Diocese of Rochester v. U.S. Small Bus. Admin.

• Decision Date: 10 June 2020
• Docket Number: 6:20-CV-06243 EAW
• Citation: 466 F.Supp.3d 363
• Parties: The DIOCESE OF ROCHESTER and the Diocese of Buffalo, N.Y., Plaintiffs, v. U.S. SMALL BUSINESS ADMINISTRATION and Jovita Corranza, solely as the Administrator of the U.S. Small Business Association, Defendants.
• Court: U.S. District Court — Western District of New York

466 F.Supp.3d 363

The DIOCESE OF ROCHESTER and the Diocese of Buffalo, N.Y., Plaintiffs,

v.U.S. SMALL BUSINESS ADMINISTRATION and Jovita Corranza, solely as the Administrator of the U.S. Small Business Association, Defendants.

6:20-CV-06243 EAW

United States District Court, W.D. New York.

Signed June 10, 2020

Brian J. Butler, Charles J. Sullivan, Stephen A. Donato, Bond, Schoeneck & King, Syracuse, NY, for Plaintiffs.

Kevin D. Robinson, U.S. Attorney's Office, Buffalo, NY, Kevin Paul VanLandingham, U.S. Department of Justice, Washington, DC, Kathryn L. Smith, U.S. Attorney's Office, Rochester, NY, for Defendants.

DECISION AND ORDER

ELIZABETH A. WOLFORD, United States District Judge

INTRODUCTION

Plaintiffs the Diocese of Rochester and the Diocese of Buffalo, N.Y. (collectively "Plaintiffs") seek a preliminary injunction against defendants U.S. Small Business Administration ("SBA") and Jovita Corranza (the "Administrator") (collectively "Defendants") related to Defendants’ establishment of criteria for participation in the Paycheck Protection Program (the "PPP"). (Dkt. 17). Plaintiffs assert that Defendants violated the Administrative Procedure Act, 5 U.S.C. §§ 701 et seq. (the "APA") and Section 525(a) of the Bankruptcy Code, 11 U.S.C. § 525(a), by determining that debtors in bankruptcy are not eligible for loans issued in connection with the PPP. Plaintiffs ask the Court to enjoin Defendants from (1) denying Plaintiffs a PPP loan or otherwise interfering with the processing of their applications due to their status as chapter 11 bankruptcy debtors and (2) "disbursing from the PPP an amount equal to the total amount requested in [Plaintiffs’] combined loan applications, or $2,836,096." (Dkt. 17 at 1).

Following oral argument on Plaintiffs’ amended motion for a preliminary injunction, the Court issued a Notice pursuant to Federal Rule of Civil Procedure 56(f)(3) advising the parties that it intended to consider granting summary judgment with respect to the following issues: (1) whether the SBA exceeded its statutory authority under the Coronavirus Aid, Relief, and Economic Security Act ("CARES"), Pub. L. No. 116-136, 134 Stat. 281 (2020), by excluding debtors in bankruptcy from participation in the PPP; and (2) whether the SBA violated 11 U.S.C. § 525(a) by excluding debtors in bankruptcy from participation in the PPP. (Dkt. 35)

For the reasons set forth below, the Court concludes that those legal questions must be resolved in favor of Defendants—the SBA did not exceed its statutory authority under the CARES Act nor did it violate 11 U.S.C. § 525(a) when it adopted the bankruptcy exclusion to the PPP. As a result, the Court grants summary judgment to Defendants to the extent Plaintiffs seek a declaratory judgment otherwise. The Court further denies Plaintiffs’ amended motion for a preliminary injunction because they have not demonstrated a likelihood of success as to the remaining claims in this matter nor have they established irreparable harm.

FACTUAL BACKGROUND

Plaintiffs are Roman Catholic dioceses and not-for-profit religious corporations under New York law. (Dkt. 10 at ¶¶ 4-5). Both Plaintiffs are chapter 11 bankruptcy debtors, with the Diocese of Buffalo having filed its voluntary petition on February 28, 2020 (Dkt. 2-5 at ¶ 3) and the Diocese of Rochester having filed its voluntary petition on September 12, 2019 (Dkt. 2-7 at ¶ 3).

On March 20, 2020, as a result of the ongoing global COVID-19 pandemic,¹ New York State Governor Andrew M. Cuomo signed the "New York State on PAUSE" Executive Order, which, among other things, mandated a 100% closure of non-essential businesses statewide and temporarily banned all non-essential gatherings of individuals of any size for any reason other than the provision of essential services. Executive Order [Cuomo] No. 202.8 (Mar. 20, 2020), https://www.governor.ny.gov/sites/governor.ny.gov/files/atoms/files/EO_202.8.pdf; see New York State on PAUSE , New York State: Novel Coronavirus, https://coronavirus.health.ny.gov/new-york-state-pause (last visited June 10, 2020). Plaintiffs allege that this had a significant impact on their revenue sources. (Dkt. 10 at ¶ 38).

Specifically, a "primary source of revenue" for Plaintiffs is "parish assessments" which are collected from parishes on a monthly basis and are "based primarily on historical parish offertory." (Dkt. 2-5 at ¶ 5; see also Dkt. 2-7 at ¶ 5). In turn, the parishes "derive a significant portion of their revenue from offertory collection during masses," particularly "during Holy Week which includes Easter Sunday mass." (Dkt. 2-5 at ¶ 7). However, because the New York State on PAUSE Order prevented the parishes from holding masses or services, including on Easter Sunday (which occurred on April 12, 2020), "it is estimated that the parish offertory collections and contributions from parishioners are 90-95% lower than average." (Id. at ¶ 8). The Diocese of Buffalo employs 108 full-time employees and 48 part-time employees. (Id. at ¶ 10). The Diocese of Rochester employs "60 to 70 full-time equivalent employees...." (Dkt. 2-7 at ¶ 9).

