DHRB, LLC v. U.S. Small Business Administration, E.D.N.Y. No. 1:26-cv-03210, Doc. 2, amended complaint (May 29, 2026)

Summary

Amended complaint for review of agency action in DHRB, LLC d/b/a Daigo Hand Roll Bar v. United States Small Business Administration, Case No. 1:26-cv-03210, Doc. 2, U.S. District Court for the Eastern District of New York, dated May 29, 2026. It alleges that the SBA's determination to revoke and seek recovery of a Restaurant Revitalization Fund (RRF) grant of $661,597 is contrary to law under 5 U.S.C. § 706(2)(A), and describes the SBA's December 10, 2025 letter demanding return of the award. It alleges that DHRB calculated the award from Square point-of-sale data under Calculation Method #1 while the SBA relied on tax returns. The complaint asks the court to declare the award properly calculated and enjoin collection, and is signed by Franklin Barbosa, Jr., attorney for Plaintiff.

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“DHRB, LLC v. U.S. Small Business Administration, E.D.N.Y. No. 1:26-cv-03210, Doc. 2, amended complaint (May 29, 2026).” Original at storage.courtlistener.com. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/dhrb-llc-v-u-s-small-business-administration-e-d-n-y-no-1-26-cv-03210-98576c2db6/, SHA-256 e5c04fe7dbdb2fa2fecd73221ef95636adff7bd64fa646cfdad22f92edb91063.

Full text

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK

DHRB, LLC d/b/a DAIGO HAND ROLL BAR,

Plaintiff,

- against -

UNITED STATES SMALL BUSINESS
ADMINISTRATION;

Serve: Kelly Loeffler, Administrator
U.S. Small Business Administration
Office of the Administrator
409 Third Street, S.W.
Washington, D.C. 20416

Todd Blanche
Acting United States Attorney General
U.S. Department of Justice
950 Pennsylvania Ave., N.W. Case No. 1:26-cv-03210
Washington, D.C. 20530

Joseph Nocella, Jr.
United States Attorney for the Eastern
District of New York
U.S. Attorney’s Office
271 Cadman Plaza E
Brooklyn, NY 11201

-and-

KELLY LOEFFLER, in her official capacity as
Administrator of the United States Small Business
Administration
409 Third Street, S.W.
Washington, D.C. 20416

Serve: Kelly Loeffler, Administrator
U.S. Small Business Administration
Office of the Administrator
409 Third Street, S.W.
Washington, D.C. 20416

Todd Blanche
Acting United States Attorney General
U.S. Department of Justice
950 Pennsylvania Ave., N.W.
Washington, D.C. 20530

Joseph Nocella, Jr.
United States Attorney for the Eastern
District of New York
U.S. Attorney’s Office
271 Cadman Plaza E
Brooklyn, NY 11201

Defendants.

AMENDED COMPLAINT FOR REVIEW OF AGENCY ACTION, DECLARATORY
AND INJUNCTIVE RELIEF

Plaintiff, DHRB, LLC d/b/a Daigo Hand Roll Bar (“Plaintiff” or “DHRB”), in the above-

entitled action, by and through its undersigned counsel, hereby demands judgment against

Defendants, United States Small Business Administration and Kelly Loeffler, in her official

capacity as Administrator of the United States Small Business Administration, for reversal of an

agency decision, declaratory and injunctive relief as set forth below, and as its Amended

Complaint, alleges as states as follows:

NATURE OF THE CASE
1. This is an action under the Administrative Procedure Act (“APA”), 5 U.S.C. § 706,

and the Declaratory Judgment Act, 28 U.S.C. §§ 2201 and 2202, challenging Defendants’

unlawful, arbitrary, capricious, and unreasonable determination to revoke and seek recovery of a
Restaurant Revitalization Fund (“RRF”) grant of $661,597 lawfully awarded to and received by

DHRB.

2. The American Rescue Plan Act of 2021 (“ARPA”), Pub. L. No. 117-2, § 5003, 135

Stat. 4 (March 11, 2021), established the Restaurant Revitalization Fund and appropriated $28.6

billion to the U.S. Small Business Administration (“SBA”) to provide emergency relief grants to

restaurants, bars, and similar food-service businesses that experienced revenue losses related to

the COVID-19 pandemic.

3. DHRB, a restaurant operating in New York, applied for and received an RRF award

of $661,597 on or about May 3, 2021, based on a proper calculation of its pandemic-related

revenue losses utilizing gross receipts data from Square, a designated SBA Point-of-Sale (“POS”)

Restaurant Partner – the very methodology expressly authorized by the SBA’s own Program

Guide.

