Penobscot Valley Hosp. v. Carranza (In re Penobscot Valley Hosp.), Case No. 19-10034

Decision Date12 January 2021
Docket NumberCase No. 19-10034,Case No. 19-10486,Adv. Proc. No. 20-1005,Adv. Proc. No. 20-1006
Citation626 B.R. 350
Parties IN RE: PENOBSCOT VALLEY HOSPITAL, Debtor Penobscot Valley Hospital, Plaintiff v. Jovita Carranza, in her capacity as Administrator for the United States Small Business Administration, Defendant In re: Calais Regional Hospital, Debtor Calais Regional Hospital, Plaintiff v. Jovita Carranza, in her capacity as Administrator for the United States Small Business Administration, Defendant
CourtU.S. Bankruptcy Court — District of Maine

Sage M. Friedman, Esq., Andrew Helman, Esq., Murray Plumb & Murray, Portland, ME, for Debtor.

ADDITIONAL PROPOSED FINDINGS AND CONCLUSIONS

Michael A. Fagone, United States Bankruptcy Judge

All litigation under the Administrative Procedures Act implicates separation of powers questions, and these lawsuits provide no exception. The power to implement statutes is delegated by Congress to agencies, not to courts, because agencies have several comparative advantages in making policy judgments. See Kisor v. Wilkie, ––– U.S. ––––, 139 S. Ct. 2400, 2413, 204 L.Ed.2d 841 (2019). Unlike courts, agencies are politically accountable: "they are subject to the supervision of the President, who in turn answers to the public." Id. Congress delegates legislative authority explicitly in some circumstances and implicitly in others. United States v. Mead Corp., 533 U.S. 218, 229, 121 S.Ct. 2164, 150 L.Ed.2d 292 (2001). Implicit delegation may occur, as it has here, where it is "apparent from the agency's generally conferred authority and other statutory circumstances that Congress would expect the agency to be able to speak with the force of law when it ... fills a space in the enacted law[.]" Id.

These proceedings concern a rule adopted by the Small Business Administration ("SBA") excluding debtors in bankruptcy from participating in the Paycheck Protection Program (the "PPP"). The plaintiffsPenobscot Valley Hospital and Calais Regional Hospital (the "Hospitals")—have consistently asked this Court to cast aside the SBA's rule and declare them eligible to participate in the PPP. The arguments advanced in support of this remedy have evolved over time. What began as a challenge to the SBA's authority to implement the bankruptcy exclusion, coupled with a claim of unlawful discrimination under 11 U.S.C. § 525, has morphed into an argument that the SBA ran afoul of the procedures outlined in the Administrative Procedures Act ("APA"). Although the Hospitals make detailed arguments under the rubric of the APA on recommittal, their fundamental grievance is what it always has been: they challenge the wisdom of the bankruptcy exclusion and ask the Court to substitute their policy preference for the SBA's. But it is not for the Judiciary to second-guess a reasonable rule promulgated by an agency in the exercise of the authority delegated by Congress. As such, the Hospitals' challenge must fail. See Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 866, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984) ("When a challenge to an agency construction of a statutory provision, fairly conceptualized, really centers on the wisdom of the agency's policy, rather than whether it is a reasonable choice within a gap left open by Congress, the challenge must fail.").

I. PROCEDURAL BACKGROUND

These proceedings began on April 27, 2020. Due to the time-sensitive nature of the relief sought by the Hospitals, the Court conducted an expedited trial on May 27 and issued proposed findings and conclusions one week later. Following an objection from the Hospitals under Fed. R. Bankr. P. 9033(b), proceedings commenced in the District Court. With its response to that objection, the SBA filed a declaration that had not been offered in evidence during the trial. The District Court adopted and accepted, in part, this Court's proposed findings and conclusions. The proceedings were then recommitted to this Court for consideration of certain questions, including the significance of the declaration filed by the SBA.

After recommittal, the Hospitals were granted the opportunity to conduct limited discovery. Based on representations from the Hospitals about the nature and extent of discovery necessary, the Court allowed a discovery period of approximately six weeks. The parties were instructed to contact the Court upon completion of discovery to schedule a further hearing. After several months, the Court convened a status conference and learned that the parties were mired in a discovery dispute. The Court then issued an order resolving that dispute and entertained oral arguments from the parties.

