SPRINGFIELD HOSPITAL, INC., SPRINGFIELD MEDICAL CARE SYSTEMS, INC., Plаintiffs-Appellees, v. ISABEL GUZMAN, IN HER CAPACITY AS ADMINISTRATOR FOR THE U.S. SMALL BUSINESS ADMINISTRATION, Defendant-Appellant.
No. 20-3902, No. 20-3903
United States Court of Appeals for the Second Circuit
March 16, 2022
August Term 2021 (Argued: October 28, 2021 Decided: March 16, 2022)
Before: KEARSE, LOHIER,
In response to the COVID-19 pandemic, Congress enacted the Coronavirus Aid, Relief, and Economic Security
Plaintiffs-Appellees Springfield Hospital, Inc. and Springfield Medical Care Systems, Inc. (together, “Springfield“) are debtors in bankruptcy who applied for and were denied PPP funds solely due to their bankruptcy status. Springfield initiated this adversary proceeding in bankruptcy court against Defendant-Appellant, the Administrator of the SBA, in her official capacity*, challenging the SBA‘s administration of PPP funds and requesting that the bankruptcy court enjoin the SBA from denying its PPP application on the basis of its bankruptcy status. Specifically, Springfield asserted that: (1) the SBA‘s decision to exclude bankrupt debtors from obtaining PPP loans violated Section 525(a) of the Bankruptcy Code, which provides that “a governmental unit may not deny ... a licensе, permit, charter, franchise, or other similar grant” to a debtor in bankruptcy solely because of that status,
The Bankruptcy Court for the District of Vermont (Brown, J.) held, in relevant part, that PPP funds were “other similar grant[s]” under Section 525(a) and that Section 634(b)(1) did not bar it from enjoining the SBA. The bankruptcy court then entered summary judgment in Springfield‘s favor and enjoined the SBA from denying Springfield PPP funds based on their status as debtors in bankruptcy. The SBA appealed. We hold, based upon the plain language of Section 525(a), that the PPP is a loan guaranty program and not an “other similar grant,” and Section 525(a) does not apply to the PPP. Therefore, the bankruptcy court incorrectly ruled that Springfield was entitled to summary judgment and a permanent injunction, and we instead conclude, as a matter of law, that summary judgment in the SBA‘s favor is warranted on the Section 525(a) claim.
Accordingly, we REVERSE the judgment, VACATE the permanent injunction, and REMAND to the bankruptcy court for further proceedings consistent with this opinion.
JOSHUA M. SALZMAN (Mark B. Stern, Lindsey Powell, on the brief), Appellate Staff, Civil Division, for Brian M. Boynton, Acting Assistant Attorney General, United States Department of Justice, Washington, DC, and Jonathan A. Ophardt, Acting United States Attorney for the District of Vermont, Burlington, VT, for Defendant-Appellant.
ANDREW C. HELMAN, Dentons Bingham Greеnebaum LLP, Portland, ME, for Plaintiff-Appellee Springfield Hospital, Inc.
Adam R. Prescott, D. Sam Anderson, Bernstein Shur Sawyer & Nelson, P.A., Portland, ME, for Plaintiff-Appellee Springfield Medical Care Systems, Inc.