4. Nearly four and a half years after the award was made, on December 10, 2025, the

SBA issued a letter demanding return of the entire $661,597, asserting that the award was

incorrectly calculated because the gross receipts reported in DHRB’s RRF application did not

match the gross receipts reported on DHRB’s 2019 and 2020 federal tax returns. The SBA’s

determination ignores its own Program Guide, improperly blends the gross receipts of two separate

legal entities, relies exclusively on tax returns containing known and documented errors, and flatly

contradicts the SBA’s own authorized calculation methodology for applicants applying through

SBA-designated POS Restaurant Partners.

5. The SBA’s revocation determination is arbitrary, capricious, an abuse of discretion,

and contrary to law within the meaning of 5 U.S.C. § 706(2)(A). Further, the SBA’s determination

is unsupported by substantial evidence. Additionally, the SBA lacks jurisdiction to recover funds
because it failed to conduct an audit or make a final audit determination within three years of

DHRB’s submission of its final RRF Post Award Report, in contravention of 2 C.F.R. §§ 200.334,

200.344, and 200.345.

6. Plaintiff seeks a declaration that the SBA’s determination to revoke DHRB’s RRF

award is unlawful and must be set aside, and an injunction enjoining Defendants from seeking to

recover the RRF funds from DHRB.

PARTIES, JURISDICTION & VENUE
7. Plaintiff, DHRB is a New York limited liability company with its principal place

of business in New York. DHRB operates as a restaurant in New York and is 100% owned by

David Moon (“Mr. Moon”). DHRB is, and at all relevant times was, an eligible entity under the

Restaurant Revitalization Fund.

8. Defendant, SBA is an independent agency of the United States Government with

its principal office at 409 Third Street, S.W., Washington, D.C. 20416. The SBA is responsible

for the administration of the Restaurant Revitalization Fund.

9. Defendant Kelly Loeffler is the Administrator of the United States Small Business

Administration and is sued in her official capacity. Administrator Loeffler oversees the SBA’s

operations, including the administration and enforcement of the RRF program.

10. Defendant Todd Blanche is the Acting Attorney General of the United States and

is named as a defendant pursuant to Fed. R. Civ. P. 4(i)(1) and 28 U.S.C. § 1391(e) for service of

process upon the United States and its agencies.

11. Defendant Joseph Nocella, Jr. is the United States Attorney for the Eastern District

of New York and is named as a defendant pursuant to Fed. R. Civ. P. 4(i)(1) for service of process

upon the United States.
12. This Court has subject matter jurisdiction over this action pursuant to 28 U.S.C. §

1331 (federal question jurisdiction), as this action arises under the Administrative Procedure Act,

5 U.S.C. §§ 701-706; the American Rescue Plan Act of 2021, Pub. L. No. 117-2; and the

Declaratory Judgment Act, 28 U.S.C. §§ 2201-2202. The United States has waived sovereign

immunity for suits seeking non-monetary relief under the APA. 5 U.S.C. § 702.

13. Venue is proper in this District pursuant to 28 U.S.C. § 1391(e)(1) because Plaintiff

is domiciled and conducts business in this District, and a substantial part of the events and

omissions giving rise to this action occurred in this District, including, but not limited to, DHRB’s

application for, and receipt of, the RRF award, as well as its operations and expenditure of RRF

funds in this District.

14. The Court has authority to issue declaratory and injunctive relief under 5 U.S.C. §§

702, 706, and 28 U.S.C. §§ 2201-2202.

15. The SBA’s April 1, 2026 demand letter constitutes final agency action for purposes

of judicial review under 5 U.S.C. § 704. The SBA has made clear that its determination “stands

and will not be reconsidered,” having refused to reconsider its position despite multiple written

submissions from DHRB, including a comprehensive appeal letter dated March 13, 2026.

FACTS COMMON TO ALL COUNTS
A. The Restaurant Revitalization Fund Program

16. On March 11, 2021, the ARPA became public law (P.L. 117-2). Section 5003 of

the ARPA established the Restaurant Revitalization Fund and appropriated $28.6 billion for SBA

to award emergency relief grants to eligible food-service businesses that suffered revenue losses

related to the COVID-19 pandemic.
17. The SBA published the Restaurant Revitalization Funding Program – Program

Guide as of April 28, 2021 (the “Program Guide”), which set forth the eligibility requirements,

calculation methodologies, and documentation requirements applicable to RRF applicants.

18. The Program Guide expressly authorizes three separate calculation methodologies

for determining an applicant’s RRF award, based on when the applicant began operations:

(a) Calculation Method #1 (Table 1): For businesses in operation prior to or on January
1, 2019 – the RRF award equals 2019 gross receipts minus 2020 gross receipts minus
PPP loans received. Under Method #1, for Step 2, an applicant applying “through a
designated SBA point-of-sale restaurant partner” may use “the gross receipts that are
recorded with the point-of-sale partner.” Program Guide, p. 7.

(b) Calculation Method #2 (Table 2): For businesses that began operations partially
through 2019 – annualizes 2019 gross receipts then subtracts 2020 gross receipts and
PPP loans. Program Guide, p. 8.

