Court filing

Defendants' Motion for Summary Judgment — SBA v. Weather King Heating & Air, Inc. (N.D. Ohio)

Filed October 25, 2021 in SBA v. Weather King; one of 3 filings from this case.

Record facts

Court	U.S. District Court for the Northern District of Ohio, Eastern Division
Filed	2021-10-25

U.S. District Court for the Northern District of Ohio, Eastern Division · No. 5:20-cv-02711-CEF · Doc. 19 · 2021-10-25 · Docket on CourtListener

Full text

UNITED STATES DISTRICT COURT FOR
THE NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

)
THE U.S. SMALL BUSINESS.

)

ADMINISTRATION, et al.,

)

)
CASE NO.: 5:20CV2711

Movant/Appellants,

)

vs.

)
JUDGE JOHN R. ADAMS

)
WEATHER KING

)
HEATING & AIR, INC.,

)

Respondent/Appellee

)

DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT AND
MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF

Pursuant to Rule 56 of the Federal Rules of Civil Procedure, and in accordance with this
Court’s orders dated December 21, 2020 (Dkt. 7) and September 24, 2021 (Dkt. 14), the United
States of America (the “United States”), on behalf of the U.S. Small Business Administration
(“SBA”) and Isabella Casillas Guzman,1 moves for summary judgment on each of Weather King
Heating and Air Inc.’s claims. In support of this Motion, the United States submits the attached
Memorandum of Points and Authorities together with its exhibits.

1 Ms. Guzman has succeeded Ms. Carranza as the U.S. Small Business Administration’s
Administrator. See Fed. R. Civ. P. 25(d).
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TABLE OF CONTENTS
STATEMENT OF THE ISSUES ............................................................................................. 1
CASE BACKGROUND .......................................................................................................... 3
A.
Statutory and Regulatory Background................................................................ 3

1.
The Small Business Administration ........................................................ 3

2.
The CARES Act .................................................................................... 5

3.
PPP Lending Under The CARES Act ..................................................... 6
4.
2021 Economic Aid Act ......................................................................... 8
B.
Procedural History ...........................................................................................10
LEGAL STANDARD ............................................................................................................12
SUMMARY OF THE ARGUMENT.......................................................................................12
ARGUMENT…………………………………………………………………………………….13
I.
SBA DID NOT VIOLATE SECTION 525(A) OF THE
BANKRUPTCY CODE IN DISQUALIFYING DEBTORS
FROM RECEIVING PPP LOANS………………………………………………………13

A.
PPP Proceeds Are Loans…………………………………………………………15

B.
Loans Are Not Covered By Section 525(a)……………………………...............16

C.
PPP Loans Are Not “Similar Grants” To Licenses, Permits, Charters, Or
Franchises........................................................................................................19
D.
Subsequent Legislation Confirms That Congress Did Not Intend For The
PPP To Be Subject to Section 525(a) ................................................................22
II.
WEATHER KING’S APA CLAIMS FAIL AS A MATTER OF LAW .........................24

A.
The EAA Fatally Undermines Plaintiff’s APA Claims.......................................24
B.
The SBA Did Not Exceed Its Statutory Authority Under 5 U.S.C. §
706(2)(C).........................................................................................................28
1.
Chevron’s Step One: Congress Did Not Speak To The Direct
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iii

Question At Issue in the CARES Act .....................................................29
2.
Chevron’s Step Two: SBA Did Not Act in An
Arbitrary, Capricious, or Unreasonable Manner .....................................37
C.
The SBA Did Not Act Arbitrarily Or Capriciously Under 11 U.S.C. §
706(2)(A) ........................................................................................................40
D.
Weather King’s Retroactivity Arguments Also Fail ...........................................45
CONCLUSION ......................................................................................................................47

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TABLE OF AUTHORITIES
Cases

Pages

Agaña v. United States SBA (In re Archbishop of Agaña),
Nos. 19-00010, 20-00002,
2021 WL 1702311 (Bankr. D. Guam Feb. 23, 2021)...................................................... passim

Alpha Visions Learning Acad., Inc. v. Carranza,
No. 20-00071, 2020 WL 2893413 (Bankr. W.D. Tenn. June 2, 2020) ................................... 16

Andrus v. Glover Constr. Co.,
446 U.S. 608 (1980) ............................................................................................................ 28

Atrium Med. Ctr. v. U.S. Dept. of Health and Human Servs.,
766 F.3d 560 (6th Cir. 2014) ............................................................................................... 31

Ayes v. U.S. Dep’t of Veterans Affairs,
473 F.3d 104 (4th Cir. 2006) ........................................................................................ passim

Barnhard v. Peabody Coal Co.,
537 U.S. 149 (2003) ............................................................................................................ 20

Bell v. New Jersey,
461 U.S. 773 (1983) ............................................................................................................ 29

Chevron, USA, Inc. v. Nat. Res. Def. Council, Inc.,
467 U.S. 837 (1984) ..................................................................................................... passim

Conn. Nat’l Bank v. Germain,
503 U.S. 249 (1992) ............................................................................................................ 20

Cont’l Cas. Co. v. United States,
314 U.S. 527 (1942). ........................................................................................................... 28

Defy Ventures, Inc. v. SBA,
No. CCB-20-1838, 2020 WL 3546873 (D. Md. June 29, 2020);). ......................................... 35

DHS v. Regents of the Univ. of Cal.,
140 S. Ct. 1891 (2020) ........................................................................................................ 46

Diocese of Rochester v. U.S. Small Bus. Admin.,
466 F. Supp. 3d 363 (W.D.N.Y. 2020) .......................................................................... passim

DV Diamond Club of Flint, LLC v. SBA,
Case: 5:20-cv-02711-CEF Doc #: 19 Filed: 10/25/21 4 of 58. PageID #: 209

960 F.3d 743 (6th Cir. 2020) ........................................................................................ passim

Exquisito Servs., Inc. v. United States,
823 F.2d 151 (5th Cir. 1987) ............................................................................................... 19

In re Gateway Radiological Consultants,
983 F.3d 1239 (11th Cir. 2020)..................................................................................... passim

In re Goldrich,
771 F.2d 28 (2d Cir. 1985) ............................................................................................. 19-21

Hancock v. Dodson, 958 F.2d 1374 (6th Cir. 1992).................................................................. 13

Henry Anesthesia Assocs. LLC v. Carranza,
No. 20-06084-LRC,
2020 WL 3002124 (Bankr. N.D. Ga. June 4, 2020) ....................................................... passim

Hidalgo Cty. Emergency Serv. Found. v. Carranza,
962 F.3d 838 (5th Cir. 2020) ...................................................................................... 3, 15-16

Jones v. United States,
526 U.S. 227 (1999) ............................................................................................................ 38

Motor Vehicle Mfrs. Assoc. v. State Farm Mut. Auto. Ins. Co.,
463 U.S. 29 (1983) .............................................................................................................. 42

Penobscot Valley Hosp. v. Carranza,
620 B.R. 1 (D. Me. Jan. 2020) ......................................................................................... 5, 22

Penobscot Valley Hosp. v. Carranza,
No. 20-1006, 2021 WL 150412 (D. Me. Jan. 12, 2021) ........................................................ 15

Pharaohs GC, Inc. v. SBA,
990 F.3d 217 (2d Cir. 2021) .....................................................................................16, 24, 35

Roman Catholic Church of the Archdiocese of Santa Fe v. SBA,
615 B.R. 644 (Bankr. D.N.M. May 1, 2020)......................................................................... 16

Russello v. United States,
464 U.S. 16 (1983) .............................................................................................................. 20

SBA v. McClellan,
364 U.S. 446 (1960) ........................................................................................................ 3, 32

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Schuessler v. SBA,
Adv. Proc. No. 20-02068-bhl,
2020 WL 2621186 (Bankr. E.D. Wisc. May 22, 2020) .................................................. passim

Springfield Hosp., Inc. v. Carranza,
No. 20-1003,
2020 WL 3422335 (Bankr. D. Vt. June 22, 2020)............................................................. 6, 16

Tenn. Hosp. Ass’n v. Azar,
908 F.3d 1029 (6th Cir. 2018). ........................................................................................... 30

Toth v. Mich. State Hous. Dev. Auth.,
136 F.3d 477 (6th Cir. 1998) ........................................................................................ passim

Tradeways, Ltd. v. U.S. Dep’t of the Treasury,
No. ELH-20-1324,
2020 WL 3447767 (D. Md. June 24, 2020) ................................................................... passim

United States v. Rutherford,
442 U.S. 544 (1979) ............................................................................................................ 29

United States v. Kimbell Foods,
440 U.S. 715 (1979) ..............................................................................................................4

Watts v. Pa. Hous. Fin. Co.,
876 F.2d 1090 (3d Cir. 1989)........................................................................................ passim

Whitman v. Am. Trucking Assoc.,
531 U.S. 457 (2001) ............................................................................................................ 38

Statutes
5 U.S.C. §§ 706 ............................................................................................................... passim

11 U.S.C. § 525 ............................................................................................................... passim

11 U.S.C. § 1183-84 ............................................................................................................... 10

15 U.S.C. § 631 ........................................................................................................................7

15 U.S.C. § 632 ........................................................................................................................4

15 U.S.C. § 633 ........................................................................................................................4

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vii

15 U.S.C. § 634 .............................................................................................................. 3, 4, 32

15 U.S.C. § 636 ............................................................................................................... passim

15 U.S.C. § 9005 ......................................................................................................................6

15 U.S.C. § 9012 ......................................................................................................................6

Consolidated Appropriations Act (2021 CAA),
PUB. L. NO. 116-260, 134 Stat. 1182 (2021) .................................................................. passim

Coronavirus Aid, Relief, and Economic Stimulus Act (CARES Act),
PUB. L. NO. 116-136, 134 Stat. 281 (2020) .................................................................... passim

Extending Authority for Commitments for the Paycheck Protection
Program and Separating Amounts Authorized,
PUB. L. NO. 115-147,134 Stat. 660 (2020) ..............................................................................9

Paycheck Protection Program & Health Care Enhancement Act,
PUB. L. NO. 116-139, 134 Stat. 620 (2020) ....................................................................... 8, 29

Paycheck Protection Program Flexibility Act of 2020 (PPP Flexibility Act),
PUB. L. NO. 116-142, 134 Stat. 641 (2020) ................................................................... 7, 8, 29

Small Business Act,
PUB. L. NO. 85-536,
72 Stat. 384 (1958) (codified at 15 U.S.C. §§ 631–657u) ............................................... passim

Regulations
13 C.F.R. § 120.10 ............................................................................................................... 4, 7

13 C.F.R. § 120.100..................................................................................................................4

13 C.F.R. § 120.101..................................................................................................................4

13 C.F.R. § 120.150..................................................................................................................5

13 C.F.R. § 120.2 .....................................................................................................................4

13 C.F.R. Part 121 .................................................................................................................. 37

13 C.F.R. Part 122 .................................................................................................................. 37

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viii

Rules
30 Fed. Reg. 9353 (July 29, 1965) .............................................................................................4

85 Fed. Reg. 20811 (Apr. 15, 2020) ................................................................................. passim

85 Fed. Reg. 23450 (Apr. 28, 2020) ................................................................................. passim

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MEMORANDUM OF POINTS AND AUTHORITIES

STATEMENT OF THE ISSUES
ISSUE 1: Did the U.S. Small Business Administration (“SBA”) violate 11 U.S.C. § 525(a) by
disqualifying entities in bankruptcy from receiving PPP loans?
ISSUE 2: Did SBA violate the Administrative Procedures Act by disqualifying entities in
bankruptcy from receiving PPP loans?
INTRODUCTION

In response to “the incredible economic devastation wrought by the COVID-19
pandemic,” Tradeways, Ltd. v. U.S. Dep’t of the Treasury, Civil Action No. ELH-20-1324, 2020
WL 3447767, at *3 (D. Md. June 24, 2020), Congress passed the Coronavirus Aid, Relief, and
Economic Stimulus Act (CARES Act), Pub. L. No. 116-136, 134 Stat. 281 (2020), signed into
law on March 27, 2020. The CARES Act created the Paycheck Protection Program (“PPP”),
§ 1102, 134 Stat. at 286-94, a $659 billion loan program administered by the Small Business
Administration (“SBA”) (which provide loan guarantees to lenders who make PPP loans) to
provide relief to small businesses expeditiously.

