Opinion

Court: United States Bankruptcy Court, D. Puerto Rico
Filed: Jul 24, 2020
Cited by: 0 cases
Authority: More cited than 41.3%

The opinion

IN THE UNITED STATES BANKRUPTCY COURT FOR

THE DISTRICT OF PUERTO RICO

IN RE: CASE NO. 19-01789-EAG11

ORGANIC POWER LLC, Chapter 11

Debtor.

__________________________________________________

ORGANIC POWER LLC, ADV. PROC. NO. 20-00055

Plaintiff,

SMALL BUSINESS ADMINISTRATION and FILED & ENTERED ON 7/24/2020

JOVITA CARRANZA, as Administrator of

the Small Business Administration,

Defendants.

OPINION AND ORDER

On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and

Economic Security Act, calling it “the single-biggest economic relief package in American

history . . . .” H.R. 748, Pub. L. 116-136 (2020) (“CARES Act”). Title I of the CARES Act created

the Paycheck Protection Program (“PPP”), which provided for “$350 billion in loans for small

business, but it’s structured in a way to incentivize them to keep their workers on payroll so

Remarks by President Trump at Signing of H.R. 748 (https://www.whitehouse.gov/briefings-

that those loans could be forgiven at end of the [covered payroll] period.” Those monies

were exhausted in less than one month, so Congress appropriated an additional $310 billion:

raising the total amount appropriated for the PPP to $659 billion. H.R. 266, Pub. L. 116-139

(2020).

Although the dollar amount appropriated for the PPP is historic, it pales in

comparison to the enormity of the economic damage inflicted by the Covid-19 pandemic on

the U.S. economy.

To push quickly out the door this huge amount of money to eligible small businesses,

Congress placed the PPP within the existing section 7(a) loan program of the Small Business

Act. 15 U.S.C § 636(a). On April 2, 2020, the Small Business Administration (“SBA”) released

the PPP application form. SBA Form 2843. The form asks whether the PPP applicant is

“involved in any bankruptcy.” If the applicant answers yes, the loan will not be approved

according to the application form. On April 15, 2020, the SBA posted in the Federal Register

its first interim final rule on the PPP, which does not itself make ineligible debtors but

mentions that applicants need to submit Form 2843 in order to apply for the PPP. 85 Fed. R.

20811, Art. III § 2(q).

Remarks by Labor Secretary Scalia at Signing of H.R. 748

(https://www.whitehouse.gov/briefings-statements/remarks-president-trump-signing-h-r-748-

c3 ares-act/). The exact dollar amount appropriated in the Cares Act for the PPP was $349 billion.

For example, compare the $659 billion appropriated so far for the PPP to the $55 .6 billion in 2019

for the Supplemental Nutrition Assistance Program (SNAP). See,

https://www.fns.usda.gov/pd/supplemental-nutrition-assistance-program-snap.

The Congressional Budget Office “projects that over the 2020–2030 period, cumulative nominal

output will be $15.7 trillion less than what the agency projected in January [2020]” because of the

On April 14, 2020, Organic Power LLC submitted a PPP application to Banco Popular

de Puerto Rico. Banco Popular denied the application on April 24, 2020 because Organic

Power is in bankruptcy. On April 24, 2020, Oriental Bank likewise denied a separate PPP

application submitted by Organic Power.

On April 27, 2020, Organic Power filed an adversary complaint and application for

temporary restraining order and preliminary injunction against Jovita Carranza, in her

capacity as Administrator of the SBA. The complaint and the temporary-restraining-order

application requests that the court declare that the SBA’s decision to exclude bankruptcy

applicants from the PPP discriminates against Organic Power in violation of section 525(a)

of the Bankruptcy Codeand is beyond the SBA’s statutory and regulatory authority under

section 706(2)(C) of the Administrative Procedures Act (“APA”). 5 U.S.C. §706(2)(C). In the

alternative, Organic Power asserts that the bankruptcy exclusion is arbitrary and capricious

under section 706(2)(A) of the APA. 5 U.S.C. § 706(2)(A).

