35 State Street Hotel Partners, LLC v. Guzman
Civil Action No. 2024-0747
D.D.C.Mar 20, 2025Background
- Hotel Californian, majority owned by Michael Rosenfeld, operates in the accommodations industry and applied for PPP loans during the COVID-19 pandemic.
- It received $2 million in both the first and second draw PPP loans; the first loan was forgiven, but the second was denied loan forgiveness.
- The denial was based on the Small Business Administration’s (SBA) "Single Corporate Group (SCG) Rule," which capped second-draw PPP loans at $4 million total for entities in a corporate group with common ownership.
- Rosenfeld’s other three hotels, each having the same majority owner, also received $2 million in second-draw PPP loans, for a total of $8 million.
- Hotel Californian unsuccessfully appealed within the SBA administrative process and then sought judicial review, arguing the denial violated the Administrative Procedure Act (APA).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the SCG Rule as applied conflict with the statutory Affiliation Waiver? | The SCG Rule is an affiliation-based eligibility limit, forbidden by statute for hotels. | The SCG Rule only limits loan amounts, not eligibility, and works independently from the Affiliation Waiver. | SCG Rule is a cap on loan amount, not on eligibility, so does not violate the Affiliation Waiver. |
| Does the statutory loan cap prevent SBA from imposing a stricter cap for corporate groups? | The statutory formula guarantees qualified hotels a set loan amount; SBA cannot lower it. | Statutory caps are maxima, not minima; SBA had discretion to set more restrictive caps. | SBA has authority to set a lower cap, so Rule is valid. |
| Was SBA’s application of the SCG Rule arbitrary and capricious under the APA? | SBA gave conflicting, insufficient explanations and failed to address reliance interests. | SBA just applied the SCG Rule consistently to cap aggregate loans, as the rule allowed. | Denial was arbitrary and capricious because SBA failed to explain how violation of SCG Rule rendered Hotel ineligible for forgiveness. |
| Remedy for APA violation | Seeks summary judgment, declaration, injunction. | Not specifically addressed in argument. | Summary judgment for Hotel, SBA’s denial vacated and remanded for proper explanation. |
Key Cases Cited
- SBA v. McClellan, 364 U.S. 446 (explains breadth of the SBA’s powers and lending authority)
- United States v. Kimbell Foods, Inc., 440 U.S. 715 (discusses SBA’s lending procedures)
- Lincoln v. Vigil, 508 U.S. 182 (on agency discretion to allocate limited funds)
- Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (requires reasoned agency decisionmaking under APA)
- Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402 (standard for arbitrary and capricious review under the APA)
- SEC v. Chenery Corp., 318 U.S. 80 (court must judge agency action by the grounds invoked by the agency)