The panel said the SBA could apply a $20 million corporate-group limit to commonly controlled nursing homes seeking Paycheck Protection Program forgiveness.
What happened
The Seventh Circuit on Tuesday affirmed a win for the U.S. Small Business Administration, holding that the agency could enforce a $20 million Paycheck Protection Program corporate-group cap against a network of nursing homes seeking loan forgiveness.
Oak Lawn Respiratory and Rehabilitation Center is one of 203 nursing homes under common control, and 61 businesses in that group received more than $41 million in PPP loans before the SBA limited forgiveness to $20 million. The ruling leaves in place summary judgment for the agency and keeps the nursing homes responsible to their lending banks for amounts beyond the SBA's forgiveness cap.
Writing for the panel, Judge Frank Easterbrook rejected Oak Lawn's argument that each limited liability company had to be treated as a separate qualified small business entitled to the maximum available federal guarantee. The opinion said the Corporate Group Rule did not make any entity ineligible for a loan; instead, the question was how much the government would guarantee or forgive. The CARES Act, the court said, allowed the SBA to guarantee loans up to specified amounts, not to guarantee the maximum lawful amount for every applicant.
The court also said Congress gave the SBA emergency rulemaking authority during 2020, and that the agency had discretion to read a business concern at the level of management or investment affiliation. The SBA's explanation for the rule was enough, the panel said: limited PPP funds had to be spread among as many borrowers as possible, and Oak Lawn did not dispute the agency's assertion that it had guaranteed almost 12 million PPP loans totaling almost $800 billion by 2021.
Oak Lawn also failed to show that the SBA acted arbitrarily by leaving some fractional-ownership hypotheticals unresolved. The panel said agencies responding in the early months of the COVID-19 pandemic did not have to solve every possible problem before addressing the most urgent ones.
On the nursing homes' particular circumstances, the Seventh Circuit said substantial evidence supported the administrative finding that a Gubin-Blisko partnership controlled all 203 nursing homes through investment and voting interests. That made the homes part of a single corporate group under the SBA rule, the court said, rejecting Oak Lawn's view that a parent or controller had to be a corporation or LLC rather than a partnership.
The panel also rejected Oak Lawn's retroactivity argument. Although Oak Lawn said it applied before the rule's effective date, the loan was disbursed afterward, and the court said forgiveness remained a future subsidy decision. Oak Lawn received nearly $1 million and retained the SBA guarantee, but, as the opinion put it, "Nothing in federal law entitles it to more."