(c) Calculation Method #3 (Table 3): For businesses that began operations on or
between January 1, 2020 and March 10, 2021 – the RRF award equals eligible expenses
incurred between February 15, 2020 and March 11, 2021, minus gross receipts for the
same period, minus PPP loans. Program Guide, p. 8-9.

19. The Program Guide further expressly provides that “[a]pplicants that operate

multiple locations may calculate funding amounts for their locations using separate Calculation

methods and then aggregate the amounts together.” Program Guide, p. 9. By way of illustration,

the Program Guide states: “An Applicant owns a restaurant that has been open since 2015 and

another restaurant that has been open since 2020. The Applicant may use Calculation 1 (Table 1)

for the first restaurant and Calculation 3 (Table 3) for the second restaurant.” Program Guide, p.

20. The Program Guide explicitly identifies acceptable documentation for

demonstrating gross receipts, including: Business tax returns; bank statements; externally or

internally prepared financial statements such as income statements or profit and loss statements;
and point of sale report(s), including IRS Form 1099-K. Program Guide, p. 16-17. Tax returns

are one permissible form of documentation – not the exclusive or mandatory form.

21. The Program Guide defines an “Affiliated Business” or “affiliate” as “a business in

which an eligible entity has an equity interest or right to profit distributions of not less than 50

percent, or in which an eligible entity has the contractual authority to control the direction of the

business, provided that such affiliation shall be determined as of any arrangements or agreements

in existence as of March 13, 2020.” Program Guide, Appendix, p. 19 (emphasis added).

22. On April 22, 2021, the SBA announced an initiative under which designated POS

service providers – including Clover, NCR Corporation, Square, and Toast – would serve as SBA

Restaurant Partners and assist eligible applicants with calculating, validating, and submitting RRF

applications. The SBA affirmatively encouraged applicants using these partners to apply through

the customized POS partner process.

B. DHRB’s RRF Application and Award

23. DHRB is a sushi restaurant that has been in operation prior to January 1, 2019.

DHRB is a single-location restaurant operated by Mr. Moon.

24. DSRB LLC d/b/a Daigo Sushi Roll Bar (“DSRB”) is a separate entity, that

possesses a unique and separate Employer Identification Number (“EIN”), that began operations

at a separate location in April 2020. DSRB is a distinct legal entity from DHRB.

25. Crucially, DSRB did not begin operations or enter into any arrangements or

agreements until after March 13, 2020 – and therefore cannot constitute an “affiliate” of DHRB

under the Program Guide’s own definition, which requires that affiliations be determined as of

agreements or arrangements in existence as of March 13, 2020.
26. DSRB’s Operating Agreement, which agreement was not executed until March 28,

2020, identifies Mr. Moon as the sole member of DSRB at that time.

27. On or about May 3, 2021, DHRB applied for an RRF award through Square, a

designated SBA POS Restaurant Partner. In accordance with the SBA’s Program Guide and the

specific methodology authorized for POS Restaurant Partner applicants, DHRB used its Square

POS data to report its gross receipts.

28. Pursuant to Calculation Method #1 (the applicable method for businesses operating

prior to January 1, 2019), DHRB calculated its RRF award as follows:

Step 1: 2019 Gross Receipts (Square POS): $1,165,019
Step 2: 2020 Gross Receipts (Square POS): $344,620
Step 3: PPP Loans Received: $158,802
Total Deductions (Step 2 + Step 3): $503,422
RRF Award Amount (Step 1 minus Total Deductions): $661,597

29. The SBA approved DHRB’s application and disbursed the RRF award of $661,597

(Confirmation ID: acea00142360; SBA Loan Number: 7909578905).

30. DHRB used the RRF award funds on eligible expenses during the covered period,

including payroll costs, rent/mortgage, utilities, food and beverage expenses, and other authorized

categories.

31. DHRB used all of its RRF award funds on DHRB. None of the RRF funds were

used in connection with DSRB’s operations.

32. DHRB duly submitted its Post Award Report certifying its use of all award funds

on eligible expenses. The Post Award Report was filed on December 31, 2021.

C. Discrepancy Between POS Data and Tax Returns
33. There are two distinct and documented reasons why DHRB’s gross receipts as

reported in its Square POS data differ from those reflected in its filed tax returns:

(a) 2019 Tax Return Error: The 2019 federal tax return filed by DHRB understated
gross receipts by approximately $174,280. This understatement resulted from: (i)
approximately $36,000 in sales posted net of Square credit card fees, which should
have been reported gross; and (ii) approximately $135,000 incorrectly adjusted out of
gross receipts as a result of an accounting error in reconciling “due from credit card”
entries in DHRB’s general ledger. The correct 2019 gross receipts for DHRB –
consistent with its Square POS reports – should have been $1,165,019.

