of the outstanding PPP loan balance or pursue other available
remedies (IFR #28, 86 Fed. Reg., Pt. V, Para. 1(e), Page 8295).

A borrower may appeal SBA’s determination that the borrower is ineligible for a PPP loan or
ineligible for the loan amount or the loan forgiveness amount claimed by the borrow (IFR #28,
86 Fed. Reg., Pt. V, Para. 1(f), Page 8295).

OHA is established in SBA –

(i) to impartially decide matters related to program decisions of the Administrator; and,
(ii) to handle Freedom of information Act requests (15 USC §634(i)(1)(A)(i)-(ii)).

OHA shall hear appeals of agency actions under or pursuant to the Small Business Act (15 USC
§661 et seq) and Title 13 of the CFR and shall hear such other matters as the Administrator may
determine appropriate (15 USC §634(i)(1)(B)(i)).

OHA shall not adjudicate disputes that require a hearing on the record, except disputes pertaining
to the small business programs described in the Small Business Act (15 USC §634(i)(1)(B)(ii)).

The head of OHA shall be the Chief Hearing Officer, who shall be responsible to the
Administrator (15 USC §634(i)(1)(C)).

OHA shall appoint Hearing Officers to carry out the duties of OHA (15 USC §634(i)(3)(A)).

Notwithstanding section 556(b) of the Administrative Procedures Act (APA) (5 USC
§556(b))—

(i) a Hearing Officer may hear cases under section 554 of the APA;
(ii) a Hearing Officer shall have the powers described in section 556(c) of the APA; and,
(iii) the relevant provisions of subchapter II of chapter 5 of the APA (except for section
555(b) of the APA) 16 shall apply to the Hearing Officer (15 USC §634(i)(3)(C)(i)-
(iii)).

Hearing Officer means an individual appointed or redesignated under the Small Business Act
who is an attorney licensed by a State, commonwealth, territory, or possession of the United
States, or District of Columbia (15 USC §634(i)(4)).

Subject to published rules of the agency and within its powers, employees presiding at hearings
may—

(1) administer oaths and affirmations;
(2) issue subpoenas authorized by law;
(3) rule on offers of proof and receive relevant evidence;
(4) take depositions or have depositions taken when the ends of justice would be served;
(5) regulate the course of the hearing;

Section 556(b) of the APA requires an Administrative Law Judge (ALJ) preside over agency hearings (see 5
16

USC §556(b)(3)).
- 14 -
Exhibit C
Page 0021

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Docket No. PPP-8685148703

(6) hold conferences for the settlement or simplification of the issues by consent of the
parties or by the use of alternative dispute resolution (ADR);
(7) inform the parties as to the availability of one or more ADR methods, and encourage use
of such methods;
(8) require the attendance at any conference of at least one representative of each party who
has authority to negotiate resolution of issues in controversy;
(9) dispose of procedural requests or similar matters;
(10) make or recommend decisions in accordance with section 557 of the APA; and
(11) take other action authorized by agency rule (5 USC § 556(c)(1)-(11)).

The employee who presides at the reception of evidence pursuant to section 556 of the APA shall
make the recommended decision or initial decision required by section 557 of the APA (5 USC
§554(d)).

When the agency did not preside at the reception of the evidence, the employee presiding at the
hearing shall initially decide the case unless the agency requires, either in specific cases or by
general rule, the entire record be certified to it for decision (5 USC §557(b)).

When the presiding employee makes an initial decision, that decision then becomes the decision
of the agency without further proceedings unless there is an appeal to, or review on motion of,
the agency (5 USC §557(b)).

On appeal from or review of the initial decision, the agency has all the powers which it would
have in making the initial decision except as it may limit the issues on notice or by rule (5 USC
§557(b)).

The standard of review is whether the final SBA loan review decision was based on a clear
error of fact or law (13 CFR §134.1210).

The appellant has the burden of proof in an appeal of the final SBA loan review decision (13
CFR §134.1210).

The Judge will issue a decision within 45 calendar days after the close of record, as practicable
(13 CFR §134.1211(a)).

The decision will contain findings of fact and conclusions of law, the reasons for such findings
and conclusions, and any relief ordered (13 CFR §134.1211(a)).

The Judge’s decision on the appeal is an initial decision (13 CFR §134.1211(a)).

Either SBA or Appellant may request reconsideration of an initial decision (13 CFR
§1211(c)(1)).

The reconsideration request must clearly show an error of fact or law material to the decision (13
CFR §1211(c)(1)).

SBA does not have to file a response to a borrower’s reconsideration request (13 CFR
§1211(c)(1)).

- 15 -
Exhibit C
Page 0022

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Docket No. PPP-8685148703

Neither initial nor final decisions rendered by OHA on final SBA loan review appeals are
precedential (13 CFR §134.1211(e)).

OHA may affirm, reverse, or remand a final SBA loan review decision (13 CFR §134.1212).

If remanded, OHA no longer has jurisdiction over the matter unless a new appeal is filed as a
result of a new final SBA loan review decision (13 CFR §134.1212).

FINDINGS OF FACT AND ANALYSIS

Based on the record, I make the following findings of fact (FOF) 17:

1. On April 8, 2020, Appellant applied for a First Draw PPP loan (SBA Form 2483) in the
amount of $769,913.28 (PFR, Pages 4-16).

2. On April 30, 2020, Appellant applied for a second First Draw PPP loan (SBA Form
2483) in the amount of $84,508.00 (AR, Pages 567-568).

3. On May 7, 2020, Appellant submitted an updated loan application (SBA Form 2483) for
its initial First Draw PPP loan (SBA Form 2483) for the corrected amount of $853,000.00
(AR, Pages 562-563).

4. The lender(s) funded and disbursed two (2) First Draw PPP loans to Appellant: PPP Loan
# 5649057300 ($84,508.00) dispersed May 1, 2020; PPP Loan # 3533847202
($853,000.00) disbursed May 12, 2020 (AR, Pages 651, 657-658, 660-661, 663-664).

5. By letter, dated June 20, 2023, Appellant acknowledged knowing as of May 2, 2020, that
PPP Loan # 5649057300 ($84,508.00) was deposited in its bank account (AR, Pages 608-
609).

6. On March 24, 2021, Appellant applied for a Second Draw PPP loan (SBA Form 2483-
SD) in the amount of $920,500.00 (AR, Pages 542-545).

7. On April 8, 2021, the lender disbursed Appellant’s Second Draw PPP loan for
$920,500.00 (AR, Pages 2, 552).

8. On June 8, 2021, Appellant applied for full forgiveness (Form 3508EZ) of its Second
Draw PPP loan (AR, Pages 549-551).

9. SBA selected Appellant’s Second Draw PPP loan for review (AR, Pages 532-537).

10. SBA denied loan forgiveness after determining Appellant was ineligible to receive a
Second Draw PPP loan because it received two First Draw PPP loans (AR, Pages 18-19).

SBA carries out the policies of the Small Business Act (15 USC §633(a)).

17
The FOF have been updated based on documentation submitted with Appellant’s PFR (see PFR, Pages 4-16).
- 16 -
Exhibit C
Page 0023

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Docket No. PPP-8685148703

The SBA Administrator makes rules and regulations to carry out the Small Business Act (15
USC §634(b)(6)).

The CARES Act amends Sections 7 and 7(A) of the Small Business Act to establish the PPP and
PPP loan forgiveness (P.L. 116-36, §1102; see also 15 USC §§636(a)(36) and 636m).

The CARES Act grants the Administrator emergency rulemaking authority (15 USC §9012).

An eligible recipient of a First Draw PPP loan must certify it does not have an application
pending for duplicate First Draw PPP loan for the same purpose and duplicate amount (15 UCC
§636(a)(36)(G)(i)(III)).

No eligible borrower may receive more than one (1) First Draw PPP loan (IFR #1, 85 Fed. Reg.
Page 20811).

Any borrower that applied for a PPP loan prior to IFR #4 and repays the loan in full by May
7, 2020, is be deemed to have made the required certification in good faith (IFR #4, 85 Fed. Reg.
Page 23451).

Safe harbor is extended to any borrower that applied for a PPP loan and repays the loan in full
by May 14, 2020 (IFR #9, 85 Fed. Reg. Page 29846; PPP-FAQs, Question #43).

Safe harbor is extended to any borrower that applied for a PPP loan and repays the loan in full
by May 18, 2020 (IFR #9, 85 Fed. Reg. Page 31358; PPP-FAQs, Question #47).

To be eligible for a Second Draw PPP loan a business concern must employ not more than 300
employees, experienced a qualifying 25 percent reduction in gross receipts in 2020, received a
First Draw PPP loan, and on or before the disbursal date of the Second Draw PPP used or will
use the full amount of the First Draw PPP loan (15 USC §636(a)(37)(A)(iv)(I)-(aa)-(bb); 15 USC
§636(a)(37)(O)(i)-(ii)); (IFR #27, 86 Fed. Reg., Pt. III, Para. (A)(1), Page 3713; IFR #27, 86 Fed.
Reg., Pt. IV, Para. (c)(1)(i)-(iv)(A)-(B)(2)(i), Pages 3717-3718).

Except as otherwise provided, SBA may guarantee covered Second Draw PPP loans under the
same terms, conditions, and processes First Draw PPP loans made under 15 USC §636(a)(36)
(15 USC §636(a)(37)(B)).

An eligible entity may only receive one (1) Second Draw PPP loan (15 USC §636(a)(37)(F)).

Section 1106 of the CARES Act establishes PPP loan forgiveness (P.L. 116-36, §1106; 15 USC
§636m).

An eligible recipient of a PPP loan can receive loan forgiveness equal to qualifying costs and
payments, including payroll costs (15 USC §636m(b)(1); see also 15 USC §636(a)(36)(A)(ii); 15
USC §636m(a)(1); 15 USC §636m(a)(10)).

