CHEF TIME 1520 LLC v. SMALL BUSINESS ADMINISTRATIONCHEF TIME 1520 LLC v. SMALL BUSINESS ADMINISTRATION
MEMORANDUM OPINION AND ORDER
This matter arises from Plaintiffs’ efforts to seek financial assistance from the Restaurant Revitalization Fund (“RRF“), created by Congress in the American Rescue Plan Act of 2021 (“ARPA“),
I. BACKGROUND
A. Statutory Background
As part of the American Rescue Plan Act of 2021, Congress allocated close to $29 billion for RRF grants,
The statute provides that the Administrator of the SBA “shall,” as a general matter, “award grants to eligible entities in the order in which applications [were] received by the Administrator.”
B. Factual Background
1. The RRF Program
The SBA began accepting RRF applications through an online portal on May 3, 2021, Dkt. 14-1 at 2 (Piccioni Decl. ¶ 5)—although a select group of applicants was invited to submit applications a few days prior as part of a “pilot phase,” see Dkt. 5-2 at 6 (Luke Decl. Ex. 1). Once an application was submitted, the agency began processing it with the intention of confirming the applicant‘s eligibility and ensuring that the requested amount of RRF funding was accurate. Dkt. 14-1 at 2 (Piccioni Decl. ¶ 9). For the first 21 days after the portal opened on May 3, the SBA processed applications
The first step in processing an RRF application was to transmit the applicant‘s revenue information to the IRS for verification.
Once the agency fully confirmed an applicant‘s eligibility, the “processing status” of the application changed to “Fully Approved;” the applicant was notified of that change; and the application was processed in SBA‘s payment system before the money was ultimately disbursed to the applicant.
The statutorily mandated priority application period concluded on May 24, 2021, and the SBA began processing applications from non-priority applicants the next day. Dkt. 14-1 at 3 (Piccioni Decl. ¶¶ 12–13). On May 27, 2021, the SBA paused processing priority applications altogether—including “those undergoing final processing in SBA‘s payment system.” Dkt. 14-1 at 3 (Piccioni Decl. ¶ 14). According to the SBA, it “planned to resume processing priority applications once it completed processing the [earlier] filed non-priority applications,” but, before it could do so, “the fund was [exhausted] and all processing ceased.”
Sometime after the fund‘s depletion, about $83 million of the previously obligated funds were returned to the SBA.
2. The Woolworth and Smithy
Brandon Luke is a veteran of the United States Army and a majority owner of two restaurants in Dallas, Texas: The Woolworth and Smithy. Dkt. 5-2 at 2 (Luke Decl. ¶¶ 1–5, 7–8). On April 22, 2021, Luke received an email from the SBA, informing him that he had been “randomly selected for an opportunity to participate in the pilot phase for” the RRF, which would allow participants to “complete the RRF application before the portal open[ed] to the greater public.” Dkt. 5-2 at 6 (Luke Decl. Ex. 1). Luke agreed to participate; he applied for funding on behalf of both of his restaurants on April 27, 2021, requesting $1,344,299 on behalf of The Woolworth and $509,881 on behalf of Smithy. Dkt. 5-2 at 3 (Luke Decl. ¶¶ 7–9); Dkt. 14-1 at 6 (Piccioni Decl. ¶ 27). That evening, Luke received two emails notifying him that he had “successfully completed the electronic signature process associated” with his application and alerting him that the SBA would “review th[e] application, verify the supporting documentation, and process [his] award if applicable.” Dkt. 14-2 at 1–2. The applications received two confirmation numbers: 882a00074896 was associated with The Woolworth and 2c090074905 was associated with Smithy. Dkt. 14-1 at 6 (Piccioni Decl. ¶¶ 27–28).
With respect to The Woolworth‘s application, Luke represents that he was advised in mid-May 2021 that “updates to The Woolworth‘s application were required.” Dkt. 5-2 at 3 (Luke Decl. ¶ 10). But Luke avers that he “could not open the application” to make the requested updates and that he was eventually instructed by the SBA to resubmit his application.
Smithy‘s application took a different path. According to the agency, the SBA sent Smithy‘s tax forms to the IRS for
After Luke re-signed Smithy‘s application, the SBA reviewed the application anew and deemed it “Fully Approved” on May 26, 2021, two days after the expiration of the 21-day priority processing window.