(b) 2020 Tax Return Conflation: The 2020 federal tax return filed under DHRB’s EIN
reports total gross receipts of $878,444. However, this figure includes revenues from
both DHRB and DSRB. As documented in the Profit and Loss Statement prepared by
DHRB’s tax accountant, PragerMetis, DHRB’s own 2020 gross receipts were only
$342,680 (compared to DHRB’s Square POS-reported gross receipts of $344,620 used
in the application). The 2020 tax return figure of $878,444 encompasses the revenues
of two separate legal entities at two separate locations.

34. The RRF award amount of $661,597 which was applied for and received by DHRB

was appropriately calculated utilizing gross receipts reported within the Square Point of Sale

(‘POS’) system.

35. Only DHRB applied for funding. DSRB, a separate entity with a unique EIN that

began operations at a separate location in April 2020, did not apply for funding.

D. The SBA’s Revocation Determination and Correspondence

36. On December 10, 2025, the SBA issued a letter to DHRB (the “December 2025

Letter”) stating that “there was an issue with your Award that requires a return of funds” and

demanding return of the full $661,597 award.

37. The December 2025 Letter claimed that the RRF award was incorrectly calculated

because the gross receipts reported in DHRB’s application did not match those on the 2019/2020

tax returns, stating: “Your application stated 2019 gross receipts = $1,165,019.13, IRS verification

= $990,739.00. Your application stated 2020 gross receipts = $344,620.13, IRS verification =

$878,444.00. After deduction of PPP and PPS, a negative amount resulted.”
E. The SBA’s Erroneous Conclusions

38. On December 12, 2025, DHRB responded to the SBA’s December 2025 Letter,

providing additional information and documentation explaining the discrepancies between the

application figures and the tax returns.

39. On January 9, 2026, the SBA responded, confirming that it was using tax return

figures exclusively to recalculate the RRF award, arriving at an award amount of negative $48,878.

40. On January 9, 2026, DHRB again responded to the SBA, requesting the opportunity

to explain the tax returns in further detail. On January 29, 2026, the SBA responded and asked:

“What other tax returns would need to be taken into consideration?”

41. On February 6, 2026, DHRB sent a detailed letter to the SBA explaining the proper

calculation methodology for the RRF award and documenting the discrepancies in the tax returns.

42. On February 18, 2026, the SBA responded, maintaining its position that “[w]hen

more than one business is included under an EIN that applied for the RRF Award, the full amount

of gross receipts for the EIN must be used in the calculation” and that “[a]wards are very simply

calculated as follows: 2019 gross receipts from tax return – 2020 gross receipts from tax return –

PPP loans received = Award Amount.” The SBA concluded: “SBA decision stands and will not

be reconsidered.”

43. On March 13, 2026, DHRB submitted a comprehensive written appeal (the “Appeal

Letter”) to the SBA at RRFAwardRecoveryReconsideration@sba.gov, extensive financial

documentation, and detailed legal argument demonstrating that the SBA’s calculation

methodology was erroneous and contradicted the SBA’s own Program Guide.

44. On March 31, 2026, the SBA responded as follows: “The reference in the program

guide to allows for applicants to apply for multiple locations that opened during different time
periods and aggregate the calculation methods into a total award. It does not however, allow

applicants to exclude a location, or only apply for one location of many under a single EIN. I

believe that is what the applicant is stating happened.”

45. The SBA’s conclusions were erroneous in multiple respects.

46. As a threshold matter, the SBA ignored its own Program Guide’s authorized

calculation procedures. The Program Guide permits applicants applying through SBA-designated

POS Restaurant Partners to use POS data for gross receipts. Program Guide, p. 7. DHRB applied

through Square, an SBA-designated POS Restaurant Partner. In contradiction of its own guidance,

the SBA nevertheless demanded that only tax return figures be used, and declared that awards “are

very simply calculated as follows: 2019 gross receipts from tax return – 2020 gross receipts from

tax return – PPP loans received = Award Amount.” This characterization is directly contradicted

by the Program Guide, which provides multiple documentation options and expressly authorizes

the use of POS data.

47. The SBA failed to account for tax return errors that were explained by DHRB.

DHRB explained that the 2019 tax return underreported gross receipts by approximately $174,280

due to accounting errors, and that the POS-reported gross receipts of $1,165,019 accurately reflect

DHRB’s actual 2019 revenues. The SBA rejected the explanation, and DHRB’s supporting

documentation, without basis.

