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SBA CARES Act: SBA OHA Appeals Litigation Regarding Paycheck Protection Program (PPP) Loan Review Decisions

The Small Business Administration (SBA) has issued interim final rules (IFR) concerning Paycheck Protection Program (PPP) borrowers and SBA PPP lenders and the process that a PPP borrower must comply in order to appeal certain SBA loan review decisions to the SBA Office of Hearings and Appeals (OHA).

This IFR establishes a new subpart L for 13 CFR part 134 which outlines a process for appeals of certain SBA loan review decisions under the SBA CARES Act’s PPP loan forgiveness application.

Under the CARES Act, the Small Business Administration (SBA) offered loans under the Paycheck Protection Program (PPP) to assist small business affected by COVID-19.

On August 11, 2020, the SBA issued an interim final order (IFR) informing SBA Loan PPP borrowers and SBA lenders regarding the process for an SBA Loan PPP borrower to appeal certain SBA loan review decisions to the SBA Office of Hearings and Appeals (OHA).

IFR Appeals Process Coverage

In general, the IFR provides the following guidance for appealing an SBA loan review decision on an SBA PPP loan.

Scope of Rules

The IFR provides a process for appeal to the SBA OHA of certain SBA loan review decisions under the PPP and any other PPP matter referred to OHA by the Administrator of the SBA (Administrator).

An SBA loan review decision is defined as an “official written decision by the SBA,” after it completes a review of an SBA PPP loan, that finds the borrower was (or is) either:

  • Ineligible for an SBA PPP loan.
  • Ineligible for the SBA PPP loan amount received, or used the SBA PPP loan proceeds for unauthorized uses.
  • Ineligible for SBA PPP loan forgiveness in the amount determined by the lender in its full or partial approval decision issued to the SBA (except for the required deduction of any EIDL advance).
  • Ineligible for SBA PPP loan forgiveness in any amount when the lender has issued a full denial decision to the SBA.

Only final SBA loan review decisions as defined in the IFR can be appealed to the SBA OHA and heard by the presiding Administrative Law Judge (ALJ).

An SBA PPP borrower cannot file an SBA OHA appeal of any decision made by an SBA PPP lender concerning an SBA PPP loan.

An SBA PPP borrower can request an SBA review of an SBA lender's decision to deny the borrower’s loan forgiveness application in full, but that request is for a review by the SBA, not an OHA appeal.

An SBA PPP borrower may exercise any other rights it has under applicable law against an SBA PPP lender regarding an SBA lender decision.

Information to be Included in the SBA OHA Appeals Petition:

An SBA Appeals Petition must include the following:

  • The basis for SBA OHA’s jurisdiction.
  • A copy of the SBA loan review decision.
  • A detailed statement as to why the SBA loan review decision is alleged to be erroneous, with facts and legal arguments supporting the allegations.
  • The relief being sought.

The appellant or petitioner must serve a copy of the SBA OHA Appeals Petition with attachments on the Associate General Counsel for Litigation.

An Appeals Petition may be dismissed by the Administrative Law Judge.

Standing

Only the SBA borrower on a loan for which the SBA has issued a final SBA loan review decision has standing to file an appeal to the adverse decision to the SBA OHA.

Deadline for filing an SBA Appeals Petition

An SBA Appeals Petition must be filed within 30 calendar days after the earlier of:

  • Receipt by the appellant of the final SBA loan review decision.
  • Notification by the lender of the final SBA loan review decision.

Dismissal

The ALJ must dismiss the Appeals Petition if either:

  • The Appeals Petition is beyond the SBA OHA’s jurisdiction.
  • The SBA Appellant lacks standing to appeal.
  • The Appeals Petition is untimely or is premature.

The ALJ may dismiss the Appeals Petition if it does not, on its face, allege specific facts that if proven to be true, warrant reversal or remand of the SBA loan review decision.

Notice and Order

Upon receipt of an SBA Appeals Petition challenging a final SBA loan review decision, the SBA OHA will assign the matter to either an Administrative Law Judge or an Administrative Judge.