JOSEPH F. BIANCO, Circuit Judge:
In March 2020, in response to the COVID-19 pandemic, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act” or the “Act“), which established the Paycheck Protection Program (“PPP“). The PPP authorized the Small Business Administration (the “SBA“) to guarantee favorable and potentially forgivable loans to businesses negatively impacted by the pandemic. In administering the program, the SBA decided to automatically bar any applicant who was a debtor in bankruptcy from receiving PPP funds. Plaintiffs-Appellees Springfield Hospital, Inc. and Springfield Medical Care Systems, Inc. (together, “Springfield“)1 are debtors in bankruptcy who applied for and were denied PPP funds due solely to their bankruptcy status. In April 2020, Springfield initiated this adversary proceeding in bankruptcy court against Defendant-Appellant, the Administrator of the SBA, in her official capacity, challenging the SBA‘s administration of PPP funds and requesting that the bankruptcy court enjoin the SBA from denying any PPP application on the sole basis of the applicant‘s bankruptcy status. Specifically, Springfield asserted that: (1) the SBA‘s decision to exclude bankrupt debtors from obtaining PPP loans violated Sеction 525(a) of the Bankruptcy Code, which provides that “a governmental unit may not deny . . . a license, permit, charter, franchise, or other similar grant” to a debtor in bankruptcy solely because of that status,
On June 22, 2020, the Bankruptcy Court for the District of Vermont (Brown, J.) issued a Memorandum of Decision, concluding that, as a matter of law, PPP funds were “other similar grant[s]” under Section 525(a) and granting summary judgment in Springfield‘s favor. Further, the bankruptcy court concluded that Section 634(b)(1) did not bar it from enjoining the SBA and, after determining that Springfield had met the standard to obtain a permanent injunction, enjoined the SBA from denying Springfield PPP funds based on its bankruptcy status. The SBA appealed.
We hold, based upon the plain language of Section 525(a), that the PPP is a loan guaranty program and not an “other similar grant,” and that Section 525(a) does not apply to PPP loans. Therefore, the bankruptcy court incorrectly ruled that Springfield was entitled to summary judgment and a permanent injunction, and we instead conclude, as a matter of law, that the SBA is entitled to summary judgment on the Section 525(a) claim.
Accordingly, we REVERSE the judgment, VACATE the permanent injunction, and REMAND to the bankruptcy court for further proceedings consistent with this opinion.
BACKGROUND
I. Statutory and Regulatory Background
A. Pre-CARES Act Statutory Context
The SBA was enacted in 1958 to “aid, counsel, assist, and protect, insofar as is possible, the interests of small-business concerns.” Pub. L. No. 85-536, 72 Stat. 384 (1958) (codified as amended at
In addition to creating Section 7(a) loans, the Small Business Act authorizes the SBA Administrator to “make such rules and regulations as [s]he deems necessary” to implement the loan program. See
B. COVID-19 and the CARES Act
In March 2020, in response to the COVID-19 pandemic, Congress enacted the CARES Act to, in part, alleviate the pandemic‘s substantial economic effects on small businesses. See Coronavirus Aid, Relief, and Economic Security Act, Pub L. No. 116-136, 134 Stat. 281, 286 (2020). Relevant here, Section 1102 of the Act establishes the PPP, a temporary program targeted at providing small businesses with the funds necessary to meet their payroll and operating expenses and therefore keep workers employed. See CARES Act § 1102, 134 Stat. at 286 (codified as amended at
Rather than establishing the PPP as a standalone program, the CARES Act places the PPP under Section 7(a) of the Small Business Act, providing that the SBA “may guarantee covered [PPP] loans under the same terms, conditions, and processes” as other Section 7(a) loans.2
Given the need to move expeditiously to address the pandemic‘s economic effects, the CARES Act directed the SBA to issue emergency regulations implementing the PPP within only fifteen days.4 CARES Act § 1114, 134 Stat. at 312 (codified as amended at
Moreover, although the first interim final rule did not specify that all bankruptcy debtors were ineligible to receive PPP funds, it established the use of the PPP Application form, which asks applicants whether they are “presently involved in any bankruptcy” and provides that, if the applicant‘s answer is “‘Yes,’ the loan will not be approved.” SMALL BUS. ADMIN, PAYCHECK PROTECTION PROGRAM BORROWER APPLICATION FORM 2483 (VERSION 1), https://www.sba.gov/sites/default/files/2022-02/PPP-Borrower-Application-Form-Fillable.pdf; see 85 Fed. Reg. at 20,814 (establishing use of SBA Form 2483). In its fourth interim final rule, the SBA explicitly clarified that bankruptcy debtors are ineligible to receive PPP funds, explaining that “[t]he Administrator, in consultation with the Secretary [of the Treasury], determined that providing PPP loans to debtors in bankruptcy would present an unacceptably high risk of an unauthorized use of funds or non-repayment of unforgiven loans.” See 85 Fed. Reg. at 23,451.