Payroll costs for employees includes salary, wage, commission, or similar compensation;
payment of cash tip or equivalent; payment for vacation, parental, family, medical, or sick leave;
allowance for dismissal or separation; payment required for the provisions of group health care
or group life, disability, vision, or dental benefits, including premiums; payment of any
- 17 -
Exhibit C
Page 0024

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Docket No. PPP-8685148703

retirements benefits; payment of State or local tax assessed on the compensation of employees
(15 USC §636(a)(36)(A)(viii); IFR #26, Para. B(4)(g), 86 Fed. Reg., Page 3703; IFR #27, 86
Fed. Reg., Pt. IV, Para. (f)(1), Page 3719; IFR #28, 86 Fed. Reg., Pt. IV, Para 1(a)(1), Page
8286).

All PPP loans will be processed by all lenders under delegated authority (IFR #26, 86 Fed.
Reg., Para. D(1)(3), Page 3709).

An applicant is not eligible for a Second Draw PPP loan if it previously received a Second
Draw PPP loan (IFR #27, 86 Fed. Reg., Pt. IV, Para. (e)(8), Pages 3718-3719).

To apply for a Second Draw PPP loan, the applicant must submit SBA Form 2483-SD or the
lender’s equivalent form (IFR #27, 86 Fed. Reg., Pt. IV., Para. (g)(1), Page 3720).

SBA may review any PPP loan it deems appropriate, including borrower eligibility, loan
amounts and use of proceeds, and loan forgiveness amount (IFR #28, 86 Fed. Reg., Pt. V, Para.
1(a), 1(b), and 1(e), Pages 8294-8295).

An SBA determination a borrower is ineligible for a First Draw PPP loan may also result in
an SBA determination the borrower is ineligible for any Second Draw PPP loan (IFR #28, 86
Fed. Reg., Pt. V, Para. 1(e), Page 8295).

If SBA determines the borrower is ineligible for PPP loan or forgiveness, SBA will direct the
lender to deny loan forgiveness application in whole or in part (IFR #28, 86 Fed. Reg., Pt. V,
Para. 1(e), Page 8295).

SBA may seek repayment of the outstanding PPP loan balance (IFR #28, 86 Fed. Reg., Pt. V,
Para. 1(e), Page 8295).

The appellant has the burden of proof in a PPP appeal (13 CFR §134.1210).

Either SBA or Appellant may request reconsideration of an initial decision (13 CFR
§1211(c)(1)).

The reconsideration request must clearly show an error of fact or law material to the decision (13
CFR §1211(c)(1)).

OHA may affirm, reverse, or remand a final SBA loan review decision (13 CFR §134.1212).

THE RECORD SHOWS Appellant applied for two First Draw PPP loans (PPP Loan #
5649057300 ($84,508.00); PPP Loan # 3533847202 ($853,000.00)), including submitting a
corrected application for PPP Loan # 3533847202. The record also shows Appellant received
the two First Draw PPP loans. The record further shows Appellant applied for and received a
Second Draw PPP loan. Appellant applied for full forgiveness of its Second Draw PPP loan and
SBA selected the loan for review. SBA denied loan forgiveness on the Second Draw PPP loan
because Appellant received two First Draw PPP loans (FOF 1-10).

- 18 -
Exhibit C
Page 0025

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Docket No. PPP-8685148703

IN ITS PFR, Appellant argues OHA’s initial decision contains the following errors of fact that if
corrected would materially affect the outcome of this case:

• Appellant originally applied for PPP Loan # 3533847202 ($853,000.00) on April 8, 2020,
and the loan was funded on April 27, 2020, which means OHA has wrongly concluded
Appellant applied for PPP Loan # 3533847202 after receiving the funds for PPP Loan #
5649057300 ($84,508.00).

• Appellant did not incorrectly certify its application for PPP Loan # 3533847202 because
it originally applied for the loan on April 8, 2020, which is before the application date of
PPP Loan # 5649057300.

• Unfair time constraints were placed on Appellant by only allowing 10 days for Appellant
to obtain the original loan application for PPP Loan # 3533847202 to include with its
PFR.

• OHA has retroactively applied SBA’s safe harbor provisions to Appellant (PFR, Pages 1-
2).

Appellant also argues the following additional grounds exists for reconsideration:

• SBA should not exercise its discretion to review a PPP loan based on incorrect facts.

• Appellant did not willingly “miscertify” any PPP loan application.

• Appellant returned the duplicate First Draw PPP loan (PPP Loan # 5649057300) on
December 8, 2020 (PFR, Pages 2-3).

I am not persuaded by Appellant’s arguments on reconsideration for the following reasons:

Appellant incorrectly certified the updated application for PPP Loan # 3533847202.
Appellant acknowledges and the record now shows Appellant initially applied for PPP Loan #
3533847202 on April 8, 2020, for $769,913.28 (FOF 1). The record also shows Appellant
submitted an updated application for PPP Loan # 3533847202 on May 7, 2020, for the corrected
amount of $853,000.00 (FOF 3). The record further shows Appellant submitted its updated
application for PPP Loan # 3533847202 after receiving the funds for PPP Loan # 5649057300
(FOF 4). The record demonstrates Appellant’s representative incorrectly certified the updated
application for PPP Loan # 3533847202, by indicating Appellant had not received any other
First Draw PPP loan (SBA Form 2483 at AR, Page 563), and did so knowing Appellant had
already received the funds for another First Draw loan (PPP Loan # 5649057300) 18, 19.

18
The funding of PPP Loan # 3533847202 on April 27, 2020 (AR, Page 651) is irrelevant because it is clear from
the record Appellant’s initial application for this loan was not approved or processed, and it was the corrected
application submitted on May 7, 2020, that was approved and processed for the loan (see FOF 3-4).
19
I do not understand why Appellant’s representative did not correctly certify the updated application for PPP
Loan # 3533847202 by indicating Appellant had already received another First Draw PPP loan. Had the
representative simply indicated Appellant received PPP Loan # 5649057300 it would have alerted the lender to this
issue and the need to address PPP Loan # 5649057300 before disbursing PPP Loan # 3533847202.

- 19 -
Exhibit C
Page 0026

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Docket No. PPP-8685148703

Appellant has not been subject to unfair time constraints. A PFR must be filed within 10
calendar days after service of OHA’s initial decision (13 CFR §1211(c)(1)). Appellant argues
this 10-day time constraint was unfair and prejudicial regarding Appellant obtaining and
submitting the original application for PPP Loan # 3533847202. The record does not support
Appellant was limited to 10 days to provide the original application. The OHA Case Portal
shows SBA submitted the administrative record on May 22, 2024. OHA’s initial decision was
issued in the OHA Case Portal on June 24, 2024. The record demonstrates Appellant had more
than 30 calendar days to review the administrative record and submit the original application
before OHA issued its initial decision 20.

Safe harbor has not been retroactively applied. Safe harbor was a benefit first offered under
IFR #4 to borrowers who applied for a PPP loan on or before April 28, 2020 (IFR #4, 85 Fed.
Reg. Pages 23450- 23451), and then extended to all borrowers under IRF #s 9 and 13 (IFR #9,
85 Fed. Reg. Page 29846; IFR #13, 85 Fed. Reg. Page 31358). SBA notified borrowers through
its guidance that safe harbor was available for a limited time and its IFRs would be updated to
show safe harbor had been offered (PPP-FAQs, Question 43 (May 5, 2020); PPP-FAQs,
Question 47 (May 13, 2020)). OHA’s initial decision does not retroactively apply safe harbor to
Appellant but simply documents safe harbor was available to borrowers, SBA gave borrowers
notice of this benefit, and there is no evidence indicating Appellant took advantage of safe harbor
to address its multiple First Draw PPP loans.

SBA has not abused its discretion in reviewing Appellant’s Second Draw PPP loan. The
loan at issue in this appeal is Appellant’s Second Draw PPP loan (PPP Loan # 8685148703).
OHA has updated its FOF to show Appellant initially applied for a First Draw PPP loan (PPP
Loan # 3533847202) on April 8, 2020 (see FOF 1). The updated (i.e., corrected) FOF put
Appellant’s actions in a worse light then before, as the FOF now show despite having an
additional opportunity to correctly certify the application for PPP Loan # 3533847202 and put
the lender on notice it had already received the funds for PPP Loan # 5649057300, Appellant
incorrectly certified the updated application for PPP Loan # 3533847202, and did so knowingly,
willfully, and purposefully. Appellant’s actions under OHA’s corrected FOF are still the cause
of Appellant receiving two First Draw PPP loans and making Appellant ineligible for loan
forgiveness on its Second Draw PPP loan.

Appellant did not correctly certify its updated loan application. As previously discussed,
Appellant did not correctly certify its updated application for PPP Loan # 3533847202. Any
reliance on this updated application by the lender that resulted in Appellant erroneously
receiving multiple First Draw PPP loans does not provide a basis to grant relief to Appellant (15
USC §636m(h)(1)-(3); IFR #28, 86 Fed. Reg., Pt. IV, Para. 7(a)(i)-(ii), Page 8293).

There is no basis for OHA to grant relief to Appellant for returning the duplicate loan.
Appellant indicates it returned PPP Loan # 5649057300 on December 8, 2020 (PFR, Page 3)
Appellant, however, does not cite to, and I can find no statute, regulation, policy, or guidance
that authorizes OHA to approve loan forgiveness for a borrower that obtain multiple First Draw

20
The only objections filed to the administrative record by Appellant was an SBA Declaration of Identity Theft
(SBA Form 3513) (Appellant Objections (AO), Pages 1-5). Although OHA’s Notice and Order set a filing deadline
for objections of June 3, 2024 (OHA Notice and Order, Page 5), nothing prevented Appellant from filing a
motion for a supplemental pleading to submit the original application before OHA issued its initial decision
(13 CFR §134.207(b)).
- 20 -
Exhibit C
Page 0027

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Docket No. PPP-8685148703

PPP loans because of the borrower’s willful actions of incorrectly certifying a loan application
(SBA Form 2483).

THE PFR DOES NOT provide a basis to reverse OHA’s initial decision. The reasoning of
OHA’s initial decision is incorporated herein (i.e., reissued) in support of this reconsideration
decision with the appropriate modifications to account for the updated/corrected FOF:

IN ITS APPEAL PETITION, Appellant acknowledges receiving two First Draw PPP loans but
argues its Second Draw PPP loan should be forgiven for the following reasons:

• Appellant met the eligibility requirements for a Second Draw PPP loan.

