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UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF KENTUCKY OWENSBORO DIVISION

IN RE: Chapter 11 HARTSHORNE HOLDINGS, LLC, et al. Jointly administered

1 Debtors. Case No. 20-40133

HARTSHORNE MINING, LLC, and HARTSHORNE MINING GROUP, LLC

Plaintiffs, Adversary No. 20- _____

v.

JOVITA CARRANZA, in her capacity as Administrator for the U.S. Small Business Administration,

Defendant. COMPLAINT AND VERIFIED EMERGENCY APPLICATION FOR TEMPORARY RESTRAINING ORDER AND PRELIMINARY INJUNCTION AND REQUEST FOR EXPEDITED HEARING

Hartshorne Mining, LLC and Hartshorne Mining Group, LLC, as debtors and debtors-in- possession in these chapter 11 cases (“Plaintiffs” or “Hartshorne”), file this Complaint and

Verified Emergency Application For Temporary Restraining Order And Preliminary Injunction against the Defendant Jovita Carranza in her capacity as Administrator for the United States Small

Business Administration (“SBA” or “Defendant”).

1 The Debtors in these chapter 11 cases and the last four digits of each Debtor’s taxpayer identification number are as follows: Hartshorne Holdings, LLC (3948); Hartshorne Mining Group, LLC (0063); Hartshorne Mining, LLC (1941); and Hartshorne Land, LLC (5582). The Debtors’ headquarters are located at 373 Whobry Road, Rumsey, Kentucky 42371.

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INTRODUCTION

1. As the COVID-19 pandemic caused a swift economic contraction, Congress established a Paycheck Protection Program (“PPP”) to help small businesses sustain their operations and maintain their payrolls, for the benefit of the businesses and of their employees.

The PPP was designed to achieve wide and rapid distribution, and to achieve that goal Congress set simple eligibility standards and mandated a straightforward application process.

2. Plaintiffs are PPP applicants that meet every one of the statute’s eligibility standards. But their applications were denied this week because the SBA—the agency charged with administering the PPP—invented a new eligibility requirement: an applicant may not be a debtor in bankruptcy. This additional rule is contrary to the statute, is arbitrary, and it unlawfully discriminates against a debtor in bankruptcy.

3. Bankruptcy courts around the country agree with Plaintiffs’ position. Several bankruptcy courts have already signed emergency orders that enjoin the implementation of this rule, forbid any discrimination against debtors, and require the SBA to preserve the funds applied for by debtors before they are exhausted. Seven relevant decisions are attached as Exhibit A.2

4. Such emergency relief is necessary for the Plaintiffs because the PPP funds are in high demand. Available PPP funds are diminishing quickly and will soon be gone. If a temporary

2 See In re Springfield Hospital, Inc., 2020 Bankr. LEXIS 1205 (D. Vt. Bankr. May 4, 2020) (finding plaintiff was entitled to a TRO prohibiting the Administrator from applying bankruptcy eligibility rule to PPP); In re Penobscot Valley Hosp., 2020 Bankr. LEXIS 1213 (D. Me. Bankr. May 1, 2020) (same); In re Calais Regional Hosp., 2020 Bankr. LEXIS 1212 (D. Me. Bankr. May 1, 2020) (same); In re Hidalgo Cty. Emergency Serv. Foundation, 2020 Bankr. LEXIS 1174 (S.D. Tex. Bankr. Apr. 25, 2020) (same); In re KP Engineering, LP, Case No. 19-34698, Adv. No. 20-03120 (S.D. Tex. Order May 6, 2020) (attached as Exhibit A-6) (same); In re Americore Holdings, LLC, Case No. 19-61608, Adv. No. 20-06005 (E.D. Ky. Order May 8, 2020) (attached as Exhibit A-7) (same); see also Roman Catholic Church of the Archdiocese of Santa Fe v. United States of America Small Business Administration (“Diocese of Santa Fe”), 2020 Bankr. LEXIS 1211 (D.N.M. Bankr. May 1, 2020) (holding SBA’s rule excluding bankruptcy debtors from PPP eligibility arbitrary, capricious and beyond its statutory authority, and unlawfully discriminates against debtors).

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restraining order is not issued immediately, there will be no remaining funds for the Plaintiffs to apply for if and when this Court makes a final decision to invalidate the SBA’s unlawful and discriminatory anti-debtor rule.

5. Plaintiffs therefore request an emergency hearing on this application for a temporary restraining order at the court’s earliest available date. Plaintiffs’ proposed TRO, attached as Exhibit B, is modeled after the orders granted in other cases.3

JURISDICTION AND VENUE

6. This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§

157(a) and 1334(b). Further, pursuant to Local Rule 83.12, all matters arising under or arising in or related to cases arising under title 11 are referred to the Bankruptcy Court. Amedisys, Inc., et al. v. Nat’l Century Fin. Enters., Inc. (In re Nat’l Century Fin. Enters., Inc.), 423 F.3d 567, 573 (6th

Cir.2005) (district courts may refer title 11 cases and related cases to bankruptcy courts). Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409. This matter is a core proceeding. 28 U.S.C. §

157(b)(2).

7. The Debtors consent to entry of final orders by this Court in this adversary proceeding.

8. The United States has waived its sovereign immunity with respect to the claims presented here, because the Plaintiffs seek only non-monetary relief, 5 U.S.C. § 702, and because the SBA may sue and be sued in any district court, 15 U.S.C. § 634(b)(1).

9. Each of the Plaintiffs has standing to present these claims, because each Plaintiff has applied for a PPP loan for which it is eligible in all respects other than the SBA’s improper

3 The language is nearly identical to the TROs granted in Springfield, Calais, and Penobscot and is consistent with the TRO in Hidalgo. In Diocese of Santa Fe, the hearing on interim relief was converted to a trial on the merits and a final judgment was issued in lieu of a preliminary order. Exhibit A-1.

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anti-debtor criterion, and that extra criterion is the reason the Plaintiffs cannot currently obtain

PPP loans. There remains, as of today, PPP funding available for loans to the Plaintiffs; and in the absence of the SBA’s anti-debtor rule the Plaintiffs will apply for and receive PPP loans.

PARTIES

10. Plaintiffs are debtors in these Chapter 11 cases and remain in possession of their property, operating their businesses as debtors-in-possession, pursuant to sections 1107 and 1108 of the Bankruptcy Code.

11. Defendant is Jovita Carranza in her official capacity as administrator for the U.S.

Small Business Administration. Defendant can sue and be sued in a court of competent jurisdiction, including for declaratory relief and damages. 15 U.S.C. § 634(b)(1); Mar v. Kleppe,

520 F.2d 867, 869 (10th Cir. 1975). The sue-and-be-sued clause limits the scope of injunctions against the SBA, but that clause “does not provide blanket immunity from every type of injunction” and permits judicial review and injunctive remedies against “agency actions that exceed agency authority where the remedies would not interfere with internal agency operations.” Ulstein Mar.,

Ltd. v. United States, 833 F.2d 1052, 1057 (1st Cir. 1987). Defendant can be served with process pursuant to FRBP 7004(b)(4) and (5) by U.S. First Class Mail as follows:

Jovita Carranza U.S. Small Business Administration 409 3rd Street SW Washington, DC 20416

Attn: Civil Process Clerk Office of the U.S. Attorney, Western District of Kentucky 717 West Broadway Louisville, KY 40202

Attorney General Attn: Civil Process U.S. Department of Justice 950 Pennsylvania Avenue, N.W.

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Washington, DC 20530-0001

Further, copies of this Complaint will be served by electronic mail on the United States Attorney for this District, Russell Coleman ([email protected]), and on Assistant United States

Attorneys Katherine Bell ([email protected]) and Jessica Mulloy ([email protected]).

FACTS

A Need for Help

12. Plaintiffs and their affiliates own and operate a coal mining business in Western

Kentucky that has continued to operate and employ people since 2019 and during these chapter 11 cases. Plaintiffs employ 111 people. The goal of the reorganization is to continue to operate as a going concern, keep their employees gainfully employed, and successfully complete a sale of the enterprise.

13. Now, the financial health of the Plaintiffs and their ability to continue to operate and maintain their employees is threatened by the COVID-19 pandemic. Among other developments, on April 13, 2020, Hartshorne received a notice of “Force Majeure” from the Ohio

Valley Electric Corporation (OVEC), a major buyer of Hartshorne’s coal production, claiming that the COVID-19 pandemic and various governmental responses relieves it of obligations under the parties’ coal supply agreement. A true and accurate copy of OVEC’s notice is attached hereto as

Exhibit C and incorporated herein by reference. OVEC is one of only two customers that

Hartshorne has, so the loss of its business has a significant and material impact on Hartshorne, whose survival is now dependent on just one customer. Plaintiffs’ business is also being disrupted by the pandemic by rising operations and personnel costs, and lost productivity. Further, Plaintiffs’ efforts to sell its assets have been impeded as the pandemic has brought the market for buyers to a near standstill. Further, Plaintiffs are living under a shadow of economic uncertainty that requires

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them to do what they can to strengthen themselves against a possible wider-spread outbreak of

COVID-19, a tightening of social distancing or other economic restrictions, or general economic deterioration that would impair their business. In short, like most of the rest of the world,

Hartshorne suffers both from immediate effects of the pandemic and the uncertainty that it causes for the future.

The CARES Act Provides Help to Employers Like Plaintiffs

14. To mitigate the harm caused by the pandemic to businesses like Hartshorne’s,

Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”),

Public Law No. 116-136. The CARES Act included stimulus funds designed to assist businesses and ensure that American workers continue to be paid.

15. Section 1102 of the CARES Act establishes the Paycheck Protection Program

(“PPP”), as an amendment to § 7(a), of the Small Business Act, 15 U.S.C § 636. It is a convertible loan program available to businesses with fewer than 500 employees, and certain other organizations. See generally §§ 1101-1109 of the CARES Act.

16. Because there are no repayment obligations for these “loans” if conditions are met

(Congress intended that most of the so-called “loans” would never be repaid) they are, in function and reality, grants. If a PPP borrower meets certain conditions, the full balance of a PPP loan is forgivable. The forgivable amount is the amount that the borrower spends on certain expenses, chiefly payroll, mortgage interest, rent, and utility payments, during the eight-week period after receiving the loan. That full amount is forgivable if the borrower has maintained average employee count at the same levels as previously and has not reduced individual salaries or wages too much.

CARES Act, § 1106.

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17. The CARES Act expanded eligibility for PPP loans beyond the requirements for ordinary section 7(a) loans: “any business concern . . . shall be eligible to receive a covered loan if the business concern . . . employs not more than the greater of . . . 500 employees . . . .” CARES

Act, § 1102(a)(2) (codified as 15 U.S.C. § 636(a)(36)(D)(i) (emphasis added).

18. In a section entitled “Borrower Requirements,” the CARES Act established the only limit on which “eligible recipients” may receive PPP funds:

(G) Borrower requirements. (i) Certification. An eligible recipient applying for a covered loan shall make a good faith certification— (I) that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient; (II) acknowledging that funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments; (III) that the eligible recipient does not have an application pending for a loan under this subsection for the same purpose and duplicative of amounts applied for or received under a covered loan; and (IV) during the period beginning on February 15, 2020 and ending on December 31, 2020, that the eligible recipient has not received amounts under this subsection for the same purpose and duplicative of amounts applied for or received under a covered loan.

CARES Act § 1102(a)(2); 15 U.S.C. § 636 (a)(36)(G). Aside from conditions about how money is spent, maintenance of employee numbers, and individual salaries, the eligibility criteria for

“forgiveness” are the same as those to get the “loans.” “An eligible recipient shall be eligible for forgiveness of indebtedness on a covered loan,” CARES Act, § 1106(b) (emphasis added), and

“eligible recipient” simply “means the recipient of a covered loan,” id. § 1106(a)(6).

19. Nothing in the CARES Act prohibits extending funds under the PPP to a chapter

11 debtor, which is clearly intentional because a different loan program for “mid-sized businesses” under the CARES Act actually does prohibit extending funds to a chapter 11 debtor. See CARES

Act § 4003(c)(3)(D). As courts have held, this different treatment proves that Congress intended to allow chapter 11 debtors to participate in the PPP program:

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Unlike PPP loans, the loans to mid-size businesses are intended to be repaid. For that reason, Congress specified in the statute that bankruptcy debtors are not eligible. Defendant [SBA] should have read and understood the fundamental differences between the mid-size business loan program (real loans) and the PPP (grants or support payments). Defendant’s refusal to abide by this simple distinction constitutes a usurpation of Congressional authority to determine which business are eligible for PPP funds. Without question, Defendant lacked the authority to change the PPP eligibility requirements and exclude Plaintiff [debtor].

Diocese of Santa Fe, 2020 Bankr. LEXIS at *11; Exhibit A-1, Order at 4; see also S. Rehab Grp.,

P.L.L.C. v. Burwell, 683 F. App’x 354, 363 (6th Cir. 2017) (“[W]hen the legislature uses certain language in one part of the statute and different language in another, the court assumes different meanings were intended.”).

20. A party can obtain funds under the PPP by applying with any participating lender using an application form created by the SBA, and the SBA fully guarantees the loan. The SBA relies upon assistance of commercial lenders acting in concert with the SBA to administer the PPP and requires them to use the form of application that the SBA provides.

The SBA Unlawfully Bars Access to PPP Funds by Hartshorne and other Debtors in Bankruptcy

21. On or about April 2, 2020, the SBA released forms of applications for the PPP.

Even though the CARES Act does not prohibit extending funds under PPP to a chapter 11 debtor, the PPP application form asks whether “the Applicant . . . [is] presently involved in any bankruptcy” and then goes on to state that answering “yes” to that question means a request for

PPP funds will not be approved. The SBA enforces this policy by refusing to guaranty a PPP loan to any applicant who answers “yes” to that question.

22. The SBA’s application contradicts both the CARES Act and the SBA’s own

“interim final rule” that was also issued on April 2 but published in the Federal Register on April

15, 2020 (the “First SBA Rule”). 85 Fed. Reg. 20,811, 20812 (Apr. 15, 2020). A true and accurate

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copy of the First SBA Rule is attached hereto as Exhibit D. The First SBA Rule stated eligibility criteria that were the same as those set forth in the CARES Act, with no indication that bankruptcy debtors were ineligible for the PPP. The Rule stated that borrowers would be ineligible in certain circumstances such as having defaulted in the past seven years on a previous SBA loan; and it incorporated by reference certain restrictions that the SBA has generally established for section

7(a) loans (described at 13 C.F.R. § 120.110). Id. But none of these conditions—not the CARES

Act criteria, as described above, not the 13 C.F.R. § 120.110 restrictions, and not the additional restrictions announced newly in the First SBA Rule—involved the bankruptcy status of an applicant. Thus SBA’s application form barred access to the PPP for applicants that SBA’s own regulations said should be eligible.

23. After the first appropriation of PPP funds quickly were exhausted, on April 23,

2020, Congress enacted legislation making additional funds available for the PPP.

24. Then, on April 28, 2020, the SBA clearly stated an intent to deny PPP funds to debtors in bankruptcy. In a second interim final rule (the “Second SBA Rule”), it states that “[i]f the applicant or the owner of the applicant is the debtor in a bankruptcy proceeding, either at the time it submits the application or at any time before the loan is disbursed, the applicant is ineligible to receive a PPP loan.” 85 Fed. Reg. 23,450, 23,451 (Apr. 28, 2020). A true and accurate copy of the Second SBA Rule is attached hereto as Exhibit E. The stated basis for this rule is that the SBA

“determined that providing PPP loans to debtors in bankruptcy would present an unacceptably high risk of an unauthorized use of funds or non-repayment of unforgiven loans.”

25. The SBA does not have the authority to bar debtors in bankruptcy from obtaining

PPP loans, as it has done through its application form and through the Second SBA Rule. The eligibility criteria for the PPP are unambiguous: “any business concern” is eligible if it has fewer

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than 500 employees (provided it was in existence on February 15, 2020 and paid employees on

that date.)

26. Even if the eligibility criteria were ambiguous, no reasonable interpretation of them

could produce a bar on debtors in bankruptcy. In ordinary English and in the SBA’s regulations, a

“business concern” is an entity engaged in business for profit. Neither in ordinary English nor in

the SBA’s regulations does a business entity cease to be a business concern because it enters

bankruptcy. A business that is a debtor in bankruptcy also can have employees, and indeed

Hartshorne does have employees.

27. The limitation barring debtors from the PPP cannot be a valid or reasonable

interpretation of any feature of the provisions that Congress enacted establishing the PPP. The

SBA’s restriction is an extra-textual additional condition on eligibility that contravenes the

statement in the statute itself that “any” business is eligible if it meets the statutory criteria.

28. Although the SBA generally has authority to make rules implementing the Small

Business Act, this authority is circumscribed with respect to PPP funds. 15 U.S.C. § 636(a)

(making SBA authority “subject” to the “restrictions, limitations, and provisions” in, among

places, paragraph (36) regarding PPP loan eligibility). Notably, other paragraphs within section

7(a) specifically authorize the SBA to adopt rules and regulations to implement those particular

programs, whereas no such authority is granted under paragraph 36 for the PPP program. Compare

15 U.S.C. § 636(a)(19), (31)(viii). Had Congress intended to authorize the SBA to vary from the

PPP eligibility criteria set by the CARES Act, paragraph (36) would have used similar language.

29. As Congress had already spoken to the issue of PPP borrower requirements in the

CARES Act, the Second SBA Rule (and the application policy that preceded it) is invalid and

receives no deference. See, e.g., Chevron U.S.A, Inc. v. NRDC, 467 U.S. 837, 842-43 (1984) (“If

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the intent of Congress is clear, that is the end of the matter; for the court, as wells the agency, must

give effect to the unambiguously expressed intent of Congress.”)

30. But even if the SBA had been authorized to make additional borrower requirements,

the Second SBA Rule still would fail under the Administrative Procedure Act’s (APA) “arbitrary

and capricious” standard of review. See Montgomery Cnty. v. FCC, 863 F.3d 485, 489 (6th Cir.

2017). Among other defects, the Second SBA Rule contradicts the SBA’s own prior guidance

regarding borrower eligibility as stated in the First SBA Rule. That prior guidance was correct and

consistent with the CARES Act. When an agency changes course in that way, it is obligated to

acknowledge the change and, at a minimum, provide some explanation of why it has changed its

policy. FCC v. Fox Television Stations, Inc., 556 U.S. 502, 514-15 (2009); Physicians for Social

Responsibility v. Wheeler, 2020 U.S. App. LEXIS 12727, No. 19-5104, *20-*22 (D.C. Cir. Apr,

.21, 2020). The application form did not acknowledge that it was inconsistent with the First SBA

Rule. The Second SBA Rule also did not mention that the First SBA Rule had stated the complete

set of eligibility criteria with bankruptcy not among them. The Second SBA Rule simply

announced this restriction as though it had always been the case.

31. Furthermore, existing SBA loan programs do not categorically bar debtors in

bankruptcy. See 13 C.F.R. § 120.110; SBA SOP 50 10(K), ch. B sect. 2. Over years of developing

eligibility criteria for other section 7(a) loans, the SBA has not previously determined that the sole

fact of a company’s being a debtor in bankruptcy presents an unacceptable risk that a 7(a) loan

will not be repaid, and accordingly the SBA has not generally barred debtors from these loans. The

eligibility restriction in the Second SBA Rule and the purported policy rationale for it are contrary

to decades-long established policy at the SBA, but the Second SBA Rule made no mention of this

change. Ignoring the change in policy was arbitrary and capricious.

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32. Perhaps most importantly, the stated reason for the exclusion—that debtors in

bankruptcy present an unacceptably high risk of an unauthorized use of funds—is “‘completely

frivolous.’”4 A debtor in bankruptcy is closely watched and supervised by the court, by the U.S.

Trustee’s office, by creditors, etc., whereas non-debtors can spend their PPP funds without

oversight by anyone. The transparency in the instant chapter 11 cases goes as far as Hartshorne

submitting a line-item budget for review. The expectation and intention for PPP loans is that they

will be forgiven if and when funds are used for intended purposes. If the goal of the CARES Act

is to ensure that PPP funds are used for intended purposes, chapter 11 debtors present a lower risk

of unauthorized use of funds. A per se bankruptcy exclusion is arbitrary and capricious when the

PPP application does not impose or apply other risk criteria.

33. The Second SBA Rule also fails because it discriminates against a bankruptcy

debtor in violation of section 525(a) of the Bankruptcy Code, which states in relevant part:

. . . a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against . . . a person that is or has been a debtor under this title . . . solely because such bankrupt or debtor is or has been a debtor under this title . . .

11 U.S.C. §525(a) (emphasis added). Because the PPP funds for which Plaintiffs have applied

functionally are grants, section 525 of the Bankruptcy Code precludes any bankruptcy exclusion.5

Plaintiffs are not being denied access to the PPP because of their creditworthiness; the very purpose

and intent of the PPP was to provide relief to struggling small businesses without regard to their

4 Diocese of Santa Fe, 2020 Bank. LEXIS 1211, at *8, Exhibit A-1, Order at 11 (quoting Hidalgo County Emergency Service Foundation v. Jovita Carranza, Case no. 19-20497; Adv. pro. No. 20-2006, (Bankr. S.D. Tex.) (transcript of oral ruling rendered April 24, 2020)). 5 See Springfield, 2020 Bankr. LEXIS 1205, at *10-14; Calais, 2020 Bankr. LEXIS 1212,*8-11; Penobscot, 2020 Bankr. LEXIS 1213, at *8-11; Diocese of Santa Fe, 2020 Bankr. LEXIS 1211, at *11, Exhibit A-1, Order at 13-14.

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creditworthiness. If spent for an authorized purpose, the PPP funds are not meant to be repaid.

Plaintiffs cannot be denied PPP benefits merely because they are debtors.6

Plaintiffs’ PPP Applications Are Denied Solely Because of their Status as Chapter 11 Debtors

34. On April 27, 2020, Plaintiffs filed PPP applications with Old National Bank. True

and accurate copies of those applications are attached hereto as Exhibits F & G and incorporated

herein by reference. Collectively, Plaintiffs requested a total of $2,274,400 in PPP funds. These

funds were and continue to be necessary to support essential business operations. Plaintiffs intend

to use the funds entirely for payroll (constituting more than 75% of the usage) and employer-

provided healthcare, and they will maintain their employee counts and salary levels with the PPP

funds.7 Therefore, if granted, these PPP funds would not have to be repaid.

35. Plaintiffs waited to hear from Old National Bank whether their PPP applications

were approved. On May 4 and 5, Plaintiffs inquired with Old National Bank about the status of

their applications. On May 6, Old National Bank responded that it is required by the SBA to deny

their applications based solely on the fact that Plaintiffs had answered “Yes” to whether they were

involved in a bankruptcy. A true and accurate copy of Old National Bank’s denial is attached

hereto as Exhibit H and incorporated herein by reference.

36. Plaintiffs would otherwise be eligible for funding under the PPP application

because: (i) Plaintiffs are businesses with fewer than 500 employees, and Plaintiffs had employees

resident in the United States on February 15, 2020, to whom they paid salary; (ii) neither Plaintiffs

nor any individual owning 20% or more of the equity of the Plaintiffs is subject to an indictment,

criminal information, arraignment, or other means by which formal criminal charges are brought

6 Id. 7 Exhibit D at 20813-20814; see also §1106 of the CARES Act.

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in any jurisdiction, or presently incarcerated, or on probation or parole; (iii) neither the Plaintiffs

nor any owner of the Plaintiffs has been convicted, pleaded guilty, pleaded nolo contendere, been

placed on pretrial diversion, or been placed on any form of parole or probation including probation

before judgment; and (iv) neither the Plaintiffs, any owner of the Plaintiffs, or any business owned

or controlled by any of them, obtained a direct or guaranteed loan from the SBA or any other

Federal agency that is currently delinquent or has defaulted in the last 7 years causing a loss to the

government; (v) the Plaintiffs are not engaged in various types of business that the SBA has said

are not eligible for PPP loans; and (vi) the Plaintiffs meet any other eligibility criteria and are not

rendered ineligible by any other criterion aside from their bankruptcy status.

CLAIMS

COUNT ONE – CONTRARY TO LAW

37. Plaintiffs repeat and incorporate by reference the allegations in the foregoing

paragraphs.

38. Under the Administrative Procedure Act (APA), courts must “hold unlawful and

set aside agency action” that is “in excess of statutory jurisdiction, authority, or limitations, or

short of statutory right.” 5 U.S.C. § 706(2)(C).

39. The SBA exceeded its authority to administer the PPP loan program by requiring

applicants like Plaintiffs, qualifying businesses under the PPP, to not be “presently involved in any

bankruptcy,” even though no such prohibition is authorized by The CARES Act.

40. Defendant’s violation of the APA causes ongoing harm to Plaintiffs.

41. Plaintiffs have exhausted all the administrative processes that are available to them.

The SBA issued its loan application and each of its rules cited above without a notice and comment

process and without providing an opportunity for public input. Plaintiffs applied for PPP loans and

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were denied. Neither the CARES Act, the Small Business Act, nor SBA rules provide a mechanism

for appealing those denials.

42. Plaintiffs are entitled to a declaratory judgment that it is “in excess of statutory

jurisdiction, authority, or limitations, or short of statutory right,” in violation of the APA, for

Defendant to implement the PPP in a manner that causes debtors in bankruptcy, including

Plaintiffs, to be ineligible.

43. Plaintiffs are entitled to a temporary restraining order and injunctive relief as set

out below and in the attached Exhibit B.

COUNT TWO – ARBITRARY AND CAPRICIOUS

44. Plaintiffs repeat and incorporate by reference the allegations in the foregoing

paragraphs.

45. The APA provides that courts must “hold unlawful and set aside” agency action

that is “arbitrary, capricious, [or] an abuse of discretion.” 5 U.S.C. § 706(2)(A).

46. The SBA’s PPP loan application and the Second SBA Rule are arbitrary,

capricious, or an abuse of discretion in that they forbid access to PPP funds by debtors in

bankruptcy.

47. The Plaintiffs have exhausted all administrative remedies available to them.

48. Defendant’s violation of the APA causes ongoing harm to Plaintiffs.

49. Plaintiffs are entitled to a declaratory judgment that it is “arbitrary, capricious, [or]

an abuse of discretion,” in violation of the APA, for Defendant to implement the PPP in a manner

that causes debtors in bankruptcy, including Plaintiffs, to be ineligible.

50. Plaintiffs are entitled to a temporary restraining order and injunctive relief as set

out below and in the attached Exhibit B.

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COUNT THREE – DISCRIMINATION AGAINST DEBTOR (11 U.S.C. § 525)

51. Plaintiffs repeat and incorporate by reference the allegations in the foregoing

paragraphs.

52. Section 525(a) of the Bankruptcy Code provides in relevant part that “a

governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter,

franchise, or other similar grant to, condition such a grant to . . . a person that is or has been a

debtor under this title.” 11 U.S.C. § 525(a). This list is illustrative rather than exhaustive.

53. The SBA is a governmental unit under the Bankruptcy Code and is not entitled to

sovereign immunity. See 11 U.S.C. § 101(27); see also 11 U.S.C. § 106. Section 106 is a general

waiver of sovereign immunity as to “a governmental unit to the extent set forth in this section with

respect to [section]. . . 525”. See id. Section 106(a)(2) provides that the “court may hear and

determine any issue arising with respect to the application of such sections to governmental units.”

Section 106(a)(2) provides that the court may issue against a governmental unit and order, process,

or judgment under [the sections identified in subsection (a)(1)] or the Federal Rules of Bankruptcy

Procedure, including an order or judgment awarding a money recovery . . .”

54. The PPP is a government program designed to provide relief to small businesses

affected by COVID-19.

55. Defendant SBA is denying Plaintiffs the benefits provided by the PPP based solely

on their debtor status, in violation of section 525(a) of the Bankruptcy Code.

56. Plaintiffs are not being denied access to the PPP because of their creditworthiness;

in fact, the PPP was enacted to provide relief to struggling small businesses without regard to their

creditworthiness.

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57. But for the unauthorized and discriminatory debtor in bankruptcy disqualification

policy of the SBA, Plaintiffs are otherwise eligible for a PPP loan.

58. As such, the debtor in bankruptcy disqualification rule in the PPP Application and

Second SBA Rule are interfering with Plaintiffs’ ability to obtain a “fresh start” and their ability

to retain their employees many of whom are crucial to the Plaintiffs’ business as going concerns.

59. Defendant has discriminated against chapter 11 debtors generally, and Plaintiffs in

particular, in violation of Section 525(a) of the Bankruptcy Code.

60. Defendant’s violation causes ongoing harm to Plaintiffs.

61. Plaintiffs are entitled to a declaratory judgment that it is unlawful, discriminatory,

and in violation of Section 525(a) of the Bankruptcy Code for Defendant to implement the PPP in

a manner that causes debtors in bankruptcy, including Plaintiffs, to be ineligible.

62. Plaintiffs are entitled to a temporary restraining order and injunctive relief as set

out below and in the attached Exhibit B.

COUNT FOUR – MANDAMUS UNDER 28 U.S.C. §1361

63. Plaintiffs repeat and reallege each and every allegation contained in paragraphs 1

through 106 above with the same force and effect as though fully set forth herein.

64. The Defendant has the non-discretionary duty to comply with the CARES Act and

the provisions of the PPP to apply criteria to the PPP that are substantively and/or procedurally

valid and to avoid imposing criteria to the PPP that are substantively and/or procedurally ultra

vires.

65. Plaintiffs are entitled to a writ of mandamus under 28 U.S.C. § 1361 to compel the

SBA the remove from all PPP applications, including the PPP Application and the PPP Lender

Application its disqualification of bankruptcy debtors as viable applicants because SBA acted

beyond its statutory authority in implementing such disqualifying factors.

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COUNT FIVE – ATTORNEYS FEES

66. Plaintiffs seeks an award of their costs and attorneys’ fees against the United States

generally or against the SBA specifically pursuant to the Equal Access to Justice Act, 28 U.S.C. §

2412. See Marshall v. Comm'r of Soc. Sec., 444 F.3d 837, 840 (6th Cir. 2006); In re Transcon

Lines, 178 B.R. 228, 232 (Bankr. C.D. Cal. 1995) (“bankruptcy court has jurisdiction to award

fees” under EAJA).

APPLICATION FOR TEMPORARY RESTRAINING ORDER AND FOR PRELIMINARY AND PERMANENT INJUNCTIONS

67. Plaintiffs incorporate the foregoing paragraphs by reference.

68. Plaintiffs are entitled to injunctive relief, immediately in in the form a temporary

restraining order. The Court must consider four factors when considering issuance of a temporary

restraining order or preliminary injunction: (1) a likelihood of success on the merits, (2) the

likelihood of irreparable injury, (3) the balance of the equities; and (4) whether the injunction

would serve the public interest. See McGirr v. Rehme, 891 F.3d 603, 610 (6th Cir. 2018). All four

factors support issuance of a temporary restraining order and temporary injunction.

Plaintiffs Are Likely to Succeed on the Merits of their Claims

69. Plaintiffs will be able to establish that (1) the SBA exceeded its authority to

administer the PPP loan program by requiring applicants like Plaintiffs, qualifying businesses

under the PPP, to not be “presently involved in any bankruptcy,” even though no such prohibition

is authorized by The CARES Act; (2) the SBA’s PPP loan application and the Second SBA Rule

are arbitrary, capricious, or an abuse of discretion in that they forbid access to PPP funds by debtors

in bankruptcy; and (3) the SBA is denying Plaintiffs the benefits provided by the PPP based solely

on their debtor status, in violation of section 525(a) of the Bankruptcy Code. See In re Springfield

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Hospital, Inc., 2020 Bankr. LEXIS 1205, at *10-14 (D. Vt. Bankr. May 4, 2020); In re Penobscot

Valley Hosp., 2020 Bankr. LEXIS 1213, at *7-11 (D. Me. Bankr. May 1, 2020); In re Calais

Regional Hosp., 2020 Bankr. LEXIS 1212, at *7-11 (D. Me. Bankr. May 1, 2020).

Absent Injunctive relief, Plaintiffs Will Experience Irreparable Harm

70. The economic uncertainty brought on by the COVID-19 epidemic requires

Plaintiffs to use PPP funds to support their business. Plaintiffs’ request for a TRO is urgent

because, absent immediate relief, the PPP funds will be exhausted and Plaintiffs will be irreparably

harmed. The first appropriation of PPP funds was exhausted quickly, and it has been expected that

this second appropriation of funds will also be exhausted quickly. (As of the date of this filing, on

information and belief, funding is still available.) A temporary restraining order is necessary to

preserve these funds for Plaintiffs’ applications so they are not forever lost. Courts have held in

this context that these factors support emergency relief. See In re Springfield, 2020 Bankr.

LEXIS 1205, at *14-17; In re Penobscot Valley, 2020 Bankr. LEXIS 1213, at *12-13; In re Calais,

2020 Bankr. LEXIS 1212, at *12-13.

The Balance of the Equities Weighs in Favor of Enjoining the Administrator

71. There is no harm to the SBA to require it to administer the PPP and process

Plaintiffs’ application for PPP funds if, but for the Administrator’s discrimination of Plaintiffs’

debtor status in bankruptcy, Plaintiffs would otherwise qualify for PPP funding. In re Springfield,

2020 Bankr. LEXIS 1205, at *17-19 (“It is not apparent to the Court – and Defendant has not

explained – how this TRO would significantly disrupt administration of the PPP or how any

purported disruption outweighs the clear harm to the Plaintiff if the TRO motion is denied.”); see

also In re Penobscot Valley, 2020 Bankr. LEXIS 1213, at *13; In re Calais, 2020 Bankr. LEXIS

1212, at *13.

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An Injunction Is in the Public Interest

72. There is, of course, a public interest in having the laws implemented correctly.

Further, the public’s interest in PPP funding—that small businesses hurting from the Covid-19

mitigation measures be allowed to retain as many employees as possible—is served by allowing

Plaintiffs to apply for, and obtain, PPP funds. And the public has a strong interest in successful

bankruptcy reorganizations, which this injunction will promote. See In re Springfield, 2020 Bankr.

LEXIS 1205, at *19-21; In re Penobscot Valley, 2020 Bankr. LEXIS 1213, at *13-14; In re Calais,

2020 Bankr. LEXIS 1212, at *13-14.

No Bond Required

73. As debtors in bankruptcy, Plaintiffs are not required to post bond. See Fed. Bankr.

R. Proc. 7065. Moreover, it is the rule in this Circuit that courts have discretion whether to require

a bond to support injunctive relief, and it is the Defendant’s burden to prove the need for a bond

and the required amount. See Moltan Co. v. Eagle-Picher Indus., Inc., 55 F.3d 1171, 1176 (6th

Cir. 1995); RGIS, LLC v. Gerdes, No. 19-11866, 2020 U.S. Dist. LEXIS 11831, at *3 (E.D. Mich.

Jan. 24, 2020).

74. Because the Defendant will not be harmed by the issuance of a TRO or preliminary

injunction here, no bond is required.

PRAYER FOR RELIEF

Plaintiffs request that the Court grant the following relief:

1. Issue a temporary restraining order and preliminary and permanent injunctions in substantially the same form as the attached Exhibit B.

2. Issue an order of declaratory relief as requested under Counts One, Two, and Three above.

3. Issue a writ of Mandumus as requested under Count Four above.

4. Find in Plaintiffs’ favor on all claims asserted in this Complaint.

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5. Award Plaintiffs’ their attorney’s fees under the Equal Access to Justice Act.

6. Award such other relief as the Court deems just and proper.

DATED: May 8, 2020 FROST BROWN TODD LLC

By: /s/ Edward M. King Edward M. King Bryan J. Sisto 400 West Market Street, Suite 3200 Louisville, Kentucky 40202 Telephone: 502.589.5400 Facsimile: 502.581.1087 [email protected] [email protected]

– and –

SQUIRE PATTON BOGGS (US) LLP

Stephen D. Lerner (admitted pro hac vice) Norman N. Kinel (admitted pro hac vice) Nava Hazan (admitted pro hac vice) Travis A. McRoberts (admitted pro hac vice) 201 E. Fourth St., Suite 1900 Cincinnati, Ohio 45202 Telephone: 513.361.1200 Facsimile: 513.361.1201 [email protected] [email protected] [email protected] [email protected]

Co-Counsel to the Debtors and Debtors-in-Possession

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VERFICATION

I, David Gay, President of Hartshorne, declare under penalty of perjury under the laws of the United States of America that the allegations in paragraphs 12–13 and 34–36 of the foregoing Complaint are true and accurate to the best of my knowledge and belief.

Date: May 8, 2020

David Gay

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UNITED STATES BANKRUPTCY COURT

DISTRICT OF NEW MEXICO

In re:

ROMAN CATHOLIC CHURCH OF THE ARCHDIOCESE OF SANTA FE, No. 18-13027 t11

Debtor.

ROMAN CATHOLIC CHURCH OF THE ARCHDIOCESE OF SANTA FE,

Plaintiff,

v. Adv. No. 20-1026 t

UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION,

Defendant.

OPINION

The Court held a preliminary injunction hearing in this proceeding on April 30, 2020.

During the hearing, the Court converted it to a trial on the merits, as allowed by Fed. R. Civ. P.

65(a)(2).1 For the reasons stated herein, Plaintiff is entitled to relief under its complaint.

I. FINDINGS OF FACT2

The Court finds:

1 Rule 65 is incorporated by reference by Fed. R. Bankr. P. 7065. The Court took this admittedly unusual step for two reasons. First, there is enormous time pressure in this proceeding, for the reasons stated below. To provide any effective relief, and/or to avoid a substantial damages claim from accruing, an immediate decision was necessary. Second, the factual issues in the proceeding were few and noncontroversial. 2 The Court took judicial notice of the docket in the main case and this adversary proceeding. See St. Louis Baptist Temple, Inc. v. Fed. Deposit Ins. Corp., 605 F.2d 1169, 1172 (10th Cir. 1979) (holding that a court may sua sponte take judicial notice of its docket); LeBlanc v. Salem (In re Mailman Steam Carpet Cleaning Corp.), 196 F.3d 1, 8 (1st Cir. 1999) (same).

