Top 10 Things to Know About SBA PPP Loan Review Decision Appeals to OHA

Earlier this month, the Paycheck Protection Program (“PPP”) moved from a phase of “loan disbursement” to a phase of “loan forgiveness.” As explained in our August 11, 2020 Client Alert, the U.S. Small Business Administration’s (“SBA’s”) Loan Forgiveness Review Portal went live on August 10, 2020 and lenders are slowly beginning to accept PPP loan forgiveness applications (although some are still waiting to see if PPP loans under $150,000 will be automatically converted to grants, thereby avoiding the need for loan forgiveness entirely). On August 11, 2020, SBA issued a supplemental interim final rule (the “IFR” or “Rule”) to inform PPP borrowers and lenders of the process for a PPP borrower to appeal certain SBA loan review decisions to the SBA Office of Hearings and Appeals (“OHA”).

The Rule supplements SBA’s previous IFR governing SBA’s process for reviewing a “lender’s” decision with respect to a borrower’s loan forgiveness which addressed:

• A borrower’s eligibility for a PPP loan,
• The PPP loan amount received,
• The use of the PPP loan proceeds, and/or
• The PPP loan forgiveness amount claimed by the borrower.

This Rule is different because it describes SBA’s process for reviewing “SBA’s” decision with respect to a borrower’s loan forgiveness, not the “lender’s” decision. Importantly, this Rule does not apply to PPP loan forgiveness requests that are only partially denied, unless there is an eligibility issue. In other words, if SBA affirms a lender’s reduction of a borrower’s loan forgiveness amount and remits that forgiveness amount to the lender, that borrower will not be able to avail itself of an appeal to OHA. Instead, that borrower may be able to request that SBA review the lender’s decision, but there is currently no guidance regarding how exactly that review process will work.

This Client Alert sets forth the top 10 questions and answers regarding an appeal to OHA as described in the Rule. We are continuing to monitor additional changes to PPP guidance, and encourage borrowers to engage counsel as they navigate the loan forgiveness and any potential appeal process.

1. What Triggers the Appeal Process?

• Only an “SBA loan review decision” triggers the appeal process set forth in the Rule.
• An “SBA loan review decision” is defined as an official written decision by SBA, after SBA completes a review of a PPP loan, that finds a borrower:
  • (1) was ineligible for a PPP loan;
  • (2) was ineligible for the PPP loan amount received or used the PPP loan proceeds for unauthorized uses;
  • (3) is ineligible for PPP loan forgiveness in the amount determined by the lender in its full or partial approval decision issued to SBA (except for the deduction of any Economic Injury Disaster Loan advance in accordance with section 1110(e)(6) of the CARES Act); and/or
  • (4) is ineligible for PPP loan forgiveness in any amount when the lender has issued a full denial decision to SBA.

2. How Does a Borrower Appeal an SBA Loan Review Decision?

• The borrower/appellant must file an appeal petition with SBA’s Associate General Counsel for Litigation within 30 calendar days after:
  • (i) the appellant’s receipt of the final SBA loan review decision, or
  • (ii) notification by the lender of the final SBA loan review decision, whichever is earlier.
• Note that only the borrower has standing to appeal the SBA loan review decision to OHA. Individual owners of a borrower and lenders do not have standing to appeal an SBA loan review decision.
• The appeal petition must include the following information:
  • (1) The basis for OHA’s jurisdiction, including, but not limited to, evidence that the appeal is timely filed;
  • (2) A copy of the SBA loan review decision that is being appealed, or a description of that decision if a copy is unavailable;
  • (3) A full and specific statement as to why the SBA loan review decision is alleged to be erroneous, together with all factual information and legal arguments supporting the allegations;
  • (4) The relief being sought;
  • (5) Signed copies of payroll tax filings actually reported to the Internal Revenue Service (IRS), and State quarterly business and individual employee wage reporting and unemployment insurance tax filings actually reported to the relevant state, for the relevant periods of time, if not provided with the PPP Loan Forgiveness Application (SBA Form 3508, SBA Form 3508EZ, or lender’s equivalent), or an explanation as to why they are not relevant or not available;
  • (6) Signed copies of applicable federal tax returns actually filed with the IRS with appropriate schedules (e.g., IRS Form 1040 with Schedule C/F) documenting income for self-employed individuals or partners in a partnership, if not provided with the PPP Borrower Application Form (SBA Form 2483 or lender’s equivalent), or an explanation as to why they are not relevant or not available; and
  • (7) The name, address, telephone number, email address and signature of the appellant or its attorney.

