Complaint For Declaratory And Injunctive Relief

Issuer: UNITED STATES DISTRICT COURT
Document type: Complaint
Date: 2023-09-01
Case: Plaintiff , v. UNITED STATES SMALL BUSINESS
Case number: 1:23-cv-614-BAH

Summary

Exhibit 16 to the First Amended Petition for Judicial Review and Complaint for Declaratory and Injunctive Relief in Gordon College v. United States Small Business Administration, et al., Case No. 1:23-cv-614-BAH, in the U.S. District Court for the District of Columbia, filed September 1, 2023 as Document 15-17. The exhibit is a Paycheck Protection Program appeal decision of the SBA Office of Hearings and Appeals, issued August 4, 2022 in the appeal of Husson University, Decision No. PPP- 5931527107. The decision reviews an SBA final loan review decision finding the university ineligible because it exceeded the maximum allowable number of employees, and sets out the university's argument that it counted full-time equivalent employees. Administrative Judge James M Caulfield grants the appeal, reverses the SBA decision and orders the $ 5,965,000.00 loan forgiven in full.

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

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Case 1:23-cv-00614-BAH Document 15-17 Filed 09/01/23 Page 1 of 17

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

)
GORDON COLLEGE )
255 Grapevine Road ) Case No. 1:23-cv-614-BAH
Wenham, MA 01984-1899, )
)
)
Petitioner / Plaintiff, )
)
v. )
)
UNITED STATES SMALL BUSINESS )
ADMINISTRATION; ISABELLA CASILLAS )
GUZMAN, in her Official Capacity as )
Administrator of the Small Business )
Administration; and THE UNITED STATES OF )
AMERICA, )
)
Respondents / Defendants. )
)
)

FIRST AMENDED PETITION FOR JUDICIAL REVIEW AND
COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

EXHIBIT 16
Case 1:23-cv-00614-BAH Document 15-17 Filed 09/01/23 Page 2 of 17

United States Small Business Administration
Office of Hearings and Appeals

PAYCHECK PROTECTION PROGRAM
APPEAL OF:

HUSSON UNIVERSITY Issued: August 4, 2022

Appellant Decision No. PPP- 5931527107

Appealed from
SBA PPP Loan Number: 5931527107

APPEARANCES

Janna Gau, Esquire, Counsel for the Appellant

Mark O'Brien, Esquire, Counsel for the Small Business Administration

DECISION

I. Introduction and Jurisdiction

On December 28, 2021, the U.S. Small Business Administration (SBA) Oﬀice of Capital
Access issued a ﬁnal Paycheck Protection Program (PPP) loan review decision ﬁnding
Husson University (Appellant) is ineligible for a PPP loan. On January 26, 2022, Appellant
ﬁled the instant appeal from that ﬁnal SBA loan review decision. Appellant argues that the
Final SBA Loan Review Decision is clearly erroneous, and requests that OHA reverse it, and
ﬁnd Appellant is eligible for full PPP loan forgiveness in the amount of $5,965,000.00. For
the reasons discussed infra, I GRANT the appeal and REVERSE the SBA loan review decision.

OHA conducts Paycheck Protection Program (PPP) appeals under the authority of
13 C.F.R. part 134 Subpart L.

II. Background

On April 08, 2020, Appellant, Husson University applied for a PPP Loan with the SBA
certified lender, Bangor Savings Bank (Lender). The loan was approved and on April 23,
2020, SBA disbursed a PPP loan of $ 5,965,000.00 to Appellant through the Lender. On July
16, 2021, Appellant ﬁled an application for PPP loan forgiveness.

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A. Final SBA Review Decision

On December 28, 2021, SBA issued its ﬁnal loan review decision ﬁnding that
Appellant was ineligible for the PPP loan it received and therefore was not eligible for PPP
loan forgiveness. Specifically, the SBA found after review of the documentation provided,
the SBA concludes the Borrower business, or together with its affiliates, exceeds the
maximum allowable number of employees and the SBA small business size standards. SBA
has determined that forgiveness in the amount of $0.00 is appropriate.

B. Appeal

On January 26, 2022, Appellant ﬁled the instant appeal arguing that the ﬁnal SBA loan
review decision is clearly erroneous and requests the Office of Hearings and Appeals (OHA)
to reverse that decision and find that the Appellant is eligible for PPP loan forgiveness.

On March 07, 2022, the undersigned issued a Notice and Order directing the SBA to
file the Administrative Record (AR) by April 12, 2022. On March 25, 2022, counsel for the
SBA moved to extend the time to file the Administrative Record (AR) by 30 calendar days.
The Administrative Judge found good cause for an extension of time to file the AR and
directed counsel for the SBA to file a responsive brief to the Appellant’s January 26, 2022,
brief on or before the expiration of said extension. Specifically, SBA counsel was directed to
address the Appellant’s arguments apropos reliance on PPP loan application guidance
available on or before the date of Appellant’s application. On April 26, 2022, SBA moved to
further extend the time to file the AR and a Response for an additional 30 calendar days. The
Administrative Judge granted the extension and the SBA had until May 26, 2022, to file the
AR.