Smithy never received the award; rather, on June 12, 2021, the SBA notified Smithy that “due to recent court rulings, the [SBA] will not be able to disburse your Restaurant Revitalization Fund award.” Dkt. 5-2 at 10 (Luke Decl. Ex. 3). The SBA explained that, because of recent litigation arising out of the Northern District of Texas and the Eastern District of Tennessee, “[t]he SBA is not able to pay 2,965 priority applicants—including yourself—who were previously approved and notified of their approval.”
C. Procedural Background
Plaintiffs filed suit under the Administrative Procedure Act (“APA“) on November 28, 2022, Dkt. 1 (Compl.), asserting that the SBA‘s “fail[ure] to retain The Woolworth‘s place in queue after it directed the restaurant to resubmit the application because of technological problems on the SBA‘s end” was “arbitrary and capricious” and “contrary to law,” Dkt. 5 at 15; Dkt. 1 at 6 (Compl. ¶ 28), and that the SBA‘s mistaken reliance on the court rulings referenced in its June 12, 2021 letter resulted in an arbitrary and unlawful decision to decline disbursing Smithy‘s funds, Dkt. 1 at 8 (Compl. ¶¶ 36, 39) (quoting
After the SBA informed the Court that it had paid 167 of the 169 eligible applicants selected to receive portions of the $83 million in remaining funds and that the agency retained approximately $2 million in RRF funding that had been allocated to the final two applicants, Dkt. 7-1 at 4–5 (Piccioni Decl. ¶¶ 20–21), the agency requested an opportunity to investigate Plaintiffs’ claims. The Court agreed, but entered an administrative stay ordering the agency to preserve the remaining $2 million in RRF funding while the agency did so. Dkt. 8 at 3. The parties appeared for a hearing on the motion for temporary restraining order on December 14, 2022, see Min. Entry (Dec. 14, 2022), and the motion is now ripe for resolution.
II. LEGAL STANDARD
“A TRO is ‘an extraordinary form of relief.‘” Costa v. Bazron, 456 F. Supp. 3d 126, 133 (D.D.C. 2020) (quoting Banks v. Booth, 459 F. Supp. 3d 143, 149 (D.D.C. 2020)). The decision of whether to award a TRO is “analyzed using the same ‘factors applicable to preliminary injunctive relief,‘” and a TRO “may only be awarded upon a clear showing that the plaintiff is entitled to such relief.” Id. (quoting Banks, 459 F. Supp. 3d at 149). To obtain a TRO, a movant “must establish [1] that he is likely to succeed on the merits, [2] that he is likely to suffer irreparable harm in the absence of preliminary relief, [3] that the balance of equities tips in his favor, and [4] that an injunction is in the public interest.” Aamer v. Obama, 742 F.3d 1023, 1038 (D.C. Cir. 2014) (quoting Sherley v. Sebelius, 644 F.3d 388, 392 (D.C. Cir. 2011)). When seeking such relief, “the movant has the burden to show that all four factors, taken together, weigh in favor of the injunction.” Abdullah v. Obama, 753 F.3d 193, 197 (D.C. Cir. 2014) (quoting Davis v. Pension Benefit Guar. Corp., 571 F.3d 1288, 1292 (D.C. Cir. 2009)); see also Mazurek v. Armstrong, 520 U.S. 968, 972 (1997) (“[A] preliminary injunction is an extraordinary and drastic remedy, one that should not be granted unless the movant, by a clear showing, carries the burden of persuasion.” (internal citation and quotation marks omitted) (emphasis in original)).
Before the Supreme Court‘s decision in Winter v. NRDC, 555 U.S. 7 (2008), courts in this circuit applied a “sliding-scale” approach under which “a strong showing on one factor could make up for a weaker showing on another.” Sherley, 644 F.3d at 392. Since Winter, the D.C. Circuit has hinted on several occasions that “a likelihood of success is an independent, free-standing requirement,” id. at 393 (internal citation and quotation marks omitted), but it “has not yet needed to decide th[e] issue,” League of Women Voters of U.S. v. Newby, 838 F.3d 1, 7 (D.C. Cir. 2016); see also Changji Esquel Textile Co. v. Raimondo, 40 F.4th 716, 726 (D.C. Cir. 2022).
