Tradeways, Ltd v. The United States Department of the Treasury

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MARYLAND

TRADEWAYS, LTD.

Plaintiff,

v.

Civil Action No. ELH-20-1324

THE UNITED STATES DEPARTMENT

OF THE TREASURY, et al.,

Defendants.

MEMORANDUM OPINION

This case concerns the validity of an interim final rule promulgated by the United States

Small Business Administration (“SBA”) in connection with the Paycheck Protection Program

(“PPP”), a multibillion dollar federal loan program designed to provide emergency relief to small

businesses in the midst of the COVID-19 pandemic. The rule, which establishes eligibility criteria

for participation in the PPP, disqualifies potential borrowers if the borrower or its owner is a debtor

in bankruptcy.

Plaintiff Tradeways Ltd. (“Tradeways” or the “Company”) applied for, but was denied, a

PPP loan of $86,000 because its owner is in Chapter 11 bankruptcy. As a result, the Company

filed suit against several defendants: the SBA; Jovita Carranza, the Administrator of the SBA; the

United States Department of the Treasury; and Steven Mnuchin, the Secretary of the Treasury

(collectively, the “Government”). ECF 1 (the “Complaint”). Tradeways alleges that the SBA’s

rule violates the Administrative Procedure Act (“APA”), 5 U.S.C. § 706(2), and the Bankruptcy

Code’s antidiscrimination statute, 11 U.S.C. § 525.

Along with the suit, plaintiff filed an “Emergency Motion For A Temporary Restraining

Order And Preliminary Injunction.” ECF 2. It is supported by a memorandum of law (ECF 2-1)

(collectively, the “Motion”) and the Affidavit of Tradeway’s owner, Joseph Gorski. ECF 2-3.

Tradeways asks the Court, inter alia, to enjoin defendants from denying a PPP loan to Tradeways

due to Mr. Gorski’s status as a Chapter 11 debtor and to set aside $86,000 in PPP funding. ECF 2

at 2.

On June 1, 2020, the Court held an emergency telephone conference with counsel for both

sides. See ECF 9. At that time, counsel agreed to proceed on the request for a preliminary

injunction, rather than the request for a temporary restraining order. Id. Thereafter, defendants

filed an opposition to the Motion (ECF 12), along with six exhibits. ECF 12-1 to ECF 12-6.

Plaintiff has replied. ECF 15.

Due to the COVID-19 pandemic, the Court held a hearing by videoconference on June 23,

2020, at which argument was presented. For the reasons that follow, I shall deny the Motion.

I. Background

A. The SBA

Over fifty years ago, through the Small Business Administration Act, Congress established

the SBA to “aid, counsel, assist, and protect, insofar as is possible, the interests of small-business

concerns,” in order to preserve the system of free competitive enterprise that is “essential” to the

nation’s economic wellbeing and security. Pub. L. 83-163, 67 Stat. 232 (1953) (codified at 15

U.S.C. § 631(a)); see also 15 U.S.C. § 633(a) (establishing the SBA). To effectuate these goals,

Congress gave the SBA “extraordinarily broad powers,” including “that of lending money to small

businesses whenever they could not get necessary loans on reasonable terms from private lenders.”

Small Bus. Admin. v. McClellan, 364 U.S. 446, 447 (1960).

The SBA’s authority to issue loans—whether in the form of direct loans, joint loans with

lenders, or loan guarantees—flows from § 7(a) of the Small Business Act, which is titled “Loans

to small business concerns; allowable purposes; qualified business; restrictions and limitations.”

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Pub. L. 85-563, § 7, 72 Stat. 384 (1958) (codified at 15 U.S.C. § 636). Under § 7(a), the SBA is

“empowered,” subject to certain qualifications, “to make loans to any qualified small business

concern,” which “may be made either directly or in cooperation with banks or other financial

institutions through agreements to participate on an immediate or deferred (guaranteed) basis.”

15 U.S.C. § 636(a). Among other restrictions imposed on loans issued or guaranteed by the SBA,

§ 7(a) provides that such loans “shall be of such sound value or so secured as reasonably to assure

repayment . . . .” Id. § 636(a)(6).

In order to ensure that the SBA could respond swiftly to economic developments, Congress

placed the agency under the management of a single Administrator. Id. § 633(a), (b)(1). Further,

Congress delegated authority to the Administrator to “make such rules and regulations as [she]

deems necessary to carry out the authority vested in [her],” and “take any and all actions” that she

“determines . . . are necessary or desirable in making, servicing, compromising, modifying,

liquidating, or otherwise dealing with or realizing on loans made under” the Small Business

Administration Act. Id. § 634(b)(6), (b)(7).

B. COVID-19, the CARES Act, and the PPP1

The COVID-19 pandemic is, without dispute, the worst public health crisis the country has

experienced since 1918. The novel coronavirus is a highly contagious and sometimes fatal

respiratory illness. 2 The virus first appeared in Wuhan, China in December 2019; in a matter of

1 I may take judicial notice of publicly available facts. See Fed. R. Evid. 201.

2 Severe Acute Respiratory Syndrome Coronavirus 2 (SARS-CoV-2) is the cause of

coronavirus disease 2019, commonly called COVID-19. See Naming the Coronavirus Disease and

the Virus that Causes It, WORLD HEALTH ORG., https://bit.ly/2UMC6uW (last accessed June 15,

2020).

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months, COVID-19 spread to every corner of the globe.3 On March 12, 2020, the World Health

Organization declared COVID-19 a global pandemic. See WHO Director-General’s opening

remarks at the mission briefing on COVID-19, WORLD HEALTH ORG. (March 12, 2020),

https://bit.ly/2XWdodD. The next day, President Trump declared a national emergency. See The

White House, Proclamation on Declaring a National Emergency Concerning the Novel

Coronavirus Disease (COVID-19) Outbreak (Mar. 13, 2020), https://bit.ly/3flFu8i.

There is currently no vaccine or cure for COVID-19. Therefore, the Centers for Disease

and Control has implored citizens to practice “social distancing” in order to abate the spread of the

virus. See Coronavirus Disease 2019 (COVID-19), How to Protect Yourself & Others, CTRS. FOR

DISEASE CONTROL & PREVENTION, https://bit.ly/3dPA8Ba. To that end, nearly every state issued

mandatory stay-at-home orders, directing residents to remain at home except to conduct essential

activities. See Sarah Mervosh et al., See Which States Are Reopening and Which Are Still Shut

Down, N.Y. TIMES (May 15, 2020), https://nyti.ms/2Z6Fm7F. As a result, life as we know it came

to a halt; schools, restaurants, bars, movie theaters, shopping malls, retail stores, houses of worship,

and gyms all shuttered for a significant period of time.

Social distancing measures were needed to thwart the spread of the virus and to “flatten”

the epidemiological curve. But, these measures had tremendous economic consequences.

Personal consumption in March 2020 plunged by a record 7.5 percent. See Personal Income and

3 As of June 23, 2020, the coronavirus has infected over 9 million individuals world-wide

and caused over 470,000 deaths. See COVID-19 Dashboard, THE JOHNS HOPKINS UNIV.,

https://bit.ly/2WD4XU9 (last accessed June 23, 2020). Fatality rates increase with age and

underlying health conditions, such as cardiovascular disease, respiratory disease, diabetes, and

immune compromise. See Coronavirus Disease 2019 (COVID-19), People Who Are at Risk for

Severe Illness, CTRS. FOR DISEASE CONTROL & PREVENTION (May 14, 2020),

https://bit.ly/2WBcB16.

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Outlays: March 2020, U.S. BUREAU OF ECON. ANALYSIS (Apr. 30, 2020 8:30),

https://bit.ly/3d8wUZ2. In the month of April 2020 alone, more than 20 million Americans lost

their jobs, driving the unemployment rate to 14.7 percent, the largest single-month increase ever

recorded. See Economic News Release, U.S. BUREAU OF LAB. STAT. (May 8, 2020),

https://bit.ly/2UGiOYr. Notably, these losses reached people from all stations of life: the leisure

and hospitality industry lost 7.7 million jobs (nearly half the industry), while the education and

health services industry, the professional and business services industry, and the retail trade

industry each shed more than 2 million jobs. Id.

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic

Security Act (the “CARES Act”), Pub. L. 116-136, 134 Stat. 281 (2020), a $2.2 trillion stimulus

package, in order alleviate the incredible economic devastation wrought by the COVID-19

pandemic. Among its many purposes, the CARES Act was designed to preserve American jobs.

See, e.g., Cong. Rec. S1975 (daily ed. Mar. 24, 2020) (statement of Sen. McConnell) (identifying

providing assistance to “Main Street small businesses” as a “key objective” of the CARES Act);

Cong. Rec. E343 (daily ed. Mar. 31, 2020) (statement of Rep. Eshoo) (describing the PPP as one

of “four major pillars” of the CARES Act). In particular, the CARES Act creates two distinct

programs to encourage businesses to keep employees on the payroll.

First, Congress acted to bolster mid-size and large businesses. Section 4003 of Title IV of

the CARES Act, entitled “Emergency Relief and Taxpayer Protection,” directs the Treasury

Department to disburse $454 billion to private lenders to make direct loans to businesses that have

between 500 and 10,000 employees. Pub. L. 116-136, §§ 4003, 1107 (to be codified at 15 U.S.C.