On April 28, 2020, the SBA posted in the Federal Register its fourth interim final rule

providing further guidance on requirements for PPP eligibility. 85 Fed. R. 23450. The fourth

interim final rule expressly states that businesses in bankruptcy are not eligible to apply for

the PPP. Id. at Art. III § 4.

On May 8, 2020, the court issued a temporary restraining order against the SBA. Now,

for the reasons set forth below, the court directs the entry of final judgment on the section

525(a) claim against the SBA, but denies the requests for preliminary and permanent

injunctions. Because both parties agree that the claims under sections 706(2)(A) and (C) of

Unless otherwise indicated, the terms “Bankruptcy Code,” “section” and “§” refer to title 11 of th e

the APA are non-core matters, the court leaves (as explained below) those matters for

anoIt.h er daJyU. R ISDICTION

This court has jurisdiction over the subject matter and the parties pursuant to 28

U.S.C. §§ 1334 and 157(a), Local Civil Rule 83K(a), and the General Order of Referral of Title

11 Proceedings to the United States Bankruptcy Court for the District of Puerto Rico dated

July 19, 1984 (Torruella, C.J.). The section 525 claim is a core proceeding under 28 U.S.C. §

157I(Ib. ) ovePrR wOhCicEhD tUhRe AcoLu BrtA cCaKnG eRnOteUr Na Dfi n al judgment.

On April 1, 2019, Organic Power filed a petition for relief under chapter 11 of the

Bankruptcy Code. [Bankr. Dkt. No. 1.]

On April 27, 2020, Organic Power commenced the adversary proceeding of caption.

[Bankr. Dkt. No. 195; Adv. Dkt. Nos. 1, 4 & 5.]

On April 28, 2020, the court entered an order for the SBA to show cause why the

application for temporary restraining order should not be granted at a hearing scheduled for

May 6, 2020. [Adv. Dkt. No. 10.]

On May 4, 2020, the SBA filed a memorandum in opposition to the application for

temporary restraining order and injunctive relief. [Adv. Dkt. No. 19.] On May 5, 2020, Organic

Power filed a reply. [Adv. Dkt. No. 22]

On May 6, 2020, the court held the hearing on the temporary restraining order and

took the matter under advisement. [Adv. Dkt. No. 27.] The court granted Organic Power 24

hours to submit a sworn statement in support of its request for injunctive relief and 24 hours

thereafter for the SBA to reply. [Id.] The court also set a status conference for May 19, 2020.

[Id.]

As ordered, on May 6, 2020, Organic Power filed a supplemental unsworn declaration,

and on May 7, 2020 the SBA replied. [Adv. Dkt. Nos. 23 & 25.]

On May 8, 2020, the court issued a temporary restraining order against the SBA. [Adv.

Dkt. No. 29.]

On May 19, 2020, Organic Power filed a motion informing that Banco Popular

“granted” its PPP application and disbursed to it $129,500. [Adv. Dkt. No. 33.]

On May 19, 2020, the court held a status conference where it consolidated the

application for preliminary injunction with the trial on the merits and set the trial for June

22, 2010. [Adv. Dkt. No. 34.] A schedule was also established to govern the pretrial

preparation. [Id.] The pretrial conference was set for June 19, 2020. [Adv. Dkt. No. 37.] And

the temporary restraining order was extended until June 23, 2020. [Adv. Dkt. No. 34.]

On May 21, 2020, Organic Power filed a motion informing it had opened a special

debtor-in-possession bank account for the PPP money. [Adv. Dkt. No. 38.] On that same day,

Organic Power filed a motion requesting disbursement of the PPP money. [Adv. Dkt. No. 39.]

On May 29, 2020, the SBA filed a motion to inform that it had agreed with Organic

Power to extend the deadline to respond to the complaint to June 8, 2020. [Adv. Dkt. No. 43.]

