Meduri Farms, Inc. v. U.S. Small Business Administration, 799 F.Supp.3d 1144

Meduri Farms applied for a $2 million PPP Second Draw (PPP2) loan in Jan 2021, listing 292 employees; loan disbursed Feb 2021.
Meduri later applied for forgiveness (June 2022); SBA denied forgiveness, concluding Meduri exceeded the 300-employee PPP2 size limit after applying the SBA’s employee-count method.
SBA applied 13 C.F.R. § 121.106(b)(1) (the then-effective rule) which computes ‘‘number of employees’’ as the average headcount per pay period over the preceding 12 months.
Meduri argued eligibility should be determined by headcount at the most recent pay period (present-tense ‘‘employs’’ in the statute/IFR), not a 12-month average.
The SBA and ALJ relied on the Section 7(a) regulatory framework to calculate employees; the ALJ and district court upheld the SBA’s denial as consistent with law and not arbitrary or capricious.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Proper method to count employees for PPP2 eligibility	"Employs" means current headcount at most recent pay period; SBA must use that snapshot	PPP2 is governed by §7(a) framework; SBA may use preexisting 13 C.F.R. §121.106 averaging method	Court held SBA correctly used 12-month average under §121.106 to determine employee count
Whether CARES/Economic Aid Acts displaced §121.106	Statute’s present-tense phrasing implicitly overrides the preexisting regulation	Statute incorporated §7(a) terms, so longstanding regulation remains controlling unless Congress specified otherwise	Court held no implicit repeal; Congress legislated against the backdrop of §7(a) rules, so §121.106 applies
Reliance on SBA FAQ/IFR as part of agency reasoning	FAQ/IFR wording supports plaintiff’s present-tense reading	SBA cited IFR and regulation; ALJ’s citation to FAQ was ancillary guidance	Court found any FAQ reference harmless; ALJ provided a reasonable, adequately explained basis for denial
Notice/Due Process regarding employee-count method	SBA retroactively or inadequately notified applicants about counting method	§121.106 was preexisting and gave fair notice of the calculation method	Court held regulation provided fair notice; no due process problem

Grand Canyon Univ. v. Cardona, 121 F.4th 717 (9th Cir. 2024) (agency statutory construction reviewed de novo; application-of-law-to-facts under APA is deferential)
Loper Bright Enters. v. Raimondo, 144 S. Ct. 2244 (2024) (courts may consult agency interpretations but must exercise independent judgment)
FCC v. Prometheus Radio Project, 592 U.S. 414 (2011) (agency action must be reasonable and reasonably explained)
In re Gateway Radiology Consultants, P.A., 983 F.3d 1239 (11th Cir. 2020) (PPP added into existing §7(a) program; PPP subject to §7(a) framework)
Pharaohs GC Inc. v. U.S. Small Bus. Admin., 990 F.3d 217 (2d Cir. 2021) (presumption that Congress legislates against backdrop of existing law)
U.S. Commodity Futures Trading Comm’n v. Monex Credit Co., 931 F.3d 966 (9th Cir. 2019) (Congress does not alter regulatory schemes in vague terms)
Whitman v. Am. Trucking Ass’ns, 531 U.S. 457 (2001) (canon against hiding major changes in ancillary provisions)
FCC v. Fox Television Stations, Inc., 567 U.S. 239 (2012) (fair notice and reasoned explanation standards for agency rules)
Dickinson v. Zurko, 527 U.S. 150 (1999) (substantial-evidence standard for agency factual findings)