Federal judge says Small Business Administration must reconsider Hidalgo County EMS loan application
The U.S. Small Business Administration discriminated against Hidalgo County EMS — and other businesses in bankruptcy or associated with bankruptcy proceedings — during the Paycheck Protection Program loan application process, a federal bankruptcy judge said on Friday.
During a hearing Friday morning, Chief U.S. Bankruptcy Judge David R. Jones of the Southern District of Texas approved a temporary restraining order against the Small Business Administration.
The Paycheck Protection Program loan application process included a form that asked: “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?”
Jones said the poorly worded question conflated debarment, which may involve criminal behavior, with bankruptcy.
“It’s entirely inappropriate that those words were added to that form in that list in that manner and I see no authority anywhere for including those words in that form,” Jones said. “It serves no purpose.”
Jones said he considered the question “bankruptcy discrimination.”
“This can’t be what Congress intended,” Jones said. “This can’t be how we’re supposed to treat our fellow man at this time.”
Jones, however, limited the temporary restraining order to Hidalgo County EMS. He declined to make a ruling that would affect other businesses in bankruptcy or the broader Paycheck Protection Program loan process.
Congress passed the Coronavirus Aid, Relief, and Economic Security Act, which established the Paycheck Protection Program, to assist struggling businesses and reduce unemployment.
Hidalgo County EMS, a privately owned company that provides ambulance service to Edinburg, Pharr, parts of rural Hidalgo County, Jim Hogg County, Jim Wells County, Peñitas and Sullivan City, applied for a Paycheck Protection Program loan on April 3.
Ambulance calls dropped about 30% after the coronavirus pandemic started, according to an affidavit filed by Hidalgo County EMS Chief Financial Officer David Elliott.
“Each call that results in a treat and transport typically results in a cash receipt approximately 4 – 6 weeks after the call,” according to the affidavit. Without a Paycheck Protection Program loan, Hidalgo County EMS faced a financial crisis.
Omar Romero, the chief restructuring officer for Hidalgo County EMS, said the company would review every possible way to maintain service and avoid layoffs.
“Layoffs will be the last option we’ll consider,” Romero said, adding that in a worst-case scenario Hidalgo County EMS would furlough non-essential administrative employees or cut their pay.
Hidalgo County EMS applied for the Paycheck Protection Program loan and checked “yes” on the question about bankruptcy.
Dallas-based PlainsCapital Bank, which processed the loan application for the Small Business Administration, rejected Hidalgo County EMS because of the bankruptcy question.
Hidalgo County EMS filed a lawsuit against the Small Business Administration on Wednesday and requested a temporary restraining order.
Jones held a hearing on the temporary restraining order Friday morning.
“I think it’s just a mistake and a badly implemented process,” said attorney Nathaniel Peter Holzer, an attorney for Hidalgo County EMS.
Assistant U.S. Attorney Richard A. Kincheloe, who represented the government, said corporations in bankruptcy aren’t eligible for the money because the Small Business Administration could lose control of the funds during a bankruptcy proceeding.
That argument is “completely frivolous,” Jones said, because federal judges closely monitor spending by businesses in bankruptcy.
Jones approved the temporary restraining order and directed the Small Business Administration to reconsider the Hidalgo County EMS loan application without the reference to bankruptcy.