Meduri Farms, Inc. v. U.S. Small Business AdministrationMeduri Farms, Inc. v. U.S. Small Business Administration
Ariana N. Garousi and Benjamin T. Hickman, Assistant United States Attorneys, and William M. Narus, Acting United States Attorney, United States Attorney‘s Office, District of Oregon, 1000 SW Third Avenue, Suite 600, Portland, OR 97204. Attorneys for Respondent.
IMMERGUT, District Judge.
Before this Court are cross-motions for summary judgment filed by Petitioner Meduri Farms, Inc. (“Meduri“), ECF 19, and Respondent United States Small Business Administration (“SBA“), ECF 22. Meduri petitions this Court to vacate the SBA‘s final decision denying Meduri‘s request for forgiveness of its Paycheck Protection Program Second Draw Loan (“PPP2 Loan“). Meduri argues that the SBA‘s decision is contrary to statutory text in violation of the
The central issue in this case is whether the SBA erroneously determined Meduri‘s eligibility for the PPP2 loan by averaging the number of employees Meduri had in the twelve calendar months preceding its loan application, as established in
LEGAL STANDARDS
Summary judgment is appropriate if “there is no genuine dispute as to any material fact” and the moving party “is entitled to judgment as a matter of law.”
But if an agency “construed the law correctly,” then a court reviews the agency‘s “application of the law to the facts of the case under the APA‘s deferential standards.” Id. at 723. Under this deferential arbitrary-and-capricious standard, the agency action need only be “reasonable and reasonably explained.” Fed. Commc‘ns Comm‘n v. Prometheus Radio Project, 592 U.S. 414, 423 (2021). The court “simply ensures that the agency has acted within a zone of reasonableness and, in particular, has reasonably considered the relevant issues and reasonably explained the decision.” Id. The court reviews the agency‘s factual findings for substantial evidence and “must uphold such findings if ‘a reasonable mind might accept this particular evidentiary record as adequate to support the agency‘s conclusion.‘” Grand Canyon Univ., 121 F.4th at 723 (brackets omitted) (quoting Dickinson v. Zurko, 527 U.S. 150, 162 (1999)).
BACKGROUND
A. Statutory Background
Under the Small Business Act, the Small Business Administration provides financing to “small business concerns” primarily by issuing private “Section 7(a) loans” pursuant to
On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act“) to ameliorate the economic effects of the COVID-19 pandemic.
The CARES Act directed the SBA to issue emergency rules implementing the PPP.
On December 27, 2020, Congress enacted the Economic Aid to Hard-Hit Small-Businesses, Nonprofits, and Venues Act
In January 2021, the SBA published IFRs implementing the Economic Aid Act amendments to the PPP. See 86 Fed. Reg. 3692 (Jan. 14, 2021) (to be codified at 13 C.F.R. pts. 113, 120, and 121) (incorporating the Economic Aid Act amendments to the PPP); 86 Fed. Reg. 3712 (Jan. 14, 2021) (to be codified at 13 C.F.R. pts. 120 and 121) (further implementing the Economic Aid Act). Consistent with section
B. Factual Background1
On January 26, 2021, Meduri Farms, a dried fruit business in Oregon, applied to KeyBank for a $2 million PPP2 loan. Meduri‘s MSJ, ECF 19 at 6; Administrative Record (“AR“) 4–10. On its PPP2 loan application, Meduri listed that it had 292 employees. AR 4. On January 29, 2021, KeyBank approved Meduri‘s PPP2 loan, AR 24, 36, and the loan proceeds were disbursed to Meduri on February 11, 2021. AR 11.
On June 13, 2022, Meduri applied for forgiveness of its PPP2 loan to KeyBank. AR 11–20. Meduri‘s forgiveness application stated that it had 292 employees at the time of the loan application and 332 employees at the time of the loan forgiveness application. AR 11. KeyBank processed Meduri‘s application and submitted it to the SBA for final approval. AR 1183.