Although Weather King Heating & Air Inc. (“Weather King”) was not eligible for the
PPP as a bankrupt debtor, it obtained $109,200 in program funds by misrepresenting a material
fact on its PPP application (SBA Form 2483, attached as Exhibit 1). Specifically, Weather King
falsely certified on its application form that it was not currently involved in bankruptcy
proceedings when, in fact, it was.2 The rules established by the SBA clearly prohibited debtors
in bankruptcy from participating in the PPP and, indeed, the application form itself indicated that

2 See Dkt. 121 in 19-52957 (Weather King lender stating: “[Weather King] was not truthful when
it completed the Application by denying it was a debtor in bankruptcy and therefore by certifying
that the information contained in the application was true and accurate in all material respects, it
committed fraud upon Dollar Bank.”).
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the applicant would be ineligible if it responded in the affirmative when asked if it was currently
involved in bankruptcy proceedings.3 Ex. 1 at 1. Nevertheless, Weather King took the money,
and only then did it initiate an adversary proceeding against the United States to contend that it
should be eligible for the PPP and authorized to keep the funds it had obtained through false
certification. This false certification was plainly improper. But, in any event, Plaintiff’s4 claims
under 11 U.S.C. § 525 and the Administrative Procedures Act (“APA”) fail as a matter of law.
Plaintiff’s claims under section 525 of the Bankruptcy Code fail because, as
demonstrated below, PPP proceeds are loans. Under the Sixth Circuit’s controlling decision in
Toth v. Mich. State Hous. Dev. Auth., 136 F.3d 477, 480 (6th Cir. 1998), section 525(a) does not
cover loans or loan guarantees by its plain terms. Moreover, as further developed below, even if
the proceeds of the PPP loans at issues could be characterized as “grants,” PPP loans are not
“other similar grants” protected by section 525(a). Thus, Toth is dispositive of Plaintiff’s section
525 claim. Plaintiff’s APA claims fail because neither the CARES Act nor the Small Business
Act prohibits the challenged bankruptcy disqualification, the rule disqualifying debtors like
Plaintiff has promulgated before the PPP began, and the Administrative Record5 demonstrates
SBA based its decision upon consideration of the relevant factors and shows no clear error of

3 The application also requires the applicant to “certify that the information provided in this
application . . . is true and accurate in all material respects. I understand that knowingly making a
false statement to obtain a guaranteed loan from SBA is punishable under the law, including under
18 U.S.C. §§ 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to
$250,000; under 15 U.S.C. § 645 by imprisonment of not more than two years and/or a fine of not
more than $5,000; and, if submitted to a federally insured institution, under 18 U.S.C. 1014 by
imprisonment of not more than thirty years and/or a fine of not more than $1,000,000.” Ex. 1 at 2.
4 For ease of reference, Weather King is alternatively referred to as “Plaintiff” herein in light of
the fact that Weather King is the plaintiff in the underlying adversary proceeding. See infra at 10-
12 (describing procedural history in detail).
5 The Administrative Record includes public record documents and the attached Declaration of
SBA Deputy Associate Administrator for Capital Access John A. Miller (Miller Decl.), Exhibit 2,
who has been duly authorized by the SBA to “to explain the basis for the SBA’s determination to
exclude debtors in bankruptcy from obtaining PPP loan guarantees.” Miller Decl. ¶ 1.
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judgment.6
CASE BACKGROUND
A.
Statutory and Regulatory Background
1.
The Small Business Administration
Because Congress authorized the SBA to administer the PPP, and established the PPP
under a pre-existing SBA loan program, the backdrop against which the SBA functions and that
loan program operates provides important context. In re: Gateway Radiology Consultants P.A.,
983 F.3d 1239, 1247 (11th Cir. 2020). Congress created the SBA to “aid, counsel, assist, and
protect insofar as is possible the interests of small-business concerns.” SBA v. McClellan, 364
U.S. 446, 447 (1960) (quoting the Small Business Act of 1953,PUB. L. NO. 83-163, § 202, 67 Stat.
232, 232 (1953)). In so doing, Congress gave the SBA “extraordinary broad powers to accomplish
these important objectives, including that of lending money to small businesses whenever they
could not get necessary loans on reasonable terms from private lenders.” Id.

Congress likewise delegated to the SBA an array of rulemaking and other powers.
Gateway, 983 F.3d at 1248. It empowered the SBA to “make such rules and regulations as [it]
deems necessary to carry out the authority vested in” it, to “take any and all actions . . . when it
determines such actions are necessary or desirable in making . . . or otherwise dealing with or
realizing on loans,” and to “establish general policies . . . which shall govern the granting and

6 Even if Plaintiff’s claims did not fail on the merits for the reason set above, Plaintiff’s claims for
injunctive relief would still fail because this Court lacks subject matter jurisdiction over Plaintiff’s
claims. By statute, “no attachment, injunction, garnishment, or other similar process, mesne or
final, shall be issued against the [SBA] Administrator or [her] property.” 15 U.S.C. § 634(b)(1).
The Fifth Circuit recently held that this provision precludes an injunction against the same SBA
policy at issue here. See In re Hidalgo Cty. Emergency Serv. Found., 962 F.3d 838, 840 (5th Cir.
2020) (concluding under Section 634(b) that a court exceeded its authority by requiring SBA to
allow an entity in bankruptcy to participate in the PPP). Thus, this Court does not have subject
matter jurisdiction to issue injunctive relief that effectively mandates that SBA forgive Plaintiff’s
PPP loan.
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denial of applications for financial assistance.” 15 U.S.C. §§ 633(d), 634(b)(6)-(7); see also 30
Fed. Reg. 9353, 9353 (July 28, 1965). Congress also authorized the SBA to “specify detailed
definitions or standards by which a business concern may be determined to be a small business
concern.” 15 U.S.C. § 632(a)(2)(A).
The SBA supports small businesses primarily through “Section 7(a) loans,” referring to the
section of the Small Business Act authorizing their issuance. See Small Business Act, PUB. L. NO.
85-536, § 7(a), 72 Stat. 384, 387-89 (1958) (amending the Small Business Act of 1953). The SBA
may provide Section 7(a) loans through a variety of financing arrangements, id., but typically
guarantees loans made by private lenders. United States v. Kimbell Foods, Inc., 440 U.S. 715, 719
n.3 (1979). Ordinarily, an applicant seeking a general Section 7(a) business loan must be a for-
profit business located in the United States, 13 C.F.R. § 120.100(a)-(c); meet the size standards for
a “small
business
concern,”
15
U.S.C. § 632(a)(2);
13
C.F.R. §
120.100(d);
13 C.F.R. pt. 121; and demonstrate that the desired credit is not available elsewhere on reasonable
terms. 15 U.S.C. § 632(h); 13 C.F.R. §§ 120.100(e), 120.101.
Additionally, applicants “must be creditworthy.” 13 C.F.R. § 120.150. This creditworthy
requirement flows directly from Section 7(a) of the Small Business Act requiring that “[a]ll loans
made under this subsection shall be of such sound value or so secured as reasonably to assure
repayment.” Small Business Act § 7(a), 72 Stat. at 398 (codified at 15 U.S.C. § 636(a)(6)). Under
the Section 7(a) Loan Program, then, and “[i]n obedience of that statutory mandate, the SBA has
long included a creditworthiness requirement in its lending criteria.” Gateway, 983 F.3d at 1248.
Specifically, any Section 7(a) loan applicant must undergo a creditworthiness inquiry that
considers the “credit history of the applicant,” the “[s]trength of the business,” the “[a]bility to
repay the loan with earnings from the business,” and the “[p]otential for long-term success.” 13
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C.F.R. § 120.150. In the same vein, and “[c]onsistent with the soundness and repayment criteria,
the SBA considers an applicant’s bankruptcy status or history.” Gateway, 983 F.3d at 1248. The
SBA’s official Section 7(a) Loan Application Form, SBA Form 1919 (Ex. 3), historically has asked
applicants whether they have “ever filed for bankruptcy protection.” SBA Form 1919, and all
other “official SBA notices and forms,” are part of the SBA’s “Loan Program Requirements”
imposed upon lenders. 13 C.F.R. § 120.10. The SBA also allows lenders to consider “past
bankruptcy” and in fact requires that each lender’s credit analysis include a discussion of any
“bankruptcy filings” by the loan applicant when the lender recommends approving a loan
application. Gateway, 983 F.3d at 1248.
2.
The CARES Act
The CARES Act was signed into law on March 27, 2020, in order to provide emergency
economic assistance to ameliorate the effects of the COVID-19 pandemic. The act “temporarily
adds a new product,” known as the PPP, “to the [SBA’s Section] 7(a) Loan Program.” Id.; see
also CARES Act § 1102(a), 134 Stat. at 286 (noting “Section 7(a) of the Small Business Act . . .
is amended” in creating the PPP). The PPP provides loans to eligible businesses for specified
expenses. See CARES Act § 1102, 134 Stat. at 290 (enumerating “allowable” expenses for PPP
loans) (codified at 15 U.S.C. § 636(a)(36)(F)). PPP loans used for certain allowable expenses,
such as payroll costs, mortgage interest payments, and rent, are eligible for forgiveness. CARES
Act § 1105, 134 Stat. at 298 (codified at 15 U.S.C. § 9005(b)). Other allowable expenses under
the PPP—such as costs related to the continuation of group health care benefits—will not be
forgiven. Gateway, 983 F.3d at 1247 (“The statutory list of allowable uses of loan funds is longer
than the list of uses that qualify for loan forgiveness; all forgivable uses are allowable, but not all
allowable uses are forgivable.”).
Under the CARES Act, Congress expressly gave the SBA rulemaking power for the PPP,
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specifying that the SBA “shall issue regulations to carry out this title.” CARES Act § 1114, 134
Stat. at 312 (codified at 15 U.S.C. § 9012). Further, “Congress ordered that it be done posthaste,”
Gateway, 983 F.3d at 1249, requiring that the SBA issue regulations implementing the PPP “[n]ot
later than 15 days after the date of enactment of this Act.” 15 U.S.C. § 9012. To that end, Congress
also directed that PPP regulations be issued “without regard to the notice requirements under [the
APA].” Id.; see also Gateway, 983 F.3d at 1249 (“Recognizing the rulemaking deadline would
otherwise be impossible, Congress freed the SBA from having to comply with the notice
requirement that is a familiar part of the rulemaking process.”).
3.
PPP Lending Under The CARES Act
As the Eleventh Circuit opined, “Section 7(a) matters to this case because the PPP was not
created as a standalone program; instead it was added in § 7(a), albeit with several of that
subsection’s general eligibility requirements relaxed.” Gateway, 983 F.3d at 1249. For instance,
unlike the traditional Section 7(a) Loan Program, the PPP includes nonprofit organizations and
relaxes size limitations, CARES Act § 1102(a)(2), 134 Stat. at 288 (codified at 15 U.S.C. §
636(a)(36)(D)), and exempts applicants from demonstrating that credit is not available elsewhere.
CARES Act § 1102(a)(2), 134 Stat. at 291 (codified at 15 U.S.C. § 636(a)(36)(I)). Where not
expressly modified, however, pre-existing Section 7(a) requirements govern the PPP. CARES
Act, § 1102(a)(2), 134 Stat. at 287 (noting that, “[e]xcept as otherwise provided,” the SBA “may
guarantee covered loans under the same terms, conditions, and processes” as other Section 7(a)
loans) (codified at 15 U.S.C. § 636(a)(36)(B)). One requirement Congress left in place is the
statutory mandate that “[a]ll loans” must be of “sound value.” 15 U.S.C. § 636(a)(6); see also
Gateway, 983 F.3d at 1249 (“What the CARES Act did not do for PPP loans is also significant. It
did not exempt them from the § 7(a) sound value requirement.”).
Pursuant to Congress’s broad delegation of authority, the SBA posted its first regulations
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implementing the PPP on April 2, 2020, less than one week after the CARES Act’s passage. In its
First Interim Final Rule, the SBA explained that the need to “provide relief to America’s small
businesses expeditiously,” as Congress intended, required “streamlining the requirements of the
regular 7(a) program.” 85 Fed. Reg. at 20,812. To that end, the SBA determined that PPP lenders
would not have to undertake the multi-factor creditworthiness test set forth at 13 C.F.R. § 120.150.
Id. Instead, lenders would “rely on certifications of the borrower” required on the PPP Application
Form. Id. Under the heading “What do lenders have to do in terms of loan underwriting?” the
SBA notes that lenders’ must only “[f]ollow[] applicable [Bank Secrecy Act] protocols,”
“[c]onfirm[] receipt of information demonstrating” salaries, taxes, and payroll costs, and
“[c]onfirm[] receipt of borrower certifications contained in [the PPP] [A]pplication [F]orm.” Id. at
20,815; see also id. (“Each lender’s underwriting obligation under the PPP is limited to the items
above and reviewing the [PPP] Application Form.”). One question contained in the PPP
Application Form asks whether the borrower is “presently involved in any bankruptcy.” SBA
Form 2483 (Ex. 4); See also Standard Operating Procedure 50-10 5(K) at 39 (allowing lenders to
consider “bankruptcy history”).7 By regulation, requirements listed on Form 1919 and other
official SBA forms comprise part of the “Loan program requirements.” 13 C.F.R. § 120.10.
Lenders agree to abide by these requirements when joining the section 7(a) lending program. Id.;
see also SBA Forms 3506 (Ex. 5) and 3507 (addressing new PPP lenders) (Ex. 6).
In a rule providing additional explanation and guidance to borrowers, the SBA explained
that, “[i]f the applicant . . . is the debtor in a bankruptcy proceeding . . . the applicant is ineligible
to receive a PPP loan.” See Fourth Interim Final Rule (Ex. 7). The Fourth Interim Final Rule also

7Available at https://www.sba.gov/sites/default/files/2019-
02/SOP%2050%2010%205%28K%29%20FINAL%202.15.19%20SECURED%20copy%20past
e.pdf.
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“explain[ed] why bankruptcy debtors are ineligible.” Gateway, 983 F.3d at 1250. Specifically,
the SBA determined that, “in consultation with the [Treasury] Secretary . . . providing PPP loans
to debtors in bankruptcy would present an unacceptably high risk” of both “unauthorized use of
funds” and “non-repayment of unforgiven loans.” Fourth Interim Final Rule, 85 Fed. Reg. at
23,451. The Fourth Interim Final Rule further noted that “the Bankruptcy Code does not require
any person to make a loan or financial accommodation to a debtor in bankruptcy” and that SBA
Form 2483 (Ex. 4), which contains the bankruptcy certification, “is a loan program requirement.”
Id.
Congress initially authorized the SBA to guarantee up to $349 billion worth of PPP loans.
CARES Act § 1102(b)(1), 134 Stat. at 293. On April 16, 2020, Congress increased the
authorization to $659 billion. Paycheck Protection Program & Health Care Enhancement Act
(CARES Act II), PUB. L. NO. 116-139, § 101(a)(1), 134 Stat. 620, 620 (2020). Through the
Paycheck Protection Program Flexibility Act of 2020, signed into law June 5, 2020, Congress,
inter alia, altered certain requirements for loan forgiveness and revised the deferral period for PPP
loans. PUB. L. NO. 116-142, § 3, 134 Stat. 641, 641-42 (2020). As initially enacted, the CARES
Act required PPP funds to be disbursed within just three months. CARES Act § 1102(a)(2), 134
Stat. at 286 (defining “covered period” to end on June 20, 2020). Congress subsequently extended
PPP commitments through August 8, 2020. Extending Authority for Commitments for the
Paycheck Protection Program & Separating Amounts Authorized, PUB. L. NO. 116-147, § 1, 134
Stat. 660, 660 (2020).
4.
2021 Economic Aid Act
As noted above, part of the Consolidated Appropriations Act of 2021, Congress enacted
the Economic Aid Act, 2021, Pub L. No. 116-260, 134 Stat. 1182 (2020) (“2021 EAA”). Division
N, Title III of the 2021 EAA, entitled “CONTINUING THE PAYCHECK PROTECTION
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PROGRAM AND OTHER SMALL BUSINESS SUPPORT,” appropriates an additional
$284,450,000,000 for the PPP, § 323(d)(1)(A), 134 Stat. at 2019, and makes a number of other
changes to the PPP. For instance, Congress expanded PPP eligibility to housing cooperatives,
news organizations, and 501(c)(6) and destination marketing organizations. § 316–318, 134 Stat.
at 2011–15. Congress also expanded the categories of allowable expenses for PPP proceeds, §
304, 134 Stat. at 1993, and mandated a simplified forgiveness application for loans up to $150,000.
§ 307, 134 Stat. at 1998.

