The SBA has been sued for limiting the EIDL grants to $1k per employee, instead of paying $10k per applicant. What are the chances of the petitioners’ success? Find out in this video!
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54 small businesses have sued the Small Business Administration (the “SBA”) in federal court for the Middle District of Florida. The businesses assert that the SBA violated the CARES Act by limiting the Economic Injury Disaster Loan (EIDL) grants to just $1,000 per employee, instead of $10,000 per applicant as intended by the CARES Act. The businesses also contend that the CARES Act required the SBA to pay out the $10,000 grants within three business days from the date of the application.
While businesses’ position makes sense, it is far from certain whether they will be successful in the lawsuit and, even if they are successful, whether their success means that any other applicant will receive anything more than what they already received. Below are some of the potential hurdles that the lawsuit must overcome.
1. Sovereign Immunity. As a default rule, the federal government is immune from lawsuit, unless it expressly waives its immunity through a statutory enactment. In this case, the relevant section of the United States Code provides that one of the powers of the Administrator of the SBA is the Administrator’s ability to sue and be sued. The relevant section provides that the Administrator may be sued in federal court. As such, it appears that the sovereign immunity doctrine is satisfied.
2. Exhaustion of Administrative Remedies. Before a federal agency may be sued, the wood-be plaintiff/petitioner must first pursue administrative review following the process (if any) created by the administrative agency for the processing of complaints. In this case, the businesses did not follow the SBA’s internal appeal process and therefore may be said to have violated this doctrine, leaving their lawsuit in danger of dismissal. However, the businesses are arguing that the issue raised in this case could not have been reviewed internally via the SBA process because the issue is outside the scope of the SBA’s administrative appeal office. It will be interesting to see how the court decides this argument.
3. CARES Act Interpretation is Far From Clear Cut. The relevant provisions of the CARES Act could be interpreted as requiring the SBA to pay a $10,000 grant within three days of an applicant’s application. However, it can also be read to simply permit the applicant to request that the applicant be paid in this manner and in this amount, but does not require the SBA to do so. If the Court concludes that the language in the CARES Act is ambiguous, it will likely side with the SBA’s interpretation due to another judicial doctrine which gives deference to an agency’s interpretation of ambiguous statutory provisions.
4. Practical Problems of Paying More. Even if the businesses win the lawsuit and the Court agrees with their interpretation, it is unclear how the SBA would pay every applicant $10,000 when it has publicly announced that it does not have enough funds to pay applicants more than $1,000 per employee. While the businesses suggest that the SBA simply request more money from Congress, this appears to be easier said than done.