Penobscot Valley Hospital and Calais Regional Hospital v. Carranza (SBA) — Bankr. D. Me., Adv. Proc. Nos. 20-1005 and 20-1006

Case summary

Penobscot Valley Hospital and Calais Regional Hospital, each a chapter 11 debtor in possession in the U.S. Bankruptcy Court for the District of Maine, brought consolidated adversary proceedings against Jovita Carranza in her capacity as administrator of the Small Business Administration over the SBA rule excluding debtors in bankruptcy from the Paycheck Protection Program. The court granted a temporary restraining order after an expedited hearing on April 30, 2020, tried the merits on May 27, 2020, and on June 3, 2020 issued proposed findings and conclusions stating that judgment should enter in favor of the SBA on all counts. On recommittal it issued additional proposed findings dated January 12, 2021, concluding that the bankruptcy exclusion was a permissible construction of the enabling legislation. No district court judgment is on this page.

Case at a glance

What did the bankruptcy court conclude?

That judgment should enter in favor of the SBA and against the debtor on all counts of the complaint. Because the proceeding was related to, rather than arising in or under, a case under the Bankruptcy Code and the SBA had consented only as to the section 525 claim, the court was constrained to issue proposed findings of fact and conclusions of law under 28 U.S.C. § 157(c) rather than a final judgment.

What did the additional proposed findings decide?

They addressed the Administrative Procedure Act claim on recommittal and state that the bankruptcy exclusion was a reasonable choice that cannot fairly be depicted as arbitrary or capricious, that the SBA engaged in reasoned decision making, and that because the exclusion is a permissible construction of the enabling legislation the court must defer to it. The filing notes that courts elsewhere have divided, some upholding the exclusion and some striking it down.

What did the hospitals ask for?

The reply memorandum of April 30, 2020 states that the motion sought a temporary restraining order permitting Calais Regional Hospital to submit a PPP application without being discriminated against on the basis of its status as a chapter 11 debtor, and to ensure the PPP did not run out of money before the application could be processed. The proposed findings record that Penobscot Valley Hospital's revised application for approximately $1.5 million was approved and funded but not disbursed, and that Calais Regional Hospital prepared a revised application for approximately $1.7 million but could not find a lender to process it.

Summary written from the documents on this page; every sentence is sourced.