On June 8, 2020, the SBA moved the court to dismiss the case. [Adv. Dkt. No. 44.] On June 12,

2020, the court granted Organic Power’s motion requesting approval to disburse the PPP

money. [Adv. Dkt. No. 48.]

On June 12, 2020, Organic Power opposed the SBA’s dismissal request. [Adv. Dkt. No.

The SBA and Organic Power filed their supplemental memoranda of law on June 15

and 16, 2020, respectively. [Adv. Dkt. Nos. 56 & 57.]

On June 18, 2020, in compliance with the pretrial order: the SBA filed a motion

informing its trial exhibits [Adv. Dkt. No. 59], Organic Power filed its reply to the SBA’s

supplemental memorandum [Adv. Dkt. No. 60], Organic Power and the SBA filed a joint pre-

trial report [Adv. Dkt. No. 61], and Organic Power filed a motion informing its trial exhibits.

[Adv. Dkt. No. 62.]

On June 19, 2020, Organic Power filed a second unsworn statement by its president

in support of its request for injunctive relief. [Adv. Dkt. No. 63.]

At the pretrial hearing held on June 19, 2020, the court granted the SBA until June 24,

2020 to submit another supplemental brief and Organic Power until June 26, 2020 to reply.

[Adv. Dkt. No. 65.] The court continued the trial to June 29, 2020 and extended the

temporary restraining order until June 30, 2020. [Id.]

On June 24, 2020, the SBA filed its supplemental memorandum. [Adv. Dkt. No. 66.] On

June 26, 2020, Organic Power filed its opposition. [Adv. Dkt. No. 69.]

On June 26, 2020, Organic Power filed its first motion informing the use of the PPP

money as of that date. [Adv. Dkt. No. 70.]

The trial was held on June 29, 2020. [ Adv. Dkt. No. 72.] And the court again extended

the temporary restraining order until it reached a decision on the merits of the case. [Adv.

Dkt. Nos. 72 & 76.]

On July 3, 2020, Organic Power filed a second motion informing its use of the PPP

money as of that date. [Adv. Dkt. No. 74.] On July 10, 2020, Organic Power filed a third motion

Organic Power filed a fourth motion informing its use of the PPP money as of that date. [Adv.

Dkt. No. 78.] On July 24, 2020, Organic Power filed a fifth motion informing its use of the PPP

monIIeIy. as oUf NthCaOt NdTatEeS. T[AEdDv .F DAkCtT. NS o . 79.]

The following facts are uncontested as found in the record of this case and the

stipulated facts submitted by the parties in their pretrial report filed at docket number 61:

Organic Power is in business to recycle organic waste into animal feed and natural

gas to generate electricity. [Adv. Dkt. No. 61, p. 3, ¶ 10.] However, it currently generates

electricity with propane gas. [Id.] Organic Power’s income comes primarily from its clients

that generate organic waste and purchase its electricity and animal feed. [Id.]

On April 1, 2019, Organic Power filed a petition for relief under chapter 11 of the

Bankruptcy Code. [Bankr. Dkt. No. 1.] On March 12, 2020, the Governor of Puerto Rico issued

an Executive Order imposing a drastic lockdown of non-essential businesses and a

mandatory curfew on the people of Puerto Rico. [Adv. Dkt. No. 72, Exhibit 16.]

On or about March 27, 2020, Congress enacted and the President signed into law the

CARES Act. [Adv. Dkt. No. 61, p. 3, ¶ 11.] Section 1102 of the CARES Act establishes the PPP

under § 7(a) of the Small Business Act, codified in 15 U.S.C § 636(a)(36). [Adv. Dkt. No. 61, p.

3, ¶ 12.] It provides than an eligible applicant may obtain PPP money to cover payroll

expenses, employee salaries, mortgage payments, rent, and utilities. [CARES Act, § 1102

(d)(1)(A).] A party may submit a PPP application to any federally-insured lender

participating in the SBA section 7(a) loan program or to any other SBA-approved lender.