Particularly relevant to this matter, in section 320 of the act, entitled “Bankruptcy
Provisions,” Congress made certain categories of bankrupt debtors potentially eligible for PPP
loans, subject to the SBA Administrator’s advance, categorical authorization. 134 Stat. at 2015.
The amendments to the Bankruptcy Code in section 320 would become effective only if “the
[SBA] submits to the Director of the Executive Office for United States Trustees a written
determination that, subject to satisfying any other eligibility requirements, any debtor in possession
or trustee that is authorized to operate the business of the debtor under section 1183, 1184, 1203,
1204, or 1304 of title 11, United States Code, would be eligible for a [PPP] loan.” § 320(f)(1)(A).

Specifically, section 320 amends the Bankruptcy Code to permit a bankruptcy court to
“authorize a debtor in possession or a trustee that is authorized to operate the business of the debtor
under section 1183, 1184, 1203, 1204, or 1304 of [title 11]” to obtain a PPP loan. With section
320, then, Congress recognized that the SBA previously ruled all debtors in bankruptcy ineligible
for PPP loan guarantees and did not invalidate that rule. Rather, Congress created a path for certain
categories of debtors to be potentially eligible for PPP loan guarantees, explicitly establishing the
SBA Administrator as a gatekeeper who must first determine whether, with the discretion
delegated to the SBA, those categories of debtors will be permitted to obtain PPP loan guarantees.
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Congress made debtors in subchapter V of Chapter 11 potentially eligible for PPP loans, subject
to the SBA Administrator’s advance, express written determination, but not traditional Chapter 11
debtors, like Plaintiff. 11 U.S.C. § 1183-84. No such express written determination was made.
Thus, under the 2021 EAA, bankruptcy courts cannot exercise this new authority to
authorize PPP loans to certain debtors, though not traditional Chapter 11 debtors like Plaintiff,
unless the Administrator determined to make the enumerated categories of debtors eligible to
participate in the PPP. The Administrator did not issue the above referenced written
determination. In the SBA’s first interim final rule issued after the 2021 EAA, it continued to
prohibit bankrupt debtors from obtaining PPP loan guarantees.8
B.
Procedural History
As noted above, unlike the vast majority of other cases challenging the bankruptcy
exclusion, Weather King obtained a PPP loan by falsely certifying that it was not in bankruptcy.9
See Ex. 1; Compl. ¶ 30. Subsequently, Plaintiff received a PPP loan based upon that false
certification. Compl. ¶ 30 (“Debtor’s owner . . . worked with Dollar Bank FSB . . . to apply for
and obtain a PPP loan . . . . The loan was approved and subsequently funded on April 25,
2020.”). That Plaintiff here obtained a PPP loan separates this case from nearly every other case
in which a PPP applicant has sought to enjoin the SBA for its exclusion of debtors in bankruptcy

8 See Business Loan Program Temporary Changes; Paycheck Protection Program as Amended by
Economic Aid Act 26–27 (Jan. 6, 2021), https://go.usa.gov/xAUhZ (providing that “[t]he
Borrower Application Form for PPP loans (SBA Form 2483), which reflects this restriction in the
form of a borrower certification, is a loan program requirement” and lenders may continue to “rely
on an applicant’s representation concerning the applicant’s or an owner of the applicant’s
involvement in a bankruptcy proceeding.”).
9 In the only other case Defendants are aware of in which a plaintiff obtained a PPP loan by falsely
certifying it was not in bankruptcy and then sought (and obtained) an injunction from the
bankruptcy court, the Eleventh Circuit, on direct appeal, vacated the injunction, ruling for the SBA
and rejecting claims identical to that made by Plaintiff here. See generally In re: Gateway
Radiology Consultants P.A., 983 F.3d 1239 (11th Cir. 2020).
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from obtaining PPP loans. The relief sought in those cases, an injunction requiring the SBA to
process a debtor’s loan application without disqualification for bankruptcy so that the debtor may
obtain a PPP loan, is relief that Plaintiff has already received. Plaintiff instead brought an
adversary proceeding in bankruptcy court on May 5, 2020, seeking injunctive relief effectively
forcing SBA to not deny Plaintiff loan forgiveness on the basis of its ineligibility due to its
bankruptcy status. See, e.g., Compl. ¶ 35 (requesting that the Court “enjoin the SBA from
enforcing its unlawful and discriminatory policy that forbids Debtor from participating in the
PPP”).
On May 22, 2020, the bankruptcy court entered a preliminary injunction order against the
SBA, concluding that the Plaintiff was likely to succeed on the merits on its APA claims that the
SBA exceeded its statutory authority to implement the CARES Act PPP and that the SBA’s PPP
rules, issued under Congress’s authorization in the CARES Act, would apply retroactively to
Plaintiff. Bankr. Dkt. 26 at 2-3. The preliminary injunction order incorporated the “findings and
conclusions stated” in the bankruptcy court’s May 21, 2020 oral decision. Id. at 2. In that oral
decision, the Bankruptcy Court explained that it had the authority to enter a preliminary
injunction against the SBA, but that the Bankruptcy Court “lacks authority to enter final
judgments with respect to the APA claims.” Bankr. Dkt. 41. at 11:20-21.
On June 4, 2020, the United States (1) moved to withdraw the reference of the adversary
proceeding to the Bankruptcy Court pursuant to 28 U.S.C. § 157(d), and Rule 5011 of the
Federal Rules of Bankruptcy Procedure; and (2) timely filed a notice of appeal of the Bankruptcy
Court’s preliminary injunction. This Court granted the United States’ motion to withdraw the
reference on December 4, 2020. Dkt. 2. As the result of the order withdrawing the reference,
the current case number, 5:20CV2711, was created. Dkt. 4. At the same time, the Court
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consolidated the appeal proceeding filed by the United States, 5:20CV1241, and, for the
purposes of a clean record, made 5:20CV2711 the lead matter and administratively closed
5:20CV1241. Id. The Court then ordered the parties to submit a briefing schedule for cross
motions for summary judgment. Id. On December 17, 2020, the Court entered a briefing
schedule in which the parties would each file cross motions for summary judgment thirty days
after the Court ruled on Plaintiff’s motion to “complete the administrative record.” Dkt. 7. This
Court denied Plaintiff’s motion to complete the administrative record on September 24, 2021.
Dkt. 14.
LEGAL STANDARD
The standard of review applicable to motions for summary judgment is established by
Federal Rule of Civil Procedure 56 and the associated caselaw. Rule 56 provides that summary
judgment “shall be rendered forthwith if the pleadings, depositions, answers to interrogatories,
and admissions on file, together with the affidavits, if any, show that there is no genuine issue as
to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.
R. Civ P. 56(c); see also Hancock v. Dodson, 958 F.2d 1367, 1374 (6th Cir. 1992).
SUMMARY OF THE ARGUMENT

Congress passed the CARES Act to address a massive decrease in commercial activity
caused by efforts to stem the spread of the pandemic. The PPP is a key part of the CARES Act,
providing $659 billion in loan guarantees for small businesses across the nation. Faced with large
but finite resources and acute need, Congress delegated expansive authority to the SBA to
administer the PPP and get loans to qualified businesses as quickly as possible. In doing so
however, Congress left intact its statutory commandment that the SBA ensure program loans be
of “sound value” so as “reasonably to assure repayment.” 15 U.S.C. § 636(a)(6).

To meet these Congressional obligations, the SBA transformed its current small business
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loan program, which requires case-by-case underwriting before a loan can be approved, into an
easily administrable loan guarantee system with minimal underwriting. Specifically, the SBA used
its existing underwriting factors to draw bright line rules that lenders could quickly evaluate, such
as by excluding debtors in bankruptcy.

Weather King contends that this exclusion of debtors from bankruptcy violated 11 U.S.C.
§ 525(a). But, as demonstrated below, PPP proceeds are loans. As explained in more detail below,
controlling precedent from the Sixth Circuit establishes that section 525(a) does not cover loans
and loan guarantees by its plain terms. Second, Plaintiff contends that SBA violated the APA by
(1) exceeding its authority and (2) acting in an arbitrary and capricious manner in violation of the
APA, and (3) improperly engaging in retroactive rulemaking. But, as demonstrated below, these
arguments also fail. Indeed, following the enactment of the 2021 EAA, both courts to consider
similar APA arguments in the context of the PPP bankruptcy exclusion are rejected them.10 The
same result should be reached here. Neither the CARES Act nor the Small Business Act prohibits
the challenged bankruptcy disqualification, and the record demonstrates SBA based its decision
upon consideration of the relevant factors, showed no clear error of judgment, or improper
retroactive rulemaking because the rule disqualifying debtors like Plaintiff was promulgated before
the PPP began. For all of these reasons, this Court should grant Defendants’ motion for summary
judgment.
ARGUMENT
I.
SBA DID NOT VIOLATE SECTION 525(A) OF THE BANKRUPTCY CODE IN
DISQUALIFYING DEBTORS FROM RECEIVING PPP LOANS
Like many other plaintiffs before it, Weather King contends that SBA’s exclusion of

10 See, e.g., U.S. Small Business Admin. v. Vestavia Hills, Ltd., No. 20-01308, 2021 WL 1165038
(S.D. Cal. Mar. 26, 2021); Archbishop of Agaña v. SBA, No. 20-0002, 2021 WL 1702311 (D.
Guam February 22, 2021).
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entities in bankruptcy from receiving PPP loans violated 11 U.S.C. § 525(a). See Compl. ¶¶ 36-
50. Section 525(a) prohibits governmental units from denying “a license, permit, charter,
franchise, or other similar grant” solely on the basis of bankruptcy. It does not apply to this case
for several reasons. First, PPP proceeds are loans. As developed below, the Sixth Circuit in
controlling precedent has concluded that section 525(a) does not cover loans and loan guarantees
by its express terms. This is dispositive of Weather King’s section 525 claims as the bankruptcy
court determined. See May 21, 2020 Oral Ruling of Bankruptcy Court, Bankr. Dkt. 41, at 17-21.
Second, even if a PPP loan was characterized as a “grant,” PPP loan proceeds are in no way similar
to “a license, permit, charter, [or] franchise.” Thus, consistent with the Sixth Circuit’s controlling
decision in Toth, the overwhelming majority of courts in other jurisdictions have also rejected
substantial similar Section 525 arguments to those made by Plaintiff here.11 As further developed

11 See, e.g., Vestavia Hills, Ltd., 2021 WL 1165038, at *18-19; Archbishop of Agaña v. SBA, , 2021
WL 1702311; Penobscot Valley Hosp. v. Carranza, 620 B.R. 1, 5-6 (D. Me.), adopting in part,
Adv. Nos. 20-1005, 20-1006, 2020 WL 3032939 (Bankr. D. Me. June 3, 2020); Tradeways, Ltd.
v. U.S. Dep’t of the Treasury, No. CV ELH-20-1324, 2020 WL 3447767, at *19 (D. Md. June 24,
2020); Diocese of Rochester v. U.S. Small Bus. Admin., 466 F. Supp. 3d 363, 380 (W.D.N.Y.
2020); Henry Anesthesia Assoc. LLC v. Carranza, Adv. No. 20-6084, 2020 WL 3002124, at *7
(Bankr. N.D. Ga. June 4, 2020); Schuessler v. SBA, Adv. No. 20-2065, 2020 WL 2621186, at *9
(Bankr. E.D. Wis. May 21, 2020).