3. What Happens after the Borrower Files an Appeal?

• The appeal will be assigned by OHA to an Administrative Law Judge or Administrative Judge (both referred to as “Judge”).
• That Judge will issue a notice and order establishing a deadline for production of the administrative record and specifying a date for the close of record.
• Typically, the administrative record will be due 20 calendar days after issuance of the notice and order unless additional time is requested and granted, and the record will close 45 calendar days from the date of OHA’s receipt of the appeal unless additional time is requested and granted.

4. What is the Administrative Record?

• The administrative record includes relevant documents that SBA considered in making its final decision or that were before SBA at the time of the final decision, but need not contain “all documents” pertaining to the appellant.
• SBA is responsible for filing the administrative record and serving it on the appellant.
• SBA may claim “privilege” as to certain materials.
• Within 10 days of receipt of the record, the appellant may object to SBA’s privilege designation or object to documents being absent from the record, and the Judge will issue a ruling.

5. What Happens to the Borrower’s Confidential Business and Financial Information?

• Any filing or submission in the appeal that contains the information listed below is not available to the public pursuant to the Freedom of Information Act:
  • Confidential business and financial information;
  • Personally identifiable information;
  • Source selection sensitive information;
  • Income tax returns;
  • Documents and information covered under 13 C.F.R. § 120.1060; or
  • Any other exempt information.
• Additionally, either party may seek a protective order over any document or information filed or submitted during the appeal.

6. What Happens After the Administrative Record is Filed?

• SBA may respond to the appeal within the record period (typically, 45 days), setting forth the relevant facts and legal arguments to the issues presented on appeal.
• Appellants are not permitted to reply unless the Judge directs otherwise.
• There is no further discovery or oral hearing unless ordered by the Judge.

7. How Will the Judge Decide the Appeal?

• The Judge will apply a “clear error” standard of review, which determines whether the SBA loan review decision was based on clear error of fact or law.
• The appellant has the burden of proof, by a preponderance of the evidence.
• The Rule contemplates that the Judge will issue his or her decision within 45 calendar days after the close of record, as practicable. The decision must contain findings of fact and conclusions of law, the reasons for such findings and conclusions, and any relief ordered.
• The Judge’s decisions are normally published on OHA’s website. A party may request a redacted public decision by contacting OHA (even if there is no protective order in place).

8. Can the Judge’s Decision be Further Appealed?

• Yes, either party may file a request for reconsideration or a request for review by the SBA Administrator.
• The decision by the Administrator is a final decision of SBA, which can be appealed to a United States District Court. To pursue an appeal to federal court, the borrower must file and serve a request for review in order to exhaust its administrative remedies.

9. Are There Any Limits on the Appeal Process?

• This process does not apply to a borrower’s appeal of a lender’s That decision is appealed to SBA, not OHA pursuant to the Loan Forgiveness IFR III.2.b.
• If SBA remits to the lender the PPP loan forgiveness amount set forth in the decision issued by the lender to SBA (except for the deduction of any Economic Injury Disaster Loan advance), the borrower may not file an appeal with OHA, and the borrower must begin repayment of any remaining balance of its PPP loan. But, the borrower may appeal the lender’s/SBA’s joint decision to SBA, not OHA, as described above.

10. Are There Any Other Considerations About Which Borrowers Should be Aware ?

• An appeal by a PPP borrower of any SBA loan review decision does not extend the deferral period of the PPP loan.
• The parties may submit a joint motion requesting that the Judge permit alternative dispute resolution to assist in resolving the matter.
• A prevailing appellant is not entitled to recover attorney’s fees incurred in pursuing the appeal.