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Health Law Monitor

UPDATE: Fifth Circuits Holds Bankruptcy Court Cannot Enjoin the SBA Regarding PPP Funding to Debtors

June 25, 2020

By: Chacey R. Malhouitre

Jackson Kelly previously reported on a number of Bankruptcy Courts granting temporary restraining orders against the Small Business Administration (“SBA”) to allow bankruptcy debtors to apply for Paycheck Protection Program (“PPP”) funds and prohibiting the SBA and any lender from denying the application due solely to the applicant’s status as a bankruptcy debtor. (See May 7, 2020 Health Law Monitor.)

Among the cases discussed was the Hidalgo County Emergency Service Foundation (“Hidalgo EMS”) case pending in the Bankruptcy Court for the Southern District of Texas. On May 8, 2020, the Bankruptcy Court granted Hidalgo EMS a preliminary injunction against the SBA, allowing it to apply for a PPP loan without consideration of its bankruptcy or interference from the SBA. On appeal, however, the U.S. District Court stayed the injunction and certified the issue for appeal directly to the U.S. Court of Appeals for the Fifth Circuit.

On June 22, 2020, the Fifth Circuit issued a 3-page opinion vacating the preliminary injunction on the basis that 15 U.S.C. § 634(b)(1) and existing Fifth Circuit precedent prohibited injunctive relief against the SBA. The Fifth Circuit clarified that the opinion did not address “the validity or wisdom of the PPP regulations and related statutes, [only] the ability of a court to enjoin the Administrator, whether in regard to the PPP or any other circumstance.” The Fifth Circuit’s opinion can be found here.

Whether Hidalgo EMS seeks further appellate review remains to be seen. But the practical effect of the Fifth Circuit’s ruling is that Hidalgo EMS cannot access PPP funding if it remains in bankruptcy, or possibly under any circumstance due to timing.

 

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