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Plaintiff is a catholic archdiocese in New Mexico and a New Mexico corporation. Its

principal place of business is at 4000 St. Josephs Place NW, Albuquerque, New Mexico. Plaintiff

has 70 employees. On December 3, 2018, Plaintiff filed this chapter 11 case. Since then Plaintiff

has been operating as a debtor-in-possession pursuant to 11 U.S.C. §§ 1107 and 1108.

Defendant (sometimes referred to as the “SBA”) is an agency of the United States of

America. Its central office is located at 409 Third Street, S.W., Washington DC 20416.

On or about March 27, 2020, the President signed the Coronavirus Aid, Relief, and

Economic Security Act, H.R. 748, P.L. 115-136 (the “CARES Act”). The CARES Act is intended,

among other things, to provide stimulus to the economy by distributing approximately $2.3 trillion

to various industries, programs, and individuals.

The CARES Act temporarily added a new “Paycheck Protection Program” (the “PPP”) to

be administered by Defendant. The CARES Act provisions relating to the PPP provide in pertinent

part:

Section 1102. Paycheck Protection Program

(a) IN GENERAL.—Section 7(a) of the Small Business Act (15 U.S.C. 636(a)) is amended— (1) in paragraph (2)— (A) in subparagraph (A), in the matter preceding clause (i), by striking “and (E)” and inserting “(E), and (F)”; and (B) by adding at the end the following: “(F) PARTICIPATION IN THE PAYCHECK PROTECTION PROGRAM.—In an agreement to participate in a loan on a deferred basis under paragraph (36), the participation by the Administration shall be 100 percent.”; and (2) by adding at the end the following: “(36) PAYCHECK PROTECTION PROGRAM.— “(A) DEFINITIONS.—In this paragraph— . . . “(iv) the term ‘eligible recipient’ means an individual or entity that is eligible to receive a covered loan; . . .

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“(B) PAYCHECK PROTECTION LOANS.—Except as otherwise provided in this paragraph, the Administrator may guarantee covered loans under the same terms, conditions, and processes as a loan made under this subsection. . . . “(D) INCREASED ELIGIBILITY FOR CERTAIN SMALL BUSINESSES AND ORGANIZATIONS.— “(i) IN GENERAL.—During the covered period, in addition to small business concerns, any business concern, nonprofit organization, veterans organization, or Tribal business concern described in section 31(b)(2)(C) shall be eligible to receive a covered loan if the business concern, nonprofit organization, veterans organization, or Tribal business concern employs not more than the greater of— “(I) 500 employees; or “(II) if applicable, the size standard in number of employees established by the Administration for the industry in which the business concern, nonprofit organization, veterans organization, or Tribal business concern operates.

. . .

(F) ALLOWABLE USES OF COVERED LOANS.— “(i) IN GENERAL.—During the covered period, an eligible recipient may, in addition to the allowable uses of a loan made under this subsection, use the proceeds of the covered loan for— “(I) payroll costs; “(II) costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums; “(III) employee salaries, commissions, or similar compensations; “(IV) payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation); “(V) rent (including rent under a lease agreement); “(VI) utilities; and “(VII) interest on any other debt obligations that were incurred before the covered period. “(ii) DELEGATED AUTHORITY.— “(I) IN GENERAL.—For purposes of making covered loans for the purposes described in clause (i), a lender approved to make loans under this subsection shall be deemed to have been delegated authority by the Administrator to make and approve covered loans, subject to the provisions of this paragraph. “(II) CONSIDERATIONS.—In evaluating the eligibility of a borrower for a covered loan with the terms described in this paragraph, a lender shall consider whether the borrower— “(aa) was in operation on February 15, 2020; and “(bb)(AA) had employees for whom the borrower paid salaries and payroll taxes; or “(BB) paid independent contractors, as reported on a Form 1099–MISC. . . .

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SEC. 1106. Loan Forgiveness.

(a) DEFINITIONS.—In this section— (1) the term “covered loan” means a loan guaranteed under paragraph (36) of section 7(a) of the Small Business Act (15 U.S.C. 636(a)), as added by section 1102; . . . (7) the term “expected forgiveness amount” means the amount of principal that a lender reasonably expects a borrower to expend during the covered period on the sum of any— (A) payroll costs; (B) payments of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation); (C) payments on any covered rent obligation; and (D) covered utility payments; and (8) the term “payroll costs” has the meaning given that term in paragraph (36) of section 7(a) of the Small Business Act (15 U.S.C. 636(a)), as added by section 1102 of this Act. (b) FORGIVENESS.—An eligible recipient shall be eligible for forgiveness of indebtedness on a covered loan in an amount equal to the sum of the following costs incurred and payments made during the covered period: (1) Payroll costs. (2) Any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation). (3) Any payment on any covered rent obligation. (4) Any covered utility payment.

SEC. 1114. Emergency Rulemaking Authority.

Not later than 15 days after the date of enactment of this Act, the Administrator shall issue regulations to carry out this title and the amendments made by this title without regard to the notice requirements under section 553(b) of title 5, United States Code.

As can be seen from the statute, funds from the PPP have the following extremely favorable

terms:

• No collateral or personal guarantees are required; • Funds are available regardless of the applicant’s creditworthiness. • No fees are charged; • The loans mature in 2 years; • The interest rate is 1%; and • The loans are fully forgiven if the funds are used as required.

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The PPP has very few eligibility requirements. Applicants must:

1. Be a small business concern or any business concern, nonprofit organization, veterans organization, or Tribal business concern described in section 31(b)(2)(C) of the Small Business Act; 2. Have fewer than 500 employees or, if applicable, the size standard in number of employees established by the Administration for the industry in which the business concern, nonprofit organization, veterans organization, or Tribal business concern operates; 3. Have been in operation on February 15, 2020; and 4. Have had employees to whom the applicant pays salaries and payroll taxes.

Faith-based organizations like Plaintiff are eligible to receive PPP loans. Plaintiff clearly

met all eligibility requirements under the CARES Act.

Funds available under the PPP are limited and administered on a first-come, first-served

basis. Demand for the PPP funds has been overwhelming. The funds were exhausted once, but

were replenished by Congress on or about April 24, 2020. The Court does not know the current

status of PPP fund availability or whether Congress will replenish the fund again.

On April 2, 2020, Defendant issued Official SBA Form 2484, which is the form applicants

must use to apply for a PPP loan. The form states that the applicants “presently are involved in any

bankruptcy” are not eligible.3

3 Defendant introduced into evidence its form of application for a regular 7(a) loan. The application has sixteen questions, including whether the applicant or any affiliate has ever filed for bankruptcy protection. The application asks for details on a separate sheet if the question is answered “yes.”

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On April 15, 2020, Defendant published in the Code of Federal Regulations an “interim

final rule” implementing the PPP (the “First Rule”). The First Rule, like the CARES Act, says

nothing about bankruptcy debtors being ineligible for the PPP.4

Plaintiff filed a loan application on April 20, 2020, for a $900,000 PPP loan. The lender,

Wells Fargo, did not act on the application because of the bankruptcy ineligibility provision.

On April 28, 2020, the SBA issued another interim final rule (the “Second Rule”). The

Second Rule purports to disqualify bankruptcy debtors from the PPP:

Will I be approved for a PPP loan if my business is in bankruptcy? No. If the applicant or the owner of the applicant is the debtor in a bankruptcy proceeding, either at the time it submits the application or at any time before the loan is disbursed, the applicant is ineligible to receive a PPP loan. . . .The Administrator, in consultation with the Secretary, determined that providing PPP loans to debtors in bankruptcy would present an unacceptably high risk for an unauthorized use of funds or non-repayment of unforgiven loans.

Like many New Mexico businesses, Plaintiff has been severely financially affected by the

federal, state, and local government “lockdown” orders issued in response to the coronavirus

pandemic. On March 23, 2020, the New Mexico Department of Health issued a “stay at home”

order, prohibiting mass gatherings and requiring all non-essential businesses to cease in-person

operations. On April 6, 2020, the Governor issued Executive Order 2020-22, which extended the

4 The First Rule adopts the ineligibility standards in section 120.110, title 13 of the Code of Federal Regulations (“CFR 120.110”), as further described in SBA's Standard Operating Procedure 50-10, Subpart B, Chapter 2 ("SOP 50-10"). See First Interim Rule, 2(c) (“Businesses that are not eligible for PPP loans are identified in 13 CFR 120.110 and further described in SBA's Standard Operating Procedure”). The SOP 50-10 provides that a “Small Business Applicant” must, among other things: be an operating business; be located in the United States; be “small” (as defined by the SBA); and demonstrate the need for the desired credit. See SOP 50-10, pg. 85. The SOP 50-10 also provides that the businesses listed in CFR 120.110 are not eligible for an SBA loan. Bankruptcy debtors are not among the listed ineligible businesses. Nothing in the SOP 50-10 makes the Plaintiff ineligible for a PPP loan.

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stay at home order through April 30, 2020. The Governor recently announced that she will further

extend the stay at home order through at least May 15, 2020.

A major source of Plaintiff’s income is revenue derived from monthly parish assessments.

The parishes, in turn, derive a significant portion of their revenue from money collected during

masses. Furthermore, a significant portion of the collections occur during Holy Week, which

coincided with the lockdown. Because the parishes have been closed to their parishioners and the

public, Plaintiff is losing about $300,000 a month in revenue it otherwise would realize from

normal operations. This loss of income will continue until, at a minimum, the Governor’s

lockdown orders are lifted. Without a PPP loan, the Plaintiff’s operations and reorganization effort

will be substantially adversely affected. The PPP funds are essential to Plaintiff’s “fresh start.”

Plaintiff has the financial and accounting ability to follow the PPP rules about use of the

funds. Plaintiff is careful in its accounting, files complete and detailed monthly operating reports

in this case, and is more than willing to separately account for how it would use PPP funds.

On April 28, 2020, Plaintiff filed a motion to approve its proposed PPP loan as post-petition

financing under 11 U.S.C. § 364.

With the Second Rule, Defendant made a final determination that Plaintiff’s application

will be denied. There are no administrative appeals or remedies available to Plaintiff to seek review

of Defendant’s decision to exclude it from the PPP.

II. DISCUSSION

A. Jurisdiction and Venue.

The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 157

and 1334. Jurisdiction is proper under the judicial review provisions of the Administrative

Procedure Act, 5 U.S.C. § 701 et seq. (the “APA”). This is a core proceeding pursuant to 28 U.S.C.

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§ 157(b)(2)(A). Defendant’s decision to exclude Plaintiff from the PPP is core: it goes to the heart

of case administration, as the funds were intended by Congress to replace Plaintiff’s lost revenue

caused by the government lockdowns. In addition, the Court concludes that a proceeding to

determine whether a governmental unit has violated 11 U.S.C. § 525(a) is core.

Venue is proper in this district pursuant to 28 U.S.C. §§ 1391(b)(2) and (e)(1) and 28 U.S.C.

§ 1409(a).

B. The Administrative Procedure Act.

This proceeding is brought in part under the APA. 5 U.S.C. § 706 provides:

To the extent necessary to decision and when presented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action. The reviewing court shall-- (1) compel agency action unlawfully withheld or unreasonably delayed; and (2) hold unlawful and set aside agency action, findings, and conclusions found to be-- (A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; (B) contrary to constitutional right, power, privilege, or immunity; (C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right; (D) without observance of procedure required by law; (E) unsupported by substantial evidence in a case subject to sections 556 and 557 of this title or otherwise reviewed on the record of an agency hearing provided by statute; or (F) unwarranted by the facts to the extent that the facts are subject to trial de novo by the reviewing court.

In making the foregoing determinations, the court shall review the whole record or those parts of it cited by a party, and due account shall be taken of the rule of prejudicial error.

In New Mexico Health Connections v. United States Department of Health & Human

Services, 946 F.3d 1138, 1161 (10th Cir. 2019), the Tenth Circuit held that “[i]n reviewing an APA

challenge to agency action, a district court acts as an appellate court.” The scope of the court’s

“review under this standard is “narrow’” and the court “is not to substitute its judgment for that of

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the agency.” Judulang v. Holder, 565 U.S. 42, 52-53 (2011) (citation omitted). Nevertheless,

courts retain an important role “in ensuring the agencies have engaged in reasoned

decisionmaking” by examining the reasons for the agency decisions, or lack thereof, and

determining “whether the decision was based on consideration of the relevant factors and whether

there has been a clear error of judgment.” Id. at 53 (citation omitted); Dep’t of Commerce v. N.Y.,

139 S. Ct. 2551, 2569 (2019) (although a court may not substitute its judgment for that of the

agency, it must ensure that the agency remained “within the bounds of reasoned decisionmaking”).

Here, the question is whether Plaintiff is entitled to relief under § 706(2)(A) (arbitrary and

capricious) and/or (C) (in excess of authority).

1. Arbitrary and Capricious. Plaintiff argues that Defendant’s prohibition against

bankruptcy debtors is arbitrary and capricious, in violation of 5 U.S.C. § 706(2)(A). “Under the

arbitrary and capricious standard, we must determine whether the agency considered all relevant

factors and whether there has been a clear error of judgment.” IMC Kalium Carlsbad Inc. v.

Interior Bd. of Land Appeals, 206 F.3d 1003, 1012 (10th Cir. 2000) (internal quotation marks

omitted). An agency rule is “arbitrary and capricious if the agency has relied on factors [that]

Congress has not intended it to consider, entirely failed to consider an important aspect of the

problem, offered an explanation for its decision that runs counter to the evidence before the agency,

or is so implausible that it could not be ascribed to a difference in view or the product of agency

expertise.” Motor Vehicles Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S.

29, 43 (1983). While the APA’s arbitrary and capricious standard is generally deferential,

prohibiting the court from substituting its judgment for the agency’s, Utahns for Better Transp. v.

U.S. Dep’t of Transp., 305 F.3d 1152, 1164 (10th Cir. 2002), this principle is borne of the notion

that an agency typically has “greater familiarity with the ever-changing facts and circumstances

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surrounding the subjects” it regulates. Food & Drug Admin. v. Brown & Williamson Tobacco

Corp., 529 U.S. 120, 132 (2000). No such deference is given to an action taken without statutory

authority. Util. Air Regulatory Group v. E.P.A., 573 U.S. 302, 321 (2014).

The Court finds that Defendant’s decision to exclude bankruptcy debtors from the PPP is

arbitrary and capricious. While a borrower’s bankruptcy status clearly is relevant for a normal loan

program, the PPP is the opposite of that. It is not a loan program at all. It is a grant or support

program. The statute’s eligibility requirements do not include creditworthiness. Quite the contrary,

the CARES Act makes PPP money available regardless of financial distress. Financial distress is

presumed. Given the effect of the lockdown, many, perhaps most, applicants would not be able to

repay their PPP loans. They don’t have to, because the “loans” are really grants. Repayment is not

a significant part of the program. That is why Congress did not include creditworthiness as a

requirement.

Considering the unprecedent nature of the PPP and the circumstances underlying its

enactment, there is no reason to assume that Congress intended to cede to Defendant discretion to

exclude bankruptcy debtors from the PPP. Rather, a review of the CARES Act in its entirety shows

the opposite. E.P.A., 573 U.S. at 321 (Congress’s intent may be discerned by examining the

enactment in its entirety); Brown & Williamson, 529 U.S. at 133 (2000) (same). As discussed

below, another CARES Act program (direct loans to mid-sized businesses)5 specifically excludes

bankruptcy debtors. The unmistakable implication is that Congress did not intend to exclude

bankruptcy debtors from the PPP.

The structure of the PPP is simple: PPP funds must be used for payroll, mortgage interest,

rent, or utilities. If the funds are used as required, they do not have to be repaid. Given the obvious

5 § 4003(c)(3)(D).

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purpose of the PPP, it was arbitrary and capricious for Defendant to engraft a creditworthiness test

where none belonged.

Furthermore, the test itself (are you a bankruptcy debtor?) is arbitrary and capricious. Why

that eligibility criterion and not one of the many others that would more accurately gauge a

borrower’s likelihood of complying with the PPP?6 It makes no sense, and it is unsupported by the

terms of the CARES Act. See E.P.A., 573 U.S. 302, 324 (2014). (“We expect Congress to speak

clearly if it wishes to assign to an agency decisions of vast ‘economic and political significance.’”)

(citation omitted).

Defendant’s only articulated justification for the bankruptcy disqualification is that

bankruptcy debtors “present an unacceptably high risk for an unauthorized use of funds or non-

repayment of unforgiven loans.” As Judge David Jones said last week in ruling on a similar issue,

the justification “is completely frivolous.”7 It is also arbitrary and capricious. Plaintiff, like all

chapter 11 debtors in possession, is under the supervision of the Court and the United States

Trustee’s office. It must file detailed monthly operating reports, attaching bank statements. The

unsecured creditors committee appointed in the case is very active and watches how Plaintiff

spends money. All creditors have access to the docket and the monthly operating reports. In short,

the chapter 11 bankruptcy system is a hundred-eyed Argus. In contrast, nondebtors can spend their

6 Other possible underwriting criteria include: balance sheet insolvency; inability to pay debts as they become due; recent profitability; credit score; pending collection actions; current default on secured or unsecured debts; increases in credit card or other debt to pay bills; current ration of accounts receivable to accounts payable; and presence or absence of cash flow problems. There are many more. 7 Hidalgo County Emergency Service Foundation v. Jovita Carranza (In re Hidalgo County Emergency Service Foundation), Case no. 19-20497; Adv. pro. No. 20-2006, (Bankr. S.D. Tex.); (transcript of oral ruling rendered April 24, 2020).

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PPP funds without any oversight. Defendant’s justification for excluding bankruptcy debtors is so

weak the Court has to wonder if Defendant really believes it.

The Court concludes that Defendant’s decision to insert underwriting criteria into the PPP,

and then to use the bankruptcy debtor test as the sole underwriting criterion, is both arbitrary and

capricious.

2. Exceeds Statutory Authority. Plaintiff also argues that the prohibition against

debtors exceeds Defendant’s authority under the CARES Act, in violation of 5 U.S.C. § 706(2)(C).

The Court agrees.

In determining whether an agency’s regulations are valid under a particular statute, as the Supreme Court’s decision in Chevron instructs, we begin with the question of whether the statute unambiguously addresses the “precise question at issue.” Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, 467 U.S. 837, 842, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984); accord United Keetoowah Band of Cherokee Indians of Okla. v. U.S. Dep’t of Hous. & Urban Dev., 567 F.3d 1235, 1239–40 (10th Cir. 2009); see also Keller Tank Servs. II, Inc. v. Comm’r, 848 F.3d 1251, 1269 (10th Cir. 2017) (noting that “[t]he Chevron-deference analysis proceeds in two steps,” and explicating them both). “If Congress has spoken directly to the issue, that is the end of the matter; the court, as well as the agency, must give effect to Congress’s unambiguously expressed intent.” Keetoowah Band, 567 F.3d at 1240 (emphasis added). However, if the statute is silent or ambiguous as to the precise question at issue, a court must determine whether to afford the agency’s interpretation Chevron deference. Id. Such deference is appropriate if “ ‘Congress delegated authority to the agency generally to make rules carrying the force of law’ and the agency’s interpretation of the statute was issued pursuant to that authority.” Carpio v. Holder, 592 F.3d 1091, 1096–97 (10th Cir. 2010) (quoting United States v. Mead Corp., 533 U.S. 218, 226–27, 121 S.Ct. 2164, 150 L.Ed.2d 292 (2001)). If these conditions are satisfied, then we defer to the agency’s interpretation of the statute as long as it is not “arbitrary, capricious, [n]or manifestly contrary to the statute,” id. at 1096 (alteration in original) (quoting Herrera–Castillo v. Holder, 573 F.3d 1004, 1007 (10th Cir. 2009)).

New Mexico v. Dep't of Interior, 854 F.3d 1207, 1221 (10th Cir. 2017).

The CARES Act directly addresses the PPP eligibility requirements. It charged Defendant

with issuing “regulations to carry out this title. . . .” Section 1114. Defendant had no authority

under this charge to change the eligibility requirements. That, however, is exactly what it did.

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Defendant exceeded its authority by trying to prohibit bankruptcy debtors from getting PPP funds.

It is not entitled to Chevron deference.

Defendant’s unlawful behavior is made clear by the CARES Act § 4003(c)(3)(D), which

relates to loans to “mid-sized businesses.” Unlike PPP loans, the loans to mid-size businesses are

intended to be repaid. For that reason, Congress specified in the statute that bankruptcy debtors

are not eligible. Defendant should have read and understood the fundamental differences between

the mid-size business loan program (real loans) and the PPP (grants or support payments).

Defendant’s refusal to abide by this simple distinction constitutes a usurpation of Congressional

authority to determine which business are eligible for PPP funds. Without question, Defendant

lacked the authority to change the PPP eligibility requirements and exclude Plaintiff.

C. Protection Against Discriminatory Treatment.

11 U.S.C. § 525(a) provides:

(a) . . . a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act.

Plaintiff argues that Defendant’s decision to exclude debtors from the PPP violates

§ 525(a). The Court agrees. In Stolz v. Brattleboro Housing Auth. (In re Stoltz), 315 F.3d 80 (2d

Cir. 2002), the Second Circuit analyzed the term “other similar grant:”

The term “other similar grant” is not defined by the code. In common parlance, a grant is “a transfer of property by deed or writing.” Merriam Webster’s Collegiate Dictionary 507 (10th ed. 2000). As a legal term, a grant is “[a]n agreement that

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creates a right of any description other than the one held by the grantor. Examples include leases, easements, charges, patents, franchises, powers, and licenses.” Black's Law Dictionary 707 (7th ed.1999) (emphasis added). Similarly, a lease is “[a] contract by which a rightful possessor of real property conveys the right to use and occupy that property in exchange for consideration.” Id. at 898. . . . The common qualities of the property interests protected under section 525(a), i.e., “license[s], permit[s], charter[s], franchise[s], and other similar grants,” are that these property interests are unobtainable from the private sector and essential to a debtor's fresh start.

Id. at 88-90. See also In re Saunders, 105 B.R. 781, 788 (Bankr. E.D. Pa. 1989) (government

refusal to give debtor an education grant because of her bankruptcy could violate § 525(a),

although the court decided that it did not need to reach the issue); In re Oksentowicz, 314 B.R. 638

(Bankr. E.D. Mich. 2004), affirmed, 2005 WL 7466596 (E.D. Mich. 2005) (landlord’s rejection of

a chapter 7 debtor housing application violated § 525(a) because the housing complex was

considered a governmental unit); In re Haffner, 25 B.R. 882, 887 (Bankr. N.D. Ind. 1982)

(government refusal to include debtor in a price support program because of debtor’s refusal to

repay pre-petition debts violated § 525(a)); In re Howren, 10 B.R. 303 (Bankr. D. Kan. 1980) (state

university withholding transcript unless debtor paid its prepetition loan violated § 525(a)).

As shown above, the PPP is not a loan program.8 It is a grant or support program. The

target grant recipients are small businesses in financial distress. The PPP could only be offered by

the government; private lenders do not give away money. PPP funds “are unobtainable from the

private sector.” Stolz, 315 F.3d at 90. They also are essential to Plaintiff’s fresh start. Id. Of all the

benefits a government can grant, free money might be the best of all. Denying Plaintiff access to

PPP funds solely because it is a debtor violates § 525(a).

8 The government does not violate § 525(a) by taking borrower’s bankruptcy status into account when considering a loan application. See, e.g., Watts v. Pennsylvania Housing Fin. Co., 876 F.2d 1090, 1094 (3d Cir. 1989); Ayes v. U.S. Department of Veterans Affairs, 473 F.3d 104, 110 (4th Cir. 2006).

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III. CONCLUSION

With only the flimsiest of justifications Defendant took one of many underwriting criteria

from its “normal” loan programs (bankruptcy status of the borrower), changed it to an eligibility

condition, and then applied it to an emergency grant program where it clearly had no place.

Defendant’s inexplicable and highhanded decision to rewrite the PPP’s eligibility requirements in

this way was arbitrary and capricious, beyond its statutory authority, and in violation of 11 U.S.C.

§ 525(a). By a separate final judgment, the Court will grant Plaintiff the relief it requests. If

Defendant’s actions result in Plaintiff not obtaining the $900,000 it requested, Plaintiff may file

an adversary proceeding for compensatory and, if appropriate, punitive damages.

______Hon. David T. Thuma United States Bankruptcy Judge

Entered: May 1, 2020 Copies to: counsel of record

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District/Off: 1084−1 User: admin Date Created: 5/1/2020 Case: 20−01026−t Form ID: pdfor1 Total: 4

Recipients of Notice of Electronic Filing: aty Kevin VanLandingham [email protected] aty Thomas D Walker [email protected] TOTAL: 2

Recipients submitted to the BNC (Bankruptcy Noticing Center): pla Roman Catholic Church of the Archdiocese of Santa Fe 4000 St. Josephs Place NW Albuquerque, NM 87120 ust United States Trustee PO Box 608 Albuquerque, NM 87103−0608 TOTAL: 2

Case 20-01026-t Doc 15-1 Filed 05/01/20 Entered 05/01/20 12:28:17 Page 1 of 1 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 40 of 263

UNITED STATES BANKRUPTCY COURT

DISTRICT OF NEW MEXICO

In re:

ROMAN CATHOLIC CHURCH OF THE ARCHDIOCESE OF SANTA FE, No. 18-13027 t11

Debtor.

ROMAN CATHOLIC CHURCH OF THE ARCHDIOCESE OF SANTA FE,

Plaintiff,

v. Adv. No. 20-1026 t

UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION,

Defendant.

FINAL JUDGMENT

For the reasons set forth in the opinion entered herewith, it is hereby ORDERED,

ADJUDGED AND DECREED:

1. Pursuant to 5 U.S.C. § 706(2)(A), the Court holds unlawful Defendant’s exclusion

of Plaintiff from eligibility to participate in the Paycheck Protection Program (the “PPP”), enacted

as part of the Coronavirus Aid, Relief, and Economic Security Act, H.R. 748, P.L. 115-136in that

the exclusion is arbitrary and capricious.

2. Pursuant to 5 U.S.C. § 706(2)(C), the Court holds unlawful Defendant’s exclusion

of Plaintiff from eligibility to participate in the PPP in that the exclusion is in excess of Defendant’s

statutory jurisdiction, authority, or limitations or short of statutory right.

3. The Court declares that Defendant’s attempt to exclude Plaintiff from the PPP

solely on the ground that Plaintiff is a chapter 11 debtor-in-possession violates 11 U.S.C. § 525(a).

Case 20-01026-t Doc 16 Filed 05/01/20 Entered 05/01/20 12:30:36 Page 1 of 2 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 41 of 263

4. Pursuant to 5 U.S.C. § 706(1), the Court hereby compels Defendant to act on

Plaintiff’s PPP loan application forthwith without regard to Plaintiff’s status as a chapter 11 debtor

in possession.

5. If Defendant’s actions, whether taken heretofore or in the future, are the proximate

cause of Plaintiff losing its requested $900,000 in PPP funds, Plaintiff may file an adversary

proceeding against Defendant for compensatory and, if appropriate, punitive damages.

______Hon. David T. Thuma United States Bankruptcy Judge

Entered: May 1, 2020 Copies to: counsel of record

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District/Off: 1084−1 User: admin Date Created: 5/1/2020 Case: 20−01026−t Form ID: pdfor1 Total: 4

Recipients of Notice of Electronic Filing: aty Kevin VanLandingham [email protected] aty Thomas D Walker [email protected] TOTAL: 2

Recipients submitted to the BNC (Bankruptcy Noticing Center): pla Roman Catholic Church of the Archdiocese of Santa Fe 4000 St. Josephs Place NW Albuquerque, NM 87120 ust United States Trustee PO Box 608 Albuquerque, NM 87103−0608 TOTAL: 2

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No Shepard’s Signal™ As of: May 6, 2020 7:20 PM Z

In re Roman Catholic Church of the Archdiocese of Santa Fe

United States Bankruptcy Court for the District of New Mexico May 01, 2020, Decided No. 18-13027 t11, Adv. No. 20-1026 t, chapter 11

Reporter 2020 Bankr. LEXIS 1211 * distributing approximately $2.3 trillion to various industries, programs, and individuals. The CARES Act In re: ROMAN CATHOLIC CHURCH OF THE temporarily added a new "Paycheck Protection ARCHDIOCESE OF SANTA FE, Debtor. ROMAN Program" (the "PPP") to be administered by Defendant. CATHOLIC CHURCH OF THE ARCHDIOCESE OF The CARES Act provisions relating to the PPP provide SANTA FE, Plaintiff, v. UNITED STATES OF AMERICA in pertinent part: Section 1102. Paycheck Protection SMALL BUSINESS ADMINISTRATION, Defendant. Program (a) IN GENERAL.-Section 7(a) of the Small OPINION The Court held a preliminary injunction Business Act (15 U.S.C. 636(a)) is amended- (1) in hearing in this proceeding on April 30, 2020. During the paragraph (2)- (A) in subparagraph (A), in the matter hearing, the Court converted it to a trial on the merits, as preceding clause (i), by striking "and (E)" and inserting allowed by Fed. R. Civ. P. 65(a)(2).1 For the reasons "(E), and (F)"; and (B) by adding at the end the stated herein, Plaintiff is entitled to relief under its following: "(F) PARTICIPATION IN THE PAYCHECK complaint. I. FINDINGS OF FACT 2 The Court finds: PROTECTION PROGRAM.-In an agreement to 1Rule 65 is incorporated by reference by Fed. R. Bankr. participate in a loan on a deferred basis under P. 7065. The Court took this admittedly unusual step for paragraph (36), the participation by the Administration two reasons. First, there is enormous time pressure in shall be 100 percent."; and (2) by adding at the end the this proceeding, for the reasons stated below. To following: "(36) PAYCHECK PROTECTION provide any effective relief, and/or to avoid a substantial PROGRAM.- "(A) DEFINITIONS.-In this paragraph- "(iv) damages claim from accruing, an immediate decision the term 'eligible recipient' means an individual or entity was necessary. Second, the factual issues in the that is eligible to receive a covered loan; -2- "(B) proceeding were few and noncontroversial. 2The Court PAYCHECK PROTECTION LOANS.-Except as took judicial notice of the docket in the main case and otherwise provided in this paragraph, the Administrator this adversary proceeding. See St. Louis Baptist may guarantee covered loans under the same terms, Temple, Inc. v. Fed. Deposit Ins. Corp. , 605 F.2d 1169, conditions, and processes as a loan made under this 1172 (10th Cir. 1979) (holding that a court may sua subsection. "(D) INCREASED ELIGIBILITY FOR sponte take judicial notice of its docket); LeBlanc v. CERTAIN SMALL BUSINESSES AND Salem (In re Mailman Steam Carpet Cleaning Corp., ORGANIZATIONS.- "(i) IN GENERAL.-During the 196 F.3d 1, 8 (1st Cir. 1999) (same). Plaintiff is a covered period, in addition to small business concerns, catholic archdiocese in New Mexico and a New Mexico any business concern, nonprofit organization, veterans corporation. Its principal place of business is at 4000 St. organization, or Tribal business concern described in Josephs Place NW, Albuquerque, New Mexico. Plaintiff section 31(b)(2)(C) shall be eligible to receive a covered has 70 employees. On December 3, 2018, Plaintiff filed loan if the business concern, nonprofit organization, this case. Since then Plaintiff has been operating as a veterans organization, or Tribal business concern debtor-in-possession pursuant to 11 U.S.C. §§ 1107 employs not more than the greater of- "(I) 500 and 1108. Defendant (sometimes referred to as the employees; or "(II) if applicable, the size standard in "SBA") is an agency of the United States of America. Its number of employees established by the Administration central office is located at 409 Third Street, S.W., for the industry in which the business concern, nonprofit Washington DC 20416. On or about March 27, 2020, organization, veterans organization, or Tribal business the President signed the Coronavirus Aid, Relief, and concern operates. (F) ALLOWABLE USES OF Economic Security Act, H.R. 748, P.L. 115-136 (the COVERED LOANS.- "(i) IN GENERAL.-During the "CARES Act"). The CARES Act is intended, among covered period, an eligible recipient may, in addition to other things, to provide stimulus to the economy by the allowable uses of a loan made under this

John-29622 Tancabel Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 PagePage 44 2 of of 8 263 2020 Bankr. LEXIS 1211, *1211 subsection, use the proceeds of the covered loan for- the notice requirements under section 553(b) of title 5, "(I) payroll costs; "(II) costs related to the continuation of United States Code. As can be seen from the statute, group health care benefits during periods of paid sick, funds from the PPP have the following extremely medical, or family leave, and insurance premiums; "(III) favorable terms: • No collateral or personal guarantees employee salaries, commissions, or similar are required; • Funds are available regardless of the compensations; "(IV) payments of interest on any applicant's creditworthiness. • No fees are charged; • mortgage obligation (which shall not include any The loans mature in 2 years; • The interest rate is 1%; prepayment of or payment of principal on a mortgage and • The loans are fully forgiven if the funds are used obligation); "(V) rent (including rent under a lease as required. -4- The PPP has very few eligibility agreement); "(VI) utilities; and "(VII) interest on any requirements. Applicants must: 1. Be a small business other debt obligations that were incurred before the concern or any business concern, nonprofit covered period. "(ii) DELEGATED AUTHORITY.- "(I) IN organization, veterans organization, or Tribal business GENERAL.-For purposes of making covered loans for concern described in section 31(b)(2)(C) of the Small the purposes described in clause (i), a lender approved Business Act; 2. Have fewer than 500 employees or, if to make loans under this subsection shall be deemed to applicable, the size standard in number of employees have been delegated authority by the Administrator to established by the Administration for the industry in make and approve covered loans, subject to the which the business concern, nonprofit organization, provisions of this paragraph. "(II) CONSIDERATIONS.- veterans organization, or Tribal business concern In evaluating the eligibility of a borrower for a covered operates; 3. Have been in operation on February 15, loan with the terms described in this paragraph, a lender 2020; and 4. Have had employees to whom the shall consider whether the borrower- "(aa) was in applicant pays salaries and payroll taxes. Faith-based operation on February 15, 2020; and "(bb)(AA) had organizations like Plaintiff are eligible to receive PPP employees for whom the borrower paid salaries and loans. Plaintiff clearly met all eligibility requirements payroll taxes; or "(BB) paid independent contractors, as under the CARES Act. Funds available under the PPP reported on a Form 1099-MISC. -3- SEC. 1106. Loan are limited and administered on a first-come, first-served Forgiveness . (a) DEFINITIONS.-In this section- (1) the basis. Demand for the PPP funds has been term "covered loan" means a loan guaranteed under overwhelming. The funds were exhausted once, but paragraph (36) of section 7(a) of the Small Business Act were replenished by Congress on or about April 24, (15 U.S.C. 636(a)), as added by section 1102; (7) the 2020. The Court does not know the current status of term "expected forgiveness amount" means the amount PPP fund availability or whether Congress will replenish of principal that a lender reasonably expects a borrower the fund again. On April 2, 2020, Defendant issued to expend during the covered period on the sum of any- Official SBA Form 2484, which is the form applicants (A) payroll costs; (B) payments of interest on any must use to apply for a PPP loan. The form states that covered mortgage obligation (which shall not include the applicants "presently are involved in any any prepayment of or payment of principal on a covered bankruptcy" are not eligible.3 3 Defendant introduced mortgage obligation); (C) payments on any covered rent into evidence its form of application for a regular 7(a) obligation; and (D) covered utility payments; and (8) the loan. The application has sixteen questions, including term "payroll costs" has the meaning given that term in whether the applicant or any affiliate has ever filed for paragraph (36) of section 7(a) of the Small Business Act bankruptcy protection. The application asks for details (15 U.S.C. 636(a)), as added by section 1102 of this on a separate sheet if the question is answered "yes." - Act. (b) FORGIVENESS.-An eligible recipient shall be 5- On April 15, 2020, Defendant published in the Code eligible for forgiveness of indebtedness on a covered of Federal Regulations an "interim final rule" loan in an amount equal to the sum of the following implementing the PPP (the "First Rule"). The First Rule, costs incurred and payments made during the covered like the CARES Act, says nothing about bankruptcy period: (1) Payroll costs. (2) Any payment of interest on debtors being ineligible for the PPP.4 Plaintiff filed a any covered mortgage obligation (which shall not loan application on April 20, 2020, for a $900,000 PPP include any prepayment of or payment of principal on a loan. The lender, Wells Fargo, did not act on the covered mortgage obligation). (3) Any payment on any application because of the bankruptcy ineligibility covered rent obligation. (4) Any covered utility payment. provision. On April 28, 2020, the SBA issued another SEC. 1114. Emergency Rulemaking Authority . Not later interim final rule (the "Second Rule"). The Second Rule than 15 days after the date of enactment of this Act, the purports to disqualify bankruptcy debtors from the Administrator shall issue regulations to carry out this title PPP: Will I be approved for a PPP loan if my business is and the amendments made by this title without regard to in bankruptcy? No. If the applicant or the owner of the

John-29622 Tancabel Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 PagePage 45 3 of of 8 263 2020 Bankr. LEXIS 1211, *1211 applicant is the debtor in a bankruptcy proceeding, Procedure"). The SOP 50-10 provides that a "Small either at the time it submits the application or at any Business Applicant" must, among other things: be an time before the loan is disbursed, the applicant is operating business; be located in the United States; be ineligible to receive a PPP loan. . . .The Administrator, in "small" (as defined by the SBA); and demonstrate the consultation with the Secretary, determined that need for the desired credit. See SOP 50-10, pg. 85. The providing PPP loans to debtors in bankruptcy would SOP 50-10 also provides that the businesses listed in present an unacceptably high risk for an unauthorized CFR 120.110 are not eligible for an SBA loan. use of funds or non-repayment of unforgiven loans. Like Bankruptcy debtors are not among the listed ineligible many New Mexico businesses, Plaintiff has been businesses. Nothing in the SOP 50-10 makes the severely financially affected by the federal, state, and Plaintiff ineligible for a PPP loan. local government "lockdown" orders issued in response to the coronavirus pandemic. On March 23, 2020, the stay at home order through April 30, 2020. The New Mexico Department of Health issued a "stay at Governor recently announced that she will further home" extend the stay at home order through at least May 15, 2020.