III. ANALYSIS
A. Likelihood of Success on the Merits
A court may “hold unlawful and set aside” agency action if—as relevant here—it is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,”
1. Administrative Record
The Court begins its analysis with a threshold note about the scope of the administrative record before it. At this very early stage, the SBA has yet to compile or to certify an administrative record, and the parties have submitted only a handful of communications between the SBA and Luke between April and June of 2021. Accordingly, at this juncture, the Court lacks a complete record regarding the agency‘s internal policies for distributing RRF funding or its interpretation of
In considering a motion for a preliminary injunction, a district court must base its review “on the full administrative record that was before the [agency] at the time [it] made its decision,” Am. Bioscience, Inc. v. Thompson, 243 F.3d 579, 583 (D.C. Cir. 2001) (second alteration in original) (quoting Citizens to Pres. Overton Park, Inc. v. Volpe, 401 U.S. 402, 420 (1971)), and may not rely on “the parties’ written or oral representations” or on “sworn affidavits filed during the litigation” to discern the basis of agency actions, id. That rule, however, cannot sensibly extend to a motion for temporary retraining order, which seeks to maintain the status quo for the brief time necessary for the parties litigate whether a preliminary injunction should issue. To be sure, the Court may not deny a motion for a TRO merely because the agency has not had time to prepare the administrative record. But, at the same time, the Court may not issue a TRO without holding the movant to its burden of demonstrating a likelihood of success on the merits. Here, the parties have provided the Court with a handful of agency communications with the applicants and the Piccioni declaration, which explains how the agency processed the RRF applications.
The Court may consider extra-record material, such as a declaration offered by a knowledgeable agency official, under “unusual circumstances justifying a departure from [the] general rule.” City of Dania Beach v. FAA, 628 F.3d 581, 590 (D.C. Cir. 2010) (quoting Tex. Rural Legal Aid v. Legal Servs. Corp., 940 F.2d 685, 698 (D.C. Cir. 1991)). The D.C. Circuit has identified at least three such circumstances, including, as relevant here, when “the agency failed to explain administrative action so as to frustrate judicial review.” Animal Legal Def. Fund v. Perdue, 872 F.3d 602, 611 (D.C. Cir. 2017) (quoting Am. Wildlands v. Kempthorne, 530 F.3d 991, 1002 (D.C. Cir. 2008)); see also Dania Beach, 628 F.3d at 590 (listing the same three exceptions); James Madison Ltd. by Hecht v. Ludwig, 82 F.3d 1085, 1095 (D.C. Cir. 1996) (same). That exception applies here. The circumstances are “unusual” due to the time pressure posed by a motion for a TRO, and, even more significantly, the
The Court will, accordingly, base its decision on the administrative materials that the parties have produced to date and on the Piccioni declaration, which sets forth the process that the agency employed in prioritizing and approving applications. To the extent that additional record materials exist, the SBA will be required to assemble and to certify an administrative record in time for the Court to evaluate a motion for a preliminary injunction, should Plaintiffs file one.
2. The Woolworth
Plaintiffs argue, first, that the SBA‘s “fail[ure] to retain The Woolworth‘s place in queue after it directed the restaurant to resubmit the application” was both “arbitrary and capricious,” Dkt. 5 at 15, and contrary to
Plaintiffs also do not dispute the existence of an SBA policy requiring resubmission or re-signature of certain erroneous applications; nor do they dispute that, when the SBA required such resubmission, the agency treated the application as complete on the date of resubmission, rather than on the date the applicant originally applied for RRF funding. Plaintiffs themselves represent that Luke had to resubmit The Woolworth‘s application because of discrepancies between the financial records in the application and the information on the restaurant‘s tax returns. And Luke nowhere contends that those discrepancies were de minimis under the SBA‘s processing procedures, such that, absent the technological difficulties in editing his application, Luke would have been able to edit The Woolworth‘s application without (at a minimum) re-signing it and triggering a new effective date.1 Rather, Plaintiffs argue, without more, that requiring Luke
The relevant statute, which requires only that the SBA Administrator “award grants to eligible entities in the order in which the applications are received,”
Plaintiffs’ counsel asserted at oral argument that it was “arbitrary” and “fundamentally unfair” for the SBA to “cost the applicant his place in line,” Tr. at 11 (Dec. 14, 2022 Hearing), where the SBA “didn‘t tell [Luke] clearly that [he] had to submit the numbers from [his] tax return as opposed to [his] point of sale records,”
the use of “gross receipts, as established using such verification documentation as the Administrator may require” in order to calculate the “pandemic-related revenue loss,”
At most, Plaintiffs point to U.S. AirWaves, Inc. v. FCC, 232 F.3d 227 (D.C. Cir. 2000) for the proposition that “unfair agency action can be arbitrary and capricious.” Dkt. 15 at 7. But the D.C. Circuit in U.S. Airwaves also acknowledged that “an agency must be allowed to adjust its policies to changing circumstances” and that, even if such a change is “unfair” or “inequit[able],” it is not necessarily arbitrary and capricious where the agency “reasonably exercised its discretion to balance fairness to losing bidders with the needs of the market and with the public interest.” U.S. Airwaves, Inc., 232 F.3d at 235–36. At the present juncture, Plaintiffs, who carry the burden of establishing that they are likely to succeed on the merits, Mazurek, 520 U.S. at 972, have not established that it was likely arbitrary and capricious for the SBA to treat The Woolworth‘s application as submitted on May 14, 2021—that is, the date on which it was substantially complete.