• One of the First Draw PPP loans (PPP Loan # 5649057300 ($84,508.00)) was
fraudulently requested by the owner’s ex-wife.

• Appellant repaid the fraudulent First Draw PPP loan with interest in December 2020.

• The lenders failed to provide Appellant adequate guidance on how to handle the
fraudulent First Draw PPP loan.

• SBA failed to prevent the issuing of the fraudulent First Draw PPP loan by flagging it as
a duplicate loan and mistakenly approved Appellant’s Second Draw PPP loan despite
being aware of the fraudulent loan (Appeal Petition (AP), Pages 1-6, Exhibits 1, 3).

I am not persuaded by Appellant’s arguments for the following reasons:

Appellant incorrectly certified the updated loan application for PPP Loan # 3533847202.
The CARES Act requires all borrowers to certify they will not receive a duplicate First Draw
PPP loan (15 UCC §636(a)(36)(G)(i)(III)). IRF #1 limits eligible borrowers to one (1) First
Draw PPP loan (IFR #1, 85 Fed. Reg. Page 20811). Despite the CARES Act and IFR #1’s
prohibitions against multiple First Draw PPP loans, when submitting the updated application for
First Draw PPP Loan # 3533847202 ($853,000.00), Appellant’s representative signed SBA Form
2483 certifying the following:

• During the period beginning on February 15, 2020, and ending on December 31, 2020,
the Applicant has not and will not receive another loan under the [PPP] (SBA Form 2483
at AR, Page 563).

The record shows Appellant applied for and received two First Draw PPP loans (PPP Loan #s
5649057300; 3533847202) (AR, Pages 562-563, 567-568, 651, 657-658, 660-661, 663-664;
PFR, Pages 4-16; FOF 1-4). The record also shows Appellant knew it had received PPP loan
#5649057300 at least five (5) days before updating its application for PPP loan # 3533847202
(AR, Pages 608-609; FOF 5). The record supports Appellant incorrectly certified the updated
loan application for PPP loan # 3533847202, and did so willingly, knowingly, and purposefully.

IFR #1 applies to Appellant’s First Draw PPP loan applications. IFR #1 has both an effective
date and an applicability date. The effective date, April 15, 2020, is the date IFR #1 was
published in the Federal Register. The applicability date indicates IFR #1 applies to applications

- 21 -
Exhibit C
Page 0028

Case 3:24-cv-01594-RBM-JLB Document 1 Filed 09/06/24 PageID.39 Page 39 of
71
Docket No. PPP-8685148703

submitted under the PPP through June 30, 2020, or until funds are exhausted (IFR #1, 85 Fed.
Reg. Page 20812). IFR #1 is effective without advance notice and is issued for the immediate
implementation of the PPP (IFR #1, 85 Fed. Reg. Page 20812). Despite its immediate effective
date, SBA did provide advance notice of IFR #1 by publishing the rule on the U.S. Department
of Treasury (USDT’s) website on April 2, 2020. IFR #1’s applicability date makes clear the rule
will apply to all loan applications received under the PPP through June 30, 2020. The record
shows Appellant’s First Draw PPP loan applications were submitted and approved when IFR #1
was applicable to all applications (AR, Pages 562-563, 567-568, 651, 657-658, 660-661, 663-
664; PFR, Pages 4-16; FOF 1-4). IFR #1 applies to Appellant’s First Draw PPP loan
applications. Under IFR #1, a borrower may receive only one First Draw PPP loan (IFR #1, 85
Fed. Reg. Page 20811) 21, 22, 23, 24.

Safe harbor was available to Appellant. With IFR #4, SBA offered borrowers that applied for
a PPP loan prior to April 28, 2020, and incorrectly certified their eligibility for the loan a safe
harbor though May 7, 2020, to repay the loan (IFR #4, 85 Fed. Reg. Pages 23450- 23451).
With IRF #9, SBA extended safe harbor to any borrower that applied for a PPP loan and repays
the loan in full by May 14, 2020 (IFR #9, 85 Fed. Reg. Page 29846) 25, 26. With IRF #13, SBA
extended safe harbor to any borrower that applied for a PPP loan and repays the loan in full by
May 18, 2020 (IFR #13, 85 Fed. Reg. Page 31358) 27. There is no evidence in the record
Appellant sought to use the safe harbor provisions to review its First Draw PPP loan applications
for compliance with SBA’s regulations and guidance or to repay any of its First Draw PPP loans
during the safe harbor period.

Appellant had notice safe harbor was available. SBA guidance available to Appellant before
it submitted its updated application for PPP Loan # 3533847202, and after it received both First
Draw PPP loans (#s 5649057300; 3533847202) informs borrowers of safe harbor:

21
IFR #1 was published/released on the USDT’s PPP webpage on April 2, 2020, the same day the PPP
Borrower Application Form (SBA Form 2483) became available on the webpage
(https://home.treasury.gov/policy-issues/coronavirus/assistance-for-small-businesses/paycheck-protection-program).
22
SBA launched the PPP on April 3, 2020, a day after giving advance notice of IFR #1 (Source: SBA.gov at
https://www.sba.gov/article/2020/apr/03/sbas-paycheck-protection-program-small-businesses-affected-coronavirus-
pandemic-launches).

The CARES Act makes clear the PPP will be administered under regulations issued by the SBA
23

Administrator through emergency rulemaking authority (15 USC §9012; 15 USC §636m(k)).
24
Neither the APA nor the applicable regulations grant an OHA Judge the authority to invalidate or not follow
SBA regulations interpreting the CARES Act (see 5 USC § 556(c)(1)-(11); 13 CFR Pt. 134, SubPt. L). OHA
Judges must apply IFR #1 to PPP loan applications.
25
IFR #9 was published/released on the USDT’s PPP webpage on May 8, 2020 (https://home.treasury.gov/policy-
issues/coronavirus/assistance-for-small-businesses/paycheck-protection-program).
26
The applicability date of IFR #9 indicates it applies to borrowers who applied for loans under the PPP (IFR #9,
85 Fed. Reg. Page 29845).
27
IFR #13 was published/released on the USDT’s PPP webpage on May 20, 2020
(https://home.treasury.gov/policy-issues/coronavirus/assistance-for-small-businesses/paycheck-protection-program).

- 22 -
Exhibit C
Page 0029

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71
Docket No. PPP-8685148703

Question: FAQ #31 reminded borrowers to review carefully the required
certification on the Borrower Application Form that “[c]urrent economic
uncertainty makes this loan request necessary to support the ongoing operations
of the Applicant.” SBA guidance and regulations provide that any borrower who
applied for a PPP loan prior to April 24, 2020 and repays the loan in full by May
7, 2020 will be deemed by SBA to have made the required certification in good
faith. Is it possible for a borrower to obtain an extension of the May 7, 2020
repayment date?

Answer: SBA is extending the repayment date for this safe harbor to May 14,
2020. Borrowers do not need to apply for this extension. This extension will be
promptly implemented through a revision to the SBA’s [IRF] providing the safe
harbor. SBA intends to provide additional guidance on how it will review the
certification prior to May 14, 2020 (PPP-FAQs, Question 43 (May 5, 2020)).

Question: An SBA [IRF] posted on May 8, 2020 provided that any borrower who
applied for a PPP loan and repays the loan in full by May 14, 2020 will be
deemed by SBA to have made the required certification concerning the necessity
of the loan request in good faith. Is it possible for a borrower to obtain an
extension of the May 14, repayment date?

Answer: Yes, SBA is extending the repayment date for safe harbor to May 18,
2020, to give borrowers an opportunity to review and consider FAQ #46.
Borrowers do no need to apply for this extension. This extension will be
promptly implemented through a revision to the SBA’s [IRF] providing safe
harbor (PPP-FAQs, Question 47 (May 13, 2020)).

This guidance and the early postings of IRFs #s 9 and 13 to the Treasury website 28 make
clear safe harbor was available to borrowers to repay First Draw PPP loans they
mistakenly received 29, 30.

Appellant is not eligible for forgiveness of its Second Draw PPP loan. A borrower may
receive only one First Draw PPP loan (IFR #1, 85 Fed. Reg. Page 20811), and one Second Draw
PPP loan (15 USC §636(a)(37)(F); IFR #27, 86 Fed. Reg., Pt. IV, Para. (e)(8), Pages 3718-
3719). A determination a borrower is ineligible for a First Draw PPP loan may also result in a
determination the borrower is ineligible for any Second Draw PPP loan (IFR #28, 86 Fed. Reg.,
Pt. V, Para. 1(e), Page 8295). The record shows Appellant willingly submitted an updated
application for a First Draw PPP loan five days after it became aware that it had already received
the funds for another First Draw PPP loan (see FOF 1-5). The record also shows Appellant
applied for and received a Second Draw PPP loan after receiving two First Draw PPP loans (see
FOF 6-7). The record supports Appellant applied for and received more than the allowable
number of PPP loans (i.e., two (2) loans). The record also supports Appellant received its

28
See Footnotes 25, 27
29
A copy of SBA’s guidance (May 13, 2020) is provided for Appellant’s review as attached Exhibit A.
30
Contrary to Appellant’s willful actions with PPP loan # 3533847202, under the CARES Act and IRF #1 no
borrower can certify necessity for a second First Draw PPP loan (15 UCC §636(a)(36)(G)(i)(III); IFR #1, 85
Fed. Reg. Page 20811).
- 23 -
Exhibit C
Page 0030

Case 3:24-cv-01594-RBM-JLB Document 1 Filed 09/06/24 PageID.41 Page 41 of
71
Docket No. PPP-8685148703

Second Draw PPP loan after it had already received the allowable number of loans. The record
demonstrates Appellant’s Second Draw PPP loan is an ineligible third PPP loan that is ineligible
for forgiveness.