A major source of Plaintiff's income is revenue derived from monthly [*2] parish assessments. The parishes, in Notice: Decision text below is the first available text turn, derive a significant portion of their revenue from from the court; it has not been editorially reviewed by money collected during masses. Furthermore, a LexisNexis. Publisher's editorial review, including significant portion of the collections occur during Holy Headnotes, Case Summary, Shepard's analysis or any Week, which coincided with the lockdown. Because the amendments will be added in accordance with parishes have been closed to their parishioners and the LexisNexis editorial guidelines. public, Plaintiff is losing about $300,000 a month in revenue it otherwise would realize from normal operations. This loss of income will continue until, at a minimum, the Governor's lockdown orders are lifted. Without a PPP loan, the Plaintiff's operations and Core Terms reorganization effort will be substantially adversely affected. The PPP funds are essential to Plaintiff's arbitrary and capricious, bankrupt debtor, funds, loans, "fresh start." deference, eligible, eligibility requirements Plaintiff has the financial and accounting ability to follow the PPP rules about use of the funds. Plaintiff is careful in its accounting, files complete and detailed monthly Opinion operating reports in this case, and is more than willing to separately account for how it would use PPP funds.

On April 28, 2020, Plaintiff filed a motion to approve its [*1] order, prohibiting mass gatherings and requiring all proposed PPP loan as post-petition financing under 11 non-essential businesses to cease in-person U.S.C. § 364. operations. On April 6, 2020, the Governor issued With the Second Rule, Defendant made a final Executive Order 2020-22, which extended the determination that Plaintiff's application will be denied. There are no [*3] administrative appeals or remedies 4 The First Rule adopts the ineligibility standards in available to Plaintiff to seek review of Defendant's section 120.110, title 13 of the Code of Federal decision to exclude it from the PPP.

Regulations ("CFR 120.110"), as further described in II. DISCUSSION SBA's Standard Operating Procedure 50-10, Subpart B, Chapter 2 ("SOP 50-10"). See First Interim Rule, 2(c) A. Jurisdiction and Venue. ("Businesses that are not eligible for PPP loans are identified in 13 CFR 120.110 and further described in The Court has jurisdiction over this adversary SBA's Standard Operating proceeding pursuant to 28 U.S.C. §§ 157

John-29622 Tancabel Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 PagePage 46 4 of of 8 263 2020 Bankr. LEXIS 1211, *3 and 1334. Jurisdiction is proper under the judicial review review the whole record or those parts of it cited by a provisions of the Administrative Procedure Act, 5 U.S.C. party, and due account shall be taken of the rule of § 701 et seq. (the "APA"). This is a core proceeding prejudicial error. pursuant to 28 U.S.C. In New Mexico Health Connections v. United States § 157(b)(2)(A). Defendant's decision to exclude Plaintiff Department of Health & HumanServices, 946 F.3d from the PPP is core: it goes to the heart of case 1138, 1161 (10th Cir. 2019), the Tenth Circuit held that administration, as the funds were intended by Congress "[i]n reviewing an APA challenge to agency action, a to replace Plaintiff's lost revenue caused by the district court acts as an appellate court." The scope of government lockdowns. In addition, the Court concludes the court's "review under this standard is "narrow'" and that a proceeding to determine whether a governmental the court "is not to substitute its judgment for that of unit has violated 11 U.S.C. § 525(a) is core. the agency." Judulang v. Holder, 565 U.S. 42, 52-53 Venue is proper in this district pursuant to 28 U.S.C. §§ (2011) (citation omitted). Nevertheless, courts 1391(b)(2) and (e)(1) and 28 U.S.C. § 1409(a). retain [*5] an important role "in ensuring the agencies have engaged in reasoned decisionmaking" by B. The Administrative Procedure Act. examining the reasons for the agency decisions, or lack thereof, and determining "whether the decision was This proceeding is brought in part under the APA. 5 based on consideration of the relevant factors and U.S.C. § 706 provides: whether there has been a clear error of judgment." Id. at 53 (citation omitted); Dep't of Commerce v. N.Y., 139 S. To the extent necessary to decision and when Ct. 2551, 2569 (2019) (although a court may not presented, the reviewing court shall decide all relevant substitute its judgment for that of the agency, it must questions of law, interpret constitutional and statutory ensure that the agency remained "within the bounds of provisions, and determine the meaning or applicability of reasoned decisionmaking"). the terms of an agency action. The reviewing court shall-- Here, the question is whether Plaintiff is entitled to relief (1) compel agency action unlawfully [*4] withheld or under § 706(2)(A) (arbitrary and capricious) and/or (C) unreasonably delayed; and (in excess of authority).

(2) hold unlawful and set aside agency action, findings, 1. Arbitrary and Capricious. Plaintiff argues that and conclusions found to Defendant's prohibition against be-- bankruptcy debtors is arbitrary and capricious, in violation of 5 U.S.C. § 706(2)(A). "Under the arbitrary (A) arbitrary, capricious, an abuse of discretion, or and capricious standard, we must determine whether otherwise not in accordance with law; the agency considered all relevant factors and whether there has been a clear error of judgment." IMC Kalium (B) contrary to constitutional right, power, privilege, or Carlsbad Inc. v.Interior Bd. of Land Appeals, 206 F.3d immunity; 1003, 1012 (10th Cir. 2000) (internal quotation marks omitted). An agency rule is "arbitrary and capricious if (C) in excess of statutory jurisdiction, authority, or the agency has relied on factors [that] Congress has not limitations, or short of statutory right; intended it to consider, entirely failed to consider an (D) without observance of procedure required by law; important aspect of the problem, offered an explanation for its decision [*6] that runs counter to the evidence (E) unsupported by substantial evidence in a case before the agency, or is so implausible that it could not subject to sections 556 and 557 of this title or otherwise be ascribed to a difference in view or the product of reviewed on the record of an agency hearing provided agency expertise." Motor Vehicles Mfrs. Ass'n of U.S., by statute; or Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). While the APA's arbitrary and capricious (F) unwarranted by the facts to the extent that the facts standard is generally deferential, prohibiting the court are subject to trial de novo by the reviewing court. from substituting its judgment for the agency's, Utahns for Better Transp. v.U.S. Dep't of Transp., 305 F.3d In making the foregoing determinations, the court shall

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1152, 1164 (10th Cir. 2002), this principle is borne of the more accurately gauge a borrower's [*8] likelihood of notion that an agency typically has "greater familiarity complying with the PPP?6 It makes no sense, and it is with the ever-changing facts and circumstances unsupported by the terms of the CARES Act. See E.P.A., 573 U.S. 302, 324 (2014). ("We expect surrounding the subjects" it regulates. Food & Drug Congress to speak clearly if it wishes to assign to an Admin. v. Brown & Williamson TobaccoCorp., 529 U.S. agency decisions of vast 'economic and political 120, 132 (2000). No such deference is given to an significance.'") action taken without statutory authority. Util. Air Regulatory Group v. E.P.A., 573 U.S. 302, 321 (2014). (citation omitted).

The Court finds that Defendant's decision to exclude Defendant's only articulated justification for the bankruptcy debtors from the PPP is arbitrary and bankruptcy disqualification is that bankruptcy debtors capricious. While a borrower's bankruptcy status "present an unacceptably high risk for an unauthorized clearly is relevant for a normal loan program, the PPP is use of funds or non-repayment of unforgiven loans." As the opposite of that. It is not a loan program at all. It is a Judge David Jones said last week in ruling on a similar grant or support program. The statute's eligibility issue, the justification "is completely frivolous."7 It is requirements do not include creditworthiness. Quite the also arbitrary and capricious. Plaintiff, like all chapter 11 contrary, the CARES Act makes PPP money available debtors in possession, is under the supervision of the regardless of financial distress. Financial distress is Court and the United States presumed. Given the effect of the lockdown, many, perhaps most, applicants would not be able to repay Trustee's office. It must file detailed monthly operating their PPP loans. They don't have to, because [*7] the reports, attaching bank statements. The unsecured "loans" are really grants. Repayment is not a significant creditors committee appointed in the case is very active part of the program. That is why Congress did not and watches how Plaintiff spends money. All creditors include creditworthiness as a requirement. have access to the docket and the monthly operating reports. In short, the chapter 11 bankruptcy system is a Considering the unprecedent nature of the PPP and the hundred-eyed Argus. In contrast, nondebtors can spend circumstances underlying its enactment, there is no their reason to assume that Congress intended to cede to Defendant discretion to exclude bankruptcy debtors 6Other possible underwriting criteria include: balance from the PPP. Rather, a review of the CARES Act in its sheet insolvency; [*9] inability to pay debts as they entirety shows the opposite. E.P.A., 573 U.S. at 321 become due; recent profitability; credit score; pending (Congress's intent may be discerned by examining the collection actions; current default on secured or enactment in its entirety); Brown & Williamson, 529 U.S. unsecured debts; increases in credit card or other debt at 133 (2000) (same). As discussed below, another to pay bills; current ration of accounts receivable to CARES Act program (direct loans to mid-sized accounts payable; and presence or absence of cash businesses)5specifically excludes bankruptcy debtors. flow problems. There are many more. The unmistakable implication is that Congress did not 7 Hidalgo County Emergency Service Foundation v. intend to exclude bankruptcy debtors from the PPP. Jovita Carranza (In re Hidalgo County Emergency The structure of the PPP is simple: PPP funds must be Service Foundation), Case no. 19-20497; Adv. pro. No. used for payroll, mortgage interest, rent, or utilities. If 20-2006, (Bankr. S.D. Tex.); (transcript of oral ruling rendered April 24, 2020). the funds are used as required, they do not have to be repaid. Given the obvious PPP funds without any oversight. Defendant's 5 § 4003(c)(3)(D). justification for excluding bankruptcy debtors is so purpose of the PPP, it was arbitrary and capricious for weak the Court has to wonder if Defendant really Defendant to engraft a creditworthiness test where none believes it. belonged. The Court concludes that Defendant's decision to insert underwriting criteria into the PPP, Furthermore, the test itself (are you a bankruptcy debtor?) is arbitrary and capricious. Why that eligibility and then to use the bankruptcy debtor test as the sole criterion and not one of the many others that would underwriting criterion, is both arbitrary and

John-29622 Tancabel Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 PagePage 48 6 of of 8 263 2020 Bankr. LEXIS 1211, *9 capricious. under this charge to change the eligibility requirements. That, however, is exactly what it did. 2. Exceeds Statutory Authority. Plaintiff also argues that the prohibition against Defendant exceeded its authority by trying to prohibit bankruptcy debtors from getting PPP funds. It is not debtors exceeds Defendant's authority under the entitled to Chevron deference. CARES Act, in violation of 5 U.S.C. § 706(2)(C). Defendant's unlawful behavior is made clear by the The Court agrees. CARES Act § 4003(c)(3)(D), which relates to loans to "mid-sized businesses." Unlike PPP loans, the loans to In determining whether an agency's regulations are valid mid-size businesses are intended to be repaid. For that under a particular statute, as the Supreme [*10] Court's reason, Congress specified in the statute that decision in Chevron instructs, we begin with the bankruptcy debtors are not eligible. Defendant should question of whether the statute unambiguously have read and understood the fundamental differences addresses the "precise question at issue." between the mid-size business loan program (real loans) and the PPP (grants or support payments). Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, 467 U.S. 837, 842, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984); Defendant's refusal to abide by this simple distinction accord United Keetoowah Band of Cherokee Indians of constitutes a usurpation of Congressional authority to determine which business are eligible for PPP funds. Okla. v. U.S. Dep't of Hous. & Urban Dev., 567 F.3d Without question, Defendant lacked the authority to 1235, 1239-40 (10th Cir. 2009); see also Keller Tank change the PPP eligibility requirements and exclude Servs. II, Inc. v. Comm'r, 848 F.3d 1251, 1269 (10th Cir. Plaintiff. 2017) (noting that "[t]he Chevron-deference analysis proceeds in two steps," and explicating them both). "If C. Protection Against Discriminatory Treatment. 11 Congress has spoken directly to the issue, that is the U.S.C. § 525(a) provides: end of the matter; the court, as well as the agency, must give effect to Congress's unambiguously expressed (a) . . . a governmental unit may not deny, revoke, intent." Keetoowah Band, 567 F.3d at 1240 (emphasis suspend, or refuse to renew a license, [*12] permit, added). However, if the statute is silent or ambiguous as charter, franchise, or other similar grant to, condition to the precise question at issue, a court must determine such a grant to, discriminate with respect to such a whether to afford the agency's interpretation Chevron grant against, deny employment to, terminate the deference. Id. Such deference is appropriate if " employment of, or discriminate with respect to 'Congress delegated authority to the agency generally to employment against, a person that is or has been a make rules carrying the force of law' and the agency's debtor under this title or a bankrupt or a debtor under interpretation of the statute was issued pursuant to that the Bankruptcy Act, or another person with whom such authority." Carpio v. Holder, 592 F.3d 1091, 1096-97 bankrupt or debtor has been associated, solely (10th Cir. 2010) (quoting United States v. Mead Corp., because such bankrupt or debtor is or has been a 533 U.S. 218, 226-27, 121 S.Ct. 2164, 150 L.Ed.2d 292 debtor under this title or a bankrupt or debtor under the (2001)). If these conditions are satisfied, then we defer Bankruptcy Act, has been insolvent before the to the agency's interpretation of the statute as long as it commencement of the case under this title, or during the is not "arbitrary, capricious, [n]or manifestly contrary to case but before the debtor is granted or denied a the statute," id. at 1096 (alteration in original) (quoting discharge, or has not paid a debt that is dischargeable Herrera-Castillo v. Holder, 573 F.3d 1004, 1007 (10th in the case under this title or that was discharged under Cir. 2009)). the Bankruptcy Act.

New Mexico v. Dep't of Interior, 854 F.3d 1207, 1221 Plaintiff argues that Defendant's decision to exclude (10th Cir. 2017). debtors from the PPP violates

The CARES Act directly addresses the PPP eligibility § 525(a). The Court agrees. In Stolz v. Brattleboro requirements. It [*11] charged Defendant Housing Auth. (In re Stoltz), 315 F.3d 80 (2d with issuing "regulations to carry out this title. . . ." Cir. 2002), the Second Circuit analyzed the term "other Section 1114. Defendant had no authority similar grant:"

John-29622 Tancabel Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 PagePage 49 7 of of 8 263 2020 Bankr. LEXIS 1211, *12

The term "other similar grant" is not defined by the code. As shown above, the PPP is not a loan program.8 It is a In common parlance, a grant is "a transfer of property by grant or support program. The deed or writing." MerriamWebster'sCollegiateDictionary 507 (10th ed. 2000). As a legal term, [*13] a grant is target grant recipients are small businesses in financial "[a]n agreement that distress. The PPP could only be offered by creates a right of any description other than the one the government; private lenders do not give away held by the grantor. Examples include leases, money. PPP funds "are unobtainable from the easements, charges, patents, franchises, powers, and private sector." Stolz, 315 F.3d at 90. They also are licenses." essential to Plaintiff's fresh start. Id. Of all the Black's Law Dictionary 707 (7th ed.1999) (emphasis benefits a government can grant, free money might be added). Similarly, a lease is the best of all. Denying Plaintiff access to "[a] contract by which a rightful possessor of real PPP funds solely because it is a debtor violates § property conveys the right to use and occupy that 525(a). property in exchange for consideration." Id. at 898.

. . . 8 The government does not violate § 525(a) by taking borrower's bankruptcy status into account when The common qualities of the property interests considering a loan application. See, e.g., Watts v. protected under section 525(a), i.e., Pennsylvania Housing Fin. Co., 876 F.2d 1090, 1094 (3d Cir. 1989); Ayes v. U.S. Department of Veterans "license[s], permit[s], charter[s], franchise[s], and other Affairs, 473 F.3d 104, 110 (4th Cir. 2006). similar grants," are that these property interests are unobtainable from the private sector and essential to a III. CONCLUSION debtor's fresh start. With only the flimsiest of justifications Defendant took Id. at 88-90. See also In re Saunders, 105 B.R. 781, 788 one of many underwriting criteria from its "normal" loan (Bankr. E.D. Pa. 1989) (government programs (bankruptcy status of the borrower), changed it to an eligibility condition, and then applied it to an refusal to give debtor an education grant because of emergency grant program where it clearly had no place. her bankruptcy could violate § 525(a), Defendant's inexplicable and highhanded decision to rewrite the PPP's eligibility requirements in this way was although the court decided that it did not need to reach arbitrary and capricious, beyond its statutory authority, the issue); In re Oksentowicz, 314 B.R. 638 and in violation of 11 U.S.C. § 525(a). By a [*15] separate final judgment, the Court will grant Plaintiff the (Bankr. E.D. Mich. 2004), affirmed, 2005 WL 7466596 relief it requests. If (E.D. Mich. 2005) (landlord's rejection of Defendant's actions result in Plaintiff not obtaining the a chapter 7 debtor housing application violated § 525(a) $900,000 it requested, Plaintiff may file an adversary because the housing complex was proceeding for compensatory and, if appropriate, punitive damages. considered a governmental unit); In re Haffner, 25 B.R. 882, 887 (Bankr. N.D. Ind. 1982) ______

(government refusal to include debtor in a price support Hon. David T. Thuma program because of debtor's refusal to United States Bankruptcy Judge repay pre-petition debts violated § 525(a)); In re Howren, 10 B.R. 303 (Bankr. D. Kan. 1980) (state Entered: May 1, 2020 university withholding [*14] transcript unless debtor Copies to: counsel of record paid its prepetition loan violated § 525(a)). Notice Recipients

John-29622 Tancabel Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 PagePage 50 8 of of 8 263 2020 Bankr. LEXIS 1211, *15

District/Off: 1084−1 User: admin Date Created: 5/1/2020

Case: 20−01026−t Form ID: pdfor1 Total: 4

Recipients of Notice of Electronic Filing:

aty Kevin VanLandingham [email protected]

aty Thomas D Walker [email protected]

TOTAL: 2

Recipients submitted to the BNC (Bankruptcy Noticing Center):

pla Roman Catholic Church of the Archdiocese of Santa Fe 4000 St. Josephs Place NW Albuquerque, NM

87120

ust United States Trustee PO Box 608 Albuquerque, NM 87103−0608

TOTAL: 2

End of Document

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Signed: April 25, 2020.

______DAVIDDAVID R. R. JONES JONES UNITED STATES BANKRUPTCY JUDGE CHIEF U.S. BANKRUPTCY JUDGE

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APPROVED AND ENTRY REQUESTED:







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APPROVED ONLY AS TO FORM:

RYAN K. PATRICK, United States Attorney

By: /s/ Richard A. Kincheloe by NP Holzer with permission Richard A. Kincheloe Assistant United States Attorney Attorney-in-Charge United States Attorney’s Office Southern District of Texas Texas Bar No. 24068107 S.D. Tex. ID No. 1132346 1000 Louisiana St., Suite 2300 Houston, Texas 77002 Telephone: (713) 567-9422 Facsimile: (713) 718-3033 Email: [email protected]

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Case 20-40133-thfCase 20-02006 Doc Document287 Filed 18 05/08/20 Filed in TXSBEntered on 05/08/20 04/25/20 14:52:10 Page 7 of Page 7 58 of 263

Attorney for the Defendant

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Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 59 of 263

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF TEXAS CORPUS CHRISTI DIVISION

HIDALGO COUNTY EMERGENCY ) CASE NO: 20-02006 SERVICE FOUNDATION, ) ADVERSARY ) Plaintiff, ) Houston, Texas ) vs. ) Friday, April 24, 2020 ) JOVITA CARRANZA, ) (9:01 a.m. to 10:04 a.m.) ) Defendant. )

HEARING

BEFORE THE HONORABLE DAVID R. JONES, UNITED STATES BANKRUPTCY JUDGE

REMOTE AND TELEPHONIC APPEARANCES:

For Plaintiff: NATHANIEL PETER HOLZER, ESQ. Jordan Holzer & Ortiz 500 N. Shoreline Drive Suite 900 Corpus Christi, TX 78401

Also present: DAVID ELLIOTT

For Defendant: RICHARD A. KINCHELOE, ESQ. United States Attorney's Office 1000 Louisiana Street Suite 2300 Houston, TX 77002

Court Reporter: Recorded; FTR-Mobile

Transcribed by: Exceptional Reporting Services, Inc. P.O. Box 8365 Corpus Christi, TX 78468 361 949-2988

Proceedings recorded by electronic sound recording; transcript produced by transcription service. EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 60 of 263 2

1 Houston, Texas; Friday, April 24, 2020; 9:01 a.m.

2 (Remote and telephonic appearances)

3 (Call to order)

4 THE COURT: All right, good morning, everyone. This

5 is Judge Jones. Today is Friday, April the 24th, 2020, which

6 is the docket for Corpus Christi, Texas.

7 First matter on this morning's docket is Adversary

8 Number 20-2006, Hidalgo County Emergency Services versus the

9 director of the Small Business Administration. Take

10 appearances, please.

11 Mr. Holzer, I see you there, you want to lead us off,

12 please.

13 MR. HOLZER: Pete Holzer, your Honor, for the

14 Plaintiff, Hidalgo County Emergency Service Foundation. I

15 believe my co-counsel, Kay Walker, is on the line, and also

16 believe the Chief Restructuring Officer of the Debtor,

17 Mr. Romero, was going to call in.

18 THE COURT: All right, thank you. Good morning to

19 everyone.

20 Mr. Kincheloe, and I look at the official title, I

21 said director of the SBA. I see that the title is

22 administrator. I meant nothing by it, my apologies. Do you

23 want to go ahead and make your appearance, please?

24 MR. KINCHELOE: Thank you, your Honor, Rick Kincheloe

25 for the Defendant. EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 61 of 263 3

1 THE COURT: All right, thank you. Anyone else wish

2 to make an appearance?

3 MR. ELLIOTT: This is David Elliott (indisc.) for

4 Hidalgo County.

5 THE COURT: All right, thank you, Mr. Elliott. Good

6 morning to you. Anyone else?

7 MR. ELLIOTT: Good morning (indisc.)

8 THE COURT: All right, thank you, Mr. Castillo. Let

9 me -- Mr. Holzer and Mr. Kincheloe, let me sort of bring you

10 sort of full circle in my thoughts since yesterday. I spent a

11 good part of the night reading the entirety of the CARES Act.

12 I have come to conclude it is a very long and often complicated

13 document to work your way through, but I spent a lot of time

14 with it. I also have spent significant time reviewing the

15 SBA's final interim (indisc.) I believe the number is 2020-

16 0015. I have also looked at relevant provisions governing --

17 and, again, I will apologize if I don't get the title right,

18 but SBA 7(A) loans. I have also thought a great deal about the

19 jurisdictional issues that are present. And I have gone back

20 and reviewed some recent decisions by my circuit. And I am --

21 it is very clear to me that my circuit has concerns as to just

22 how far the jurisdiction of an Article One court goes. And I

23 don't want to entertain that argument today. And so to the

24 extent that I grant any relief, it will be as to this debtor

25 only in this adversary only. And to the extent that there are EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 62 of 263 4

1 what I'm going to call class-like issues, I do not want Rule 23

2 or anything close to Rule 23 to become part of this discussion.

3 I -- for a couple of reasons. Number one, it's my belief that

4 by the time that we were able to work through all of those

5 issues, the Debtor's economic situation might probably have

6 dictated the outcome. And that shouldn't be anyone's goal. I

7 also think that to the extent that there are (indisc.) 23

8 issues in a case like this, they are better left to my Article

9 Three colleagues. I think that's all I wanted to say in terms

10 of what I've done in preparation. Obviously I've read

11 everything. Mr. Kincheloe, I have read your brief. I have had

12 a time -- I have had an opportunity to review the authorities

13 cited in that brief. I've had a chance to do my own research.

14 So I feel like as though I'm fairly well-educated on the

15 applicable law. I think I understand the issue. That doesn't

16 mean that you shouldn't take the opportunity to advance any

17 position that you think. But I am prepared to talk about a

18 number of issues as we work our way through that. Any

19 questions before we get started?

20 MR. HOLZER: No, your Honor.

21 MR. KINCHELOE: No, your Honor.

22 THE COURT: All right, thank you. Mr. Holzer, I

23 think that it is your burden so if you'd like to lead off,

24 please.

25 MR. HOLZER: Thank you, your Honor. Pete Holzer for EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 63 of 263 5

1 the Plaintiff, Hidalgo County Emergency Services Foundation. I

2 know the Court is up to speed. I'm not going to belabor the

3 facts that have before you in the three sworn declarations.

4 The one of Mr. Romero in the sworn complaint, certain

5 paragraphs of that factual basis. There is a sworn declaration

6 of Mr. Elliott that was filed last night. And then just a few

7 moments ago Mr. Ponce's declaration hit the docket. I don't

8 know if the Court has had a chance to see Mr. Elliott and

9 Mr. Ponce's declarations.

10 THE COURT: I've read Mr. Elliott's. I did not see

11 Mister you said Ponce, I've not seen (indisc.) --

12 MR. HOLZER: Mr. Ponce.

13 THE COURT: Yes, I have not seen that one. I am

14 reading it as you talk. So go ahead.

15 MR. HOLZER: I was going to let you finish reading,

16 Judge.

17 THE COURT: Pretty short, direct, four paragraphs, I

18 got it.

19 MR. HOLZER: Okay, so Mr. Ponce really talks about

20 the background of the company and where it is and touches on

21 the impact of the coronavirus problem.

22 Mr. Elliott is certainly much more specific addressed

23 a few things that may have not been in the complaint that we

24 talked about yesterday, that is the process by which we got to

25 where we are and what we think happened and so forth. EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 64 of 263 6

1 So I think what I really want to do is talk sort of

2 in general about some of the issues that Mr. Kincheloe raised

3 in his brief, which is actually quite helpful in my thinking

4 about how things go together and what the administrator does

5 and how the government looks at these kind of issues. I think

6 one very important thing is that despite what we now know from

7 Mr. Kincheloe's brief, we still don't know who, where, why, or

8 how the bankruptcy exclusion came to be -- came about as part

9 of the application form. There's no doubt that it's there in

10 the form. And I do see the I'll call it a tenuous connection

11 that the government makes between the implementing rule and

12 that there's a form, okay, so there is a connection. But it

13 doesn't really tell us -- we just have no understanding and no

14 knowledge or any idea how, who, where, or why this exception

15 language showed up in this application on the PPP loan program.

16 I can speculate, and here's what my speculation is. First of

17 all, I think we're all aware that there are other lawsuits now,

18 a lot of them from what I've read in the papers, where the SBA

19 is being sued about giving these PPP loans to a larger

20 corporation, Fortune 500 companies, that really didn't make any

21 sense to be allowed under the PPP loan program and wound up

22 exhausting it, all these big-monied corporations. And so

23 that's ongoing. That's not really before this Court but it's

24 certainly out there. But it looks to me like what happened in

25 this agency is they took this CARES Act, which I agree, I've EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 65 of 263 7

1 read the whole thing, too, and it's, you know, about what you'd

2 expect from legislation that occurred over just a period of a

3 few days and weeks. There is a section that has loans for

4 large companies and like the airlines and so on and so forth

5 that does have a bankruptcy exclusion, it's a specific one in

6 there. And then there's the paycheck protection loan under --

7 in Section 1100, 1102, that does not. And so it looks to me

8 like what the SBA has done is they then drafted the bankruptcy

9 exclusion in the large company section and they've applied it

10 also to the PPP loan protection. And then conversely they let

11 the --

12 THE COURT: (Indisc.)

13 MR. HOLZER: -- large companies into the PPP

14 (indisc.) --

15 THE COURT: Mr. Holzer, if I could just interrupt you

16 because I want to make sure that the record is clear. The

17 bankruptcy exclusion is actually in the section for midsized

18 businesses defined those companies with more than 500, less

19 than 10,000 employees, can be found at page 193 of the Act. I

20 have read it, I'm familiar with it. I just -- I don't think

21 there necessarily is a section that I read with respect to

22 large-sized businesses. The actual subtitle of the provision

23 are loans for midsized businesses.

24 MR. HOLZER: All right, (indisc.) --

25 THE COURT: (Indisc.) EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 66 of 263 8

1 MR. HOLZER: -- then I apologize, Judge. I conflated

2 those two and I've done the same mistake that I'm accusing the

3 SBA of. So I'm not -- I guess the point being, there's no ill

4 will. This is not a intentional ill will, they're out to get

5 the bankrupt companies. I think it's just a mistake in a badly

6 implemented process that they've done here, as evidenced by the

7 lawsuits for the big companies getting into this program and

8 exhausting it. In any event, I think it's an abuse of

9 discretion the way they've handled this and the way they've put

10 this bankruptcy exception. They've conflated these two

11 different programs. And then we're faced with this form that

12 has this exception and bank lenders that look at the form and

13 say, well, here's the exception, it's right here in the form I

14 have to use so I can't give you a loan. So with respect to the

15 abuse of discretion, and we are arguing, Judge, both Section

16 525, 523, I forget the number, is discrimination and a exercise

17 of authority that doesn't comply with the statute. And then so

18 I want to jump down to some cases Mr. Kincheloe has. His brief

19 talks about the Anti-Injunction Act in section -- in the Small

20 Business Act. And I looked at those cases. I have a couple of

21 cases, your Honor, if you need them that explain why in a

22 situation like this, the -- in a situation where the

23 administrator of a government agency exceeds the scope of their

24 authority like they're arguing here, that Anti-Injunction Act

25 doesn't apply. And I would start with the Supreme Court. It's EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 67 of 263 9

1 the case is -- oh, where'd it go? South Carolina versus Regan

2 at 465 U.S. 367 from 1984. That case is a holding where the

3 anti-injunction provisions are inapplicable where Congress

4 didn't provide the plaintiff with an alternative legal way to

5 challenge the administration's ruling. And that was a case

6 related to taxes. We have Canterbury Career School versus

7 Riley, District of New Jersey, 1993, 833 F.Supp. 1097 basically

8 saying the same thing. This is a Secretary of Department of

9 Education has a similar anti-injunction provision in their

10 statute. The court said if the defendant, the Secretary of

11 Department of Education, has exceeded the scope of his

12 authority, then this court has jurisdiction to grant

13 appropriate injunctive relief, notwithstanding the anti-

14 injunction provision. And then, lastly, a case out of this

15 court from Judge Schmidt back in 1992, an unreported case, it's

16 a 1992 Westlaw 551256 pointing out that the Fifth Circuit has

17 left (indisc.) by implication recognizing that injunctive

18 relief is permissible where the government agency exceeds its

19 statutory authority. So with those cases and my arguments, I

20 think the question of whether or not this Court has

21 jurisdiction authority to enter an injunction, I think it does.

22 And I think it's well-supported in the law and under the facts

23 of this case.

24 So I wanted to talk about next a -- what I think is

25 why this statute does exceed the administrator's authority. EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 68 of 263 10

1 And it's partly a policy argument. So let's talk about a

2 hypothetical. So let's say you have a loan applicant who's

3 preparing for bankruptcy, hired bankruptcy counsel, hired the -

4 - hired a -- hired bankruptcy lawyer, paid them a retainer,

5 they're working on the schedules, but they haven't filed

6 bankruptcy yet. And so would that company -- would that

7 potential debtor qualify for these loans? Yes, because they

8 could answer that question "no." Let's talk about another

9 company (indisc.) --

10 THE COURT: Could they? I mean, Mr. Holzer, could

11 they?

12 MR. HOLZER: Could they --

13 THE COURT: (Indisc.)

14 MR. HOLZER: Could they?

15 THE COURT: I mean, if you look at the -- if you

16 compare the wording in the portion of the statute involving

17 midsized debtors, it actually says you aren't eligible if you

18 are a debtor in a case. The words in the form are: "presently

19 involved in a bankruptcy case." What does that mean? Does

20 that mean that if you (indisc.) a claim against someone in

21 bankruptcy, that you're not eligible under the Act? Does it

22 mean that if you consult with a bankruptcy (indisc.)

23 contemplated bankruptcy that you are not eligible for

24 participation (indisc.). What do the words "presently

25 involved" actually mean in your mind? EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 69 of 263 11

1 MR. HOLZER: Yes, I don't know because you're right,

2 a creditor in a bankruptcy could be presently involved. A

3 (indisc.) --

4 THE COURT: What if you're (indisc.) who has a lease,

5 are you presently involved in a bankruptcy case?

6 MR. HOLZER: Right. I do think the most natural

7 construction there is that you're a debtor in bankruptcy. I'm

8 not sure that there's any difference in the way I look at that

9 language and the way the government looks at the language. But

10 I do agree with the Court that there is some ambiguity. But

11 that's -- if you look at that language, a company that's

12 preparing to file bankruptcy is not presently involved in a

13 bankruptcy. It's just thinking about it. And if it hasn't

14 already, would it qualify for this loan, could it check the

15 "no" box on that form? I think there's no doubt it could and

16 should and would qualify for a loan. So let's talk about

17 another company that's insolvent and hasn't hired a bankruptcy

18 lawyer, but they're broke, they (indisc.) business, all the

19 employees have gone home, they're out of money, and they have

20 no idea whether they're going to survive, and can they apply

21 for a loan, you know, get the employees (indisc.) and the

22 answer is, yes, they would check that box "no." And so another

23 company that's virtually shut down, it's overdrawn on its bank

24 account, and would they be able to check the "no" box? The

25 answer is of course, they check the "no" box. And so all three EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 70 of 263 12

1 of those hypotheticals are ways where a company who is

2 completely uncreditworthy can get one of these PPP loans. So

3 compare that to a debtor in possession that's operating,

4 complying with all the rules, filing its monthly operating

5 reports, running its business, and not only that, it's a

6 systemically important business, particularly in the time of an

7 active pandemic, and operating, but they don't qualify. It

8 simply makes no sense for the other companies that would

9 qualify to be able to get one of these forgivable loans and for

10 my client (indisc.) that I'm (indisc.) is not.

11 THE COURT: Mr. Holzer, let me go back to your

12 example because I'm not sure you really vetted that example

13 out. What if you have a company that is as you said

14 contemplating bankruptcy, and you have an owner in the business

15 who owns one percent of that company and is a creditor in a

16 large oil and gas bankruptcy case that's pending because they

17 own -- that person owns a small royalty interest, could the

18 company check the box or not?

19 MR. HOLZER: Haven't though through that one, Judge.

20 I would think they could check the "no" box. But, you know,

21 there's certainly a --

22 THE COURT: (Indisc.)

23 MR. HOLZER: -- (indisc.) of the language --

24 THE COURT: Read the language --

25 MR. HOLZER: -- that they would -- yeah. EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 71 of 263 13

1 THE COURT: Read the language. Is the business or

2 any owner presently involved in any bankruptcy?

3 MR. HOLZER: That's right. I think that you're

4 highlighting, your Honor, the flaws in this -- in what this

5 form says and all the ambiguities that are evidence of a poorly

6 instituted program beyond the administrator's authority. All

7 right, so let's see. So that's arbitrary and capricious is

8 what I think and gives you a basis to enter an injunction.

9 Let me just say that I do understand that the limit

10 on the jurisdiction. We never intended to seek relief for

11 anybody but my client, the Plaintiff in this lawsuit. Whether

12 it would be appropriate for a nationwide injunction or even a

13 Southern District injunction is not our concern. I'm only

14 worried about my client. My client only cares about its

15 survival.

16 So I wanted to then go to the question of whether or

17 not this is bankruptcy discrimination. I do agree in reading

18 Mr. Kincheloe's brief, he cited the Exquisito (phonetic) case

19 out of the Fifth Circuit and the Ares (phonetic) case out of I

20 believe it's the Fourth Circuit. And they're both in his brief

21 and those are cases that we came up in our research as well.

22 And I do think they -- those two cases are useful to compare

23 and contrast. Exquisito involved a program that the court

24 said, well, this is really about the jobs, not about a loan.

25 And so the -- so it was discrimination. Ares was more about a EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 72 of 263 14

1 loan than anything else and so that was not. So the case law

2 does say that if it's just a loan program, then the anti-

3 injunction -- excuse me, the -- it's not bankruptcy

4 discrimination.

5 So let's look at what we have here. Is this more

6 like the facts in Exquisito or more like the facts in Ares? I

7 think it's clearly this is more about saving jobs, preventing

8 collapse of the economy. It's not really about a company

9 borrowing money that under the statute it has to show its

10 ability to pay back. And that's in fact if you read the

11 requirements for qualify for a loan, that's just not in there.

12 You just have to say what you're going to use it for and that's

13 what my client needs it for is to pay payroll and help with the

14 rent and the other permissible uses for the funds. It's really

15 more of a grant to protect the economy, save jobs, than it is a

16 straightforward loan. So I would say that the cases that say

17 loans don't apply really don't have any impact here.

18 There's another case Mr. Kincheloe cited in his

19 brief, the Toth, T-O-T-H, case, and that also involved an

20 extension of credit which is really not what's happening here.

21 This is a different animal. So with that, Judge, I think I've

22 said everything I wanted to say for now. I think the facts are

23 pretty clear what happened that we qualify, except for this

24 arbitrary inclusion of a bankruptcy exception on the

25 application form, and that it is bankruptcy discrimination and EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 73 of 263 15

1 the Court should grant an injunction.

2 THE COURT: All right, thank you. Mr. Kincheloe.

3 MR. KINCHELOE: Yes, your Honor, Rick Kincheloe.

4 (Indisc.) start with Mr. Holzer's discussion of he -- the

5 reasons for the exclusion. And I will say I really appreciate

6 Mr. Holzer sending me the cases he was going to discuss before

7 today. It certainly was an extreme professional courtesy.

8 I have received a regulation that I understand is

9 going to be published imminently like Monday. I can broadcast

10 it for the Court if the Court would like to read it because I

11 think it does explain (indisc.) saying about the wording of the

12 application but the regulation that's going to be published

13 does add some color to that. So just this is going to be at 13

14 CFR (indisc.) and 121. And then the bankruptcy exclusion

15 appears here. And so this is that if an applicant is currently

16 a debtor in bankruptcy or if it files bankruptcy before the

17 loan is funded, then it is ineligible. And this -- the second

18 paragraph explains kind of the rationale. There's a concern

19 that the SBA loses control over the funds because they become

20 property of the estate. There's also a concern the Court --

21 your Honor, is the Court done reading? I'll stop sharing so I

22 can go back to video.