§ 9042). To receive favorable loan terms, a borrower must agree to retain or restore ninety percent

of its workforce. See 15 U.S.C. § 9042(c)(3)(D)(i)(lll). Of relevance here, the CARES Act

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expressly provides that a borrower seeking a loan under this program must certify that it “is not a

debtor in a bankruptcy proceeding.” Id. § 9042(c)(3)(D)(i)(V).

Second, Congress sought to provide emergency capital to small businesses. Section 1102

of Title I of the CARES Act, which is named the “Paycheck Protection Program,” provides an

aggregate $649 billion in loans to small businesses. Pub. L. 116-136, §§ 1102, 1107 (to be codified

at 15 U.S.C. § 636).4 Whereas the lending program for mid-size businesses is housed in a

freestanding section of the United States Code, Congress placed the PPP within 15 U.S.C.

§ 636(a). That is the statutory provision created by § 7(a) of the Small Business Act, and it

concerns the SBA’s lending authority. See Pub. L. 116-136, § 1102(a).

Under the PPP, an “eligible recipient” can receive a “covered loan” in an amount up to two

and a half times its average monthly payroll. 15 U.S.C. § 636(a)(36)(E). An “eligible recipient”

is defined as “an individual or entity that is eligible to receive a covered loan.” Id.

§ 636(a)(36)(A)(iv). The CARES Act defines a “‘covered loan’” as “a loan made under [the PPP]

during the covered period,” i.e., between February 15, 2020 and June 30, 2020. Id.

§ 636(a)(36)(A)(ii)-(iii).

The CARES Act provides that borrowers may “use the proceeds of the covered loan” for

payroll costs; group health benefits and insurance premiums; and mortgage interest, rent, and

utilities. Id. § 636(a)(36)(F)(i). Depending on how the business spends the proceeds, the loan may

4 Initially, the CARES Act allocated $349 billion to guarantee PPP loans. Pub. L. 116-136,

§ 1102(b)(1). On April 16, 2020, the SBA announced that the PPP was closed to new applications.

Eight days later, on April 24, 2020, Congress appropriated an additional $310 billion for loan

guarantees under the PPP. See The Paycheck Protection and Health Care Enhancement Act, Pub.

L. No. 116-139, 134 Stat. 620 (2020). And, on June 5, 2020, Congress passed a law expanding

forgiveness requirements and extending the PPP through the end of 2020. See Paycheck Protection

Program Flexibility Act of 2020, H.R. 7010, Pub. L. No. 116-142, __ Stat. __ (2020).

6

be forgiven up to the full principal amount. Id. § 9005(b).5 Further, the CARES Act requires the

SBA to remit to the lender the amount forgiven, plus interest. Id. § 9005(c)(3).

Regarding eligibility criteria, the CARES Act specifies: “Except as otherwise provided in

this paragraph, the Administrator may guarantee covered loans under the same terms, conditions,

and processes as a loan made under this subsection.” Id. § 636(a)(36)(B). And, the CARES Act

provides, id. § 636(a)(36)(D)(i) (emphasis in original):

(D) Increased eligibility for certain small businesses and organizations

(i) In general

During the covered period, in addition to small business concerns, any business

concern, nonprofit organization, veterans organization, or Tribal business concern

described in section 657a(b)(2)(C) of this title shall be eligible to receive a covered

loan if the business concern, nonprofit organization, veterans organization, or

Tribal business concern employs not more than the greater of—

(I) 500 employees; or

(II) if applicable, the size standard in number of employees established by

the Administration for the industry in which the business concern, nonprofit

organization, veterans organization, or Tribal business concern operates.

In addition, the CARES Act permits independent contractor and certain self-employed individuals

to receive PPP loans. Id. § 636(a)(36)(D)(ii)(l).

The CARES Act also streamlines the underwriting process of PPP loans. Besides

satisfying the eligibility criteria, an applicant seeking to participate in the PPP must certify that (1)

“the uncertainty of current economic conditions makes necessary the loan request to support the

ongoing operations of the eligible recipient”; (2) it will use the PPP funds for covered expenses;

and (3) it has not previously received a PPP loan and will not do so again before December 31,

5 The CARES Act provides that no more than 25 percent of the loan forgiveness amount

may be spent on non-payroll expenses. See 15 U.S.C. § 9005(d)(3)(A).

7

2020. Id. § 636(a)(36)(G)(i)(l)-(lV). Further, the PPP provides that lenders “shall consider”

whether the borrower (1) “was in operation on February 15, 2020,” and (2) either “had employees

for whom the borrower paid salaries and payroll taxes,” or “paid independent contractors.” Id.

§ 636(a)(36)(F)(ii)(ll). Notably, unlike the loan program for mid-size businesses, the CARES Act

does not address whether bankruptcy debtors are eligible to receive PPP funds.

C. SBA’s Interim Rule

The CARES Act authorizes the SBA to issue regulations implementing the PPP without

adhering to the notice-and-comment process that typically governs agency rulemaking. See Pub.

L. 116-136, § 1114. Specifically, the CARES Act provides that no later than 15 days after its

enactment, the SBA “shall issue regulations to carry out this title and the amendments made by

this title without regard to the notice requirements under [the APA].” 15 U.S.C. § 9012.

Pursuant to that grant of authority, the SBA promulgated a First Interim Final Rule

concerning the PPP on April 15, 2020. See Business Loan Program Temporary Changes;

Paycheck Protection Program, 85 Fed. Reg. 20,811-17 (Apr. 15, 2020) (to be codified at 13 C.F.R.

pt. 120). In an effort to expedite the application process, the SBA’s First Interim Final Rule

clarified that the SBA’s normal underwriting guidelines did not apply to PPP loans. See id. at

20,812 (excusing lenders issuing PPP loans from the underwiring requirements contained in

13 C.F.R. § 120.150); see also id. at 20,815 (delineating lenders’ obligations under the PPP).

Instead, in a section titled “What Do Lenders Have to Do in Terms of Loan Underwriting,” the

First Interim Final Rule provides that lenders need only confirm receipt of borrower certifications,

verify information related to payroll requirements, and “review[] the ‘Paycheck Protection

Application Form.’” Id. at 20,815.

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Along with the First Interim Final Rule, the SBA published “SBA Form 2483,” the

“Paycheck Protection Application Form” (the “PPP Application”). See ECF 12-5 (SBA Form

2483). The first question on the PPP Application is as follows, id.:

Is the Applicant or any owner of the Applicant presently suspended, debarred,

proposed for debarment, declared ineligible, voluntarily excluded from

participation in this transaction by any Federal department or agency, or presently

involved in any bankruptcy?

The PPP Application instructs, id. (emphasis in original): “If questions (1) or (2) below are

answered ‘Yes,’ the loan will not be approved.”

On April 24, 2020, concurrent with Congress’s extension of additional funding for the PPP,

the SBA issued an operative Fourth Interim Final Rule (the “IFR”), which it published in the

Federal Register on April 28, 2020. See Business Loan Program Temporary Changes; Paycheck

Protection Program-Requirements-Promissory Notes, Authorizations, Affiliation, and Eligibility,

85 Fed. Reg. 23,450-52 (Apr. 28, 2020).6 The IFR provides additional information regarding a

number of eligibility requirements, including the bankruptcy exclusion set forth in the PPP

Application. The IFR provides, in part, id. at 23,451:

4. Eligibility of Businesses Presently Involved in Bankruptcy Proceeding

Will I be approved for a PPP loan if my business is in bankruptcy?

No. If the applicant or the owner of the applicant is the debtor in a bankruptcy

proceeding, either at the time it submits the application or at any time before the

loan is disbursed, the applicant is ineligible to receive a PPP loan. If the applicant

or the owner of the applicant becomes the debtor in a bankruptcy proceeding after

submitting a PPP application but before the loan is disbursed, it is the applicant’s

obligation to notify the lender and request cancellation of the application. Failure

6 The SBA also issued second and third interim final rules, neither of which is relevant to

this suit. See Business Loan Program Temporary Changes; Paycheck Protection Program, 85 Fed.

Reg. 20,817 (Apr. 15, 2020); Business Loan Program Temporary Changes; Paycheck Protection

Program—Additional Eligibility Criteria and Requirements for Certain Pledges of Loans, 85 Fed.

Reg. 21,747 (Apr. 20, 2020).

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by the applicant to do so will be regarded as a use of PPP funds for unauthorized

purposes.

The Administrator, in consultation with the Secretary [of Commerce], determined

that providing PPP loans to debtors in bankruptcy would present an unacceptably

high risk of an unauthorized use of funds or non-repayment of unforgiven loans. In

addition, the Bankruptcy Code does not require any person to make a loan or a

financial accommodation to a debtor in bankruptcy. The Borrower Application

Form for PPP loans (SBA Form 2483), which reflects this restriction in the form of

a borrower certification, is a loan program requirement. Lenders may rely on an

applicant’s representation concerning the applicant’s or an owner of the applicant’s

involvement in a bankruptcy proceeding.