[Adv. Dkt. No. 61, p. 3, ¶ 12.]

On April 2, 2020, the SBA posted the first interim final rule on its website while

pending publication in the Federal Register. [Adv. Dkt. No. 61, p. 4, ¶ 13.] On April 15, 2020,

the first interim final rule was published in the Federal Register. [Id.] Congress initially

“provided the SBA with $349 billion” for the PPP. [Adv. Dkt. No. 72, Exhibit E, p. 3.] PPP

applications are approved on a “first-come, first-serve[ ]” basis. [Id. at 4]

On or about April 2, 2020, the SBA released the application form for the PPP: SBA

Form 2483 - Paycheck Protection Program Borrower Application Form. [Adv. Dkt. No. 61, p.

4, ¶ 14.] The PPP application form asks whether “the Applicant . . . [is] presently involved in

any bankruptcy.” [Adv. Dkt. No. 72, Exhibit D.] The application form states: "If [this] question

below [is] answered ‘Yes,’ the loan will not be approved.” [Id.]

On April 14, 2020 Organic Power submitted a PPP application to Banco Popular de

Puerto Rico. [Adv. Dkt. No. 61, p. 3, ¶ 8; Adv. Dkt. No. 72, Exhibit 7, ¶15.] Banco Popular

denied the application on April 24, 2020 because Organic Power is in bankruptcy. [Adv. Dkt.

No. 61, p. 3, ¶ 8-9; Adv. Dkt. No. 72, Exhibit 7, ¶16.] On April 24, 2020, Oriental Bank likewise

denied a separate PPP application submitted by Organic Power. [Adv. Dkt. No. 61, p. 4, ¶ 9;

Adv. Dkt. No. 72, Exhibit 7, ¶¶17-18.]

On April 24, 2020 the President signed into law the “PPP and Health Care

Enhancement Act” which appropriated an additional $310 billion for the PPP. [H.R. 766, Pub.

L. 116-136 (2020).]

Also on April 24, 2020, the SBA issued its fourth interim final rule for the PPP. [Adv.

Dkt. No. 72, Exhibit F.] The fourth interim final rule was published in the Federal Register on

April 28, 2020 and reads: “[i]f the applicant or the owner of the applicant is the debtor in a

loan is disbursed, the applicant is ineligible to receive a PPP loan.” [Id. at p. 2] The rule further

states that the SBA “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.” [Id.]

On May 8, 2020, the court issued the temporary restraining order against the SBA.

[Adv. Dkt. No. 29.] Subsequently, the SBA approved and Banco Popular disbursed a PPP loan

to OIrVg.a nic APPowPLeIrC iAn BthLeE aLmAoWu nAtN oDf $D1I2S9C,U5S0S0I. O [NA dv. Dkt. No. 33.]

a. Sovereign Immunity

Section 634(b)(1) of the Small Business Act precludes the issuance of an “attachment,

injunction, garnishment, or other similar process . . .” against the SBA. 15 U.S.C. §634(b)(1).

In the temporary restraining order of May 8, 2020, the court examined and rejected the SBA’s

claim to sovereign immunity under section 634(b)(1) of the Act. Because the facts relevant

to the request for injunctive relief have evolved since the entry of the temporary restraining

order, there no longer is any need to further extend the temporary order or make it

permanent. As a result, both the controversy over sovereign immunity and the request for

permanent injunctive relief are moot.

After the entry of the temporary restraining order: Organic Power resubmitted its

PPP application to Banco Popular, the SBA approved the application, Banco Popular

disbursed $129,500 in PPP money to Organic Power, Organic Power deposited that money

into a special DIP account, and all but the $11,302.04 still in the bank (and protected by the

automatic stay) was spent by Organic Power on expenses which qualify for PPP loan

apply for PPP loan forgiveness and for the SBA to process that application based on the ruling

in this opinion and order. Given the SBA’s record of compliance with court orders in this

case, the court has no doubt that the SBA will abide by this opinion and order and ensuring

judgment ubn. leSses citt iiosn s t5a2y5ed(a o)r v oivoelarttuiornne d on appeal.