23 THE COURT: Yeah, no, I read it. Thank you.

24 MR. KINCHELOE: Okay.

25 MR. HOLZER: Mr. Kincheloe, I'm -- I didn't -- EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 74 of 263 16

1 MR. KINCHELOE: Oh, I --

2 MR. HOLZER: -- (indisc.) second page.

3 MR. KINCHELOE: The second page --

4 MR. HOLZER: (Indisc.)

5 MR. KINCHELOE: -- is just -- I can send it to you

6 shortly.

7 MR. HOLZER: Okay, that'll be fine.

8 MR. KINCHELOE: I don't think it was relevant. But

9 the other concern is the pandemic has created a unique public

10 need with unprecedented unemployment to get loans funded

11 extremely quickly. And in this need for speed, the traditional

12 underwriting is just not going to work. it's going to take too

13 long. And so to avoid that traditional underwriting and to get

14 this -- get these loans out guaranteed by SBA as quickly as

15 (indisc.) could, the decision was made to say if you're in

16 bankruptcy, you're excluded. We certainly had maybe a good --

17 it can be argued whether that's a good or bad decision from

18 public policy standpoint but at least that was the motivation

19 is get these loans out quickly and minimize the amount of

20 underwriting that needs to be done.

21 THE COURT: In fact there really is no underwriting

22 that's done, right? I mean, aren't the lenders authorized to

23 simply accept what's on the form and act just on the form, and

24 so long as they rely on the form, then they are protected;

25 isn't that the way that it works? EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 75 of 263 17

1 MR. KINCHELOE: From the interim rule I've read, yes.

2 But from the --

3 THE COURT: (Indisc.)

4 MR. KINCHELOE: -- regulation I just posted, I

5 haven't read the entire regulation. I got it maybe five

6 minutes before we started. And so unless something in the

7 regulation changes that, that's my understanding.

8 THE COURT: Got it.

9 MR. KINCHELOE: Turning to the jurisdictional issue,

10 admittedly the provision in the Small Business Act is unique.

11 I'm not aware of any other provision this broad. And certainly

12 there are other anti-injunctive language that appears in

13 various statutes. You know, the Anti-Injunction Act deals

14 (indisc.) I think that's a little different. The one thing I -

15 - there's a case -- well, it's -- there's so many other cases

16 out there, and one that Mr. Holzer shared, where there's a

17 statute that said except as otherwise provided herein, you

18 can't issue an injunction. And certainly that language seems

19 to suggest that, well, okay, if you violate the statute, we can

20 enjoin you, we just can't enjoin you otherwise. For 634, 15

21 USC 634, I don't see any similar condition. I mean, it just is

22 (indisc.) the Fifth Circuit (indisc.) decision I cite at

23 footnote six which, you know, I suppose we could, you know,

24 dispute whether it's holding or dicta, but it's a pretty

25 blanket assertion, thou shalt not enjoin the SBA. And again we EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 76 of 263 18

1 can argue whether Congress made a good or bad policy decision

2 in enacting that but I think that's the law. And so turning to

3 106, honestly 106 waives sovereign immunity for the entire

4 Federal government for purposes of 525. But (a)(4) states that

5 waiver is only to the extent it's consistent with applicable

6 non-bankruptcy law, and so I think we have to turn to this

7 likely unique provision applicable to the SBA administrator and

8 say, courts can't enjoin the SBA. Whether that's a good or bad

9 idea, so be it but that's what it says. And so I think

10 106(a)(4) coupled with 15 USC 634 I think means that there is

11 not a waiver of sovereign immunity for an injunction against

12 the SBA, depriving the Court of jurisdiction.

13 On -- moving to the 525(a) argument, it -- in the

14 Exquisito case, as I read it, it seemed to -- one thing that

15 was distinguishable is there was a preexisting relationship

16 between the SBA and the Air Force. That's one thing that's --

17 is noteworthy. The injunction in that case was not against the

18 SBA, it was against the Air Force. The -- there was a pre-

19 bankruptcy relationship in that case. And the Fifth Circuit

20 kind of thought through it and said, you know what, this

21 program is really designed to train minority-owned businesses

22 and so we view it more in the nature of a franchise. Fine, if

23 you're going to call it a franchise then, yeah, it's covered

24 under 525(a). What the Fifth Circuit has not decided, at least

25 as far as I can find, which the (indisc.) court, the Toth court EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 77 of 263 19

1 and I believe the (indisc.) Watts (phonetic) court in the Third

2 Circuit, and then the Second Circuit in Goldrich (phonetic) --

3 well, Goldrich dealt with student loans which has been

4 abrogated by 525(c), --

5 THE COURT: Right.

6 MR. KINCHELOE: -- those courts look at the decision

7 to extend credit, more specifically in the (indisc.) case

8 extend a guarantee of credit. That's something totally

9 different. It doesn't trigger this traditional gatekeeper

10 function of the government. Like, you know, for example, state

11 bar licensing, 525 expresses this desire that we don't want

12 lawyers to file bankruptcy, then they'd be unable to practice

13 law because they filed bankruptcy. No, we want them to be able

14 to continue to engage in the profession. Real estate brokers,

15 any other number of professions, we want them to continue being

16 able to engage in that profession and we don't want the

17 government's gatekeeper role to be influenced by bankruptcy.

18 That doesn't mean the government is not allowed to discriminate

19 in other ways. Again, maybe right, maybe wrong, but 525(a)

20 says it only bars discrimination in the context of licenses,

21 permits, charters, franchises, or other similar grant. The

22 (indisc.) case and the other ones, Toth and Watts, say that a

23 loan guaranteeing a loan is not really similar to these other

24 claims because it doesn't implicate this gatekeeper function.

25 And because it's not similar, it's not covered by 525(a) so we EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 78 of 263 20

1 don't even need to get to the question of whether the

2 government was motivated by the bankruptcy. It's just not

3 covered.

4 On the -- I heard -- as I understand the complaint,

5 there's not an APA claim asserted and so it's just whether

6 statutory authority was exceeded. The language in the CARES

7 Act is very broad. I mean, it's just the language for 1102

8 implementing the PPP loan guarantees (indisc.) may and that

9 leaves a very broad, open-ended grant of authority, leaves a

10 lot of discretion in the administrator which makes sense given

11 the context. I mean, this is imagine probably one of the

12 fastest pieces of legislation ever to make it through House,

13 Senate, and White House. And --

14 THE COURT: Well, wouldn't you agree that that

15 discretion has certain boundaries on it? For instance, that

16 discretion shouldn't be allowed to frustrate the purpose of the

17 Act itself, agreed?

18 MR. KINCHELOE: (No audible response)

19 THE COURT: (Indisc.) there are limits. You simply

20 can't say that you can implement rules and make an argument

21 that says, well, that discretion allows me to implement rules

22 that frustrate the application of the law.

23 MR. KINCHELOE: So, your Honor, --

24 THE COURT: (Indisc.)

25 MR. KINCHELOE: -- I agree that there are limits but EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 79 of 263 21

1 I think the use of the word "may," as I read the statute now

2 (indisc.) didn't happen and no one intends for this to happen

3 but if we're just taking the thought experiment to the extreme,

4 I think the use of the word "may," the administrator can say,

5 okay, I've got this authority, I don't have to exercise it.

6 And I think Congress would probably come back and put a shell

7 in there. But I think the way the statute's written, it's

8 pretty broad. Now, there are other limits in the Small

9 Business Act, like the administrator has to ensure that the,

10 you know, loans made under this section are of such sound value

11 or so secured as reasonably to assure repayment. So (indisc.)

12 administrator doesn't do that, the administrator violates the

13 statute. But because Congress prohibited injunctions on the

14 SBA, it really creates this strange space where, yeah, the

15 statute says the administrator has limits but I don't think the

16 statutory -- the statute authorized an injunction against the

17 administrator if the administrator exceeds those limits.

18 THE COURT: All right, so let me ask you this. And

19 we're going to come back to that issue in a second. But do I

20 even need to get there? Didn't the SBA effectively delegate

21 the authority to determine who's eligible to the participating

22 financial institutions?

23 MR. KINCHELOE: I don't (indisc.)

24 THE COURT: Let's take a practical example.

25 Mr. Holzer comes into his local financial institution for a PPE EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 80 of 263 22

1 -- I'm sorry, a PPP loan. He fills out the application. Who

2 makes the decision of whether or not he's eligible?

3 MR. KINCHELOE: So the -- as I read (indisc.) then

4 the bank has to receive the form, and as long as the bank

5 follows the form and the guidance, it may issue the loan and

6 it's going to be guaranteed by SBA. But it is still SBA who

7 decided those parameters that go into the form.

8 THE COURT: I'm not arguing with you on that. I'm

9 just saying who makes the decision of who's eligible and who's

10 not? The bank. Has to be that way. SBA couldn't do it. SBA

11 doesn't have enough employees, it doesn't have enough local

12 offices. It had to delegate part of that process to financial

13 institutions; otherwise, it would have been a program with

14 absolutely no ability to implement. I'm not complaining. I'm

15 just trying to be practical about it.

16 MR. KINCHELOE: Right, yeah. So again with the need

17 for speed, the analysis of whether a borrower meets the

18 appropriate criteria is sent to the banks.

19 THE COURT: Right. And in fact there really isn't an

20 underwriting function. I mean, if your instruction is

21 (indisc.) this form and you make the decision off the form,

22 there really isn't an underwriting function. There's no

23 evaluation of ability to repay, there's no evaluation of

24 collateral. And you know what I'm doing, I'm undermining your

25 argument that it's consistent with the (indisc.) power of SBA EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 81 of 263 23

1 7(A). You know, that just doesn't exist in this program. In

2 fact, let's just be practical. The entire intent of the

3 program is for people not to pay this back. It's a way of

4 getting money from the government to people that are being

5 harmed. And so long as they use it in the right way, they

6 don't have to pay it back. Am I -- tell me where I'm wrong

7 about that.

8 MR. KINCHELOE: Your Honor, I (indisc.) agree with

9 the Court that the intent was to get money to people who needed

10 it quickly. And certainly to the extent it's used for the

11 proper purpose, it is intended to be forgiven. And, you know,

12 I think the Court's correct, I mean, the amount of underwriting

13 is virtually nil. I mean, the SBA set up parameters and said

14 banks (indisc.) somebody meets these parameters, that's the

15 amount of underwriting we're going to do. And one of the

16 decisions made by SBA was, well, since we can't really -- we

17 don't have the time to go through and do a traditional credit

18 inquiry, we're going to exclude companies in bankruptcy, you

19 know, together with this purpose of we can't control the money

20 once it goes into the bankruptcy estate (indisc.)

21 THE COURT: (Indisc.) said that, I mean, (indisc.)

22 hundred and eighty degrees wrong, I mean, isn't part of my job

23 to ensure that debtors act in accordance with the law? I mean,

24 I would think, I mean, assuming that I'm doing my job, and I

25 try really hard to do my job every day, isn't there actually a EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 82 of 263 24

1 greater level of oversight than for someone who's not in

2 bankruptcy who can simply theoretically do what they want to

3 with the money once they get it?

4 MR. KINCHELOE: I disagree, your -- I disagree with

5 your Honor's point. It's not a question of oversight. I think

6 it's a question of the way the statute is written, if Hidalgo

7 receives a PPP loan outside of bankruptcy, they are free to

8 choose how to use those funds. Now, --

9 THE COURT: Are they?

10 MR. KINCHELOE: -- (indisc.) they use -- well, I

11 think they are. But if they use it for certain purposes,

12 they're required to repay it. If they use it for payroll

13 (indisc.) gets forgiven but if let's say company receives a

14 loan, a week later files bankruptcy. Well, all of those funds

15 then become property of the estate, subject to administrative

16 claims. And I don't think there's anything in the CARES Act

17 which would cause the proceeds of a PPP guaranteed loan to be

18 excluded from property of the estate or to be immune from the

19 claim of (indisc.) creditors or priority creditors.

20 THE COURT: Okay.

21 MR. KINCHELOE: So that's the motivation. Again, the

22 statutory authority is broad. I hear the Court's comment about

23 underwriting and the requirement to make sound loans. This is

24 the administrator's decision. But I go back to the anti-

25 injunction language in the Small Business Act that even to the EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 83 of 263 25

1 extent the administrator is wrong, the United States has not

2 waived sovereign immunity for an injunction to be issued

3 against the administrator.

4 THE COURT: And tell me why I can't issue -- because

5 it -- there's no doubt that the financial institution is

6 (indisc.) participation with the SBA. I think you just told me

7 they are given follow the form and process these loans. And

8 Rule 65 gives me the ability to issue injunctive relief against

9 anyone acting in participation with the parties, agreed?

10 MR. KINCHELOE: Would the Court give me a moment?

11 THE COURT: Of course. It would be 65(d)(2).

12 Actually (d)(2)(C).

13 MR. KINCHELOE: So, your Honor, I don't think the

14 Court can enjoin the bank. As I read this and I -- the Court

15 knows it way better than I do, but at least my quick reading of

16 the language of the rule is this would be if the Court enjoined

17 the administrator and anyone acting in concert with her, that

18 would capture this. I don't know that this lets the Court

19 enjoin the bank without also enjoining the administrator;

20 because without an injunction against the administrator, the

21 administrator doesn't have to guarantee the loan.

22 THE COURT: Well, I think -- I agree with you that I

23 can't order the SBA to guarantee a loan. I 100 percent agree

24 with that. The issue is can I order that the application be

25 considered without those four or five words. And if you're EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 84 of 263 26

1 telling me the person making that decision is, what was it,

2 PlainsCapital Bank, Mr. Holzer?

3 MR. HOLZER: Yes, your Honor.

4 THE COURT: You're telling me that I can't order

5 PlainsCapital Bank to consider the application without giving

6 any consideration for those words in the form?

7 MR. KINCHELOE: Then again I don't know that it

8 becomes a can't. I think it becomes a question of should or

9 should not. And with that question of whether or not the Court

10 should enjoin PlainsCapital Bank, I think there is a

11 substantial threat of irreparable injury to the bank because if

12 the bank --

13 THE COURT: (Indisc.)

14 MR. KINCHELOE: Well, because I think if the bank

15 follows the Court's order, ignores that line, and then issues

16 the loan, I think they are at risk if the SBA says we weren't

17 ordered to guarantee it, we're not guaranteeing it.

18 THE COURT: Okay, so you just say that I need to

19 order the SBA to comply with the law if I find discrimination.

20 MR. KINCHELOE: No, your Honor.

21 THE COURT: Is that it?

22 MR. KINCHELOE: I -- that -- your Honor, on that one

23 I think it's a question of can or cannot.

24 THE COURT: All right. So you're telling me that I

25 took an oath to uphold the statute, and if I find the statute's EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 85 of 263 27

1 been violated by the SBA, that I can do nothing about it?

2 MR. KINCHELOE: I think the Court is unable to issue

3 an injunction against the SBA, even if the statute has been

4 violated.

5 THE COURT: So tell me what it is I can do.

6 MR. KINCHELOE: I don't know, your Honor. For today

7 (indisc.) TRO, I do not think the Court can enter a TRO.

8 THE COURT: Got it, okay. Anything else?

9 MR. HOLZER: Your Honor, briefly.

10 THE COURT: No, I don't need anything else.

11 MR. HOLZER: Okay (indisc.)

12 THE COURT: Anything else, Mr. Kincheloe?

13 MR. KINCHELOE: Yes, your Honor. Just in closing, I

14 do dispute that the public policy considerations weigh in favor

15 of enjoining -- of issuing an injunction allowing this loan to

16 go -- to be made and guaranteed -- and/or guaranteed due to the

17 policy considerations. If the SBA is required to implement

18 traditional underwriting requirements, it is likely to slow

19 down this program and likely to delay proceeds to other

20 applicants.

21 THE COURT: Well how can it implement traditional

22 underwriting when it's been told what to do?

23 MR. KINCHELOE: Your Honor, I mean --

24 THE COURT: Simply because if I were to say that

25 there has been discrimination, that doesn't require the SBA to EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 86 of 263 28

1 do anything other than to not discriminate.

2 (Pause)

3 MR. KINCHELOE: Your Honor, I -- sorry, I don't think

4 I understand the Court's point.

5 THE COURT: I got it. Anything else?

6 MR. KINCHELOE: No, your Honor.

7 THE COURT: All right. So I have before me the

8 Debtor's request for a temporary restraining order against the

9 administrator of the SBA. I do find that I have jurisdiction

10 over the matter pursuant to (indisc.) Section 1334. I do find

11 that the adversary and the request for injunctive relief

12 constitutes a core proceeding under 28 USC Section 157. I

13 further find that I have the requisite constitutional authority

14 under the guidance given by our Supreme Court to enter, to the

15 extent it is a final order, and I'm not sure it is, but it may

16 practically be a final order, I do find that I have the

17 requisite constitutional authority to enter final order.

18 I want to go through a couple of the arguments

19 because, again, I spent a lot of time reading all of the

20 relevant wording. And there are certainly the arguments that I

21 simply -- they need to be addressed and I simply think that

22 they just have no foundation in logic or law or fact. I want

23 to start with the argument that (indisc.) that there remains

24 intact, and I wrote it down as a quote, that there's this

25 (indisc.) ensuring that there is sound value or so secure as to EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 87 of 263 29

1 reasonably assure repayment. That is so out of context in this

2 program that it's a frivolous argument. The entire --

3 everything said by our President, everything put out by our

4 administration, everything put out by our Congress reflects

5 that this was an emergency reaction to a series of events that

6 had never before been experienced. This isn't a loan program.

7 This is a support program. It is phrased the way it is to try

8 and ensure that the money ends up in the right hands and used

9 for the right purposes. It is intended to protect tax-paying

10 citizens from the effects of government shutdowns, stay-at-home

11 orders, and simply the public not being able to engage in

12 ongoing commerce. To suggest that this is a program that

13 enjoys underwriting and scrutiny in terms of who receives the

14 money is to simply ignore the obvious. The SBA's own rules

15 (indisc.) effectively look at the form, make the loans. You

16 make the loans, and so long as they're used for the right

17 purposes, there's no need to pay it back. That is not a

18 traditional loan program. There is no collateral valuation,

19 there is no credit worthiness test. And, again, to make that

20 argument is simply frivolous.

21 I also want to talk about the 525 argument. And I

22 take a quote out of the briefs. It says that issues under 525

23 (indisc.) the gatekeeper role of the governments or a

24 government entity in determining who may pursue certain

25 livelihoods. All of the cases cited have dealt with the EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 88 of 263 30

1 government engaging in regulated commerce. There were

2 commercial alternatives, there were private sector

3 opportunities. Practically speaking, this program isn't

4 designed to be a commercial product; it is a support product.

5 The only entity that would ever engage in this type of activity

6 is the government because, again, it's a support for citizens.

7 I can think of no greater example of the government performing

8 its gatekeeping role as to who can engage in commerce and

9 pursue certain livelihoods than this particular program;

10 because if we didn't have this program, there would be no

11 ambulance services, there would be no nail salons, there would

12 be no convenience stores. Society would be in a very difficult

13 (indisc.) so I do think the requirements of Section 525(a) are

14 absolutely in play. I do think that the choice of the words in

15 the form -- and, again, I made the example with Mr. Holzer, and

16 I am bothered by the use of the words. I disagree with

17 Mr. Holzer that, well, of course everybody knows what that

18 means, it's simply if you're a debtor. Couldn't be further

19 from the truth. Congress knew how to say we don't give these

20 loans to debtors. They did it within the CARES Act itself.

21 And then to have a form that simply says if an owner or a

22 business is presently involved in a bankruptcy, I have zero

23 idea what that means. It means if you have filed a proof of

24 claim in the General Motors bankruptcy umpteen years ago and

25 haven't yet received a final distribution on your claim, you EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 89 of 263 31

1 have to check that box "no." That's silly. It's even sillier

2 in light of the purpose of this program.

3 I also have found but I've not been cited to any

4 legitimate basis for including that language in the form. I

5 take umbrage of the fact that if I look at question one and I

6 look at the list and I think just rules of normal construction,

7 and I realize that this is not a statute but it's a form that

8 is derived from a statute, it says if a business or owner is

9 presently suspended, debarred, proposed to be debarred declared

10 ineligible, voluntarily excluded from participation in this

11 transaction by any (indisc.) department or agency all conduct

12 which society frowns upon, involves potentially wrongful acts,

13 involves potentially criminal conduct. And then as an add-on,

14 it says: "Or presently involved in any bankruptcy." Plain

15 meaning: as a creditor, as a landlord, as a partner in another

16 business, as a shareholder in another business. It's entirely

17 inappropriate that those words were added into that form in

18 that list in that manner. And I see no authority anywhere for

19 including those words in that form. It serves no purpose. I

20 do find that by including the words "or presently involved in

21 any bankruptcy," they are intended to be discriminatory. They

22 are intended to be discriminatory toward debtors for reasons

23 offered that somehow we lose control of the money, again I find

24 to be completely frivolous. I cannot imagine anything less

25 controlling than to simply give out money with no underwriting, EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 90 of 263 32

1 with no oversight, and then complain that if I have a Federal

2 judge who makes sure that the debtor complies with the law,

3 ensures that the debtors file monthly operating reports, ensure

4 that copies of bank statements are filed on the docket every

5 month, that they somehow lost control. I simply don't buy it.

6 I find the arguments to lack any good faith.

7 I am worried about the argument that I cannot enjoin

8 the administrator of the SBA. I agree I can't tell the SBA

9 administrator what loans to guarantee, what loans to grant. I

10 simply do not accept that when I have evidence of bankruptcy

11 discrimination that I can do nothing about it. And if I am

12 wrong about that, I am very certain that my Article Three

13 colleagues will tell me that I am wrong, and I will accept that

14 criticism. But this can't be what Congress intended. This

15 can't be the way that we are supposed to treat our fellow man

16 in this time. It's inconceivable to me that this distinction

17 could be drawn. The people that need the most help and who

18 have sought protection under our laws are the people who are

19 the targets of discrimination in a government support program;

20 can't possibly be.

21 So I am going to grant the TRO. I am going to enjoin

22 the administrator of the SBA and all those acting in concert

23 with her, which includes PlainsCapital Bank, in the following

24 manner. I am requiring that the application form for the

25 paycheck protection program submitted by Hidalgo County EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 91 of 263 33

1 Emergency Service Foundation be considered in accordance with

2 the program without the words in question one: "or presently

3 involved in any bankruptcy." They are stricken from

4 consideration. The application shall be considered on its

5 merits and in accordance with the law with those six words

6 stricken. It is my hope that my government that I serve will

7 realize the error that it has made and that it will act

8 appropriately and ensure that all of our citizens have access

9 to the support they needed.

10 Mr. Holzer, I want you to prepare a revised TRO in

11 accordance with the ruling that I've made on the record

12 pursuant to 7052. Also want to go through in accordance with

13 Rule 65, I am required to state, and I am incorporating my

14 comments on the record, into the form of order to be submitted

15 pursuant to 7052. I have stated the reasons why the temporary

16 restraining order should issue. I have specifically stated its

17 terms. I have specifically described in reasonable detail the

18 limits of the TRO and those acts that are required under the

19 TRO. I will find that pursuant to Bankruptcy Rule 7065, there

20 is no security required. I am also required to set a hearing

21 for issuance of a preliminary injunction. I don't know that it

22 will be necessary because this may all become moot by then.

23 And I recognize, Mr. Kincheloe, that at a preliminary

24 injunction hearing, you may tell me that the law has changed.

25 But as I sit here today, the CFR that you showed me, I'm not EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 92 of 263 34

1 aware it's actually governing law; is that correct?

2 MR. KINCHELOE: That's correct, your Honor. It has

3 not been published in the register.

4 THE COURT: All right, thank you. Let's see,

5 Mr. Kincheloe, Mr. Holzer, can you look at your collective

6 schedules?

7 MR. HOLZER: Have it in front of me, Judge.

8 THE COURT: All right, today's the 24th. My guess is

9 it's probably, and please tell me if you think I'm wrong, it's

10 probably a better use of everyone's time if we simply go as

11 close to the 14 days as possible to see what actually happens.

12 It may very well be that without waiving any right of review or

13 appeal that the SBA may have, it may make sense to extend the

14 original time. But obviously we're not going to decide that

15 today. Let me ask the parties, does it make sense to set this

16 -- I'm issuing this at 10:00 o'clock on Friday, can we set this

17 for 9:30 on Friday, May the 8th; does that make sense?

18 MR. KINCHELOE: Yes, your Honor. I was going to ask

19 for May 8th so perfect.

20 THE COURT: Okay, fair enough. And, Mr. Holzer, does

21 that work for your calendar?

22 MR. HOLZER: It does, your Honor.

23 THE COURT: All right, thank you. What I would like

24 for you to do is once you finish drafting the TRO, I'd like for

25 you to send it to Mr. Kincheloe to review as to form only. EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 93 of 263 35

1 Mr. Kincheloe, consistent with my normal practice, by agreement

2 as to form only, you're not waiving any right of review or

3 complaint that you may have, you're simply acknowledging that

4 the paper is consistent with the ruling that I've made on the

5 record. Is that enough of a (indisc.) that you feel

6 comfortable looking at the document?

7 MR. KINCHELOE: Absolutely, your Honor. And I'll

8 remain at my computer until I receive it from Mr. Holzer so

9 there's no delay.

10 THE COURT: Terrific, thank you. Gentlemen, I very

11 much appreciate the argument. Yes, sir.

12 MR. HOLZER: Just a clarification, and I'm trying to

13 think practically about the next two weeks, I understand your

14 ruling and I think I'll be able to get the TRO drafted

15 correctly, but is my client authorized to resubmit an

16 application form striking out that language about the

17 bankruptcy and checking the "no" box in question one?

18 THE COURT: Yes. What I would envision, so that

19 there is -- I don't want anyone at the bank to have an issue, I

20 don't want anyone within the SBA to have an issue, is that what

21 I would suggest that we do until this -- until we have an order

22 to the contrary is that your client's authorized to strike

23 through that language, check the box assuming that it (indisc.)

24 and it satisfies all of the other requirements of question one,

25 and then simply attach a copy of the TRO so that it's in the EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 94 of 263 36

1 file and everyone understands exactly what the issues are. I

2 would hate for someone to --

3 (Automated telephone recording played)

4 THE COURT: I don't -- I have 50 people on the

5 telephone so I'm not going to try to spend the time to figure

6 out who that was. You're absolutely authorized to strike

7 through the question. I can't remember where I stopped.

8 Attach a copy of the TRO, that way there is absolutely no

9 chance for error as to why the application was submitted the

10 way it was. And if the Debtor doesn't need -- I want to make

11 it very clear, if the Debtor doesn't meet the requirements,

12 then I'm not changing that. All I'm simply requiring is the

13 application be considered consistent with the (indisc.)

14 practices and governing (indisc.) as all other applications

15 with simply (indisc.) those six words stricken.

16 MR. HOLZER: Understood, your Honor. Thank you.

17 THE COURT: All right, Mr. Kincheloe, anything else

18 that I -- any lack of clarification or any issues that we need

19 to talk about?

20 MR. KINCHELOE: One issue, your Honor.

21 THE COURT: Certainly.

22 MR. KINCHELOE: (Indisc.) carry out instructions I

23 need to ask the Court if it will entertain an oral motion for

24 stay pending appeal.

25 THE COURT: Of course. And that's denied. EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 95 of 263 37

1 MR. KINCHELOE: Thank you, your Honor.

2 THE COURT: All right, anything else, folks? I very

3 much appreciate the argument. Mr. Holzer, I appreciate the way

4 in which you conducted yourself on behalf of the Debtor. And,

5 Mr. Kincheloe, you know that I think you're the greatest thing

6 ever and I very much appreciate what you do for our country.

7 MR. KINCHELOE: Thank you, your Honor.

8 THE COURT: Thank you, gentlemen.

9 MR. HOLZER: (Indisc.) have a good weekend.

10 THE COURT: (Indisc.)

11 MR. KINCHELOE: You, too, your Honor.

12 (This proceeding was adjourned at 10:04 a.m.)

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25 EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 96 of 263

CERTIFICATION

I certify that the foregoing is a correct transcript from the

electronic sound recording of the proceedings in the above-

entitled matter.

April 25, 2020

Signed Dated

TONI HUDSON, TRANSCRIBER

EXCEPTIONAL REPORTING SERVICES, INC Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 97 of 263

No Shepard’s Signal™ As of: May 6, 2020 7:22 PM Z

Hidalgo Cty. Emergency Serv. Found. v. Carranza (In re Hidalgo Cty. Emergency Serv. Found.)

United States Bankruptcy Court for the Southern District of Texas, Corpus Christi Division April 25, 2020, Decided; April 25, 2020, Filed CASE NO. 19-20497, CHAPTER 11, ADVERSARY NO. 20-2006

Reporter 2020 Bankr. LEXIS 1174 *

On Friday April 24, 2020, the Court considered the IN RE: HIDALGO COUNTY EMERGENCY SERVICE Plaintiff's Emergency Application For Temporary FOUNDATION, Debtor.HIDALGO COUNTY Restraining Order And Preliminary Injunction (the EMERGENCY SERVICE FOUNDATION, Plaintiff v. "Application"), and the request in the Application for JOVITA CARRANZA, IN HER CAPACITY AS issuance of a temporary restraining order; and having ADMINISTRATOR FOR THE U.S. SMALL BUSINESS considered certain facts set forth in the Application and ADMINISTRATION, Defendant. supplemental declarations as being sworn to as true and within the personal knowledge of Plaintiff's representatives Omar Romero, David Elliot, and Kenneth Ponce; and having considered the text and Core Terms purpose of the Coronavirus Aid, Relief, and Economic Security Act" ("CARES Act"), the Paycheck Protection temporary restraining order, Parties Program ("PPP") in the CARES Act, and Section 7(a) of the Small Business Act (15 U.S.C. 636(a)); and having considered the arguments and briefing of counsel for the Plaintiff and counsel for Defendant Jovita Carranza, Counsel: [*1] For the Defendant: RYAN K. PATRICK, In Her Capacity As Administrator For The U.S. Small United States Attorney, Richard A. Kincheloe, Assistant Business [*2] Administration ("SBA"); and having United States Attorney, Attorney-in-Charge, United considered the SBA's Interim Final Rule for States Attorney's Office, Southern District of Texas, implementing the PPP, Docket No. SBA-2020-0015, Texas Bar No. 24068107, S.D. Tex. ID No. 1132346, and an as-yet unpublished proposed revision to the Houston, Texas. Interim Final Rule that was presented by SBA's counsel at the hearing, this Court finds and concludes that the Plaintiff would suffer immediate and irreparable harm without issuance of a temporary restraining order. The Judges: DAVID R. JONES, UNITED STATES Court incorporates by reference all its oral findings and BANKRUPTCY JUDGE. rulings made on the record at the hearing, and also finds as follows:

1. Hidalgo County Emergency Service Foundation, the Opinion by: DAVID R. JONES Debtor and Debtor-in-Possession in this Chapter 11 Proceeding ("Debtor", ">"Plaintiff", or "Hidalgo County EMS") is entitled to issuance of a temporary restraining order pursuant to Bankruptcy Rule 7065 Opinion (incorporating Rule 65, FRCP). 2. Plaintiff has shown a substantial likelihood of success on the merits on both its claims that SBA has exceeded its statutory authority and that it is in violation of 11 USC TEMPORARY RESTRAINING ORDER §525(a) with respect to SBA requiring participating

John-29622 Tancabel Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 PagePage 98 2 of of 3 263 2020 Bankr. LEXIS 1174, *2 lenders to consider loan applications on a form that says during this pandemic. Hidalgo County EMS needs the PPP loans will not be approved if the applicant or any PPP loan to shore up its finances and allow it to owner is presently involved in any bankruptcy. continue to support the community as a front-line medical services provider during the crisis. Without this 3. Hidalgo County EMS states that it otherwise source of liquidity the Debtor's survival as a going meets [*3] all other requirements for receipt of a PPP concern is in question. loan, however the Court make no ruling on whether or not Hidalgo County EMS otherwise qualifies for a PPP 10. The risk of harm to Movant [*5] outweighs the harm loan. to SBA if a TRO is granted.

4. Hidalgo County EMS testified that it answered "yes" 11. Issuance of this temporary restraining order is in the to Question #1 of the SBA loan application form only public interest. The continued gainful employment of the because of its pending bankruptcy. Debtor's approximately 250 employees benefits the public interest as a whole. The Debtor's business as a 5. Hidalgo County EMS is the primary 911 patient "front line" health care provider is vitally important even transfer provider for a large part of its service area in in normal times, and even more so now for victims of South Texas that includes some of the poorest areas in COVID-19 in South Texas. It is important to maintain a the country. It has approximately 250 highly-trained fully-staffed emergency response capability that serves employees who may lose their jobs unless Debtor is the entire South Texas region and all its citizens. The permitted to apply for PPP loan. Hidalgo County EMS is public interest is clearly served by Debtor being able to currently working to reorganize in Chapter 11 while maintain 100% of its usual staffing levels in the midst of maintaining 100% of its usual staffing levels in the midst the Corona Virus pandemic and an approximately 30% of the Corona Virus pandemic and a significant decline decline in its business since the onset of this crisis. in call volume which causes a revenue decline that has occurred despite the Debtor's extensive and ongoing 12. The Debtor is a debtor-in-possession, and it is not involvement as a "front line" health care provider for required to post a bond. Fed. R. Bankr. P. 7065, and so victims of COVID-19 in South Texas. Debtor's business, no bond is required. See, e.g. Mississippi Power & Light along with nearly every other business in the United Co. v. United Gas Pipe Line Co., 760 F.2d 618 (5th Cir States, has become the economic victim of novel 1985). The Court made additional findings on the record coronavirus SARS-CoV-2, which lead to the shutdown which are incorporated herein pursuant to Bankruptcy or severe curtailment of normal life in the United [*4] Rule 7052. States. Based on the findings and conclusions set forth above, 6. The first lockdown order in Hidalgo County, Texas, it is hereby ORDERED, AJDUDGED AND DECREED was on March 17, 2020, and it was subsequently as follows: extended on a weekly basis. HCEMS call volume dropped off sharply a few days later. 1. The Plaintiffs' request for a temporary restraining [*6] order, is hereby GRANTED as set forth herein. 7. Debtor's daily "Treat and Transport" number was trending towards 140 per day prior to the first lockdown 2. A temporary restraining order is hereby issued, with order in Hidalgo County, Texas, however HCEMS has notice, and directed to Jovita Carranza in her capacity been struggling to keep at 100 throughout the lock as Administrator for the United States Small Business down, a declined of 30%. Each call that results in a treat Administration, and all agents, servants, employees, and transport typically results in a cash receipt and any parties acting in concert with any of the approximately 4-6 weeks after the call. foregoing parties (collectively "Restrained Parties"). Until the expiration of this temporary restraining order, 8. Based on the drop in call volume the Debtor projects its scope is as follows: a related drop in cash receipts beginning about now, and unless there is a liquidity event of some sort, the a. Hidalgo County EMS is authorized to submit a Debtor is concerned it may have insufficient cash to PPP loan application to any lender with the words make payroll on May 7, 2020. "or presently involved in any bankruptcy" stricken from the SBA's form, and, if Hidalgo County EMS 9. Debtor continues to maintain pre-Corona satisfies all the other conditions in question #1 to employment levels in order to serve the community the loan application form, mark the box answering

John-29622 Tancabel Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 PagePage 99 3 of of 3 263 2020 Bankr. LEXIS 1174, *6

question #1 "no." The Restrained Parties shall consider the PPP application and fully implement all aspects of the PPP program with respect to Hidalgo County EMS without any consideration of the involvement of Hidalgo County EMS or any owner of Hidalgo County EMS in any bankruptcy.

b. To the extent any bank requires Hidalgo County EMS to execute any other forms, applications, or other documents for a PPP loan that include any language about whether [*7] Hidalgo County EMS or any owner of Hidalgo County EMS is involved in any bankruptcy, Hidalgo County EMS is authorized to strike the portion of such language about involvement in any bankruptcy and the Restrained Parties shall process the forms, applications, or other documents without any consideration of the involvement of Hidalgo County EMS or any owner of Hidalgo County EMS in any bankruptcy.

c. The Restrained Parties shall not make or condition the approval of any PPP loan guaranty to the Debtor contingent on the Debtor or any owner of the Debtor not being "presently involved in any bankruptcy."

IT IS FURTHER ORDERED that the Court will conduct a hearing on Plaintiff's Application for a Preliminary Injunction at 9:30 a.m., on the 8th day of May, 2020. The purpose of the hearing shall be to determine whether this Temporary Restraining Order should be made a Preliminary Injunction.

This temporary restraining order shall remain in full force and effect until it expires at 10:00 a.m. on May 8, 2020, unless either (a) terminated earlier by court order, or (b) further extended as provided by law or agreement of the parties. SIGNED this the day of April, 2020, at a.m./p.m.

Signed: April 25, [*8] 2020.

