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Memorandum in Support of First Ex Parte Application for an Extension of Time to Consider Election to Intervene — U.S. ex rel. GNGH2 Inc. v. Horn USA, Inc. (Dkt. 23-1, W.D. Mich.)

Summary

This exhibit, ECF No. 23-1 in United States ex rel. GNGH2 Inc. v. Horn USA, Inc. (No. 1:24-cv-196, W.D. Mich.), reproduces the United States' memorandum, filed ex parte and under seal on May 1, 2024, supporting its first application to extend to November 4, 2024 its time to decide whether to intervene in the qui tam action. The memorandum says the relator alleges Horn USA received a second-draw PPP loan of $2,000,000 from Fourth Capital Bank in January of 2021, which SBA forgave, plus interest, in November of 2021. The relator alleges Horn USA was ineligible because, counted with affiliates including its parent Horn S.A., it exceeded the limit of 300 or fewer employees, or because its affiliate had significant operations in China. The Government says it needs more time beyond the May 6, 2024 deadline, and the relator concurs.

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Case 1:24-cv-00196-PLM-RSK ECF No. 23-1, PagelD.68 Filed 01/03/25 Page 2of7

FILED

May 1, 2024 11:28 AM
CLERK OF COURT
U.S. DISTRICT COURT

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF MICHIGAN
WESTERN DISTRICT OF MICHIGAN BY: JJM SCANNED BY: /

SOUTHERN DIVISION
UNITED STATES OF AMERICA ex Case No. 1:24-cv-196
rel. GNGH2 Inc.,
Plaintiff-Relator, Hon. Paul L. Maloney
U.S. District Judge

HORN USA, Inc., FILED EX PARTE AND
UNDER SEAL
Defendant.

MEMORANDUM IN SUPPORT OF THE UNITED STATES OF AMERICA’S
FIRST EX PARTE APPLICATION FOR AN
EXTENSION OF TIME TO CONSIDER ELECTION TO INTERVENE

The United States of America (the “Government”) submits this memorandum
in support of its ex parte application for an order under the False Claims Act (“FCA”),
as amended, 31 U.S.C. § 3730(b)(8), for an extension of time to November 4, 2024, in
which to notify the court of its decision whether to intervene in the above-captioned
qui tam action, during which time the Complaint and all other filings shall remain
under seal. This is the Government's first request for an extension of time in this

case. Relator concurs in this request.

BACKGROUND

Relator alleges in his qui tam complaint that Defendant Horn USA, Inc. (“Horn
USA”) has violated the False Claims Act, 31 U.S.C. § 3729 et seq., by fraudulently
applying for and receiving a Paycheck Protection Program (“PPP”) loan for which it

was not eligible. In January of 2021, Horn USA received a second-draw PPP loan of
Case 1:24-cv-00196-PLM-RSK ECF No. 23-1, PagelD.69 Filed 01/03/25 Page3of7

$2,000,000 from Fourth Capital Bank. SBA forgave that loan, plus interest, in
November of 2021. Relator alleges Horn USA was ineligible for this loan because it
had too many employees to be eligible under the requisite affiliation rules. Relator
alternatively alleges that Horn USA was ineligible because its affiliate had
significant operations in China.

By way of background, the Coronavirus Aid, Relief, and Economic Security Act
(the “CARES Act”), Pub. L. 116-136, charged the U.S. Small Business Administration
(“SBA”) with implementing the PPP loan program in order to assist small businesses
adversely impacted by the ongoing coronavirus pandemic. See § 1102, 134 Stat. at
286, codified at 15 U.S.C. § 636. The PPP loan was designed to provide a direct
incentive for small businesses to keep their workers on the payroll. Loan amounts
were calculated based on certain average payroll and other business operations
expenses. 15 U.S.C. § 636(a)(36)(E). Congress later passed the Economic Aid to Hard-
Hit Small Businesses, Nonprofits, and Venues Act (the “Economic Aid Act”), Pub. L.
116-260, which allowed businesses to get second-draw PPP loans under similar
terms. For both first and second draw loans, the SBA will forgive PPP loans if all
employee retention criteria are met and the funds are used for eligible expenses. See
15 U.S.C. § 636m; 15 U.S.C. § 636(a)(37)(J) (ii). Businesses can either pay back the
loan or apply for forgiveness.

