Penobscot Valley Hospital v. Carranza, in her capacity as administrator for the, 626 B.R. 350

Background

Congress enacted the CARES Act creating the Paycheck Protection Program (PPP) within the SBA's preexisting Section 7(a) authority and gave the SBA 15 days emergency rulemaking authority to implement PPP.
The SBA issued interim final rules and Form 2483, which included a bright-line exclusion disqualifying applicants "presently involved in any bankruptcy."
Penobscot Valley Hospital and Calais Regional Hospital sued, seeking to invalidate the bankruptcy exclusion and to be declared eligible (and effectively to obtain PPP funds).
The bankruptcy court held an expedited trial; the district court adopted parts of the court’s proposed findings and remanded for consideration of certain issues, including two declarations from the SBA (the "Maine Miller" and "Vermont Miller" declarations).
On remand the court considered (a) whether the Miller declarations legitimately supplement the administrative record, (b) whether the exclusion is a permissible construction of the CARES Act under Chevron step two, and (c) whether the rule was arbitrary and capricious under State Farm.
The court concluded the Maine Miller Declaration could supplement the record and upheld the SBA’s bankruptcy exclusion as a reasonable, non-arbitrary exercise of its delegated authority; it declined to compel payment of PPP loans to the Hospitals.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Admissibility/supplementation of post-hoc Miller declarations to the administrative record	Miller declarations are post hoc rationalizations and inconsistent; should be excluded	Declarations explain and are consistent with the IFRs; supplementation is allowed because explanations are contemporaneous enough and not in bad faith	Allowed supplementation; Maine Miller declaration consistent with Fourth IFR and may be considered
Chevron step two: Is excluding debtors in bankruptcy a permissible interpretation of the CARES Act?	Exclusion exceeds SBA authority and conflicts with statutory elimination of many underwriting criteria	Congress left gaps and delegated rulemaking; exclusion is a reasonable, permissible construction to effectuate rapid relief and manage risk	Held permissible under Chevron step two; SBA’s bright-line exclusion reasonable
APA arbitrary and capricious (State Farm)	Rule unsupported by data, ignored alternatives and bankruptcy protections, failed to consider sound value or case-by-case review	Emergency rulemaking justified reliance on commonsense, statutory purpose, and risk of unauthorized uses; SBA considered relevant factors	Not arbitrary or capricious; agency examined relevant factors, provided rational connection between concerns and exclusion
Remedy sought by plaintiffs (payment / eligibility vs. remand)	Hospitals seek declaration of eligibility and compelled payment (granting loans)	SBA contends remedy should be vacatur/remand or other administrative relief, not judicially compelled payment	Court declined to order payments and refused to substitute its policy judgment for agency; denied the equitable remedy sought

Key Cases Cited

Kisor v. Wilkie, 139 S. Ct. 2400 (2019) (deference principles and agency interpretive advantages)
United States v. Mead Corp., 533 U.S. 218 (2001) (when agency action merits Chevron deference)
Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984) (two-step test for agency statutory interpretation)
Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) (arbitrary and capricious standard for rulemaking)
Department of Commerce v. New York, 139 S. Ct. 2551 (2019) (administrative-record rule on reviewing agency rationale)
Sierra Club v. Marsh, 976 F.2d 763 (1st Cir. 1992) (when record supplementation is permitted)
Murphy v. Comm'r, 469 F.3d 27 (1st Cir. 2006) (bad-faith exception for supplementing the administrative record)
SBA v. McClellan, 364 U.S. 446 (1960) (SBA lending purpose and broad statutory authority)
Allentown Mack Sales & Serv., Inc. v. NLRB, 522 U.S. 359 (1998) (context for substantial-evidence standard and on-the-record review)
Skidmore v. Swift & Co., 323 U.S. 134 (1944) (weight accorded agency interpretations not entitled to Chevron deference)