/s/ David R. Jones

DAVID R. JONES

UNITED STATES BANKRUPTCY JUDGE

End of Document

John-29622 Tancabel Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 100 of 263 CaseCase 20-40133-thf 20-01003 Doc Doc 287 20 Filed Filed 05/08/20 05/04/20 Entered Entered 05/08/20 05/04/20 14:52:10 13:33:10 Page 101 Desc Main Document of 263 Page 1 of 10

Formatted for Electronic Distribution Not for Publication

UNITED STATES BANKRUPTCY COURT DISTRICT OF VERMONT

Filed & Entered On Docket

05/04/2020

______In re: Springfield Hospital, Inc., Chapter 11 Case Debtor-in-Possession. # 19-10283 ______In re: Springfield Hospital, Inc., Plaintiff, v. Adversary Proceeding Jovita Carranza, in her capacity as # 20-01003 Administrator for the U.S. Small Business Administration, Defendant. ______

Appearances: Andrew Helman, Esq. Michael Tye, Esq. Murray, Plumb & Murray U.S. Department of Justice Portland, ME Washington, DC For the Plaintiff For the Defendant

MEMORANDUM OF DECISION GRANTING PLAINTIFF’S EMERGENCY MOTION FOR TEMPORARY RESTRAINING ORDER The Plaintiff, Springfield Hospital, Inc., has filed a motion for a temporary restraining order (a “TRO”) against the Defendant, Jovita Carranza, in her capacity as Administrator for the U.S. Small Business Administration. Based on the record in this case, the arguments presented at the May 1, 2020 hearing, and for the reasons set forth below, the Court grants the Plaintiff’s request for a TRO based on its claim under Bankruptcy Code § 525(a). JURISDICTION This Court has jurisdiction over this adversary proceeding and the TRO Motion pursuant to 28 U.S.C. §§ 157 and 1334, and the Amended Order of Reference entered on June 22, 2012. This decision addresses a cause of action under § 525 of the Bankruptcy Code and thus is a core proceeding arising under Title 11 of the United States Code as described in 28 U.S.C. § 157(b)(2)(A), (D), and (O). Therefore, this Court has constitutional authority to enter a final judgment in this proceeding. 1 CaseCase 20-40133-thf 20-01003 Doc Doc 287 20 Filed Filed 05/08/20 05/04/20 Entered Entered 05/08/20 05/04/20 14:52:10 13:33:10 Page 102 Desc Main Document of 263 Page 2 of 10

PROCEDURAL HISTORY On April 27, 2020, the Plaintiff filed a verified complaint to commence this adversary proceeding (doc. # 1, amended at doc. # 3, and, as amended, the “Complaint”) and a motion for an emergency hearing on its request for a temporary restraining order (doc. # 2, the “TRO Motion”). Pursuant to the Court’s scheduling order on the TRO Motion (doc. # 5), the Defendant filed a response on April 29, 2020 (doc. # 10), and the Plaintiff filed a supplemental memorandum of law on April 30, 2020 (doc. # 11).1 The Court held an emergency hearing on the TRO Motion on May 1, 2020 and took the matter under advisement. Following the hearing, the Plaintiff filed two notices of supplemental legal authority regarding rulings in three adversary proceedings in other districts, which were issued that day (doc. ## 15, 16).2 ISSUES PRESENTED The Plaintiff's Complaint includes four counts for relief: (I) preliminary and permanent injunction, (II) declaratory judgment (based on a claim that the Defendant exceeded her statutory authority), (III) determination of a violation of Bankruptcy Code § 525(a), and (IV) mandamus under 28 U.S.C. § 1361. The Plaintiff’s TRO Motion (doc. # 2) asks the Court to enter a TRO, essentially, so the Plaintiff’s application under the recently enacted Paycheck Protection Program (the “PPP”) is considered without regard to the Plaintiff’s status as a chapter 11 debtor. As a threshold matter, the Court must determine whether the Defendant is immune from the Plaintiff’s request for injunctive relief. If the Defendant is not protected by sovereign immunity, then the Court must next determine whether the Plaintiff has met its burden of establishing that a TRO is warranted based on any of the Plaintiff’s alleged bases for relief. LEGAL STANDARD The standard for entry of a TRO is the same as for a preliminary injunction. Andino v. Fischer, 555 F. Supp. 2d 418, 419 (S.D.N.Y. 2008) (citations omitted). A party seeking a preliminary injunction must establish: (1) a likelihood of success on the merits; (2) a likelihood of irreparable harm absent relief; (3) that the balance of equities weighs in its favor; and (4) that an injunction is in the public interest. Metro. Life Ins. Co. v. Bucsek, 919 F.3d 184, 188, n.2 (2d Cir. 2019) (citing Winter v. NRDC, Inc., 555 U.S. 7, 20(2008)).

1 Although permitted to by the scheduling order, the Defendant did not file a supplemental memorandum of law (see doc. # 5). 2 Those rulings are Roman Catholic Church of the Archdiocese of Santa Fe v. U.S. Small Business Administration (In re Roman Catholic Church of the Archdiocese of Santa Fe), Adv. No. 20-ap-01026 (Bankr. D.N.M. May 1, 2020); Penobscot Valley Hospital v. Carranza (In re Penobscot Valley Hospital), Adv. No. 20-ap-01005 (Bankr. D. Me. May 1, 2020); and Calais Regional Hospital v. Carranza (In re Calais Regional Hospital), Adv. No. 20-ap-01006 (Bankr. D. Me. May 1, 2020).

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DISCUSSION A. Application of Sovereign Immunity to the Plaintiff’s § 525(a) Claim The Court considers first the Plaintiff’s prayer for relief based on the Defendant’s alleged violation of the anti-discrimination provision of the Bankruptcy Code, 11 U.S.C. § 525. The Defendant alleges its sovereign immunity precludes the Court from granting the Plaintiff injunctive relief on this basis (doc. # 10, p. 2). In response, the Plaintiff points to §§ 105, 106, and 525 of the Bankruptcy Code, which it asserts abrogate the Defendant’s sovereign immunity (doc. # 11, p. 11). Those sections provide, in relevant part, as follows: [A] governmental unit may not deny … a license, permit, charter, franchise, or other similar grant to … a person that is or has been a debtor under [the Bankruptcy Code, 11 USCS §§ 101 et seq.] …, solely because such bankrupt or debtor is or has been a debtor under [the Bankruptcy Code][.] 11 U.S.C. § 525(a). The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. 11 U.S.C. § 105(a). Notwithstanding an assertion of sovereign immunity, sovereign immunity is abrogated as to a governmental unit to the extent set forth in this section with respect to the following: (1) Sections 105, 106, … 525 of [the Bankruptcy Code]. (2) The court may hear and determine any issue arising with respect to the application of such sections to governmental units. (3) The court may issue against a governmental unit an order, process, or judgment under such sections[.] (4) The enforcement of any such order, process, or judgment against any governmental unit shall be consistent with appropriate nonbankruptcy law applicable to such governmental unit[.] 11 U.S.C. § 106(a). Together, these sections appear on their face to authorize the Court to enjoin the Defendant from taking any action this Court finds to be a violation of § 525(a). The Defendant is resolute, however, in her position that these Bankruptcy Code sections are insufficient to defeat the sovereign immunity she has from injunctive relief under nonbankruptcy law, namely § 634(b)(1) of the Small Business Act (doc. # 10, p. 10). That statute provides, in relevant part: (b) Powers of Administrator. In the performance of, and with respect to, the functions, powers, and duties vested in him by this Act the Administrator may— (1) sue and be sued in any court of record of a State having general jurisdiction, or in any United States district court, and jurisdiction is conferred upon such district court to determine such controversies without regard to the amount in 3 CaseCase 20-40133-thf 20-01003 Doc Doc 287 20 Filed Filed 05/08/20 05/04/20 Entered Entered 05/08/20 05/04/20 14:52:10 13:33:10 Page 104 Desc Main Document of 263 Page 4 of 10

controversy; but no … injunction … or other similar process, mesne or final, shall be issued against the Administrator or his property[.] 15 U.S.C. § 634(b)(1). In two recent companion decisions, the Bankruptcy Court for the District of Maine harmonized these potentially conflicting statutes and determined it was authorized to enter a carefully tailored TRO against the SBA based on the Defendant’s discriminatory conduct, notwithstanding § 634(b), in reliance on Bankruptcy Code §§ 105, 106, and 525. See Penobscot Valley Hospital v. Carranza (In re Penobscot Valley Hospital), Adv. No. 20-ap-01005 (Bankr. D. Me. May 1, 2020); Calais Regional Hospital v. Carranza (In re Calais Regional Hospital), Adv. No. 20-ap-01006 (Bankr. D. Me. May 1, 2020) (Fagone, J.) (citing Ulstein Maritime, Ltd. v. United States, 833 F.2d 1052 (1st Cir. 1987). Although Ulstein is not binding in this Circuit, in the absence of binding authority from the Second Circuit, the Court finds its guidance – as well as the reasoning of its sister court in Penobscot and Calais – to be persuasive. In Ulstein, the First Circuit opined: The bare language facially [of § 634(b)(1)] suggests that “no . . . injunction” can be directed at the SBA. Some courts have read the wording in this way, and concluded that all injunctive relief directed at the SBA is absolutely prohibited. E.g., Valley Constr. Co. v. Marsh, 714 F.2d at 29; Little v. United States, 489 F. Supp. 1012, 1016 (C.D. Ill. 1980), aff'd, 645 F.2d 77 (7th Cir. 1981); Mar v. Kleppe, 520 F.2d at 869; Romeo v. United States, 462 F.2d 1036, 1038 (5th Cir.), cert. denied, 410 U.S. 928, 35 L. Ed. 2d 589, 93 S. Ct. 1361 (1973), Expedient Servs., Inc. v. Weaver, 614 F.2d 56 (5th Cir. 1980); Jets Servs., Inc. v. Hoffman, 420 F. Supp. 1300, 1308–09 (M.D. Fla. 1976). However, other courts have found that § 634(b)(1) does not bar injunctions in all circumstances. Cavalier Clothes v. United States, 810 F.2d 1108, 1112 (Fed. Cir. 1987); Oklahoma Aerotronics v. United States, 213 U.S. App. D.C. 64, 661 F.2d 976, 977 (D.C. Cir. 1981); Related Indus. v. United States, 2 Cl. Ct. 517, 522 (1983). See also Dubrow v. Small Business Admin., 345 F. Supp. 4, 7 (D.Cal. 1972); Simpkins v. Davidson, 302 F. Supp. 456, 458 (S.D.N.Y. 1969). The meaning of the limitation on the waiver of immunity in § 634(b)(1) was analyzed in Cavalier Clothes, 810 F.2d at 1108. There the court reviewed and endorsed the careful analysis of the legislative history of § 634(b)(1) in Related Industries, 2 Cl.Ct. at 522–23. The origin and purpose of the language in § 634(b)(1) goes back to the decision in FHA v. Burr, 309 U.S. 242, 84 L. Ed. 724, 60 S. Ct. 488 (1940), which held that when Congress established an agency that was authorized to engage in business transactions and permitted it to “sue and be sued” (as is true of the SBA), this waiver extended to all civil processes incident to suit such as garnishment and attachment of the agency’s assets. Therefore, language such as that in § 634(b)(1) was added to enabling statutes to bar the attachment of agency funds and other interference with agency functioning. The same boilerplate language is found repeatedly in statutes establishing agencies that provide loans or funds to the public, e.g., 7 U.S.C. § 1506(d) (Federal Crop Insurance Corporation); 15 U.S.C. § 714b(c) (Commodity Credit Corporation); 42 U.S.C. § 3211(11) (Secretary of Commerce). See Related Industries, 2 Cl. Ct. at 522 n.2. While the specific legislative history of § 634(b)(1) is silent on the purpose of this language, the

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legislative history of earlier statutes containing the identical wording indicates that it was intended to keep creditors or others suing the government from hindering and obstructing agency operations through mechanisms such as attachment of funds. “Nothing in the language or the legislative history of § 634 suggests that Congress intended to grant the SBA any greater immunity from injunctive relief than that possessed by other governmental agencies.” Cavalier Clothes, 810 F.2d at 1112. “Rather, it merely intended to insure that the SBA be treated the same as any other government agency in this respect.” Related Industries, 2 Cl. Ct. at 522. The no- injunction language protects the agency from interference with its internal workings by judicial orders attaching agency funds, etc., but does not provide blanket immunity from every type of injunction. In particular, it should not be interpreted as a bar to judicial review of agency actions that exceed agency authority where the remedies would not interfere with internal agency operations. Ulstein, 833 F.2d at 1056–57 (emphasis added). Congress enacted § 106 of the Bankruptcy Code in 1978, 20 years after it enacted § 634 of the Small Business Act in 1958 (and 25 years after prior similar provisions of that Act were originally enacted in 1953). The language of § 106(a) unequivocally expresses Congress’ intent to abrogate sovereign immunity with respect to Bankruptcy Code §§ 105, 106, and 525. Congress has not authorized the Defendant to take actions that violate Bankruptcy Code § 525(a), and the TRO the Plaintiff seeks here would not interfere with the SBA’s internal agency operations (see § B.3, infra). See also Penobscot, Bankr. D. Me. Adv. No. 20-ap-01005, at pp. 3–4. Accordingly, THE COURT FINDS it is authorized under Bankruptcy Code §§ 105, 106, and 525 to enter carefully tailored injunctive relief against the Defendant, it has constitutional authority to enter a final judgment, and it is not barred from doing so by 15 U.S.C. § 634(b)(1). B. Application of TRO Factors to the Plaintiff’s § 525(a) Claim Having disposed of the threshold question, the Court turns to the salient question of whether a TRO is warranted based on the Plaintiff’s § 525(a) claim. The Plaintiff argues each of the four TRO factors weighs in its favor; conversely, the Defendant argues the Plaintiff has failed to meet its burden of proof on these factors and, in any event, each factor weighs against the granting of injunctive relief. The Court will examine each of the four prongs of the TRO test with respect to the Plaintiff’s §525(a) claim. 1. Likelihood of Success on the Merits The Plaintiff argues the Defendant is violating § 525(a) of the Bankruptcy Code by denying the Plaintiff an opportunity to have its PPP application considered solely because it is a bankruptcy debtor (doc. # 2, p. 9; doc. # 11, p. 2). The Defendant counters that Bankruptcy Code § 525(a) does not apply to the PPP because it is a loan (doc. # 10, p. 11). As noted in § A, infra, Bankruptcy Code § 525(a) provides, in relevant part, that “a governmental unit may not deny … a license, permit, charter, franchise, or other similar grant to” a bankruptcy debtor. 5 CaseCase 20-40133-thf 20-01003 Doc Doc 287 20 Filed Filed 05/08/20 05/04/20 Entered Entered 05/08/20 05/04/20 14:52:10 13:33:10 Page 106 Desc Main Document of 263 Page 6 of 10

Thus, the Court must determine whether the Defendant’s exclusion of the Plaintiff from the universe of eligible PPP applicants constitutes the denial of, or discrimination with respect to, a “license, permit, charter, franchise, or other similar grant” for purposes of § 525(a). The Defendant points to cases holding that § 525(a) does not extend to loans or that a loan is not “a license, permit, charter, franchise, or other similar grant” within the meaning of § 525(a) (doc. # 10, p. 12) (citing Watts v. Penn. Housing Fin. Co, 876 F.2d 1090, 1094 (3d Cir. 1989), Ayes v. U.S. Dep’t of Veterans Affairs, 473 F.3d 104, 110 (4th Cir. 2006), Toth v. Mich. State Housing Development Authority, 136 F.3d 477, 480 (6th Cir. 1998). The Defendant also cites In re Goldrich, 771 F.2d 28, 30 (2d Cir. 1985), in which the Second Circuit declined to extend § 525 to student loan guarantees, in support of her argument that § 525 does not apply to loans. However, the Court finds this characterization of the Second Circuit’s position to be unpersuasive, especially in light of the Second Circuit’s interpretation of § 525(a) in a more recent case, Stoltz v. Brattleboro Housing Auth. (In re Stoltz), 315 F.3d 80, 93 (2d Cir. 2002). In Stoltz, the Second Circuit had to determine “whether a public housing lease is a grant ‘similar’ to a ‘license, permit, charter, [or] franchise,’” id. at 90, and “discerned from the plain text of section 525(a) that a public housing lease, and therefore the debtor-tenant’s current right to participate in the public housing program, is a protected grant[.]” Id. at 92. The Second Circuit reasoned: Although courts and commentators generally refer to section 525(a) as the antidiscrimination provision, section 525 contains two additional antidiscrimination provisions, which were added after the 1978 enactment of section 525(a). Section 525(b), enacted in 1984, prohibits discrimination against debtors by private employers. 11 U.S.C. § 525(b) (1999). Section 525(c), enacted in 1994, prohibits discrimination against debtor-borrowers on the basis of discharged, unrepaid loans by governmental units operating a student loan or grant program. 11 U.S.C. § 525(c) (2001). Section 525(c) signaled congressional disapproval of Goldrich v. New York State Higher Educ. Servs. Corp., 771 F.2d 28 (2d Cir. 1985), in which this Court had narrowly construed section 525(a)’s “other similar grant” language to not include extensions of credit. Neither section 525(b) nor section 525(c) is implicated by this appeal. Id. at p. 86, n. 2. Given the Second Circuit’s broad construal of § 525(a)’s “other similar grant” language in Stoltz to include a public housing lease, the Court does not find the narrow interpretation of that provision in Goldrich, a case decided 17 years before Stoltz and disapproved by Congress, to require the Court to so narrowly construe § 525 here. The CARES Act is not a statute enacted to increase the availability of commercial loans. Rather, the CARES Act is a grant of financial aid necessitated by a public health crisis. See Penobscot, Bankr. D. Me. Adv. No. 20-ap-01005, at p. 7. Congress enacted and the President signed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) on or about March 27, 2020, and § 1102 of the

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CARES Act established the PPP as a convertible loan program under § 7(a) of the Small Business Act (15 U.S.C. § 363(a)). There are very few PPP eligibility requirements under the CARES Act, and no underwriting mandates. It merely requires that an applicant (1) is a small business concern or any business concern, nonprofit organization, veterans organization, or Tribal business concern described in § 31(b)(2)(C) of the Small Business Act; (2) does not employ more than the greater of 500 employees or, if applicable, the size standard in number of employees established by the Administration for the industry in which the business concern, nonprofit organization, veterans organization, or Tribal business concern operates; (3) was in operation on February 15, 2020; and (4) either had employees for whom the borrower paid salaries and payroll taxes, or paid independent contractors as reported on a Form 1099- MISC. While a PPP disbursement is nominally designated as a “loan,” § 1106 of the CARES Act provides for loan forgiveness – essentially treating the PPP disbursement as a grant with no repayment obligation – as long as the funds are used as the Act requires. In essence, if the borrower complies with the so-called loan program it actually gets a grant, rather than a loan; a repayment obligation only arises if the borrower fails to use the funds for purposes underlying the CARES Act. The Plaintiff certifies, via the sworn declaration of its interim CEO, it only seeks PPP funds in an amount that could be forgiven (doc. # 3, p. 4, ¶ 26, p. 12; doc. # 11, p. 6), and intends to use all PPP funds it receives only for purposes that would qualify for forgiveness under the PPP. At the May 1st hearing, the Plaintiff also recognized this Court has broad authority to oversee the Plaintiff's use of funds and can ensure the Plaintiff complies with loan forgiveness criteria. The Plaintiff’s arguments and certification of intentions, as well as the import and purpose of the CARES Act, persuade the Court that if the Plaintiff were granted funds through the PPP that so-called loan would be eligible for forgiveness and therefore would, for all intents and purposes, be a grant. Accordingly, THE COURT FINDS the Plaintiff has made a sufficient showing that the PPP could be characterized as an “other similar grant” that the Plaintiff has demonstrated a likelihood of success on the merits of its § 525(a) claim. 2. Likelihood of Irreparable Harm Absent Relief The Plaintiff asserts that, in the absence of another source of liquidity, it is days or weeks away from running out of money, and projects it will do so by the first week of June (doc. # 2, p. 13; doc. # 3, ¶ 36). The Defendant contends the Plaintiff's projection that it may run out of money in early June, without supporting evidence, is insufficient to show irreparable harm (doc. # 10, p. 19). While the record is not developed at this very early stage of the adversary proceeding, the Complaint is supported by the sworn declaration of the Plaintiff’s interim CEO, affirming the Plaintiff’s projection that it will run out of money by the first week of June, which would force the Plaintiff to

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3 At the May 1st hearing, the Court inquired whether the Defendant was challenging the Plaintiff’s statement that the hospital would suffer irreparable harm if it did not receive financial assistance very soon. The Defendant demurred, resting on its belief that the Debtor had a heavy burden and had not met it in its TRO Motion.

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3. Balance of Equities The Plaintiff argues the balance of equities tips in favor of granting the TRO, as there is no harm to the Defendant in requiring her to implement the PPP without discriminating against the Plaintiff and to process the Plaintiff's application if, but for that discrimination, the Plaintiff would qualify for PPP funds (doc. # 2, p. 14). The Defendant contends that granting the injunctive relief the Plaintiff could disrupt the administration of the PPP in the middle of loan distribution (doc. # 10, p. 2), but has not proffered any rationale for this contention or otherwise addressed this TRO factor in her papers. The Plaintiff seeks a TRO to (i) enjoin the Defendant from discriminating against the Plaintiff's PPP application, (ii) require the Defendant to authorize a lender to process the Plaintiff’s PPP application without regard to the Plaintiff’s status as a bankruptcy debtor, and (iii) require the Defendant to reserve sufficient funds and guaranty authority to provide the Plaintiff with access to $3.64 million in PPP funds if the Plaintiff is determined to be eligible for PPP funds (see doc. # 2-8, § 4(C); doc. # 3, p. 11). It is not apparent to the Court – and the Defendant has not explained – how this TRO would significantly disrupt administrative of the PPP,4 or how any purported disruption outweighs the clear harm to the Plaintiff if the TRO Motion is denied.5 For these reasons, THE COURT FINDS the Plaintiff’s argument on this prong to be persuasive and the balancing the equities weighs in favor of granting the TRO Motion. 4. Public Interest The Plaintiff asserts injunctive relief serves the public interest because Congressional policy favors reorganization, the Plaintiff is one of the largest private sector employers in its geographic area, and in this time of the COVID-19 pandemic it is crucial to the public health and welfare that the Plaintiff continue providing hospital services to the area. Moreover, as one of the largest employers in the region it serves, the Plaintiff alleges its continued vitality is essential for the economic development and employment of residents in the area (doc. # 2, p. 15). The Defendant counters that the public interest weighs against the Plaintiff here because the proposed injunction would short-circuit the rapidly evolving political and administrative landscape of responding to COVID-19 and posits the granting of a TRO could

4 At the May 1st hearing, the Court inquired of the Defendant how allowing a lender to review the Plaintiff's PPP application without considering its status as a bankruptcy debtor would disrupt SBA operations. The Defendant reiterated her previously recited argument that the SBA had made a policy determination that PPP loans would not be granted to bankruptcy debtors, and to issue an injunction inconsistent with that policy would hinder operation of the PPP program. Despite the Court’s repeated attempts to get a more precise response, however, the Defendant failed to provide a single example of how the Defendant’s actual operations would suffer any disruption if the Plaintiff’s request for a TRO was granted. 5 The Court finds the Defendant’s position on this prong to be more than a bit puzzling, given the magnitude of harm the Plaintiff’s bankruptcy estate, creditors, other parties in interest in this case, as well as the community the Plaintiff serves, would suffer if this hospital were forced to close due to lack of funding from the PPP. This is all the more confounding when one takes into consideration the large stake the federal government has in the Plaintiff’s successful bankruptcy reorganization: the U.S. Department of Health and Human Services has filed a claim in this case in the amount of $4,603,598.31 (claim # 114-1).

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______May 4, 2020 at 1:15 p.m. Colleen A. Brown Rutland, Vermont United States Bankruptcy Judge

6 The Defendant also argues public interest weighs against injunctive relief because it would reverse the SBA’s policy to exclude bankruptcy debtors from PPP, and Congress made the SBA immune from injunction (doc. # 10, p. 21). Since the Court rejected this sovereign immunity argument in its analysis of the likelihood of the merits, supra, it does not address it again here. 7 The Court makes no findings as to whether the Plaintiff qualifies for a PPP loan or whether the Plaintiff’s PPP application should be granted.

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UNITED STATES BANKRUPTCY COURT DISTRICT OF VERMONT

Filed & Entered On Docket 05/04/2020

______

In re: Springfield Hospital, Inc., Chapter 11 Case Debtor-in-Possession. # 19-10283 ______

In re: Springfield Hospital, Inc., Plaintiff, v. Adversary Proceeding Jovita Carranza, in her capacity as # 20-01003 Administrator for the U.S. Small Business Administration, Defendant. ______

Appearances: Andrew Helman, Esq. Michael Tye, Esq. Murray, Plumb & Murray U.S. Department of Justice Portland, ME Washington, DC For the Plaintiff For the Defendant

ORDER GRANTING PLAINTIFF’S EMERGENCY MOTION FOR TEMPORARY RESTRAINING ORDER AND SETTING STATUS CONFERENCE ON THE PLAINTIFF’S REQUEST FOR A PRELIMINARY INJUNCTION Upon consideration of the Emergency Motion for Temporary Restraining Order and Request for Hearing Date and Briefing Schedule with Respect to the Debtor’s Request For A Preliminary Injunction (doc. # 2, the “TRO Motion”)1 filed by the Plaintiff, the responses and memoranda of law the parties filed thereafter (doc. ## 10,11, 15, 16), and the arguments the parties presented at the May 1, 2020 hearing; and for the reasons set forth in the memorandum of decision of even date, the TRO Motion is granted and the Court shall convene a status conference to address the Plaintiff’s request for a preliminary injunction.

1 Capitalized terms not defined here shall have the meaning given to them in the TRO Motions and memorandum of decision. 1

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With respect to the evidentiary and statutory basis the Court has considered: 1. The Court grants the Plaintiff’s request, which the Defendant did not oppose, to treat the verified statements in the Amended Verified Complaint (doc. # 3, the “Complaint”) as admitted evidence in support of the TRO Motion. 2. The Court relies additionally on the text and purpose of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”); the Paycheck Protection Program (“PPP”), enacted in § 1102 of the CARES Act; § 7(a) of the Small Business Act (15 U.S.C. § 636(a)); other sections of the CARES Act directly addressing the Bankruptcy Code and lending to bankruptcy debtors, specifically §§ 1103(3), 1113, and 4003(c)(3)(D)(i)(V) of the CARES Act; and the Administrator’s interim final rules promulgated on April 15, 2020, and April 24, 2020, Docket Nos. SBA-2020-0015 and SBA-2020-0021. Based on these sources, pertinent case law, and the record in this proceeding and the Plaintiff’s chapter 11 case, as more fully articulated in the memorandum of decision, THE COURT FINDS 3. The Plaintiff has properly served, and given adequate notice of, the TRO Motion. 4. This Court has jurisdiction over this adversary proceeding and both statutory and constitutional authority to enter a final judgment in this proceeding. 5. The Plaintiff is entitled to issuance of a temporary restraining order pursuant to Rule 65 of the Federal Rules of Civil Procedure, which is applicable to this adversary proceeding pursuant to Rule 7065 of the Federal Rules of Bankruptcy Procedure. 6. The Plaintiff submitted as an exhibit to the Motion – and as an exhibit to its Complaint – its Application in which it answered “yes” to question 1 of the official form of application promulgated by the SBA. 7. The Plaintiff has shown a substantial likelihood of success on the merits on the discrimination claim alleged in the Complaint, and in particular, the Administrator is in violation of § 525(a) of the Bankruptcy Code by requiring lenders participating in PPP to consider loan applications on a form that says PPP loans will not be approved if the applicant or any owner is presently involved in any bankruptcy. 8. The Plaintiff is a critical access hospital providing services in the Springfield, VT area. The Plaintiff’s business operations have been significantly impacted by COVID-19 as many non- essential elective and office visits have been rescheduled or canceled and a significant percentage of the Plaintiff’s revenue is derived from non-essential and elective procedures.

2

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9. In the absence of funding from PPP or another source, the Plaintiff may be forced to discontinue business operations by early June and would not have sufficient funds for an orderly liquidation under those circumstances. This timeline could accelerate depending on the spread of COVID- 19 in Springfield area. 10. The Plaintiff has several hundred employees who may lose their jobs if the Plaintiff’s business operations cease. Due to the nature of the Plaintiff’s business operations, it must continue to employ staff in order to meet its charitable mission and provide health care services. 11. The risk of harm to the Plaintiff if a temporary restraining order is not granted outweighs the risk of any harm to the Administrator if a temporary restraining order is granted. 12. Given the nature of the Plaintiff’s business operations and the purpose Congress had in enacting the CARES Act and establishing the PPP, the public interest is served by issuing a temporary restraining order. 13. The CARES Act constitutes a grant of economic aid in response to the pandemic. 14. The Plaintiff has sustained its burden of proof, having prevailed in its arguments on all four prongs of the test for determining whether a temporary restraining order is warranted. 15. This Court makes no determination on the question of whether the Plaintiff qualifies for a PPP loan or whether Plaintiff’s PPP application should be granted. Rather, the Court only grants the relief set forth in this Order and it specifically does not obligate Berkshire Bank or any other participating lender to approve a PPP application on behalf of the Plaintiff. 16. The Plaintiff is a debtor-in-possession and therefore no bond is required under Rule 65.

Based on these findings, IT IS HEREBY ORDERED: (A) The Motion is GRANTED pursuant to the terms of this Order, without need of a bond. (B) A temporary restraining order is hereby ISSUED, with notice, and directed to the Administrator and all agents, servants, employees, and any parties acting in concert with any of the foregoing parties with respect to a PPP application from the Plaintiff (collectively, the “Restrained Parties”). The Court intends that Berkshire Bank or any other lender participating in PPP, to whom the Plaintiff submits a PPP application, shall be one of the Restrained Parties upon the Plaintiff’s service of this Order on such lender.2 (C) Until the expiration of this temporary restraining order, its scope shall be as follows:

2 The Plaintiff may provide notice of this Order by e-mail to counsel of record for Berkshire Bank in Plaintiff’s chapter 11 case. 3

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3 In the TRO Motion, the Plaintiff noted it had initially answered "yes" to question 2, which asks whether the applicant is delinquent or has defaulted on certain types of loans, but on review of SBA guidance the Plaintiff has or will correct its response (doc. # 2, pp. 4–5). 4

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5

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(b) file on the docket of this adversary proceeding and the docket of the Plaintiff’s chapter 11 case an updated version of the PPP funds spreadsheet within three business days of each disbursement of PPP funds. IT IS FURTHER ORDERED the parties shall appear at a status hearing at 10:00 a.m. on Thursday, May 7, 2020,4 on the Plaintiff’s request for a preliminary injunction. At that status hearing, (A) the Defendant shall describe, in reasonable detail, the steps she has taken to comply with the terms of this TRO; (B) the Plaintiff shall report on the status of its efforts to implement the terms of this TRO and shall present, in reasonable detail, the contours of the relief it seeks in the form of a preliminary injunction, based on the current status of this proceeding and any pending PPP application; (C) the parties shall present to the Court any additional conditions they propose with respect to the Plaintiff’s receipt, distribution, or recording of PPP funds, in order to ensure maximum protection of the Plaintiff’s bankruptcy estate, its creditors, and the Defendant/lender; and (D) the parties shall jointly propose a timeline and litigation schedule (if needed) for a determination of whether this temporary restraining order should be converted to a preliminary injunction and final adjudication of this adversary proceeding. (If the parties cannot reach agreement on these terms, each party shall certify they have made a diligent effort to do so and present their competing proposals.) IT IS FURTHER ORDERED this temporary restraining order shall remain in full force and effect until it expires at the conclusion of the status hearing scheduled to begin at 10 a.m. on May 7, 2020, unless (A) terminated earlier by the Court, or (B) further extended by law, Court order, or agreement of the parties. SO ORDERED.

______May 4, 2020 at 11:30 a.m. Colleen A. Brown Burlington, Vermont United States Bankruptcy Judge

4 This hearing shall be conducted via the Court’s Zoom account and the courtroom deputy will provide the meeting ID and other access information to counsel for the parties. Any other attorney or interested party who wishes to attend, or participate in, this hearing may obtain the access information by contacting the courtroom deputy one day prior to the hearing. 6

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No Shepard’s Signal™ As of: May 6, 2020 7:18 PM Z

In re Springfield Hosp.

United States Bankruptcy Court for the District of Vermont May 04, 2020, Filed Chapter 11 Case # 19-10283 Adversary Proceeding # 20-01003 Administrator for the U.S. Small Administration,

Reporter 2020 Bankr. LEXIS 1205 *

GRANTINGPLAINTIFF'SEMERGENCYMOTIONFORT In re: Springfield Hospital, Inc., Debtor-in-Possession. EMPORARYRESTRAININGORDER In re: Springfield Hospital, Inc., Plaintiff, v. Jovita Carranza, in her capacity as Business Defendant. The Plaintiff, Springfield Hospital, Inc., has filed a motion for a temporary restraining order (a "TRO") against the Defendant, Jovita Carranza, in her capacity as Administrator for the U.S. Small Business Notice: Decision text below is the first available text Administration. Based on the record in this case, the from the court; it has not been editorially reviewed by arguments presented at the May 1, 2020 hearing, and LexisNexis. Publisher's editorial review, including for the reasons set forth below, the Court grants the Headnotes, Case Summary, Shepard's analysis or any Plaintiff's request for a TRO based on its claim under amendments will be added in accordance with Bankruptcy Code § 525(a). LexisNexis editorial guidelines. JURISDICTION

This Court has jurisdiction over this adversary proceeding and the TRO Motion pursuant to 28 U.S.C. Core Terms §§ 157 and 1334, and the Amended Order of Reference entered on June 22, 2012. This decision addresses a cause of action under § 525 of the Bankruptcy Code funds, injunction, injunctive relief, sovereign immunity, and thus is a core proceeding arising under Title 11 of governmental unit, irreparable harm, public interest, the United States Code as described in 28 U.S.C. § pandemic, weighs, adversary proceedings, bankrupt 157(b)(2)(A), (D), and (O). Therefore, this Court has debtor, small business, loans, prong, franchise, constitutional authority to enter a final judgment in this Regional, immunity, sections, charter, disrupt, license, proceeding. argues 1

PROCEDURAL HISTORY Opinion On April 27, 2020, the Plaintiff filed a verified complaint to commence this adversary proceeding [*2] (doc. # 1, amended at doc. # 3, and, as amended, the [*1] Appearances: Andrew Helman, Esq.Michael Tye, "Complaint") and a motion for an emergency hearing on Esq. its request for a temporary restraining order (doc. # 2, the "TRO Motion"). Pursuant to the Court's scheduling Murray, Plumb & MurrayU.S. Department of Justice order on the TRO Motion (doc. # 5), the Defendant filed a response on April 29, 2020 (doc. # 10), and the Portland, MEWashington, DC Plaintiff filed a supplemental memorandum of law on For the PlaintiffFor the Defendant April 30, 2020 (doc. # 11).1 The Court held an emergency hearing on the TRO Motion on May 1, 2020 MEMORANDUM OF DECISION and took the matter under advisement. Following the

John-29622 Tancabel Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 PagePage 118 2 of 8 of 263 2020 Bankr. LEXIS 1205, *2 hearing, the Plaintiff filed two notices of supplemental 2 legal authority regarding rulings in three adversary proceedings in other districts, which were issued that DISCUSSION day (doc. ## 15, 16).2 A. Application of Sovereign Immunity to the ISSUES PRESENTED Plaintiff's § 525(a) Claim

The Plaintiff's Complaint includes four counts for relief: The Court considers first the Plaintiff's prayer for relief (I) preliminary and permanent injunction, (II) declaratory based on the Defendant's alleged violation of the anti- judgment (based on a claim that the Defendant discrimination provision of the Bankruptcy Code, 11 exceeded her statutory authority), (III) determination of a U.S.C. § 525. The Defendant alleges its sovereign violation of Bankruptcy Code § 525(a), and (IV) immunity precludes the Court from granting the Plaintiff mandamus under 28 U.S.C. § 1361. The Plaintiff's TRO injunctive relief on this basis (doc. # 10, p. 2). In Motion (doc. # 2) asks the Court to enter a TRO, response, the Plaintiff points to §§ 105, 106, and 525 of essentially, so the Plaintiff's application under the the Bankruptcy Code, which it asserts abrogate the recently enacted Paycheck Protection Program (the Defendant's sovereign immunity (doc. # 11, p. 11). "PPP") is considered without regard to [*3] the Those sections provide, in relevant part, as follows: Plaintiff's status as a chapter 11 debtor. [A] governmental unit may not deny … a license, permit, As a threshold matter, the Court must determine charter, franchise, or other similar grant to … a person whether the Defendant is immune from the Plaintiff's that is or has been a debtor under [the Bankruptcy request for injunctive relief. If the Defendant is not Code, 11 USCS §§ 101 et seq.] …, solely because such protected by sovereign immunity, then the Court must bankrupt or debtor is or has been a debtor under [the next determine whether the Plaintiff has met its burden Bankruptcy Code][.] of establishing that a TRO is warranted based on any of the Plaintiff's alleged bases for relief. 11 U.S.C. § 525(a).

LEGAL STANDARD The court may issue any order, process, or judgment that is necessary or appropriate to carry out the The standard for entry of a TRO is the same as for a provisions of this title. preliminary injunction. Andino v. Fischer, 555 F. Supp. 2d 418, 419 (S.D.N.Y. 2008) (citations omitted). A party 11 U.S.C. § 105(a). seeking a preliminary injunction must establish: (1) a likelihood of success on the merits; (2) a likelihood of Notwithstanding an assertion of sovereign immunity, irreparable harm absent relief; sovereign [*5] immunity is abrogated as to a governmental unit to the extent set forth in this section (3) that the balance of equities weighs in its favor; and with respect to the following: (4) that an injunction is in the public interest. Metro. Life Ins. Co. v. Bucsek, 919 F.3d 184, 188, n.2 (2d Cir. (1) Sections 105, 106, … 525 of [the Bankruptcy 2019) (citing Winter v. NRDC, Inc., 555 U.S. 7, Code]. 20(2008)). (2) The court may hear and determine any issue arising 1Although permitted to by the scheduling order, the with respect to the application of such sections to Defendant did not file a supplemental memorandum of governmental units. law (see doc. # 5). 2 Those rulings are Roman Catholic (3) The court may issue against a governmental unit an Church of the Archdiocese of Santa Fe v. U.S. Small order, process, or judgment under such sections[.] Business Administration (In reRoman Catholic Church of the Archdiocese of Santa Fe), Adv. No. 20-ap-01026 (4) The enforcement of any such order, process, or (Bankr. D.N.M. May 1, 2020); PenobscotValley Hospital judgment against any governmental unit shall be v. Carranza (In re Penobscot Valley Hospital) [*4] , Adv. consistent with appropriate nonbankruptcy law No. 20-ap-01005 (Bankr. D. Me. May 1, 2020); and applicable to such governmental unit[.] Calais Regional Hospital v. Carranza (In re Calais Regional Hospital), Adv. No. 20-ap-01006 (Bankr. D. 11 U.S.C. § 106(a). Me. May 1, 2020).

