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Elk Assocs. Funding Corp. v. United States SBA

United States District Court for the District of Columbia

April 24, 2012, Decided

Civil Action No. 12-00438 (CKK)



Elk Associates Funding Corporation ("ELK") brings this action against the United States Small Business Administration (the "SBA"), 1 seeking relief under the Administrative Procedure Act and the Due Process Clause of the Fifth Amendment to the United States Constitution for the SBA's allegedly arbitrary and capricious conduct. Currently before the Court is ELK's Motion for Preliminary Injunction and Temporary Restraining Order ("Motion for Preliminary Relief"). 2 Upon consideration of the parties' submissions, the relevant authorities, and the record as a whole, ELK's Motion for Preliminary Relief shall be DENIED.


Since 1980, ELK has been licensed to operate as a Small Business Investment  [*5]  Company ("SBIC") under the auspices of the SBA. Over the years, it has received substantial financial assistance from the SBA and, today, ELK has more than $21 million in outstanding debt obligations that are held directly by the SBA.

Beginning in March 2010, as a result of mounting losses, the condition of ELK's private capital had deteriorated to such a point that the company no longer met the minimum threshold set by regulation—a "condition of capital impairment" that triggered an event of default with an opportunity to cure. On July 20, 2010, the SBA notified ELK that it was in default and warned the company that it had a period of fifteen days to cure its condition of capital impairment. On August 4, 2010, ELK received a modest cash  [**3] infusion, but because its financial condition had further deteriorated by that point, the cash infusion failed to cure the company's condition of capital impairment. In the months that followed, ELK pursued a variety of transactions with third-party investors in an attempt to secure the private capital needed to come into compliance with the applicable regulations. In the end, none of those transactions came to fruition and ELK's financial condition only continued to further deteriorate. On February 22, 2012, more than one year and seven months after ELK was notified that it was in default and needed to cure its condition of capital impairment, the SBA internally transferred the company to a unit responsible for the orderly liquidation of SBICs.

Thereafter, faced with ELK's threats of litigation, the SBA voluntarily agreed to suspend all further liquidation activities and, on March 6, 2012, the SBA issued ELK a second formal notice of its condition of capital impairment, reiterating that the company was in default and warning that it had a period of fifteen days to cure. On March 13, 2012, after ELK proposed submitting certain unfunded commitment letters as a proposed cure, the SBA  [**4] provided ELK with a letter identifying potential problems with the company's proposed approach.

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858 F. Supp. 2d 1 *; 2012 U.S. Dist. LEXIS 56636 **; 2012 WL 1403375

ELK ASSOCIATES FUNDING CORPORATION, Plaintiff, v. UNITED STATES SMALL BUSINESS ADMINISTRATION, and KAREN G. MILLS, Administrator of the United States Small Business Administration, Defendants.


cure, impairment, Liquidation, preliminary injunction, infusion, preliminary relief, debentures, investors, transferred, compliance, conditions, notified, licensee, notice, injunctive relief, capricious, declaration, regulation, parties, proposed transaction, ownership, licensed, funds, one year, merits, financial condition, binding commitment, small business, Administrative Procedure Act, deteriorated

Civil Procedure, Injunctions, Grounds for Injunctions, General Overview, Remedies, Preliminary & Temporary Injunctions, Evidence, Burdens of Proof, Allocation, Inferences & Presumptions, Presumptions, Rebuttal of Presumptions, Particular Presumptions, Regularity, Banking Law, Banking & Finance, Federal Acts, Small Business Act, Bankruptcy Law, Liquidations, Temporary Restraining Orders, Pleading & Practice, Pleadings, Administrative Law, Judicial Review, Standards of Review, Reviewability, Reviewable Agency Action, Irreparable Harm