Carranza v. PCT Int'l Inc.

Carranza v. PCT Int'l Inc.

Opinion

ORDER

This is a bankruptcy appeal arising from an Order and Judgment of Bankruptcy Judge Paul Sala of the District of Arizona (the "bankruptcy court"). Pending before the Court is Appellee PCT International, Inc.'s ("PCT") Motion to Dismiss (Doc. 21). Appellant Jovita Carranza¹, Administrator of the Small Business Administration ("SBA") filed a Response (Doc. 25), and PCT filed a Reply (Doc. 27).

I. Background

A. The Paycheck Protection Program ("PPP")

] Congress enacted the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") on March 27, 2020. Coronavirus Aid, Relief, and Economic Security Act, Pub. L. No. 116-136, 134 Stat. 281 (2020). Title I of the Act — the Keeping American Workers Paid and Employed Act — established [*2]  that the SBA would administer the Paycheck Protection Program ("PPP"). 15 U.S.C. § 636(a)(36). The PPP provides guaranteed, forgivable loans to eligible small businesses for the coverage of certain expenses including payroll costs, rent, and utilities among other things. CARES Act § 1102(a)(2); 15 U.S.C. §§ 636(a)(36)(G) and 9005(b). The SBA does not extend the loan, but it does guarantee the loans made by participating lenders. CARES Act § 1106; 15 U.S.C. § 9005(b), (c)(3). Therefore, if the loan qualifies for forgiveness, the SBA will pay the lender for the amount forgiven with funds allocated by Congress. CARES Act § 1106; 15 U.S.C. § 9005(b), (c)(3).

After passage of the CARES Act, the SBA issued several interim final rules concerning the administration of the PPP program. Only the fourth is relevant to this proceeding. ] The fourth interim final rule prohibits businesses presently in bankruptcy proceedings from receiving PPP loans. Promissory Notes, Authorizations, Affiliation, and Eligibility, 85 Fed. Reg. 23450 (Apr. 28, 2020). The Rule provides:

The Administrator, in consultation with the Secretary, 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. In addition, the Bankruptcy Code does not require any person to make a loan or a financial accommodation to a debtor in bankruptcy. The [*3]  Borrower Application Form for PPP loans (SBA Form 2483), which reflects this restriction in the form of a borrower certification, is a loan program requirement. Lenders may rely on an applicant's representation concerning the applicant's or an owner of the applicant's involvement in a bankruptcy proceeding.

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