II. Procedural History
Springfield is a non-profit critical access hospital and medical services provider located in Springfield, Vermont, that employs over 670 employees. On June 26, 2019, Springfield commenced voluntary chapter 11 bankruptcy proceedings, but has continued to operate its businesses as a debtor-in-possession. After the onset of the COVID-19 pandemic, the majority of Springfield‘s outpatient procedures, non-essential medical procedures, and office visits were cancelled, postponed, or rescheduled pursuant to federal and state orders and recommendations. As a significant portion of Springfield‘s revenue streams are derived from these services, the cancellations and postponements had a severe impact on Springfield‘s cash flow, materially exacerbating Springfield‘s already-existing financial problems. Due to this negative impact on its income, Springfield anticipated serious difficulties with paying its near-term operating expenses and consequently applied for multiple state and federal emergency grants, including, as relevant here, PPP loans.6 At the time of its application, Springfield was in chapter 11 bankruptcy status. Because of this status, Springfield‘s PPP applications were denied.7
On June 22, 2020, the bankruptcy court issued an order and accompanying Memorandum of Decision granting summary judgment in Springfield‘s favor and enjoining the SBA from denying Springfield‘s PPP application.9 Specifically, the bankruptcy court held that: (1) In re Goldrich, 771 F.2d 28 (2d Cir. 1985) — the controlling precedent cited by the SBA, which held that Section 525(a) did not protect extensions of credit — had been overruled by congressional abrogation and a later circuit decision; (2) regardless, the PPP was an “other similar grant” within the meaning of Section 525(a), not a loan program, and thus, the SBA‘s exclusion of debtors in bankruptcy from the PPP violated Section 525(a); (3) Section 634(b)(1) did not bar an injunction against the SBA and, accordingly, the bankruptcy court could enjoin the
This appeal followed.10
III. PPP Litigation under Section 525(a) in Other Courts
Around the same time as the instant action, numerous challenges to the SBA‘s exclusion of bankrupt debtors from the PPP were brought in federal courts around the country. When the bankruptcy court issued its order that is the subject of the instant appeal, it identified multiple recent PPP-related decisions addressing Section 525(a) in both bankruptcy courts and district courts.11 Of the proceedings that reached a decision by the time the bankruptcy court issued its order, at least fourteen courts had concluded — either directly or by determining that the plaintiffs were unlikely to succeed on the merits — that the PPP was not covered by Section 525(a).12 We note that one such case was brought in the Western District of New York. The district court ultimately granted summary judgment to the SBA on the Section 525(a) claim and thus created a split of authority among lower courts within this circuit. See Diocese of Rochester, 466 F. Supp. 3d at 379–80 (holding that the
In sum, at the time of this opinion‘s publication, approximately eighteen courts have determined that the PPP is not protected by Section 525(a). No circuit court, however, has addressed this precise issue.