In addition, numerous other courts have rejected suits challenging the bankruptcy exclusion on
APA or sovereign immunity grounds. See, e.g., NRP Lease Holdings LLC v. Carranza, No. 20-
00606 (M.D. Fla. Jan. 19, 2021); USF Federal Credit Union v. Gateway Radiology Consultants,
P.A. (In re Gateway Radiology Consultants, P.A.), 983 F.3d 1239 (11th Cir. 2020); Coastal Int’l
Inc. v. Carranza, Adv. Proc. No. 20-03027 (N.D. Cal. June 29, 2020); Fishing Vessel Owners
Marine Ways, Inc. v. Seattle Machine Works, Adv. Proc. No. 20-01040 (Bankr. W.D. Wa. June
24, 2020); In re Hidalgo Cty. Emergency Servs. Found., 962 F.3d 838 (5th Cir. 2020); Dancor
Transit, Inc. v. SBA, Adv. No. 2:20-AP-07024 (Bankr. W.D. Ark. June 22, 2020); Fox Valley Pro
Basketball Inc. v. SBA, No. 20-CV-793 (E.D. Wis. June 16, 2020); In re Edison Price Lighting,
Inc. No. 20-22614 (Bankr. S.D.N.Y. June 16, 2020); Eisenga v. SBA, Adv. Proc. No. 20-00048
(Bankr. E.D. Wis. June 9, 2020); iThrive Health, LLC v. Carranza, Adv. Proc. No. 20-00151
(Bankr. D. Md. June 8, 2020); Hartshorne Mining, LLC. v. Carranza, Adv. No. 20-4012 (Bankr.
W.D. Ky. June 1, 2020); Jack Cty. Hosp. Dist. v. SBA, Adv. No. 20-04035 (Bankr. N.D. Tex. May
21, 2020); Starplex Corp. v. Carranza, Adv. No. 20-00095 (Bankr. D. Ariz. May 21, 2020); NAI
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below, the same result should be reached here.
A.
PPP Proceeds Are Loans
PPP loans are, bluntly put, loans. Through the PPP, Congress “authorized the [SBA] to
guarantee favorable loans to certain businesses affected by the COVID-19 pandemic.” Pharaohs
GC, Inc. v. U.S. SBA, 990 F.3d 217, 223 (2d Cir. 2021). To that end, Congress placed the PPP
within “section 7(a) of the Small Business Act, 15 U.S.C. § 636(a),” which contains “SBA’s
primary program for providing financial assistance to small businesses,” and “authorized the SBA
Administrator to guarantee PPP loans ‘under the same terms, conditions, and processes’ as 7(a)
loans,” except as where otherwise specified. Id. at 224 (quoting 15 U.S.C. § 636(a)(36)(B)); see
also Pharaohs GC, 990 F.3d at 227 (“PPP was not created as a standalone program but was added
into the existing § 7(a) program”); Gateway, 983 F.3d at 1249; In re Hidalgo Cty. Emergency
Servs. Found., 962 F.3d 838, 840 (5th Cir. 2020) (“The PPP is implemented under section 7(a) of
the Small Business Act . . . .”).

Cap., Inc. v. Carranza, Adv. No. 20-01051 (Bankr. C.D. Cal. May 20, 2020); PPV, Inc. v.
Carranza, Adv. No. 20-03054 (Bankr. D. Or. May 20, 2020); Inland Family Practice Ctr., LLC v.
SBA, Adv. No. 20-06016 (Bankr. S.D. Miss. May 15, 2020); Okorie v. SBA, Adv. No. 20-06015
(Bankr. S.D. Miss. May 15, 2020); Abe’s Boat Rentals, Inc. v. Carranza, Adv. No. 20-01029
(Bankr. E.D. La. May 13, 2020); J.H.J., Inc. v. Carranza, Adv. No. 20-05014 (Bankr. W.D. La.
May 12, 2020); Areway Acquisition, Inc. v. SBA, Adv. No. 20-01037 (Bankr. N.D. Ohio May 12,
2020); Breda, LLC v. Carranza, Adv. No. 20-01008 (Bankr. D. Me. May 11, 2020); Trudy’s Texas
Star, Inc. v. Carranza, Adv. No. 20-01026 (Bankr. W.D. Tex. May 7, 2020); Asteria Educ., Inc.
v. Carranza, Adv. No. 20-05024 (Bankr. W.D. Tex. Apr. 30, 2020); Cosi, Inc. v. SBA, Adv. No.
20-50591 (Bankr. D. Del. Apr. 30, 2020).

But see Springfield Hosp., Inc. v. Carranza, Adv. Proc. No. 20-1003, 2020 WL 3422335 (Bankr.
D. Vt. June 22, 2020), appeal docketed, No. 20-3903 (2d Cir.); Alpha Visions Learning Acad., Inc.
v. Carranza, Adv. Proc. No. 20-00071, 2020 WL 2893413 (Bankr. W.D. Tenn. June 2, 2020),
appeal docketed, No. 20-02416 (W.D. Tenn.); Roman Catholic Church of the Archdiocese of Santa
Fe v. SBA, 2020 Bankr. LEXIS 1211 (Bankr. D.N.M. May 1, 2020), appeal docketed, No. 20-
00473 (D.N.M.); Organic Power LLC v. SBA, Adv. Proc. No. 20-00055 (Bankr. D.P.R. July 24,
2020), appeal docketed, No. 20-01411 (D.P.R.).
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Throughout the statute creating the PPP, Congress unambiguously designated the PPP as
a “loan” program. See, e.g., CARES Act § 1102, 134 Stat. at 287 (discussing “paycheck protection
loans”); see also Tradeways, 2020 WL 3447767, at *17 (“In total, the world ‘loan’ appears some
75 times in the CARES Act provisions establishing the PPP. The takeaway is clear: the $659
billion disbursed to borrowers through the PPP are loans, not grants.”).12 Correspondingly, the
statute repeatedly refers to recipients of PPP loans as “borrowers.” See, e.g., 15 U.S.C.
§ 636(a)(36)(G)
(specifying
“Borrower Requirements”).
Consistent
with
Congress’s
denomination of the PPP as a loan program, PPP borrowers enter into “actual loan[s]” with private
lending institutions and sign promissory notes in which they agree to repay the loan balance, with
interest, prior to a specified maturity date. Diocese of Rochester v. U.S. Small Bus. Admin., 466
F. Supp. 3d 363, 379 (W.D.N.Y. 2020); see also 85 Fed. Reg. at 23,450. In addition, borrowers
must comply with specific and mandatory requirements to be eligible for forgiveness, and their
compliance will be evaluated by lenders or the SBA; unless and until compliance is determined,
borrowers have a payment obligation. See 85 Fed. Reg. at 20,811.
As developed in the next sub-section, these facts are sufficient to resolve this claim.
Because the PPP is a loan guarantee program, and because loan guarantee programs are not
subject to Section 525(a) by its plain terms, that provision has no applicability to SBA’s policy
of limiting eligibility for participation in the PPP based on bankruptcy status.
B.
Loans Are Not Covered By Section 525(a)
Controlling precedent in the Sixth Circuit makes clear that Section 525(a) does not

12 Congress refers to PPP proceeds as “Paycheck protection loans” and grants the SBA authority
to “guarantee covered loans under same terms, conditions, and processes as a loan made under
this subsection.” 15 U.S.C.§ 636(a)(36)(B) (emphasis added). In turn, Congress defined “covered
loan” to mean “a loan made under this paragraph during the covered period.” 15 U.S.C. §
636(a)(36)(A)(ii) (emphasis added).
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explicitly cover loans or loan guarantees. Specifically, the Sixth Circuit determined that Section
525(a) applies only to “benefits conferred by government that are unrelated to the extension of
credit” and, thus, does not loan programs. Toth v. Mich. State Hous. Dev. Auth., 136 F.3d 477,
480 (6th Cir. 1998). As the Sixth Circuit explained, “[t]he intent of Congress incorporated into
the plain language of § 525(a) should not . . . insulate a debtor from all adverse consequences of a
bankruptcy filing or discharge” and consideration of “an applicant’s financial responsibility is an
essential part of any lender’s evaluation of a post-discharge application for a loan or extension of
credit.” Toth, 136 F.3d at 480. Thus, in Toth, the court rejected the plaintiff’s claim that
Michigan’s denial of her application for a low income home improvement loan based upon a recent
discharge in bankruptcy was discriminatory under section 525(a). The court explained that “the
courts of appeals that have approached the question have read the statute’s reach narrowly,
focusing upon the specific language of the statute.” Id. at 479−80. The Sixth Circuit followed suit,
concluding that “[t]he items enumerated in the statute—licenses, permits, charters, and
franchises—are benefits conferred by government that are unrelated to the extension of credit.” Id.
at 480. The court further explained:
[T]he target of § 525(a) is government’s role as a gatekeeper in determining
who may pursue certain livelihoods. It is directed at governmental entities
that might be inclined to discriminate against former bankruptcy debtors in
a manner that frustrates the “fresh start” policy of the Bankruptcy Code, by
denying them permission to pursue certain occupations or endeavors. The
intent of Congress incorporated into the plain language of § 525(a) should
not be transformed by employing an expansive understanding of the “fresh
start” policy to insulate a debtor from all adverse consequences of a
bankruptcy filing or discharge. A reckoning of an applicant’s financial
responsibility is an essential part of any lender's evaluation of a post-
discharge application for a loan or extension of credit.