D. Tradeways

Tradeways, a Delaware corporation based in Annapolis, Maryland, markets itself as “a

recognized leader in the international Nuclear, Biological, and Chemical (NBC) Defense

Community, specializing in the field of NBC Defense equipment by allied governmental

organizations.” Profile, TRADEWAYS, LTD, http://www.tradewaysusa.com/eng/profile.cfm (last

accessed June 14, 2020); see ECF 1, ¶¶ 1-2. According to the Company’s sole owner, Joseph

Gorski, Tradeways’s “primary source of revenue is earned through fulfilling export contracts with

businesses and governments based in multiple foreign countries,” including South Korea, Italy,

Sweden, and the United Arab Emirates. ECF 2-2 (Gorski affidavit), ¶ 3. Thus, Tradeways’s

operations rely heavily on foreign travel and in-person meetings with customer representatives.

Id. ¶ 4. At the time the suit was filed, the Company employed six individuals. Id. ¶ 6.

On February 4, 2019, Mr. Gorski filed for Chapter 11 bankruptcy in the United States

Bankruptcy Court for the District of Maryland. Id. at ¶ 10; see In re Joseph Gorski, 19-11500

(Bankr. D. Md.). The Company avers that Mr. Gorski’s bankruptcy is unrelated to the operation

of Tradeways and pertains only to Mr. Gorski’s personal assets and liabilities. ECF 1, ¶ 24; see

also ECF 2-2, ¶ 10 (Mr. Gorski attesting that his bankruptcy proceedings are solely personal). Mr.

Gorski’s bankruptcy is presently pending before the U.S. Bankruptcy Court. ECF 1, ¶ 25.

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On April 23, 2020, Tradeways applied for a PPP loan in the amount of $86,000 through its

lender, First Citizens Bank (the “Bank”). ECF 2-2, ¶ 26. As noted, when completing the PPP

Application, the first question Tradeways was asked was whether it or “any owner” of Tradeways

was “presently involved in any bankruptcy?” ECF 12-5; see ECF 2-2, ¶ 13. Tradeways answered

the question in the affirmative. ECF 2-2, ¶ 14.

Mr. Gorski learned on April 30, 2020, that the Bank denied Tradeways’s PPP Application.

Id. at ¶ 15. According to Tradeways, its PPP Application was rejected on the ground that the

Company is ineligible for a PPP loan because Mr. Gorski is involved in an active bankruptcy case.

ECF 1, ¶ 27.

According to Mr. Gorski, Tradeways has experienced a “significant” decrease in business

revenue since the beginning of the COVID-19 pandemic, placing the Company in financial peril.

ECF 2-2, ¶ 7. The Company has only been able to pay employee compensation, monthly

obligations, and outstanding business liabilities because it has been drawing from the business’s

cash reserves. Id. ¶ 8. Absent a change in business, Tradeways estimates that it will deplete its

cash reserves before August 2020. Id. ¶ 9. If that occurs, the Company will have no means to

fulfill its financial obligations. Id. Therefore, Mr. Gorski posits that without immediate financial

support, Tradeways “will likely be forced to cease operations entirely and permanently.” Id.

II. Standard of Review

“A preliminary injunction is an extraordinary remedy never awarded as of right.” Winter

v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 24 (2008); see also Benisek v. Lamone, ___ U.S. ___,

138 S. Ct. 1942, 1943 (2018) (per curiam); Roe v. Dep’t of Def., 947 F.3d 207, 219 (4th Cir. 2020);

Mountain Valley Pipeline LLC v. W. Pocahontas Props. Ltd. P’ship, 918 F.3d 353, 366 (4th Cir.

2019); Centro Tepeyac v. Montgomery Cty., 722 F.3d 184, 188 (4th Cir. 2013) (en banc). Rather,

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a preliminary injunction is “‘granted only sparingly and in limited circumstances.’”

MicroStrategy, Inc. v. Motorola, Inc., 245 F.3d 335, 339 (4th Cir. 2001) (citation omitted).

To qualify for a preliminary injunction, the plaintiff “must establish that he is likely to

succeed on the merits.” Winter, 555 U.S. at 20. Although that standard does not require “a

‘certainty of success,’” the plaintiff “‘must make a clear showing that he is likely to succeed at

trial.’” Di Biase v. SPX Corp., 872 F.3d 224, 230 (4th Cir. 2017) (citation omitted). However, “a

preliminary injunction does not follow as a matter of course from a plaintiff’s showing of a

likelihood of success on the merits.” Benisek, 138 S. Ct. at 1943-44.

Rather, the court must consider three other factors: “whether the movant has shown ‘that

he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of

equities tips in his favor, and that an injunction is in the public interest.’” Id. (quoting Winter, 555

U.S. at 20); see also Centro Tepeyac, 722 F.3d at 188 (applying the standard for preliminary

injunctions set forth in Winter). “To establish irreparable harm, the movant must make a ‘clear

showing’ that it will suffer harm that is ‘neither remote nor speculative, but actual and imminent.’”

Mountain Valley Pipeline LLC, 918 F.3d at 216 (citation omitted). A harm is “irreparable” if it

“‘cannot be fully rectified by the final judgment after trial.’” Id. (citation omitted); see Sampson

v. Murray, 415 U.S. 61, 90 (1974) (“Mere injuries, however substantial, in terms of money, time

and energy necessarily expended in the absence of a stay are not enough.”). As for the balance of

equities and public interest prongs, these two factors “merge when the Government is the opposing

party.” Nken v. Holder, 556 U.S. 418, 435 (2009).

A preliminary injunction cannot issue unless all four factors are satisfied. See Pashby v.

Delia, 709 F.3d 307, 320 (4th Cir. 2013). The party seeking a preliminary injunction bears the

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burden of justifying such relief. See League of Women Voters of N.C. v. North Carolina, 769 F.3d

224, 236 (4th Cir. 2014); Wagner v. Bd. of Educ., 335 F.3d 297, 302 (4th Cir. 2003).

A preliminary injunction can be classified as being either prohibitory or mandatory. A

prohibitory injunction “maintain[s] the status quo and prevent[s] irreparable harm while a lawsuit

remains pending.” Pashby, 709 F.3d at 319. In contrast, a mandatory injunction alters the status

quo. See League of Women Voters of N.C., 769 F.3d at 236. In this setting, the status quo is the

“‘last uncontested status between the parties which preceded the controversy.’” Id. (quoting

Pashby, 709 F.3d at 320).

III. Discussion

Tradeways seeks prospective injunctive relief on the grounds that it is likely to show that

the SBA’s decision to disqualify bankruptcy debtors from the PPP contravenes the CARES Act;

is arbitrary and capricious; and runs afoul of the Bankruptcy Code’s antidiscrimination provision,

11 U.S.C. § 525. ECF 2-1 at 6-12. Further, the Company avers that relief is warranted because it

will cease operating if it cannot access PPP funds, setting aside the IFR will not harm the SBA,

and an injunction advances the animating purposes of the CARES Act. See id. at 12-15.

According to defendants, the Company is not entitled to injunctive relief because it cannot

establish a likelihood of success on the merits. ECF 11 at 11-17. The Government argues that the

APA does not waive the SBA’s sovereign immunity from injunctive relief and, in any event, the

IFR is neither ultra vires nor arbitrary and capricious. In addition, defendants contend that the

Company’s reliance on 11 U.S.C. § 525 is misplaced as it does not cover loans. On the equities,

defendants assert that the Company’s financial injuries are speculative and an injunction would

undermine executive and legislative efforts to respond to the pandemic. Id. at 22-24.

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I begin with the Company’s likelihood of success on the merits. Because I conclude that

Tradeways is not likely to prevail under either the APA or 11 U.S.C. § 525, my analysis ends there

as well. See Winter, 555 U.S. at 24.

A. APA Claims

Tradeways argues that it is likely to show that the SBA’s decision to bar bankruptcy debtors

from accessing PPP funds violates the APA. ECF 2-1 at 8-11. Under the APA, a court may set

aside agency action if it is “arbitrary, capricious, an abuse of discretion, or otherwise not in

accordance with law,” or is “in excess of statutory jurisdiction, authority, or limitations, or short

of statutory right.” 5 U.S.C. § 706(2)(A), (C).

The Company advances two theories under the APA. First, it contends that the SBA lacked

the statutory authority to bar debtors from the PPP because the unambiguous language of the

CARES Act does not permit the alteration of the PPP’s eligibility criteria. Second, Tradeways

contends that the IFR is arbitrary and capricious, asserting that the exclusion of bankruptcy debtors

from the PPP serves no rational interest.

In response, the Government posits that Tradeways’s APA claims are foreclosed by

sovereign immunity. ECF 11 at 10-11. Further, defendants maintain that the IFR is a reasonable

interpretation of the CARES Act and a sensible policy decision in light of a national emergency.

Id. at 11-17.

1. Sovereign Immunity

I turn first to the issue of sovereign immunity. See United States v. Mitchell, 463 U.S. 206,

212 (1983) (recognizing that the sovereign’s consent is “a prerequisite for jurisdiction”);

Cunningham v. Gen. Dynamics Info. Tech., Inc., 888 F.3d 640, 649 (4th Cir. 2018) (observing that

14

a court must dismiss an action barred by sovereign immunity for lack of subject-matter

jurisdiction).