An approved loan application does not prevent SBA from finding Appellant ineligible for
loan forgiveness. At its discretion, SBA may review any PPP loan anytime (IFR #28, 86 Fed.
Reg., Pt. V, Para. 1(c), Page 8294). SBA may review any PPP loan for borrower eligibility, loan
amounts, use of proceeds, and loan forgiveness amount (IFR #28, 86 Fed. Reg., Pt. V, Para. 1(a),
1(b), and 1(e), Pages 8294-8295). The standard of review in PPP appeals is whether the final
SBA loan review decision is based on a clear error of fact or law (13 CFR §134.1210). SBA
exercised its discretion and selected Appellant’s Second Draw PPP loan for review (FOF 9).
After completing its review, SBA found Appellant was ineligible for the Second Draw PPP loan
because it received two First Draw PPP loans (FOF 10). Appellant’s Second Draw PPP loan
application is part of the administrative record reviewed by SBA in making its decision (AR,
Pages 542-545). It is clear from the final loan review decision SBA determined Appellant’s
application was approved in error and Appellant should not have received a Second Draw PPP
loan and cannot receive loan forgiveness (AR, Pages 18-19). Under the applicable regulations,
an approved loan application does not prevent SBA from reviewing a PPP loan or finding a
borrower ineligible for loan forgiveness 31, 32.

The lender is not responsible for mistakes in Appellant’s PPP loan application. Lenders,
not SBA, process and approve PPP loan applications (IFR #26, 86 Fed. Reg., Para. D(1)(3), Page
3709). Under the CARES Act and IFR #28, a lender may rely on the certifications and
documents submitted by a PPP loan applicant and no enforcement action can be taken against a
lender that acts in good faith in relying on the certifications or documents (15 USC §636m(h)(1)-
(3); IFR #28, 86 Fed. Reg., Pt. IV, Para. 7(a)(i)-(ii), Page 8293). The record does not support,
and Appellant has not demonstrated, its lender acted in bad faith in relying on the certifications
and documents submitted by Appellant with the loan application or when approving Appellant’s
Second Draw PPP loan. Any errors made by the lender in approving the Second Draw PPP loan
by relying on certifications and documentation submitted by Appellant does not provide a basis
to grant Appellant relief and/or reverse SBA’s final loan review decision 33, 34.

31
A borrower’s reliance on an approved loan application to guarantee loan forgiveness is misplaced. The
applicable regulations allow SBA to review any First Draw and Second Draw PPP loan anytime within the 6-year
period following loan forgiveness (IFR #28, 86 Fed. Reg., Pt. V, Para. 1(c), Page 8294). In other words, SBA can
review/audit any forgiven First Draw and Second Draw PPP loans (i.e., loans with approved loan and
forgiveness applications) anytime during the applicable 6-year period.
32
Appellant should be mindful of this 6-year review window, as the record supports Appellant willingly,
knowingly, and purposefully incorrectly certified its updated loan application for PPP loan # 3533847202
($853,000.00).
33
OHA only has jurisdiction to review final SBA loan review decisions (13 CFR §134.1201(b)(1)-(4)). OHA
does not have jurisdiction to review a lender’s decision(s) concerning a PPP loan (13 CFR §134.1201(c)).
34
If Appellant believes the lender acted in bad faith in approving its PPP loan, Appellant has the option of
talking with the SBA Office of Inspector General (SBA OIG) about the lender’s actions in this matter.
SBA OIG contact and procedure information can be found at https://www.sba.gov/about-sba/oversight-
advocacy/office-inspector-general.

- 24 -
Exhibit C
Page 0031

Case 3:24-cv-01594-RBM-JLB Document 1 Filed 09/06/24 PageID.42 Page 42 of
71
Docket No. PPP-8685148703

The record supports Appellant received more than the allowable number of PPP loans. The
record also supports Appellant was ineligible for the Second Draw PPP loan at issue in this
appeal (PPP loan # 8685148703) and is ineligible for PPP loan forgiveness. The record
demonstrates SBA properly applied the applicable laws, regulations, policy, and guidance when
denying Appellant’s forgiveness application. The reasoning of OHA’s initial decision remains
supported by the record. I therefore find the final SBA loan review decision is not based on clear
error of fact or law. The final SBA loan review decision is AFFIRMED 35.

CONCLUSIONS OF LAW

Appellant received more than the allowable number of PPP loans.

Appellant was ineligible for the Second Draw PPP loan at issue in this appeal.

Appellant is ineligible for PPP loan forgiveness.

The final SBA loan review decision is not based on clear error of fact or law.

OHA’s initial decision does not contain a clear error of fact or law material to the decision.

Appellant remains liable for the Second Draw PPP loan (PPP Loan Number 8685148703) 36, 37.

ORDER

The final SBA loan review decision denying Appellant’s application for PPP loan
forgiveness is AFFIRMED.

Appellant’s forgiveness application will be processed in accordance with this decision.

This is a RECONSIDERED INITIAL DECISION and shall become the FINAL DECISION
of SBA 30 calendar days after service unless the SBA Administrator decides to review or reverse
the decision under 13 CFR §134.1211(d) (13 CFR §134.1211(c)(3)).

________________________________
J. KEITH ESSMYER, JR.
U.S. Administrative Law Judge

35
Given the early postings of IFR #9 and IRF #13 and available SBA guidance (see Footnotes 7, 25, 27), I find
it difficult to believe Appellant was unable to determine the proper course of action was to return/repay the
duplicate/additional First Draw PPP loan (PPP loan #5649057300) during the safe harbor period. Under the PPP, it
is the borrower’s responsibility to ensure its PPP loans comply with the applicable statutes, regulations, guidance,
and policies.
36
SBA may seek repayment of the outstanding PPP loan balance (IFR #28, 86 Fed. Reg., Pt. V, Para. 1(e), Page
8295).
37
Appellant’s objection(s) is SBA Form 3513 (AO, Pages 1-5). OHA does not have authority to review identity
theft issues (see Footnote 33), and SBA Form 3513 cannot be filed with SBA through the OHA Case Portal. To
assist Appellant, OHA’s Identity Theft Information Sheet is attached as Exhibit B.
- 25 -
Exhibit C
Page 0032

Case 3:24-cv-01594-RBM-JLB Document 1 Filed 09/06/24 PageID.43 Page 43 of
71
Docket No. PPP-8685148703

NOTICE OF APPEAL RIGHTS AND PROCEDURES

A RECONSIDERED INITIAL DECISION becomes the FINAL DECISION of SBA
30 calendar days after service unless the SBA Administrator decides to review or reverse the
decision (13 CFR §134.1211(c)(3)).

The discretionary authority of the SBA Administrator does not create any additional
appeal rights for Appellant not otherwise specified in the applicable SBA regulations at Title
13, Part 134, Subpart L (13 CFR §134.1211(c)(3)).

Within 30 calendar days after service of a reconsidered initial OHA decision, the SBA
Administrator, solely within the Administrator’s discretion, may elect to review and/or reverse a
reconsidered initial decision (13 CFR §134.1211(d)).

If the SBA Administrator issues a decision, it will become the FINAL DECISION of SBA
upon issuance (13 CFR §134.1211(d)).

Neither initial nor final decisions issued by OHA on a PPP loan appeal under Subpart L are
precedential (13 CFR §134.1211(e)).

FINAL DECISIONS may be appealed to the appropriate Federal district court only (13 CFR
§134.1211(g)).

- 26 -
Exhibit C
Page 0033

Case 3:24-cv-01594-RBM-JLB Document 1 Filed 09/06/24 PageID.44 Page 44 of
71
As of May 13, 2020

PAYCHECK PROTECTION PROGRAM LOANS
Frequently Asked Questions (FAQs)

The Small Business Administration (SBA), in consultation with the Department of the Treasury,
intends to provide timely additional guidance to address borrower and lender questions
concerning the implementation of the Paycheck Protection Program (PPP), established by section
1102 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act or the Act). This
document will be updated on a regular basis.

Borrowers and lenders may rely on the guidance provided in this document as SBA’s
interpretation of the CARES Act and of the Paycheck Protection Program Interim Final Rules
(“PPP Interim Final Rules”) (link). The U.S. government will not challenge lender PPP actions
that conform to this guidance, 1 and to the PPP Interim Final Rules and any subsequent
rulemaking in effect at the time.

1. Question: Paragraph 3.b.iii of the PPP Interim Final Rule states that lenders must
“[c]onfirm the dollar amount of average monthly payroll costs for the preceding calendar
year by reviewing the payroll documentation submitted with the borrower’s application.”
Does that require the lender to replicate every borrower’s calculations?

Answer: No. Providing an accurate calculation of payroll costs is the responsibility of
the borrower, and the borrower attests to the accuracy of those calculations on the
Borrower Application Form. Lenders are expected to perform a good faith review, in a
reasonable time, of the borrower’s calculations and supporting documents concerning
average monthly payroll cost. For example, minimal review of calculations based on a
payroll report by a recognized third-party payroll processor would be reasonable. In
addition, as the PPP Interim Final Rule indicates, lenders may rely on borrower
representations, including with respect to amounts required to be excluded from payroll
costs.

If the lender identifies errors in the borrower’s calculation or material lack of
substantiation in the borrower’s supporting documents, the lender should work with the
borrower to remedy the issue. 2

2. Question: Are small business concerns (as defined in section 3 of the Small Business
Act, 15 U.S.C. 632) required to have 500 or fewer employees to be eligible borrowers in
the PPP?

Answer: No. Small business concerns can be eligible borrowers even if they have more
than 500 employees, as long as they satisfy the existing statutory and regulatory
definition of a “small business concern” under section 3 of the Small Business Act, 15
U.S.C. 632. A business can qualify if it meets the SBA employee-based or revenue-

1
This document does not carry the force and effect of law independent of the statute and regulations on which it is
based.
2
Question 1 published April 3, 2020.

EX A P1
Exhibit C
Page 0034

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As of May 13, 2020

based size standard corresponding to its primary industry. Go to www.sba.gov/size for
the industry size standards.

Additionally, a business can qualify for the Paycheck Protection Program as a small
business concern if it met both tests in SBA’s “alternative size standard” as of March 27,
2020: (1) maximum tangible net worth of the business is not more than $15 million; and
(2) the average net income after Federal income taxes (excluding any carry-over losses)
of the business for the two full fiscal years before the date of the application is not more
than $5 million.