3. Smithy
A separate question remains as to Smithy‘s application, which (unlike that of The Woolworth) achieved “Fully Approved” status and was, according to the records presently before the Court, slated for payment as of May 26, 2021. Dkt. 5-2 at 8 (Luke Decl. Ex. 2); Dkt. 14-1 at 6 (Piccioni Decl. ¶ 29). On June 12, 2021,
To the extent that the SBA decided to pause funding Smithy‘s application on May 27, 2021 (or, in any event, sometime after Smithy‘s application reached “fully approved” status on May 26, 2021), that decision does not appear to conflict with
But that conclusion does not end the inquiry. Even if the agency‘s decision to pause priority processing was not foreclosed by the statute, the agency was nevertheless required to engage in “reasoned decisionmaking;” the APA directs that “agency actions be ‘set aside’ if they are ‘arbitrary’ or ‘capricious,‘” Dep‘t of Homeland Sec‘y v. Regents of the Univ. of Calif., 140 S. Ct. 1891, 1905 (2020) (first quoting Michigan v. EPA, 576 U.S. 743, 750 (2015), and then quoting
In evaluating whether the agency‘s decision was arbitrary and capricious, the Court looks, as it must, to “the grounds that the agency invoked when it took the action” to pause priority processing. Michigan, 576 U.S. at 758. The agency set forth is rationale in its June 12, 2021 letter to Luke: “The SBA is not able to pay 2,965 priority applicants—including yourself—who were previously approved and notified of their approval. SBA will not pay these claims because the legal conclusions in these court rulings would preclude payment.” Dkt. 5-2 at 10 (Luke Decl. Ex. 3). But
Seeking to avoid the obvious implication of its June 12, 2021 letter, the agency now asserts that the SBA‘s decision to pause processing priority applications on May 27, 2021 was “in large part because there was nothing in the statute requiring this processing out of order to continue,” and because “there[] [are] good reasons in the statute to bring the applications back onto a level playing field.” Tr. at 35 (Dec. 14, 2022 Hearing). The agency indicates, in this vein, that the June 12 letter was not directed to Luke or to veterans: it was, rather, a blast email to “2,965 applicants, many of which were owned by women or socially-and-economically-disadvantaged individuals directly affected by” the referenced court rulings. Dkt. 14 at 12. But the agency may not now supply a rationale for its decision that is nowhere to be found in its June 12, 2021 letter or even—assuming the Court may consider such evidence at this preliminary stage, see supra at 10–12—in the declarations submitted by the agency. The Piccioni declaration posits only that the “SBA planned to resume processing priority applications once it completed processing the previously filed non-priority applications.” Dkt. 14-1 at 3 (Piccioni Decl. ¶ 14). But nowhere does it suggest that the agency decided to pause processing applications from veteran-owned businesses for any reason other than the court rulings in Vitolo and Blessed Cajuns; nor does it indicate that the agency appreciated “the full scope of [its] discretion” in reaching its decision. Regents of the Univ. of Calif., 140 S. Ct. at 1911. The record presently before the Court strongly suggests, then, that the decision not to fund Smithy‘s award was based on a “clear error of judgment” and was, therefore, arbitrary and capricious. Id. at 1905 (quoting Citizens to Pres. Overton Park, Inc., 401 U.S. at 416).