It is black letter law that the United States, as a sovereign, generally enjoys immunity from

suit. See FDIC v. Meyer, 510 U.S. 471, 475 (1994); Dalehite v. United States, 346 U.S. 15, 30

(1953); United States v. Clarke, 33 U.S. (8 Pet.) 436, 444 (1834); Robinson v. U.S. Dep’t of Educ.,

917 F.3d 799, 801 (4th Cir. 2019), cert. denied, __ U.S. ___, 140 S. Ct. 1440 (2020). Thus, the

United States cannot be sued “save as it consents to be sued.” United States v. Sherwood, 312 U.S.

584, 586 (1941); see Mitchell, 463 U.S. 212 (observing that it is “axiomatic that the United States

may not be sued without its consent”).

As a federal agency, the SBA enjoys “a presumption of immunity from the present

lawsuit.” Robinson, 917 F.3d at 801. And Tradeways, as the plaintiff, has the “burden to show

that an unequivocal waiver of sovereign immunity exists and that none of the statute’s waiver

exceptions apply to his particular claim.” Welch v. United States, 409 F.3d 646, 651 (4th Cir.

2005); see Robinson, 917 F.3d at 801; Williams v. United States, 50 F.3d 299, 304 (4th Cir. 1995).

A “waiver of sovereign immunity must be unequivocally expressed in statutory text,” and

the waiver must be “clearly evident from the language of the statute.” FAA v. Cooper, 566 U.S.

284, 290 (2012) (internal quotation marks omitted); see Lane v. Pena, 518 U.S. 187, 192 (1996)

(observing that a waiver of sovereign immunity “must be unequivocally expressed in statutory

text, and will not be implied”). In other words, a waiver of sovereign immunity “cannot contain

an ambiguity, which ‘exists if there is a plausible interpretation of the statute that would not

authorize money damages against the Government.’” Robinson, 917 F.3d at 802 (quoting Cooper,

566 U.S. 290-91). Moreover, waivers of sovereign immunity “must be ‘strictly construed in favor

of the sovereign.’” Welch, 409 F.3d at 650 (ellipses omitted) (quoting Lane, 518 U.S. at 192).

15

Simply put, sovereign immunity “can only be waived by statutory text that is unambiguous and

unequivocal.” Robinson, 917 F.3d at 802.

The APA evinces a waiver of sovereign immunity with respect to certain claims. Section

702, entitled “Right of Review,” provides, in part, 5 U.S.C. § 702:

A person suffering legal wrong because of agency action, or adversely

affected or aggrieved by agency action within the meaning of a relevant statute, is

entitled to judicial review thereof. An action in a court of the United States seeking

relief other than money damages and stating a claim that an agency or an officer or

employee thereof acted or failed to act in an official capacity or under color of legal

authority shall not be dismissed . . . on the ground that it is against the United States

or that the United States is an indispensable party.

Read in isolation, this language would seem to thrust open the courthouse doors for

Tradeways, which seeks only injunctive and declaratory relief against defendants. But, the APA’s

waiver of sovereign immunity is qualified. Section 702 also provides, id.: “Nothing herein . . .

confers authority to grant relief if any other statute that grants consent to suit expressly or impliedly

forbids the relief which is sought.”

Here, the Government posits that the Small Business Act, 15 U.S.C. § 631 et seq., shields

the SBA from the injunctive relief that plaintiff seeks. ECF 11 at 10-11. In relevant part, the

statute provides, 15 U.S.C. § 634(b)(1) (emphasis added):

(b) Powers of Administrator

In the performance of, and with respect to, the functions, powers, and duties vested

in him by this chapter the Administrator may—

(1) sue and be sued in any court of record of a State having general jurisdiction, or

in any United States district court, and jurisdiction is conferred upon such district

court to determine such controversies without regard to the amount in controversy;

but no attachment, injunction, garnishment, or other similar process, mesne or

final, shall be issued against the Administrator or [her] property . . . .

Courts are openly divided over whether § 634(b)(1) precludes injunctive relief against the

SBA under all circumstances. See, e.g., Elk Assocs. Funding Corp. v. U.S. Small Bus. Admin., 858

16

F. Supp. 2d 1, 20 (D.D.C. 2012) (canvassing the split). Some courts have interpreted § 634(b)(1)

to be without qualification. See, e.g., In re Hidalgo Cty. Emergency Servs. Found., ___ F.3d ___,

2020 WL 3411190 (5th Cir. June 22, 2020) (reversing preliminary injunction issued against the

SBA, pursuant to § 634(b)(1) and binding circuit precedent); Mar v. Kleppe, 520 F.2d 867, 869

(10th Cir. 1975). In contrast, other courts have construed § 634(b)(1) to bar injunctions against

the SBA when it is acting qua commercial actor, but not qua regulator. See, e.g., Ulstein Mar.,

Ltd. v. United States, 833 F.2d 1052, 1056-57 (1st Cir. 1987); Cavalier Clothes, Inc. v. United

States, 810 F.2d 1108, 1112 (Fed. Cir. 1987); Related Indus., Inc. v. United States, 2 Cl. Ct. 517,

522 (1983); Okla. Aerotronics v. United States, 661 F.2d 976, 977 (D.C. Cir. 1981).7

To my knowledge, the Fourth Circuit has addressed § 634(b)(1) in three published

opinions. First, in Vincent v. Small Business Administration, 402 F.2d 769 (4th Cir. 1968), the

Fourth Circuit, citing § 634(b)(1), summarily affirmed the district court’s dissolution of a state

court injunction restraining the foreclosure of real property on which the SBA held a lien. Id. at

770. In Duncan v. Furrow Auction Co., 564 F.2d 1107 (4th Cir. 1977), the Court affirmed the

district court’s dismissal of a suit seeking to enjoin a foreclosure sale of property held by the SBA,

observing that § 634(b)(1) “prohibits an injunction, which was all the relief asked for, against the

SBA” by the plaintiffs. Id. Finally, the Fourth Circuit held in J.C. Driskill, Inc. v. Abdnor, 901

F.2d 383 (4th Cir. 1990), that the plaintiffs, subcontractors who sought to recover payment for

work perform on a construction project managed by the SBA, were not entitled to an equitable lien

7 At the hearing, the parties agreed that § 634(b)(1) has no bearing on the Court’s ability to

enjoin the Treasury Department and Secretary Mnuchin under the APA. But, they are nominal

defendants. Tradeways seeks to set aside a rule promulgated by the SBA governing the

administration of the PPP, a program managed by the SBA. If the Court were to grant the

Company relief, the injunction would have to run against the SBA in order to redress the allegedly

unlawful conduct. Thus, the presence of other defendants does not resolve the issue of sovereign

immunity.

17

on project funds held by the SBA on the grounds that “courts have no jurisdiction to award

injunctive relief against the SBA.” Id. at 386.

Significantly, none of these cases concerns the scope of § 634(b)(1). Moreover, these

decisions are materially distinguishable from the one sub judice. The plaintiffs in Vincent,

Duncan, and J.C. Driskill, each sought to stop the SBA from performing commercial activities in

its capacity as a market participant, such as initiating foreclosure proceedings, selling property,

and failing to perform on a contract. In contrast, this dispute concerns the SBA in its capacity as

a regulatory agency. Specifically, it pertains to the lawfulness of a rule promulgated by the SBA

that regulates the conduct of private actors—lenders and borrowers—in furtherance of a

multibillion dollar federal aid program. Therefore, the Fourth Circuit’s case law offers little

guidance as to whether § 634(b)(1) poses an insurmountable obstacle to plaintiff’s lawsuit. But

see iThrive Health, LLC v. Carranza, No. 20-00151, ECF 24 at 8 (Bankr. D. Md. June 8, 2020)

(concluding that Fourth Circuit precedent “does not leave room” to adopt a narrow view of § 634).

Writing on a blank slate, each side can marshal compelling arguments to broaden or trim

the scope of § 634(b)(1). I start with the language of § 634(b)(1) in accordance with the cardinal

canon of construction that courts first look to a law’s text to divine its meaning. See Murphy v.

Smith, __ U.S. ___, 138 S. Ct. 784, 787 (2018); United States v. Bryant, 949 F.3d 168, 174 (4th

Cir. 2020). When the statute’s text is “unambiguous, then, this first canon is also the last,” for

“courts must presume that a legislature says in a statute what it means and means in a statute what

it says there.” Conn. Nat’l Bank v. Germain, 503 U.S. 249, 253-54 (1992).

Taken at face value, § 634(b)(1)’s language appears unambiguous and unqualified: “no

injunction . . . shall be issued against the Administrator” means exactly what it says—no court

may issue injunctive relief against the SBA. See Sandifer v. U.S. Steel Corp., 571 U.S. 220, 227

18

(2014) (“It is a ‘fundamental canon of statutory construction’ that, ‘unless otherwise defined,

words will be interpreted as taking their ordinary, contemporary, common meaning.’”) (citation

omitted); accord Bostock v. Clayton County, No. 17-1618, 2020 WL 3146686, at *14 (U.S. June

15, 2020). Under this straightforward reading of § 641(b)(1), a court may never enjoin the SBA,

regardless of the circumstances giving rise to the lawsuit.