A business that qualifies as a small business concern under section 3 of the Small
Business Act, 15 U.S.C. 632, may truthfully attest to its eligibility for PPP loans on the
Borrower Application Form, unless otherwise ineligible.

3. Question: Does my business have to qualify as a small business concern (as defined in
section 3 of the Small Business Act, 15 U.S.C. 632) in order to participate in the PPP?

Answer: No. In addition to small business concerns, a business is eligible for a PPP
loan if the business has 500 or fewer employees whose principal place of residence is in
the United States, or the business meets the SBA employee-based size standards for the
industry in which it operates (if applicable). Similarly, PPP loans are also available for
qualifying tax-exempt nonprofit organizations described in section 501(c)(3) of the
Internal Revenue Code (IRC), tax-exempt veterans organization described in section
501(c)(19) of the IRC, and Tribal business concerns described in section 31(b)(2)(C) of
the Small Business Act that have 500 or fewer employees whose principal place of
residence is in the United States, or meet the SBA employee-based size standards for the
industry in which they operate.
4. Question: Are lenders required to make an independent determination regarding
applicability of affiliation rules under 13 C.F.R. 121.301(f) to borrowers?

Answer: No. It is the responsibility of the borrower to determine which entities (if any)
are its affiliates and determine the employee headcount of the borrower and its affiliates.
Lenders are permitted to rely on borrowers’ certifications.

5. Question: Are borrowers required to apply SBA’s affiliation rules under 13 C.F.R.
121.301(f)?

Answer: Yes. Borrowers must apply the affiliation rules set forth in SBA’s Interim
Final Rule on Affiliation. A borrower must certify on the Borrower Application Form
that the borrower is eligible to receive a PPP loan, and that certification means that the
borrower is a small business concern as defined in section 3 of the Small Business Act
(15 U.S.C. 632), meets the applicable SBA employee-based or revenue-based size
standard, or meets the tests in SBA’s alternative size standard, after applying the
affiliation rules, if applicable. SBA’s existing affiliation exclusions apply to the PPP,
including, for example the exclusions under 13 CFR 121.103(b)(2).

EX A P2
Exhibit C
Page 0035

Case 3:24-cv-01594-RBM-JLB Document 1 Filed 09/06/24 PageID.46 Page 46 of
71
As of May 13, 2020

6. Question: The affiliation rule based on ownership (13 C.F.R. 121.301(f)(1)) states that
SBA will deem a minority shareholder in a business to control the business if the
shareholder has the right to prevent a quorum or otherwise block action by the board of
directors or shareholders. If a minority shareholder irrevocably gives up those rights, is it
still considered to be an affiliate of the business?

Answer: No. If a minority shareholder in a business irrevocably waives or relinquishes
any existing rights specified in 13 C.F.R. 121.301(f)(1), the minority shareholder would
no longer be an affiliate of the business (assuming no other relationship that triggers the
affiliation rules).

7. Question: The CARES Act excludes from the definition of payroll costs any employee
compensation in excess of an annual salary of $100,000. Does that exclusion apply to all
employee benefits of monetary value?

Answer: No. The exclusion of compensation in excess of $100,000 annually applies
only to cash compensation, not to non-cash benefits, including:
• employer contributions to defined-benefit or defined-contribution retirement
plans;
• payment for the provision of employee benefits consisting of group health care
coverage, including insurance premiums; and
• payment of state and local taxes assessed on compensation of employees.

8. Question: Do PPP loans cover paid sick leave?

Answer: Yes. PPP loans covers payroll costs, including costs for employee vacation,
parental, family, medical, and sick leave. However, the CARES Act excludes qualified
sick and family leave wages for which a credit is allowed under sections 7001 and 7003
of the Families First Coronavirus Response Act (Public Law 116–127). Learn more
about the Paid Sick Leave Refundable Credit here.

9. Question: My small business is a seasonal business whose activity increases from April
to June. Considering activity from that period would be a more accurate reflection of my
business’s operations. However, my small business was not fully ramped up on February
15, 2020. Am I still eligible?

Answer: In evaluating a borrower’s eligibility, a lender may consider whether a seasonal
borrower was in operation on February 15, 2020 or for an 8-week period between
February 15, 2019 and June 30, 2019.

10. Question: What if an eligible borrower contracts with a third-party payer such as a
payroll provider or a Professional Employer Organization (PEO) to process payroll and
report payroll taxes?

Answer: SBA recognizes that eligible borrowers that use PEOs or similar payroll
providers are required under some state registration laws to report wage and other data on

EX A P3
Exhibit C
Page 0036

Case 3:24-cv-01594-RBM-JLB Document 1 Filed 09/06/24 PageID.47 Page 47 of
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As of May 13, 2020

the Employer Identification Number (EIN) of the PEO or other payroll provider. In these
cases, payroll documentation provided by the payroll provider that indicates the amount
of wages and payroll taxes reported to the IRS by the payroll provider for the borrower’s
employees will be considered acceptable PPP loan payroll documentation. Relevant
information from a Schedule R (Form 941), Allocation Schedule for Aggregate Form 941
Filers, attached to the PEO’s or other payroll provider’s Form 941, Employer’s Quarterly
Federal Tax Return, should be used if it is available; otherwise, the eligible borrower
should obtain a statement from the payroll provider documenting the amount of wages
and payroll taxes. In addition, employees of the eligible borrower will not be considered
employees of the eligible borrower’s payroll provider or PEO.

11. Question: May lenders accept signatures from a single individual who is authorized to
sign on behalf of the borrower?

Answer: Yes. However, the borrower should bear in mind that, as the Borrower
Application Form indicates, only an authorized representative of the business seeking a
loan may sign on behalf of the business. An individual’s signature as an “Authorized
Representative of Applicant” is a representation to the lender and to the U.S. government
that the signer is authorized to make the certifications, including with respect to the
applicant and each owner of 20% or more of the applicant’s equity, contained in the
Borrower Application Form. Lenders may rely on that representation and accept a single
individual’s signature on that basis.

12. Question: I need to request a loan to support my small business operations in light of
current economic uncertainty. However, I pleaded guilty to a felony crime a very long
time ago. Am I still eligible for the PPP?

Answer: Yes. Businesses are only ineligible if an owner of 20 percent or more of the
equity of the applicant is presently incarcerated, on probation, on parole; subject to an
indictment, criminal information, arraignment, or other means by which formal criminal
charges are brought in any jurisdiction; or, within the last five years, for any felony, has
been convicted; pleaded guilty; pleaded nolo contendere; been placed on pretrial
diversion; or been placed on any form of parole or probation (including probation before
judgment).

13. Question: Are lenders permitted to use their own online portals and an electronic form
that they create to collect the same information and certifications as in the Borrower
Application Form, in order to complete implementation of their online portals?

Answer: Yes. Lenders may use their own online systems and a form they establish that
asks for the same information (using the same language) as the Borrower Application
Form. Lenders are still required to send the data to SBA using SBA’s interface.

14. Question: What time period should borrowers use to determine their number of
employees and payroll costs to calculate their maximum loan amounts?

EX A P4
Exhibit C
Page 0037

Case 3:24-cv-01594-RBM-JLB Document 1 Filed 09/06/24 PageID.48 Page 48 of
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As of May 13, 2020

Answer: In general, borrowers can calculate their aggregate payroll costs using data
either from the previous 12 months or from calendar year 2019. For seasonal businesses,
the applicant may use average monthly payroll for the period between February 15, 2019,
or March 1, 2019, and June 30, 2019. An applicant that was not in business from
February 15, 2019 to June 30, 2019 may use the average monthly payroll costs for the
period January 1, 2020 through February 29, 2020.

Borrowers may use their average employment over the same time periods to determine
their number of employees, for the purposes of applying an employee-based size
standard. Alternatively, borrowers may elect to use SBA’s usual calculation: the average
number of employees per pay period in the 12 completed calendar months prior to the
date of the loan application (or the average number of employees for each of the pay
periods that the business has been operational, if it has not been operational for 12
months).

15. Question: Should payments that an eligible borrower made to an independent contractor
or sole proprietor be included in calculations of the eligible borrower’s payroll costs?

Answer: No. Any amounts that an eligible borrower has paid to an independent
contractor or sole proprietor should be excluded from the eligible business’s payroll
costs. However, an independent contractor or sole proprietor will itself be eligible for a
loan under the PPP, if it satisfies the applicable requirements.

16. Question: How should a borrower account for federal taxes when determining its
payroll costs for purposes of the maximum loan amount, allowable uses of a PPP loan,
and the amount of a loan that may be forgiven?

Answer: Under the Act, payroll costs are calculated on a gross basis without regard to
(i.e., not including subtractions or additions based on) federal taxes imposed or withheld,
such as the employee’s and employer’s share of Federal Insurance Contributions Act
(FICA) and income taxes required to be withheld from employees. As a result, payroll
costs are not reduced by taxes imposed on an employee and required to be withheld by
the employer, but payroll costs do not include the employer’s share of payroll tax. For
example, an employee who earned $4,000 per month in gross wages, from which $500 in
federal taxes was withheld, would count as $4,000 in payroll costs. The employee would
receive $3,500, and $500 would be paid to the federal government. However, the
employer-side federal payroll taxes imposed on the $4,000 in wages are excluded from
payroll costs under the statute. 3

3
The definition of “payroll costs” in the CARES Act, 15 U.S.C. 636(a)(36)(A)(viii), excludes “taxes imposed or
withheld under chapters 21, 22, or 24 of the Internal Revenue Code of 1986 during the covered period,” defined as
February 15, 2020, to June 30, 2020. As described above, the SBA interprets this statutory exclusion to mean that
payroll costs are calculated on a gross basis, without subtracting federal taxes that are imposed on the employee or
withheld from employee wages. Unlike employer-side payroll taxes, such employee-side taxes are ordinarily
expressed as a reduction in employee take-home pay; their exclusion from the definition of payroll costs means
payroll costs should not be reduced based on taxes imposed on the employee or withheld from employee wages.
This interpretation is consistent with the text of the statute and advances the legislative purpose of ensuring workers

EX A P5
Exhibit C
Page 0038

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71
As of May 13, 2020

17. Question: I filed or approved a loan application based on the version of the PPP Interim
Final Rule published on April 2, 2020. Do I need to take any action based on the updated
guidance in these FAQs?

