Denied a Paycheck Protection Program loan, Hidalgo County EMS sues the Small Business Administration
Hidalgo County EMS filed a lawsuit against the U.S. Small Business Administration on Wednesday after a bank rejected the company’s request for a Paycheck Protection Program loan.
Hidalgo County EMS, a privately owned company that provides ambulance service throughout South Texas, requested a $2.6 million loan through the Paycheck Protection Program — a federal program designed to support businesses during the coronavirus pandemic.
Dallas-based PlainsCapital Bank rejected the loan application because Hidalgo County EMS filed for Chapter 11 bankruptcy last year.
“Hidalgo EMS is currently working to reorganize in Chapter 11 while maintaining 100% of its usual staffing levels in the midst of the Corona Virus pandemic and a significant decline in revenue, a revenue decline that has occurred despite the Debtor’s extensive and ongoing involvement as a ‘front line’ health care provider for victims of COVID-19,” according to the lawsuit filed Wednesday in federal bankruptcy court.
Ambulance calls dropped about 30% after the coronavirus pandemic started, according to the lawsuit. Without a loan from the Paycheck Protection Program, the company may struggle to provide ambulance service.
“Hidalgo EMS needs the PPP loan to shore up its finances and allow it to continue to support the community as a front-line medical services provider during the crisis,” according to the lawsuit. “Without this source of liquidity the Debtor’s survival as a going concern is in question.”
Faced with major financial problems, including a $2.6 million federal tax lien, Hidalgo County EMS filed for bankruptcy in October.
Hidalgo County EMS had a net income of about $277,000 in October, according to reports filed with the federal bankruptcy court in Corpus Christi.
Revenue dropped significantly in January, when Hidalgo County EMS recorded a nearly $275,000 loss, according to a report filed with the bankruptcy court on April 1. The company recorded a nearly $228,000 loss in February.
In March, the coronavirus struck South Texas.
“The problem is the reduction in cash flow that we’re expecting fairly soon because the call volumes have dropped,” said attorney Nathaniel Peter Holzer, who represents Hidalgo County EMS.
Hidalgo County EMS also had new expenses, including cleaning supplies and personal protective equipment for employees.
The federal Coronavirus Aid, Relief, and Economic Security Act, which established the Paycheck Protection Program, doesn’t actually exclude corporations involved in bankruptcy proceedings, according to the lawsuit. The loan application, however, asks: “Is the Business or any owner presently suspended, debarred, proposed for debarment, declared ineligible, voluntarily excluded from participation in this transaction by any Federal department or agency, or presently involved in any bankruptcy?”
Hidalgo County EMS answered “yes” because of the Chapter 11 bankruptcy case.
“The only reason Hidalgo County EMS answered ‘yes’ to Question #1 is the pending bankruptcy,” according to the lawsuit. “Neither Hidalgo EMS or its owner are ‘presently suspended, debarred, proposed for debarment, declared ineligible, voluntarily excluded from participation in this transaction by any Federal department or agency.”
Holzer said the question shoehorned two separate issues — bankruptcy and debarment — into a single question.
“This form looks to me as if the SBA is making it up as it goes along, regardless of what the law says,” Holzer said.
Hidalgo County EMS asked a bankruptcy judge for a temporary restraining order against the Small Business Administration, which would prohibit the agency from considering bankruptcy during the Paycheck Protection Program loan process.
A spokeswoman for the U.S. Attorney’s Office for the Southern District of Texas, which is representing the Small Business Administration, declined to comment on the lawsuit.