IV. Post-CARES Act Congressional Action
On December 27, 2020, Congress enacted the Consolidated Appropriations Act 2021, Pub L. No. 116-260, 134 Stat. 1182 (2020). As relevant here, the Consolidated Appropriations Act amended Section 525 to prohibit the exclusion of debtors in bankruptcy from certain benefits under the CARES ACT — namely, foreclosure moratoriums, eviction moratoriums, and the forbearance of some residential mortgages — solely based on their status as debtors in bankruptcy. See
DISCUSSION
On appeal, the SBA contends that the bankruptcy court erred in concluding that
We review de novo a bankruptcy court‘s grant of summary judgment. See In re Treco, 240 F.3d 148, 155 (2d Cir. 2001). A motion for summary judgment may be granted only “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
Moreover, when reviewing an order granting a permanent injunction, we review the lower court‘s conclusions of law de novo and its ultimate decision for abuse of discretion. Goldman, Sachs & Co v. Golden Empire Schs. Fin. Auth., 764 F.3d 210, 214 (2d Cir. 2014). An abuse of discretion occurs when the lower court‘s
decision rests on a clearly erroneous factual finding or an error of law or cannot be located within the range of permissible decisions. ACORN v. United States, 618 F.3d 125, 133 (2d Cir. 2010).
As discussed below, we hold that, as a matter of law, the PPP is a loan guaranty program and not an “other similar grant,” and thus is not covered by
I. Sovereign Immunity and Injunctive Relief
Before we analyze Springfield‘s
Issues of federal sovereign immunity implicate a court‘s subject-matter
Moreover, federal sovereign immunity differs from standard threshold matters of
Here, we similarly conclude that the question of the SBA‘s sovereign immunity under
Thus, the SBA has not asserted immunity from suit. Instead, the SBA concedes that the
To establish a violation of
A. The Text of Section 525(a)
Our analysis begins, as it must, with the plain text of
The meaning of
Because “grant” is undefined, we give the term its ordinary meaning, considering the “commonly understood meaning of the statute‘s words at the time Congress enacted the statute, and with a view to their place in the overall statutory scheme.” In re Bernard L. Madoff Inv. Secs. LLC, 12 F.4th 171, 186 (2d Cir. 2021) (internal quotation marks omitted). In legal
Thus, two things are clear from this analysis of the statute‘s plain language. First, given the textual limitations on the listed items in the statute, it is evident that credit guarantees—in other words, loans—are not covered by the provision. As we held in Goldrich, “[a] credit guarantee is not a license, permit, charter or franchise; nor is it in any way similar to those grants. . . . Although the exact scope of the items enumerated may be undefined, the fact that the list is composed solely of benefits conferred by the state that are unrelated to credit is unambiguous.” 771 F.2d at 30. Second, the text makes plain that it is insufficient for an item to fall within the general definition of “grant” to qualify for protection under
B. Our Precedent
The parties dispute which of our two
Nine years after our decision in Goldrich, Congress amended
When we next considered the scope of
Notwithstanding the ability to harmonize the analysis in these two decisions, the bankruptcy court determined—and Springfield argues on appeal—that Goldrich no longer carries authoritative weight because it was, alternatively, abrogated by congressional enactment or overruled by our subsequent opinion in Stoltz. We find these arguments unpersuasive and address each in turn.
First, although we recognized in Stoltz that
Second, we disagree with the bankruptcy court‘s conclusion that Stoltz departed from Goldrich‘s analysis. To start, Stoltz could not have overruled Goldrich even had it presumed to do so, as a subsequent panel “is bound by the decisions of prior panels until such time as they are overruled either by an en banc panel of our Court or by the Supreme Court.” Lotes Co. v. Hon Hai Precision Indus. Co., 753 F.3d 395, 405 (2d Cir. 2014) (internal quotation marks omitted). Moreover, nothing about the two decisions suggests that they are irreconcilable. In Goldrich, we addressed
Further, the bankruptcy court‘s reliance upon Stoltz‘s brief analysis of the statute‘s legislative history as signaling our departure from Goldrich—an argument that Springfield also wields to argue that
In any event, the legislative history is not as dispositive as the bankruptcy court or Springfield would have it. To be sure, as both Stoltz and the bankruptcy court pointed out, the legislative history of
In sum, neither Congress‘s enactment of
C. PPP is a Loan Program Uncovered by Section 525(a)
The bankruptcy court concluded that the PPP, “[w]hile nоminally designated as a ‘loan,‘” was, in substance, a “grant or support program[] aimed at helping people in financial distress” due to the PPP‘s forgiveness mechanism and lack of underwriting. Special App‘x at 19. We disagree and conclude that the PPP is, in substance and in form, a loan program that is not covered under
Although we recognize that we must analyze the substance of the PPP, rather than just its nomenclature, it is nevertheless significant that Congress chose to characterize the PPP as a “loan” in the
billion disbursed to borrowers through the PPP are loans, not grants.“). For instance, as just a small sample, the CARES Act authorizes the SBA to “guarantee covered loans” issued pursuant to the PPP,
To be sure, if the PPP truly operated as a grant, its mere designation as a “loan” in the CARES Act would not prevent us from classifying it as a “grant” for purposes of Section 525(a). However, that is not the case here. Instead, the substance of the PPP conclusively demonstrates that it is, as described, a loan guaranty program, not a grant program.
