In re Gateway Radiology Consultants

Case Type:
Business
Case Status:
Reversed and Remanded
Citation:
United States Court of Appeals for the Eleventh Circuit No. 20-13462 (11th Circuit, Dec 22,2020) Published
Tag(s):
Ruling:
The Court of Appeals vacated the bankruptcy court's approval of Gateway Radiology Consultants' (Debtor) motion to incur indebtedness, because the COA concluded that the Small Business Administration's (SBA) interpretation of the applicable statute was not arbitrary or capricious. The COA vacated the bankruptcy court's preliminary injunction order. and dismissed the memorandum opinion appeal for lack of jurisdiction The COA noted the SBA did not exceed its rule making authority when it excluded debtors from PPP eligibility. The COA found the SBA interpretation of the CARES Act reasonable.
Procedural context:
The Debtor filed a request for bankruptcy court approval to take on the Paycheck Protection Program (PPP) loan debt under 11 U.S.C. § 364(b) in May 2020 (Motion). At this time the Debtor had already applied for the PPP loan, and USF Federal Credit Union (USF) had already approved the PPP loan. The SBA filed a limited objection asserting that the SBA objected to the Debtor's eligibility to participate in the PPP, receive loan forgiveness, or that the SBA must guarantee the Debtor's loan. The Debtor then filed an adversary proceeding naming as defendants the SBA and USF, as well as others. The adversary proceeding sought declaratory relief in that, the Debtor asked the bankruptcy court to find that the SBA rule was not enforceable against the Debtor, that USF must release the funds to the Debtor, and the SBA was required to guarantee and forgive the loan as though the Debtor was not in bankruptcy. The adversary proceeding alleged the SBA exceeded its statutory authority, acted arbitrarily and capriciously, and discriminated against those in bankruptcy by implementing the interim rules, which the Debtor asserted made the interim rules unlawful. The bankruptcy court found in favor of the Debtor. The bankruptcy court issued a memorandum opinion finding injunctive relief was an available remedy against the SBA, the interim rules were unlawful, because the SBA acted arbitrarily and capriciously. The bankruptcy court then ordered granted a preliminary injunction through the adversary proceeding in favor of the Debtor against the SBA preventing the SBA from enforcing the interim rules against the Debtor. In the main bankruptcy case the bankruptcy court approved the Motion authorizing the borrowing of funds through a PPP loan. The Debtor and USF both filed petitions for permission to appeal the memorandum opinion, the preliminary injunction order, and the approval order. Under 28 U.S.C. § 158(d)(2) the appeal of the approval of the Motion and preliminary injunction orders was directly certified to the COA. The appeal of USF was granted. The SBA filed a notice of appeal, which the COA deemed a petition for permission and considered the SBA an appellant.
Facts:
Gateway (Debtor) filed Chapter 11 bankruptcy in May 2019. In March 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. One aspect of the CARES Act is the PPP run by the SBA. A PPP loan when used for eligible expenses is forgivable. By statute sixty percent of PPP funds must be spent on payroll. The SBA received rulemaking authority from Congress to operate the PPP. The SBA maintained many of its rules from its other loan programs, although some with relaxed conditions. The SBA also utilized interim rules, the first of which, entered on April 15, 2020, required borrowers to use a Form 2483, requiring disclosure of status of being currently in bankruptcy. The Form 2483 also states that those currently in bankruptcy would not have their loans approved. The fourth interim rule, entered on April 28, 2020, indicated explicitly that applicants that were debtors in bankruptcy were ineligible to receive a PPP loan. This rule came with the explanation that the SBA viewed debtors as too risky for repayment of the funds. On April 27, 2020, the Debtor filed for a PPP loan online through USF. One week later, USF sent the Debtor a Form 2483 loan application for an electronic signature. That form required the Debtor to answer the question if the Debtor was "presently involved in any bankruptcy" by checking a box yes or no. The form was processed with the no box checked, and USF approved Gateway for a PPP loan in an amount of over $500,000.00. Neither the Debtor nor USF admit to checking the no box.
Judge(s):
The Hons. Rosenbaum, Anderson, and Carnes

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