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Together, these sections appear on their face to SBA is absolutely prohibited. E.g., ValleyConstr. Co. v. authorize the Court to enjoin the Defendant from taking Marsh, 714 F.2d at 29; Little v. United States, 489 F. any action this Court finds to be a violation of § 525(a). Supp. 1012, 1016 (C.D. Ill. 1980), aff'd, 645 F.2d 77 (7th The Defendant is resolute, however, in her position that Cir. 1981); Mar v. Kleppe, 520 F.2d at 869; Romeo v. these Bankruptcy Code sections are insufficient to United States, 462 F.2d 1036, 1038 (5th Cir.), cert. defeat the sovereign immunity she has from injunctive denied, 410 U.S. 928, 35 L. Ed. 2d 589, 93 S. Ct. 1361 relief under nonbankruptcy law, namely § 634(b)(1) of (1973), Expedient Servs., Inc. v. Weaver, 614 F.2d 56 the Small Business Act (doc. # 10, (5th Cir. 1980); Jets Servs., Inc. v. Hoffman, 420 F. Supp. 1300, 1308-09 (M.D. Fla. 1976). However, other p. 10). That statute provides, in relevant part: courts have found that § 634(b)(1) does not bar injunctions in all circumstances. Cavalier Clothes v. (b) Powers of Administrator. In the performance of, and United States, 810 F.2d 1108, 1112 (Fed. Cir. 1987); with respect to, the functions, powers, and duties vested Oklahoma Aerotronics v. United States, 213 U.S. App. in him by this Act the Administrator may- D.C. 64, 661 F.2d 976, 977 (D.C. Cir. 1981); Related (1) sue and be sued in any court [*6] of record of a Indus. v. United States, 2 Cl. Ct. 517, 522 (1983). See State having general jurisdiction, or in any United States also Dubrow v. Small Business Admin., 345 F. Supp. 4, district court, and jurisdiction is conferred upon such 7 (D.Cal. 1972); Simpkins v. Davidson, 302 F. Supp. district court to determine such controversies without 456, 458 (S.D.N.Y. 1969). regard to the amount in The meaning of the limitation on the waiver of immunity 3 in § 634(b)(1) was analyzed in Cavalier Clothes, 810 F.2d at 1108. There the court reviewed and endorsed controversy; but no … injunction … or other similar the careful analysis of the legislative history of § process, mesne or final, shall be issued against the 634(b)(1) in RelatedIndustries, 2 Cl.Ct. at 522-23. The Administrator or his property[.] origin and purpose of the language in § 634(b)(1) goes back to the decision in FHA v. Burr, 309 U.S. 242, 84 L. 15 U.S.C. § 634(b)(1). Ed. 724, 60 S. Ct. 488 (1940), which held that when Congress established an agency that was authorized to In two recent companion decisions, the Bankruptcy engage in business transactions and permitted it to "sue Court for the District of Maine harmonized these and be sued" (as is true of the SBA), this waiver potentially conflicting statutes and determined it was extended to all civil processes incident to suit such as authorized to enter a carefully tailored TRO against the garnishment and attachment of the agency's assets. SBA based on the Defendant's discriminatory conduct, Therefore, language such as that in § 634(b)(1) was notwithstanding § 634(b), in reliance on Bankruptcy added to enabling statutes to bar the attachment of Code §§ 105, 106, and 525. See Penobscot Valley agency funds and other interference with agency Hospital v. Carranza (In re PenobscotValley Hospital), functioning. The same boilerplate language is found Adv. No. 20-ap-01005 (Bankr. D. Me. May 1, 2020); repeatedly in statutes establishing agencies that provide Calais Regional Hospital v. loans or funds to the public, e.g. [*8] , 7 U.S.C. § Carranza (In re Calais Regional Hospital), Adv. No. 20- 1506(d) (Federal Crop Insurance Corporation); 15 ap-01006 (Bankr. D. Me. May 1, 2020) (Fagone, J.) U.S.C. § 714b(c) (Commodity Credit Corporation); 42 (citing Ulstein Maritime, Ltd. v. United States, 833 F.2d U.S.C. § 3211(11) (Secretary of Commerce). See 1052 (1st Cir. 1987). Although Ulstein is not binding in Related Industries , 2 Cl. Ct. at 522 n.2. While the this Circuit, in the absence of binding authority from the specific legislative history of § 634(b)(1) is silent on the Second Circuit, the Court finds its guidance - as well as purpose of this language, the the reasoning of its sister court in Penobscot and Calais 4 - to be persuasive. legislative history of earlier statutes containing the In Ulstein, the First Circuit opined: identical wording indicates that it was intended to keep creditors or others suing the government from hindering The bare language [*7] facially [of § 634(b)(1)] and obstructing agency operations through mechanisms suggests that "no . . . injunction" can be directed at the such as attachment of funds. "Nothing in the language SBA. Some courts have read the wording in this way, or the legislative history of § 634 suggests that and concluded that all injunctive relief directed at the

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Congress intended to grant the SBA any greater 1. Likelihood of Success on the Merits immunity from injunctive relief than that possessed by other governmental agencies." Cavalier Clothes, 810 The Plaintiff argues the Defendant [*10] is violating § F.2d at 1112. "Rather, it merely intended to insure that 525(a) of the Bankruptcy Code by denying the Plaintiff the SBA be treated the same as any other government an opportunity to have its PPP application considered agency in this respect." Related Industries, 2 Cl. Ct. at solely because it is a bankruptcy debtor (doc. # 2, p. 9; 522. The no-injunction language protects the doc. # 11, p. 2). The Defendant counters that agency from interference with its internal workings Bankruptcy Code § 525(a) does not apply to the PPP by judicial orders attaching agency funds, etc., but because it is a loan (doc. # 10, p. 11). does not provide blanket immunity from every type of injunction. In particular, it should not be As noted in § A, infra, Bankruptcy Code § 525(a) interpreted as a bar to judicial review of agency provides, in relevant part, that "a governmental actions that exceed agency authority where the remedies would not interfere with internal agency unit may not deny … a license, permit, charter, operations. franchise, or other similar grant to" a bankruptcy debtor. 5 Ulstein, 833 F.2d at 1056-57 (emphasis added). Thus, the Court must determine whether the Congress enacted § 106 of the Bankruptcy Code in Defendant's exclusion of the Plaintiff from the universe 1978, 20 years after it enacted § 634 of the Small of eligible PPP applicants constitutes the denial of, or Business Act in 1958 (and 25 years after prior similar discrimination with respect to, a "license, permit, charter, provisions of that Act were originally [*9] enacted in franchise, or other similar grant" for purposes of § 1953). The language of § 106(a) unequivocally 525(a). expresses Congress' intent to abrogate sovereign immunity with respect to Bankruptcy Code §§ 105, The Defendant points to cases holding that § 525(a) 106, and 525. Congress has not authorized the does not extend to loans or that a loan is not "a license, Defendant to take actions that violate Bankruptcy Code permit, charter, franchise, or other similar grant" within § 525(a), and the TRO the Plaintiff seeks here would not the meaning of § 525(a) (doc. # 10, p. 12) (citing Watts interfere with the SBA's internal agency operations (see v. Penn. Housing Fin. Co, 876 F.2d 1090, 1094 (3d Cir. § B.3, infra). See also Penobscot, Bankr. D. Me. Adv. 1989), Ayes v. U.S. Dep't ofVeterans Affairs, 473 F.3d No. 20-ap-01005, at pp. 3-4. 104, 110 (4th Cir. 2006), Toth v. Mich. State Housing Development Authority, 136 F.3d 477, 480 (6th Cir. Accordingly, THE COURT FINDS it is authorized under 1998). The Defendant also cites In re Goldrich, 771 F.2d Bankruptcy Code §§ 105, 106, and 525 to enter 28, 30 (2d Cir. 1985), in which the Second Circuit carefully tailored injunctive relief against the Defendant, declined to extend § 525 to student loan guarantees, in it has constitutional authority to enter a final judgment, support of her argument that § 525 does not apply to and it is not barred from doing so by 15 U.S.C. § loans. However, the Court finds this characterization of 634(b)(1). the Second Circuit's position to be unpersuasive, especially in [*11] light of the Second Circuit's B. Application of TRO Factors to the Plaintiff's § interpretation of § 525(a) in a more recent case, Stoltz v. 525(a) Claim Brattleboro Housing Auth. (In re Stoltz), 315 F.3d 80, 93 (2d Cir. 2002). Having disposed of the threshold question, the Court turns to the salient question of whether a TRO is In Stoltz, the Second Circuit had to determine "whether warranted based on the Plaintiff's § 525(a) claim. The a public housing lease is a grant 'similar' to a 'license, Plaintiff argues each of the four TRO factors weighs in permit, charter, [or] franchise,'" id. at 90, and "discerned its favor; conversely, the Defendant argues the Plaintiff from the plain text of section 525(a) that a public has failed to meet its burden of proof on these factors housing lease, and therefore the debtor-tenant's current and, in any event, each factor weighs against the right to participate in the public housing program, is a granting of injunctive relief. The Court will examine each protected grant[.]" Id. at 92. The Second Circuit of the four prongs of the TRO test with respect to the reasoned: Plaintiff's §525(a) claim. Although courts and commentators generally refer to

John-29622 Tancabel Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 PagePage 121 5 of 8 of 263 2020 Bankr. LEXIS 1205, *11 section 525(a) as the antidiscrimination provision, operates; (3) was in operation on February 15, 2020; section 525 contains two additional antidiscrimination and (4) either had employees for whom the borrower provisions, which were added after the 1978 enactment paid salaries and payroll taxes, or paid independent of section 525(a). Section 525(b), enacted in 1984, contractors as reported on a Form 1099-MISC. While a prohibits discrimination against debtors by private PPP disbursement is nominally designated as a "loan," employers. 11 U.S.C. § 525(b) (1999). Section 525(c), § 1106 of the CARES Act provides for loan forgiveness - enacted in 1994, prohibits discrimination against essentially treating the PPP disbursement as a grant debtor-borrowers on the basis of discharged, unrepaid with no repayment obligation - as long as the funds are loans by governmental units operating a student loan or used as the Act requires. In essence, if the borrower grant program. 11 U.S.C. § 525(c) (2001). Section complies with the so-called loan program it actually gets 525(c) signaled congressional disapproval of Goldrich v. a grant, rather than a loan; a repayment obligation only New YorkState Higher Educ. Servs. Corp., 771 F.2d 28 arises if the borrower fails to use the funds for purposes (2d Cir. 1985), in which this Court had narrowly underlying the CARES Act. construed section 525(a)'s "other similar grant" language to not include extensions of credit. Neither The Plaintiff certifies, via the sworn declaration of its section 525(b) nor section 525(c) is implicated by this interim CEO, it only seeks PPP funds in an amount that appeal. could be forgiven (doc. # 3, p. 4, ¶ 26, p. 12; doc. # 11, p. 6), and intends to use all PPP funds it receives only Id. at p. 86, n. 2. for purposes that would qualify for forgiveness under the PPP. At the May 1sthearing, the Plaintiff also Given the Second Circuit's broad construal of § 525(a)'s recognized this Court has broad authority to oversee the "other similar grant" language [*12] in Stoltz to include Plaintiff's use of funds and can [*14] ensure the Plaintiff a public housing lease, the Court does not find the complies with loan forgiveness criteria. narrow interpretation of that provision in Goldrich, a case decided 17 years before Stoltz and disapproved by The Plaintiff's arguments and certification of intentions, Congress, to require the Court to so narrowly construe § as well as the import and purpose of the CARES Act, 525 here. persuade the Court that if the Plaintiff were granted funds through the PPP that so-called loan would be The CARES Act is not a statute enacted to increase the eligible for forgiveness and therefore would, for all availability of commercial loans. Rather, the CARES Act intents and purposes, be a grant. Accordingly, THE is a grant of financial aid necessitated by a public health COURT FINDS the Plaintiff has made a sufficient crisis. See Penobscot, Bankr. D. Me. Adv. No. 20-ap- showing that the PPP could be characterized as an 01005, at p. 7. Congress enacted and the President "other similar grant" that the Plaintiff has demonstrated signed the Coronavirus Aid, Relief, and Economic a likelihood of success on the merits of its § 525(a) Security Act (the "CARES Act") on or about March 27, claim. 2020, and § 1102 of the 2. Likelihood of Irreparable Harm Absent Relief 6 The Plaintiff asserts that, in the absence of another CARES Act established the PPP as a convertible loan source of liquidity, it is days or weeks away from running program under § 7(a) of the Small Business Act (15 out of money, and projects it will do so by the first week U.S.C. § 363(a)). There are very few PPP eligibility of June (doc. # 2, p. 13; doc. # 3, ¶ 36). The Defendant requirements under the CARES Act, and no contends the Plaintiff's projection that it may run out of underwriting mandates. It merely requires that an money in early June, without supporting evidence, is applicant (1) is a small business concern or any insufficient to show irreparable harm (doc. # 10, p. 19). business concern, nonprofit organization, veterans organization, or Tribal business concern described in § While the record is not developed at this very early 31(b)(2)(C) of the Small Business Act; (2) does not stage of the adversary proceeding, the Complaint is employ more than the greater of 500 employees or, if supported by the sworn declaration of the Plaintiff's applicable, the size standard in number of employees interim [*15] CEO, affirming the Plaintiff's projection established by the Administration for [*13] the industry that it will run out of money by the first week of June, in which the business concern, nonprofit organization, which would force the Plaintiff to veterans organization, or Tribal business concern 7

John-29622 Tancabel Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 PagePage 122 6 of 8 of 263 2020 Bankr. LEXIS 1205, *15 immediately close without funds for an orderly wind- to the COVID-19 pandemic and that PPP or other funds down, causing irreparable harm (doc. # 3, p. 6, ¶ 36, p. are needed to avoid irreparable harm to the Plaintiff. 12). Further, there is ample evidence in the Plaintiff's The Defendant has presented no evidence to the chapter 11 bankruptcy case to establish a sound contrary.3 factual basis for this assertion, particularly the record since late March. Based on this record, THE COURT FINDS there is a significant likelihood the Plaintiff will suffer irreparable The Court held its most recent telephonic case harm without this relief and the Plaintiff has met its management conference in the case on March 26, burden on this prong of the TRO test. 2020, at which Attorneys Helman and Ranaldo were present (case # 19-10283, doc. # 341, p. 1). At that 3 At the May 1sthearing, the Court inquired whether the conference, Attorney Helman explained that, in Defendant was challenging the Plaintiff's statement that response to the pandemic, the Plaintiff needed to the hospital would suffer irreparable harm if it did not significantly modify its operations, implement new receive financial assistance very soon. The Defendant treatment staffing protocols, divert resources from demurred, resting on its belief that the Debtor had a elective procedures to treatment of COVID-19 cases, heavy burden and had not met it in its TRO Motion. purchase expensive but critical supplies, and close or 8 radically change department functions (id. at p.2). He articulated the dramatic impact the pandemic has had 3. Balance of Equities on the Plaintiff's bottom line: it had less income and higher expenses than it could have projected, expected The Plaintiff argues the balance of equities tips in favor the trend to continue, and needed an infusion of cash to of granting the TRO, as there is no harm to the meet urgent [*16] and changing needs (id.). Defendant in requiring her to implement the PPP without discriminating against the Plaintiff and to process the On March 30, 2020, just a few days after that case Plaintiff's application if, but [*18] for that discrimination, management conference, the Plaintiff filed an the Plaintiff would qualify for PPP funds (doc. # 2, p. emergency motion seeking approval of post-petition 14). The Defendant contends that granting the injunctive financing from the State of Vermont (case # 19-10283, relief the Plaintiff could disrupt the administration of the doc. # 344). That motion was supported by the sworn PPP in the middle of loan distribution (doc. # 10, p. 2), declaration of the Plaintiff's interim CEO, who affirmed but has not proffered any rationale for this contention or the Debtor faced an immediate cash shortfall due to the otherwise addressed this TRO factor in her papers. pandemic of approximately $844,110.00 for the week ending April 12, 2020, which would grow to more than The Plaintiff seeks a TRO to (i) enjoin the Defendant $1.2 million by the week ending April 19, 2020 (case # from discriminating against the Plaintiff's PPP 19-10283, doc. # 348, ¶¶ 6, 15). The Court approved application, (ii) require the Defendant to authorize a the Plaintiff's emergency motion on April 2, 2020, finding lender to process the Plaintiff's PPP application without the absence of such financing would cause immediate regard to the Plaintiff's status as a bankruptcy debtor, and irreparable harm, loss, and damage to the Debtor's and (iii) require the Defendant to reserve sufficient funds estate, its creditors, and other parties in interest in the and guaranty authority to provide the Plaintiff with case (case # 19-10283, doc. # 355, §§ I.F, II). access to $3.64 million in PPP funds if the Plaintiff is determined to be eligible for PPP funds (see doc. # 2-8, The Plaintiff filed a status update on April 17, 2020, § 4(C); doc. # 3, p. 11). It is not apparent to the Court - reporting that it continued to operate on a modified basis and the Defendant has not explained - how this TRO in response to the pandemic and reiterating that, absent would significantly disrupt administrative of the PPP,4 or a further infusion of funds, there would likely be cash how any purported disruption outweighs the clear harm shortfalls by mid-May (case # 19-10283, doc. # 374, p. to the Plaintiff if the TRO Motion is denied.5 1). For these reasons, THE COURT FINDS the Plaintiff's Based on this record in the Plaintiff's [*17] bankruptcy argument on this prong [*19] to be persuasive and the case and this adversary proceeding, including the sworn balancing the equities weighs in favor of granting the declaration of its interim CEO (case # 19-10283, doc. # TRO Motion. 348) in addition to the Complaint and TRO Motion, the Plaintiff has shown it faces ongoing cash shortfalls due 4. Public Interest

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The Plaintiff asserts injunctive relief serves the public At the May 1sthearing, the Plaintiff made it absolutely interest because Congressional policy favors clear it was seeking a TRO solely with respect to its own reorganization, the Plaintiff is one of the largest private PPP application, not as a nationwide injunction on sector employers in its geographic area, and in this time behalf of all debtors in bankruptcy. With this of the COVID-19 pandemic it is crucial to the public clarification, the Court finds the Plaintiff's position to be health and welfare that the Plaintiff continue providing compelling. The Plaintiff's hospital business, both as a hospital services to the area. Moreover, as one of the "front line" health care provider and as one of the largest largest employers in the region it serves, the Plaintiff private sector employers in the area, is vital to the alleges its continued vitality is essential for the public, especially in the midst of the COVID-19 economic development and employment of residents in pandemic. The TRO, limited to the Plaintiff's PPP the area (doc. # 2, p. 15). The Defendant counters that application, is sufficiently narrow in scope to allay the the public interest weighs against the Plaintiff here public interest concerns articulated by the Defendant. because the proposed injunction would short-circuit the rapidly evolving political and administrative landscape of Thus, THE COURT FINDS the public interest prong, like responding to COVID-19 and posits the granting of a the prior three prongs, also weighs in favor of granting TRO could the TRO Motion.

4 At the May 1sthearing, the Court inquired of the C. The Plaintiff's Remaining Bases for Relief Defendant how allowing a lender to review the Plaintiff's PPP application without considering its status as a The Plaintiff also (a) seeks declaratory relief on the bankruptcy debtor would disrupt SBA operations. The basis that the Defendant impermissibly exceeded her Defendant reiterated her previously recited statutory authority under the CARES Act and the Small argument [*20] that the SBA had made a policy Business Act, and (b) seeks mandamus relief under 28 determination that PPP loans would not be granted to U.S.C. § 1361 (doc. ## 2, 3). Since the Court [*22] has bankruptcy debtors, and to issue an injunction determined the Plaintiff has met its burden for a TRO inconsistent with that policy would hinder operation of based solely on its § 525(a) claim, there is no need for the PPP program. Despite the Court's repeated the Court to address the Plaintiff's other claims or the attempts to get a more precise response, however, the Defendant's arguments in opposition to them. Defendant failed to provide a single example of how the CONCLUSION Defendant's actual operations would suffer any disruption if the Plaintiff's request for a TRO was Based on the record in the Plaintiff's chapter 11 granted. bankruptcy case and in this adversary proceeding, 5 The Court finds the Defendant's position on this prong including the representations of the parties at the May to be more than a bit puzzling, given the magnitude of 1sthearing, THE COURT FINDS the Plaintiff has met its burden on the § 525 claim for a temporary restraining harm the Plaintiff's bankruptcy estate, creditors, other order on the narrow terms set forth in this decision, and parties in interest in this case, as well as the community the Plaintiff serves, would suffer if this hospital were more fully described in the accompanying order.7 forced to close due to lack of funding from the PPP. This This memorandum of decision constitutes the Court's is all the more confounding when one takes into findings of fact and conclusions of law. consideration the large stake the federal government has in the Plaintiff's successful bankruptcy ______reorganization: the U.S. Department of Health and Human Services has filed a claim in this case in the May 4, 2020 at 1:15 p.m. Colleen A. Brown amount of $4,603,598.31 (claim # 114-1). Rutland, Vermont United States Bankruptcy Judge 9 6 The Defendant also argues public interest weighs have far-reaching consequences. This latter focus, against injunctive relief because it would reverse the however, rests on its characterization of the relief the SBA's policy to exclude bankruptcy debtors from PPP, Plaintiff [*21] seeks as "broad, nationwide relief" (doc. # and Congress made the SBA immune from injunction 10, p. 20).6 The record does not support that (doc. # 10, p. 21). Since the Court rejected this interpretation of the Debtor's TRO Motion. sovereign immunity argument in its analysis of the likelihood of the merits, supra, it does not address it

John-29622 Tancabel Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 PagePage 124 8 of 8 of 263 2020 Bankr. LEXIS 1205, *22 again here. 7 The Court makes no findings as to whether the Plaintiff [*23] qualifies for a PPP loan or whether the Plaintiff's PPP application should be granted.

10

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No Shepard’s Signal™ As of: May 6, 2020 7:21 PM Z

In re Springfield Hosp.

United States Bankruptcy Court for the District of Vermont May 04, 2020, Filed Chapter 11 Case # 19-10283 Adversary Proceeding # 20-01003 Administrator for the U.S. Small Administration,

Reporter 2020 Bankr. LEXIS 1206 * EMPORARYRESTRAININGORDER ANDSETTINGSTATUSCONFERENCE ON In re: Springfield Hospital, Inc., Debtor-in-Possession. THEPLAINTIFF'SREQUESTFOR In re: Springfield Hospital, Inc., Plaintiff, v. Jovita APRELIMINARYINJUNCTION Carranza, in her capacity as Business Defendant. Upon consideration of the Emergency Motion for Temporary Restraining Order and Request for Hearing Date and Briefing Schedule with Respect to the Notice: Decision text below is the first available text Debtor's Request For A Preliminary Injunction (doc. # 2, from the court; it has not been editorially reviewed by the "TRO Motion")1filed by the Plaintiff, the responses LexisNexis. Publisher's editorial review, including and memoranda of law the parties filed thereafter (doc. Headnotes, Case Summary, Shepard's analysis or any ## 10,11, 15, 16), and the arguments the parties amendments will be added in accordance with presented at the May 1, 2020 hearing; and for the LexisNexis editorial guidelines. reasons set forth in the memorandum of decision of even date, the TRO Motion is granted and the Court shall convene a status conference to address the Plaintiff's request for a preliminary injunction.

Core Terms 1Capitalized terms not defined here shall have the meaning given to them in the TRO Motions and parties, funds, lender, temporary restraining order, memorandum of decision. 1 participating, disburse, terms, preliminary injunction, With respect to the evidentiary and statutory basis the adversary proceedings, business operations, guaranty, Court has considered: notice 1. The Court grants the Plaintiff's request, which the Defendant did not oppose, to treat [*2] the verified statements in the Amended Verified Complaint (doc. # Opinion 3, the "Complaint") as admitted evidence in support of the TRO Motion.

2. The Court relies additionally on the text and purpose [*1] Appearances: Andrew Helman, Esq.Michael Tye, of the Coronavirus Aid, Relief and Economic Security Esq. Act (the "CARES Act"); the Paycheck Protection Program ("PPP"), enacted in § 1102 of the CARES Act; Murray, Plumb & MurrayU.S. Department of Justice § 7(a) of the Small Business Act (15 U.S.C. § 636(a)); Portland, MEWashington, DC other sections of the CARES Act directly addressing the Bankruptcy Code and lending to bankruptcy For the PlaintiffFor the Defendant debtors, specifically §§ 1103(3), 1113, and ORDER 4003(c)(3)(D)(i)(V) of the CARES Act; and the Administrator's interim final rules promulgated on April GRANTINGPLAINTIFF'SEMERGENCYMOTIONFORT 15, 2020, and April 24, 2020, Docket Nos. SBA-2020-

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0015 and SBA-2020-0021. operations, it must continue to employ staff in order to meet its charitable mission and provide health care Based on these sources, pertinent case law, and the services. record in this proceeding and the Plaintiff's chapter 11 case, as more fully articulated in the memorandum of 11. The risk of harm to the Plaintiff if a temporary decision, THE COURT FINDS restraining order is not granted outweighs the risk of any harm to the Administrator if a temporary restraining 3. The Plaintiff has properly served, and given adequate order is granted. notice of, the TRO Motion. 12. Given the nature of the Plaintiff's business 4. This Court has jurisdiction over this adversary operations and the purpose Congress had in enacting proceeding and both statutory and constitutional the CARES Act and establishing the PPP, the public authority to enter a final judgment in this proceeding. interest is served by issuing a temporary restraining order. 5. The Plaintiff is entitled to issuance of a temporary restraining order pursuant to Rule 65 of the Federal 13. The CARES Act constitutes a grant of economic aid Rules of Civil Procedure, which is applicable to this in response to the pandemic. adversary proceeding [*3] pursuant to Rule 7065 of the Federal Rules of Bankruptcy Procedure. 14. The Plaintiff has sustained its burden of proof, having prevailed in its arguments on all four prongs of 6. The Plaintiff submitted as an exhibit to the Motion - the test for determining whether a temporary restraining and as an exhibit to its Complaint - its Application in order is warranted. which it answered "yes" to question 1 of the official form of application promulgated by the SBA. 15. This Court makes no determination on the question of whether the Plaintiff qualifies for a PPP loan or 7. The Plaintiff has shown a substantial likelihood of whether Plaintiff's PPP application should be granted. success on the merits on the discrimination claim Rather, the Court [*5] only grants the relief set forth in alleged in the Complaint, and in particular, the this Order and it specifically does not obligate Berkshire Administrator is in violation of § 525(a) of the Bank or any other participating lender to approve a PPP Bankruptcy Code by requiring lenders participating in application on behalf of the Plaintiff. PPP to consider loan applications on a form that says PPP loans will not be approved if the applicant or any 16. The Plaintiff is a debtor-in-possession and therefore owner is presently involved in any bankruptcy. no bond is required under Rule 65.

8. The Plaintiff is a critical access hospital providing Based on these findings, IT IS HEREBY ORDERED: services in the Springfield, VT area. The Plaintiff's business operations have been significantly impacted by (A) The Motion is GRANTED pursuant to the terms of COVID-19 as many non-essential elective and office this Order, without need of a bond. visits have been rescheduled or canceled and a (B) A temporary restraining order is hereby ISSUED, significant percentage of the Plaintiff's revenue is with notice, and directed to the Administrator and all derived from non-essential and elective procedures. agents, servants, employees, and any parties acting in 2 concert with any of the foregoing parties with respect to a PPP application from the Plaintiff (collectively, the 9. In the absence of funding from PPP or another "Restrained Parties"). The Court intends that Berkshire source, the Plaintiff may be forced to discontinue Bank or any other lender participating in PPP, to whom business operations by early June and would not have the Plaintiff submits a PPP application, shall be one of sufficient funds for an orderly liquidation under those the Restrained Parties upon the Plaintiff's service of this circumstances. This [*4] timeline could accelerate Order on such lender.2 depending on the spread of COVID-19 in Springfield area. (C) Until the expiration of this temporary restraining order, its scope shall be as follows: 10. The Plaintiff has several hundred employees who may lose their jobs if the Plaintiff's business operations 2 The Plaintiff may provide notice of this Order by e-mail cease. Due to the nature of the Plaintiff's business to counsel of record for Berkshire Bank in Plaintiff's

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3 the Plaintiff may be qualified to obtain, if the Plaintiff is eligible subject to the terms of The Restrained Parties shall not deny, or [*6] cause any commercial lender to deny, a PPP this Order and after consideration of any administrative and judicial appeals and resolution application of the Plaintiff solely on the basis that the Plaintiff is a debtor in bankruptcy, or of the claims in the Plaintiff's Complaint.

to deny it based on the words "or presently in (iv) The Plaintiff shall be authorized to submit a PPP bankruptcy" on the Administrator's official application to a participating lender of its

form of the PPP application. choosing - and a participating lender may consider any pending application of the Plaintiff (ii) The Restrained Parties shall not refuse to guaranty a loan sought by the Plaintiff under PPP - with the words "or presently involved in any bankruptcy" stricken from the official form of application on the basis that the Plaintiff is a debtor in and, if the Plaintiff satisfies all other conditions in bankruptcy or because of a "yes" answer in question 1 to the official loan application form, to mark the box [*8] answering question 1 "no" or, with respect response to question 1 on the official form of PPP to any pending application, for the participating lender to application promulgated by the treat question 1 as if it was answered "no." The Administrator. Restrained Parties shall consider the application submitted by the Plaintiff and shall fully implement all (iii) Effective upon entry of this Order, the Restrained aspects of the PPP with respect to the Plaintiff without Parties, other than any participating consid-eration of the involvement of the Plaintiff or any of its owners in any bankruptcy case. lender, shall not authorize, guaranty, or disburse funds appropriated for loans under PPP 3 In the TRO Motion, the Plaintiff noted it had initially answered "yes" to question 2, which asks whether the without reserving sufficient funds or guaranty applicant is delinquent or has defaulted on certain types authority within the scope of the second of loans, but on review of SBA guidance the Plaintiff has or will correct its response (doc. # 2, pp. 4-5). appropriation to fund PPP to provide the Plaintiff with access to funds under PPP if the 4

Plaintiff is eligible after implementation of the terms The application shall be considered an initial application of this temporary restraining order, if the submission of a subsequent application would adversely impact the Plaintiff's ability to qualify for a and its amendment with respect to question 2 of the PPP loan. Plaintiff's Application,3 [*7] and any (v) To the extent that any lender requires the Plaintiff to appellate or judicial process with respect to any execute other forms, applications, or other documents application filed by the Plaintiff. Nothing for a PPP loan that include language about whether the in this subparagraph is intended to limit the ability of Plaintiff or any owner of the Plaintiff is involved in a bankruptcy case, the Plaintiff is authorized to strike the a commercial lender that is one of the language about involvement in a bankruptcy case Restrained Parties from issuing PPP loans to and [*9] the Restrained Parties shall process the forms, borrowers. Rather, it requires the applications, or other documents without consideration of the involvement of the Plaintiff or any owner of the Administrator to ensure she has sufficient authority Plaintiff in a bankruptcy case. within the scope of amounts (vi) The Restrained Parties shall not make or condition appropriated for PPP as of April 27, 2020, to the approval of any PPP loan guaranty to the Plaintiff

John-29622 Tancabel Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 PagePage 128 4 of 5 of 263 2020 Bankr. LEXIS 1206, *9 contingent on the Plaintiff or any owner of the Plaintiff injunction. At that status hearing, not being "presently involved in any bankruptcy." (A) the Defendant shall describe, [*11] in reasonable (vii) Upon receipt of any PPP funds, the Plaintiff must: detail, the steps she has taken to comply with the terms of this TRO; (a) deposit those funds in a specially designated, interest bearing account, titled as a DIP account; (B) the Plaintiff shall report on the status of its efforts to implement the terms of this TRO and shall present, in (b) immediately file a notice on the docket of this reasonable detail, the contours of the relief it seeks in adversary proceeding and the docket of the Plaintiff's the form of a preliminary injunction, based on the chapter 11 case, stating its PPP application has been current status of this proceeding and any pending PPP granted, and disclosing both the name of the lender that application; granted the application and the amount of the funds it has received; (C) the parties shall present to the Court any additional conditions they propose with respect to the Plaintiff's (c) refrain from disbursing any of the PPP funds until it receipt, distribution, or recording of PPP funds, in order has Court approval to do so; and to ensure maximum protection of the Plaintiff's bankruptcy estate, its creditors, and the (d) within two days after receipt of the PPP funds, file Defendant/lender; and either a motion on shortened (seven-days') notice to all secured creditors, or a stipulation showing the consent (D) the parties shall jointly propose a timeline and of the U.S. Trustee, that (i) requests authority to litigation schedule (if needed) for a determination of disburse PPP funds, (ii) sets forth the [*10] Plaintiff's whether this temporary restraining order should be proposed distribution of the PPP funds, and (iii) affirms converted to a preliminary injunction and final the proposed distribution meets all requirements for adjudication of this adversary proceeding. (If the parties forgiveness of the PPP loan. cannot reach agreement on these terms, each party shall certify they have made a diligent effort to do so (viii) If the Court authorizes the Plaintiff to disburse the and present their competing proposals.) PPP funds, the Plaintiff must: IT IS FURTHER ORDERED this temporary restraining (a) create a spreadsheet showing how PPP funds have order shall remain in full force and been disbursed, that includes effect until it expires at the conclusion of [*12] the (1) the date and purpose of each disbursement (e.g., status hearing scheduled to begin at 10 a.m. on May 7, payroll, interest payment), 2020, unless (A) terminated earlier by the Court, or (B) (2) the section of the CARES Act which authorizes further extended by law, Court order, or agreement of forgiveness of the PPP loan used for that purpose, the parties.

(3) the remaining balance of PPP funds, and SO ORDERED.

(4) any other information the Plaintiff would find useful ______for its record keeping or for purposes of demonstrating May 4, 2020 at 11:30 a.m. Colleen A. Brown the entire PPP loan is eligible for forgiveness if / when the SBA audits the Plaintiff's use of the PPP loan; and Burlington, Vermont United States Bankruptcy Judge 5 4 This hearing shall be conducted via the Court's Zoom (b) file on the docket of this adversary proceeding and account and the courtroom deputy will provide the the docket of the Plaintiff's chapter 11 case an updated meeting ID and other access information to counsel for version of the PPP funds spreadsheet within three the parties. Any other attorney or interested party who business days of each disbursement of PPP funds. wishes to attend, or participate in, this hearing may IT IS FURTHER ORDERED the parties shall appear at obtain the access information by contacting the a status hearing at 10:00 a.m. onThursday, May 7, courtroom deputy one day prior to the hearing. 2020,4 on the Plaintiff's request for a preliminary

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6

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EXHIBIT A-4 CaseCase 20-40133-thf 20-01005 Doc Doc 18 287 Filed Filed 05/01/20 05/08/20 Entered Entered 05/01/20 05/08/20 17:25:28 14:52:10 Desc Page Main 131 Document of 263 Page 1 of 13

UNITED STATES BANKRUPTCY COURT DISTRICT OF MAINE

In re: Chapter 11 PENOBSCOT VALLEY HOSPITAL, Case No. 19-10034

Debtor

PENOBSCOT VALLEY HOSPITAL,

Plaintiff, v. Adv. Proc. No. 20-1005

JOVITA CARRANZA, in her capacity as Administrator for the U.S. Small Business Administration,

Defendant

TEMPORARY RESTRAINING ORDER

On April 27, 2020, the Debtor filed the Emergency Motion for Temporary Restraining

Order and Request for Hearing Date and Briefing Schedule with Respect to the Debtor’s Request for a Preliminary Injunction [Dkt. No. 2] (the “Motion”). At a hearing on the Motion on April

30, 2020, the Court heard arguments from the parties and considered the contents of the Motion; the verified allegations in the Debtor’s complaint; the objection to the Motion filed Jovita

Carranza, in her capacity as Administrator for the U.S. Small Business Administration [Dkt. No.

11]; and the Debtor’s Reply in Support of the Motion [Dkt. No. 12]. The Court further considered the text and purpose of the Coronavirus Aid, Relief and Economic Security Act (the

“CARES Act”); the Paycheck Protection Program (“PPP”), enacted in § 1102 of the CARES

Act; § 7(a) of the Small Business Act (15 U.S.C. § 636(a)); and the Administrator’s interim final CaseCase 20-40133-thf 20-01005 Doc Doc 18 287 Filed Filed 05/01/20 05/08/20 Entered Entered 05/01/20 05/08/20 17:25:28 14:52:10 Desc Page Main 132 Document of 263 Page 2 of 13

rules promulgated on April 15, 2020, and April 24, 2020, Docket Nos. SBA-2020-0015 and SBA

2020-0021.

Before deciding whether the Debtor is entitled to a temporary restraining order (“TRO”), the Court must address a threshold question: is the Administrator immune from the Debtor’s claims for preliminary and permanent injunctive relief? The analysis begins with the Bankruptcy

Code, which, in relevant part, provides as follows:

(a) Notwithstanding an assertion of sovereign immunity, sovereign immunity is abrogated as to a governmental unit to the extent set forth in this section with respect to . . . (1) [11 U.S.C. §§ 105 and 525.] (2) The court may hear and determine any issue arising with respect to the application of such sections to governmental units. (3) The court may issue against a governmental unit an order, process, or judgment under such sections or the Federal Rules of Bankruptcy Procedure, including an order or judgment awarding a money recovery, but not including an award of punitive damages. . . . (4) The enforcement of any such order, process, or judgment against any governmental unit shall be consistent with appropriate nonbankruptcy law applicable to such governmental unit[.] (5) Nothing in this section shall create any substantive claim for relief or cause of action not otherwise existing under this title, the Federal Rules of Bankruptcy Procedure, or nonbankruptcy law.

11 U.S.C. § 106(a). In this proceeding, the Debtor seeks (among other things) injunctive relief against the Administrator to remedy an alleged violation of 11 U.S.C. § 525(a), invoking Fed. R.

Bankr. P. 7065 and 11 U.S.C. § 105(a).1 In isolation, section 106(a) of the Bankruptcy Code would appear to permit such an action. The Administrator, however, asserts immunity from injunctive relief under the following provisions of applicable nonbankruptcy law:

1 To the extent that the claims are based on 11 U.S.C. § 525 and other provisions of the Bankruptcy Code, this is a proceeding arising in or under the Code, and as a result, is a core proceeding. See 28 U.S.C. § 157(b).