Id. Thus, Toth is controlling with respect to Weather King’s section 525 claim and alone resolves
Count I of Plaintiff’s Complaint.
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Other circuits have reached the same conclusion. For instance, the Third Circuit concluded
that Section 525(a) is inapplicable to a program providing emergency loans to homeowners facing
imminent mortgage foreclosure. See Watts v. Pa. Hous. Fin. Co., 876 F.2d 1090, 1093 (3d Cir.
1989). Likewise, the Fourth Circuit concluded that Section 525(a) applies only to governmental
authorizations that “permit an individual to pursue some occupation or endeavor aimed at
economic betterment” and, thus, does not apply to a home loan guarantee program. Ayes v. U.S.
Dep’t of Veterans Affairs, 473 F.3d 104, 108 (4th Cir. 2006). The Fifth and Second Circuits have
reached the same conclusion. See In re Exquisito Servs., Inc., 823 F.2d 151, 153 (5th Cir. 1987)
(citing Goldrich and explaining that Section 525(a) should be construed narrowly); 3 William N.
Norton III, Bankruptcy Law and Practice § 59:2 (3d ed. Apr. 2020 Update) (“[Section] 525(a) does
not apply to the extension or guarantee of new credit to a debtor.”); In re Goldrich, 771 F.2d 28
(2d Cir. 1985) (holding that Section 525(a) did not apply to a student loan guarantee program,
explaining that a “credit guarantee is not a license, permit, charter or franchise; nor is it in any way
similar to those grants,” and thus falls outside Section 525(a)’s ambit).
Moreover, the Sixth Circuit’s decision in Toth as well as these holdings from the Second,
Third, Fourth, Fifth, and Circuits are consistent with fundamental principles of statutory
interpretation. See Conn. Nat’l Bank v. Germain, 503 U.S. 249, 253-54 (1992) (“[I]n interpreting
a statute a court should always turn first to one, cardinal canon before all others”; namely “courts
must presume that a legislature says in a statute what it means and means in a statute what it says
there.”). Section 525(a) prohibits certain discrimination by the government against debtors in
awarding or denying “a license, permit, charter, franchise, or other similar grant.” The absence of
loans makes clear Congress’s exclusion was intentional. See Barnhard v. Peabody Coal Co., 537
U.S. 149, 168 (2003) (“[W]hen the items expressed are members of an associated group or series,
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[it] justif[ies] the inference that items not mentioned were excluded by deliberate choice, not
inadvertence.”).
In addition, the language of section 525(a), contrasts sharply with language from the very
same section, just several provisions down, where Congress amended section 525 to prohibit
governmental units from denying “a student grant, loan, loan guarantee, or loan insurance to a
person that is or has been a debtor.” 11 U.S.C. § 525(c)(1); see also Russello v. United States, 464
U.S. 16, 23 (1983) (“[W]here Congress includes particular language in one section of a statute but
omits it in another section of the same Act, it is generally presumed that Congress acts intentionally
and purposely in the disparate inclusion or exclusion.”). Clearly, then, Congress knows how and
when to include loans in enumerating applicable categories. Its specific inclusion of both grants
and loans in section 525(c) also demonstrates it understands the distinction between “grants” and
“loans.” Had Congress intended section 525(c) to apply to loan guarantees beside those of the
student loan variety, it would have said so. See Ayes, 473 F.3d at 110 (“That Congress chose . . .
to narrowly amend § 525 . . . is strong evidence that its failure to mention other kinds of loan
guaranties in § 525(c) was intentional.”).
C.
PPP Loans Are Not “Similar Grants” To Licenses, Permits, Charters, Or
Franchises
Plaintiff may contend that PPP proceeds are not loans, but instead are grants. That
argument is wrong for the reasons demonstrated above (see supra at 16-19). But even if PPP loan
guarantees were “grants,” Plaintiff’s argument would still fail PPP loan guarantees are not a
“grant” similar to “a license, permit, charter, [or] franchise” is unavailing. The courts of appeals
to have considered the issue have repeatedly “refuse[d] to venture beyond the confines of the
statutory language to broadly construe § 525(a)’s specific ‘other similar grant’ language.’” Ayes,
473 F.3d at 111; see also Toth, 136 F.3d at 480; Watts, 876 F.2d at 1093-94; Goldrich, 771 F.2d
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at 30−32.
For instance, in Ayes, the Fourth Circuit affirmed a district court’s dismissal of a complaint
accusing the United States of violating section 525(a) for refusing to extend home loan guarantees
to veterans following their discharges in bankruptcy. 473 F.3d at 107. Relying on the provision’s
plain language, the Circuit Court reasoned the loan guarantee at issue bore no “family
resemblance” to the items listed in section 525(a): those items “are all governmental authorizations
that typically permit an individual to pursue some occupation or endeavor aimed at economic
betterment.” Id. at 108 (citing Watts, 876 F.2d at 1093). According to the Fourth Circuit, section
525(a) implicates “government’s role as a gatekeeper in determining who may pursue certain
livelihoods,” id. at 109 (quoting Toth, 136 F.3d at 480), and “is composed solely of benefits
conferred by the state.” Id. at 110 (quoting Goldrich, 771 F.2d at 30). A home loan guarantee,
though, “does not implicate the government’s gate-keeping role . . . because . . . a person can obtain
a home loan or guaranty from the private sector,” a refusal does not mean that person is “doomed
to homelessness,” and “governmental units do not exercise exclusive or even pervasive control
over the ‘world’ of home loans.” Id. at 109.
Likewise, the United States Courts of Appeals for the Third Circuit has held that loans in
the context of housing are neither a license, permit, charter, or franchise, nor a similar grant, for
purposes of section 525(a). Watts, 876 F.2d at 1093. In short, guarantees of business loans—even
more so than housing loans and extensions of credit in other contexts deemed outside section
525(a)’s purview—bear no semblance to licenses, permits, charters, and franchises. First, they do
not do not provide a right to engage in a specific activity or profession, and therefore do not
implicate “government’s role as a gatekeeper in determining who may pursue certain livelihoods.”
Ayes, 473 F.3d at 109 (quoting Toth, 136 F.3d at 480). Second, “governmental units do not
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exercise exclusive or even pervasive control” over them. Ayes, 473 F.3d at 109. Third, they are
not “benefits conferred by the state that are unrelated to credit.” Id. at 110.
As Judge Fagone in the District of Maine explained in analyzing this argument, “[e]ach of
the enumerated items . . . . involves some permission for the holder of the grant to act in a particular
way. . . . Withholding a permission to engage in activity that is essential to the enjoyment of the
benefits of a fresh start . . . is different from declining to provide assistance in the form of a loan .
. . that might be useful to obtaining a fresh start.” Penobscot Valley Hosp., 2020 WL 3032939, at
*10–11. At bottom, “[h]ad Congress intended to extend § 525’s protections to other government
loan guaranties besides student loans, it easily could have revised § 525(a) . . . .” Id. Alternatively,
Congress “could have included some term in § 525(c) that would have supported extension of §
525(a)’s protections to all government loan guaranties, not just those of the student loan variety.”
Id.
Consequently, even assuming PPP loans may be characterized as grants, for all the reasons
explained above, they are not grants similar to “licenses, permits, charters, or franchises,” as
required by section 525(a). Businesses excluded from PPP loans are not, by law, prohibited from
operating, as with a refusal to provide a license, permit, charter, or franchise. The SBA thus is not
acting “as a gatekeeper in determining who may pursue certain livelihoods.” Ayes, 473 F.3d at
109. Nor does SBA “exercise exclusive or even pervasive control over the world” of business
loans, as the opportunity to seek funds elsewhere is still possible. Id. (“If a governmental entity
refuses to guarantee a home loan for a bankrupt individual . . . that individual is not doomed to
homelessness; [they] may seek a guaranty from family or friends, may seek another private loan,
perhaps on less favorable terms, or [they] may rent.”).
PPP loans simply are not “benefits conferred by the state that are unrelated to credit.” Id.
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at 110. Congress has unquestionably limited section 525(a)’s coverage to those instances where
debtors may experience discrimination in obtaining certain benefits conferred by government—
such as occupational licenses or permits—while not drafting section 525 so broadly as to insulate
debtors from “any and all adverse consequences of a bankruptcy filing.” Watts, 876 F.2d at 1094.
D.
Subsequent Legislation Confirms That Congress Did Not Intend For
The PPP To Be Subject to Section 525(a)
Subsequent legislation further confirms the conclusion that the PPP is not subject to
Section 525. As noted above, part of the Consolidated Appropriations Act of 2021, Congress
enacted the 2021 EAA. See supra at 8-10. One notable aspect of the 2021 EAA is that it
contains a provision amending section 525 of the Bankruptcy Code to add a new subsection that
expressly bars discrimination based on bankruptcy status in the provision of certain CARES Act
benefits, but not PPP loans. See Pub. L. No. 116-260, div. FF, tit. X, § 1001(c), 134 Stat. at
3217. This new provision, which is codified at 11 U.S.C. § 525(d), specifies that “[a] person
may not be denied relief under sections 4022 through 4024 of the CARES Act (15 U.S.C. 9056,
9057, 9058) because the person is or has been a debtor under this title.” The referenced
provisions of the CARES Act generally relate to payment forbearance and moratoriums on
foreclosures and evictions in properties with federally backed mortgages. These provisions are
wholly unrelated to the PPP.
As one court has recognized, a strong negative inference can be drawn from Congress’s
decision not to include the CARES Act provisions establishing the PPP within the coverage of
the new subsection of Section 525 that precludes bankruptcy discrimination with regard to other
CARES Act benefits. If “Congress intended for section 525 to apply to PPP loan guarantees, it
would have stated so expressly in the 2021 EAA as it did with the amendment addressing
federally-backed multifamily mortgage loans.” Agaña v. United States SBA (In re Archbishop of
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Agaña), Nos. 19-00010, 20-00002, 2021 Bankr. LEXIS 460 (Bankr. D. Guam Feb. 23, 2021)
(quotation marks omitted). This conclusion follows from the established principle of statutory
construction that “[w]hen Congress provides exceptions in a statute . . . [t]he proper inference . .
. is that Congress considered the issue of exceptions and, in the end, limited the statute to the
ones set forth.” United States v. Johnson, 529 U.S. 53, 58 (2000); see also Pharaohs GC, 990
F.3d at 227 (recognizing that when Congress modifies the rule applicable to only one particular
type of entity it “strongly suggests that Congress deliberately chose not to change” the rule
applicable to other similarly situated entities).
That inference is especially appropriate here because at the same time that Congress
created Section 525(d), it also extended the PPP. The issue whether the SBA’s bankruptcy
exclusion implicates section 525(a) has been litigated in more than fifty cases across the nation.
See Schuessler v. SBA, Adv. No. 20-02065-bhl, 2020 WL 2621186, at *9 (Bankr. E.D. Wis. May
22, 2020) (“Bankruptcy courts around the country are now facing a deluge of section 525(a)
challenges to the SBA’s PPP rule.”). Against that backdrop, Congress’s decision not to include
the PPP when it amended Section 525 cannot be treated as an accidental omission. Because
Congress chose to extend Section 525 to a limited number of specified CARES Act benefits, it
would be improper to conclude that the PPP is nonetheless covered as well.
That Congress did not intend for the PPP to be subject to Section 525 is underscored by
another provision in the Economic Aid Act that makes clear that differential treatment of debtors
in bankruptcy is permissible. In Section 320 of that Act, which will be discussed in detail below,
Congress created a process through which the SBA Administrator can issue a written
determination that will render certain entities in bankruptcy eligible for PPP loans. See 134 Stat.
at 2015-16. But this eligibility takes effect only if “the Administrator submits to the Director of
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the Executive Office for United States Trustees a written determination” that the debtors in
question are eligible. Economic Aid Act § 320(a), (f), 134 Stat. at 2015-16; see supra at 12. The
provision thus expressly contemplates that certain entities in bankruptcy may receive PPP loans
with the SBA’s authorization, while other debtors, like traditional Chapter 11 debtors, will not.
Given that Congress has specifically allowed for entities in bankruptcy to be treated differently
in the administration of the PPP, it follows that Congress did not intend for the PPP to be subject
to a separate, general statutory provision that would allegedly bar such differential treatment.
II.
WEATHER KING’S APA CLAIMS FAIL AS A MATTER OF LAW
Plaintiff’s APA claims fail for a number of reasons. First, as explained in more detail
below, the 2021 EAA fatally undermines Plaintiff’s APA claims. Indeed, following the enactment
of the 2021 EAA, as detailed below, both courts that have reached the issue have rejected similar
APA claims to those made by Plaintiff here. Neither the CARES Act nor the Small Business Act
prohibits the challenged bankruptcy disqualification, the Administrative Record demonstrates
SBA based its decision upon consideration of the relevant factors and show no clear error of
judgment, and SBA established the bankruptcy exclusion before the PPP began.
A.
The EAA Fatally Undermines Plaintiff’s APA Claims
Weather King’s APA claims contend, in part, that Congress legislated that Chapter 11
debtors like Weather King were eligible for PPP loans, or that SBA acted arbitrarily or capriciously
in excluding them by regulation. To the extent those arguments had any merit in May 2020, when
the bankruptcy court below enjoined the SBA, that merit evaporated when Congress renewed the
PPP in the 2021 EAA. This is because Plaintiff’s argument is premised on its conclusion that
Congress intended for Chapter 11 debtors to be eligible for PPP loan guarantees. As demonstrated
below, Plaintiff’s understanding of the CARES Act is incorrect because it disregards language in
the CARES Act, the statutory “sound value” requirement in 15 U.S.C. § 636(a)(6), and the SBA’s
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long-standing consideration of bankruptcy status. The EAA, however, confirms that Congress
never intended to mandate the eligibility of Chapter 11 debtors, because the same Congress that
enacted the CARES Act later authorized SBA to make certain debtors in bankruptcy eligible for
the PPP, but specifically excluded debtors, like Plaintiff, in traditional Chapter 11 bankruptcy. The
legislation eviscerates any claim that Congress, in the CARES Act, mandated the eligibility of
debtors or that SBA’s exclusion of them was contrary to the APA.
The EAA reopened the PPP and appropriated additional funding for loan guarantees. See
EAA § 323(a)(1)(B), (d)(1)(A), 134 Stat. at 2019. The EAA also expanded PPP eligibility
criteria is specific ways. For instance, Congress expanded PPP eligibility to housing
cooperatives, news organizations, and 501(c)(6) and destination marketing organizations. Id. §
316–318, 134 Stat. at 2011–15.
Of particular relevance here, in section 320 of the EAA, entitled “Bankruptcy
Provisions,” Congress made certain categories of bankrupt debtors potentially eligible for PPP
loans, subject to the SBA Administrator’s advance, categorical authorization.13 134 Stat. at 2015.
Specifically, section 320 amends the Bankruptcy Code to permit a bankruptcy court to “authorize
a debtor in possession or a trustee that is authorized to operate the business of the debtor under
section 1183, 1184, 1203, 1204, or 1304 of [title 11]” to obtain a PPP loan. This list of
bankruptcy code sections refers to three specific categories of debtors who are potentially eligible
for PPP loans, subject to the SBA Administrator’s advance, express written determination:

13 The amendments to the Bankruptcy Code in section 320 would have only become effective if
“the [SBA] submits to the Director of the Executive Office for United States Trustees a written
determination that, subject to satisfying any other eligibility requirements, any debtor in
possession or trustee that is authorized to operate the business of the debtor under section 1183,
1184, 1203, 1204, or 1304 of title 11, United States Code, would be eligible for a [PPP] loan.” §
320(f)(1)(A), 134 Stat. at 2016.
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1.
Debtors or trustees as set forth in subchapter V of Chapter 11, created
by the Small Business Reorganization Act to streamline bankruptcy for
small businesses. 11 U.S.C. § 1183–84.

2.
Debtors or trustees as set forth in Chapter 12, which allows “family
farmers” and “family fisherman” to restructure their finances. 11 U.S.C.
§ 1203–04.

3.
Debtors in Chapter 13, which enables individuals with regular income
to develop a plan to repay all or part of their debt. 11 U.S.C. § 1304.

Of crucial importance, the list in section 320 does not extend potential eligibility to
traditional Chapter 11 debtors who operate under sections 1107 or 1108 of the bankruptcy code.
Here, Plaintiff is not proceeding under subchapter V, Chapter 12 or Chapter 13; instead, Plaintiff
filed a traditional Chapter 11 bankruptcy, operating under 11 U.S.C. § 1107. The EAA thus does
not extend potential eligibility to Plaintiff.
With section 320, Congress recognized that the SBA had previously excluded all debtors
from PPP loan guarantees and did not invalidate that rule. Rather, Congress created a path for
certain categories of debtors to be potentially eligible for PPP loan guarantees. But, in doing so,
Congress excluded traditional Chapter 11 debtors from potential eligibility. That exclusion is
purposeful and unequivocally demonstrates that Congress had no intent to mandate that
traditional Chapter 11 debtors be eligible for PPP loan guarantees. See Barnhart v. Peabody, 537
U.S. 149, 168 (2003) (explaining that “items not mentioned” in a statute are “excluded by
deliberate choice, not inadvertence” when the “items expressed are members of an associated
group or series”); Andrus v. Glover Constr. Co., 446 U.S. 608, 616–17 (1980) (“Where Congress
explicitly enumerates certain exceptions to a general prohibition, additional exceptions are not to
be implied, in the absence of evidence of a contrary legislative intent”). This well-accepted rule
of statutory construction is based upon the principle of expressio unius est exclusio alterius,
meaning that “legislative affirmative description implies denial of the nondescribed [items].”
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Cont’l Cas. Co. v. United States, 314 U.S. 527, 533 (1942).
Further, the EAA also explicitly recognized the SBA’s authority to determine whether
bankrupt entities should be eligible. The EAA established the SBA Administrator as a gatekeeper
who must first determine whether, with the discretion delegated to the SBA, the listed categories
of debtors will be permitted to obtain PPP loan guarantees. § 320(f)(1)(A), 134 Stat. at 2016.
Absent the SBA Administrator’s written determination, these categories of debtors remained
ineligible for the PPP pursuant to the SBA’s current rules.14
Taken together, these amendments make clear that Plaintiff errs in asserting that the
CARES Act mandates Chapter 11 debtor eligibility. Congress plainly had no such intent because
the very same Congress that passed the CARES Act excluded traditional Chapter 11 debtors like
Plaintiff from potential eligibility. See Bell v. New Jersey, 461 U.S. 773, 785 n.12 (1983)
(“Congress is not merely expressing an opinion . . . but is acting on what it understands its own
prior [legislative] acts to mean.”). The EAA instead confirms that Congress delegated authority
to the SBA to determine whether bankrupt debtors should be eligible for PPP loan guarantees.
Plaintiff is wrong to disregard that delegated authority in favor of its view of who should be
eligible for PPP loan guarantees. See generally Vestavia Hills, 2021 WL 1165038, at *12-13
(holding that the EAA “does not require the SBA to expand or narrow PPP eligibility
requirements with respect to debtors in bankruptcy; at most, it acknowledges that the SBA is
permitted to determine certain categories of debtors in bankruptcy are eligible for the PPP.”).
Finally, the EAA marked the fourth time that Congress amended the PPP.15 Each of the