The CARES and Economic Aid Acts placed size limitations on eligibility for
PPP loans. For second-draw loans, businesses were eligible only if they had 300 or

fewer employees. See 15 U.S.C. § 636(a)(37)(A)(iv)(1)(aa). SBA borrowers, including
2
Case 1:24-cv-00196-PLM-RSK ECF No. 23-1, PagelD.70 Filed 01/03/25 Page4of7

PPP loan applicants, must apply SBA’s affiliation rules contained in 13 C.F.R. §
121.301(f) when determining eligibility and calculating an employee count. See 15
U.S.C. § 636(a)(36)(D)(vi); 138 C.F.R. § 121.103(a)(8). Thus, if an applicant is affiliated
with another entity under the affiliation rules, they must count their affiliate’s
employees in addition to their own.

As relevant here, the affiliation rules provide that applicants are affiliated with
(1) their majority shareholder and (2) other entities that are majority owned by the
same shareholder and operate in the same North American Industry Classification
System subsector as the applicant. See 13 C.F.R. § 121.301((1)Gi). In addition,
entities are affiliated where they are controlled by a single individual or entity. See
Small Bus. Admin., Affiliation Rules Applicable to U.S. Small Business |
Administration Paycheck Protection Program, 2 ~~ (Apr. 3, 2020)

% 28for% 20public%29%20v2-508.pdf. Relator alleges that both of these bases for

affiliation apply here. Relator asserts that Horn USA is affiliated with its parent
company, Horn S.A. and Horn S.A.’s other affiliates. Relator also alleges that all Horn
entities are controlled by a single individual.

In addition to the size limitations, second draw PPP loans were not available
if a business had certain ties to the People’s Republic of China. As relevant here, a
business concern was ineligible if it “has significant operations in the People’s
Republic of China...” See § 15 U.S.C. 636(a)(37)(A)(iv)(II)(AA). Relator alleges that

Horn USA’s parent company, Horn S.A., has significant operations in China.

3
Case 1:24-cv-00196-PLM-RSK ECF No. 23-1, PagelD.71 Filed 01/03/25 Page5of/7

DISCUSSION

The qui tam provisions of the False Claims Act provide, in relevant part:

(2) <A copy of the complaint and written disclosure of
substantially all material evidence and information the
person possesses shall be served on the Government
pursuant to Rule 4(d)(4) of the Federal Rules of Civil
Procedure. The complaint shall be filed in camera, shall
remain under seal for at least 60 days, and shall not be
served on the defendant until the court so orders. The
government may elect to intervene and proceed with the
action within 60 days after it receives both the complaint
and the material evidence and information.

(3) The Government may, for good cause shown, move
the court for extensions of time during which the complaint
remains under seal under paragraph (2)...

31 U.S.C. §§ 3730(b)(2), (3) (emphasis added).
Case 1:24-cv-00196-PLM-RSK ECF No. 23-1, PagelD.72 Filed 01/03/25 Page 6of7

The Government respectfully submits that it has good cause to seek an
extension of time in this case. As discussed more fully above, the Government has
actively investigated this matter since being served with Relator’s Complaint.
However, to make a decision about whether intervention is appropriate, the
Government requires more time beyond the present seal and intervention deadline
of May 6, 2024. An extension of time also allows the Government time to attempt to
resolve this matter, if appropriate, without placing additional burden on the Court’s

time and resources if this case were to move into active litigation.

CONCLUSION

The Government respectfully requests that the Court grant its application for
an extension of time, to and including November 4, 2024, during which time the
Government may determine whether to intervene in the matter. Relator concurs in
this request. If the Court would like to discuss this application, the Government is

available and prepared to meet with the Court.
Dated: May 1, 2024

Respectfully submitted,

MARK A. TOTTEN
United States Attorney

WHITNEY SCHNURR

Assistant United States Attorney
U.S. Attorney’s Office

Western District of Michigan

P.O. Box 208

Grand Rapids, MI 49503

Tel: (616) 456-2404

E-mail: Whitney.Schnurr@usdoj.gov


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