48. The SBA improperly conflated the revenues of two separate entities, DHRB and

DSRB. In reaching its erroneous conclusion, the SBA relied upon gross receipts of $878,444

reported on DHRB’s 2020 tax return, despite the fact that this figure included revenues attributable

to DSRB, a separate entity with a separate EIN. DSRB did not apply for RRF funding, DHRB’s

RRF award was not used for DSRB’s expenses, DSRB did not commence operations until April
2020, DSRB did not have an operating agreement until March 28, 2020, after the March 13, 2020

affiliation determination date established by the Program Guide. Because the Program Guide

defines affiliation based upon relationships and arrangements existing as of March 13, 2020,

DSRB’s post-March 13, 2020 revenues cannot properly be attributed to DHRB for purposes of

calculating the RRF award.

49. Even assuming arguendo that DSRB could properly be considered in connection

with DHRB’s RRF award calculation under the Program Guide, the SBA nevertheless failed to

apply the Multi-Location Calculation Methodology expressly set forth in the Program Guide.

Specifically, the Program Guide provides that applicants operating multiple locations may

calculate award amounts on a location-by-location basis and thereafter aggregate those

calculations. Program Guide at 9. The SBA disregarded this required framework, notwithstanding

that DHRB and DSRB operated as separate restaurant locations. Had the SBA applied the Multi-

Location Calculation Methodology, DSRB’s revenues would not have reduced DHRB’s RRF

award. DSRB had expenses exceeding revenues from April 2020 through December 31, 2020.

50. DHRB advised the SBA of its errors through DHRB’s submissions, but the SBA

would not relent or listen to reason.

51. The SBA made clear that its determination “stands and will not be reconsidered.”

52. Aside from demonstrating a disregard for its own Program Guide, the SBA’s

determination reflects a broader loss of focus on both the purpose of the RRF program and the role

of the audit process itself. The RRF was established to provide critical relief to restaurant owners

during one of the most uncertain economic periods in modern history – a once-in-a-century global

pandemic. The audit process should not be transformed into a punitive mechanism against
restaurant owners who, acting in good faith and to the best of their abilities, sought relief based

upon reasonable interpretations of the Program Guide.

F. The SBA Issues a Demand Letter After Refusing to Reconsider.

53. On April 1, 2026, the SBA issued a letter demanding payment under the RRF Grant

Number, asserting that DHRB owed a debt that is “seriously delinquent,” and asserting that it

would refer the debt to the Department of Treasury for collection if payment is not made within

sixty (60) days, or May 31, 2026. Confusingly, the demand letter lists $0.00 as due and owing.

54. To make matters more confusing, on May 14, 2026, the SBA informed DHRB but

that its April 1, 2026 demand was an “incorrect paper mailing” that was “was sent in error and

should be disregarded.”

55. The SBA advised that it would send a “correct version of the invoice and notice,”

and such “new notice will be valid and a response is required to prevent referral to Treasury.”

56. To date, the SBA has not sent any “new notice.”

E. The SBA’s Failure to Make a Timely Audit Determination

57. DHRB submitted its final RRF Post Award Report (SBA Form 3173) by December

31, 2021, certifying that it had fully expended all RRF award funds on eligible expenses within

the covered period.

58. Federal regulations governing the administration of federal awards establish a

three-year record retention and audit resolution period. 2 C.F.R. § 200.334 requires recipients to

retain records for “three years from the date of submission of their final expenditure report.” 2

C.F.R. § 200.344 provides that federal agencies must close out awards promptly after the recipient

submits the final report, and 2 C.F.R. § 200.345 establishes that the SBA must “notify the recipient

or subrecipient within the record retention period” of any determinations to “disallow costs.”
59. More than three years elapsed between DHRB’s submission of its final Post Award

Report in December 2021 and the SBA’s December 10, 2025 demand for return of funds. The

SBA’s determination – issued outside the applicable three-year audit period – is untimely and

deprives the SBA of jurisdiction to revoke or recover the RRF award.

60. The SBA’s failure to timely conduct an audit or reach a final determination bars the

SBA from now seeking recovery of the award, in contravention of 2 C.F.R. §§ 200.334, 200.344,

and 200.345.

CAUSES OF ACTION
61. The courts recognize a strong presumption in favor of judicial review of

administrative action. Abbott Labs. v. Gardner, 387 U.S. 136, 141 (1967).

62. The APA provides that “[a] person suffering legal wrong because of agency action,

or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is

entitled to judicial review thereof.” 5 U.S.C. § 702.

63. The APA provides that “final agency action for which there is no other adequate

remedy in a court” is “subject to judicial review.” 5 U.S.C. § 704.

64. The APA provides that courts shall “hold unlawful and set aside” agency action

that is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” or

“unsupported by substantial evidence.” 5 U.S.C. §§ 706(2)(A), (E).

65. The SBA is an “agency” within the meaning of the APA, 5 U.S.C. § 701(b)(1), and

its final actions are reviewable under the APA.

COUNT I

ARBITRARY AND CAPRICIOUS AGENCY ACTION (5 U.S.C. § 706(2)(A))
66. Plaintiff incorporates by reference the allegations contained in Paragraphs 1

through 64 as if fully set forth herein.