Answer: No. Borrowers and lenders may rely on the laws, rules, and guidance available
at the time of the relevant application. However, borrowers whose previously submitted
loan applications have not yet been processed may revise their applications based on
clarifications reflected in these FAQs.

18. Question: Are PPP loans for existing customers considered new accounts for FinCEN
Rule CDD purposes? Are lenders required to collect, certify, or verify beneficial
ownership information in accordance with the rule requirements for existing customers?

Answer: If the PPP loan is being made to an existing customer and the necessary
information was previously verified, you do not need to re-verify the information.

Furthermore, if federally insured depository institutions and federally insured credit
unions eligible to participate in the PPP program have not yet collected beneficial
ownership information on existing customers, such institutions do not need to collect and
verify beneficial ownership information for those customers applying for new PPP loans,
unless otherwise indicated by the lender’s risk-based approach to BSA compliance. 4

19. Question: Do lenders have to use a promissory note provided by SBA or may they use
their own?

Answer: Lenders may use their own promissory note or an SBA form of promissory
note.

20. Question: The amount of forgiveness of a PPP loan depends on the borrower’s payroll
costs over an eight-week period; when does that eight-week period begin?

Answer: The eight-week period begins on the date the lender makes the first
disbursement of the PPP loan to the borrower. The lender must make the first
disbursement of the loan no later than ten calendar days from the date of loan approval. 5

21. Question: Do lenders need a separate SBA Authorization document to issue PPP loans?

Answer: No. A lender does not need a separate SBA Authorization for SBA to
guarantee a PPP loan. However, lenders must have executed SBA Form 2484 (the

remain paid and employed. Further, because the reference period for determining a borrower’s maximum loan
amount will largely or entirely precede the period from February 15, 2020, to June 30, 2020, and the period during
which borrowers will be subject to the restrictions on allowable uses of the loans may extend beyond that period, for
purposes of the determination of allowable uses of loans and the amount of loan forgiveness, this statutory exclusion
will apply with respect to such taxes imposed or withheld at any time, not only during such period.
4
Questions 2 – 18 published April 6, 2020.
5
Questions 19 – 20 published April 8, 2020.

EX A P6
Exhibit C
Page 0039

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As of May 13, 2020

Lender Application Form for the Paycheck Protection Program) 6 to issue PPP loans and
receive a loan number for each originated PPP loan. Lenders may include in their
promissory notes for PPP loans any terms and conditions, including relating to
amortization and disclosure, that are not inconsistent with Sections 1102 and 1106 of the
CARES Act, the PPP Interim Final Rules and guidance, and SBA Form 2484.

22. Question: I am a non-bank lender that meets all applicable criteria of the PPP Interim
Final Rule. Will I be automatically enrolled as a PPP lender? What criteria will SBA
and the Treasury Department use to assess whether to approve my application to
participate as a PPP lender?

Answer: We encourage lenders that are not currently 7(a) lenders to apply in order to
increase the scope of PPP lending options and the speed with which PPP loans can be
disbursed to help small businesses across America. We recognize that financial
technology solutions can promote efficiency and financial inclusion in implementing the
PPP. Applicants should submit SBA Form 3507 and the relevant attachments to
NFRLApplicationForPPP@sba.gov. Submission of the SBA Form 3507 does not result
in automatic enrollment in the PPP. SBA and the Treasury Department will evaluate
each application from a non-bank or non-insured depository institution lender and
determine whether the applicant has the necessary qualifications to process, close,
disburse, and service PPP loans made with SBA’s guarantee. SBA may request
additional information from the applicant before making a determination.

23. Question: How do the $10 million cap and affiliation rules work for franchises?

Answer: If a franchise brand is listed on the SBA Franchise Directory, each of its
franchisees that meets the applicable size standard can apply for a PPP loan. (The
franchisor does not apply on behalf of its franchisees.) The $10 million cap on PPP loans
is a limit per franchisee entity, and each franchisee is limited to one PPP loan.

Franchise brands that have been denied listing on the Directory because of affiliation
between franchisor and franchisee may request listing to receive PPP loans. SBA will
not apply affiliation rules to a franchise brand requesting listing on the Directory to
participate in the PPP, but SBA will confirm that the brand is otherwise eligible for
listing on the Directory.

24. Question: How do the $10 million cap and affiliation rules work for hotels and
restaurants (and any business assigned a North American Industry Classification System
(NAICS) code beginning with 72)?

Answer: Under the CARES Act, any single business entity that is assigned a NAICS
code beginning with 72 (including hotels and restaurants) and that employs not more than
500 employees per physical location is eligible to receive a PPP loan.

6
This requirement is satisfied by a lender when the lender completes the process of submitting a loan through the E-
Tran system; no transmission or retention of a physical copy of Form 2484 is required.

EX A P7
Exhibit C
Page 0040

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As of May 13, 2020

In addition, SBA’s affiliation rules (13 CFR 121.103 and 13 CFR 121.301) do not apply
to any business entity that is assigned a NAICS code beginning with 72 and that employs
not more than a total of 500 employees. As a result, if each hotel or restaurant location
owned by a parent business is a separate legal business entity, each hotel or restaurant
location that employs not more than 500 employees is permitted to apply for a separate
PPP loan provided it uses its unique EIN.

The $10 million maximum loan amount limitation applies to each eligible business entity,
because individual business entities cannot apply for more than one loan. The following
examples illustrate how these principles apply.

Example 1. Company X directly owns multiple restaurants and has no affiliates.
• Company X may apply for a PPP loan if it employs 500 or fewer employees per
location (including at its headquarters), even if the total number of employees
employed across all locations is over 500.

Example 2. Company X wholly owns Company Y and Company Z (as a result,
Companies X, Y, and Z are all affiliates of one another). Company Y and Company Z
each own a single restaurant with 500 or fewer employees.
• Company Y and Company Z can each apply for a separate PPP loan, because
each has 500 or fewer employees. The affiliation rules do not apply, because
Company Y and Company Z each has 500 or fewer employees and is in the food
services business (with a NAICS code beginning with 72).

Example 3. Company X wholly owns Company Y and Company Z (as a result,
Companies X, Y, and Z are all affiliates of one another). Company Y owns a restaurant
with 400 employees. Company Z is a construction company with 400 employees.
• Company Y is eligible for a PPP loan because it has 500 or fewer employees.
The affiliation rules do not apply to Company Y, because it has 500 or fewer
employees and is in the food services business (with a NAICS code beginning
with 72).
• The waiver of the affiliation rules does not apply to Company Z, because
Company Z is in the construction industry. Under SBA’s affiliation rules, 13
CFR 121.301(f)(1) and (3), Company Y and Company Z are affiliates of one
another because they are under the common control of Company X, which wholly
owns both companies. This means that the size of Company Z is determined by
adding its employees to those of Companies X and Y. Therefore, Company Z is
deemed to have more than 500 employees, together with its affiliates. However,
Company Z may be eligible to receive a PPP loan as a small business concern if
it, together with Companies X and Y, meets SBA’s other applicable size
standards,” as explained in FAQ #2.

25. Question: Does the information lenders are required to collect from PPP applicants
regarding every owner who has a 20% or greater ownership stake in the applicant
business (i.e., owner name, title, ownership %, TIN, and address) satisfy a lender’s
obligation to collect beneficial ownership information (which has a 25% ownership
threshold) under the Bank Secrecy Act?

EX A P8
Exhibit C
Page 0041

Case 3:24-cv-01594-RBM-JLB Document 1 Filed 09/06/24 PageID.52 Page 52 of
71
As of May 13, 2020

Answer:
For lenders with existing customers: With respect to collecting beneficial ownership
information for owners holding a 20% or greater ownership interest, if the PPP loan is
being made to an existing customer and the lender previously verified the necessary
information, the lender does not need to re-verify the information. Furthermore, if
federally insured depository institutions and federally insured credit unions eligible to
participate in the PPP program have not yet collected such beneficial ownership
information on existing customers, such institutions do not need to collect and verify
beneficial ownership information for those customers applying for new PPP loans, unless
otherwise indicated by the lender’s risk-based approach to Bank Secrecy Act (BSA)
compliance.

For lenders with new customers: For new customers, the lender’s collection of the
following information from all natural persons with a 20% or greater ownership stake in
the applicant business will be deemed to satisfy applicable BSA requirements and
FinCEN regulations governing the collection of beneficial ownership information: owner
name, title, ownership %, TIN, address, and date of birth. If any ownership interest of
20% or greater in the applicant business belongs to a business or other legal entity,
lenders will need to collect appropriate beneficial ownership information for that entity.
If you have questions about requirements related to beneficial ownership, go to
https://www.fincen.gov/resources/statutes-and-regulations/cdd-final-rule. Decisions
regarding further verification of beneficial ownership information collected from new
customers should be made pursuant to the lender’s risk-based approach to BSA
compliance. 7

26. Question: SBA regulations require approval by SBA’s Standards of Conduct Committee
(SCC) for SBA Assistance, other than disaster assistance, to an entity, if its sole
proprietor, partner, officer, director, or stockholder with a 10 percent or more interest is:
a current SBA employee; a Member of Congress; an appointed official or employee of
the legislative or judicial branch; a member or employee of an SBA Advisory Council or
SCORE volunteer; or a household member of any of the preceding individuals. Do these
entities need the approval of the SCC in order to be eligible for a PPP loan?

Answer: The SCC has authorized a blanket approval for PPP loans to such entities so
that further action by the SCC is not necessary in the PPP program.

27. Question: SBA regulations require a written statement of no objection by the pertinent
Department or military service before it provides any SBA Assistance, other than disaster
loans, to an entity, if its sole proprietor, partner, officer, director, or stockholder with a 10
percent or more interest, or if a household member of any of the preceding individuals, is
an employee of another Government Department or Agency having a grade of at least
GS-13 or its equivalent. Does this requirement apply to PPP loans?