The AR was filed on May 25, 2022. The SBA filed seven (7) supplements to the
Administrative Record on May 25, 2022. On May 25, 2022, the Appellant filed an Addendum
to the January 26, 2022, Brief. On May 26, 2022, the SBA filed a Brief in response to the
instant appeal.

III. Discussion

The PPP Loan Program is a temporary SBA 7(a) program designed to provide
emergency assistance to certain small businesses during the COVID-19 crisis. Its purpose
was to help businesses keep their workers paid and employed. The program was established
under Section 1102 of the Coronavirus Aid Relief, and Economic Security (CARES) Act (Pub.
L. 116-136) signed into law March 27, 2020, and subsequently revised and expanded by
other statutes.

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A. The Paycheck Protection Program

In general, PPP loans were open to all American small businesses with 500 or fewer
employees, including sole proprietorships, independent contractors, and self-employed
individuals. 15 USC § 636(a)(36)(D). Other types of entities, such as nonprofit organizations
and housing cooperatives could also be eligible under certain circumstances.

Under PPP, borrowers obtain loans through an SBA approved lender, rather than
from SBA itself, and the lender services the PPP loan. SBA implements the program and
guarantees 100% of PPP loans in the event of default.

Borrowers were permitted to apply for both an Economic Injury Disaster Loan and a
PPP loan but could not utilize the loans for the same purpose. 15 U.S.C. § 636(a)(36)(Q).

PPP loans could be used for payroll and employee benefits costs, as well as other
operating expenses, including mortgage interest payments (not principal), rent and lease
payments, and utilities. 15 U.S.C. § 636(a)(36)(F).

As a condition for obtaining a PPP loan, a borrower was required to certify that PPP
funds would be used to retain workers and maintain payroll or to make mortgage, lease, and
utility payments. 15 U.S.C. § 636(a)(36)(G). PPP funds could not be used for compensation
of employees whose principal place of residence was outside the United States. Further,
salary expenditures were capped at no more than $100,000 annually per employee. 15 U.S.C.
§ 636(a)(36)(A)(viii)(II).

Businesses applying for a second PPP loan were required to demonstrate at least a
25% reduction in gross receipts between comparable quarters in 2019 and 2020. 15 U.S.C. §
636(a)(37)(A)(iv).

B. PPP Loan Forgiveness

To seek loan forgiveness, a PPP borrower must submit a Loan Forgiveness
Application (Form 3508) to its lender, with supporting documentation of its expenditures.
15 U.S.C. § 636m(e). Within the application, the borrower must certify that PPP funds were
utilized for authorized purposes, and that all documentation provided is true and correct. 15
U.S.C. § 636m(e)(3). Forgiveness is prohibited without appropriate supporting
documentation, or without the required certification. 15 U.S.C. § 636m(f). In general, a PPP

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borrower may obtain forgiveness, up to the full amount of its loan, for eligible expenses made
during the loan’s “covered period” (typically, 24 weeks from the date of loan origination). 15
U.S.C. § 636m(b).

To be eligible for loan forgiveness, at least 60 percent of the PPP loan must have been
used to fund payroll and employee benefits costs. 15 U.S.C. § 636m(d)(8). The remaining
portion (up to 40 percent) of the loan may have been used for mortgage interest, rent, and
other eligible expenses. Subject to certain exceptions, the amount that can be forgiven may
be reduced in proportion to any reductions in the number of full-time equivalent employees,
or if employee salary or wages were reduced by more than 25%. 15 U.S.C. § 636m(d)(2) and
(d)(3).

The lender reviews the application and makes an initial decision regarding loan
forgiveness. 15 U.S.C. § 636m(g). Following issuance of an initial decision, the Office of
Capital Access may issue a final SBA loan review decision. This official written decision
issued by the SBA Office of Capital Access reviews the PPP loan and can find a borrower:

(1) Was ineligible for a PPP loan;
(2) Was ineligible for the PPP loan amount received or used PPP loan proceeds for
unauthorized uses;
(3) Is ineligible for PPP loan forgiveness in the amount determined by the lender
in its full approval or partial approval decision issued to the SBA; and/or,
(4) Is ineligible for PPP loan forgiveness in any amount when the lender issued a
full denial decision to SBA. 13 C.F.R. §134.1201(b)(1)-(4).