67. The APA requires courts to set aside agency action that is “arbitrary, capricious, an

abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). Agency

action is arbitrary and capricious when the agency “relied on factors which Congress has not

intended it to consider, entirely failed to consider an important aspect of the problem, offered an

explanation for its decision that runs counter to the evidence before the agency, or is so implausible

that it could not be ascribed to a difference in view or the product of agency expertise.” Motor

Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983).

68. The SBA’s determination to revoke DHRB’s RRF award is arbitrary and capricious

for the following independent and cumulative reasons:

(a) The SBA Ignored Its Own Program Guide’s Authorized Calculation Methodology.
The Program Guide expressly permits applicants applying through SBA-designated
POS Restaurant Partners to use POS data for 2020 gross receipts. Program Guide, p. 7.
DHRB applied through Square, an SBA-designated POS Restaurant Partner. In
contradiction of its own guidance, the SBA nevertheless demanded that only tax return
figures be used, and declared that awards "are very simply calculated as follows: 2019
gross receipts from tax return – 2020 gross receipts from tax return – PPP loans
received = Award Amount." This characterization is directly contradicted by the
Program Guide, which provides multiple documentation options and expressly
authorizes the use of POS data.

(b) The SBA Failed to Consider the Documented Tax Return Errors. DHRB provided
detailed documentation establishing that the 2019 tax return underreported gross
receipts by approximately $174,280 due to accounting errors, and that the POS-
reported gross receipts of $1,165,019 accurately reflect DHRB’s actual 2019 revenues.
The SBA entirely failed to consider this important aspect of the problem, and offered
no explanation for rejecting this evidence.

(c) The SBA Improperly Conflated the Revenues of Two Separate Legal Entities. The
SBA’s calculation used 2020 gross receipts of $878,444 derived from DHRB's 2020
tax return – a figure that includes revenues of DSRB, a separate entity with a separate
EIN that did not apply for RRF funding and began operations after the affiliation
determination date of March 13, 2020. The Program Guide defines an affiliate based
on arrangements existing as of March 13, 2020. DSRB did not begin operations until
April 2020. Accordingly, DSRB’s revenues cannot be attributed to DHRB’s RRF
award calculation. The SBA's conflation of the two entities' revenues is contrary to the
Program Guide and is arbitrary and capricious.

(d) The SBA Failed to Apply the Multi-Location Calculation Methodology. The
Program Guide provides that applicants operating multiple locations may calculate
awards using separate methodologies and then aggregate them. Program Guide, p. 9.
The SBA wholly disregarded this framework, which is the applicable framework for
an applicant with two separate restaurant locations (DHRB and DSRB).

(e) The SBA Provided Inadequate and Contradictory Rationale. A basic requirement of
administrative law is that an agency provide reasons for its decisions that are grounded
in the record. The SBA’s stated rationale – that awards are “very simply” calculated
from tax return figures alone – is directly contradicted by the SBA’s own Program
Guide and constitutes the kind of unexplained departure from established policy that
renders an agency determination arbitrary and capricious. Encino Motorcars, LLC v.
Navarro, 579 U.S. 211, 221 (2016).

69. For each of the foregoing reasons, the SBA’s determination to revoke DHRB’s RRF

award is arbitrary and capricious within the meaning of 5 U.S.C. § 706(2)(A) and must be set

aside.

70. In the alternative, and at the very least, this matter should be remanded to the SBA

to consider application of the Multi-Location Calculation Methodology.

COUNT II

AGENCY ABUSE OF DISCRETION (5 U.S.C. § 706(2)(A))

71. Plaintiff incorporates by reference the allegations contained in Paragraphs 1

through 69 as if fully set forth herein.

72. The SBA’s revocation determination constitutes an abuse of discretion. The SBA

possesses discretion in administering the RRF program, but that discretion must be exercised

consistent with the Program Guide’s own terms and the evidence in the record. An agency abuses

its discretion when it exercises its authority in a manner that is irrational or contrary to its own

governing policies.
73. The SBA abused its discretion by: (i) refusing to apply the POS data methodology

explicitly authorized by the Program Guide; (ii) ignoring unrebutted evidence establishing that

DHRB’s POS-reported gross receipts accurately reflect its actual revenues; (iii) improperly

attributing DSRB’s revenues to DHRB despite DSRB’s post-March 13, 2020 commencement of

operations; (iv) refusing even to consider the multi-entity, multi-location calculation methodology

established in the Program Guide; and (v) refusing to reconsider its determination or to issue a

formal final determination permitting DHRB to pursue an appeal.

74. The SBA’s declaration that its determination “stands and will not be reconsidered,”

without engaging with the substance of DHRB's documented arguments, evidences an abdication

of the reasoned decision-making the law requires.

