In re Yeary
| Decision Date | 12 January 2022 |
| Docket Number | 3:21-bk-30847-SHB |
| Court | U.S. Bankruptcy Court — Eastern District of Tennessee |
| Parties | In re TERRY L. YEARY dba FLAT FORK SELLERS Debtor |
LAW OFFICES OF MAYER & NEWTON John P. Newton, Jr., Esq. Attorneys for Debtor
MOSTOLLER, STULBERG, WHITFIELD & ALLEN Ann Mostoller Esq. Attorneys for Ann Mostoller, Chapter 7 Trustee
MEMORANDUM ON MOTION BY DEBTOR TO ABANDON AND/OR FOR DETERMINATION SBA GRANT FUNDS ARE NOT PROPERTY OF THE ESTATE
This contested matter is before the Court on the Motion by Debtor to Abandon and/or for Determination SBA Grant Funds are Not Property of the Estate ("Motion") filed on June 17 2021 [Doc. 14], asking the Court to determine that funds received postpetition from the Small Business Administration (the "SBA") under its "Targeted EIDL Advance" and "Supplemental Targeted Advance" programs are not property of the bankruptcy estate or, in the alternative, to direct abandonment of the funds. Ann Mostoller, Chapter 7 Trustee (the "Trustee"), filed a response on July 2, 2021 [Doc. 19], asking that the matter be set for hearing. After the hearing held September 2, 2021, at which the parties agreed that there are no factual disputes, the Court entered an Order on September 3, 2021 [Doc. 35], setting a briefing schedule.
The record before the Court consists of the Joint Stipulations of Facts Solely for Purposes of the Motion to Compel Abandonment or an Order That Property is Not Property of the Estate ("Joint Stipulations") filed by the parties on September 17, 2021 [Doc. 38], including thirteen stipulated facts[1] and three stipulated, collective exhibits:
A. (1) a letter dated April 26, 2020, from the SBA to Debtor denying his application for an Economic Injury Disaster Loan ("EIDL"); (2) an email dated May 3, 2020, from the SBA to Debtor indicating that his EIDL application was being processed; and (3) an email dated May 21, 2020, from the SBA to Debtor referencing an attached letter [Doc. 38-1];
B. (1) an email dated March 21, 2021, from the SBA to Debtor inviting him to submit an application for "COVID-19 Targeted EIDL Advance" of up to $10, 000; (2) an email dated May 9, 2021, from the SBA to Debtor with the subject line "SBA Application No. 3301742862 - Submitted Confirmation" that invites Debtor to create his EIDL portal account as the next step in his application; (3) an email dated May 21, 2021, from the SBA to Debtor inviting him to request a Supplemental Targeted Advance for a supplemental payment of $5, 000.00; (4) an email dated May 22, 2021, from the SBA to Debtor informing him that his "Targeted EIDL Advance" is approved and that such payment "does not need to be repaid"; (5) an email dated May 25, 2021, from the SBA to Debtor informing him that his "Supplemental Targeted Advance" is approved and that such payment "does not need to be repaid"; and (6) a copy of a bank record showing deposits of $10, 000.00 on May 24, 2021 (the "Targeted EIDL Advance Funds") and $5, 000.00 on May 26, 2021 (the "Supplemental Targeted Advance Funds") [Doc. 38-2]; and
C. a printout of the Targeted and Supplemental Advance Frequently Asked Questions ("FAQs") promulgated by the SBA as April 27, 2021 [Doc. 38-3].
The Court also takes judicial notice, pursuant to Federal Rule of Evidence 201, of documents of record filed in Debtor's bankruptcy case. Debtor filed his brief on September 17, 2021 [Doc. 39], and the Trustee filed her brief on October 15, 2021 [Doc. 41]. This memorandum constitutes the Court's conclusions of law on stipulated facts. See Fed. R. Bankr. P. 7052, 9014(c).
An understanding of the SBA programs at issue provides the necessary context window for the stipulated facts before the Court.
EIDL is the acronym for the SBA's Economic Injury Disaster Loan program authorized by 15 U.S.C. § 636(b), which program existed before the COVID-19 pandemic but was expanded by the CARES Act of 2020, Pub. L. No. 116-136, to authorize low-interest, fixed-rate, long-term, direct SBA loans to "help overcome the effects of the pandemic by providing working capital to meet operating expenses." See SBA, COVID EIDL Loans Information as of September 8, 2021, at p. 1, available at https://www.sba.gov/document/support-faq-regarding-covid-19-eidl. Such loans had to be repaid, and proceeds were required to be used to make regular payments for operating expenses and to pay business debts incurred at any time. See id.