14 In the SBA’s first interim final rule issued after the EAA, it continued to prohibit bankrupt
debtors from obtaining PPP loan guarantees. See supra at 7-10.
15 For previous amendments to the PPP, see Extending Authority for Commitments for the
Paycheck Protection Program & Separating Amounts Authorized, PUB. L. NO. 116-147, 134 Stat.
660 (2020), Paycheck Program Flexibility Act of 2020, PUB. L. NO. 116-142, 134 Stat. 641
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four amendments came after the SBA promulgated its rule excluding debtors in bankruptcy from
PPP loan guarantees and after bankrupt debtors brought publicized challenges to that rule under
the APA. In the first three amendments, Congress declined the opportunity to mandate that
debtors in bankruptcy be eligible for PPP loan guarantees. In the EAA, Congress provided
potential eligibility only for three specific types of debtors, none of which include traditional
Chapter 11 debtors like Plaintiff. If Congress had ever intended for Chapter 11 debtors to receive
PPP loan guarantees, it had ample opportunity to say so. See United States v. Rutherford, 442
U.S. 544, 554 n.10 (1979) (“[O]nce an agency’s statutory construction has been fully brought to
the attention of the public and the Congress, and the latter has not sought to alter that
interpretation although it has amended the statute in other respects, then presumably the
legislative intent has been correctly discerned.”). Instead, Congress in the EAA, excluded
Chapter 11 debtors. The Court should therefore reject Plaintiff’s APA claims, which are
fundamentally premised on the mistaken view that Congress did not intend for Chapter 11 debtors
like Plaintiff to be excluded.
B.
The SBA Did Not Exceed Its Statutory Authority Under 5 U.S.C.
§ 706(2)(C)

Weather King wrongly contends the SBA exceeded its statutory authority 706(2)(C) of the
APA in excluding bankrupt entities from receiving PPP loans. Section 706(2)(C) allows reviewing
courts to “hold unlawful and set aside agency action, findings, and conclusions found to be . . . in
excess of statutory jurisdiction, authority, or limitations, or short of statutory right,” 5 U.S.C. §
706(2)(C). Here, even if there could be any question after the passage of the EAA, the SBA’s
exclusion of entities in bankruptcy and entities with owners in bankruptcy was well within the

(2020), and Paycheck Protection Program & Health Care Enhancement Act, PUB. L. NO. 116-
139, 134 Stat. 620 (2020).
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broad authority Congress delegated to the Administrator in the CARES Act.
Where allegations under section 706(2)(C) implicate an agency’s construction of a statute
it is charged with administering, courts must apply the principles of deference described in
Chevron, USA, Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842 (1984). “[The
Sixth Circuit] reviews the propriety of agency action under the two-step framework set forth in
Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 . . . (1984).” Tenn.
Hosp. Ass’n v. Azar, 908 F.3d 1029, 1037 (6th Cir. 2018). Chevron articulates a two-step process.
Id. The first step asks whether Congress “had an intention on the precise question at issue.’” Id.
(quoting Chevron, 467 U.S. at 843 n.9). “‘If the intent of Congress is clear, that is the end of the
matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent
of Congress.’” Id. (quoting Chevron, 467 U.S. at 842−43). “But if the statute is instead ‘silent or
ambiguous with respect to the specific issue,’ we then ask, at step two of the analysis, ‘whether
the agency’s answer is based on a permissible construction of the statute.’” Id. at 1037−38 (quoting
Chevron, 467 U.S. at 843). “‘[A] court may not substitute its own construction of a statutory
provision for a reasonable interpretation made by the Administrator of an agency.” Atrium Med.
Ctr. v. U.S. Dept. of Health and Human Servs., 766 F.3d 560, 566 (6th Cir. 2014) (quoting
Chevron, 467 U.S. at 844).
1.
Chevron’s Step One: Congress Did Not Speak To The Direct Question
At Issue in the CARES Act

At the time Plaintiff applied for a PPP loan, Congress had not directly addressed the precise
question under Chevron’s step one: whether bankrupt debtors may obtain a PPP loan guarantee.
Congress made the considered decision not to enact the PPP as a freestanding program, but rather
to utilize the preexisting infrastructure of the SBA’s Section 7(a) Lending Program. See First
Interim Final Rule, 85 Fed. Reg. at 20,8111 (recognizing that the CARES Act “temporarily adds”
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the PPP to the SBA’s Section 7(a) Lending Program). To avoid doubt, Congress confirmed its
PPP placement within the Section 7(a) Lending Program was deliberate, specifying that “[e]xcept
as otherwise provided” in the CARES Act, the Administrator “may” guarantee PPP loans “under
the same terms, conditions, and processes” as loans under Section 7(a) of the Small Business Act.
15 U.S.C. § 636(a)(36)(B); Gateway, 983 F.3d at 1256 (“As we’ve pointed out, the PPP was not
created as a standalone program but was added into the existing § 7(a) program, which subjects it
to existing conditions and regulations, as well as existing SBA authority.”).

Pursuant to the Small Business Act, Congress granted the SBA “extraordinarily broad
powers” in the administration of loans to small businesses under the Section 7(a) Lending Program,
McClellan, 364 U.S. at 447, including expansive rulemaking authority. 15 U.S.C. § 634(b)(6)–(7).
That background authority necessarily extends to the PPP. Gateway, 983 F.3d at 1256 (“We
presume that Congress is aware of existing law when it passes legislation.”). In fact, the CARES
Act expressly empowers the SBA to issue regulations implementing the PPP. 15 U.S.C. § 9012.
Indeed, understanding that the CARES Act left gaps that the SBA would need to fill, Congress did
not merely authorize the SBA to adopt implementing regulations for the PPP; it required the SBA
to adopt implementing regulations and to do so in just fifteen days. Id.; see also Schuessler, 2020
WL 2621186, at *11 (recognizing that in light of the speed with which Congress wanted PPP funds
deployed, Congress did not spell out in the statute all requirements for PPP participation,” and
instead “entrusted the details to the SBA, engrafting the PPP on the SBA’s existing Section 7(a)
[L]ending [P]rogram, and giving the SBA emergency rulemaking authority”).

The CARES Act expressly modified some Section 7(a) requirements for PPP loan
guarantees. See, e.g., 15 U.S.C. § 636(a)(36)(D), (I)–(J), (R) (exempting the PPP from Section
7(a) requirements regarding affiliation rules, an applicant’s ability to obtain credit elsewhere,
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collateral and personal guarantee requirements, and prepayment penalties). But Congress also
made clear that, “[e]xcept as otherwise provided,” “the [SBA] may guarantee” PPP loans “under
the same terms, conditions, and processes” as other Section 7(a) loans. 15 U.S.C. § 636(a)(36)(B).
Nowhere does the CARES Act modify the “sound value” requirement codified in 15 U.S.C. §
636(a)(6), so it applies with full force here. Congress thus adopted the PPP as a form of Section
7(a) lending and left intact the requirement that loans must be of “sound value.” Gateway, 983
F.3d at 1257 (“Congress knew how to suspend or render inapplicable to PPP loans the traditional
§ 7(a) requirements when it wanted to do so, and it did that with some of the requirements. But not
the sound value requirement.”). Further, Congress did not expressly prohibit the SBA from
excluding bankrupt debtors from PPP loan guarantees; to the contrary, Congress built upon the
broad rulemaking authority it gave the SBA under Section 7(a) by authorizing the SBA to, inter
alia, set the “terms conditions, and processes” for PPP loan guarantees. 15 U.S.C. § 636(a)(36)(B).
Gateway, 983 F.3d at 1257 (“That Congress gave the SBA discretion over the matter is also
evidenced by the fact that the Act does not limit the SBA’s longstanding general authority to
implement § 7(a) and the sound value requirement. Quite the opposite.”).

Because Congress did not address the interplay of 15 U.S.C. § 636(a)(6) and PPP eligibility
requirements, but instead “plac[ed] PPP within § 7(a), specifically chang[ed] some § 7(a)
requirements but not the sound value one, and delegate[ed] rulemaking authority,” the legislature
“left it up to the SBA to determine how to apply the sound value requirement to PPP loans, and
that includes specifying eligibility requirements.” Gateway, 983 F.3d at 1257. At a minimum,
prior to the enactment of the 2021 EAA, the question whether bankrupt debtors may obtain PPP
loan guarantees is ambiguous at Chevron’s first step. Gateway, 983 F.3d at 1257; Vestavia Hills,
2021 WL 1165038, at *9-12; Agana, 2021WL 1702311, at *7; Tradeways, 2020 WL 3447767, at
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*14 (“[N]othing in the CARES Act unambiguously addresses whether the bankruptcy debtors are
eligible to participate in the PPP.”); Rochester, 466 F. Supp. 3d at 379 (“[N]othing in the CARES
Act requires that a bankrupt debtor be eligible for participation in the PPP—this detail was left by
Congress for determination by the SBA.”); In re Henry Anesthesia Assocs. LLC, No. 19-64159-
LRC, 2020 WL 3002124, at *8 (Bankr. N.D. Ga. June 4, 2020); Schuessler, 2020 WL 2621186,
at *10–11 (“Nothing in the statutory text suggests that . . . Congress was providing an exhaustive
list of eligibility requirements that the SBA could not augment through rulemaking.”).

To the extent that Plaintiff contends that the Sixth Circuit’s decision in DV Diamond Club
of Flint, LLC v. SBA, 960 F.3d 743, 746 (6th Cir. 2020), is dispositive or compels a different result
at step one of Chevron’s analysis, such argument is mistaken. DV Diamond Club is not dispositive,
since that decision was not a merits determination—the Sixth Circuit only denied the United
States’ request to stay a preliminary injunction. Courts have repeatedly rejected arguments
analogous to that made by Plaintiff here.

For example, in East Bay Sanctuary Covenant v. Biden, 993 F.3d 640 (9th Cir. 2021), the
Ninth Circuit concluded that a prior published motions panel order denying stay of a temporary
restraining order pending appeal did not bind the merits panel’s resolution of the appeal of the
restraining order and subsequently-issued preliminary injunction. “The published motions panel
order may be binding as precedent for other panels deciding the same issue, but it is not binding
here.” Id. at 660. The Ninth Circuit explained that the issues the motions panel and merits panel
faced were “different.” Id. “In deciding whether the court should stay the grant or denial of a
preliminary injunction pending appeal, the motions panel is predicting the likelihood of success of
the appeal. That is, the motions panel is predicting rather than deciding what our merits panel will
decide. In resolving the merits of a preliminary injunction appeal, our merits panel is deciding the
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likelihood of success of the actual litigation.” Id.; see also Trump v. Int’l Refugee Assistance
Project, 137 S. Ct. 2080, 2087 (2017) (“In assessing the lower courts’ exercise of equitable
discretion, we bring to bear an equitable judgment of our own.” In considering a stay of an
injunction, “it is ultimately necessary to balance the equities—to explore the relative harms to
applicant and respondent, as well as the interests of the public at large.”) (internal citation
omitted).

If these conclusions apply in the context of an appeal of the injunction, they plainly hold
for a merits appeal that after judgment in the court below. Put another way, if the Sixth Circuit
would not be bound by its motions panel’s denial of stay in DV Diamond Club if that case returned
to the court of appeals for a merits determination, then this Court cannot be bound by the motions
panel’s ruling in DV Diamond Club in its determination of the merits here.

Moreover, DV Diamond Club is inapposite on the facts of this case. At issue in DV
Diamond Club was an SBA rule “that renders sexually oriented businesses . . . ineligible to receive
PPP loan guarantees.” 2020 WL 2988528, at *1. The precise question in DV Diamond Club was
whether the term “any business,” as used in section 636(a)(36)(D), applied to sexually oriented
businesses. Id. at *2. For purposes of Chevron’s step one, DV Diamond Club did not have to look
beyond the provision of 636(a)(D) in answering it did. Id. (“The term ‘any’ carries an expansive
meaning. It refers to a member of a particular group or class without distinction or limitation and,
in this way, impl[ies] every member of the class or group.”) (internal citations and quotations
omitted). But, as developed below, the bankruptcy exclusion at issue requires a different analysis
than the sexually oriented business rule at issue in DV Diamond Club. Thus, it is not surprising
that courts across the country have repeatedly rejected applying Diamond Club, particularly in
cases involving the bankruptcy exclusion. See Pharaohs GC, Inc. v. SBA, 990 F.3d 217 (2d Cir.
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2021) (declining to follow Diamond Club outside the precise procedural posture of that case);
Tradeways, 2020 WL 3447767, at *12-13 (declining to follow Diamond Club); Diocese of
Rochester, 2020 WL 3076103, at *6-7 (declining to follow Diamond Club); Defy Ventures, Inc. v.
SBA, No. CCB-20-1838, 2020 WL 3546873, at *7-8 (D. Md. June 29, 2020) (declining to follow
Diamond Club in a case involving a criminal PPP exclusion); accord Schuessler, 2020 WL
2621186, at *11; Gateway, 983 F.3d at 1264; Agana, 2021WL 1702311, at *7.

As Diocese of Rochester explained, the phrase “any business” in section 636(a)(36)(D)(i)
cannot be read in isolation in the context of the bankruptcy exclusion—
[I]n making the threshold determination under Chevron, a reviewing court
should not confine itself to examining a particular statutory provision in
isolation.’ To the contrary, ‘[i]t is a fundamental canon of statutory
construction that the words of a statute must be read in their context and
with a view to their place in the overall statutory scheme.