75. For these reasons, the SBA’s determination constitutes an abuse of discretion

within the meaning of 5 U.S.C. § 706(2)(A) and must be set aside.

76. In the alternative, and at the very least, this matter should be remanded to the SBA

to consider application of the Multi-Location Calculation Methodology.

COUNT III

AGENCY ACTION CONTRARY TO LAW (5 U.S.C. § 706(2)(A), (B) and (C))
77. Plaintiff incorporates by reference the allegations contained in Paragraphs 1

through 75 as if fully set forth herein.

78. The APA requires courts to hold unlawful and set aside agency action that is an “an

abuse of discretion,” “contrary to constitutional right, power, privilege, or immunity” or “in excess

of statutory jurisdiction, authority, or limitations, or short of statutory right.” 5 U.S.C. §§

706(2)(A), (B), (C).
79. The ARPA established that RRF awards should be calculated based on pandemic-

related revenue losses using the methodology set forth in the statute and Program Guide. The

SBA’s substitution of a rigid, tax-return-only calculation formula – one that neither the ARPA nor

the Program Guide requires or authorizes – exceeds the SBA’s statutory authority and is contrary

to law.

80. The SBA’s determination to aggregate the revenues of DHRB and DSRB – two

separate legal entities with separate EINs – in calculating DHRB’s RRF award is contrary to the

affiliate definition in the Program Guide and contrary to the statutory scheme of the ARPA.

81. Furthermore, the SBA’s demand for repayment of the full $661,597 – an award that

DHRB properly calculated, received, and fully expended on eligible expenses in good faith, in

reliance on the SBA’s own authorized methodology – is contrary to law and the principles of

equitable relief that govern federal grant programs.

82. The SBA’s action is contrary to law within the meaning of 5 U.S.C. § 706(2)(A)

and (C) and must be set aside.

83. In the alternative, and at the very least, this matter should be remanded to the SBA

to consider application of the Multi-Location Calculation Methodology.

COUNT IV
AGENCY DETERMINATION UNSUPPORTED BY SUBSTANTIAL EVIDENCE
(5 U.S.C. § 706(2)(E))

84. Plaintiff incorporates by reference the allegations contained in Paragraphs 1

through 82 as if fully set forth herein.

85. The APA requires courts to set aside agency action that is “unsupported by

substantial evidence.” 5 U.S.C. § 706(2)(E). Substantial evidence review requires that agency
decisions be supported by such relevant evidence as a reasonable mind might accept as adequate

to support a conclusion.

86. The SBA’s revocation determination is not supported by substantial evidence.

87. The SBA’s determination rests exclusively on raw tax return figures, without any

accounting for the documented errors in those returns, the separate revenues of a non-applicant

entity, or the analysis submitted by DHRB, in contravention of the Program Guide. No reasonable

factfinder could conclude, on the basis of the record, that DHRB improperly received its RRF

award.

88. For these reasons, the SBA’s determination is unsupported by substantial evidence

within the meaning of 5 U.S.C. § 706(2)(E) and must be set aside.

89. In the alternative, and at the very least, this matter should be remanded to the SBA

to consider application of the Multi-Location Calculation Methodology.

COUNT V

UNTIMELY AUDIT DETERMINATION (5 U.S.C. § 706(2)(C), (D), and 2 C.F.R. §§
200.334, 200.344, 200.345)
90. Plaintiff incorporates by reference the allegations contained in Paragraphs 1

through 88 as if fully set forth herein.

91. The APA requires courts to set aside agency action that is “without observance of

procedure required by law.” 5 U.S.C. § 706(2)(E).

92. Federal law and regulations impose strict time limits on the SBA’s authority to

audit RRF awards and make recovery demands. The Uniform Guidance at 2 C.F.R. Part 200 –

which governs federal grants and cooperative agreements, including RRF awards – establishes

these limits.
93. 2 C.F.R. § 200.334 provides that federal recipients of grant awards must retain

financial records, supporting documents, statistical records, and all other pertinent records for

“three years from the date of submission of their final expenditure report.” This three-year period

reflects the outer boundary during which the federal government may conduct compliance reviews

and audits.

94. 2 C.F.R. § 200.344 requires the federal agency to close out each award “no later

than one year after the end of the period of performance.”

95. 2 C.F.R. § 200.345 addresses audit requirements and the resolution of audit

findings, providing that agencies must “notify the recipient or subrecipient within the record

retention period” of any determination to “disallow costs.”

96. DHRB submitted its final RRF Post Award Report (SBA Form 3173) no later than

December 31, 2021. DHRB certified in its final Post Award Report that it had fully expended all

RRF award funds on eligible expenses during the covered period.

97. Nearly four years elapsed after DHRB’s final Post Award Report before the SBA

issued its December 10, 2025 demand for return of funds. The SBA conducted no audit of DHRB’s

RRF expenditures within the three-year period contemplated by 2 C.F.R. § 200.334, and made no

audit determination or finding within the applicable timeframes established by 2 C.F.R. §§ 200.344

and 200.345.