The Lender must provide a copy of the final SBA loan review decision to the borrower
within five (5) business days of the date of the decision (SBA Procedural Notice #5000-
20077, effective January 15, 2021).

OHA conducts PPP appeals under the authority of 13 C.F.R. part 134 Subpart L. The
Appellant has the burden of proving all elements of the appeal. Specifically, the Appellant
must prove the final SBA loan review decision was based upon a clear error of fact or law.
13 C.F.R. § 134.1210. Only a borrower on a loan, or its legal successor in interest, has
standing to appeal a final SBA loan review decision. 13 C.F.R. §134.1203.

Congress granted SBA broad authority to make rules and regulations, to take actions
that “are necessary or desirable in making loans,” 15 U.S.C. § 634(b)(6)-(7), and to establish
general policies to “govern the granting and denial of applications for financial assistance by
the Administration,” 15 U.S.C. § 633(d). This authority extends to the PPP lending program.

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Additionally, the CARES Act expressly provides the PPP lending program as being a part of
SBA’s 7(a) Loan Program. Congress made the decision not to enact the PPP as a freestanding
program, but rather to utilize the pre-existing infrastructure of SBA’s Section 7(a) Loan
Program. See 85 Fed. Reg. at 20811 (recognizing the CARES Act “temporarily adds a new
product, titled the ‘Paycheck Protection Program,’ to [SBA’s] 7(a) Loan Program”). This
decision was reinforced by Congress placing the PPP lending program within the Section
7(a) lending program by specifying that “[e]xcept as otherwise provided”, the Administrator
may guarantee PPP loans “under the same terms, conditions, and processes” as a loan made
under Section 7(a). 15 U.S.C. § 636(a)(36)(B). This subjects the PPP lending program to the
policies and regulations applicable to SBA’s 7(a) Loan Program.

C. Finding of Fact and Analysis

As previously noted herein, the SBA final loan decision stated that the Appellant
business was ineligible for a PPP loan. Specifically, the SBA stated that:

“SBA has determined that the borrower was ineligible for the PPP loan. The
reason(s) for SBA’s decision is as follows: After review of the documentation
provided, the SBA concludes the Borrower business, or together with its
affiliates, exceeds the maximum allowable number of employees and the SBA
small business size standards. A review of the documents provided indicate
that the Borrower exceeded 500 employees. Per the certifications on the 2483,
the applicant employs no more than the greater of 500 employees or, if
applicable, the size standard in number of employees established by the SBA
in 13 CFR 121.201 for the applicant’s industry. The Borrower indicated at the
time of the loan application they had 492 employees, however the first quarter
2020 941 shows 1034 employees and second quarter 983. Additionally, the
Borrower IRS form 990 confirms ineligibility based on the size standards for
gross receipts. Based on the above stated reason(s), SBA has determined that
forgiveness in the amount of $0.00 is appropriate.” 1

Appellant states in his appeal in pertinent part:

“As a non-profit institution of higher education with an approximately two
hundred eight (208) acre primary campus in Bangor, Maine which includes
classrooms, administrative offices, dormitories, and an athletic complex,
Husson was directly affected by the consequences of the COVID-19 virus’s

1 SBA Final Loan Review Decision.

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economic impact and sought a loan under the Paycheck Protection Program.
Relying on the context of the SBA’s Interim Final Rule dated April 2, 2020,
Husson reached out to its bankers (Bangor Savings Bank) and industry
resources to determine how to qualify for the program and its terms. See April
2, 2020, Interim Final Rule, attached as Exhibit B. At the time the Paycheck
Protection Program was launched in early April, there was a lack of clear
guidance as to the definitions and approach to loan eligibility. There was
specifically a lack of clarity for institutions of higher education in terms of
calculating the number of employees, which is a PPP eligibility requirement.
Husson employs part-time adjunct professors and students under the federal
and state equivalent work-study programs. While Husson understood that all
employees should be included in determining the 500 employee threshold for
PPP loan eligibility, Husson sought advice whether eligibility would be
determined using an “FTE” (full time equivalent) employee calculation of
thirty (30) hours or total headcount. Based on professional advice, it was
determined that using the Affordable Care Act (“ACA”) definition of FTE (30
hours = 1 FTE), was a reasonable approach. Furthermore, using the FTE basis
to determine PPP eligibility was reasonable in the context of the CARES Act
since the availability of PPP loans was intended to stabilize the American
workforce through forgivable loans. Husson determined it employed 492
FTEs. Faced with the uncertainty of the pandemic and with a workforce
intended to service in person learning, Husson in good faith submitted its PPP
loan application on April 6, 2020, to its SBA lender, Bangor Savings Bank
(“Lender”). Contemporaneous with the submission of its original application,
the SBA revised the PPP application and Husson, therefore, re-signed and
submitted an application on April 8, 2020. The Lender submitted the loan
application to the SBA on April 13, 2020. The SBA approved Husson’s PPP loan
application on April 14, 2020. Husson closed on the loan on April 23, 2020.
Subsequent to the funding of the loan, Husson learned of the SBA FAQs on May
6, 2020, which included Question #36 contradicting Husson’s understanding
of how to compute the employee count for loan eligibility: it clarified to use
total headcount and not use a full-time equivalent basis. See SBA FAQ (first
published on April 26, 2020, as amended).” 2