Id. at *6 (internal quotations and citation omitted); see also Tradeways, 2020 WL 3447767, at *13.
In this context, by interpreting section 636(a)(36)(D)(i) beyond size restrictions to include every
member of a class or group, Plaintiff puts far more weight on the provision than it can bear. See
Tradeways, 2020 WL 3447767, at *13 (holding section 636(a)(36)(D)(i) “merely serves to identify
the types and size of organizations that are eligible to receive PPP funds”); Diocese of Rochester,
2020 WL 3071603, at *6 (holding section 636(a)(36)(D)(i) “is properly understood not as setting
forth the exclusive criteria for participation in the PPP, but merely as expanding the size limitations
that would otherwise have been in place”). These courts’ conclusions flow naturally from reading
section 636(a)(36)(D)(i) with a view to the PPP’s place in the overall statutory scheme of section
7(a). Under the section 7(a) program, the SBA guarantees loans only to “small business concerns,”
15 U.S.C. § 636(a), which the Small Business Act defines by reference to size restrictions. 15
U.S.C. § 636(a)(1)–(2); see also 13 C.F.R. § 121.101(a) (“SBA’s size standards define whether a
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business entity is small and, thus, eligible for Government programs and preferences reserved for
‘small business’ concerns.”); 13 C.F.R. Part 122 (establishing size standards). Congress sought to
expand these size restrictions in the CARES Act by providing under section 636(a)(36)(D)(i) that,
“in addition to small business concerns, any business concern . . . shall be eligible to receive a
covered loan” if the business has less than 500 employees or qualifies under industry specific rules.
Id. (emphasis added.)
That Congress relaxed size restrictions for PPP loan guarantees does not suggest that it
intended size to be the only condition. Diocese of Rochester, 2020 WL 3071603, at *6 (“[T]he
Court disagrees with Plaintiffs that in expanding the size restrictions, Congress unambiguously
provided that there could no other eligibility criteria.”). In fact, the provision is just one of several
adjusting eligibility requirements. See, e.g., 15 U.S.C. § 636(a)(36)(D)(ii) (permitting sole
proprietors and independent contractors to receive PPP loans); 15 U.S.C. § 636(a)(36)(D)(iv)
(removing certain affiliation rules); 15 U.S.C. § 636(a)(36)(J) (waiving collateral and personal
guarantee requirements). These provisions “clearly anticipate the existence of additional eligibility
criteria.” Diocese of Rochester, 2020 WL 3071603, at *7. Further, “the CARES Act clarifies that
unless otherwise provided, ‘the Administrator may guarantee covered loans under the same terms,
conditions, and processes as a loan made under’ the PPP. . . . Yet, these provisions would be
entirely superfluous if § 636(a)(36)(D)(i) eliminated all preexisting eligibility
criteria.”
Tradeways, 2020 WL 344767, at *13 (quoting 15 U.S.C. § 636(a)(36)(B)).

Moreover, Weather King’s claim here involves the soundness of a loan to a business that
implicates a statutory obligation Congress placed upon the SBA. Whether entities in bankruptcy
may receive PPP loan guarantees thus implicates a statutory provision regarding credit risk not
relevant in DV Diamond Club, where an SBA regulation was at issue. The bankruptcy exclusion
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here arises out of the existing section 7(a) statutory requirement, left unaltered by Congress, that
all loans “shall be of such value . . . as reasonably to assure repayment.” 15 U.S.C. § 636(a)(6).
When DV Diamond Club’s interpretation of “any business” in section 636(a)(36)(D)(i) is read
alongside section 636(a)(6), as Chevron’s step one commands, there is statutory ambiguity
whether entities in bankruptcy or entities with owners in bankruptcy may obtain a PPP loan
guarantee. See Tradeways, 2020 WL 3447767, at *13 (“[DV Diamond Club’s] reading of §
636(a)(36)(D)(i) puts the CARES Act on a collision course with the Small Business
Administration Act and longstanding SBA regulations.”).

What is more, Plaintiff’s argument rests on the premise that Congress implicitly abrogated
a statutory provision left intact for decades and historically considered by the SBA—a point DV
Diamond Club did not have to consider. As Diocese of Rochester explained in rejecting a similar
argument, “Congress . . . does not alter the fundamental details of a regulatory scheme in vague
terms or ancillary provisions—it does not, one might say, hide elephants in mouseholes.” 2020
WL 3071603, at *7 (quoting Whitman v. Am. Trucking Assocs., 531 U.S. 456, 468 (2001)).
Diocese of Rochester refused to “presume that simply by using the phrase ‘any business’ concern
in one part of the CARES Act, Congress meant to implicitly eliminate the long-standing statutory
requirements for Section 7(a) loans.” Id. (citing Jones v. United States, 526 U.S. 227, 234 (1999)
(“Congress is unlikely to intend any radical departures from past practice without making a point
of saying so.”)); see also Tradeways, 2020 WL 3447767, at *13.

In sum, nothing in the CARES Act speaks directly to the question of whether debtors in
bankruptcy may obtain PPP loan guarantees; rather, Congress vested the SBA with the authority
necessary to adopt such a policy. The act does not narrow the SBA’s broad authority to determine
the criteria to be used in evaluating “sound value.” Instead, Congress provided that the SBA “may”
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guarantee PPP loans, 15 U.S.C. § 636(a)(36)(B), and preserved and expanded the SBA’s
rulemaking authority so that the agency could formulate standards allowing lenders to effectively
evaluate an unprecedented volume of loan applications in a period of months. 15 U.S.C. § 9012;
Gateway, 983 F.3d at 1260 (“By placing the PPP within an existing loan program, staying silent
about its longstanding sound value requirement while specifically changing other requirements,
delegating rulemaking authority to the SBA, and remaining silent about bankruptcy status,
Congress reasonably could have meant for the SBA to sue its expertise to fill the gap.”). The
CARES Act was silent as to debtor eligibility for the PPP, and the SBA reasonably filled the
legislative gap.
2.
Chevron’s Step Two: SBA Did Not Act in An Arbitrary, Capricious, or
Unreasonable Manner

The SBA recognized that the exigent circumstances giving rise to the PPP made it
impossible for lenders to undertake the customary case-by-case evaluation of a borrower’s
creditworthiness. Gateway, 1293 F.3d at 1262 (“Congress gave the SBA only 15 days to issue
rules, which is practically warp speed for regulatory action, a command that undoubtedly sprang
from the felt need for quick action in light of the burgeoning economic crisis stemming from the
pandemic.”); Tradeways, 2020 WL 3447767, at *14 (“Time was of the essence. And, Congress
clearly communicated the urgency of the crisis to the SBA.”); First Interim Final Rule, 85 Fed.
Reg. at 20,811-12 (noting “[t]he CARES Act was enacted to provide immediate assistance” and
“relief to America’s small businesses expeditiously”). Accordingly, the SBA adopted the
bankruptcy regulation after concluding that a streamlined process was necessary and consistent
with congressional intent, see First Interim Final Rule, 85 Fed. Reg. at 20,811-12, and that,
particularly absent the safeguards provided by the usual, more extensive and tailored underwriting
practices for Section 7(a) loans, allowing businesses in active bankruptcy to participate in the PPP
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would present “an unacceptably high risk of an unauthorized use of funds or non-repayment of
unforgiven loans.” Fourth Interim Final Rule, 85 Fed. Reg. at 23,451. The SBA’s determination
“did not arise out of thin [air]” since the “SBA’s pre-existing [Section] 7(a) loan application asks
a prospective borrower to disclose whether it or an affiliate has filed for bankruptcy.” Tradeways,
2020 WL 3447767, at *14; SOP § 50 10 5(K) at 37, 180. A bright line rule excluding debtors in
bankruptcy was thus “a reasonable effort to accommodate the conflicting policies . . . and one that
Congress might reasonably have sanctioned.” Rochester, 466 F. Supp. 3d at 379; see also Vestavia
Hills, 2021 WL 1165038 (“It was reasonable to interpret Congress’s silence with respect to the
sound value requirement as permitting the agency to exclude businesses that would be potentially
be unable to repay the loan should they not meet the requirements for forgiveness.”); Agana,
2021WL 1702311, at *7.

In holding that the SBA’s bankruptcy exclusion rule was reasonable under Chevron’s
second step, the Eleventh Circuit emphasized the “manifestly competing interests” in the CARES
Act: one the one hand, “the purpose of the PPP was to quickly help small businesses in distress or
before they become distressed,” but, on the other hand, “as we have stressed and stressed again,
Congress did put the program in § 7(a), which has a sound value requirement that applies to ‘all’
§ 7(a) loans.” Gateway, 983 F.3d at 1262 (quoting 15 U.S.C. § 636(a)(6)). Congress, moreover,
“did not accommodate [such manifestly competing interests] with specificity when it came to
whether bankruptcy debtors are eligible for PPP loans,” and instead “left that to the SBA.” Id.
According to the Eleventh Circuit, the SBA “reasonabl[y] accomodat[ed] . . . the competing
interests . . . by replacing its usual lending criteria with a simple bright-line proxy based on
bankruptcy status.” Id. Gateway noted its holding was further buttressed “[g]iven all of the
circumstances and the urgency with which [the SBA] was forced to act.” Id.
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The question under Chevron’s second step is whether the SBA’s bankruptcy exclusion is
arbitrary, capricious, or manifestly contrary to statute. See supra at 29. Under a typical § 7(a)
loan, the SBA complies with § 636(a)(6) by asking on its standard loan application whether
applicants have “ever filed for bankruptcy protection” as part of the lenders’ individual credit
reviews. SBA Form 1919. But individual credit reviews are not feasible under the PPP; instead,
the SBA allowed “lenders to rely on certifications of the borrower in order to determine eligibility.”
First Interim Final Rule, 85 Fed. Reg. 20,811-12. A bright line rule excluding debtors in
bankruptcy was “a reasonable effort to accommodate the conflicting policies . . . and one that
Congress might reasonably have sanctioned.” Diocese of Rochester, 466 F. Supp. 3d at 379.

The SBA did not eliminate underwriting altogether, but rather streamlined the process. The
SBA’s statement in its First Interim Final Rule that it will not require lenders to comply with
section 13 C.F.R. § 120.150’s typical underwriting requirements presupposes debtors in
bankruptcy are excluded from PPP loan guarantees. Indeed, the First Interim Final Rule itself
precludes debtors in bankruptcy from obtaining PPP loan guarantees. It provides that “[e]ach
lender’s underwriting obligation under the PPP is limited to,” inter alia, reviewing the PPP
application form. 85 Fed. Reg. at 20,815. In turn, the application form requires the borrower to
certify that it is “not presently involved in a bankruptcy.” See SBA Form 2483. The First Interim
Final Rule thus incorporates the PPP application form and the bankruptcy exclusion provided on
that form. Schuessler, 2020 WL 2621186, at *10 (finding that the First Interim Final Rule
“includes the exclusion of bankrupt debtors from PPP participation”); Henry, 2020 WL 3002124,
at *2.

In short, consistent with her broad authority and existing law, the Administrator reasonably
excluded debtors in bankruptcy from obtaining PPP loan guarantees. Diocese of Rochester, 466
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F. Supp. 3d at 379 (“Against this backdrop, the court cannot conclude that the SBA’s adoption of
a rule excluding debtors from the PPP is beyond the agency’s delegated authority.”) (quoting
Schuessler, 2020 WL 2621186, at *10); see also Tradeways, 2020 WL 3447767, at *14 (“[T]he
CARES Act was passed in the midst of an unprecedented global pandemic in order to stop the
nation’s economic tailspin. Time was of the essence. And, Congress clearly communicated the
urgency of the crisis to the SBA. . . . [T]he Court cannot conclude that the SBA’s rule is an
unreasonable interpretation of the priorities evinced in the CARES Act.”). Whether a court
believes the SBA made the best interpretation is inapposite. The SBA’s answer to the rulemaking
powers thrust upon it reasonably reconciled the lending requirements of § 7(a) with the goals of
the CARES Act, and its interpretation was not arbitrary, capricious, or manifestly contrary to
statute as a matter of law.
C.
The SBA Did Not Act Arbitrarily Or Capriciously Under 11 U.S.C. § 706(2)(A)
Plaintiff’s third count asserts that the SBA’s action were arbitrary and capricious. See
Compl. ¶¶ 76-90. This contention is wholly unsupported by the record. Under section 706(2)(A)
of the APA, reviewing courts may “hold unlawful and set aside agency action, findings, and
conclusions found to be . . . arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance law.” Like Chevron step two, APA arbitrary and capricious review under section
706(2)(A) is narrow and deferential, requiring only that the agency “articulate[] a rational
relationship between the facts found and the choice made.’” Motor Vehicle Mfrs. Assoc. v. State
Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)). A court’s role under section 706(2)(A) simply
is to review agency action to determine whether the decision “was based on a consideration of the
relevant factors and whether there was a clear error of judgment.” Id. at 43. Under this framework,
the agency must only “examine the relevant data and articulate a satisfactory explanation for its
action including a rational connection between the facts and the choice made.” Id. An agency’s
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decision normally will be arbitrary and capricious if it: (1) “has relied on factors which Congress
has not intended it to consider”; (2) “entirely failed to consider an important aspect of the
problem”; (3) “offered an explanation for its decision that runs counter to the evidence before the
agency”; or (4) “is so implausible that it could not be ascribed to a difference in view or the product
of agency expertise.” Id. Otherwise, courts do not “broadly require an agency to consider all
policy alternatives in reaching [its] decision.” Id.

As the Eleventh Circuit held, the SBA’s bankruptcy regulation readily satisfies APA
arbitrary-or-capricious review. Gateway, 983 F.3d at 1264 (“[I]n adopting the non-bankruptcy
rule for PPP eligibility . . . the SBA did not act arbitrarily or capriciously.”). The SBA adopted its
policy towards bankrupt debtors in furtherance of the “sound value” requirement for Section 7(a)
loans, which squarely applies to the PPP. 15 U.S.C. § 636(a)(6), (a)(36)(B); Gateway, 983 F.3d at
1249, 1263. In the typical Section 7(a) context, the SBA implements the sound value provision
by requiring that applicants are “creditworthy.” 13 C.F.R. § 120.150. To that end, the SBA insists
upon a multi-factor inquiry into, inter alia, the “credit history of the applicant,” “[s]trength of the
business,” “[a]bility to repay the loan with earnings from the business,” and “[p]otential for long-
term success,” id., and asks on the application form for regular Section 7(a) loans whether the
applicants or their affiliates have ever filed for bankruptcy protection. SBA Form 1919 at 2.