However, the words in a statute “‘cannot be construed in a vacuum.’” Sturgeon v. Frost,

___ U.S. ___, 136 S. Ct. 1061, 1070 (2016) (citation omitted); see Gundy v. United States, ___

U.S. ___, 139 S. Ct. 2116, 2126-29 (2019) (rejecting defendant’s construction of statutory

language as divorced from the statute’s context and history). Relevant here, the doctrine of

ejusdem generis counsels that a general term contained in a statutory enumeration should be

construed to embrace only objects similar in nature to those objects enumerated by the specific

terms. See Epic Sys. Corp. v. Lewis, ___ U.S. ___, 138 S. Ct. 1612, 1625 (2018); Circuit City

Stores, Inc. v. Adams, 532 U.S. 105, 115 (2001); Sky Cable, LLC v. DIRECTV, Inc., 886 F.3d 375,

388 (4th Cir. 2018); ANTONIN SCALIA & BRYAN A. GARNER, READING LAW: THE INTERPRETATION

OF LEGAL TEXTS 199 (2012). Applying that canon to § 634(b)(1) cautions against reading

“injunction” more broadly than the company it keeps.

There are many species of injunction. Injunctions range in duration from the temporary to

the permanent. See, e.g., Fed. R. Civ. P. 65. They also vary in their effect. As noted, injunctions

can be prohibitory or mandatory. See Pashby, 709 F.3d at 320. The former maintains the status

quo by restraining a party from certain conduct; the latter compels a party to perform a specific

act. Compare Roe, 947 F.3d at 234 (affirming preliminary injunction barring the Air Force from

discharging HIV positive servicemembers), with Brown v. Plata, 563 U.S. 493 (2011) (affirming

judicial order requiring California to reduce its prison population). And, injunctions arise in

19

circumstances too numerous to count and thus are deployed to remedy vastly different harms. For

instance, an injunction directing a private party to perform on a contract is qualitatively different

from an injunction ordering the federal government to refrain from unconstitutional conduct.

Here, the term “injunction” is arguably narrowed by the other items listed in § 634(b)(1)—

“attachment” and “garnishment.” An “attachment” is the seizure of a person’s property to secure

a judgment. Attachment, BLACK’S LAW DICTIONARY (11th ed. 2019). And, a “garnishment” is a

judicial proceeding in which a creditor seeks a court order compelling a third party to turn over a

debtor’s assets. Garnishment, BLACK’S LAW DICTIONARY (11th ed. 2019). Thus, these actions,

both of which are forms of equitable relief, suggest that the term “injunction” in § 634(b)(1) should

be read to prohibit courts from interfering with the SBA’s commercial operations or property, but

not to bar all relief, such as where the SBA exceeds its statutory authority. The upshot is that the

text of § 634(b)(1) is amenable to more than one plausible reading.

The legislative history of § 634(b)(1) also points in both directions. On the one hand, the

legislative history of the Small Business Act provides no insight into the purpose of § 634(b)(1),

which supports the government’s argument that the text simply means what it says. See Ulstein,

833 F.2d at 1056. That said, the enactment history of identical “no injunction clauses” in analogous

statutes suggests that Congress did not intend § 634(b)(1) to confer blanket immunity on the SBA.

As other courts have recounted, the “no injunction” language found in § 634(b)(1) arose in the

wake of Federal Housing Administration v. Burr, 309 U.S. 242 (1940), in which the Supreme

Court held that a clause allowing the Federal Housing Authority to “sue and be sued” waived the

agency’s sovereign immunity to civil processes, such as garnishment actions. See Ulstein, 833

F.2d at 1056-57; Related Indus., 2 Cl. Ct. at 522. In response, Congress inserted “no injunction”

language in the enabling statutes of agencies that participate in commerce in order to preserve the

20

public fisc. See, e.g., 7 U.S.C. § 1506(d) (Federal Crop Insurance Corporation); 15 U.S.C. §

714b(c) (Commodity Credit Corporation); 42 U.S.C. § 3211(11) (Department of Commerce). This

context suggests that § 634(b)(1)’s purpose is to prevent creditors “from hindering and obstructing

agency operations through mechanisms such as attachment of funds,” not to immunize the SBA

from judicial review. Ulstein, 833 F.2d at 1056-57.

Given the two competing interpretations of § 634(b)(1), both sides urged the Court at the

hearing to consider the practical consequences of the statute’s scope. In plaintiff’s view, a broad

reading of § 634(b)(1) would lead to the absurd result of shielding the SBA from judicial review,

even when it exceeds its statutory authority or violates the Constitution. See Griffin v. Oceanic

Contractors, Inc., 458 U.S. 564, 575 973 (1982) (noting that interpretations that generate “absurd

results are to be avoided if alternative interpretations consistent with the legislative purpose are

available”). In the Government’s view, there is nothing absurd about sovereign immunity. And,

as the Government correctly observes, the Court may not blue pencil a statute; “such editorial

freedom . . . belongs to the Legislature, not the Judiciary.” Free Enter. Fund v. Pub. Co.

Accounting Oversight Bd., 561 U.S. 477, 510 (2010).

At this juncture, I need not conclusively decide whether § 634(b)(1) bars plaintiff’s request

for injunctive relief under the APA. See Am. Assoc. of Political Consultants v. U.S. Small Bus.

Admin., ___ F. Supp. 3d ___, 2020 WL 1935525, at *6 (D.D.C. April 21, 2020). At a minimum,

however, the specter of § 634(b)(1) casts doubt on plaintiff’s likelihood of success under the APA.

See id.

2. Whether the IFR Contravenes the CARES Act

Tradeways urges the Court to enjoin the SBA’s IFR, contending that the SBA lacks

statutory authority to exclude bankruptcy debtors from accessing the PPP. ECF 2-1 at 8-9.

21

Specifically, the Company argues that the CARES Act does not permit such a rule, and therefore

the IFR is “not . . . in accordance with law.” 5 U.S.C. § 706(2)(A).

Both sides agree that the Court should assess whether the SBA’s IFR accords with the

CARES Act under the framework established in Chevron v. U.S.A. Inc. v. Natural Resources

Defense Council, Inc., 467 U.S. 837 (1984), a two-prong test designed to determine whether an

agency “has stayed within the bounds of its statutory authority” when issuing an action. City of

Arlington v. FCC, 569 U.S. 290, 297 (2013) (emphasis omitted); see PETA v. U.S. Dep’t of Agric.,

861 F.3d 502, 506 (4th Cir. 2017); see also ECF 2-1 at 8-9; ECF 12 at 12-13. At the first step,

also referred to as Chevron Step One, the court applies ordinary tools of statutory construction to

determine “whether Congress has directly spoken to the precise question at issue.” Chevron, 467

U.S. at 842; see City of Arlington, 569 U.S. at 296. If so, and “the intent of Congress is clear, that

is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously

expressed intent of Congress.” Chevron, 467 U.S. at 842-43; see City of Arlington, 569 U.S. at

296.

If, however, “the statute is silent or ambiguous with respect to the specific issue,” then the

court proceeds to Chevron Step Two. Chevron, 467 U.S. at 843; City of Arlington, 569 U.S. at

296. Under Chevron Step Two, “the question for the court is whether the agency’s answer is based

on a permissible construction of the statute.” Chevron, 467 U.S. at 843; City of Arlington, 569

U.S. at 296. At this step in the Chevron analysis, the “reviewing court must respect the agency’s

construction of the statute so long as it is permissible.” FDA v. Brown & Williamson Tobacco

Corp., 529 U.S. 120, 132 (2000); see also Dada v. Mukasey, 554 U.S. 1, 29 n.1 (2008) (observing

that an “agency need not adopt . . . the best reading of the statute, but merely one that is

permissible”); United States v. Mead Corp., 533 U.S. 218, 227 (2001) (opining that at Chevron

22

Step Two, a regulation “is binding in the courts unless procedurally defective, arbitrary or

capricious in substance, or manifestly contrary to the statute”).

According to Tradeways, the CARES Act unambiguously conveys Congress’s intent to

allow entities to participate in the PPP regardless of bankruptcy debtor status. In this regard, the

Company observes that the CARES Act sets forth the exclusive eligibility criteria for the PPP.

Further, the Company maintains that the CARES Act’s express prohibition as to bankruptcy

debtors in the mid-size loan program reveals that Congress intended no such barrier to the PPP.

Neither contention is persuasive.

Plaintiff first contends that the CARES Act directly addresses the eligibility criteria to

participate in the PPP. In particular, the Company focuses on the language of the CARES Act

providing that “in addition to small business concerns, any business concern, nonprofit

organization, veterans organization, or Tribal business concern . . . shall be eligible to receive a

covered loan if” the borrower “employs not more than the greater of” either “500 employees” or

“the size standard in number of employees established by the Administration for the industry in

which the [borrower] operates.” 15 U.S.C. § 636(a)(36)(D)(i) (emphasis added). According to

Tradeways, the use of the term “any” establishes that an applicant is entitled to PPP funds so long

as it satisfies the two statutorily enumerated criteria in § 636(a)(36)(D)(i), i.e., business type and

size. In its view, the statute leaves no room for the SBA to establish other eligibility criteria.