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(b) Powers of Administrator

In the performance of, and with respect to, the functions, powers, and duties vested in him by this chapter the Administrator may —

(1) sue and be sued . . . in any United States district court, and jurisdiction is conferred upon such district court to determine such controversies without regard to the amount in controversy; but no attachment, injunction, garnishment, or other similar process, mesne or final, shall be issued against the Administrator or his property[.]

15 U.S.C. § 634(b). In the Administrator’s view, this anti-injunction provision bars any and all injunctive relief against her or her property.

The Administrator’s perspective fails to account for binding caselaw interpreting 15

U.S.C. § 634(b) to permit certain forms of relief against the Small Business Administration

(“SBA”) that might be characterized as injunctive. In Ulstein Maritime, Ltd. v. United States,

833 F.2d 1052 (1st Cir. 1987), the First Circuit Court of Appeals affirmed an order invalidating a certificate issued by the SBA for failure to comply with applicable laws and regulations. In so doing, the Court indicated that the anti-injunction provision of 15 U.S.C. § 634(b) “protects the

[SBA] from interference with its internal workings by judicial orders attaching agency funds, etc., but does not provide blanket immunity from every type of injunction.” Ulstein, 833 F.2d at

1057. After examining the purposes of the statute, the Court suggested that the anti-injunction language “should not be interpreted as a bar to judicial review of agency actions that exceed agency authority where the remedies would not interfere with internal agency operations.” Id.

In this proceeding, as in Ulstein, the plaintiff seeks an order invalidating an SBA decision due to the Administrator’s asserted failure to comply with applicable law. The Debtor seeks no relief that would interfere with the SBA’s “internal workings” as distinguished from the product of those workings. An award of preliminary injunctive relief directing the Administrator to reserve sufficient authority to grant the Debtor’s application if the Debtor later prevails on the

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merits will not interfere with the SBA’s internal agency operations in the sense contemplated by

Ulstein. As such, the Court may enter a carefully tailored temporary restraining order against the

Administrator, notwithstanding the anti-injunction provision of 15 U.S.C. § 634(b). See 11

U.S.C. § 105(a) (“The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.”); 11 U.S.C. § 525(a) (providing in relevant part that “a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to . . . a person that is or has been a debtor under this title . . . solely because such . . . debtor is or has been a debtor under this title”). This conclusion is consistent with the purpose of section 106(a)(4), which requires an order against a governmental unit to be enforced in accordance with appropriate nonbankruptcy law. As explained in the legislative history of section 106, although “an order against a governmental unit will not be enforceable by attachment or seizure of government assets[,]” the court “retains ample authority to enforce nonmonetary orders and judgments.” 140 Cong. Rec. H10752-01, at

H10766, 1994 WL 545773 (Oct. 4, 1994).

At this juncture, the ultimate question is whether the Debtor is entitled to the TRO that it seeks. The answer turns on the same four factors that govern a motion for a preliminary injunction. See Animal Welfare Inst. v. Martin, 665 F. Supp. 2d 19, 22 (D. Me. 2009). Those four factors are:

[1] the probability of the movant’s success on the merits, [2] the prospect of irreparable harm absent the injunction, [3] the balance of the relevant equities (focusing on the hardship to the movant if an injunction does not issue as contrasted with the hardship to the nonmovant if it does), and [4] the effect of the court’s action on the public interest.

Rosario-Urdaz v. Rivera-Hernandez, 350 F.3d 219, 221 (1st Cir. 2003). “As with a preliminary injunction, the party seeking relief bears the burden of demonstrating that these factors weigh in

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its favor.” Animal Welfare Inst., 665 F. Supp. 2d at 22 (quotation marks omitted). Trial courts tasked with balancing these factors “have wide discretion in making judgments regarding the appropriateness of [preliminary injunctive] relief.” Francisco Sanchez v. Esso Standard Oil Co.,

572 F.3d 1, 14 (1st Cir. 2009). Due to the preliminary nature of the relief and the undeveloped state of the record, the court’s findings and conclusions on a request for a TRO do not represent an adjudication on the merits and are not binding on the parties in the later action. See

Narragansett Indian Tribe v. Guilbert, 934 F.2d 4, 6 (1st Cir. 1991) (“[A] court’s conclusions as to the merits of the issues presented on preliminary injunction are to be understood as statements of probable outcomes.”); Wright & Miller, 11A Fed. Prac. & Proc. Civ. § 2951 (3d ed.) (“[A] court’s findings on an application for a temporary restraining order do not represent an adjudication on the merits. Thus, they are not binding on the parties in the later action for a permanent injunction.”) (footnotes omitted).

With these principles in mind, the Court FINDS and CONCLUDES as follows:

1. The Debtor is entitled to issuance of a temporary restraining order under Fed. R.

Civ. P. 65 and Fed. R. Bankr. P. 7065.

2. The Debtor has shown a likelihood of success on the merits of the claim asserted in Count III of the complaint, namely that the Administrator acted in violation of 11 U.S.C. §

525(a) by refusing to permit the Debtor an opportunity to participate in the PPP solely because the Debtor is presently a debtor in a case under Title 11 (and therefore is unquestionably

“involved in any bankruptcy”).2 This conclusion rests on the following concessions and preliminary determinations:

2 Although the complaint also raises the issue of whether the Administrator exceeded the scope of her authority by issuing a rule and the official PPP application form that rendered the Debtor ineligible to

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(A) The Administrator concedes that the SBA falls within the definition of

“governmental unit” in the Bankruptcy Code.

(B) The Administrator also concedes that the SBA denied the Debtor the oppportunity to

participate in the PPP solely because the Debtor is currently in chapter 11.

(C) There is one remaining element of section 525(a) in play. To determine whether the

Debtor has shown a likelihood of success on Count III of its complaint, the Court

must consider the following question: does the Administrator’s categorical exclusion

of the Debtor from the term “eligible recipient,” 15 U.S.C. § 636(a)(36)(A)(iv),

constitute the denial of, or discrimination with respect to, a “license, permit, charter,

franchise, or other similar grant” for purposes of section 525(a)? There is no binding

authority from the United States Supreme Court or the First Circuit Court of Appeals

on this precise question. There are, however, several decisions interpreting section

525(a) in other contexts, and many of those decisions consider the language of section

525(a) in light of the stated purpose of the statute. See, e.g., Stoltz v. Brattleboro

Housing Auth. (In re Stoltz), 315 F.3d 80 (2d Cir. 2002) (holding that eviction of a

debtor from public housing unit solely based on her failure to pay discharged, pre-

petition rent constituted illegal discrimination under section 525(a)); In re The Bible

Speaks, 69 B.R. 368, 374 (Bankr. D. Mass. 1987) (“Congress intended § 525(a) . . . to

expand on and develop Perez so that the doctrine would extend to many forms of

discrimination.”); Rose v. Conn. Housing Fin. Auth. (In re Rose), 23 B.R. 662, 666-

67 (Bankr. D. Conn. 1982) (construing section 525(a) in light of the fresh start policy

apply for a PPP loan due to the Debtor’s status as a debtor in a chapter 11 case, the Court need not and does not address that issue at this point.

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and concluding that a state may not exempt debtors from a state-sponsored home

financing program solely because of bankruptcy); see also 4 Collier on Bankruptcy ¶

525.02 (16th ed.) (“[S]ection 525(a) is designed to protect persons from

discriminatory treatment based solely on past financial difficulty.”) (footnote

omitted). While the answer is not free from all doubt, the Debtor has articulated a

sufficient likelihood of success, when considered along with its showings on the

balance of harms and the public interest, to warrant the issuance of a temporary

restraining order. Wright & Miller, 11A Fed. Prac. & Proc. Civ. § 2951 (3d ed.)

(suggesting that the plaintiff must ordinarily demonstrate “at least a reasonable

probability of prevailing on the merits” but that the “necessary persuasiveness of this

showing” may vary, depending on the facts of the case and the other relevant factors).

(D) There are cases holding that section 525(a) does not extend to loans or, stated

differently, that a loan is not “a license, permit, charter, franchise, or other similar

grant” within the meaning of section 525(a). The Administrator correctly points out

that the PPP describes “covered loans” and specifies loan features, such as an interest

rate and a repayment term. See, e.g., 15 U.S.C. § 636(a)(36)(A)(ii), (B), (E), (F), (L).

True enough, but that fixation on the details loses the forest in the trees during a

conflagration. The CARES Act is a grant of aid necessitated by a public health crisis.

It is one of many responses by federal, state, and local governments designed to help

citizens weather an unprecedent storm. Likening a covered loan under the PPP to a

garden-variety loan that is not be protected under section 525(a) may miss the point.

(E) Section 525(c), by its terms, applies to student loans and the Administrator argues

that the existence of section 525(c) proves that Congress did not intend section 525(a)

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to extend to loans: if section 525(a) extended to loans, why would Congress need to

craft specific treatment for student loans in section 525(c)? This is a fair question, but

the Supreme Court has, at times, been skeptical of this type of inferential reasoning.

See, e.g., Mission Prod. Holdings, Inc. v. Tempnology, LLC, 139 S. Ct. 1652, 1664-

65 (2019). The hoary canon of expressio unius est exclusio alterius does not, alone,

doom the Debtor’s preferred construction of section 525(a). See Hewlett-Packard Co,

Inc. v. Berg, 61 F.3d 101, 106 (1st Cir. 1995) (indicating that the canon “is an aid to

construction and not an inflexible rule”).

(F) The Court’s charge is to consider the language of the statute, the words that Congress

did, in fact, use. There is, at this early juncture in the litigation, enough of a showing

that participation in the PPP could be characterized as an “other similar grant” such

that the Debtor has met its burden on the likelihood of success on Count III.

(G) The Court is sympathetic to the significant challenges faced by the Administrator in

the implementation of measures taken by the federal government in response to the

extraordinary public health crisis and the resulting economic devastation. The SBA

was under—and continues to be under—immense pressure to distribute aid without

delay. Time is truly of the essence. That said, this country’s laws cannot be pushed

aside, even inadvertently, during times of crisis.

3. The Debtor has demonstrated a risk of immediate and irreparable harm in the absence of

a temporary restraining order. This conclusion rests on the following preliminary

findings:

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(A) PPP funds are available on a first come, first served basis. The Debtor’s application

for funds under PPP was not processed and the Debtor did not receive funds prior to

their exhaustion under the first tranche of PPP funding.

(B) On or about April 23, 2020, Congress enacted legislation making additional funds

available for PPP.

(C) The Debtor is a critical access hospital providing services in Lincoln, Maine. The

Debtor’s business operations have been significantly impacted by Covid-19 due to the

fact that many non-essential elective and office visits have been rescheduled or

canceled. A significant percentage of the Debtor’s revenue is derived from non-

essential and elective procedures. In the absence of funding from PPP or another

source, the Debtor may be forced to discontinue business operations by the middle of

June and may not have sufficient funds for an orderly liquidation under those

circumstances.

(D) According to the application attached to the complaint, the Debtor has

approximately 120 employees who may lose their jobs if the Debtor’s business

operations cease.

(E) Due to the nature of the Debtor’s business operations, it must continue to employ

staff in order to meet its charitable mission and provide health care services.

(F) PPP funds are being exhausted quickly, in a matter of weeks (if not days). If the

Debtor is not permitted to submit an application for funding under PPP in the very

near term, funding may be exhausted. And, as previously mentioned, if the Debtor

does not receive PPP funding, then it may be forced to close. When this relatively

concrete forecast is “juxtaposed and weighed in tandem” with the Debtor’s showing

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of a likelihood of success on the merits, the forecast possesses sufficient substance to

meet the Debtor’s burden of establishing a prospect of immediate and irreparable

harm if the TRO does not issue. See Ross-Simons of Warwick v. Baccarat, Inc., 102

F.3d 12, 19 (1st Cir. 1996) (providing guideposts to measure the “quantum of . . .

harm that will suffice to justify interim injunctive relief”); see also Semmes Motors,

Inc. v. Ford Motor Co., 429 F.2d 1197, 1205 (2d Cir. 1970) (indicating that the

destruction of a business is an irreparable injury that may be properly remedied by

injunctive relief).

4. The risk of harm to the Debtor if a temporary restraining order is not granted outweighs the risk of any harm to the Administrator if a temporary restraining order is granted.

5. Given the nature of the Debtor’s business operations and the purpose Congress had in enacting the CARES Act and establishing PPP, the public interest is served by issuing a temporary restraining order.

6. The Debtor is a debtor-in-possession and no bond is required under Rule 65.

7. Based on the foregoing, it is hereby ORDERED, ADJUDGED, and DECREED as follows:

(A) The motion is GRANTED on the terms and conditions set forth herein.

(B) A temporary restraining order is hereby issued, with notice, and directed to the

Administrator and all agents, servants, employees, and any persons acting in concert

with any of the foregoing (collectively, the “Restrained Parties”). The Court intends

that Machias Savings Bank or any other lender participating in PPP with respect to

the Debtor shall be one of the Restrained Parties upon actual notice of this order

being provided to such bank. As to Machias Savings Bank, such notice may be

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provided by e-mail to counsel of record for the bank in Case No. 19-10034. This

order does not extend to any Restrained Party that submits, considers, or takes any

other action with respect to an application under the PPP for any person or entity

other than the Debtor.

(C) Until the expiration of this temporary restraining order, its scope shall be as follows:

(i) The Restrained Parties shall not deny or cause any commercial lender to

deny an application of the Debtor under PPP solely on the basis that the

Debtor is a debtor in bankruptcy or based on the words “or presently in

bankruptcy” on the Administrator’s official form of application.

(ii) The Restrained Parties shall not refuse to guaranty a loan sought by the

Debtor under PPP solely on the basis that the Debtor is a debtor in

bankruptcy or because of a “yes” answer in response to question 1 on the

official form of PPP application promulgated by the Administrator.

(iii) The Administrator shall not authorize, guaranty, or disburse funds

appropriated for loans under PPP without reserving sufficient funds or

guaranty authority within the scope of the second appropriation to fund

PPP to provide the Debtor with access to funds under PPP if the Debtor is

eligible after implementation of the terms of this temporary restraining

order and any appellate or judicial process with respect to any application

filed by the Debtor. Rather, the Administrator shall ensure that she has

sufficient authority within the scope of amounts appropriated for PPP as of

April 30, 2020, to guaranty a loan to the Debtor in an amount the Debtor

may be qualified to obtain, if the Debtor is eligible subject to the terms of

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this order and after consideration of any administrative and judicial

appeals and resolution of the claims in the Debtor’s complaint.

(iv) The Debtor shall be authorized to submit a PPP application to a

participating lender of its choosing—or a lender may consider any pending

application—with the words “or presently involved in any bankruptcy”

stricken from the official form of application and, if the Debtor satisfied

all other conditions in question 1 to the official form, to mark the box

answering question 1 “no” or, with respect to any pending application, for

the participating lender to treat question 1 as if it was answered “no”. The

Restrained Parties shall consider the application submitted by the Debtor

and fully implement all aspects of the PPP program with respect to the

Debtor without any consideration of the involvement of the Debtor in

bankruptcy. The application shall be considered an initial application of

the submission if a subsequent application would adversely impact the

Debtor’s ability to qualify for a PPP loan.

(v) To the extent that any bank requires the Debtor to execute other forms,

applications, or other documents for a PPP loan that include any language

about whether the Debtor is involved in bankruptcy, the Debtor is

authorized to strike the portion of such language about involvement in

bankruptcy and the Restraining Parties shall process the forms,

applications, or other documents without any consideration of the

involvement of the Debtor in bankruptcy.

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(vi) Nothing in this order obligates Machias Savings Bank to accept or submit

a PPP application on behalf of the Debtor.

(vii) To the extent that approval of the Court is required for the Debtor to

obtain a PPP loan, the Debtor shall file a motion and seek entry of an order

authorizing such relief. The Debtor must file any such motion within ten

days after the date of this order. Any deadline under the PPP program

requiring disbursement of PPP loan proceeds is hereby extended in order

to allow consideration of a motion by the Debtor seeking authority to

obtain a PPP loan.

8. The Court will conduct a status conference on the Debtor’s request for a preliminary injunction consistent with the terms of this order on May 5, 2020 at 9:30 a.m. At the status conference, the Administrator must be prepared to describe, in reasonable detail, the steps she has taken to comply with the terms of this order.

9. This temporary restraining order shall remain in full force and effect until expires at 5:00 p.m. (eastern) on May 14, 2020 unless either (a) terminated earlier by the Court or (b) further extended by applicable law, by order of the Court, or by written agreement of the Debtor and the Administrator.

Dated: May 1, 2020 Michael A. Fagone United States Bankruptcy Judge District of Maine

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District/Off: 0100−1 User: lstocker Date Created: 5/1/2020 Case: 20−01005 Form ID: pdf900 Total: 9

Recipients of Notice of Electronic Filing: aty Andrew Helman, Esq. [email protected] aty Dominique V. Sinesi, Esq. [email protected] aty Jeremy R. Fischer [email protected] aty Katherine Krakowka [email protected] aty Roger A. Clement, Jr., Esq. [email protected] TOTAL: 5

Recipients submitted to the BNC (Bankruptcy Noticing Center): dft Jovita Carranza, in her capacity as administrator for the U.S. Small Business Administration U.S. Small Business Administration 409 3rd St., S.W. Washington, DC 20416 smg State of Maine Bureau of Revenue Services Compliance Division Bankruptcy Unit P.O. Box 1060 Augusta, ME 04332 ust Office of the U.S. Trustee 537 Congress Street Portland, ME 04101 ust Office of U.S. Trustee 537 Congress Street, Suite 300 Portland, ME 04101 TOTAL: 4 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 145 of 263

No Shepard’s Signal™ As of: May 7, 2020 3:31 PM Z

In re Penobscot Valley Hosp.

United States Bankruptcy Court for the District of Maine May 1, 2020, Decided Chapter 11 Case No. 19-10034 Adv. Proc. No. 20-1005

Reporter 2020 Bankr. LEXIS 1213 * the Motion filed Jovita Carranza, in her capacity as Administrator for the U.S. Small Business Administration In re PENOBSCOT VALLEY HOSPITAL, Debtor [Dkt. No. 11]; and the Debtor's Reply in Support of the PENOBSCOT VALLEY HOSPITAL, Plaintiff, v. JOVITA Motion [Dkt. No. 12]. The Court further considered the CARRANZA, in her capacity as Administrator for the text and purpose of the Coronavirus Aid, Relief and U.S. Small Business Administration, Defendant Economic Security Act (the "CARES Act"); the Paycheck Protection Program ("PPP"), enacted in § 1102 of the CARES Act; § 7(a) of the Small Business Act (15 U.S.C. § 636(a)); and the Administrator's interim Notice: Decision text below is the first available text final from the court; it has not been editorially reviewed by LexisNexis. Publisher's editorial review, including rules promulgated on April 15, 2020, and April 24, 2020, Headnotes, Case Summary, Shepard's analysis or any Docket Nos. SBA-2020-0015 and SBA 2020-0021. amendments will be added in accordance with LexisNexis editorial guidelines. Before deciding whether the Debtor is entitled to a temporary restraining order ("TRO"), the Court must address a threshold question: is the Administrator immune from the Debtor's claims for preliminary [*2] and permanent injunctive relief? The analysis begins Core Terms with the Bankruptcy Code, which, in relevant part, provides as follows: temporary restraining order, funds, governmental unit, (a) Notwithstanding an assertion of sovereign immunity, Parties, injunctive relief, merits, loans, injunction, sovereign immunity is abrogated as to a governmental preliminary injunction, likelihood of success, business unit to the extent set forth in this section with respect to . operations, immunity, factors, lender, terms . .

(1) [11 U.S.C. §§ 105 and 525.] Opinion (2) The court may hear and determine any issue arising with respect to the application of such sections to governmental units.

[*1] TEMPORARY RESTRAINING ORDER (3) The court may issue against a governmental unit an order, process, or judgment under such sections or the On April 27, 2020, the Debtor filed the Emergency Federal Rules of Bankruptcy Procedure, including an Motion for Temporary Restraining Order and Request order or judgment awarding a money recovery, but not for Hearing Date and Briefing Schedule with Respect to including an award of punitive damages. . . . the Debtor's Request for a Preliminary Injunction [Dkt. No. 2] (the "Motion"). At a hearing on the Motion on April (4) The enforcement of any such order, process, or 30, 2020, the Court heard arguments from the parties judgment against any governmental unit shall be and considered the contents of the Motion; the verified consistent with appropriate nonbankruptcy law allegations in the Debtor's complaint; the objection to applicable to such governmental unit[.]

John-29622 Tancabel Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 PagePage 146 2 of 6 of 263 2020 Bankr. LEXIS 1213, *2

(5) Nothing in this section shall create any substantive the purposes of the statute, the Court suggested that claim for relief or cause of action not otherwise existing the anti-injunction language "should not be interpreted under this title, the Federal Rules of Bankruptcy as a bar to judicial review of agency actions that exceed Procedure, or nonbankruptcy law. agency authority where the remedies would not interfere with internal agency operations." Id. 11 U.S.C. § 106(a). In this proceeding, the Debtor seeks (among other things) injunctive relief against the In this proceeding, as in Ulstein, the plaintiff seeks an Administrator to remedy an alleged [*3] violation of 11 order invalidating an SBA decision due to the U.S.C. § 525(a), invoking Fed. R. Bankr. P. 7065 and Administrator's asserted failure to comply with 11 U.S.C. § 105(a).1 In isolation, section 106(a) of the applicable law. The Debtor seeks no relief that would Bankruptcy Code would appear to permit such an interfere with the SBA's "internal workings" as action. The Administrator, however, asserts immunity distinguished from the product of those workings. An from injunctive relief under the following provisions of award of preliminary injunctive relief directing the applicable nonbankruptcy law: Administrator to reserve sufficient authority to grant the Debtor's application if the Debtor later prevails [*5] on 1 To the extent that the claims are based on 11 U.S.C. § the 525 and other provisions of the Bankruptcy Code, this is a proceeding arising in or under the Code, and as a - 3 - result, is a core proceeding. See 28 U.S.C. § 157(b). merits will not interfere with the SBA's internal agency - 2 - operations in the sense contemplated by Ulstein. As such, the Court may enter a carefully tailored temporary (b) Powers of Administrator restraining order against the Administrator, notwithstanding the anti-injunction provision of 15 In the performance of, and with respect to, the functions, U.S.C. § 634(b). See 11 U.S.C. § 105(a) ("The court powers, and duties vested in him by this chapter the may issue any order, process, or judgment that is Administrator may - necessary or appropriate to carry out the provisions of this title."); 11 U.S.C. § 525(a) (providing in relevant part (1) sue and be sued . . . in any United States district that "a governmental unit may not deny, revoke, court, and jurisdiction is conferred upon such district suspend, or refuse to renew a license, permit, charter, court to determine such controversies without regard to franchise, or other similar grant to . . . a person that is or the amount in controversy; but no attachment, has been a debtor under this title . . . solely because injunction, garnishment, or other similar process, mesne such . . . debtor is or has been a debtor under this or final, shall be issued against the Administrator or his title"). This conclusion is consistent with the purpose of property[.] section 106(a)(4), which requires an order against a governmental unit to be enforced in accordance with 15 U.S.C. § 634(b). In the Administrator's view, this anti- appropriate nonbankruptcy law. As explained in the injunction provision bars any and all injunctive relief against her or her property. legislative history of section 106, although "an order against a governmental unit will not be enforceable by The Administrator's perspective fails to account for attachment or seizure of government assets[,]" the court binding caselaw interpreting 15 U.S.C. § 634(b) to "retains ample authority to enforce nonmonetary orders permit certain forms of relief against the Small Business and judgments." 140 Cong. Rec. H10752-01, at Administration ("SBA") that [*4] might be characterized H10766, 1994 WL 545773 (Oct. 4, 1994). as injunctive. In Ulstein Maritime, Ltd. v. United States, 833 F.2d 1052 (1st Cir. 1987), the First Circuit Court of At this juncture, the [*6] ultimate question is whether Appeals affirmed an order invalidating a certificate the Debtor is entitled to the TRO that it seeks. The issued by the SBA for failure to comply with applicable answer turns on the same four factors that govern a laws and regulations. In so doing, the Court indicated motion for a preliminary injunction. SeeAnimal Welfare that the anti-injunction provision of 15 U.S.C. § 634(b) Inst. v. Martin, 665 F. Supp. 2d 19, 22 (D. Me. 2009). "protects the [SBA] from interference with its internal Those four factors are: workings by judicial orders attaching agency funds, etc., [1] the probability of the movant's success on the merits, but does not provide blanket immunity from every type [2] the prospect of irreparable harm absent the of injunction." Ulstein, 833 F.2d at 1057. After examining

John-29622 Tancabel Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 PagePage 147 3 of 6 of 263 2020 Bankr. LEXIS 1213, *6 injunction, [3] the balance of the relevant equities preliminary determinations: (focusing on the hardship to the movant if an injunction does not issue as contrasted with the hardship to the 2Although the complaint also raises the issue of nonmovant if it does), and [4] the effect of the court's whether the Administrator exceeded the scope of her action on the public interest. authority by issuing a rule and the official PPP application form that rendered the Debtor ineligible to Rosario-Urdaz v. Rivera-Hernandez, 350 F.3d 219, 221 (1st Cir. 2003). "As with a preliminary injunction, the - 5 [*8] - party seeking relief bears the burden of demonstrating (A) The Administrator concedes that the SBA falls within that these factors weigh in the definition of "governmental unit" in the Bankruptcy - 4 - Code. its favor." Animal Welfare Inst., 665 F. Supp. 2d at 22 (B) The Administrator also concedes that the SBA (quotation marks omitted). Trial courts tasked with denied the Debtor the oppportunity to participate in the balancing these factors "have wide discretion in making PPP solely because the Debtor is currently in chapter judgments regarding the appropriateness of [preliminary 11. injunctive] relief." Francisco Sanchez v. Esso Standard (C) There is one remaining element of section 525(a) in Oil Co., 572 F.3d 1, 14 (1st Cir. 2009). Due to the play. To determine whether the Debtor has shown a preliminary nature of the relief and the undeveloped likelihood of success on Count III of its complaint, the state of the record, the court's findings and conclusions Court must consider the following question: does the on a request for a TRO do not represent an adjudication Administrator's categorical exclusion of the Debtor from on the merits and are not binding on the parties in the the term "eligible recipient," 15 U.S.C. § later action. See 636(a)(36)(A)(iv), constitute the denial of, or Narragansett Indian Tribe v. Guilbert, 934 F.2d 4, 6 (1st discrimination with respect to, a "license, permit, charter, Cir. 1991) ("[A] court's conclusions as to the merits of franchise, or other similar grant" for purposes of section the issues presented [*7] on preliminary injunction are 525(a)? There is no binding authority from the United to be understood as statements of probable States Supreme Court or the First Circuit Court of outcomes."); Wright & Miller, 11A Fed. Prac. & Proc. Appeals on this precise question. There are, however, Civ. § 2951 (3d ed.) ("[A] court's findings on an several decisions interpreting section 525(a) in other application for a temporary restraining order do not contexts, and many of those decisions consider the represent an adjudication on the merits. Thus, they are language of section 525(a) in light of the stated purpose not binding on the parties in the later action for a of the statute. See, e.g., Stoltz v. BrattleboroHousing permanent injunction.") (footnotes omitted). Auth. (In re Stoltz), 315 F.3d 80 (2d Cir. 2002) (holding that eviction of a debtor from public housing unit solely With these principles in mind, the Court FINDS and based on her failure to pay discharged, pre-petition rent CONCLUDES as follows: constituted illegal discrimination under section 525(a)); [*9] In re The BibleSpeaks, 69 B.R. 368, 374 1. The Debtor is entitled to issuance of a temporary (Bankr. D. Mass. 1987) ("Congress intended § 525(a) . . restraining order under Fed. R. Civ. P. 65 and Fed. R. . to expand on and develop Perez so that the doctrine Bankr. P. 7065. would extend to many forms of discrimination."); Rose v. Conn. Housing Fin. Auth. (In re Rose), 23 B.R. 662, 2. The Debtor has shown a likelihood of success on the 666-67 (Bankr. D. Conn. 1982) (construing section merits of the claim asserted in Count III of the complaint, 525(a) in light of the fresh start policy namely that the Administrator acted in violation of 11 U.S.C. § 525(a) by refusing to permit the Debtor an apply for a PPP loan due to the Debtor's status as a opportunity to participate in the PPP solely because the debtor in a chapter 11 case, the Court need not and Debtor is presently a debtor in a case under Title 11 does not address that issue at this point. (and therefore is unquestionably - 6 - "involved in any bankruptcy").2 This conclusion rests on the following concessions and and concluding that a state may not exempt debtors from a state-sponsored home financing program solely

John-29622 Tancabel Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 PagePage 148 4 of 6 of 263 2020 Bankr. LEXIS 1213, *9 because of bankruptcy); see also 4 Collier on (F) The Court's charge is to consider the language of Bankruptcy ¶ 525.02 (16th ed.) ("[S]ection 525(a) is the statute, the words that Congress did, in fact, use. designed to protect persons from discriminatory There is, at this early juncture in the litigation, enough of treatment based solely on past financial difficulty.") a showing that participation in the PPP could be (footnote omitted). While the answer is not free from all characterized as an "other similar grant" such that the doubt, the Debtor has articulated a sufficient likelihood Debtor has met its burden on the likelihood of success of success, when considered along with its showings on on Count III. the balance of harms and the public interest, to warrant the issuance of a temporary restraining order. Wright & (G) The Court is sympathetic to the significant Miller, 11A Fed. Prac. & Proc. Civ. § 2951 (3d ed.) challenges faced by the Administrator in the (suggesting that the plaintiff must ordinarily demonstrate implementation of measures taken by the federal "at least a reasonable probability of prevailing on the government in response to the extraordinary public merits" but that the "necessary persuasiveness of this health crisis and the resulting economic devastation. showing" may vary, depending on the facts of the case The SBA was under-and continues to be under- and the other [*10] relevant factors). immense pressure to distribute aid without delay. Time is truly of the essence. That said, this country's laws (D) There are cases holding that section 525(a) does cannot be pushed aside, even inadvertently, during not extend to loans or, stated differently, that a loan is times of crisis. not "a license, permit, charter, franchise, or other similar grant" within the meaning of section 525(a). The 3. The Debtor has demonstrated a risk of immediate Administrator correctly points out that the PPP and irreparable harm in the absence of a temporary describes "covered loans" and specifies loan features, restraining order. This conclusion rests on the following such as an interest rate and a repayment term. See, preliminary findings: e.g., 15 U.S.C. § 636(a)(36)(A)(ii), (B), (E), (F), (L). True -8 - enough, but that fixation on the details loses the forest in the trees during a conflagration. The CARES Act is a (A) PPP funds are available [*12] on a first come, first grant of aid necessitated by a public health crisis. It is served basis. The Debtor's application for funds under one of many responses by federal, state, and local PPP was not processed and the Debtor did not receive governments designed to help citizens weather an funds prior to their exhaustion under the first tranche of unprecedent storm. Likening a covered loan under the PPP funding. PPP to a garden-variety loan that is not be protected under section 525(a) may miss the point. (B) On or about April 23, 2020, Congress enacted legislation making additional funds available for PPP. (E) Section 525(c), by its terms, applies to student loans and the Administrator argues that the existence of (C) The Debtor is a critical access hospital providing section 525(c) proves that Congress did not intend services in Lincoln, Maine. The Debtor's business section 525(a) operations have been significantly impacted by Covid- 19 due to the fact that many non-essential elective and -7 - office visits have been rescheduled or canceled. A significant percentage of the Debtor's revenue is to extend to loans: if section 525(a) extended to loans, derived from non-essential and elective procedures. In why would Congress need to craft specific treatment for the absence of funding from PPP or another source, the student loans in section 525(c)? This is a fair question, Debtor may be forced to discontinue business but the Supreme Court has, at times, been skeptical of operations by the middle of June and may not have this type of inferential reasoning. sufficient funds for an orderly liquidation under those circumstances. See, e.g., Mission Prod. Holdings, Inc. v. Tempnology, LLC, 139 S. Ct. 1652, 1664-65 (2019). The hoary canon (D) According to the application attached to the of expressio [*11] unius est exclusio alterius does not, complaint, the Debtor has approximately 120 alone, doom the Debtor's preferred construction of employees who may lose their jobs if the Debtor's section 525(a). SeeHewlett-Packard Co,Inc. v. Berg, 61 business operations cease. F.3d 101, 106 (1st Cir. 1995) (indicating that the canon "is an aid to construction and not an inflexible rule"). (E) Due to the nature of the Debtor's business

John-29622 Tancabel Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 PagePage 149 5 of 6 of 263 2020 Bankr. LEXIS 1213, *12 operations, it must continue to employ staff in order to or any other lender participating in PPP with respect to meet its charitable mission and [*13] provide health the Debtor shall be one of the Restrained Parties upon care services. actual notice of this order being provided to such bank. As to Machias Savings Bank, such notice may be (F) PPP funds are being exhausted quickly, in a matter of weeks (if not days). If the Debtor is not permitted to -10 - submit an application for funding under PPP in the very near term, funding may be exhausted. And, as provided by e-mail to counsel of record for the bank in previously mentioned, if the Debtor does not receive Case No. 19-10034. This order does not extend to any PPP funding, then it may be forced to close. When this Restrained Party that submits, considers, or takes any relatively concrete forecast is "juxtaposed and weighed other action with respect to an application under the in tandem" with the Debtor's showing PPP for any person or entity other than the Debtor.

-9 - (C) Until the expiration of this temporary restraining order, its scope shall be as follows: of a likelihood of success on the merits, the forecast possesses sufficient substance to meet the Debtor's (i) The Restrained Parties shall not deny [*15] or cause burden of establishing a prospect of immediate and any commercial lender to deny an application of the irreparable harm if the TRO does not issue. SeeRoss- Debtor under PPP solely on the basis that the Debtor is Simons of Warwick v. Baccarat, Inc., 102 F.3d 12, 19 a debtor in bankruptcy or based on the words "or (1st Cir. 1996) (providing guideposts to measure the presently in bankruptcy" on the Administrator's official "quantum of . . . form of application. (ii) The Restrained Parties shall not refuse to guaranty a harm that will suffice to justify interim injunctive relief"); loan sought by the Debtor under PPP solely on the see alsoSemmes Motors,Inc. v. Ford Motor Co., 429 basis that the Debtor is a debtor in bankruptcy or F.2d 1197, 1205 (2d Cir. 1970) (indicating that the because of a "yes" answer in response to question 1 on destruction of a business is an irreparable injury that the official form of PPP application promulgated by the may be properly remedied by injunctive relief). Administrator. 4. The risk of harm to the Debtor if a temporary (iii) The Administrator shall not authorize, guaranty, or restraining order is not granted outweighs the risk of any disburse funds appropriated for loans under PPP harm to the Administrator if a temporary restraining without reserving sufficient funds or guaranty authority order is granted. within the scope of the second appropriation to fund 5. Given the nature of the Debtor's business operations PPP to provide the Debtor with access to funds under and the purpose Congress had in enacting the CARES PPP if the Debtor is eligible after implementation of the Act and establishing [*14] PPP, the public interest is terms of this temporary restraining order and any served by issuing a temporary restraining order. appellate or judicial process with respect to any application filed by the Debtor. Rather, the 6. The Debtor is a debtor-in-possession and no bond is Administrator shall ensure that she has sufficient required under Rule 65. authority within the scope of amounts appropriated for PPP as of April 30, 2020, to guaranty a loan to the 7. Based on the foregoing, it is hereby ORDERED, Debtor in an amount the Debtor may be qualified [*16] ADJUDGED, and DECREED to obtain, if the Debtor is eligible subject to the terms of as follows: -11 -

(A) The motion is GRANTED on the terms and this order and after consideration of any administrative conditions set forth herein. and judicial

(B) A temporary restraining order is hereby issued, with appeals and resolution of the claims in the Debtor's notice, and directed to the Administrator and all agents, complaint. servants, employees, and any persons acting in concert with any of the foregoing (collectively, the "Restrained (iv) The Debtor shall be authorized to submit a PPP Parties"). The Court intends that Machias Savings Bank application to a participating lender of its choosing-or a

John-29622 Tancabel Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 PagePage 150 6 of 6 of 263 2020 Bankr. LEXIS 1213, *16 lender may consider any pending application-with the May 14, 2020 unless either (a) terminated earlier by the words "or presently involved in any bankruptcy" Court or (b) further extended by applicable law, by order stricken from the official form of application and, if the of the Court, or by written agreement of the Debtor and Debtor satisfied all other conditions in question 1 to the the Administrator. official form, to mark the box answering question 1 "no" or, with respect to any pending application, for the Dated: May 1, 2020 participating lender to treat question 1 as if it was Michael A. Fagone answered "no". The Restrained Parties shall consider the application submitted by the Debtor and fully United States Bankruptcy Judge implement all aspects of the PPP program with respect to the Debtor without any consideration of the District of Maine involvement of the Debtor in bankruptcy. The application shall be considered an initial application of - 13 - the submission if a subsequent application would adversely impact the Debtor's ability to qualify for a PPP loan. End of Document

(v) To the extent that any bank requires the Debtor to execute other forms, applications, [*17] or other documents for a PPP loan that include any language about whether the Debtor is involved in bankruptcy, the Debtor is authorized to strike the portion of such language about involvement in bankruptcy and the Restraining Parties shall process the forms, applications, or other documents without any consideration of the involvement of the Debtor in bankruptcy.

-12 -

(vi) Nothing in this order obligates Machias Savings Bank to accept or submit a PPP application on behalf of the Debtor.

(vii) To the extent that approval of the Court is required for the Debtor to obtain a PPP loan, the Debtor shall file a motion and seek entry of an order authorizing such relief. The Debtor must file any such motion within ten days after the date of this order. Any deadline under the PPP program requiring disbursement of PPP loan proceeds is hereby extended in order to allow consideration of a motion by the Debtor seeking authority to obtain a PPP loan.

8. The Court will conduct a status conference on the Debtor's request for a preliminary injunction consistent with the terms of this order on May 5, 2020 at 9:30 a.m. At the status conference, the Administrator must be prepared to describe, in reasonable [*18] detail, the steps she has taken to comply with the terms of this order.