In its Addendum the Appellant further argues:

“On April 14, 2020, when the SBA approved Husson’s loan application, there
was no language or other indication of the intent for a headcount calculation

2 Appellant’s Appeal Pleading.

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in the CARES Act to be used when determining eligibility. See Coronavirus Aid,
Relief, and Economic Security Act, P.L. 116-136, March 27, 2020, 134 Stat. 281
(“CARES Act”). However, there is clear intent and use of an FTE calculation in
the CARES Act. Id. at §1106. On April 8, 2020, at the time Husson submitted its
PPP loan application to its Lender, coupled with the fact that FTE is the
methodology for forgiveness calculation, it was fair and reasonable for Husson
to infer that this would be the basis for application. There being no statement
to the contrary supports Husson’s position that it acted reasonably. Only after
Husson’s PPP loan had been funded did the SBA issue guidance. See Brief at
Exhibit D; see also 13 CFR Part 113 and 120, Vol. 85, No. 90, May 8, 2020.
Emphasis added.

Subsequent to the funding of the loan, Husson learned of the SBA FAQs on May
6, 2020, which included Question #36 contradicting Husson’s understanding
of how to compute the employee count for loan eligibility: it clarified to use
total headcount and not use a full-time equivalent basis. See SBA FAQ (first
published on April 26, 2020, as amended). See Brief at Exhibit C. Clearly, many
institutions of higher education struggled with the calculation basis under the
April 2, 2020, Interim Final Rule because on May 8, 2020, the SBA issued
another Interim Final Rule specifically addressing this issue. See May 8, 2020,
Interim Final Rule. See Brief at Exhibit D; see also 13 CFR Part 113 and 120,
Vol. 85, No. 90, May 8, 2020 . On May 8, 2020, an Interim Final Rule was issued
by the SBA explaining that Federal Work Study student employees could be
excluded for the loan eligibility count of 500 employees. Id. Most importantly,
the May 8, 2020, Interim Final Rule stated: “Educational institutions that filed
loan applications prior to the issuance of the regulation are not bound by this
interpretation but may rely on it. Lenders may continue to rely on borrower
certifications as part of their good faith review process.” Id. Emphasis added.
Based upon Husson’s reasonable interpretation of the calculation, and the
SBA’s indication that it would use an FTE approach for calculating and
comparing employee counts during the protection period and the base period,
Husson used the ACA definition of FTE (30 hours = 1 FTE), which the Lender
concurred was a reasonable approach. Husson then calculated its FTEs under
this basis and included all students. The result was 492 employees under this
method, including approximately 50 FTE student employees. Husson met the
eligibility requirement of having no greater than 500 employees.” 3

3 Appellant’s Supplement to Appeal Brief.

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On April 2, 2020, the U.S. Small Business Administration (SBA) posted an interim final
rule announcing the implementation of the Coronavirus Aid, Relief, and Economic Security
Act (CARES Act). This Rule was in affect at the time of the Appellant’s loan application. 4 The
CARES Act temporarily adds a new program, titled the ‘‘Paycheck Protection Program,’’ to
the SBA’s 7(a) Loan Program. The CARES Act also provides for forgiveness of up to the full
principal amount of qualifying loans guaranteed under the Paycheck Protection Program
(PPP). The PPP is intended to provide economic relief to small businesses nationwide
adversely impacted by the Coronavirus Disease 2019 (COVID–19). SBA posted additional
interim final rules on April 3, 2020, April 14, 2020, April 24, 2020, April 28, 2020, and April
30, 2020, and the Department of the Treasury posted an additional interim final rule on April
28, 2020. This interim final rule supplements the previously posted interim final rules by
providing guidance on nondiscrimination obligations and additional eligibility
requirements, and requests public comment. The IFR specifically states that, “In addition, as
described below, to enable certain eligible small educational institutions to participate in
PPP, this interim final rule provides that institutions of higher education shall exclude work
study students when determining the number of employees for purposes of PPP loan
eligibility.” 5

The Appellant is identified by NAICS Code: Colleges, Universities, and Professional
Schools (611310) and is a nonprofit higher education institution. A nonprofit organization
means a 501(c)(3). In the IFR, III. Paycheck Protection Program Nondiscrimination and
Additional Eligibility Criteria,

“2. Student Workers and PPP Loan Eligibility
Do student workers count when determining the number of employees for
PPP loan eligibility?

