Court Determines SBA Likely Discriminated Against Two Maine Hospitals

Attorneys with the law firm Murray, Plumb & Murray (“MPM”) obtained temporary restraining orders against the administrator of the U.S. Small Business Administration (“SBA”), clearing the way for three hospitals reorganizing in bankruptcy to access funds under the Paycheck Protection Program (“PPP”).

Federal law enacting the Paycheck Protection Program does not bar companies in bankruptcy from participating in the program, but the SBA added a question on the official application form indicating that debtors’ applications would be rejected because of their bankruptcy filings. SBA subsequently adopted a rule reinforcing this position.

The three hospitals—Penobscot Valley Hospital, Calais Regional Hospital, and Springfield Hospital, Inc.—represented by Andrew Helman and other attorneys with MPM’s Business Reorganization & Insolvency Group, filed complaints and emergency motions for temporary restraining orders alleging that the administrator’s actions violated a provision of the Bankruptcy Code that prevents the government from discriminating against companies in bankruptcy. The hospitals also alleged other claims that have not been ruled on.

“In our view, these hospitals are losing revenue because they are complying with state and federal recommendations to pause all non-essential procedures and were then told that they need not apply for a government program that Congress put in place to help them,” said Helman. “All these hospitals are seeking is a chance to stand in line and have their application considered the same as every other small business.”

According to the Court’s orders:

• The hospitals are authorized to submit PPP applications with the bankruptcy language stricken from them;
• Commercial lenders and SBA are prohibited from denying the applications on the basis of the companies’ chapter 11 filings; and, among other things,
• SBA must retain sufficient guaranty authority under PPP to allow the companies to participate in the program, if they otherwise meet eligibility requirements.

These orders are not final decisions, but determined that each company met its burden to demonstrate (A) a likelihood of success on the merits of the discrimination claims, (B) that there is a risk of irreparable harm to the companies, (C) that the risk of harm to the companies outweighs any risk of harm to the SBA, and (D) that the public interest is served by granting the temporary restraining orders.

Copies of the orders are available at these links:

Springfield Hospital TRO Order Granted

Springfield Hospital TRO Memorandum of Decision

Calais Regional Hospital TRO

Penobscot Valley Hospital TRO

SBA’s decision to exclude companies in bankruptcy from PPP is an issue of national attention at this time. As of May 4, 2020, five bankruptcy courts have ruled against SBA and two have ruled in favor of SBA.

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