On July 20, 2023, KeyBank forwarded Meduri a letter from the SBA that stated the agency was “considering recommending a Full Denial due to [Meduri] exceeding the size standard of 300 employees for Second Draw PPP loans.” AR 24–25. The letter also requested that Meduri send, among other things, all W-2s issued for 2020 and “the average employee head count per pay period for” Meduri and its affiliates “for the preceding 12 months to the application date or for the time frame that was utilized to calculate the loan origination.” AR 25.
Meduri responded on August 7, 2023, providing the requested information and documentation. AR 27–29, 229–49, 387–98.
On September 7, 2023, KeyBank sent Meduri the SBA‘s decision denying Meduri‘s loan forgiveness application. AR 1–2. The SBA found that Meduri was ineligible for the PPP2 loan that it had received because “[t]he borrower exceeds the maximum allowable number of 300 employees.” AR 1–2. The SBA therefore determined “forgiveness in the amount of $0.00 is appropriate”
C. Procedural History
On October 6, 2023, Meduri petitioned for review of the SBA‘s loan review decision before the SBA Office of Hearings and Appeals (“OHA“). AR 43–61. Meduri argued that the SBA‘s decision (1) failed to articulate the basis for denying loan forgiveness, (2) was arbitrary and capricious and contrary to federal law in violation of the APA, and (3) was based on non-binding SBA guidance in violation of the SBA‘s statutory authority. AR 43–61. As relevant here, Meduri argued that the SBA‘s decision incorrectly concluded that eligibility for a PPP2 loan is determined by averaging the number of employees a business employed in the 12 months preceding the loan application, rather than using the number of employees as of the most recent pay period. AR 52–59. Meduri argued that because it had 292 employees at the time of its loan application based on its most recent pay period, Meduri qualified for its PPP2 loan. AR 53–54.
On May 3, 2024, the OHA Administrative Law Judge (“ALJ“) issued a decision affirming the SBA‘s denial of forgiveness to Meduri. AR 1182–93. The ALJ concluded that the SBA articulated a sufficiently specific basis for its decision but that Meduri‘s remaining arguments raised issues beyond the ALJ‘s authority to decide. AR 1190. On May 13, 2024, Meduri petitioned for reconsideration of the ALJ‘s decision. AR 1194–1212. On June 28, 2024, the ALJ issued a decision denying Meduri‘s petition for reconsideration and reaffirming the denial of loan forgiveness. AR 1213–20.
On August 28, 2024, Meduri filed the instant petition for review of the SBA‘s decision denying Meduri‘s request for forgiveness of the PPP2 loan. Petition for Review, ECF 1. Meduri and the SBA filed cross motions for summary judgment. Meduri‘s MSJ, ECF 19; SBA‘s MSJ ECF 22.
DISCUSSION
The central issue in these cross motions for summary judgment is whether the SBA‘s decision to deny Meduri‘s application for loan forgiveness was consistent with the controlling statute governing PPP2 loan eligibility. Meduri argues that the plain text of the contested statute mandates that a business is eligible for a PPP2 loan if it has fewer than 300 employees at the time of its loan application. The SBA argues that the statutory and regulatory framework governing PPP2 loans establishes that a business‘s number of employees is controlled by a preexisting regulation,
As explained below, this Court agrees with the SBA that the agency correctly applied
A. Statutory Interpretation
This Court begins its statutory analysis “with the text of the statute and with the presumption that Congress intended that the words used be given their
In this case, the disputed statutory language provides that a business is eligible for a PPP2 loan if, in addition to meeting certain revenue requirements, it “employs not more than 300 employees.”
As the SBA explains, Meduri ignores that Congress did not pass the CARES Act and the Economic Aid Act as standalone statutes. Rather, when enacting these statutes that created the PPP, Congress amended Section 7(a) of the Small Business Act and provided that “[e]xcept as otherwise provided in this paragraph, the [SBA] may guarantee covered loans under the same terms, conditions, and processes as a loan made under” Section 7(a).
