USDC Pleading (2022-08-22, 1)

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PETITION FOR REVIEW
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Brad C. Stanford, OSB #854119
bstanford@fwwlaw.com
Farleigh Wada Witt
121 SW Morrison Street, Suite 600
Portland, Oregon 97204-3136
Telephone: (503) 228-6044
Facsimile: (503) 228-1741

Attorneys for Petitioner

UNITED STATES DISTRICT COURT

DISTRICT OF OREGON
PORTLAND DIVISION
CASHCO FINANCIAL SERVICES,
INCORPORATED

Petitioner,

v.
UNITED STATES SMALL BUSINESS
ADMINISTRATION,

Respondent.
Case No.
PETITION FOR REVIEW

1.
Cashco Financial Services, Incorporated (“Petitioner”) hereby petitions the
court for review of the Order of the Office of Hearings and Appeals (“OHA”) denying Petitioner’s
appeal of a Paycheck Protection Program (“PPP”) loan review decision issued by the U.S. Small
Business Administration (“SBA”).
Parties
2.
Petitioner is a consumer finance business based in Portland, Oregon.
Respondent is an independent federal agency created pursuant to 15 U.S.C. § 633 et seq.

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PETITION FOR REVIEW
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Jurisdiction and Venue
3.
Petitioner appeals the OHA Final Decision pursuant to 13 C.F.R. §
134.1211, which permits appeal of a final decision to federal district court. Venue is proper in this
judicial district pursuant to 28 U.S.C. § 1391.
Procedural Background
4.
Petitioner applied for a PPP loan through Wells Fargo Bank, National
Association (“Wells Fargo”). The loan was approved on February 5, 2021 in the amount of
$557,030.00. Petitioner applied to Wells Fargo for forgiveness of the loan and Wells Fargo
recommended that all of Petitioner’s loan be forgiven. Accordingly, on September 9, 2021, Wells
Fargo submitted its forgiveness decision to the SBA in the amount of $557,030.00. Wells Fargo
subsequently received a final loan review decision from the SBA, stating that forgiveness in the
amount of $0.00 is appropriate because Borrower was ineligible for the PPP loan. The SBA stated
that the reason for its decision is that Borrower is a financial business primarily engaged in lending,
investments or an ineligible business engaged in financing or factoring.
5.
On December 28, 2021, Borrower filed a timely appeal petition (“OHA
Petition”) with the SBA’s OHA pursuant to 13 C.F.R. § 134.1201. The SBA did not file a response
to the OHA Petition. On June 3, 2022, OHA issued an initial decision denying Petitioner’s appeal
and affirming the SBA’s loan review decision. The initial decision became final 30 days thereafter
(“OHA Final Decision”). Petitioner now appeals the OHA Final Decision pursuant to 13 C.F.R. §
134.1211, which permits appeal of a final decision to federal district court.
Nature of the Action
6.
In response to the COVID-19 pandemic, Congress passed the Coronavirus
Aid, Relief, and Economic Security Act (“CARES Act”). As part of the CARES Act, Congress
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PETITION FOR REVIEW
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created the PPP, which authorizes the SBA to guarantee loans to small business. In doing so,
“Congress intended that the SBA would make the PPP loan guarantees widely available to small
businesses across the commercial spectrum.” DV Diamond Club of Flint, LLC v. United States
Small Bus. Admin., 459 F. Supp. 3d 943, 946 (E.D. Mich. 2020).
7.
To that end, Congress established “increased eligibility for certain small
business and organizations” for PPP loan guarantees. 15 U.S.C.A. § 636(a)(36)(D). Specifically,
Congress provided that “[d]uring the covered period, in addition to small business concerns, any
business concern . . . shall be eligible to receive a covered loan if the business concern . . . employs
not more than the greater of (I) less than 500 employees or (II) if applicable, the size standard in
number of employees established by the Administration for the industry in which the business
concern ... operates.” Id. (emphasis added).
8.
Despite this, the SBA adopted a rule excluding certain businesses from PPP
loan guarantee eligibility (“PPP Ineligibility Rule”). See Business Loan Program Temporary
Changes; Paycheck Protection Program, 85 FR 20811-01. The PPP Ineligibility Rule provided that
“[b]usinesses that are not eligible for PPP loans are identified in 13 CFR 120.110 and described
further in SBA's Standard Operating Procedure (SOP) 50 10, Subpart B, Chapter 2, except that
nonprofit organizations authorized under the Act are eligible.” Id. 13 CFR 120.110 deems
ineligible “[f]inancial businesses primarily engaged in the business of lending, such as banks,
finance companies, and factors.”
Other Federal Courts
9.
Federal courts in other jurisdictions have issued decisions indicating that
the SBA lacked authority to promulgate the PPP Ineligibility Rule because it conflicts with the
provision of the PPP that provides eligibility to any business concern that satisfies the criteria in
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PETITION FOR REVIEW
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the statute. Specifically, federal courts have granted injunctions to certain adult entertainment
businesses (also deemed ineligible under the PPP Ineligibility Rule), requiring that their PPP loans