First, the structure of the PPP provides compelling support for our conclusion. As discussed above, Congress placed the PPP within Section 7(a) of the Small Business Act—the SBA‘s primary mechanism for providing financial assistance to businesses—and authorized the SBA to adopt the “same terms, conditions, and processes” for PPP loans as for 7(a) loans.
Third, although Springfield argues that the SBA “conducts no review for creditworthiness or to determine ‘sound value’ of applications,” Appellee Springfield‘s Br. at 37, and although the bankruptcy court concluded that the “lack of any underwriting” indicated that the PPP does not issue true “loans,” see Special App‘x at 19, these arguments again disregard the plain language of the CARES Act. The Act explicitly preserves Section 7(a)‘s “sound value” requirement for all PPP loans. See
The bankruptcy court, however, determined that the PPP is an “other similar grant” protected by Section 525(a) because: (1) the PPP‘s favorable terms “confer unique benefits impossible to obtain from the private sector;” and (2) would “seriously affect [Springfield‘s] ability to continue business operations and successfully reorganize,” which it concluded was essential to Springfield‘s fresh start. Special App‘x at 20 (internal quotation marks omitted). In so doing, the bankruptcy court relied on a strained analogy to the public housing lease at issue in Stoltz that we conclude is inapposite.
Stoltz, in analyzing the parameters of Section 525(a), focused its analysis on a specific set of government-issued property interests that relate to an individual‘s ability to access or pursue their livelihood: “[a] debtor who cannot obtain her real estate license will be unable to pursue her chosen profession; a debtor who cannot obtain his transcript will be unable to apply for certain jobs or further schooling; a debtor who cannot obtain a driver‘s license will be unable to commute to many jobs or school.” Stoltz, 315 F.3d at 90. As the Sixth Circuit explained, the items enumerated in Section 525(a) implicate the “government‘s role as a gatekeeper in determining who may pursue certain livelihoods,” Toth, 136 F.3d at 480, and, as the Fourth Circuit noted, “are all governmental authorizations that typically permit an individual to pursue some occupation or endeavor aimed at economic betterment,” Ayes, 473 F.3d at 108.21 The public housing lease in Stoltz clearly fit within these interests; individuals qualify for a public housing lease because they cannot afford privately available housing and, thus, the lease could only be obtained from the government. See Stoltz, 315 F.3d at 90. Further, the denial of a lease could lead to eviction or homelessness, making the lease essential to the debtor‘s future. See id.
When applied to the PPP, this analogy breaks down. If a governmental entity refuses to issue a professional license to a debtor, that debtor is unequivocally denied entry into that profession. But if a governmental entity refuses to guarantee a PPP loan for a debtor, that debtor is not unequivocally excluded from receiving capital from other sources. Ineligible debtors can still seek traditional loans from a bank (even if private commercial loans would not carry the same generous terms as PPP loans) or can receive other governmental support grants as, in fact, Springfield did. Although the denial of a PPP loan may inhibit a would-be borrower‘s ability to access capital, that rejection does not bar borrowers from operating their businesses or prevent them from pursuing their chosen profession.