98. By failing to timely audit DHRB’s RRF award and to timely close out the award

within the periods established by federal regulation, the SBA has forfeited its authority to revoke

or seek recovery of the award. The SBA’s untimely revocation determination is in excess of its

statutory and regulatory jurisdiction and must be set aside. See 5 U.S.C. § 706(2)(C).
99. DHRB reasonably relied on the completion of the award period and the expiration

of the audit window. Permitting the SBA to recover funds after the close of the regulatory period

would be fundamentally unfair and contrary to the purposes of the regulatory time limitations.

100. For these reasons, the SBA lacks jurisdiction to revoke or recover DHRB’s RRF

award, and its determination is both in excess of agency jurisdiction within the meaning of 5 U.S.C.

§ 706(2)(C) and without observance of procedure required by law as set forth in 5 U.S.C. §

706(2)(D).

COUNT VI

EQUITABLE ESTOPPEL AND DETRIMENTAL RELIANCE
101. Plaintiff incorporates by reference the allegations contained in Paragraphs 1

through 99 as if fully set forth herein.

102. The doctrine of equitable estoppel may apply against the government where the

government has engaged in affirmative misconduct and the plaintiff has reasonably and

detrimentally relied on the government's representations. Heckler v. Community Health Servs.

of Crawford County, Inc., 467 U.S. 51, 59 (1984).

103. The SBA approved DHRB’s RRF application and disbursed $661,597 to DHRB

after reviewing the application and documentation submitted through its designated POS partner,

Square. By approving the application and disbursing the award, the SBA represented to DHRB

that the award had been properly calculated and that DHRB was entitled to receive and use the

funds.

104. In reasonable reliance on the SBA’s approval and disbursement of the award,

DHRB fully expended the $661,597 on eligible expenses – payroll, rent, utilities, food and

beverage, and other authorized categories – all within the covered period ending March 11, 2023.
105. DHRB would suffer severe and irreparable harm if required to repay $661,597 –

the full amount of the award – for funds that were properly calculated, received in good faith, and

used entirely for the purposes Congress intended when enacting the RRF program.

106. The SBA’s belated revocation of the award – more than four years after the award

was disbursed and after DHRB fully spent the funds in compliance with the program – constitutes

the kind of governmental conduct that, under the circumstances, equity and good conscience

requires be estopped.

107. The SBA’s decision is devoid of substantial justification, entitling DHRB to an

award of attorneys’ fees and costs under the Equal Access to Justice Act, 28 U.S.C. § 2412.

PRAYER FOR RELIEF
WHEREFORE, Plaintiff, Daigo Hand Roll Bar, LLC d/b/a Daigo Hand Roll Bar

respectfully requests that this Court:

1. Declare unlawful and set aside the SBA’s determination, memorialized in the December
10, 2025 letter and subsequent correspondence, to revoke DHRB’s RRF award and demand
repayment of $661,597;

2. Declare that DHRB’s RRF award of $661,597 was properly calculated pursuant to the
SBA’s Program Guide and applicable law, and that DHRB is not required to repay any
portion of the award;

3. In the alternative, remand this matter to the SBA to consider application of the Multi-
Location Calculation Methodology.

4. Declare that the SBA lacks jurisdiction to revoke or recover DHRB's RRF award by reason
of its failure to conduct an audit or issue a final audit determination within three years of
DHRB’s submission of its final RRF Post Award Report, in contravention of 2 C.F.R. §§
200.334, 200.344, and 200.345;

5. Preliminary and permanently enjoin Defendants, their officers, agents, servants,
employees, attorneys, and all persons acting in concert or participation with them from
taking any action to collect, enforce, or recover any portion of DHRB’s RRF award,
including but not limited to referral to the United States Department of the Treasury’s Debt
Management Services, referral to the Department of Justice, reporting DHRB’s debt to
credit bureaus, or offsetting any federal payments due to DHRB;
6. Preliminary and permanently enjoin Defendants from assessing any interest, penalties, or
additional administrative fees on the purported debt arising from DHRB's RRF award;

7. Award Plaintiff its costs and reasonable attorneys’ fees pursuant to the Equal Access to
Justice Act, 28 U.S.C. § 2412, and any other applicable statute or authority; and

9. Grant such other and further relief as the Court deems just and proper.

Dated: May 29, 2026

/s/Franklin Barbosa, Jr.
Franklin Barbosa, Jr., Esq.
SCHENCK, PRICE, SMITH & KING, LLP
220 Park Avenue
Florham Park, NJ 07932
(973) 539-1000
E-mail: fb@spsk.com
Attorneys for Plaintiff DHRB, LLC d/b/a Daigo Hand Roll Bar

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