The District Court recommitted a particular aspect of these proceedings to this Court for further consideration—namely, the proposed conclusion that the bankruptcy exclusion is within the bounds of a reasonable interpretation of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), Pub. L. No. 116-136, 134 Stat. 281 (2020). Specifically, this Court is tasked with: (i) resolving the "possible discrepancy" [Dkt. No. 78, p. 6] between the declaration filed with the District Court (the "Maine Miller Declaration") and another declaration filed in similar litigation in Vermont (the "Vermont Miller Declaration"); (ii) determining whether the bankruptcy exclusion is a reasonable construction of the CARES Act under the second step of the analysis articulated in Chevron; and (iii) determining whether the bankruptcy exclusion is "arbitrary and capricious" under the standard established in Motor Vehicle Mfrs. Ass'n of the U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983).

II. PROPOSED FINDINGS AND CONCLUSIONS

To the extent that the District Court adopted and accepted the proposed findings and conclusions issued previously, those findings and conclusions are fully incorporated here. Despite that incorporation, certain information contained in the initial findings and conclusions may be reproduced here for the ease of the reader. Before completing the tasks assigned on recommittal, an orientation is in order, starting with the authority conferred upon the SBA in relation to loans under Section 7(a) of the Small Business Act, canvassing the pertinent provisions of the PPP, tracking through the promulgation of the bankruptcy exclusion, and concluding with a review of the two Miller declarations.1

A. The Small Business Administration and Section 7(a) Loans Generally

Because Congress tasked the SBA with administering the PPP under a loan program that was in place long before the passage of the CARES Act, "understanding the SBA's functions and that pre-existing loan program helps put the issues in context." USF Fed. Credit Union v. Gateway Radiology Consultants, P.A. (In re Gateway Radiology Consultants, P.A.), 983 F.3d 1239, 1247 (11th Cir. 2020). When it passed the Small Business Act of 1953 (codified as amended at 15 U.S.C. §§ 631 - 657 ), Congress declared that "the Government should aid, counsel, assist, and protect insofar as is possible the interests of small-business concerns in order to preserve free competitive enterprise ... and to maintain and strengthen the overall economy of the Nation." 15 U.S.C. § 631(a). To carry out these policies, Congress created the SBA, an agency that would serve "under the general direction and supervision of the President[,]" 15 U.S.C. § 633(a), and vested management of the SBA in a single Administrator, to be "appointed from civilian life by the President, by and with the advice and consent of the Senate," id. § 633(b)(1). "The Administration was given extraordinarily broad powers to accomplish [its] important objectives, including that of lending money to small businesses whenever they could not get necessary loans on reasonable terms from private lenders." SBA v. McClellan, 364 U.S. 446, 447, 81 S.Ct. 191, 5 L.Ed.2d 200 (1960) (footnote omitted).

Section 7(a) of the Small Business Act empowers the SBA to make loans to small businesses directly or indirectly—through loan guarantees—"to the extent and in such amounts as provided ... in appropriation Acts[.]" 15 U.S.C. § 636(a). When it comes to these loans, commonly known as Section 7(a) loans, the Administrator has expansive rulemaking authority. The Administrator is generally empowered to "make such rules and regulations as [she] deems necessary to carry out the authority vested in [her,]" 15 U.S.C. § 634(b)(6), and to "take any and all actions ... when [she] determines such actions are necessary or desirable in making ... or otherwise dealing with or realizing on loans[,]" id. § 634(b)(7). The Administrator also serves on the Loan Policy Board of the SBA, along with the Secretary of Treasury and the Secretary of Commerce, and in that capacity establishes:

general policies (particularly with reference to the public interest involved in the granting and denial of applications for financial assistance by the Administration and with reference to the coordination of the functions of the Administration with other activities and policies of the Government), which shall govern the granting and denial of applications for financial assistance by the Administration.

15 U.S.C. § 633(d).

In the exercise of its authority to lend under Section 7(a) and to make rules and policies for such lending, the SBA is constrained and guided by the terms of the statute. Among those terms is the requirement that Section 7(a) loans "shall be of such sound value or so secured as reasonably to assure repayment[.]" 15 U.S.C. § 636(a)(6). To ensure that a loan will be "so sound as to reasonably assure repayment[,]" the SBA's lending criteria involve consideration of nine factors, including the applicant's credit history. 13 C.F.R. § 120.150. For Section 7(a) loans, the SBA also considers an applicant's bankruptcy history; applicants are asked to disclose prior bankruptcy filings on Form 1919, the loan application form.

B. The...

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    ...exclusion detailed in the Fourth IFR, released a few weeks later, was a post-hoc rationalization.7 Cf. In re Penobscot Valley Hosp. , 626 B.R. 350, 361 (Bankr. D. Me. 2021) ("In the extraordinary circumstances surrounding the passage of the CARES Act, and the congressional directive that th......
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    • United States
    • Emory University School of Law Emory Bankruptcy Developments Journal No. 39-1, March 2023
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