Vitolo v. Guzman

• Decision Date: 19 May 2021
• Docket Number: Case No. 3:21-cv-176
• Citation: 540 F.Supp.3d 765
• Parties: Antonio VITOLO and Jake's Bar and Grill, LLC, Plaintiffs, v. Isabella Casillas GUZMAN, Defendant.
• Court: U.S. District Court — Eastern District of Tennessee

540 F.Supp.3d 765

Antonio VITOLO and Jake's Bar and Grill, LLC, Plaintiffs,

v.Isabella Casillas GUZMAN, Defendant.

Case No. 3:21-cv-176

United States District Court, E.D. Tennessee, Northern Division, at Knoxville.

Filed May 19, 2021

Daniel P. Lennington, Luke N. Berg, Richard M. Esenberg, Wisconsin Institute for Law & Liberty, Milwaukee, WI, Matthew Janson McClanahan, Tennessee, Crossville, TN, for Plaintiffs Antonio Vitolo, Jake's Bar and Grill, LLC.

Alexandra Rachel Saslaw, United States Department of Justice, Civil Division, Washington, DC, for Defendant.

MEMORANDUM OPINION

TRAVIS R. MCDONOUGH, UNITED STATES DISTRICT JUDGE

Before the Court is a motion for temporary restraining order filed by Plaintiffs Antonio Vitolo and Jake's Bar and Grill, LLC (Doc. 12). For the following reasons, the Court DENIES Plaintiffs' motion.

I. BACKGROUND

A. The COVID-19 Pandemic and Early Federal Relief Efforts

In February and March 2020, portions of the United States economy ground to a halt as an emergent coronavirus began to cause severe sickness and death on a wide scale, especially among older individuals and those with preexisting conditions. Many state and local governments issued stay-at-home orders, directed restaurants and other customer-facing businesses to shut down, and severely restricted social gatherings to slow the person-to-person spread of the virus. The sudden and severe drop in consumer economic activity reverberated through the economy, harming many consumer-facing businesses and permanently shuttering some. Real gross domestic product in the second quarter of 2020 dropped a staggering 31.4%, by far the most severe quarterly contraction ever recorded. Table 1.1.1 Percent Change from Preceding Period in Real Gross Domestic Product , U.S. BUREAU OF ECONOMIC ANALYSIS (last revised Apr. 29, 2021), available at https://apps.bea.gov/iTable/index_nipa.cfm.

Faced with twin public-health and economic crises, Congress reacted with extraordinary stimulus spending aimed at both controlling the virus and containing its economic fallout. On March 27, 2020, § 1102 of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") created the Paycheck Protection Program ("PPP"), a $349 billion federally guaranteed loan program for businesses distressed by the pandemic. Pub. L. No. 116-136, 134 Stat. 281 (2020). Although federal funds guaranteed the PPP loans, they were administered by commercial lenders. Id. On April 24, 2020, the Paycheck Protection Program and Health Care Enhancement Act appropriated an additional $310 billion to the fund. Pub. L. No. 116-139, 134 Stat. 620 (2020).

The PPP loans were not administered equally to all kinds of businesses, however. Congressional investigation revealed that minority-owned and women-owned businesses had more difficulty accessing PPP funds relative to other kinds of business. See, e.g., Supporting Small and Minority-Owned Businesses Through the Pandemic , at 60–62 (Feb. 4, 2021) (footnotes and emphases removed), available at https://www.congress.gov/117/chrg/CHRG-117hhrg43965/CHRG-117hhrg43965.pdf (analysis noting that black-owned businesses were more likely to be denied PPP loans than white-owned businesses with similar application profiles due to outright lending discrimination, and that funds were more quickly disbursed to businesses in predominantly white neighborhoods). This was due in significant part to the lack of historical relationships between commercial lenders and minority-owned and women-owned businesses. See, e.g., Long-Lasting Solutions for a Small Business Recovery: Hearing Before the Committee on Small Business , at 72 (July 15, 2020), available at https://www.congress.gov/116/chrg/CHRG-116hhrg41297/CHRG-116hhrg41297.pdf (written testimony of Dr. Lisa Cook, an economist, explaining that minority-owned businesses had greater difficulty accessing PPP credit due to the PPP's "heavy reliance on large banks, with whom [minority-owned businesses] have had historically poor relationships"). The historical lack of access to credit also meant that minority-owned and women-owned businesses tended to be in more financially precarious situations entering the pandemic, rendering them less able to weather an extended economic contraction of the sort COVID-19 unleashed. Id. at 9–10 (Dr. Cook explaining that prior to the pandemic, "27 percent of small White firms report[ed] that they were at risk or in distress" while "49 percent of small Hispanic firms and 57 percent of small Black firms reported being at risk or distressed").