In implementing the PPP, the SBA recognized that its usual approach to determining
“sound value” would not permit it to “provide relief to America’s small businesses expeditiously.”
First Interim Final Rule, 85 Fed. Reg. at 20,812. The SBA therefore sought to “streamlin[e] the
requirements of the regular 7(a) loan program” by excusing PPP lenders from assessing the various
indicia of creditworthiness set forth in 13 C.F.R. § 120.150. Id. Instead, the SBA would “allow
lenders to rely on certifications of the borrower in order to determine [borrower] eligibility,” id.,
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including the question of whether the applicant is presently involved in a bankruptcy. SBA Form
2483 at 1. Thus, the SBA “fashioned its consideration of bankruptcy status into a streamlined and
bright-line rule that would speed up decisions about whether PPP loans should be made.”
Gateway, 983 F.3d 1263. Additionally, the SBA consulted with the Secretary of the Treasury in
reaching its conclusion, “which means that the expertise of two agencies was brought to bear on
the issue.” Id. For these reasons alone, the Eleventh Circuit held that the SBA’s bankruptcy
exclusion was a rational conclusion” that satisfied arbitrary-or-capricious review under 5 U.S.C.§
706(2)(A). Id.

Moreover, the Administrative Record establishes rational grounds for the SBA’s decision
and demonstrates that the SBA considered the relevant factors in determining to exclude debtors
from the PPP. The CARES Act builds upon the section 7(a) lending program, in which the SBA
explicitly considers the borrower’s bankruptcy history to ensure that loans be of “sound value . . .
as reasonably to assure repayment.” 15 U.S.C. § 636(a)(6); SBA Form 1919 (Questions 6 and 24,
considering whether applicant, its owners, affiliates or any business controlled by applicants
principals have “ever” been in bankruptcy); Miller Decl. ¶¶ 6−13. Mr. Miller explains he is “not
aware of any lender that has extended section 7(a) loans to an entity in active bankruptcy. If such
were the case, it would be very unusual and would cause the Agency to provide more scrutiny of
the loan during oversight of the lender’s decision to make the loan and perhaps lead to refusal of
the Agency to honor its guaranty.” Id. ¶ 13.
The bankruptcy exclusion in the PPP stems from these preexisting section 7(a)
requirements. The preexisting bankruptcy questions of section 7(a) were “streamlined” for the
PPP to accomplish Congress’s and the SBA’s objective that PPP loans be processed
“expeditiously.” First Interim Final Rule, 85 Fed. Reg. at 20,811; Miller Decl. at ¶ 5 (“SBA
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determined that the intent of the [CARES] Act is that SBA provide relief to America’s small
businesses expeditiously”). Unlike other section 7(a) loans, the SBA eliminated the requirement
to perform individual credit review for each PPP loan. Instead, the PPP program imposed a bright
line rule to exclude those in bankruptcy through its official application form. As the SBA explains:
The reason for including the bankruptcy exclusion in form 2483 was that
SBA in consultation with Treasury determined that in order to meet the
challenge of rescuing the economy from the effects of the Covid-19 virus
pandemic, loan assistance authorized by the CARES Act had to be provided
as expeditiously as possible with as little as possible underwriting. Since a
company in bankruptcy required an inquiry into the state of the proceeding
and possibly a court order for DIP financing, as well the possible resolution
of a host of other issues and the prospect of the incurring of fees by the
lender in monitoring the bankruptcy proceeding, it was determined that the
wording of Form 2483 would be expeditious and less likely to slow the
administration of the program and less likely to require the expenditure of
additional time, effort and other resources. The purpose of a PPP loan is to
help small businesses pay their employees and maintain operations to allow
them to restart quickly over the next few months. SBA decided that this
purpose would not be served by including all bankruptcies. Certain
creditors, including administrative creditors, could assert claims to the PPP
loan funds that would interfere with its authorized uses and the requirements
for PPP loan forgiveness. SBA, in consultation with the Department of
Treasury, determined there should be one streamlined rule that applies to all
debtors in bankruptcy to avoid the need for case by case reviews.

Miller Decl. ¶ 17.16 This streamlining of the consideration of bankruptcy status through the PPP
application form is wholly within the SBA’s delegated discretion. The CARES Act did not amend
the “shall” requirement in 15 U.S.C. § 636(a)(6) that loans be of “sound value.” The CARES Act

16 Plaintiff has contended that the Miller Declaration is a post-hoc rationalization and should be
excluded from the Administrative Record. But the Miller Declaration is not an “after-the-fact”
or post hoc justifications. As the Supreme Court recently underscored, an “agency can offer a
fuller explanation of [its] reasoning” after taking an action as long as the explanation reflects the
agency’s reasoning “at the time of the agency action.” DHS v. Regents of the Univ. of Cal., 140
S. Ct. 1891, 1907 (2020), at *9. Even an “amplified articulation of a prior conclusory
observation” is permissible. Id. The Miller Declaration is just that: a fuller explanation of the
basis for the bankruptcy exclusion when it was made. See, e.g., Vestavia Hills, 2021 WL
1165038, at *15 (concluding that the Miller Declaration does not constitute post-hoc
rationalizations).
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instead explicitly left that provision unaltered, along with section 7(a) lending procedures more
broadly, except where specifically noted. See CARES Act § 1102(a)(2) (providing that “[e]xcept
as otherwise provided in this paragraph, the Administrator may guarantee covered loans under the
same terms, conditions, and processes as a loan made under this subsection.”) (emphasis added);
15 U.S.C. § 636(a)(36)(B). The bankruptcy exclusion reasonably reconciles the “shall”
requirement concerning the sound value of loan-making under 15 U.S.C. § 636(a)(6) with the
obligation to expeditiously process CARES Act PPP loans by replacing the case-by-case
consideration of bankruptcy history with a bright line rule on the application form.

The Administrative Record thus demonstrates the SBA’s decision to exclude debtors in
bankruptcy from the PPP was rational, based on consideration of the relevant factors, and within
the scope of the authority delegated to the agency by statute. Put another way, based on the SBA’s
published rules, this Court can reasonably discern why the SBA did what it did and conclude as a
matter of substance that the decision was not arbitrary or capricious. Tradeways, 2020 WL
3447767, at *16 (“[W]hat [plaintiff] considers arbitrary agency action is simply the SBA fillings
in the gaps Congress left in the CARES Act so that it could nimbly respond to a complex, rapidly-
evolving crisis.”); In re Henry Anesthesia Assocs. LLC, 2020 WL 3002124, at *10; Schuessler,
2020 WL 2621186, at *12. The bankruptcy regulation reflects a valid accommodation of the
exigencies that necessitated streamlining the underwriting process through the use of plainly
rational criteria. See generally Gateway, 983 F.3d at 1263-64. Requiring anything more from the
SBA runs counter to the deferential arbitrary-and-capricious standard of review. Id. For these
reasons, most courts have concluded that the SBA’s rulemaking was reasonable under the
circumstances. For instance, in In re Gateway Radiology Consultants, P.A., 983 F.3d 1239 (11th
Cir. 2020), the Eleventh Circuit explained:
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We cannot say that the SBA failed to consider any important aspect of the
problem, or offered an explanation contradicted by evidence that was put
before it — there was no evidence put before it. Nor can we say that the
SBA’s explanation was implausible, much less that it was so implausible
that it could not have been based on a difference in view or could not be a
product of the SBA's expertise. Bankruptcy debtors are financially
distressed and have competing creditors, which it is not implausible to
believe will increase the risk of unauthorized use of funds and non-
repayment. We will not substitute our view for the SBA's judgment that the
gravity of the risk is “unacceptably high.” The SBA has long considered
bankruptcy status as relevant to § 7(a)’s sound value requirement and
creditworthiness regulations. That it fashioned its consideration
of
bankruptcy status into a streamlined and bright-line rule that would speed
up decisions about whether PPP loans should be made is not implausible,
irrational, or the product of arbitrary and capricious decision making.

Id.; see also, e.g., Tradeways, 2020 WL 3447767, at *14-15; Schuessler, 2020 WL 2621186, at
*12; Vestavia Hills, 2021 WL 1165038, at *18. The same result should be reached here.
D.
Weather King’s Retroactivity Argument Fails
Finally, Weather King contends that SBA engaged in retroactive rulemaking in violation
of the APA. Compl. ¶¶ 62-66. In enjoining the SBA, the bankruptcy court agreed with this claim.
Bankr. Adv. Proc. Dkt. 26 at 3 (“Debtor’s application for a PPP loan from Dollar Bank (the “PPP
Loan”) was submitted on April 14, 2020, and was approved and fully funded on April 25, 2020.
The SBA’s regulations in force at the time the Debtor applied for and obtained the PPP Loan did
not exclude bankruptcy debtors.”). But this argument is wrong and reflects a fundamental and
fatal misunderstanding of federal regulation.
As explained above, the SBA posted its first regulations implementing the PPP on April 2,
2020, see supra at 7, 10, 31, less than one week after the CARES Act’s passage and the day before
the program opened to borrowers. In its First Interim Final Rule, the SBA explained that the PPP
“streamlin[ed] the requirements of the regular 7(a) program.” 85 Fed. Reg. at 20,812. PPP lenders
would not have to undertake the multi-factor creditworthiness test set forth at 13 C.F.R. § 120.150,
but could “rely on certifications of the borrower” required on the PPP Application Form. Id. The
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first question on the PPP Application Form, issued the same day, asks whether the borrower is
“presently involved in any bankruptcy.” SBA Form 2483 (Ex. 4).

The First Interim Final Rule, which incorporated the PPP Application Form, clearly set
forth in the application form that debtors in bankruptcy were ineligible for the PPP. That rule was
promulgated consistent with the CARES Act requirement that the SBA issue rules within 15 days.
And that rule, as it established the program and the application needed to obtain a PPP loan
guaranteed by the SBA, naturally pre-dates any submitted application for a loan or the provision
of PPP loan funds guaranteed by the SBA. That the SBA later, in the Fourth Interim Final Rule,
provided further explanation for the bankruptcy exclusion does not make the exclusion retroactive.

The text of the Fourth Interim Final Rule supports this conclusion. First, the section
addressing the bankruptcy exclusion is titled: “Eligibility of Businesses Presently Involved in
Bankruptcy Proceedings.” The language generally tracks the exclusion on the application -
whether the borrower is “presently involved in any bankruptcy.” Second, the Fourth Interim Final
Rule explains that the application “reflects th[e] restriction” that debtors in bankruptcy are
ineligible for the PPP. The Fourth Interim Final Rule is not promulgating a new regulation, but
explaining a term found in the PPP application. Had the Fourth Interim Final Rule created a new
aspect of the PPP, or altered an existing aspect, an amendment of the PPP application may have
been required. That is not what happened.
Courts have thus rejected arguments similar to the one made by Weather King here in
similar circumstances. For instance, in Clay v. Johnson, 264 F.3d 744 (7th Cir. 2001), the Seventh
Circuit concluded that it could apply a formal comment by the Federal Reserve Board governing
interpretation of the Truth in Lending Act, issued not only after the acts in question but after district
court litigation had commenced. The court explained that a “rule simply clarifying an unsettled or
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confusing area of the law does not change the law, but restates what the law according to the
agency is and has always been.” Id. at 749 (quotations and citations omitted). Moreover, “[w]e
give great deference to the promulgating agency’s expressed intent as to whether its rule changes
the law or merely clarifies it . . . and will defer to an agency’s expressed intent that a regulation is
clarifying unless the prior interpretation of the regulation or statute in question is patently
inconsistent with the later one.” Id. at 749 (quotations and citations omitted). Here, the Fourth
Interim Final Rule merely clarified the bankruptcy exclusion found on the PPP application form
promulgated with the First Interim Final Rule. The Fourth Interim Final Rule did not change the
law, and was entirely consistent with the SBA’s denial of eligibility to debtors in bankruptcy
contained in the application issued before the PPP began.

Finally, as Defendants have explained, a significant majority of the more than 50 courts to
address the SBA’s bankruptcy exclusion, including both courts to have ruled since the EAA was
passed, have concluded that the bankruptcy exclusion did not violate the APA. But even for those
courts that, previously concluded that the SBA’s rule was inconsistent with APA requirements,
not one based that ruling on retroactivity. This court should decline to do so here.
CONCLUSION

For the foregoing reasons, this Court should grant Defendants’ motion for summary
judgment.
Dated: October 25, 2021

Respectfully submitted,
BRYAN M. BOYNTON
Acting Assistant Attorney General

BRIDGET M. BRENNAN
Acting United States Attorney

SUZANA K. KOCH
Assistant U.S. Attorney
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United States Attorney’s Office
801 West Superior Avenue, Suite 400
Cleveland, OH 44113

/s/ Marc S. Sacks
RUTH A. HARVEY
MARGARET M. NEWELL
MARC S. SACKS
MICHAEL S. TYE
Commercial Litigation Branch
Civil Division
United States Department of Justice
P.O. Box 875
Ben Franklin Station
Washington D.C. 20044

Tel. (202) 307-1104
Fax (202) 514-9163

marcus.s.sacks@usdoj.gov

ATTORNEYS FOR THE UNITED

STATES

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CERTIFICATE OF COMPLIANCE WITH LOCAL RULE 7.1(F)
I HEREBY CERTIFY that in compliance with Local Rule 7.1(f), the United States has
concurrently filed a motion for an extension of the page limits for dispositive motions requesting
relief permitting the United States to file a brief of 47 pages. Should the Court deny that motion,
the United States will file a brief in compliance with the page limitations for dispositive motions
set forth in Local Rule 7.1(f).

/s/ Marc S. Sacks
MARC S. SACKS
Commercial Litigation Branch
Civil Division

United States Department of Justice

Case: 5:20-cv-02711-CEF Doc #: 19 Filed: 10/25/21 57 of 58. PageID #: 262

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that on October 25, 2021 I electronically filed the foregoing with
the Clerk of the Court by using the CM/ECF system, which will send a notice of electronic filing
to all CM/ECF participants.

/s/ Marc S. Sacks
MARC S. SACKS
Commercial Litigation Branch
Civil Division

United States Department of Justice

Case: 5:20-cv-02711-CEF Doc #: 19 Filed: 10/25/21 58 of 58. PageID #: 263

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Defendants' Motion for Summary Judgment — SBA v. Weather King Heating & Air, Inc. (N.D. Ohio)

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