The agency marshals one further argument at this stage that bears mentioning, although it speaks more to the question of remedy than to the merits. The SBA contends that, whatever problems existed during the initial distribution of funds in June 2021, at this stage, it is, “impossible to [un]scramble the egg and start with a blank slate,” Tr. 47 (Dec. 14, 2022 Hearing), particularly because the agency is now distributing its remaining funds according to the date on which applications were submitted (rather than, as it was doing in 2021, the date upon which the application became “fully approved“), Dkt. 14-1 at 4 (Piccioni Decl. ¶ 17). Under this reasoning, if the agency can properly conclude that both of Luke‘s applications were submitted on May 14, 2021 (and not on April 27, 2021), then the agency might
It is premature, however, for the Court to assess the merit of that argument. As a general matter, if the grounds invoked by the agency in taking an action are inadequate, “a court may remand for the agency to offer a fuller explanation of the agency‘s reasoning at the time of the agency action” or to allow the agency “to deal with the problem afresh by taking new agency action.” Regents of the Univ. of Calif., 140 S. Ct. at 1908 (emphases in original) (internal quotation marks and citation omitted). But, in any event, “[t]he norm is to vacate agency action that is held to be arbitrary and capricious and remand for further proceedings consistent with the judicial decision, without retaining oversight over the remand proceedings.” Baystate Med. Ctr. v. Leavitt, 587 F. Supp. 2d 37, 41 (2008); see also N. Air Cargo v. Postal Serv., 674 F.3d 852, 861 (D.C. Cir. 2012). The Court should not, at least at this stage of the proceedings, fashion its relief around how the SBA might decide, in its discretion, to act if the matter is remanded to the agency. For present purposes, and in light of the strong presumption in favor of remand, the Court simply concludes that Smithy has established a likelihood of success on the merits—and therefore a likelihood of success in obtaining a remand—that warrants preserving the status quo for the time being.
B. Irreparable Harm
The Court turns, next, to the question of irreparable harm. Because The Woolworth has failed to show that it is likely to prevail on the merits, the Court will consider only whether Smithy will suffer an irreparable injury in the absence of emergency relief. See Greater New Orleans Fair Hous. Action Ctr. v. Dep‘t of Hous. & Urb. Dev., 639 F.3d 1078, 1088 (D.C. Cir. 2011) (“[W]hen a plaintiff has not shown a likelihood of success on the merits, there is no need to consider the remaining [preliminary injunction] factors.“); Sherley, 644 F.3d at 393 (“[W]e read Winter at least to suggest if not to hold ‘that a likelihood of success is an independent, free-standing requirement for a preliminary injunction.‘” (quoting Davis v. Pension Benefit Guar. Corp., 571 F.3d 1288, 1292 (D.C. Cir. 2009) (Kavanaugh, J., concurring)); Ark. Dairy Co-op Ass‘n v. U.S. Dep‘t of Agric., 573 F.3d 815, 817 (D.C. Cir. 2009) (suggesting that a failure to show likelihood of success on the merits alone justifies the denial of temporary injunctive relief).2
Smithy contends—and Defendants do not contest—that, absent a TRO, it will suffer irreparable harm because “it is likely that [the remaining RRF funds] will be exhausted before a decision on the merits of Plaintiffs’ claims.” Dkt. 15 at 12. Because the SBA is in the process of distributing (or attempting to distribute) the last of the remaining RRF funds—and because Smithy will not be able to seek damages under the APA for any possibly unlawful agency action once the fund has fully expired, see, e.g.,
C. Balance of Equities and Public Interest
Finally, the Court turns to the last two factors the balance of the equities and the public interest. The balance of the equities weighs the harm to Plaintiffs absent a TRO against the harm to the agency if the Court grants the motion. Pursuing America‘s Greatness v. FEC, 831 F.3d 500, 511 (D.C. Cir. 2016). And here, the harm to the SBA and the public-interest factor are “one and the same” because the government is the non-movant and because “the government‘s interest is the public interest.” Pursuing America‘s Greatness v. FEC, 831 F.3d 500, 511 (D.C. Cir. 2016). Although the SBA correctly points out that two eligible RRF applicants may be deprived of some of their RRF funding if Smithy ultimately succeeds in obtaining relief, it is not true that, at this early stage, the Court must “decid[e] between paying the two plaintiff businesses or paying Eligible Applicants 135 and 151.” Dkt. 14 at 13. The emergency relief requested by Plaintiffs simply would preserve the possibility that Smithy could get relief, while simultaneously leaving the door open for Applicants 135 and 151 to receive their full RRF funding after the Court has decided whether to issue a preliminary injunction and, if appropriate, after the Court has adjudicated the ultimate merits of the present dispute. Even then, moreover, if the Court merely remands the dispute to the SBA, the agency will need to decide (at least in the first instance) whether Smithy is entitled to relief and, if so, the amount it is entitled to receive. Because Defendants have not made a significant showing that the public—or anyone beyond Applicants 135 and 151—may be harmed by the entry of a temporary restraining order, the Court finds that the balance of equities tips in Smithy‘s favor and that a temporary restraining order is in the public interest.
CONCLUSION
For the foregoing reasons, the Court will GRANT in part and DENY in part Plaintiffs’ motion for temporary restraining order, Dkt. 5.
A separate order will issue.
/s/ Randolph D. Moss
RANDOLPH D. MOSS
United States District Judge
Date: December 20, 2022