And critically, a Section 7(a) implementing regulation already established a mechanism to calculate a business‘s number of employees. See
Therefore, Meduri‘s textual arguments cannot overcome the controlling effect of
its average number of employees in the preceding year. See
Meduri “does not dispute that PPP loans are part of the 7(a) program.” Meduri‘s Reply, ECF 23 at 1. Instead, Meduri contends that through the CARES Act and Economic Aid Act, Congress “expanded the availability of loans to businesses that would not otherwise qualify under the existing regulatory framework.” Meduri‘s Reply, ECF 23 at 1. Meduri is correct—and the SBA agrees—that with respect to certain requirements, “the CARES Act relaxes (or expands) the typical § 7(a)” eligibility criteria. In re Gateway, 983 F.3d at 1249; see SBA‘s Reply, ECF 24 at 2–3. For example, Congress made nonprofit organizations eligible to receive PPP loans even though they previously were ineligible to receive Section 7(a) loans. See SBA‘s Reply, ECF 24 at 3 (citing
But Meduri is incorrect that the PPP expanded the availability of loans by changing how the SBA calculates a business‘s number of employees. Meduri‘s argument hinges on Congress‘s use of the term “employs” in the present tense, rather than “employed” in the past tense. See Meduri‘s MSJ, ECF 19 at 12–15. According to Meduri, the present tense demonstrates that Congress intended the calculation of employees to be based on a business‘s number of employees at the time of the loan application by looking to the business‘s most recent pay period. Meduri‘s MSJ, ECF 19 at 12. In other words, Meduri argues that “[b]y making a business eligible for a PPP2 loan so long as it ’employs not more than 300 employees,’ Congress intended to override the default criteria in
Meduri‘s argument fails because there is no support from the statutory text that Congress intended to nullify the preexisting method for determining a business‘s number of employees under
For the same reasons, Meduri‘s argument predicated on the SBA‘s January 2021 Interim Final Rule (“IFR“) fails. The IFR mirrors the statute in providing that a business is eligible for a PPP2 loan if, among satisfying other requirements, the business “employs not more than 300 employees.” 86 Fed. Reg. at 3717. Meduri argues that the IFR‘s use of “employs” in the present tense further supports its desired reading of the statute. Meduri‘s MSJ, ECF 19 at 15–16. But like the statute, the IFR does not specify how the SBA calculates a business‘s number of employees. And again, Meduri‘s reliance on the present tense of “employs” does not override the controlling effect of
Meduri also contends that the ALJ erred in relying on a Frequently Asked Question (“FAQ“) that provided guidance on how to calculate maximum loan amounts. See Meduri‘s MSJ, ECF 19 at 17–21. The ALJ referenced the FAQ while rejecting Meduri‘s argument that the SBA failed to articulate the specific basis for denying its loan forgiveness application. See AR 1190–92. As discussed above, the SBA‘s conclusion that Meduri “exceed[ed] the maximum allowable number of 300 employees” was in accordance with law. AR 1. Therefore, the only issue here is whether the ALJ‘s determination that the SBA had articulated a specific basis was arbitrary and capricious. Grand Canyon Univ., 121 F.4th at 723. To the extent the ALJ erred in pointing to the FAQ as “[a]dditional[] guidance” for Meduri to calculate its employee headcount, AR 1191, the error does not undermine the remainder of the ALJ‘s decision that “reasonably considered the relevant issues and reasonably explained the decision.” Prometheus Radio Project, 592 U.S. at 423. The ALJ pointed to the specific basis that the SBA provided to Meduri (exceeding 300 employees), substantial evidence in the administrative record supporting this basis, and the SBA‘s citation to the IFR as legal authority. See AR 1190–91. In short, the ALJ‘s decision was “reasonable and reasonably explained” and therefore not arbitrary and capricious. Prometheus Radio Project, 592 U.S. at 423.
* * *
In sum, this Court finds that the SBA‘s calculation of Meduri‘s number of employees by averaging the number of employees over the preceding twelve months was consistent with the statute,
CONCLUSION
Respondent SBA‘s Motion for Summary Judgment, ECF 22, is GRANTED. Petitioner Meduri‘s Motion for Summary Judgment, ECF 19, is DENIED. The SBA‘s decision denying Meduri‘s application for loan forgiveness is upheld, and Meduri‘s Petition for Review, ECF 1, is DENIED.
IT IS SO ORDERED.
DATED this 11th day of September, 2025.
/s/ Karin J. Immergut
Karin J. Immergut
United States District Judge