On March 27, 2020, the President signed into law the CARES Act which, among other things, established the PPP. The PPP is "a convertible loan program under § 7(a) of the Small Business Act ( 15 U.S.C. § 633(a) )." In re Springfield Med. Care Sys., Inc. , No. 19-10285, 2020 WL 2311881, at *5 (Bankr. D. Vt. May 8, 2020). As another federal court recently explained:

The PPP is a new loan program to be administered by the SBA under Section 7(a) of the Small Business Act (codified at 15 U.S.C. § 636(a) ). Its purpose is to assist small businesses during the COVID-19 crisis by immediately extending them loans on favorable terms. The loans are made by the SBA's participating banks and guaranteed by the SBA itself. Section 1106 of the CARES Act provides that a borrower's indebtedness under a PPP loan will be forgiven to the extent that the borrower uses the funds to pay expenses relating to payroll, mortgage interest, rent, and utilities during the eight-week period following the loan's origination. CARES Act § 1106. If a borrower qualifies for loan forgiveness, the SBA must pay the lender an amount equal to the amount forgiven, plus any interest accrued through the date of payment. Id. § 1106(c)(3).

Camelot Banquet Rooms, Inc. v. U.S. Small Bus. Admin. , 458 F. Supp. 3d 1044, 1050 (E.D. Wis. May 1, 2020), appeals filed , Nos. 20-1729, 20-1730 (7th Cir. May 4, 2020).² Congress initially provided the SBA with $349 billion for PPP loan guarantees, but those funds were quickly exhausted, and "Congress then appropriated an additional $310 billion for loan guarantees under the PPP." DV Diamond Club of Flint, LLC v. U.S. Small Bus. Admin. , 459 F. Supp. 3d 943, 949, No. 20-CV-10899 (E.D. Mich. May 11, 2020), appeal filed , No. 20-1437, 960 F.3d 743 (6th Cir. May 15, 2020).

The CARES Act grants the SBA emergency rule-making authority to issue regulations necessary to administer the PPP. CARES Act § 1114. On April 2, 2020, the SBA issued an interim final rule (the "First Interim Rule") that provided guidance on the eligibility requirements for participation in the PPP. (See Dkt. 2-3 at 2-32). The First Interim Rule was subsequently published in the Federal Register on April 15, 2020. Business Loan Program Temporary Changes; Paycheck Protection Program, 85 Fed. Reg. 20811 (Apr. 15, 2020) (to be codified at 13 C.F.R. pt. 120); (see Dkt. 24 at 12-13). The First Interim Rule makes reference to the "Paycheck Protection Application Form" (SBA Form 2484), First Interim Rule, 85 Fed. Reg. at 20816, which in turn requires a potential borrower to certify that it is "not presently involved in a bankruptcy," (Dkt. 24-1 at 29).

On April 28, 2020, SBA posted a new interim final rule.³ Business Loan Program Temporary Changes; Paycheck Protection Program—Requirements—Promissory Notes, Authorizations, Affiliation, and Eligibility, 85 Fed. Reg. 23450 (Apr. 28, 2020) (to be codified at 13 C.F.R. pts. 120-21) (hereinafter the "Fourth Interim Rule"). The Fourth Interim Rule expressly excludes debtors in bankruptcy from receiving a PPP loan, stating that "[t]he Administrator ... determined that providing PPP loans to debtors in bankruptcy would present an unacceptably high risk of an unauthorized use of funds or non-repayment of unforgiven loans." Id. at 23451.

The Diocese of Buffalo has completed a PPP loan application and, but for the disqualification of debtors in bankruptcy by SBA, would be eligible to receive a PPP loan in the amount $1,736,408. (Dkt. 17-1 at ¶ 4). The Diocese of Rochester has completed a PPP loan application and, but for the disqualification of debtors in bankruptcy by SBA, would be eligible to receive a PPP loan in the amount $1,100,000. (Dkt. 17-2 at ¶ 4).

PROCEDURAL BACKGROUND

Plaintiffs commenced the instant action on April 15, 2020, and concurrently filed a motion for a preliminary injunction and a motion to expedite. (Dkt. 1; Dkt. 2; Dkt. 3). The Court granted the motion to expedite on April 16, 2020, and ordered Defendants to respond to the motion for a preliminary injunction by April 24, 2020. (Dkt. 6).

Plaintiffs filed an Amended Complaint on April 20, 2020. (Dkt. 10). Then, on April 24, 2020, the parties requested and the Court entered a stipulated motion scheduling order governing the filing of an amended motion for a preliminary injunction. (Dkt. 15; Dkt. 16). Pursuant to the stipulated motion scheduling order, Plaintiffs filed the pending amended motion for a preliminary injunction on April 27, 2020. (Dkt. 17). Defendants filed a response on May 8, 2020 (Dkt. 24), and Plaintiffs filed a reply on May 11, 2020 (Dkt. 26). Oral argument on the amended motion for a preliminary injunction was held on May 15, 2020, and continued on May 19, 2020. (Dkt. 30; Dkt. 32).

At oral argument, the Court informed the parties that it was considering issuing a notice pursuant to Federal Rule of Civil Procedure 56(f)(3)...