In short, the PPP loans, by their nature, do not share the “common qualities of the property interests protected under section 525(a)” as identified in Stoltz—that is, such
In sum, we recognize the economic hardships caused by the COVID-19 pandemic to businesses like Springfield, as well as the undoubted usefulness of additional governmental aid in continuing Springfield‘s operations and allowing it to provide necessary medical services to the community. However, our understanding of the economic realities facing businesses in a pandemic cannot controvert the plain language of the Section 525(a) or our binding precedent in Goldrich that reinforces the meaning of that plain language.
D. Subsequent Legislation
Although our conclusion relies on the plain text of the statute, we note that the additional PPP legislation enacted after the CARES Act provides further support for our interpretation of Section 525(a). We have emphasized the need to approach post-enactment legislation with caution. See In re Clinton Nurseries, Inc., 998 F.3d 56, 66 n.9 (2d Cir. 2021). However, in this particular instance, Congress‘s subsequent legislation supports its clear intent that PPP loans are not covered by Section 525(a).
In the Consolidated Appropriations Act, 2021, Congress amended Section 525 to expressly bar discrimination based on bankruptcy status in the provisioning of certain CARES Act benefits—such as foreclosure moratoriums,
Moreover, as part of the Consolidated Appropriations Act, 2021, Congress enacted the Economic Aid Act, creating a “process through which the SBA Administrator can issue a written determination that will render certain entities in bankruptcy eligible for PPP loans.” Appellant SBA‘s Br. at 28 (citing Economic Aid Act § 320(a), (f), 134 Stat. at 2015-16). If we were tо read Section 525(a) as covering PPP loans—if we were to assume all bankrupt debtors were already protected from discrimination without requiring approval from the Administrator—this provision would be unnecessary. See Tablie v. Gonzales, 471 F.3d 60, 64 (2d Cir. 2006) (“We are obliged to give effect, if possible, to every clause and word of a statute, and to render none superfluous.” (internal quotation marks and alterations omitted)).
Insofar as Springfield argues that this subsequent legislation merely reflects Congress‘s choice not to definitively speak on the issue and instead allow the courts to determine the scope of Section 525(a), we disagree. It is clear that Congress did definitively speak on the matter, first, by designating the PPP as loans and placing them within Section 7(a) and second, by extending Section 525‘s protections to only certain CARES Act provisions, and not the PPP. This conclusion is especially apparent given that prior to these amendments, as discussed above, the overwhelming majority of federal courts to address the issue concluded that Section 525(a) does not cover PPP loans. If that interpretation of Section 525(a) were truly antithetical to Congress‘s wishes, as Springfield suggests, it would seem strange to conclude that Congress amended Section 525 but did not make its intended construction clear, all to deliberately allow federal courts to continue reaching what Congress viewed as the wrong conclusion. Had Congress intended Section 525(a) to apply to PPP loan guarantees, it would have expressly stated so in the Consolidated Appropriations Act in 2021, as it did with other CARES Act sections and as it did previously with student loans in enacting Section 525(c) after Goldrich.
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In sum, we conclude that the PPP is a loan guaranty program and not an “other similar grant,” and we hold that Section 525(a) does not apply to PPP loans. Accordingly, the bankruptcy court incorrectly ruled that Springfield was entitled to summary judgment and we instead conclude, as a matter of law, that summary judgment in SBA‘s favor is warranted on the Section 525(a) claim. Moreover, because the bankruptcy court‘s decision to issue a permanent injunction rested on that same error of law, we conclude that the injunction against the SBA should be vacated. See ACORN, 618 F.3d at 133. Accordingly, we need not, and do not, decide whether
CONCLUSION
For the reasons set forth above, we REVERSE the judgment, VACATE the permanent injunction, and REMAND to the bankruptcy court for further proceedings consistent with this opinion.