Yes, student workers generally count as employees, unless (a) the applicant is
an institution of higher education, as defined in the Department of Education’s
Federal Work-Study regulations, 34 675.2, and (b) the student worker’s
services are performed as part of a Federal Work-Study Program (as defined
in those regulations1) or a substantially similar program of a State or political
subdivision thereof. Institutions of higher education must exclude work study
students when determining the number of employees for PPP loan eligibility
and must also exclude payroll costs for work study students from the
calculation of payroll costs used to determine their PPP loan amount.

4 13 CFR Parts 113 and 120.
5 Federal Register Vol. 85, No. 90 at 27290 Friday, May 8, 2020.

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The Administrator, in consultation with the Secretary, has determined that
this is a reasonable interpretation of section 1102(a) of the CARES Act’s
reference to ‘‘individuals employed on a full-time, part-time, or other basis.’’
Such programs generally provide part- time jobs for students with financial
need, and their services are incident to and for the purpose of pursuing a
course of study. Work study students are excluded from the definition of
employees in other areas of federal law. For example, in the regulations
implementing the Affordable Care Act, Treasury defined an employee’s ‘‘hours
of service’’ to exclude work study hours.2 Explaining this exclusion, the
regulation’s preamble states that ‘‘[t]he federal work study program, as a
federally subsidized financial aid program, is distinct from traditional
employment in that its primary purpose is to advance education.’’3 Similarly,
student work is generally exempt from Federal Insurance Contribution Act
(FICA) and Federal Unemployment taxes.

For similar reasons, the Administrator, in consultation with the Secretary of
the Treasury, has determined that a limited exception for work study is
appropriate here. In particular, the Administrator recognizes that requiring
institutions of higher education to count work study students towards
employee headcount would result in an anomalous outcome in two respects.
First, it would prevent some small educational institutions from receiving PPP
loans due solely to their provision of financial aid to students in the form of
work study. Second, it would result in the exclusion of small educational
institutions whose part-time work study headcount dwarfs their full- time
faculty and staff headcounts. Educational institutions that filed loan
applications prior to the issuance of the regulation are not bound by this
interpretation but may rely on it. Lenders may continue to rely on borrower
certifications as part of their good faith review process.” 6

The SBA argues that Pursuant to the CARES Act, SBA promulgated several regulations
concerning PPP eligibility, including the First IFR. See Paycheck Protection Program, 85 Fed.
Reg. at 20811 (posted on the SBA and Treasury websites on April 2, 2020, and effective April
15, 2020; CARES Act §1102, 134 Stat. at 287 (codified 15 U.S.C. §636(a)(36)(B)). The First
IFR, which was available to Lender and Appellant on SBA’s website before Appellant
submitted its PPP loan application, tracked the CARES Act eligibility language, and advised
all PPP lenders and applicants of the basic PPP eligibility criteria. Under the “Am I eligible?”
section of the First IFR, it provided that “[y]ou are eligible for a PPP loan if you have 500 or

6 Federal Register Vol. 85, No. 90 at 27290 Friday, May 8, 2020.

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fewer employees …or are a business that operates in a certain industry and meet the
applicable SBA employee-based size standard for that industry …” SBA’s regulations at 13
CFR § 121.106 captioned “How does SBA calculate number of employees?” states, in
pertinent part, “In determining a concerns number of employees, SBA counts all individuals
employed on a full-time, part-time, or other basis” and “Where the size standard is number
of employees, the method for determining a concern’s size included the following principles:
… Part-time and temporary employees are counted the same as full-time employees.”
(Emphasis added) 13 CFR § 121.106 (a) and (b)(2).

The SBA further argues that pursuant to the SBA’s PAYCHECK PROTECTION
PROGRAM LOANS Frequently Asked Questions (FAQs),

36.Question: To determine borrower eligibility under the 500-employee or
other applicable threshold for First Draw PPP Loans, or the 300-employee
threshold for Second Draw PPP Loans established by the Economic Aid Act,
must a borrower count all employees or only full-time equivalent employees?
(Question 36 published April 26, 2020, and revised March 3, 2021, to reflect
the interim final rule for Second Draw PPP Loans).

Answer: For purposes of loan eligibility, the CARES Act defines the term
employee to include “individuals employed on a full-time, part-time, or other
basis.” A borrower must therefore calculate the total number of employees,
including part-time employees, when determining their employee headcount
for purposes of the eligibility threshold. For example, if a borrower has 200
full-time employees and 50 part-time employees each working 10 hours per
week, the borrower has a total of 250 employees. By contrast, for purposes of
loan forgiveness, the CARES Act uses the standard of “fulltime equivalent
employees” to determine the extent to which the loan forgiveness amount will
be reduced in the event of workforce reductions.