7
Questions 21 – 25 published April 13, 2020.

EX A P9
Exhibit C
Page 0042

Case 3:24-cv-01594-RBM-JLB Document 1 Filed 09/06/24 PageID.53 Page 53 of
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As of May 13, 2020

Answer: No. The SCC has determined that a written statement of no objection is not
required from another Government Department or Agency for PPP loans.

28. Question: Is a lender permitted to submit a PPP loan application to SBA through E-Tran
before the lender has fulfilled its responsibility to review the required borrower
documentation and calculation of payroll costs?

Answer: No. Before a lender submits a PPP loan through E-Tran, the lender must have
collected the information and certifications contained in the Borrower Application Form
and the lender must have fulfilled its obligations set forth in paragraphs 3.b.(i)-(iii) of the
PPP Interim Final Rule. Please refer to the Interim Final Rule and FAQ #1 for more
information on the lender’s responsibility regarding confirmation of payroll costs.

Lenders who did not understand that these steps are required before submission to E-Tran
need not withdraw applications submitted to E-Tran before April 14, 2020, but must
fulfill lender responsibilities with respect to those applications as soon as practicable and
no later than loan closing. 8

29. Question: Can lenders use scanned copies of documents or E-signatures or E-consents
permitted by the E-sign Act?

Answer: Yes. All PPP lenders may accept scanned copies of signed loan applications
and documents containing the information and certifications required by SBA Form 2483
and the promissory note used for the PPP loan. Additionally, lenders may also accept
any form of E-consent or E-signature that complies with the requirements of the
Electronic Signatures in Global and National Commerce Act (P.L. 106-229).

If electronic signatures are not feasible, when obtaining a wet ink signature without in-
person contact, lenders should take appropriate steps to ensure the proper party has
executed the document.

This guidance does not supersede signature requirements imposed by other applicable
law, including by the lender’s primary federal regulator. 9

30. Question: Can a lender sell a PPP loan into the secondary market?

Answer: Yes. A PPP loan may be sold into the secondary market at any time after the
loan is fully disbursed. A secondary market sale of a PPP loan does not require SBA
approval. A PPP loan sold into the secondary market is 100% SBA guaranteed. A PPP
loan may be sold on the secondary market at a premium or a discount to par value. 10

8
Questions 26 – 28 published April 14, 2020.
9
Question 29 published April 15, 2020.
10
Question 30 published April 17, 2020.

EX A P10
Exhibit C
Page 0043

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71
As of May 13, 2020

31. Question: Do businesses owned by large companies with adequate sources of liquidity
to support the business’s ongoing operations qualify for a PPP loan?

Answer: In addition to reviewing applicable affiliation rules to determine eligibility, all
borrowers must assess their economic need for a PPP loan under the standard established
by the CARES Act and the PPP regulations at the time of the loan application. Although
the CARES Act suspends the ordinary requirement that borrowers must be unable to
obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers
still must certify in good faith that their PPP loan request is necessary. Specifically,
before submitting a PPP application, all borrowers should review carefully the required
certification that “[c]urrent economic uncertainty makes this loan request necessary to
support the ongoing operations of the Applicant.” Borrowers must make this certification
in good faith, taking into account their current business activity and their ability to access
other sources of liquidity sufficient to support their ongoing operations in a manner that is
not significantly detrimental to the business. For example, it is unlikely that a public
company with substantial market value and access to capital markets will be able to make
the required certification in good faith, and such a company should be prepared to
demonstrate to SBA, upon request, the basis for its certification.

Lenders may rely on a borrower’s certification regarding the necessity of the loan
request. Any borrower that applied for a PPP loan prior to the issuance of this guidance
and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the
required certification in good faith. 11

32. Question: Does the cost of a housing stipend or allowance provided to an employee as
part of compensation count toward payroll costs?

Answer: Yes. Payroll costs includes all cash compensation paid to employees, subject to
the $100,000 annual compensation per employee limitation.

33. Question: Is there existing guidance to help PPP applicants and lenders determine
whether an individual employee’s principal place of residence is in the United States?

Answer: PPP applicants and lenders may consider IRS regulations (26 CFR § 1.121-
1(b)(2)) when determining whether an individual employee’s principal place of residence
is in the United States.

34. Question: Are agricultural producers, farmers, and ranchers eligible for PPP loans?

Answer: Yes. Agricultural producers, farmers, and ranchers are eligible for PPP loans
if: (i) the business has 500 or fewer employees, or (ii) the business fits within the
revenue-based sized standard, which is average annual receipts of $1 million.

Additionally, agricultural producers, farmers, and ranchers can qualify for PPP loans as a
small business concern if their business meets SBA’s “alternative size standard.” The
11
Question 31 published April 23, 2020.

EX A P11
Exhibit C
Page 0044

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71
As of May 13, 2020

“alternative size standard” is currently: (1) maximum net worth of the business is not
more than $15 million, and (2) the average net income after Federal income taxes
(excluding any carry-over losses) of the business for the two full fiscal years before the
date of the application is not more than $5 million.

For all of these criteria, the applicant must include its affiliates in its calculations. Link to
Applicable Affiliation Rules for the PPP.

35. Question: Are agricultural and other forms of cooperatives eligible to receive PPP
loans?

Answer: As long as other PPP eligibility requirements are met, small agricultural
cooperatives and other cooperatives may receive PPP loans. 12

36. Question: To determine borrower eligibility under the 500-employee or other applicable
threshold established by the CARES Act, must a borrower count all employees or only
full-time equivalent employees?

Answer: For purposes of loan eligibility, the CARES Act defines the term employee to
include “individuals employed on a full-time, part-time, or other basis.” A borrower
must therefore calculate the total number of employees, including part-time employees,
when determining their employee headcount for purposes of the eligibility threshold. For
example, if a borrower has 200 full-time employees and 50 part-time employees each
working 10 hours per week, the borrower has a total of 250 employees.

By contrast, for purposes of loan forgiveness, the CARES Act uses the standard of “full-
time equivalent employees” to determine the extent to which the loan forgiveness amount
will be reduced in the event of workforce reductions. 13

37. Question: Do businesses owned by private companies with adequate sources of liquidity
to support the business’s ongoing operations qualify for a PPP loan?

Answer: See response to FAQ #31. 14

38. Question: Section 1102 of the CARES Act provides that PPP loans are available only to
applicants that were “in operation on February 15, 2020.” Is a business that was in
operation on February 15, 2020 but had a change in ownership after February 15, 2020
eligible for a PPP loan?

Answer: Yes. As long as the business was in operation on February 15, 2020, if it meets
the other eligibility criteria, the business is eligible to apply for a PPP loan regardless of
the change in ownership. In addition, where there is a change in ownership effectuated
through a purchase of substantially all assets of a business that was in operation on

12
Questions 32 – 35 published April 24, 2020.
13
Questions 36 published April 26, 2020.
14
Question 37 published April 28, 2020.

EX A P12
Exhibit C
Page 0045

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71
As of May 13, 2020

February 15, the business acquiring the assets will be eligible to apply for a PPP loan
even if the change in ownership results in the assignment of a new tax ID number and
even if the acquiring business was not in operation until after February 15, 2020. If the
acquiring business has maintained the operations of the pre-sale business, the acquiring
business may rely on the historic payroll costs and headcount of the pre-sale business for
the purposes of its PPP application, except where the pre-sale business had applied for
and received a PPP loan. The Administrator, in consultation with the Secretary, has
determined that the requirement that a business “was in operation on February 15, 2020”
should be applied based on the economic realities of the business’s operations.

39. Question: Will SBA review individual PPP loan files?

Answer: Yes. In FAQ #31, SBA reminded all borrowers of an important certification
required to obtain a PPP loan. To further ensure PPP loans are limited to eligible
borrowers in need, the SBA has decided, in consultation with the Department of the
Treasury, that it will review all loans in excess of $2 million, in addition to other loans as
appropriate, following the lender’s submission of the borrower’s loan forgiveness
application. Additional guidance implementing this procedure will be forthcoming.

The outcome of SBA’s review of loan files will not affect SBA’s guarantee of any loan
for which the lender complied with the lender obligations set forth in paragraphs
III.3.b(i)-(iii) of the Paycheck Protection Program Rule (April 2, 2020) and further
explained in FAQ #1. 15

40. Question: Will a borrower’s PPP loan forgiveness amount (pursuant to section 1106 of
the CARES Act and SBA’s implementing rules and guidance) be reduced if the borrower
laid off an employee, offered to rehire the same employee, but the employee declined the
offer?

Answer: No. As an exercise of the Administrator’s and the Secretary’s authority under
Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis
exemptions from the Act’s limits on loan forgiveness, SBA and Treasury intend to issue
an interim final rule excluding laid-off employees whom the borrower offered to rehire
(for the same salary/wages and same number of hours) from the CARES Act’s loan
forgiveness reduction calculation. The interim final rule will specify that, to qualify for
this exception, the borrower must have made a good faith, written offer of rehire, and the
employee’s rejection of that offer must be documented by the borrower. Employees and
employers should be aware that employees who reject offers of re-employment may
forfeit eligibility for continued unemployment compensation.

41. Question: Can a seasonal employer that elects to use a 12-week period between May 1,
2019 and September 15, 2019 to calculate its maximum PPP loan amount under the
interim final rule issued by Treasury on April 27, 2020, make all the required
certifications on the Borrower Application Form?

15
Questions 38 – 39 published April 29, 2020.

EX A P13
Exhibit C
Page 0046

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71
As of May 13, 2020

Answer: Yes. The Borrower Application Form requires applicants to certify that “The
Applicant is eligible to receive a loan under the rules in effect at the time this application
is submitted that have been issued by the Small Business Administration (SBA)
implementing the Paycheck Protection Program.” On April 27, 2020, Treasury issued an
interim final rule allowing seasonal borrowers to use an alternative base period for
purposes of calculating the loan amount for which they are eligible under the PPP. An
applicant that is otherwise in compliance with applicable SBA requirements, and that
complies with Treasury’s interim final rule on seasonal workers, will be deemed eligible
for a PPP loan under SBA rules. Instead of following the instructions on page 3 of the
Borrower Application Form for the time period for calculating average monthly payroll
for seasonal businesses, an applicant may elect to use the time period in Treasury’s
interim final rule on seasonal workers.