Other courts have embraced this argument, reasoning that § 636(a)(36)(D)(i) serves to

preclude the existence of other eligibility criteria. See, e.g., DV Diamond Club of Flint, LLC v.

U.S. Small Bus. Admin., ___ F. Supp. 3d ___, 2020 WL 2315880, at *10 (E.D. Mich. May 11,

2020) (concluding that “the text of the PPP makes clear that every business concern meeting the

statutory criteria is eligible for a PPP loan during the covered period”). And, it is true that the term

23

“any” carries “an expansive meaning,’” which “ordinarily ‘refer[s] to a member of a particular

group or class without distinction or limitation’ and in this way ‘impl[ies] every member of the

class or group.’” SAS Inst., Inc. v. Iancu, ___ U.S. ___, 138 S. Ct. 1348, 1354 (2018) (alterations

in SAS Inst.) (citations omitted). But, in fixating on § 636(a)(36)(D)(i), Tradeways misses the

forest for the trees.

As the Supreme Court has instructed, when “making the threshold determination under

Chevron, ‘a reviewing court should not confine itself to examining a particular statutory provision

in isolation.’” Nat’l Ass’n of Home Builders v. Defs. of Wildlife, 551 U.S. 644, 666 (2007) (quoting

Brown & Williamson Tobacco Corp., 529 U.S. at 132). Rather, the court must “interpret the

statute as a symmetrical and coherent regulatory scheme, and fit, if possible, all parts into an

harmonious whole.” Brown & Williamson Tobacco Corp., 529 U.S. at 132 (internal quotation

marks and citations omitted).

Section 636(a)(36)(D)(i), when viewed in the overall statutory scheme, merely serves to

identify the types and size of organizations that are eligible to receive PPP funds. For starters,

other provisions of the CARES Act contemplate the existence of eligibility criteria beyond the

type of entity and number of employees. For instance, the CARES Act waives the requirement

applicable to most § 7(a) loans that a borrower demonstrate that it is unable to obtain credit

elsewhere. See 15 U.S.C. § 636(a)(36)(I) (waiving requirement for PPP); see, e.g., 15 U.S.C.

§ 636(m)(2)(E) (requiring a borrower under the SBA’s microloan program to show that it is

“unable to obtain credit elsewhere at comparable interest rates”). And, the CARES Act clarifies

that unless otherwise provided, “the Administrator may guarantee covered loans under the same

terms, conditions, and processes as a loan made under” the PPP. 15 U.S.C. § 636(a)(36)(B). Yet,

these provisions would be entirely superfluous if § 636(a)(36)(D)(i) eliminated all preexisting

24

eligibility criteria. Thus, plaintiff’s construction of § 636(a)(36)(D)(i) is untenable in light of the

broader structure of the CARES Act. See Diocese of Rochester v. U.S. Small Bus. Admin., ___ F.

Supp. 3d ___, 2020 WL 3071603, at *6-7 (W.D.N.Y. June 10, 2020) (rejecting the contention that

the text of § 636(a)(36)(D) precludes other eligibility criteria); accord Penobscot Valley Hosp. v.

Carranza, No. 19-10034, 2020 WL 3032939, at *8 (Bankr. D. Me. June 3, 2020); Schuessler v.

U.S. Small Bus. Admin., No. AP 20-02065-BHL, 2020 WL 2621186, at *2 (Bankr. E.D. Wis. May

22, 2020).

Furthermore, plaintiff’s reading of § 636(a)(36)(D)(i) puts the CARES Act on a collision

course with the Small Business Administration Act and longstanding SBA regulations. As noted,

Congress put the PPP in § 7(a) of the Small Business Act. And, § 7(a) requires the SBA to ensure

that loans “shall be of such sound value or so secured as reasonably to assure repayment.”

15 U.S.C. § 636(a)(6). Pursuant to that mandate, the SBA requires an applicant seeking a § 7(a)

loan to disclose on its application, Form 1919, whether the borrower or its affiliate has “ever filed

for bankruptcy protection.” ECF 12-1 (SBA Form 1919: “SBA 7(a) Borrower Information

Form”). By regulation, the requirements listed on Form 1919 comprise part of the “loan program

requirements.” 13 C.F.R. § 120.10.

In enacting the CARES Act, Congress was presumably aware of this regulatory scheme.

See Miss. ex rel. Hood v. AU Optronics Corp., 571 U.S. 161, 169 (2014) (observing that courts

“presume that ‘Congress is aware of existing law when it passes legislation’”) (citation omitted);

United States v. Wilson, 290 F.3d 347, 357 (D.C. Cir. 2002) (taking as a given that Congress is

“aware of established practices and authoritative interpretations of the coordinate branches”).

Therefore, had Congress intended the CARES Act to eliminate all eligibility criteria governing

SBA loans administered under § 7(a) of the Small Business Act, one would expect Congress to

25

have spoken clearly. See Whitman v. Am. Trucking Assns., Inc., 531 U.S. 457, 468 (2001)

(admonishing that Congress “does not . . . hide elephants in mouseholes”); see also Bostock, 2020

WL 3146686, at *17 (recognizing the vitality of the “no-elephants-in-mouseholes canon”).

Indeed, the CARES Act’s omission of any reference to bankruptcy in regard to the PPP militates

against reading § 636(a)(36)(D)(i) to abrogate, rather than preserve, § 7(a)’s command that the

SBA ensure its loans are financially sound. See Battle v. Ledford, 912 F.3d 708, 717 (4th Cir.

2019) (“It is a cardinal rule that ‘repeals by implication are not favored and will not be presumed

unless the intention of the legislature to repeal is clear and manifest.’”) (quoting Hui v. Castaneda,

559 U.S. 799, 810 (2010)).

Plaintiff’s reliance on the CARES Act provisions establishing a loan program for mid-size

businesses is equally unavailing. In the Company’s view, because the § 4003(b)(3)(D)(V) of the

CARES Act expressly precludes bankruptcy debtors from participating in the mid-size business

loan program but not the PPP, the SBA has no discretion to limit eligibility to the PPP based on

debtor status. See Russello v. United States, 464 U.S. 16, 23 (1983) (“Where Congress includes

particular language in one section of a statute but omits it in another section of the same Act, it is

generally presumed that Congress acts intentionally and purposely in the disparate inclusion or

exclusion.”) (citation and alteration omitted). But, as the D.C. Circuit has explained, when

interpreting a law governing agency action, such statutory silence “‘suggests not a prohibition but

simply a decision not to mandate any solution in the second context, i.e., to leave the question to

agency discretion.’” Catawba County v. EPA, 571 F.3d 20, 36 (D.C. Cir. 2009) (quoting Cheney

R. Co. v. ICC, 902 F.2d 66, 69 (D.C. Cir. 1990)). That guidance applies with extra force here,

where Congress chose to codify the PPP and the mid-size business loan program in separate

sections of the United States Code. See United States v. Granderson, 511 U.S. 39, 63 (1994)

26

(Kennedy, J., concurring) (explaining that the Russello presumption “loses some of its force when

the sections in question are dissimilar and scattered at distant points of a lengthy and complex

enactment”).

In sum, nothing in the CARES Act unambiguously addresses whether bankruptcy debtors

are eligible to participate in the PPP. See Diocese of Rochester, 2020 WL 3071603, at *6-7;

Penobscot Valley Hosp., 2020 WL 3032939, at *8; Schuessler, 2020 WL 2621186, at *2.

Therefore, I shall proceed to Chevron Step Two.

As noted, at the second step of the Chevron analysis a court asks whether the “agency’s

rule “is based on a permissible construction of the statute.” Chevron, 467 U.S. at 843. An agency’s

interpretation of a statute meets this standard “so long as the interpretation is not ‘arbitrary,

capricious, or manifestly contrary to the statute.’” Philip Morris USA, Inc. v. Vilsack, 736 F.3d

284, 290 (4th Cir. 2013) (quoting Chevron, 467 U.S. at 844). In addition, “[a] construction meets

this standard if it ‘represents a reasonable accommodation of conflicting policies that were

committed to the agency’s care by the statute.’” Philip Morris USA, 736 F.3d at 290 (quoting

Chevron, 467 U.S. at 845). The SBA’s decision easily surpasses the second step of the Chevron

analysis.

As the SBA’s IFR explains, the agency decided to exclude bankruptcy debtors or entities

owned by such debtors from the PPP based on its “determin[ation] that PPP loans to debtors in

bankruptcy would present an unacceptably high risk of an unauthorized use of funds or non-

repayment of unforgiven loans.” 85 Fed. Reg. at 2,3451. The SBA’s bankruptcy eligibility criteria

did not arise out of thin area. Rather, the SBA’s preexisting § 7(a) loan application asks a

prospective borrower to disclose whether it or an affiliate has filed for bankruptcy. ECF 12-1.