The SBA calculates number of employees in accordance with 13 CFR 121.106.
Employee calculation: This is the average number of people employed for each pay period
over the business’s latest 12 calendar months. Any person on the payroll must be included
as one employee, regardless of hours worked or temporary status. The number of employees
of a concern in business less than 12 months is the average for each pay period that it has
been in business. 7

The Appellant does not dispute that it does not qualify as a PPP eligible small business
under the total head count method, however the argument relies on the fact that Question 36 that

7 13 CFR 121.106.

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offered additional guidance on PPP loan was published after their PPP loan application and loan
disbursement. The Appellant argues they used full-time equivalent (FTE) and did not include
Federal Work Study employees to determine “employee” amount for the PPP loan application and
subsequent loan forgiveness application. Pursuant to Interim Final Rule 13 CFR 120, 85 FR
33004:
What does “full-time equivalent employee” mean? Full-time equivalent
employee means an employee who works 40 hours or more, on average, each week.
The hours of employees who work less than 40 hours are calculated as proportions
of a single full-time equivalent employee and aggregated, as explained further
below in subsection d.

The CARES Act does not define the term “full-time equivalent employee,” and the
Administrator, in consultation with the Secretary, has determined that full-time
equivalent is best understood to mean 40 hours or more of work each week. The
Administrator considered using a 30-hour standard but determined that 40 hours or
more of work each week better reflects what constitutes full-time employment for
the vast majority of American workers.

d. How should a borrower calculate its number of full-time equivalent (FTE)
employees?

Borrowers seeking forgiveness must document their average number of FTE
employees during the covered period (or the alternative payroll covered period) and
their selected reference period. For purposes of this calculation, borrowers must
divide the average number of hours paid for each employee per week by 40, capping
this quotient at 1.0. For example, an employee who was paid 48 hours per week
during the covered period would be considered to be an FTE employee of 1.0.

For employees who were paid for less than 40 hours per week, borrowers may
choose to calculate the full-time equivalency in one of two ways. First, the borrower
may calculate the average number of hours a part-time employee was paid per week
during the covered period. For example, if an employee was paid for 30 hours per
week on average during the covered period, the employee could be considered to
be an FTE employee of 0.75. Similarly, if an employee was paid for ten hours per
week on average during the covered period, the employee could be considered to
be an FTE employee of 0.25. Second, for administrative convenience, borrowers
may elect to use a full-time equivalency of 0.5 for each part-time employee. The
Administrator recognizes that not all borrowers maintain hours-worked data, and
has decided to afford such borrowers this flexibility in calculating the full-time
equivalency of their part-time employees.

Borrowers may select only one of these two methods, and must apply that method
consistently to all of their part-time employees for the covered period or the
alternative payroll covered period and the selected reference period. In either case,

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the borrower shall provide the aggregate total of FTE employees for both the
selected reference period and the covered period, or the alternative payroll covered
period, by adding together all of the employee-level FTE employee calculations.
The borrower must then divide the average FTE employees during the covered
period, or the alternative payroll covered period by the average FTE employees
during the selected reference period, resulting in the reduction quotient.

Given that this guidance was provided at the time of the Appellant’s loan application it is
reasonable way of calculating number of employees for the PPP loan application and loan
forgiveness. The SBA’s citation of the PPP FAQs was posted after the Appellant’s loan application
and approval. Appellant was allowed to exclude Federal Work Study employees from there total
employee count. The SBA clearly meant to provide an exception to the general rule as the IFR
states “to enable certain eligible small educational institutions to participate in the PPP, the interim
final rule provides that institutions of higher education shall exclude work study students when
determining the number of employees for purposes of PPP loan eligibility.” 8

On July 08, 2022, the SBA published an update to the SBA PAYCHECK PROTECTION
PROGRAM LOANS Frequently Asked Questions (FAQs). Pursuant to the updated FAQs The
Small Business Administration (SBA), in consultation with the Department of the Treasury,
intends to provide timely additional guidance to address borrower and lender questions
concerning the implementation of the Paycheck Protection Program (PPP), including both
First Draw PPP Loans and Second Draw PPP Loans. This document will be updated on a
regular basis. Borrowers and lenders may rely on the guidance provided in this document as
SBA’s interpretation of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
(as amended), the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act
(Economic Aid Act), and of the Paycheck Protection Program Interim Final Rules (“PPP
Interim Final Rules”)(link). The U.S. government will not challenge lender PPP actions that
conform to this guidance, and to the PPP Interim Final Rules and any subsequent rulemaking
in effect at the time the lender’s action is taken.

Question 71: Are 501(c)(3) nonprofit organizations with more than 500
employees eligible for PPP Loan Forgiveness?