The statutory provisions governing the "Targeted EIDL advance for small business continuity, adaptation, and resiliency" are found at 15 U.S.C. § 9009b (the "Targeted EIDL Advance Program"). The "Section was enacted as part of the Economic Aid to Hard-Hit Businesses, Nonprofits, and Venues Act, and not as part of the [CARES Act]." 15 U.S.C. § 9009b, hist. n.; see Consolidated Appropriations Act, 2021, Pub. L. No. 116-260, § 332, 134 Stat. 2045. Effective on December 27, 2020, subsection (b) to § 9009b () provides that "a covered entity, after submitting a request to the [SBA] Administrator that the Administrator verifies under subsection (c), shall receive a total of $10, 000 under section 9009(e) of this title . . . ." 15 U.S.C. § 9009b(b)(1) (emphases added).
Although it references the SBA's disaster loan program, the Targeted EIDL Advance Program actually is a grant program for those entities that were eligible to apply - and in fact applied - for a SBA disaster loan under 11 U.S.C. § 636(b)(2) before December 27, 2020. See 15 U.S.C. § 9009b(a)(2)(A)(i). To qualify for the Targeted EIDL Advance Program, an entity also (1) had to be located in a low-income community, (2) had to have suffered an economic loss of greater than 30 percent (as measured by comparing gross receipts over an eight-week period before and after the COVID-19 disaster period that began on March 2, 2020 (see 15 U.S.C. § 9009b(A)(4)(A))), and (3) had to employ no more than 300 employees. 15 U.S.C. § 9009b(a)(2).
Under the express statutory provision, if an entity qualified, the SBA was required to provide the payment under Targeted EIDL Advance Program.
On April 22, 2021, the SBA announced a new round of EIDL assistance called Supplemental Targeted Advance as part of the American Rescue Plan Act of 2021, Pub. L. No. 117-2, § 5002, 135 Stat. 4, 85. See Press Release No. 21-32, Small Bus. Admin., SBA Launches Supplemental Targeted Advance for Small Businesses Hardest Hit by COVID-19 (Apr. 23, 2021), available at https://www.sba.gov/article/2021/apr/23/sba-launches-supplemental-targeted-advance-small-businesses-hardest-hit-covid-19. In addition to the requirement of the Targeted EIDL Advance Program that the entity must be located in a low-income community, to be eligible to receive the Supplemental Targeted Advance, the entity also had to have suffered an economic loss of greater than 50 percent during the applicable period and must have had ten or fewer employees. [See Doc. 38-2 at p. 7; Doc. 38-3 at p. 2.]
The Targeted EIDL Advance Program and the Supplemental Targeted Advance Program are described by the SBA on its website for Funding Programs:
SBA, Targeted EIDL Advance and Supplemental Targeted Advance, https://www.sba.gov/funding-programs/loans/covid-19-relief-options/eidl/targeted-eidl-advance-supplemental-targeted-advance (last visited Dec. 29, 2021).
Finally, as described in the FAQs, [Doc. 38-3 at pp. 8-9.]
Debtor filed the Voluntary Petition commencing this Chapter 7 bankruptcy case on May 13, 2021, and the Trustee was appointed as substitute trustee on May 18, 2021. [Doc. 38 at ¶¶ 1-2.] Both prepetition and postpetition, Debtor has operated Flat Fork Sellers, a sole proprietorship through which he sells used furniture. [Id. at ¶ 1.]
In 2020, Debtor applied to the SBA for an EIDL, but his loan application, identified by the SBA as "Disaster Loan Application Number 3301742862," was denied by a letter dated April 26, 2020, because of Debtor's "unsatisfactory credit history." [Id. at ¶ 3; Doc. 38-1 at p. 2.] Some eleven months later, on March 21, 2021, Debtor received an email from the SBA entitled "SBA Application No. 3301742862 - Invitation to submit COVID-19 Targeted EIDL Advance application" that included a hyperlink for the "Targeted Advance Application" and stated, in material part:
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