27

To be sure, an affirmative answer on the SBA’s preexisting form for a § 7(a) loan

application does not automatically render the applicant ineligible for a loan. See id. But, the

CARES Act was passed in the midst of an unprecedent global pandemic in order to stop the

nation’s economic tailspin. Time was of the essence. And, Congress clearly communicated the

urgency of the crisis to the SBA, giving it just 15 days to promulgate regulations to implement the

PPP. 15 U.S.C. § 9012. In response, the SBA chose to adopt a bright-line rule in order to expedite

the underwriting process and facilitate the hasty distribution of PPP funds, instead of issuing a

flexible standard that would require lenders to scrutinize each PPP application on a case-by-case

basis. See 85 Fed. Reg. 20,811 (noting that the “intent of the [CARES] Act is that SBA provide

relief to America’s small businesses expeditiously, which is expressed in the Act by giving all

lenders delegated authority and streamlining the requirements of the regular 7(a) loan program”);

see generally Louis Kaplow, Rules Versus Standards: An Economic Analysis, 42 DUKE L.J. 557

(1992).

The SBA could have prioritized accessibility over efficiency and thus decided to adopt a

totality-of-the-circumstances approach, instead of a bright line rule. Or, the agency could have

decided to exclude some bankruptcy debtors but not others from the PPP. But, the Court cannot

conclude that the SBA’s rule is an unreasonable interpretation of the priorities evinced in the

CARES Act. See Diocese of Rochester, 2020 WL 3071603, at *9; Penobscot Valley Hosp., 2020

WL 3032939, at *9.

Accordingly, I find that Tradeways is unlikely to establish that the SBA’s IFR exceeds the

SBA’s authority under the CARES Act.

28

3. Whether the IFR is Arbitrary and Capricious

Plaintiff posits that the Court should enjoin the SBA’s IFR on the basis that it is arbitrary

and capricious. 5 U.S.C. § 706(2)(A); see ECF 2-1 at 9-11. A rule is arbitrary and capricious if

(1) the agency “has relied on factors which Congress has not intended it to consider”; (2) the

agency “entirely failed to consider an important aspect of the problem”; (3) the agency’s

explanation “runs counter to the evidence before the agency”; or (4) the explanation “is so

implausible that it could not be ascribed to a difference in view or the product of agency expertise.”

Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983);

see also Appalachian Voices v. State Water Control Bd., 912 F.3d 746, 753 (4th Cir. 2019).

The APA holds federal agencies accountable to the public by requiring agencies to comply

with procedures before acting and by providing for judicial review after the fact. See Franklin v.

Massachusetts, 505 U.S. 788, 796 (1992). Under the APA, a court must “set aside” agency actions

that are “arbitrary” or “capricious.” 5 U.S.C. § 706(2)(A); see, e.g., Dep’t of Homeland Sec. v.

Regent of the Univ. of Calif., No. 18-587, 2020 WL 3271746 (U.S. June 18, 2020). “To survive

review under the arbitrary and capricious standard, an agency decision must show that the agency

examined ‘the relevant data and articulate[d] a satisfactory explanation for its action including a

‘rational connection between the facts found and the choice made.’” Appalachian Voices, 912

F.3d at 753 (quoting State Farm, 463 U.S. at 43). In short, the APA requires agencies to engage

in “‘reasoned decisionmaking.’” Michigan v. EPA, 576 U.S. 743, 750 (2015) (citation omitted).

The APA directs that “the court shall review the whole record or those parts of it cited by

a party.” 5 U.S.C. § 706(2). Ordinarily, this inquiry “is limited to evaluating the agency's

contemporaneous explanation in light of the existing administrative record.” Dep’t of Commerce

v. New York, ___ U.S. ___, 139 S. Ct. 2551, 2573 (2019); see Dep’t of Homeland Sec., 2020 WL

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3271746, at *9. Hence, “the focal point for judicial review” under the APA “should be the

administrative record already in existence, not some new record made initially in the reviewing

court.” Camp v. Pitts, 411 U.S. 138, 142 (1973) (per curiam).8

Review under the APA is highly deferential, and the agency action enjoys a presumption

of validity. Ohio Valley Envtl. Coal. v. Aracoma Coal Co., 556 F.3d 177, 192 (4th Cir. 2009).

Moreover, the court “is not to substitute its judgment for that of the agency.” State Farm, 463 U.S.

at 43; see also Dep’t of Commerce, 139 S. Ct. at 2569. Thus, so long as the agency “‘provide[s]

an explanation of its decision that includes a rational connection between the facts found and the

choice made,’ its decision should be sustained.” Perez v. Cissna, 914 F.3d 846, 855 (4th Cir. 2019)

(quoting Ohio Valley Envtl. Coal., 556 F.3d at 192); see also State Farm, 463 U.S. at 43, (noting

that a court must “uphold a decision of less than ideal clarity if the agency’s path may reasonably

be discerned”). That said, the arbitrary and capricious standard “‘does not reduce judicial review

to a rubber stamp of agency action.’” Ergon-W. Va., Inc. v. EPA, 896 F.3d 600, 609 (4th Cir.

2018) (citation omitted); Judulang v. Holder, 565 U.S. 42, 53 (2011) (observing that “courts retain

a role, and an important one, in ensuring that agencies have engaged in reasoned decisionmaking”).

For the reasons set out above, Tradeways is not likely to show that the SBA has acted in

an arbitrary and capricious manner. See Judulang, 565 U.S. at 52 n.7 (observing that Chevron step

two and arbitrary and capricious review is often “the same”). Notably, in its Motion, Tradeways

does not contend that the SBA relied on factors outside the scope of the CARES Act, failed to give

due weight to countervailing considerations, ignored conflicting data, or issued a facially

implausible rationale. State Farm, 463 U.S. at 753. Instead, the Company generally asserts that

8 For this reason, the Court does not rely on the Declaration of John A. Miller, Deputy

Associate Administrator for Capital Access at the SBA. ECF 12-4. He addresses the Company’s

APA claims.

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the SBA’s decision to exclude bankruptcy debtors is irrational because the PPP does not include a

creditworthiness requirement. See ECF 2-1 at 10-11; ECF 15 at 4. But, as discussed, what

Tradeways considers arbitrary agency action is simply the SBA filling in the gaps Congress left in

the CARES Act so that it could nimbly respond to a complex, rapidly-evolving crisis.

In conclusion, because the SBA’s rule is neither ultra vires nor arbitrary, plaintiff is

unlikely to succeed on its APA claims. It follows that its APA claims do not support the issuance

of a preliminary injunction.

B. Claim under 11 U.S.C. § 525

Separate from the APA, Tradeways contends that the government’s decision to exclude

bankruptcy debtors from the PPP violates the Bankruptcy Code’s antidiscrimination statute,

11 U.S.C. § 525(a). ECF 2-1 at 12. 9

Section 525(a) of the Bankruptcy Code provides, in relevant part, 11 U.S.C. § 525(a)

(emphasis added):

[A] governmental unit may not deny, revoke, suspend, or refuse to renew a license,

permit, charter, franchise, or other similar grant to . . . a person that is or has been

a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, or another

person with whom such bankrupt or debtor has been associated solely because such

bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor

under the Bankruptcy Act . . . .

The meaning of § 525(a) “is plain”: it “clearly specifies that its protections extend to

‘licenses, permits, charters, [and] franchises,’ and to grants ‘similar’ to those items.” Ayes v. U.S.

Dep’t of Vet. Affairs, 473 F.3d 104, 108 (4th Cir. 2006) (alteration in Ayes). Therefore, establishing

9 In contrast to Tradeways’s APA claims, there is no dispute that sovereign immunity poses

no obstacle to plaintiff’s discrimination claim arising under the Bankruptcy Code. Section

106(a)(1) of the Bankruptcy Code provides that “sovereign immunity is abrogated as to a

governmental unit . . . with respect to” claims asserting violations of 11 U.S.C. § 525. See

11 U.S.C. § 106(a)(1).

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a violation of § 525(a) is straightforward. The plaintiff “must show that (1) the [defendant] is a

governmental unit, (2) the [denied property interest] is an item covered by the statute, and (3) the

[defendant] discriminated against [the plaintiff] solely because of [the plaintiff’s or its associate’s]

discharges in bankruptcy.” Id. at 107; see Stoltz v. Brattleboro Hous. Auth., 315 F.3d 80 (2d Cir.

2002) (holding public housing lease fell within § 525(a)); Toth v. Mich. State Hous. Dev. Auth.,

136 F.3d 477 (6th Cir. 1998) (holding § 525(a) did not cover the denial of a public home

improvement loan); Watts v. Pa. Hous. Fin. Co., 876 F.2d 1090 (3d Cir. 1989) (holding public

home loan did not implicate § 525(a)); In re Exquisito Servs., Inc., 823 F.2d 151 (5th Cir. 1987)

(holding § 525(a) applied to SBA program).

The parties do not dispute that the SBA is a government unit, or that the Company’s PPP

application was denied because of Mr. Gorski’s status as a bankruptcy debtor. Thus, Tradeways’s

discrimination claim hinges on whether § 525(a) extends to the PPP. According to Tradeways, it

is likely to prevail on its discrimination claim because the PPP “is in essence a grant program.”

ECF 2-1 at 11. In response, the Government argues that the PPP is a loan, not a grant, and certainly

not a grant “similar” to a government-provided license, permit, charter, or franchise. ECF 12 at

18-22. I agree with the Government.

