The panel said the SBA acted within its emergency authority when it treated commonly controlled nursing homes as one corporate group for Paycheck Protection Program limits.

What happened

The Seventh Circuit on Tuesday affirmed a win for the U.S. Small Business Administration, rejecting a group of nursing homes' challenge to a pandemic-era rule that capped Paycheck Protection Program loans for commonly controlled businesses at $20 million.

The ruling leaves intact the SBA's decision to limit forgiveness for Oak Lawn Respiratory and Rehabilitation Center LLC and related nursing homes after 61 businesses among a 203-home group received more than $41 million in PPP loans. The SBA applied its Corporate Group Rule, which treated affiliated businesses majority owned by a common parent as one corporate group.

Judge Easterbrook, writing for Judges Jackson-Akiwumi and Lee, said the CARES Act made certain businesses eligible for PPP guarantees but did not require the agency to guarantee the maximum lawful amount for every borrower. The opinion said the agency also had emergency rulemaking authority in 2020 and could use that discretion to conserve limited PPP funds.

The panel rejected Oak Lawn's argument that the rule was arbitrary and capricious, saying the SBA gave a cogent reason for the cap: making limited program resources go further. The court also said agencies need not solve every hypothetical ownership problem before addressing the most pressing issues created by the early COVID-19 relief rollout.

The court further upheld the agency's finding that the nursing homes belonged to one corporate group. According to the opinion, a Gubin-Blisko partnership held an investment interest exceeding 55% in all 203 nursing homes and controlled more than 50% of the voting membership interests of each limited liability company.

Oak Lawn also failed to show that the rule was applied retroactively, the panel said. The opinion noted that the loan was disbursed after the rule appeared in the Federal Register and that forgiveness necessarily lay in the future when Oak Lawn received the funds. Oak Lawn received almost $1 million and did not get all the subsidy it hoped for, the court said, but "Nothing in federal law entitles it to more."