Because of the temporary restraining order: Organic Power resubmitted its PPP

application; the SBA approved it; Banco Popular disbursed $129,500 to Organic Power; as of

July 24, 2020, Organic Power spent $118,197.96 of it on expenses that qualify for PPP loan

forgiveness; and Organic Power remains obligated to likewise spend what is left. At this

time the main point of contention is whether the $129,500 already disbursed to Organic

Power and mostly spent will have to be repaid. The SBA’s position is that Organic Power was

not eligible at the start to participate in the PPP and, thus, the PPP money it got is not eligible

for forgiveness even though it was spent on forgiveness-qualified expenses. The court finds

that both the SBA’s initial determination excluding Organic Power from the PPP because it is

“involved” in bankruptcy and any subsequent action by the SBA to deny it loan forgiveness

for the same reason violates the anti-discrimination provision of section 525(a).

This issue has been heavily litigated around the country, and courts are split on it.

See, In re Springfield Hosp., Inc., 2020 WL 3422335, at *8-10 (Bankr. D. Vt. June 22, 2020)

(holding SBA violated section 525(a) after analyzing 34 divergent court decisions on same

issue).

The anti-discrimination provision of the Bankruptcy Code, section 525(a), provides

that:

a governmental unit may not deny, revoke, suspend, or refuse to renew a

license, permit, charter, franchise, or other similar grant to, condition such a

grant to, discriminate with respect to such a grant against . . . a person that is

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

Bankruptcy Act . . . .

11 U.S.C. § 525(a).

We first address whether the PPP should be treated under section 525(a) as a loan or

grant program.

The SBA invites the court to examine how Congress consistently characterizes PPP

money as loans throughout the CARES Act and later in the PPP Flexibility Act. [H.R. 7010,

Pub. L. 116-142 (2020).] It further argues that Congress in the CARES Act placed the PPP

under section 7(a) of the Small Business Act, which is the SBA’s primary loan program. It

also points out that the PPP has the hallmarks of a loan: a promissory note, an interest rate,

a maturity date, amortization terms and conditions, and an obligation to repay the loan

unless it is forgiven. And the SBA asserts that the courts of appeal in all of the circuits have

rejected, in pre-Covid-19 cases, section 525(a) claims based on the denial of government-

loan applications.

But after considering many judicial opinions on both sides of this controversy handed

down after this court’s temporary restraining order of May 8, 2020, the court remains of the

opinion that that the PPP should be treated as a grant program for purposes of section

525(a). As the bankruptcy court in New Mexico explained:

While a borrower's bankruptcy status clearly is relevant for a normal loan

program, the PPP is the opposite of that. It is not a loan program at all. It is a

grant or support program. The statute’s eligibility requirements do not include

creditworthiness. Quite the contrary, the CARES Act makes PPP money

available regardless of financial distress. Financial distress is presumed. Given

the effect of the lockdown, many, perhaps most, applicants would not be able

grants. Repayment is not a significant part of the program. That is why

Congress did not include creditworthiness as a requirement.

In re Roman Catholic Church of Archdiocese of Santa Fe, 615 B.R. 644, 654 (Bankr. D. N.M.

2020), appeal docketed, No. 20-00473 (D. N.M. May 18, 2020).

The characterization of Labor Secretary Scalia at the signing of the PPP as “loans for

small business, but [ ] structured in a way . . . so that those loans could be forgiven . . .” aptly

describes the program. Congress designed, and expected, that PPP loans would be forgiven.

