674 B.R. 207
Bankr. E.D.N.C.2025Background
- JSmith Civil, LLC, a construction company in chapter 11 bankruptcy, sought to recover over $1 million in Employee Retention Credits (ERC) for Q2 2020 and Q2 2021, alleging partial suspension of operations due to COVID-19-related government orders.
- The United States opposed, arguing that North Carolina’s Executive Orders exempted construction businesses, making JSmith ineligible for ERC as a matter of law.
- JSmith filed an adversary proceeding in bankruptcy court seeking turnover of alleged tax credits.
- The parties submitted cross-motions for summary judgment, with JSmith arguing that various government and agency orders required partial suspension, and the U.S. countering none of those imposed mandatory suspensions on JSmith’s business.
- The key factual dispute was whether any government order compelled JSmith to suspend any part of its construction operations in the relevant periods.
- The court found that, even if JSmith stopped certain operations, this was not due to a qualifying governmental order under the CARES Act.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether JSmith’s operations were fully or partially suspended due to a qualifying government order (ERC eligibility) | JSmith: Construction operations partially suspended due to COVID-19 state orders and agency actions | US: NC Executive Orders exempted construction; no order required business suspension | Not eligible; orders expressly exempted construction |
| Effect of agency guidance (OSHA/CDC/others) as qualifying “orders” under ERC | JSmith: OSHA/CDC guidance & NCDOL actions constituted government orders requiring operational suspensions | US: Guidance is non-binding and advisory, not compulsory orders | Guidance/advisories are not qualifying government orders |
| Impact of general business disruptions (illness, quarantines, supply chain) | JSmith: Pandemic-driven disruptions effectively suspended part of business | US: Only suspensions due to qualifying orders count, not general disruptions | General pandemic disruptions do not satisfy ERC statutory requirements |
| Whether factual disputes over JSmith’s internal suspensions preclude summary judgment | JSmith: Evidence of internal suspensions creates triable fact issue | US: Dispute is immaterial; law is clear no government order compelled suspension | No material fact issue; summary judgment for US |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standard)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (material fact issue and summary judgment)
- F.D.I.C. v. Meyer, 510 U.S. 471 (undefined statutory terms construed by ordinary meaning)
- Sandifer v. U.S. Steel Corp., 571 U.S. 220 (words interpreted by common meaning)
- United States v. Diebold, Inc., 369 U.S. 654 (summary judgment inference standard)