Unless the SBA Appeals Petition will be dismissed, the ALJ will issue a written notice and order establishing a deadline for production of the administrative record (typically due 20 calendar days after issuance of the notice) and specifying a date for the close of record (typically 45 calendar days from the date of OHA’s receipt of the SBA Appeals Petition).

Administrative Record

The administrative record will include relevant documents that the SBA considered in making its final decision or that were before the SBA at the time of the final decision.

The administrative record must be certified and authenticated. The SBA will file the administrative record with OHA and serve it on the appellant.

The appellant may file objections with respect to the administrative record.

These objections must be filed with OHA and served on the SBA within 10 calendar days. The Judge will rule on these objections.

Response to Appeal Petition

Only the SBA may respond to an appeal. The response should specify the relevant facts and legal arguments to the issues presented.

The SBA must file its response with OHA, and serve a copy of the response on the appellant. No reply to a response will be permitted unless directed by the ALJ.

Evidence Beyond the Record, Discovery and Oral Hearings

The ALJ may not admit evidence beyond the written administrative record. Discovery will only be permitted in SBA OHA’s appellate proceedings on a showing of good cause by the SBA. Oral hearings will only be held if the ALJ concludes that there is a genuine dispute of material fact that cannot be resolved except by the taking of testimony and the confrontation of witnesses. All appeals will be decided solely on a review of the written administrative record, the appeal petition, responses filed thereto, any admitted evidence, and an oral hearing, if held.

Interlocutory Appeals

Either party may file an interlocutory appeal of an ALJ’s ruling on an issue of privilege. Interlocutory appeals will be decided by the Administrator or a designee.

Alternative Dispute Resolution

At any time during the pendency of an appeal, the parties may submit a joint motion requesting permission to use alternative dispute resolution to resolve the issues. If the motion is granted, the ALJ will also stay the proceedings before the SBA OHA, in whole or in part, pending the outcome of the alternative dispute resolution.

Standard of Review

The standard of review is whether the SBA loan review decision was based on clear error of fact or law. The appellant or petitioner has the burden of proof, by a preponderance of the evidence.

Decision on Appeal

Administrative Law Judges will issue their decision within 45 calendar days after the close of record, as practicable.

The ALJ’s decision on the appeal is an initial decision but will become final 30 calendar days after its service unless a request for review by the Administrator or for reconsideration of the initial decision is filed.

Request for reconsideration of the initial decision can be made by either party or by the Judge on his or her own initiative.

If a request for review is filed, the decision of the Administrator is a final decision of the SBA but can be appealed to the federal district court.

For a borrower to exhaust its administrative remedies and preserve its right to seek judicial review of an SBA final decision in a federal district court, it must file and serve a request for review of an initial decision or reconsidered initial decision by the Administrator. If the borrower does not request review, the borrower’s right to seek review in federal court is waived due to the borrower’s failure to exhaust administrative remedies.

The final SBA OHA decision creates precedent only for appeals involving the SBA PPP, and does not apply to SBA’s 7(a) Loan Program generally.

Effects of the Decision

The SBA OHA may affirm, reverse, or remand an SBA loan review decision. If remanded, OHA no longer has jurisdiction over the matter unless a new appeal is filed as a result of a new SBA loan review decision.

Exhaustion of Administrative Remedies

An appeal to the SBA OHA and request for review by the Administrator of a disputed initial decision or reconsidered initial decision are administrative remedies that must be exhausted before judicial review of an SBA loan review decision may be sought in a federal district court.

Protect Law Group has proven, nationwide experience handling cases and controversies before the SBA Office of Hearings & Appeals. Our OHA Attorneys can appeal your SBA loan case and where available, resolve your case through out-of-court negotiations, alternative dispute resolution or final agency adjudication by the Administrative Law Judge.

Has your SBA PPP Loan Forgiveness Application been denied? Has your small business been denied an SBA PPP Loan? Contact Protect Law Group for a Case Evaluation or call us toll-free at 1-888-756-9969 to discuss your eligibility for an Appeals Petition before the SBA Office of Hearings & Appeals.

We can analyze your SBA PPP Loan issues and advise you on potential solutions.

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