The $659 billion appropriated by Congress is not for the PPP loans themselves. The source

of the loans is the private capital of the participating banks. The $659 billion was

appropriated mainly for the SBA—not the borrowers—to pay back the banks for the loans

forgiven. Admittedly the $659 billion was, in part, appropriated to also cover the guarantee

feature of the PPP for loans both not forgiven and then not repaid by the recipient to the

bank. But the court agrees with the conclusion of the bankruptcy court in New Mexico, after

analyzing the PPP, that “[r]epayment is not a significant part of the program.” Archdiocese

of Santa Fe, 615 B.R. at 654. Indeed it cannot be. An attempt to collect even a fraction of the

4,907,655 PPP loans made to distressed small business would be an act of folly.

See, footnote 2 (emphasis added).

After the Archdiocese of Santa Fe decision, the SBA made PPP loans more easily forgiven by

establishing a safe-harbor for loans under $2 million: “Any borrower that, together with its

affiliates, received PPP loans with an original principal amount of less than $2 million will be

deemed to have made the required certification concerning the necessity of the loan request in

good faith.” (Footnote omitted.) Paycheck Protection Program Frequently Asked Questions (FAQs)

as of June 25, 2020, Question 46: https://www.sba.gov/document/support--faq-lenders-

borrowers?fbclid=IwAR0grGa9wseRQD-4VEWr7mqcSga2ITyk52EJV-FPwOA3cy4aiCU4d8x7ud8.

SBA’s Paycheck Protection Program (PPP) Report: Approvals through 7/10/2020,

https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&cad=rja&uact=8&ved=2a

hUKEwjw_czDrdzqAhVfknIEHRsCCmoQFjAFegQIBRAB&url=https%3A%2F%2Fhome.treasury.gov

% 2Fsystem%2Ffiles%2F136%2FSBA-Paycheck-Protection-Program-Loan-Report-

The SBA makes much of the fact that Congress “placed” the PPP within the SBA’s

section 7(a) loan program. A few raw numbers help put this fact in perspective. In 2019,

the SBA guaranteed a total of almost $21 billion in section 7(a) loans to 47,104 borrowers.

The average yearly totals from 2015 to 2019, inclusive, are $21,863,715,568.60 in SBA loan

guarantees to 54,506 borrowers. It is important to keep in mind that these non-PPP,

section 7(a) loans were not structured to be forgiven. And Federal dollars go out to the

issuing banks only if and when borrowers default and efforts to collect are unsuccessful. In

sharp contract: PPP loans are structured to be forgiven; Congress appropriated $659 billion

for the program; and--in the less than four months since the President signed into law the

PPP to July 10, 2020--the SBA approved $517,417,286,175 in PPP loans to 4,907,655 small

business. Thus, the court is not convinced by the argument that Congress intended the tail

to wag the dog here.

We address now the argument that even if the PPP is a grant, it is not a grant “similar”

to a license, permit, charter, or franchise protected by section 525(a).

The SBA cites to case law, mostly decided prior to the Covid-19 pandemic, narrowly

construing the “other similar grant” language of section 525(a). For example, in Ayes v. U.S.

Dep't of Veterans Affairs, 473 F.3d 104 (4th Cir. 2006), the court of appeals held that a state’s

refusal to extend a home loan guarantee to veterans after a bankruptcy discharge did not

violate section 525(a). The Ayes court reasoned that a home loan guarantee bore no “family

resemblance” to the items listed in section 525(a), which are “are all governmental

SBA Lending Statistics for Major Programs as of 8-16-2019:

https://www.sba.gov/sites/default/files/aboutsbaarticle/WebsiteReport_asof_20190830.pdf

authorizations that typically permit an individual to pursue some occupation or endeavor

aimed at economic betterment.” Ayes, 473 F.3d at 108; see also, Watts v. Pennsylvania Hous.

Fin. Co., 876 F.2d 1090, 1094 (3d Cir. 1989) (suspension of benefits under state’s mortgage

assistance program to debtors did not violate section 525(a)); In re Exquisito Servs., Inc., 823

F.2d 151, 153 (5th Cir. 1987) (section 525(a) interpreted narrowly and limited to situations

“analogous to those enumerated in the statute”).