Answer: Section 7(a)(36)(A)(vii) of the Small Business Act (15 U.S.C.
636(a)(36)(A)(vii)) (as added by section 1102(a)(2) of the CARES Act) defines
the term “nonprofit organization” as “an organization that is described in
section 501(c)(3) of the Internal Revenue Code of 1986 and that is exempt

8 Federal Register Vol. 85, No. 90 at 27288 (May 8, 2020).

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Case 1:23-cv-00614-BAH Document 15-17 Filed 09/01/23 Page 14 of 17

from taxation under section 501(a) of such Code” (501(c)(3) nonprofit
organizations). In general, the CARES Act provided that 501(c)(3) nonprofit
organizations with a total of 500 or fewer employees were eligible to receive
a First Draw PPP Loan. The American Rescue Plan Act (ARPA), enacted on
March 11, 2021, increased the size eligibility standard for 501(c)(3) nonprofit
organizations for First Draw PPP Loans from a total of 500 or fewer employees
to no more than 500 employees per physical location of the 501(c)(3)
nonprofit organization. On March 22, 2021, SBA published an Interim Final
Rule implementing the provisions of ARPA applicable to PPP (86 FR 15083)
(ARPA IFR). On May 31, 2022, the SBA Office of Hearings and Appeals (OHA)
issued an Initial Decision in the Appeal of Lawndale Christian Health Center,
Docket No. PPP-5819168004. In that Initial Decision, the Administrative Law
Judge determined that because the applicability date set forth by SBA in the
ARPA IFR stated that the ARPA changes to PPP apply to “loans approved, and
loan forgiveness applications submitted, on or after March 11, 2021 ,”
501(c)(3) nonprofit organizations that received a First Draw PPP Loan before
March 11, 2021, but applied for forgiveness on or after March 11, 2021, are
entitled to forgiveness of their First Draw PPP Loan if they meet the ARPA
increased size eligibility standard. The Final Rule on Borrower Appeals of
Final SBA Loan Review Decisions Under the Paycheck Protection Program
published by SBA on September 16, 2021 (86 FR 51589) provides that initial
decisions rendered by OHA are not precedential. The Administrator has
reviewed the OHA decision issued in the Appeal of Lawndale Christian Health
Center. Based on the OHA decision and the exercise of her broad discretion
under Section 5(b)(7) of the Small Business Act (15 U.S.C. 634(b)(7)), the
Administrator has determined that any 501(c)(3) nonprofit organization that
received a loan before March 11, 2021, but submits a forgiveness application
on or after March 11, 2021, will be eligible for forgiveness on the basis that
they have more than 500 employees in multiple physical locations. As a result,
a 501(c)(3) nonprofit organization that submits a forgiveness application on
or after March 11, 2021, is eligible for forgiveness if the 501(c)(3) nonprofit
organization meets the ARPA increased size eligibility standard and has
otherwise complied with all applicable PPP rules. 9

In support of its appeal Appellant additionally points to the detrimental reliance on
an email exchange between an SBA employee that reassured the Appellant that additional

9 Question 71 published July 8, 2022. PAYCHECK PROTECTION PROGRAM LOANS Frequently Asked

Questions (FAQs) .

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Case 1:23-cv-00614-BAH Document 15-17 Filed 09/01/23 Page 15 of 17

guidance on PPP loans would not alter the terms of the Appellant’s PPP Loan that was
dispersed prior to the regulation going into effect. Shortly after the Appellant’s loan
application there was an email exchange between Robert Clark, President of Husson
University and Keith Lind, Public Affairs Specialist, Main District Office, U.S. Small Business
Administration. Appellant emailed on May 13, 2020, at 1:50 PM stating:

“In reading the guidance for higher education institutions it would seem that
use of the FTE that was in effect and approved by our lender prior to the May
updates would allow use of the Affordable Care adjustments under Federal
Law, which is under the rationale for excluding work study students. This is
the approach that Husson followed to determine its employee eligibility and
was approved by both our lender and the SBA. I just wanted to verify that this
process was still valid after the newer guidance came forward. I appreciate
your assistance. Bob Clark” (AR at 8576).

The response to the email from Keith Lind to Robert Clark at 3:37PM as follows:

“Hi Bob, I can confirm that since Husson’s application was made prior to the
new guidance being issued, the new guidelines will not impact the terms for
your loan” (AR at 8576).