B. The Restaurant Revitalization Fund

Against this backdrop, on March 11, 2021, the President signed the American Rescue Plan Act of 2021 (the "ARPA"). H.R. 1319, 117th Cong. (2021). As part of the ARPA, Congress appropriated $28,600,000,000 to a "Restaurant Revitalization Fund" and tasked the Administrator of the Small Business Administration with disbursing funds to restaurants and other eligible entities that suffered COVID-19 pandemic-related revenue losses. See id. § 5003. Under the ARPA, the Administrator "shall award grants to eligible entities in the order in which applications are received by the Administrator," except that

[d]uring the initial 21-day period in which the Administrator awards grants ..., the Administrator shall prioritize awarding grants to eligible entities that are small business concerns owned and controlled by women (as defined in section 3(n) of the Small Business Act ( 15 U.S.C. 632(n) )), small business concerns owned and controlled by veterans (as defined in section 3(q) of such Act ( 15 U.S.C. 632(q) )), or socially and economically disadvantaged small business concerns (as defined in section 8(a)(4)(A) of the Small Business Act ( 15 U.S.C. 637(a)(4)(A) )).

Id. § 5003(c)(1), (3).

Title 15, United States Code, Section 632(n) provides that a small business concern is "owned and controlled by women" if:

(1) at least 51 percent of small business concern is owned by one or more women, or in the case of any publicly owned business, at least 51 percent of the stock of which is owned by one or more women; and (2) the management and daily business operations of the business are controlled by one or more women.

Similarly, 15 U.S.C. § 637(a)(4)(A) provides:

the term "socially and economically disadvantaged small business concern" means any small business concern which meets the requirements of subparagraph (B) and--

(i) which is at least 51 per centum unconditionally owned by-- (I) one or more socially and economically disadvantaged individuals,

(II) an economically disadvantaged Indian tribe (or a wholly owned business entity of such tribe), or

(III) an economically disadvantaged Native Hawaiian organization, or

(ii) in the case of any publicly owned business, at least 51 per centum of the stock of which is unconditionally owned by--

(I) one or more socially and economically disadvantaged individuals,

(II) an economically disadvantaged Indian tribe (or a wholly owned business entity of such tribe), or

(III) an economically disadvantaged Native Hawaiian organization.

15 U.S.C § 637(a)(5) defines "socially disadvantaged individuals" as individuals "who have been subjected to racial or ethnic prejudice or cultural bias because of their identity as a member of a group without regard to their individual qualities." Federal regulations promulgated by the Small Business Administration further state that there is a rebuttable presumption that the following individuals are socially disadvantaged:

Black Americans; Hispanic Americans; Native Americans (Alaska Natives, Native Hawaiians, or enrolled members of a Federally or State recognized Indian Tribe); Asian Pacific Americans (persons with origins from Burma, Thailand, Malaysia, Indonesia, Singapore, Brunei, Japan, China (including Hong Kong), Taiwan, Laos, Cambodia (Kampuchea), Vietnam, Korea, The Philippines, U.S. Trust Territory of the Pacific Islands (Republic of Palau), Republic of the Marshall Islands, Federated States of Micronesia, the Commonwealth of the Northern Mariana Islands, Guam, Samoa, Macao, Fiji, Tonga, Kiribati, Tuvalu, or Nauru); Subcontinent Asian Americans (persons with origins from India, Pakistan, Bangladesh, Sri Lanka, Bhutan, the Maldives Islands or Nepal); and members of other groups designated from time to time by SBA according to procedures set forth at paragraph (d) of this section.

13 C.F.R. § 124.103. Thus, while the SBA has created a regulatory presumption that certain individuals are socially disadvantaged, nothing precludes other individuals who "have been subjected to racial or ethnic prejudice or cultural bias because of their identity as a member of a group without regard to their individual qualities" from being defined as socially disadvantaged.

"[E]conomically disadvantaged individuals" are defined as "those socially disadvantaged individuals whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same business area who are not socially disadvantaged." 15 U.S.C. § 637(a)(6)(A). "In determining diminished capital and credit opportunities, [the Small Business Administration] will examine factors relating to the personal financial condition of any individual claiming disadvantaged status, including income for the past three years ... personal net worth, and the fair market value of all assets, whether encumbered or not." 13 C.F.R. § 124.04(c).

On April 27, 2021, the Small Business Administration announced that it would open the application period for the Restaurant Revitalization Fund on May 3, 2021. (Doc. 12-3, at 2, 6–9.) The Small Business Administration announcement also stated, consistent with the ARPA, that "[f]or the first 21 days that the program is open, the SBA will prioritize funding applications from businesses owned and controlled by women, veterans, and socially and economically disadvantaged individuals." (Id. )

C. Antonio Vitolo and Jake's Bar and Grill

...