The SBA also cites to a recent bankruptcy decision from Maine on the PPP which

reasoned similarly that “[e]ach of the enumerated items [in section 525(a)] is a type of grant

from a governmental actor that involves some permission for the holder of the grant to act

in a particular way.” In re Penobscot, 2020 WL 3032939, at *10 (Bankr. D. Me. June 3, 2020)

Although the Penobscot court initially entered a temporary restraining order against the

SBA, it then reversed course. Compare, Id. and Penobscot, 2020 WL 2201943 (Bankr. D. Me.

May 1, 2020) (a decision this court relied upon in entering its temporary restraining order

against the SBA on May 8, 2020).

Organic Power rejects this narrow reading section 525(a). It argues that the

enumerated items in section 525(a) are illustrative rather than exhaustive, relying on Stoltz

v. Brattleboro Housing Auth. (In re Stoltz), 315 F.3d 80, 90 (2d Cir. 2002), which held that a

public housing lease fell under section 525(a) as an “other similar grant.” In reaching its

conclusion, the Stoltz court reasoned that “[t]he common qualities of the property interests

protected under section 525(a), i.e., ‘license[s], permit[s], charter[s], franchise[s], and other

similar grants,’ are that these property interests are unobtainable from the private sector

and essential to a debtor’s fresh start.” In re Stoltz, 315 F.3d at 90.

The SBA counters, arguing that Stoltz found that a public housing lease was a grant

because it was a “property interest.” Id. at 89-90. But, that Stoltz did not depart from In re

Goldrich, 771 F.2d 28 (2d Cir. 1985) which held that student loan guarantees were outside

the protection of section 525(a) because they were, just like the PPP, extensions of credit.

In the Springfield case Judge Brown (who was also the bankruptcy judge in the Stoltz

case) dissected the Goldrich and Stolz decisions. In re Springfield Hosp., Inc., 2020 WL

3422335, at *14-15. She concluded that “Stoltz clearly denotes the Second Circuit's

departure from – and disapproval of – its earlier narrow construction of § 525(a) in Goldrich”

and that the “PPP is only superficially similar to the commercial extension of credit at issue

in Goldrich, and is in fact much more akin to the public housing lease in Stoltz.” Id. Judge

Brown reasoned:

‘Public housing leases are, by definition, obtainable only from governmental

entities.’ Stoltz, 315 F.3d at 90. Similarly, the CARES Act establishes the PPP

under § 7(a) of the Small Business Act, codified in 15 U.S.C. § 636, a program

administered only by the SBA[.] While public housing leases and the PPP are

superficially similar to private sector activity – a residential lease and an

extension of credit, respectively – they confer unique benefits impossible to

obtain from the private sector. Just as private lessors do not offer subsidized

or free housing, private lenders do not offer free money.

In re Springfield Hosp., 2020 WL 3422335, at *17.

We agree.

At the start we alluded to the enormity of the of the economic damage inflicted by the

Covid-19 pandemic on the economy. And that although the dollar amount of the

government’s response to this economic crisis is historic, it pales in comparison to the

economic damage caused by the pandemic. Under these circumstances, our ruling today

satisfies even the narrower reading of section 525(a) in Ayes. Much of the economy has been

difficult for many, perhaps most, small businesses to access private capital. The SBA

acknowledged as much when it created a “safe harbor” for the forgiveness of PPP loans under

$2 million. See, Paycheck Protection Program Frequently Asked Questions (FAQs) as of June

25, 2020, Q&A, 46 (stating that these borrowers “are generally less likely to have had access

to adequate sources of liquidity in the current economic environment than borrowers that

obtained larger loans.”) It goes without saying that capital is the lifeblood of businesses,

small or large, in a capitalist, free-market economy. Thus the PPP, under these

circumstances, is in effect a government authorization, to millions of small businesses

without access to adequate sources of liquidity, which it is hoped will permit them to

continue toc .p u rIrsureep aanr eanbdlee ahvaorrm ai amnedd iantj uecnocntoivmei rce bleiettfe rment.