The SBA argues in its Brief in Response to Order Extending Time to File the
Administrative Record and For Parties to File Briefs that:

“OHA should disregard Appellant’s argument on this point because that email
exchange is not the type of document required in the Record. 13 C.F.R. §
134.1207(b). Section 134.1207(b) defines the contents of the Record as
“relevant documents that SBA considered in making its final loan review
decision or that were before SBA at the time of the final loan review decision.”
Id. That email exchange was not relevant and was not before SBA when it made
the final loan review decision. SBA did not consider it when it made the final
loan review decision. Therefore, it is not a required part of the Record, and
argument should be unavailing.” 10

The Administrative Judge disagrees with SBA’s assertion that the email exchange is
neither relevant nor should it be considered. Though the email is not required, it is a part of
the Administrative Record (AR at 8576-8577) and is directly relevant to the issue at bar. It
is reasonable that given the uncertainty regarding the PPP loan program and the regulations
that the Appellant would reach out for further guidance from the U.S. department
administering the loans. The IFR specifically states, “SBA may provide further guidance, if

10 SBA’s Brief in Response to Order Extending Time To File The Administrative Record And For Parties To File

Briefs (Portal Docket #27 uploaded May 27, 2022).

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needed, through SBA notices that will be posted on SBA’s website at www.sba.gov. Questions
on the Paycheck Protection Program may be directed to the Lender Relations Specialist in
the local SBA Field Office. The local SBA Field Office may be found at
https://www.sba.gov/tools/ local-assistance/district offices.” Here, the Appellant reached
out to the local SBA field office and was given assurance for which it relied albeit subsequent
to the loan application.

There can be little dispute that the need for expeditious legislative and regulatory
action during the pandemic height, created a chaotic rush to issue guidance in applying for
PPP loans. The rapid fire C.F.R. interim changes were needed but certainly caused more than
a little confusion on the part of potential borrowers. Thus, while the Appellant’s attempt to
seek clarity in its application for a PPP loan is not dispositive of the appeal, it certainly aids
their position and early interpretation.

The Appellant has the burden of proving that the ﬁnal SBA loan review decision is
based upon a clear error of fact or law. The record demonstrates SBA has not properly
applied the applicable laws, regulations, and policy when denying Appellant’s application.
Specifically, the SBA did not consider the exception for higher education’s ability to exclude
work study students and the employee calculation provided by the Appellant when
determining the number of employees for PPP loan eligibility. Additionally, the SBA failed to
consider the FTE calculation when determining the Appellant’s PPP eligibility. I find the
reasoning illustrated in the IFR for providing such exceptions to higher education
compelling, in particular, the Administrator recognizes that requiring institutions of higher
education to count work study students towards employee headcount would result in an
anomalous outcome in two respects. First, it would prevent some small educational
institutions from receiving PPP loans due solely to their provision of financial aid to students
in the form of work study. Second, it would result in the exclusion of small educational
institutions whose part-time work study headcount dwarfs their full- time faculty and staff
headcounts. Here, the record clearly demonstrates that its Part-time student employees far
outweigh its full-time employees.

In the course of this appeal the Administrative Judge specifically directed the
Appellant to break down the list of part time employees by work hours. The Administrative
Judge did this in order to ascertain how many of these “employees” were working minimal
hours. Though it has been many decades since the undersigned has been in undergraduate
or law school, his experience suggested that most of these “employees” were students being
assisted with their financial needs. The response from the Appellant demonstrated that the
majority of its part-time student employees work less than ten (10) hours per week and fell
into this category. It would be contrary to the intent of the PPP loan program and the
administrator to penalize the Appellant for the part-time staff that “dwarfs their full-time

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faculty and staff headcounts.” Furthermore, the additional guidance in the SBA PPP FAQS
published July 08, 2022, regarding nonprofits, was not available to the SBA at the time they
made its Final Loan Review Decision. I therefore find the final SBA loan review decision is
based on a clear error of fact or law. I hereby GRANT the Appellant’s appeal and REVERSE
the SBA final loan review decision.

IV. Standard of Review

Appellant has the burden of proving all elements of the appeal. Speciﬁcally, Appellant
must prove that the ﬁnal SBA loan review decision is based upon a clear error of fact or law.
13 C.F.R. § 134.1210.

V. Conclusion

Appellant, Husson University, has established that the ﬁnal SBA loan review decision
was based on a clear error of law or fact. I therefore GRANT the appeal and REVERSE the
final SBA loan review decision. It is HEREBY ORDERED Husson’s University Paycheck
Protection Program loan of $ 5,965,000.00 is forgiven in full. The SBA is directed to issue a
new final loan review decision providing the terms of this order.

This is an initial agency decision. However, unless a request for reconsideration is
ﬁled within 10 calendar days pursuant to 13 C.F.R. § 134.1211(c), this decision shall become
the ﬁnal decision of SBA 30 calendar days after its service. 13 C.F.R.§ 134.1211.

_____________________________________________

JAMES M CAULFIELD
Administrative Judge

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Complaint For Declaratory And Injunctive Relief

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