42. Question: Do nonprofit hospitals exempt from taxation under section 115 of the Internal
Revenue Code qualify as “nonprofit organizations” under section 1102 of the CARES
Act?

Answer: Section 1102 of the CARES Act defines the term “nonprofit organization” as
“an organization that is described in section 501(c)(3) of the Internal Revenue Code of
1986 and that is exempt from taxation under section 501(a) of such Code.” The
Administrator, in consultation with the Secretary of the Treasury, understands that
nonprofit hospitals exempt from taxation under section 115 of the Internal Revenue Code
are unique in that many such hospitals may meet the description set forth in section
501(c)(3) of the Internal Revenue Code to qualify for tax exemption under section 501(a),
but have not sought to be recognized by the IRS as such because they are otherwise fully
tax-exempt under a different provision of the Internal Revenue Code.

Accordingly, the Administrator will treat a nonprofit hospital exempt from taxation under
section 115 of the Internal Revenue Code as meeting the definition of “nonprofit
organization” under section 1102 of the CARES Act if the hospital reasonably
determines, in a written record maintained by the hospital, that it is an organization
described in section 501(c)(3) of the Internal Revenue Code and is therefore within a
category of organization that is exempt from taxation under section 501(a). 16 The
hospital’s certification of eligibility on the Borrower Application Form cannot be made
without this determination. This approach helps accomplish the statutory purpose of
ensuring that a broad range of borrowers, including entities that are helping to lead the
medical response to the ongoing pandemic, can benefit from the loans provided under the
PPP.

16
This determination need not account for the ancillary conditions set forth in section 501(r) of the Internal Revenue
Code and elsewhere associated with securing the tax exemption under that section. Section 501(r) states that a
hospital organization shall not be treated as described in section 501(c)(3) unless it meets certain community health
and other requirements. However, section 1102 of the CARES Act defines the term “nonprofit organization” solely
by reference to section 501(c)(3), and section 501(r) does not amend section 501(c)(3). Therefore, for purposes of
the PPP, the requirements of section 501(r) do not apply to the determination of whether an organization is
“described in section 501(c)(3).”

EX A P14
Exhibit C
Page 0047

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71
As of May 13, 2020

This guidance is solely for purposes of qualification as a “nonprofit organization” under
section 1102 of the CARES Act and related purposes of the CARES Act, and does not
have any consequences for federal tax law purposes. Nonprofit hospitals should also
review all other applicable eligibility criteria, including the Interim Final Rules on
Promissory Notes, Authorizations, Affiliation, and Eligibility (April 28, 2020) regarding
an important limitation on ownership by state or local governments. 85 FR 23450,
23451. 17

43. Question: FAQ #31 reminded borrowers to review carefully the required certification on
the Borrower Application Form that “[c]urrent economic uncertainty makes this loan
request necessary to support the ongoing operations of the Applicant.” SBA guidance
and regulations provide that any borrower who applied for a PPP loan prior to April 24,
2020 and repays the loan in full by May 7, 2020 will be deemed by SBA to have made
the required certification in good faith. Is it possible for a borrower to obtain an
extension of the May 7, 2020 repayment date?

Answer: SBA is extending the repayment date for this safe harbor to May 14, 2020.
Borrowers do not need to apply for this extension. This extension will be promptly
implemented through a revision to the SBA’s interim final rule providing the safe harbor.
SBA intends to provide additional guidance on how it will review the certification prior
to May 14, 2020.

44. Question: How do SBA’s affiliation rules at 13 C.F.R. 121.301(f) apply with regard to
counting the employees of foreign and U.S. affiliates?

Answer: For purposes of the PPP’s 500 or fewer employee size standard, an applicant
must count all of its employees and the employees of its U.S and foreign affiliates, absent
a waiver of or an exception to the affiliation rules. 13 C.F.R. 121.301(f)(6). Business
concerns seeking to qualify as a “small business concern” under section 3 of the Small
Business Act (15 U.S.C. 632) on the basis of the employee-based size standard must do
the same. 18

45. Question: Is an employer that repays its PPP loan by the safe harbor deadline (May 14,
2020) eligible for the Employee Retention Credit?

Answer: Yes. An employer that applied for a PPP loan, received payment, and repays
the loan by the safe harbor deadline (May 14, 2020) will be treated as though the
employer had not received a covered loan under the PPP for purposes of the Employee
Retention Credit. Therefore, the employer will be eligible for the credit if the employer
is otherwise an eligible employer for purposes of the credit. 19

17
Questions 40 – 42 published May 3, 2020.
18
Questions 43 – 44 published May 5, 2020.
19
Question 45 published May 6, 2020.

EX A P15
Exhibit C
Page 0048

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71
As of May 13, 2020

46. Question: How will SBA review borrowers’ required good-faith certification concerning
the necessity of their loan request?

Answer: When submitting a PPP application, all borrowers must certify in good faith
that “[c]urrent economic uncertainty makes this loan request necessary to support the
ongoing operations of the Applicant.” SBA, in consultation with the Department of the
Treasury, has determined that the following safe harbor will apply to SBA’s review of
PPP loans with respect to this issue: Any borrower that, together with its affiliates, 20
received PPP loans with an original principal amount of less than $2 million will be
deemed to have made the required certification concerning the necessity of the loan
request in good faith.

SBA has determined that this safe harbor is appropriate because borrowers with loans
below this threshold are generally less likely to have had access to adequate sources of
liquidity in the current economic environment than borrowers that obtained larger
loans. This safe harbor will also promote economic certainty as PPP borrowers with
more limited resources endeavor to retain and rehire employees. In addition, given the
large volume of PPP loans, this approach will enable SBA to conserve its finite audit
resources and focus its reviews on larger loans, where the compliance effort may yield
higher returns.

Importantly, borrowers with loans greater than $2 million that do not satisfy this safe
harbor may still have an adequate basis for making the required good-faith certification,
based on their individual circumstances in light of the language of the certification and
SBA guidance. SBA has previously stated that all PPP loans in excess of $2 million, and
other PPP loans as appropriate, will be subject to review by SBA for compliance with
program requirements set forth in the PPP Interim Final Rules and in the Borrower
Application Form. If SBA determines in the course of its review that a borrower lacked
an adequate basis for the required certification concerning the necessity of the loan
request, SBA will seek repayment of the outstanding PPP loan balance and will inform
the lender that the borrower is not eligible for loan forgiveness. If the borrower repays
the loan after receiving notification from SBA, SBA will not pursue administrative
enforcement or referrals to other agencies based on its determination with respect to the
certification concerning necessity of the loan request. SBA’s determination concerning
the certification regarding the necessity of the loan request will not affect SBA’s loan
guarantee.

47. Question: An SBA interim final rule posted on May 8, 2020 provided that any borrower
who applied for a PPP loan and repays the loan in full by May 14, 2020 will be deemed
by SBA to have made the required certification concerning the necessity of the loan
request in good faith. Is it possible for a borrower to obtain an extension of the May 14,
2020 repayment date?

20
For purposes of this safe harbor, a borrower must include its affiliates to the extent required under the interim final
rule on affiliates, 85 FR 20817 (April 15, 2020).

EX A P16
Exhibit C
Page 0049

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As of May 13, 2020

Answer: Yes, SBA is extending the repayment date for this safe harbor to May 18,
2020, to give borrowers an opportunity to review and consider FAQ #46. Borrowers do
not need to apply for this extension. This extension will be promptly implemented
through a revision to the SBA’s interim final rule providing the safe harbor. 21

21
Questions 46 – 47 published May 13, 2020.

EX A P17
Exhibit C
Page 0050

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71

Office of Hearings and Appeals
U.S. Small Business Administration

Dear XXXXXX:

Thank you for contacting the Office of Hearings and Appeals (OHA).

If you received a bill for a Small Business Administration (SBA) Paycheck Protection Program
(PPP) loan or COVID-19 Economic Injury Disaster Loan (EIDL) that you never applied for, an
identity thief may have used your personal information to acquire the loan. Please take the
following steps to report this incident:

Step 1. Report the identity theft to the Federal Trade Commission at IdentityTheft.gov.

• You will get an FTC Identity Theft report and a personal recovery plan.
• Save a copy of your FTC Identity Theft Report. You will need to submit it to SBA.
• Follow the personal recovery plan to stop further misuse of your personal
information and help repair the damage the identity theft caused.

Step 2. Visit the SBA’s website at sba.gov/idtheft.

• Follow the steps to report the identity theft to SBA. This is required to start the SBA
review process.

Step 3. If the identity theft involved a PPP loan and you know the private lender that issued
the loan, contact the lender too.

• Explain an identity thief used your personal information to get the PPP loan without your
knowledge or authorization. Tell the lender the loan is fraudulent.
• Ask the lender to release you from the loan and to take all the steps needed to remove
information about the loan from your credit files.
• Ask the lender to send you a letter explaining the actions it has taken.
• Write down who you spoke with and when. You may need to contact the lender again.
• Know the lender may require a copy of your FTC Identity Theft Report and other
documents. The sample letter at the following link can help you get things started:
https://www.identitytheft.gov/Sample-Letters/small-business-administration.

For questions about COVID-19 EIDL identity theft, contact SBA COVID-19 EIDL Customer
Service at 833-853-5638 or by email at IDTRecords@sba.gov.

If you have any further questions for OHA, email ohapppinquiries@sba.gov.

EX B P1
Exhibit C
Page 0051

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Exhibit D
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Exhibit D
Page 0053

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Exhibit D
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Exhibit D
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Exhibit D
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Exhibit D
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Exhibit D
Page 0058

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Exhibit D
Page 0059

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Exhibit D
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Exhibit D
Page 0061

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Complaint for Declaratory and Injunctive Relief under the Administrative Procedure Act, 5 U.S.C. §701 et seq. — Blue Pacific Engineering & Construction, Inc. v. United States Small Business Administration (Dkt. 1, S.D. Cal.)

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