Irreparable harm is the second prong of the test for injunctive relief. The issue was

hotly contested by both sides in this adversary proceeding. At the hearing on the temporary

restraining order, Organic Power had to show only a “mere likelihood of success” on the

merits of its claims. See, Caroline T. v. Hudson School Dist., 915 F.2d 752, 755 (1st Cir. 1990)

(quoting K-Mart Corp. v. Oriental Plaza, Inc., 875 F.2d 907, 914-15 (1st Cir. 1989)). Now, at

the permanent-injunction stage, Organic Power “must show actual success on the merits” of

its claims. Id. Initially the court determined, when it entered the temporary restraining

order against the SBA, that Organic Power showed a mere likelihood of success on the merits.

https://www.sba.gov/document/support--faq-lenders-borrowers?fbclid=IwAR0grGa9wseRQD-

4VEWr7mqcSga2ITyk52EJV-FPwOA3cy4aiCU4d8x7ud8. We note that the SBA‘s ”safe harbor“

makes PPP loans under $2 million easier to forgive.

We last extended the temporary restraining order on July 2, 2020 until “any further decision

from this court.” [Adv. Dkt. No. 73].

Again, because the facts relevant to the request for injunctive relief have evolved since

the entry of the temporary restraining order, there no longer is any need to further extend

the temporary order or make it permanent. And thus the controversy over irreparable harm

is moot. d. Mandamus

Organic Power included in the complaint a request for writ of mandamus to compel

the SBA to remove the bankruptcy exclusion from all PPP applications. The federal

mandamus statute allows district courts “to compel an officer or employee of the United

States or any agency thereof to perform a duty owed to the plaintiff.” 28 U.S.C. § 1361. A

mandamus is an extraordinary remedy. Mallard v. United States Dist. Court for S. Dist., 490

U.S. 296, 309 (1989). To obtain a mandamus, “petitioners must show that they lack adequate

alternative means to obtain the relief they seek." Id. Because Organic Power obtained the

relief it sought by an adequate alternative means and did not actively prosecute this count of

the complaein. t, Aitds mreiqnuiestsrt afotirv me aPnrdoacmeduusr ies sd Aenctie d

Two counts of the complaint assert claims under the APA. The first alleges that, under

section 706(2)(C) of the APA, the SBA unlawfully exceeded its statutory authority when it

excluded “applicant[s] involved in any bankruptcy” from the PPP. 5 U.S.C. § 706(2)(C). The

second alleges that, even if the SBA did not exceed its statutory authority, the bankruptcy

exclusion was “arbitrary, capricious, [or] an abuse of discretion” in violation of section

706(2)(A) of the APA. 5 U.S.C. § 706(2)(A).

Both parties contend that the two APA counts are non-core matters. And, the SBA

does not consent to the entry of a final judgment on the APA counts of the complaint. Thus,

if this opinion and order and ensuing final judgment are appealed, the court will issue a

report and recommendation to the district court on the APA claims when the record for the

appeal is transmitted to the district court.

V. CONCLUSION

For all of the reasons stated above, the court finds that the SBA’s exclusion of Organic

Power from the PPP because it is in bankruptcy violates section 525(a) of the Bankruptcy

Code. Organic Power’s request for permanent injunction is denied as moot. Likewise,

Organic Power’s request for a mandamus is denied. The motion to dismiss is denied.

Accordingly, the court directs the entry of a separate final judgment on the third and

fourth counts of the complaint because “the court expressly determines that there is no just

reason for delay.” Fed. R. Civ. P.54(b); Fed. R. Bankr. P. 7054(a).

In Ponce, Puerto Rico, this 24 of July, 2020.

Edward A. Godoy

U.S. Bankruptcy Judge

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.