be approved and guaranteed by the SBA, provided they meet the other applicable eligibility
requirements.
10.
In DV Diamond Club of Flint, LLC v. United States Small Bus. Admin., 459
F. Supp. 3d 943 (E.D. Mich. 2020), the court evaluated the PPP Ineligibility Rule under the
Administrative Procedures Act, which prohibits agencies from taking action “in excess of statutory
jurisdiction, authority, or limitations, or short of statutory right.” 5 U.S.C. § 706(2)(C). The court
reviewed the SBA’s action under the two-step framework set forth in Chevron, U.S.A., Inc. v.
Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778 (1984), asking first
whether the statute is ambiguous. If the statute is ambiguous, then (and only then) does the court
move to step two of the Chevron analysis, in which a court must defer to the agency's construction
if it is permissible. DV Diamond Club of Flint, LLC, 459 F. Supp. 3d at 955.
11.
This analysis led the court to conclude that “when Congress said that ‘any
business concern’ employing the requisite number of Americans during the covered period ‘shall
be eligible’ for a PPP loan guarantee, it meant that all such businesses are eligible for a loan
guarantee.” Id. at 956. “Congress's express listing of [the] two eligibility criteria indicates that
Congress did not intend there to be any other criteria for loan guarantee eligibility.” Id. Construing
the term broadly results in the PPP working in the manner that Congress intended “as providing
temporary paycheck support to as many displaced and suffering American workers as possible.”
Id. at 958. “For all of these reasons, the plain language of the PPP makes clear that any business
concern is eligible for a PPP loan if it employed the requisite number of Americans during the
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covered period.” Id.
12.
Another court in Camelot Banquet Rooms, Inc. v. United States Small Bus.
Admin., 458 F. Supp. 3d 1044, 1055–56 (E.D. Wis. 2020), appeal dismissed, No. 20-1729, 2020
WL 6481792 (7th Cir. Aug. 5, 2020) also granted injunctive relief to an adult entertainment
business, preliminarily enjoining the SBA from using the provisions of the PPP Ineligibility Rule
applicable to the adult entertainment businesses in making eligibility determinations for PPP loans.
The court explained that “the purpose of the CARES Act, as stated in Title I, is ‘keeping workers
paid and employed.’” Camelot Banquet Rooms, Inc., 458 F. Supp. 3d at 1055. “Congress did not
single out any industry for ineligibility under the PPP, much less specify that sexually oriented
businesses are ineligible for PPP loans. Such business must make payroll and pay rent and utility
bills, just like any other business. Their contributions to the national economy are no different than
the contributions made by small businesses in other industries.” Id. at 1055-1056.
13.
Plaintiffs beyond the adult entertainment industry have been successful in
challenging the SBA’s PPP Ineligibility Rule. In a case brought by state and national associations
of home builders and real estate developers, the court relied on DV Diamond Club of Flint, LLC
in holding that the SBA’s PPP Ineligibility Rules are invalid and cannot be enforced as to plaintiffs’
businesses. Nat'l Ass'n of Home Builders v. United States Small Bus. Admin., No. 20-11780, 2021
WL 4458660 (E.D. Mich. Sept. 28, 2021). Under the PPP Ineligibility Rules, the plaintiffs would
be ineligible under 13 C.F.R. § 120.110(c), which excludes “[p]assive businesses owned by
developers and landlords that do not actively use or occupy the assets acquired or improved with
the loan proceeds” and 13 C.F.R. § 120.110(s), which excludes “[s]peculative businesses.” Id. at
3.
14.
The court bolsters its reasoning by pointing out the “distinctly different and
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PETITION FOR REVIEW
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more detailed language that Congress used in the subsequent enactment of the Consolidated
Appropriations Act, 2021, Pub. L. 116-260, 134 Stat. 1182 (Dec. 27, 2020), which authorized the
SBA to issue or guarantee so-called ‘second draw’ PPP loans to certain businesses that previously
obtained initial PPP loans under the CARES Act.” Id. at 10. In contrast with the provisions
authorizing the “first draw” PPP program, the Appropriations Act expressly excluded entities
disqualified under 13 C.F.R. § 120.110 for second draw loans. Id. “The adoption of that language
in the subsequent enactment proves that Congress was, and is, well aware of the regulatory
background against which the original PPP was created, and that when it desires to do so it knows
exactly how to adopt and endorse previously issued regulatory qualifications. The fact that it did
not do so when it authorized the first PPP program reinforces the conclusion that the choice to
promulgate its own separate, simplified, all-inclusive — and, at least as to entity type and size,
entirely exclusive — eligibility criteria was both reasoned and deliberate.” Id.
15.
The court went on to invalidate the reasoning of another federal case that
contradicted DV Diamond Club of Flint, LLC when it held that “[t]he 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.” Pharaohs GC, Inc. v. United States