To start, the Company’s effort to dress up the PPP as a grant runs head long into the plain

language of the CARES Act. The text of the CARES Act specifies that proceeds disbursed under

the PPP are loans, not grants. The CARES Act clarifies that “a loan made under this paragraph”

is a “covered loan” and that an “eligible recipient” is an “individual or entity that is eligible to

receive a covered loan.” 15 U.S.C. § 636(a)(36)(A)(ii), (iv). In a section titled “Paycheck

Protection Loans,” the CARES Act authorizes the Administrator to “guarantee covered loans”

issued pursuant to the PPP. Id. § 636(a)(36)(B). When PPP proceeds are disbursed, the CARES

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Act directs the Administrator to “register the loan” no less than “15 days after the date on which a

loan is made . . . .” Id. § 636(a)(36)(C). The section that addresses the amount of PPP funds that

a borrower can receive is titled “Maximum loan amount.” Id. § 636(a)(36)(E). And, the CARES

Act specifies that “lenders” who approve “loans under this subsection” are exercising the

Administrator’s authority to “make and approve covered loans.” Id. § 636(a)(F)(ii)(l).

In total, the word “loan” appears some 75 times in the CARES Act provisions establishing

the PPP. The takeaway is clear: the $659 billion disbursed to borrowers through the PPP are loans,

not grants.

If more evidence were needed to confirm that the PPP is a loan, one need only look to

statutory context. The canons of statutory interpretation teach that “‘the words of a statute must

be read in their context and with a view to their place in the overall statutory scheme.’” Gundy,

139 S. Ct. at 2126 (citation omitted). In establishing the PPP, Congress did not create a new

subchapter of Title 15, as it did for the loan program for mid-size businesses. See 15 U.S.C.

§ 9042. Instead, the CARES Act added the PPP as a subsection to 15 U.S.C. § 636(a). This is

significant because 15 U.S.C. § 636(a) concerns the Administrator’s authority to “to make loans

to any qualified small business concern,” either directly or through a lender on a guaranteed basis.

In addition to the PPP, § 636 sets out the statutory scheme for disaster loans, 15 U.S.C. § 636(b);

loans for handicapped persons, id. § 636(h); loans for small businesses in low income areas, id.

§ 636(j); and microloans, id. § 636(m). Thus, the location of the PPP in the United States Code

fortifies the conclusion that the PPP is a loan program.

Tradeways resists this conclusion. In its view, the PPP funds are better understood as

grants because, in light of the program’s generous forgiveness terms, the PPP amounts, in effect,

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to “free money.” But, the fact that PPP proceeds are forgivable does not make the money an

outright gift.

For one thing, an amount borrowed under the PPP is not invariably forgiven. 15 U.S.C.

§ 9005(b). For instance, the CARES Act provides that the amount of loan forgiveness is reduced

if the borrower decreases any employee’s salary by more than 25 percent during the covered

period. Id. § 9005(d)(3)(A). The CARES Act also provides that in order to be eligible for

forgiveness, the borrower must spend at least 60 percent of the loan amount towards payroll costs.

Id. § 9005(d)(8). And, significantly, the SBA requires borrowers who receive PPP funds to sign a

promissory note. See 85 Fed. Reg. 23,450-51; SBA Form 147.

Moreover, the possibility of forgiveness is unremarkable. Many federal loan programs

allow some or all of the amount borrowed to be forgiven, depending on the circumstances. See,

e.g., 20 U.S.C. § 1087e(m)(1) (Public Service Loan Forgiveness Program); 20 U.S.C. § 1087j(b)

(Teacher Loan Forgiveness Program). Thus, as other courts have concluded, the mere existence

of favorable forgiveness terms in the CARES Act does not transform a PPP loan into a grant. See,

e.g., Diocese of Rochester, 2020 WL 3071603, at *10; Penobscot Valley Hosp., 2020 WL

3032939, at *15; Schuessler, 2020 WL 2621186, at *2. But see In re Roman Cath. Church of

Archdiocese of Santa Fe, ___ B.R. ___, 2020 WL 2096113, at *4 (Bankr. D. N.M. May 1, 2020).

The conclusion that the PPP is a loan program is fatal to Tradeways’s claim arising under

11 U.S.C. § 525(a). Section 525(a) carefully delineates those various property interests that it

reaches, including licenses, permits, charters, and franchises. Loans are conspicuously absent from

that list.

It is true that § 525(a)’s list includes the generic term “similar grant.” However, the

negative implication canon of expressio unius est exclusio alterius—“the expression of one thing

34

is the exclusion of another”—counsels against reading § 525(a) to encompass loans. See Me.

Cmty. Health Options v. United States, ___ U.S. ___, 140 S. Ct. 1308, 1323 (2020); Loughrin v.

United States, 573 U.S. 351, 358 (2014); SCALIA & GARNER, supra, at 107-11. That is especially

so where § 525(c) expressly prohibits discrimination based on bankruptcy status with respect to

student loan programs. See Ayes, 473 F.3d at 110-11 (reasoning that the expressio unius maxim

applies with “great force” to § 525(a), (c)). Given that 11 U.S.C. § 525(a) does not extend to loans,

it follows that it does not prohibit the SBA from rendering bankruptcy debtors ineligible from the

PPP.

Nonetheless, assuming, arguendo, that PPP funds are really grants masquerading as loans,

the PPP still does not fall within the ambit of § 525(a). That is so because even if PPP proceeds

are characterized as a grant, it is not a grant “similar” to a “license, permit, charter, franchise”

issued by the government. 11 U.S.C. § 525(a).

The case of Ayes v. U.S. Department of Veterans Affairs, 473 F.3d 104 (4th Cir. 2006), is

instructive. In Ayes, the plaintiffs, a group of veterans, sued the Department of Veterans Affairs

(the “VA”), alleging that the VA’s refusal to restore their veteran home-loan guaranty entitlements

solely because of their discharge from bankruptcy violated 11 U.S.C. § 525(a). Id. at 105. The

Fourth Circuit agreed that the VA guaranty entitlement was a grant, but it concluded that it was

not “similar” to the items listed in § 525(a). Id. at 108, 111.

In construing the term “grant,” the Court explained that “the use of the word ‘similar’ limits

the universe of ‘grants’ to which § 525(a) applies, ensuring that only grants bearing a family

resemblance to licenses, permits, charters, and franchises enjoy the anti-discrimination protections

of the Bankruptcy Code.” Id. at 108. According to the Court, “[l]icenses, permits, charters, and

franchises are all governmental authorizations that typically permit an individual to pursue some

35

occupation or endeavor aimed at economic betterment.” Id. at 108. That is, these interests

“‘implicate ‘government’s role as a gatekeeper in determining who may pursue certain

livelihoods.’” Id. at 109 (quoting Toth, 136 F.3d at 480). For example, a government entity’s

refusal to issue “a commercial real estate license to a bankrupt individual completely forecloses

that individual from legally pursuing a career as a commercial realtor.” Id.

Viewed from this vantage point, the Court concluded that “the veteran guaranty entitlement

bears no such resemblance to the items listed in § 525(a).” Id. at 108. Unlike a real estate license,

the VA’s home-loan program “does not implicate the government’s gate-keeping role in

determining who may pursue certain livelihoods because . . . a person can obtain a home loan or

guaranty from the private sector.” Id. at 109. As the Court pointed out, an individual denied a

government-guaranteed home loan “is not doomed to homelessness; he may seek a guaranty from

family or friends, may seek another private loan, perhaps on less favorable terms, or he may rent.”

Id. Therefore, because “governmental units do not exercise exclusive or even pervasive control

over the ‘world’ of home loans,” the Court held that a VA home-loan guaranty was “not an ‘other

similar grant’ within the meaning of § 525(a).” Id. at 109, 111.

The same reasoning applies here. Unlike the denial of a medical license or a building

permit, the rejection of a borrower’s PPP application does not “completely foreclose[]” the

borrower “from legally pursuing a career.” Ayes, 473 F.3d at 109. To the contrary, the borrower

remains uninhibited to conduct business. And, like the VA home-loan guaranty, the PPP is not

the only source of capital; Tradeways could, for example, seek a traditional loan from a bank.

Indeed, defendants hardly “exercise exclusive or even pervasive control over the ‘world’” of small

business loans. Id.

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In sum, Ayes compels the conclusion that even were the PPP characterized as a grant, it

does not implicate § 525(a). See, e.g., Diocese of Rochester, 2020 WL 3071603, at *10;

Schuessler, 2020 WL 2621186, at *9. Accordingly, because 11 U.S.C. § 525(a) does not apply to

the PPP, Tradeways cannot show that the SBA’s IFR violates the Bankruptcy Code’s

antidiscrimination provision.

IV. Conclusion

The Court acknowledges plaintiff’s understandable frustration and disappointment due to

its inability to benefit from the PPP. But, for the reasons stated above, I must conclude that

Tradeways cannot demonstrate a likelihood of success on the merits. Therefore, I shall deny

plaintiff’s Motion (ECF 2).

An Order follows, consistent with this Memorandum Opinion.

Date: June 24, 2020 /s/

Ellen Lipton Hollander

United States District Judge

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