Small Bus. Admin., 990 F.3d 217, 227 (2d Cir. 2021). The court in Nat'l Ass'n of Home Builders
explained that Pharaohs GC, Inc. “relies on a discernment of legislative intent that is based on an
implication: that Congress enacted the PPP against the background of the SBA's traditional
regulations and therefore intended the SBA to apply them to the new program.” Nat'l Ass'n of
Home Builders, No. 20-11780 at 10. In addition, the decision in Pharaohs GC, Inc. “ignores the
Supreme Court's recent disquisition on the term ‘any’ in SAS Institute, Inc. v. Iancu, where it found
that ‘any’ naturally carries ‘an expansive meaning’; and that the word ‘impl[ies] every member of
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the class or group.’” Id.
16.
DV Diamond Club of Flint, LLC, Camelot Banquet Rooms, Inc., and Nat'l
Ass'n of Home Builders each support a conclusion that the PPP Ineligibility Rules should not apply
to deny Petitioner’s application for PPP loan forgiveness. The SBA’s loan review decision
references an ineligibility rule for financial business primarily engaged in lending, investments or
an ineligible business engaged in financing or factoring, as set forth in 13 C.F.R. § 120.110(b) and
made applicable to PPP loans by the PPP Ineligibility Rule. As made clear by DV Diamond Club
of Flint, LLC, the PPP Ineligibility Rule contradicts the intent of Congress pursuant to the
Administrative Procedures Act and Chevron review, and may not be used to deny PPP loan
forgiveness.
17.
As stated in Camelot Banquet Rooms, Inc., Congress did not single out any
industry for ineligibility under the PPP. Similar to the business in that case, Petitioner must make
payroll, just like any other business. Petitioner’s contributions to the national economy are no
different than the contributions made by small businesses in other industries. In addition,
Petitioner’s PPP loan was authorized under the “first draw” program, for which Congress did not
exclude disqualified entities as described in Nat'l Ass'n of Home Builders.
OHA Final Decision
18.
In the OHA Final Decision, the Administrative Law Judge explains that it
is “bound to make all my decisions in conformity and compliance with the agency’s published
rules and regulations, such as 13 C.F.R. § 120.110(b) and the first Interim Final Rule; I have no
authority to modify, abate, or ignore them, regardless of federal court decisions that may conflict
with them.” In addition, the Judge states that “if Appellant wishes to press its arguments about the
invalidity of 13 C.F.R. § 120.110(b) as applied to the CARES Act and PPP loans, it must do so in
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PETITION FOR REVIEW
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federal district court.”
19.
Given the Administrative Law Judge’s limited authority mentioned above,
Petitioner was unable to obtain relief for the SBA’s denial of forgiveness.
Relief Requested
20.
The Administrative Procedures Act (“APA”) authorizes judicial review of
federal agency actions. 5 U.S.C. § 702. The APA provides that the reviewing court shall “hold
unlawful and set aside agency action, findings, and conclusions found to be ... arbitrary, capricious,
an abuse of discretion, or otherwise not in accordance with law,” or “in excess of statutory
jurisdiction, authority, or limitations, or short of statutory right.” Id. § 706(2)(A), (C).
21.
The CARES Act provides that “[d]uring the covered period, in addition to
small business concerns, any business concern . . . shall be eligible to receive a covered loan if the
business concern . . . employs not more than the greater of (I) less than 500 employees or (II) if
applicable, the size standard in number of employees established by the Administration for the
industry in which the business concern ... operates.” 15 U.S.C.A. § 636(a)(36)(D). (emphasis
added). The CARES Act does not authorize the SBA to impose additional eligibility criteria for
PPP loans or forgiveness, including the PPP Ineligibility Rule.
22.
Respondents' actions to exclude businesses primarily engaged in the
business of lending from PPP eligibility, including for loan forgiveness, are not in accordance with
law, including the CARES Act and the APA, and are in excess of statutory jurisdiction, authority,
or limitations, and short of statutory right, in violation of the CARES Act and the APA. In addition,
Respondents' exclusion of businesses primarily engaged in the business of lending from PPP
eligibility, including loan forgiveness, while granting PPP benefits to other businesses that were
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PETITION FOR REVIEW
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ineligible under previous SBA guidelines, is arbitrary and capricious and an abuse of discretion.
WHEREFORE, the Petitioner prays:
a.
That Petitioner’s Petition for Review be granted;
b.
That Respondent’s decision be modified to grant Petitioner
forgiveness;
c.
And that Petitioner have such other and further relief as the court
deems appropriate.
DATED this 22 day of August, 2022.
FARLEIGH WADA WITT
By: /s/ Brad Stanford
Brad C. Stanford, OSB #854119
(503) 228-6044
bstanford@fwwlaw.com
Attorneys for Petitioner
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