9. This temporary restraining order shall remain in full force and effect until expires at 5:00 p.m. (eastern) on

John-29622 Tancabel Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 151 of 263

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CaseCase 20-40133-thf 20-01006 Doc Doc 21 287 Filed Filed 05/01/20 05/08/20 Entered Entered 05/01/20 05/08/20 17:07:44 14:52:10 Desc Page Main 155 Document of 263 Page 4 of 13

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CaseCase 20-40133-thf 20-01006 Doc Doc 21 287 Filed Filed 05/01/20 05/08/20 Entered Entered 05/01/20 05/08/20 17:07:44 14:52:10 Desc Page Main 156 Document of 263 Page 5 of 13

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CaseCase 20-40133-thf 20-01006 Doc Doc 21 287 Filed Filed 05/01/20 05/08/20 Entered Entered 05/01/20 05/08/20 17:07:44 14:52:10 Desc Page Main 157 Document of 263 Page 6 of 13




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CaseCase 20-40133-thf 20-01006 Doc Doc 21 287 Filed Filed 05/01/20 05/08/20 Entered Entered 05/01/20 05/08/20 17:07:44 14:52:10 Desc Page Main 158 Document of 263 Page 7 of 13

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CaseCase 20-40133-thf 20-01006 Doc Doc 21 287 Filed Filed 05/01/20 05/08/20 Entered Entered 05/01/20 05/08/20 17:07:44 14:52:10 Desc Page Main 159 Document of 263 Page 8 of 13

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CaseCase 20-40133-thf 20-01006 Doc Doc 21 287 Filed Filed 05/01/20 05/08/20 Entered Entered 05/01/20 05/08/20 17:07:44 14:52:10 Desc Page Main 164 Document of 263Page 13 of 13

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CaseCase 20-01006 20-40133-thf Doc 21-1Doc 287 Filed Filed 05/01/20 05/08/20 Entered Entered 05/01/20 05/08/20 17:07:44 14:52:10 Desc Page Send 165 PDF to BNC - All Parties: Notice of 263 Recipients Page 1 of 1 Notice Recipients

District/Off: 0100−1 User: lstocker Date Created: 5/1/2020 Case: 20−01006 Form ID: pdf900 Total: 11

Recipients of Notice of Electronic Filing: aty Andrew Helman, Esq. [email protected] aty Bruce B. Hochman, Esq. [email protected] aty Dominique V. Sinesi, Esq. [email protected] aty Jeremy R. Fischer [email protected] aty Katherine Krakowka [email protected] aty Roger A. Clement, Jr., Esq. [email protected] TOTAL: 6

Recipients submitted to the BNC (Bankruptcy Noticing Center): dft Jovita Carranza, in her capacity as administrator for the U.S. Small Business Administration U.S. Small Business Administration 409 3rd St., S.W. Washington, DC 20416 cr Katahdin Trust Company 6 North Street Presque Isle, ME 04769 smg State of Maine Bureau of Revenue Services Compliance Division Bankruptcy Unit P.O. Box 1060 Augusta, ME 04332 ust Office of the U.S. Trustee 537 Congress Street Portland, ME 04101 ust Office of U.S. Trustee 537 Congress Street, Suite 300 Portland, ME 04101 TOTAL: 5 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 166 of 263

No Shepard’s Signal™ As of: May 7, 2020 3:30 PM Z

In re Calais Reg'l Hosp.

United States Bankruptcy Court for the District of Maine May 1, 2020, Decided Chapter 11 Case No. 19-10486 Adv. Proc. No. 20-1006

Reporter 2020 Bankr. LEXIS 1212 * the Motion filed by First National Bank [Dkt. No. 12] and by Jovita Carranza, in her capacity as Administrator for In re CALAIS REGIONAL HOSPITAL, Debtor CALAIS the U.S. Small Business Administration [Dkt. No. 13]; REGIONAL HOSPITAL, Plaintiff, v. JOVITA and the Debtor's Reply in Support of the Motion [Dkt. CARRANZA, in her capacity as Administrator for the No. 14]. The Court further considered the text and U.S. Small Business Administration, Defendant purpose of the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"); the Paycheck Protection Program ("PPP"), enacted in § 1102 of the CARES Act; § 7(a) of the Small Business Act (15 U.S.C. Notice: Decision text below is the first available text § from the court; it has not been editorially reviewed by LexisNexis. Publisher's editorial review, including 636(a)); and the Administrator's interim final rules Headnotes, Case Summary, Shepard's analysis or any promulgated on April 15, 2020, and April 24, 2020, amendments will be added in accordance with Docket Nos. SBA-2020-0015 and SBA 2020-0021. LexisNexis editorial guidelines. Before deciding whether the Debtor is entitled to a temporary restraining order ("TRO"), the Court must address a threshold question: [*2] is the Administrator immune from the Debtor's claims for preliminary and Core Terms permanent injunctive relief? The analysis begins with the Bankruptcy Code, which, in relevant part, provides temporary restraining order, funds, governmental unit, as follows: Parties, injunctive relief, merits, loans, injunction, (a) Notwithstanding an assertion of sovereign immunity, preliminary injunction, likelihood of success, business sovereign immunity is abrogated as to a governmental operations, immunity, factors, lender, terms unit to the extent set forth in this section with respect to . . .

(1) [11 U.S.C. §§ 105 and 525.] Opinion (2) The court may hear and determine any issue arising with respect to the application of such sections to governmental units. [*1] TEMPORARY RESTRAINING ORDER (3) The court may issue against a governmental unit an On April 27, 2020, the Debtor filed the Emergency order, process, or judgment under such sections or the Motion for Temporary Restraining Order and Request Federal Rules of Bankruptcy Procedure, including an for Hearing Date and Briefing Schedule with Respect to order or judgment awarding a money recovery, but not the Debtor's Request for a Preliminary Injunction [Dkt. including an award of punitive damages. . . . No. 2] (the "Motion"). At a hearing on the Motion on April 30, 2020, the Court heard arguments from the parties (4) The enforcement of any such order, process, or and considered the contents of the Motion; the verified judgment against any governmental unit shall be allegations in the Debtor's complaint; the objections to consistent with appropriate nonbankruptcy law

John-29622 Tancabel Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 PagePage 167 2 of 6 of 263 2020 Bankr. LEXIS 1212, *2 applicable to such governmental unit[.] funds, etc., but does not provide blanket immunity from every type of injunction." Ulstein, 833 F.2d at 1057. After (5) Nothing in this section shall create any substantive examining the purposes of the statute, the Court claim for relief or cause of action not otherwise existing suggested that the anti-injunction language "should not under this title, the Federal Rules of Bankruptcy be interpreted as a bar to judicial review of agency Procedure, or nonbankruptcy law. actions that exceed agency authority where the remedies would not interfere with internal agency 11 U.S.C. § 106(a). In this proceeding, the Debtor operations." Id. seeks (among other [*3] things) injunctive relief against the Administrator to remedy an alleged violation of 11 In this proceeding, as in Ulstein, the plaintiff seeks an U.S.C. § 525(a), invoking Fed. R. Bankr. P. 7065 and order invalidating an SBA decision due to the 11 U.S.C. § 105(a).1 In isolation, section 106(a) of the Administrator's asserted failure to comply with Bankruptcy Code would appear to permit such an applicable law. The Debtor seeks no relief that would action. The Administrator, however, asserts immunity interfere with the SBA's "internal workings" as from injunctive relief under the following provisions of distinguished from the product of those workings. An applicable nonbankruptcy law: award of preliminary injunctive relief directing the Administrator to reserve sufficient [*5] authority to grant 1 To the extent that the claims are based on 11 U.S.C. § the Debtor's application if the Debtor later prevails on 525 and other provisions of the Bankruptcy Code, this the is a proceeding arising in or under the Code, and as a result, is a core proceeding. See 28 U.S.C. § 157(b). - 3 -

- 2 - merits will not interfere with the SBA's internal agency operations in the sense contemplated by Ulstein. As (b) Powers of Administrator such, the Court may enter a carefully tailored temporary restraining order against the Administrator, In the performance of, and with respect to, the functions, notwithstanding the anti-injunction provision of 15 powers, and duties vested in him by this chapter the U.S.C. § 634(b). See 11 U.S.C. § 105(a) ("The court Administrator may - may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of (1) sue and be sued . . . in any United States district this title."); 11 U.S.C. § 525(a) (providing in relevant part court, and jurisdiction is conferred upon such district that "a governmental unit may not deny, revoke, court to determine such controversies without regard to suspend, or refuse to renew a license, permit, charter, the amount in controversy; but no attachment, injunction, garnishment, or other similar process, mesne franchise, or other similar grant to . . . a person that is or or final, shall be issued against the Administrator or his has been a debtor under this title . . . solely because property[.] such . . . debtor is or has been a debtor under this title"). This conclusion is consistent with the purpose of 15 U.S.C. § 634(b). In the Administrator's view, this anti- section 106(a)(4), which requires an order against a injunction provision bars any and all injunctive relief governmental unit to be enforced in accordance with against her or her property. appropriate nonbankruptcy law. As explained in the legislative history of section 106, although "an order The Administrator's perspective fails to account for against a governmental unit will not be enforceable by binding caselaw interpreting 15 U.S.C. § 634(b) to attachment or seizure of government assets[,]" the court permit certain [*4] forms of relief against the Small "retains ample authority to enforce nonmonetary orders Business Administration ("SBA") that might be and [*6] judgments." 140 Cong. Rec. H10752-01, at characterized as injunctive. In Ulstein Maritime, Ltd. v. H10766, 1994 WL 545773 (Oct. 4, 1994). United States, 833 F.2d 1052 (1st Cir. 1987), the First Circuit Court of Appeals affirmed an order invalidating a At this juncture, the ultimate question is whether the certificate issued by the SBA for failure to comply with Debtor is entitled to the TRO that it seeks. The answer applicable laws and regulations. In so doing, the Court turns on the same four factors that govern a motion for a indicated that the anti-injunction provision of 15 U.S.C. § preliminary injunction. SeeAnimal Welfare Inst. v. 634(b) "protects the [SBA] from interference with its Martin, 665 F. Supp. 2d 19, 22 (D. Me. 2009). Those internal workings by judicial orders attaching agency four factors are:

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[1] the probability of the movant's success on the merits, on the following concessions and [2] the prospect of irreparable harm absent the injunction, [3] the balance of the relevant equities preliminary determinations: (focusing on the hardship to the movant if an injunction 2Although the complaint also raises the issue of does not issue as contrasted with the hardship to the whether the Administrator exceeded the scope of her nonmovant if it does), and [4] the effect of the court's authority by issuing a rule and the official [*8] PPP action on the public interest. application form that rendered the Debtor ineligible to

Rosario-Urdaz v. Rivera-Hernandez, 350 F.3d 219, 221 - 5 - (1st Cir. 2003). "As with a preliminary injunction, the party seeking relief bears the burden of demonstrating (A) The Administrator concedes that the SBA falls within that these factors weigh in the definition of "governmental unit" in the Bankruptcy Code. - 4 - (B) The Administrator also concedes that the SBA its favor." Animal Welfare Inst., 665 F. Supp. 2d at 22 denied the Debtor the oppportunity to participate in the (quotation marks omitted). Trial courts tasked with PPP solely because the Debtor is currently in chapter balancing these factors "have wide discretion in making 11. judgments regarding the appropriateness of [preliminary injunctive] relief." Francisco Sanchez v. Esso Standard (C) There is one remaining element of section 525(a) in Oil Co., 572 F.3d 1, 14 (1st Cir. 2009). Due to the play. To determine whether the Debtor has shown a preliminary nature of the relief and the undeveloped likelihood of success on Count III of its complaint, the state of the record, the court's findings and conclusions Court must consider the following question: does the on a request for a TRO do not represent an adjudication Administrator's categorical exclusion of the Debtor from on the merits and are not binding on the parties in the the term "eligible recipient," 15 U.S.C. § later action. [*7] See 636(a)(36)(A)(iv), constitute the denial of, or discrimination with respect to, a "license, permit, charter, Narragansett Indian Tribe v. Guilbert, 934 F.2d 4, 6 (1st franchise, or other similar grant" for purposes of section Cir. 1991) ("[A] court's conclusions as to the merits of 525(a)? There is no binding authority from the United the issues presented on preliminary injunction are to be States Supreme Court or the First Circuit Court of understood as statements of probable outcomes."); Appeals on this precise question. There are, however, Wright & Miller, 11A Fed. Prac. & Proc. Civ. § 2951 (3d several decisions interpreting section 525(a) in other ed.) ("[A] court's findings on an application for a contexts, and many of those decisions consider the temporary restraining order do not represent an language of section 525(a) in light of the stated purpose adjudication on the merits. Thus, they are not binding on of the statute. See, e.g., Stoltz v. BrattleboroHousing the parties in the later action for a permanent Auth. (In re Stoltz), 315 F.3d 80 (2d Cir. 2002) (holding injunction.") (footnotes omitted). that eviction of a debtor from public housing unit solely With these principles in mind, the Court FINDS and based on her failure to pay discharged, [*9] pre-petition CONCLUDES as follows: rent constituted illegal discrimination under section 525(a)); In re The BibleSpeaks, 69 B.R. 368, 374 1. The Debtor is entitled to issuance of a temporary (Bankr. D. Mass. 1987) ("Congress intended § 525(a) . . restraining order under Fed. R. Civ. P. 65 and Fed. R. . to expand on and develop Perez so that the doctrine Bankr. P. 7065. would extend to many forms of discrimination."); Rose v. Conn. Housing Fin. Auth. (In re Rose), 23 B.R. 662, 2. The Debtor has shown a likelihood of success on the 666-67 (Bankr. D. Conn. 1982) (construing section merits of the claim asserted in Count III of the complaint, 525(a) in light of the fresh start policy namely that the Administrator acted in violation of 11 U.S.C. § 525(a) by refusing to permit the Debtor an apply for a PPP loan due to the Debtor's status as a opportunity to participate in the PPP solely because the debtor in a chapter 11 case, the Court need not and Debtor is presently a debtor in a case under Title 11 does not address that issue at this point. (and therefore is unquestionably - 6 - "involved in any bankruptcy").2 This conclusion rests

John-29622 Tancabel Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 PagePage 169 4 of 6 of 263 2020 Bankr. LEXIS 1212, *9 and concluding that a state may not exempt debtors 101, 106 (1st Cir. 1995) (indicating that the canon "is an from a state-sponsored home financing program solely aid to construction and not an inflexible rule"). because of bankruptcy); see also 4 Collier on Bankruptcy ¶ 525.02 (16th ed.) ("[S]ection 525(a) is (F) The Court's charge is to consider the language of designed to protect persons from discriminatory the statute, the words that Congress did, in fact, use. treatment based solely on past financial difficulty.") There is, at this early juncture in the litigation, enough of (footnote omitted). While the answer is not free from all a showing that participation in the PPP could be doubt, the Debtor has articulated a sufficient likelihood characterized as an "other similar grant" such that the of success, when considered along with its showings on Debtor has met its burden on the likelihood of success the balance of harms and the public interest, to warrant on Count III. the issuance of a temporary restraining order. Wright & (G) The Court is sympathetic to the significant Miller, 11A Fed. Prac. & Proc. Civ. § 2951 (3d ed.) challenges faced by the Administrator in the (suggesting that the plaintiff must ordinarily demonstrate implementation of measures taken by the federal "at least a reasonable probability of prevailing on the government in response to the extraordinary public merits" but that the "necessary persuasiveness of this health crisis and the resulting economic devastation. showing" [*10] may vary, depending on the facts of the The SBA was under-and continues to be under- case and the other relevant factors). immense pressure to distribute aid without delay. Time is truly of the essence. That said, this country's laws (D) There are cases holding that section 525(a) does cannot be pushed aside, even inadvertently, during not extend to loans or, stated differently, that a loan is times of crisis. not "a license, permit, charter, franchise, or other similar grant" within the meaning of section 525(a). The 3. The Debtor has demonstrated a risk of immediate Administrator correctly points out that the PPP and irreparable harm in the absence of a temporary describes "covered loans" and specifies loan features, restraining order. This conclusion rests on [*12] the such as an interest rate and a repayment term. See, following preliminary findings: e.g., 15 U.S.C. § 636(a)(36)(A)(ii), (B), (E), (F), (L). True enough, but that fixation on the details loses the forest -8 - in the trees during a conflagration. The CARES Act is a grant of aid necessitated by a public health crisis. It is (A) PPP funds are available on a first come, first served one of many responses by federal, state, and local basis. The Debtor's application for funds under PPP governments designed to help citizens weather an was not processed and the Debtor did not receive funds unprecedent storm. Likening a covered loan under the prior to their exhaustion under the first tranche of PPP PPP to a garden-variety loan that is not be protected funding. under section 525(a) may miss the point. (B) On or about April 23, 2020, Congress enacted (E) Section 525(c), by its terms, applies to student loans legislation making additional funds available for PPP. and the Administrator argues that the existence of (C) The Debtor is a critical access hospital providing section 525(c) proves that Congress did not intend services in the Calais area. The Debtor's business section 525(a) operations have been significantly impacted by Covid- -7 - 19 due to the fact that many non-essential elective and office visits have been rescheduled or canceled. A to extend to loans: if section 525(a) extended to loans, significant percentage of the Debtor's revenue is why would Congress need to craft specific treatment for derived from non-essential and elective procedures. In student loans in section 525(c)? This is a fair question, the absence of funding from PPP or another source, the but the Supreme Court has, at times, been skeptical of Debtor may be forced to discontinue business this type of [*11] inferential reasoning. operations by early June and may not have sufficient funds for an orderly liquidation under those See, e.g., Mission Prod. Holdings, Inc. v. Tempnology, circumstances. This timeline could accelerate LLC, 139 S. Ct. 1652, 1664-65 (2019). The hoary canon depending on the spread of Covid-19 in Washington of expressio unius est exclusio alterius does not, alone, County. doom the Debtor's preferred construction of section 525(a). SeeHewlett-Packard Co,Inc. v. Berg, 61 F.3d (D) According to the application attached to the

John-29622 Tancabel Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 PagePage 170 5 of 6 of 263 2020 Bankr. LEXIS 1212, *12 complaint, the Debtor has 224 employees who may (B) A temporary restraining order is hereby issued, with lose their jobs if the Debtor's business operations notice, and directed to the Administrator and all agents, cease. servants, employees, and any persons acting in concert with any of the foregoing (collectively, the "Restrained [*13] (E) Due to the nature of the Debtor's business Parties"). The Court intends that First National Bank or operations, it must continue to employ staff in order to any other lender participating in PPP with respect to the meet its charitable mission and provide health care Debtor shall be one of the Restrained Parties upon services. actual notice of this order being provided to such bank. As to First National Bank, such notice may be provided (F) PPP funds are being exhausted quickly, in a matter by e- of weeks (if not days). If the Debtor is not permitted to submit an application for funding under PPP in the very -10 - near term, funding may be exhausted. And, as previously mentioned, if the Debtor does not receive mail to counsel of record for the bank in Case No. 19- PPP funding, then it may be forced to close. When this 10486. This order does not extend to any Restrained relatively concrete forecast is "juxtaposed and weighed Party that submits, considers, or takes any other action in tandem" with the Debtor's showing with respect to an application under the PPP for any person or entity other than the [*15] Debtor. -9 - (C) Until the expiration of this temporary restraining of a likelihood of success on the merits, the forecast order, its scope shall be as follows: possesses sufficient substance to meet the Debtor's burden of establishing a prospect of immediate and (i) The Restrained Parties shall not deny or cause any irreparable harm if the TRO does not issue. SeeRoss- commercial lender to deny an application of the Debtor Simons of Warwick v. Baccarat, Inc., 102 F.3d 12, 19 under PPP solely on the basis that the Debtor is a (1st Cir. 1996) (providing guideposts to measure the debtor in bankruptcy or based on the words "or "quantum of . . . presently in bankruptcy" on the Administrator's official form of application. harm that will suffice to justify interim injunctive relief"); see alsoSemmes Motors,Inc. v. Ford Motor Co., 429 (ii) The Restrained Parties shall not refuse to guaranty a F.2d 1197, 1205 (2d Cir. 1970) (indicating that the loan sought by the Debtor under PPP solely on the destruction of a business is an irreparable injury that basis that the Debtor is a debtor in bankruptcy or may be properly remedied by injunctive relief). because of a "yes" answer in response to question 1 on the official form of PPP application promulgated by the 4. The risk of harm to the Debtor if a temporary Administrator. restraining order is not granted outweighs the risk of any harm to the Administrator if a temporary restraining (iii) The Administrator shall not authorize, guaranty, or order [*14] is granted. disburse funds appropriated for loans under PPP without reserving sufficient funds or guaranty authority 5. Given the nature of the Debtor's business operations within the scope of the second appropriation to fund and the purpose Congress had in enacting the CARES PPP to provide the Debtor with access to funds under Act and establishing PPP, the public interest is served PPP if the Debtor is eligible after implementation of the by issuing a temporary restraining order. terms of this temporary restraining order and any appellate or judicial process with respect to any 6. The Debtor is a debtor-in-possession and no bond is application filed by the Debtor. Rather, the required under Rule 65. Administrator shall ensure that she has sufficient authority [*16] within the scope of amounts 7. Based on the foregoing, it is hereby ORDERED, appropriated for PPP as of April 30, 2020, to guaranty a ADJUDGED, and DECREED loan to the Debtor in an amount the Debtor may be qualified to obtain, if the Debtor is eligible subject to the as follows: terms of (A) The motion is GRANTED on the terms and -11 - conditions set forth herein.

John-29622 Tancabel Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 PagePage 171 6 of 6 of 263 2020 Bankr. LEXIS 1212, *16 this order and after consideration of any administrative reasonable detail, the steps she has taken to comply and judicial appeals and resolution of the claims in the with the terms of this order. Debtor's complaint. 9. This temporary restraining order shall remain in full (iv) The Debtor shall be authorized to submit a PPP force and effect until expires at 5:00 p.m. (eastern) on application to a participating lender of its choosing-or a May 14, 2020 unless either (a) terminated earlier by the lender may consider any pending application-with the Court or (b) further extended by applicable law, by order words "or presently involved in any bankruptcy" of the Court, or by written agreement of the Debtor and stricken from the official form of application and, if the the Administrator. Debtor satisfied all other conditions in question 1 to the official form, to mark the box answering question 1 "no" Dated: May 1, 2020 or, with respect to any pending application, for the Michael A. Fagone participating lender to treat question 1 as if it was answered "no". The Restrained Parties shall consider United States Bankruptcy Judge the application submitted by the Debtor and fully implement all aspects of the PPP program with respect District of Maine to the Debtor without any consideration of the involvement of the Debtor in bankruptcy. The - 13 - application shall be considered an initial application of the submission if a subsequent application would adversely [*17] impact the Debtor's ability to qualify for End of Document a PPP loan.

(v) To the extent that any bank requires the Debtor to execute other forms, applications, or other documents for a PPP loan that include any language about whether the Debtor is involved in bankruptcy, the Debtor is authorized to strike the portion of such language about involvement in bankruptcy and the Restraining Parties shall process the forms, applications, or other documents without any consideration of the involvement of the Debtor in bankruptcy.

-12 -

(vi) Nothing in this order obligates First National Bank to accept or submit a PPP application on behalf of the Debtor.

(vii) To the extent that approval of the Court is required for the Debtor to obtain a PPP loan, the Debtor shall file a motion and seek entry of an order authorizing such relief. The Debtor must file any such motion within ten days after the date of this order. Any deadline under the PPP program requiring disbursement of PPP loan proceeds is hereby extended in order to allow consideration of a motion by the Debtor seeking authority to obtain a PPP loan.

8. The Court will conduct a status conference on the Debtor's request for a preliminary injunction consistent [*18] with the terms of this order on May 5, 2020 at 9:30 a.m. At the status conference, the Administrator must be prepared to describe, in

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EXHIBIT A-6 Case 20-40133-thfCase 20-03120 Doc Document287 Filed 7 05/08/20 Filed in TXSB Entered on 05/06/2005/08/20 14:52:10 Page 1 of Page7 173 of 263

IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION ENTERED 05/06/2020 ______In re: § § Chapter 11 KP ENGINEERING, LP, et al., § § Case No. 19-34698 (DRJ) Debtors. § ______§ (Jointly Administered) § KP ENGINEERING, LP, § § Plaintiff, § § vs. § § Adversary No. 20-03120 JOVITA CARRANZA, in her Capacity as § Administrator for the Small Business § Administration, § § Defendant. § ______§

TEMPORARY RESTRAINING ORDER1

On May 6, 2020, the Court considered the Plaintiff KP Engineering, LP’s

(“Plaintiff”) Verified Emergency Application for Temporary Restraining Order and Preliminary

Injunction (the “ Application”), and the request in the Application for issuance of a temporary restraining order; and having considered certain facts set forth in the Application and supplemental declaration as being sworn to as true and within the personal knowledge of Plaintiff’s representative Kyle McCoy, having considered the text and purpose of the Coronavirus Aid,

Relief, and Economic Security Act” (“CARES Act”), the Paycheck Protection Program (“PPP”) in the CARES Act, and Section 7(a) of the Small Business Act (15 U.S.C. 636(a)); and having

1 Terms not otherwise defined in this Temporary Restraining Order shall have the meanings ascribed to them in Plaintiff’s Complaint and Verified Emergency Application for Temporary Restraining Order and Preliminary Injunction. Case 20-40133-thfCase 20-03120 Doc Document287 Filed 7 05/08/20 Filed in TXSB Entered on 05/06/2005/08/20 14:52:10 Page 2 of Page7 174 of 263 considered the arguments and briefing of counsel for the Plaintiff and counsel for Defendant Jovita

Carranza, in her capacity as Administrator for the U.S. Small Business Administration (“SBA”); and having considered the SBA’s Interim Final Rules for implementing the PPP, this Court finds and concludes that the Plaintiff would suffer immediate and irreparable harm without issuance of a temporary restraining order. The Court incorporates by reference all its oral findings and rulings made on the record at the hearing, and also finds as follows:

1. Plaintiff, debtor and debtor-in-possession in this chapter 11 proceeding, is entitled to issuance of a temporary restraining order pursuant to Federal Rule of Bankruptcy Procedure

Rule 7065 (incorporating Rule 65, Federal Rules of Civil Procedure).

2. Plaintiff has shown a substantial likelihood of success on the merits on its claims that the SBA has violated 11 USC §525(a) and the Administrative Procedures Act with respect to the SBA requiring participating lenders to consider loan applications using a form that says PPP loans will not be approved if the applicant or any owner of the applicant is presently involved in any bankruptcy.

3. Plaintiff states that it otherwise meets all other requirements for receipt of a PPP loan; however the Court make no ruling on whether or not the Plaintiff otherwise qualifies for a

PPP loan.

4. On April 14, 2020, Plaintiff requested a Borrower PPP Application from its regular lender, Texas Capital Bank (“TCB”), but was informed on April 15, 2020 that: (i) Plaintiff “would not be eligible because of the first question on the SBA form”; and (ii) TCB is “not accepting applications from entities that we know are not eligible - you can simply use the form as evidence

- it clearly shows that an entity in bankruptcy is not eligible.” Case 20-40133-thfCase 20-03120 Doc Document287 Filed 7 05/08/20 Filed in TXSB Entered on 05/06/2005/08/20 14:52:10 Page 3 of Page7 175 of 263

5. Plaintiff testified that, on April 24, 2020, the same day that this Court issued a TRO in the Hidalgo County case, Plaintiff submitted a completed Borrower PPP Application to

American National Bank & Trust (“AMBT”).2 On April 27, 2020, AMBT issued a letter denying

Plaintiff’s application and eligibility for the PPP on grounds that it is a Debtor in the Bankruptcy

Cases.

6. The Debtors have been steadily working toward a successful reorganization and emergence from chapter 11. This has included filing on February 28, 2020 a proposed Joint

Chapter 11 Plan of Reorganization (“Plan”) [ECF # 437] and a proposed Disclosure Statement in

Support of Joint Chapter 11 Plan (“Disclosure Statement”) [ECF # 438]. Since that time, the

Debtors have filed two amendments to each of the Plan and the Disclosure Statement [ECF #s 487,

488, 496, 497]. The Court subsequently entered an order approving the Debtors’ Second Amended

Disclosure Statement [ECF # 494].

7. In or about mid-March 2020, state and federal governmental agencies in many parts of the world began implementing safety precautions relating to the Coronavirus pandemic. At that time, a significant number of Plaintiff’s resources were devoted to providing engineering, procurement, and construction management of a Renewable Diesel Unit in Artesia, New Mexico

(the “RDU Project”).

8. Since February 2020, Plaintiff’s compensation for the RDU Project has been based on achieving certain project milestones. To achieve those milestones, Plaintiff relies in many respects upon third parties who manufacture or supply components, equipment, or services that are intended to be integrated into the RDU Project. As a result of the pandemic-related safety

2 At the time, the Plaintiff’s representative did not understand that the Hidalgo County ruling would be limited to the plaintiff in that proceeding. As such, it struck out the words “or presently involved in any bankruptcy” and answered Question No. 1 “no” in the AMBT Borrower PPP Application. Regardless, that application was denied because Plaintiff is a Debtor in this Bankruptcy Case. Case 20-40133-thfCase 20-03120 Doc Document287 Filed 7 05/08/20 Filed in TXSB Entered on 05/06/2005/08/20 14:52:10 Page 4 of Page7 176 of 263 measures implemented throughout the world, many of these third parties have been unable to timely deliver (or deliver at all) these materials and services. For example, the shop of one of

Plaintiff’s major fabricators on the RDU Project is in northern Italy. It has been closed for several weeks and unable to progress major fabrication components Plaintiff needs for the RDU Project.

9. The pandemic-related business interruptions and shutdowns of Plaintiff’s suppliers have caused a substantial delay and extension of the RDU Project schedule milestones. This, in turn, has pushed out the expected milestone payments to Plaintiff. As a result, Plaintiff is approximately $800,000.00 behind in projected receivables on the RDU Project, and currently expects to be forced by pandemic-related circumstances to move approximately $1.5 to $2 million in anticipated RDU Project fees from calendar year 2020 to calendar year 2021.

10. Plaintiff currently has 60 employees. To date, it has been able to meet its payroll obligations due in large part to the present Court-ordered stay on payment of bankruptcy professional fees and income from a number of smaller projects relating to work performed pursuant to previous purchase orders. However, due to the current pandemic-related business environment, many of those smaller project partners have either postponed or cut altogether their near-term capital expenditures. As such, until the pandemic-related safety measures are eased and the business climate improves, Plaintiff’s ability to obtain new purchase orders from these business partners is severely diminished.

11. In light of the present circumstances, the next three months will be very difficult for Plaintiff as it works toward confirming the Plan and emerging from this Bankruptcy Case as a reorganized operating entity. Obtaining funds from the PPP will contribute to the success of those efforts and help ensure that Plaintiff is able to meet its obligations along the way. Case 20-40133-thfCase 20-03120 Doc Document287 Filed 7 05/08/20 Filed in TXSB Entered on 05/06/2005/08/20 14:52:10 Page 5 of Page7 177 of 263

12. Plaintiff further testified that if it is permitted to re-apply for funds from the PPP without consideration by a lender or the SBA of Plaintiff’s or KP Engineering, LLC’s (“KPE

LLC”)3 status as a bankruptcy Debtor or involvement in the Bankruptcy Cases, Plaintiff will do so immediately. Plaintiff intends to only seek PPP funds in an amount that can be forgiven and use those funds in complete compliance with the program’s criteria for forgiveness of any obligation to repay them.

13. Plaintiff also testified that it continues to understand and acknowledge that as a

Debtor in the Bankruptcy Cases, it remains subject to this Court’s supervision and authority, including the Court’s authority to ensure that Plaintiff complies with the PPP loan forgiveness criteria.

14. The risk of harm to Plaintiff outweighs the harm to SBA if a temporary restraining order is granted.

15. Issuance of this temporary restraining order is in the public interest. The continued gainful employment of the Plaintiff’s 60 employees benefits the public interest as a whole.

Furthermore, injunctions that facilitate reorganizations serve the public interest. Chapter 11 expresses the public interest of preserving the going-concern values of businesses, protecting jobs, ensuring the equal treatment of and payment of creditors, and if possible saving something for the equity holders. In addition, entering this temporary restraining order furthers the policy behind the

PPP that it provide much-needed funds to struggling small businesses.

16. The Debtor is a debtor-in-possession, and it is not required to post a bond. FED. R.

BANKR. P. 7065 See, e.g. Mississippi Power & Light Co. v. United Gas Pipe Line Co., 760 F.2d

618 (5th Cir 1985).

3 KPE LLC owns 1% of Plaintiff. Case 20-40133-thfCase 20-03120 Doc Document287 Filed 7 05/08/20 Filed in TXSB Entered on 05/06/2005/08/20 14:52:10 Page 6 of Page7 178 of 263

Based on the findings and conclusions set forth above, it is hereby ORDERED,

ADJUDGED AND DECREED as follows:

1. The Plaintiff’s request for a temporary restraining order is hereby GRANTED as set forth herein.

2. A temporary restraining order is hereby issued, with notice, and directed to Jovita

Carranza in her capacity as Administrator for the SBA, and all agents, servants, employees, and any parties acting in concert with any of the foregoing parties (collectively “Restrained Parties”).

Until the expiration of this temporary restraining order, its scope is as follows:

a. Plaintiff is authorized to submit a Borrower PPP Application to any lender with the words “or presently involved in any bankruptcy” stricken from the SBA’s form, and, if

Plaintiff satisfies all the other conditions in question #1 to the loan application form, mark the box answering question #1 “no.” The Restrained Parties shall consider such Borrower PPP Application and fully implement all aspects of the PPP with respect to Plaintiff without any consideration of the involvement of Plaintiff or any owner of Plaintiff in any bankruptcy. A copy of this order shall be attached to the application. b. To the extent any bank requires Plaintiff to execute any other forms, applications, or other documents for a PPP loan that include any language about whether Plaintiff or any owner of Plaintiff is involved in any bankruptcy, Plaintiff is authorized to strike the portion of such language about involvement in any bankruptcy and the Restrained Parties shall process the forms, applications, or other documents without any consideration of the involvement of Plaintiff or any owner of Plaintiff in any bankruptcy.

c. The Restrained Parties shall not make or condition the approval of any PPP loan guaranty to the Plaintiff contingent on the Plaintiff or any owner of the Plaintiff not being

“presently involved in any bankruptcy.” Case 20-40133-thfCase 20-03120 Doc Document287 Filed 7 05/08/20 Filed in TXSB Entered on 05/06/2005/08/20 14:52:10 Page 7 of Page7 179 of 263

d. IT IS FURTHER ORDERED that the Court will conduct a hearing on

Plaintiff’s Application for a Preliminary Injunction at ____a.m./p.m.,9 XX on the ____20th day of ____,May

2020. The purpose of the hearing shall be to determine whether this Temporary Restraining Order should be made a Preliminary Injunction.

e. This temporary restraining order shall remain in full force and effect until it expires at _____a.m./p.m.5:00 xxx on ______,May 20 2020, unless either (a) terminated earlier by court order, or (b) further extended as provided by law or agreement of the parties.

Signed: May 06, 2020. ______DAVID______R. JONES UNITEDDAVID STATES R. JONES BANKRUPTCY JUDGE UNITED STATES BANKRUPTCY JUDGE

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EXHIBIT A-7 Case 20-06005-grs20-40133-thf DocDoc 28713 Filed Filed 05/08/20 05/08/20 Entered Entered 05/08/20 05/08/20 10:55:57 14:52:10 Desc Page Main 181 Document of 263 Page 1 of 10

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF KENTUCKY LONDON DIVISION

IN RE:

AMERICORE HOLDINGS, LLC, et al.1 Chapter 11 Jointly administered Debtors. Case No. 19-61608

ST. ALEXIUS HOSPITAL CORPORATION #1, Adversary No. 20-06005

Plaintiff,

v.

JOVITA CARRANZA, in her capacity as Administrator for the U.S. Small Business Administration,

Defendant.

TEMPORARY RESTRAINING ORDER

The Court has considered the Complaint [ECF No. 1] against the United States Small

Business Administration (“SBA”), filed by St. Alexius Hospital Corporation #1 as a debtor (Case

No. 19-61610) in the Chapter 11 cases being jointly administered under the lead case of In re

Americore Holdings, LLC (St. Alexius, individually, the “Plaintiff” and collectively with the jointly administered cases, the “Debtors”), by and through Carol L. Fox, the Chapter 11 Trustee, and the request for emergency issuance of a temporary restraining order, preliminary injunction

1 The Debtors in these Chapter 11 cases are (with the last four digits of their federal tax identification numbers in parentheses): Americore Holdings, LLC (0115); Americore Health, LLC (6554); Americore Health Enterprises, LLC (3887); Ellwood Medical Center, LLC (1900); Ellwood Medical Center Real Estate, LLC (8799); Ellwood Medical Center Operations, LLC (5283); Pineville Medical Center, LLC (9435); Izard County Medical Center, LLC(3388); Success Healthcare 2, LLC (8861); St. Alexius Properties, LLC (4610); and St. Alexius Hospital Corporation #1 (2766). 1

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and permanent injunction therein [ECF No. 2]. The Defendant Administrator of the Small

Business Administration responded, a hearing was held on May 7, 2020, and the matter is

submitted. [ECF No. 10.]

The Plaintiff contends the Administrator improperly prevented its access to a loan under the Paycheck Protection Program (“PPP”) established by the Coronavirus Aid, Relief, and

Economic Security Act (“CARES Act”) because the Plaintiff is a debtor in a chapter 11 reorganization. Federal Rule of Bankruptcy Procedure 7065 (incorporating Federal Rule of Civil

Procedure 65) governs the procedure for seeking a temporary restraining order. A court may issue a temporary restraining order if (1) an affidavit or verified complaint shows the movant will suffer immediate and irreparable injury, loss or damage before the adverse party may oppose the request; and (2) the movant’s attorney certifies in writing any efforts made to give notice and the reasons why notice is not be required. FED. R. BANKR. P. 7065(b)(1).

The movant has satisfied these conditions, but the Administrator also had the opportunity

to appear. The service address was possibly incorrect, but the Administrator was ably

represented at the May 7 hearing and was able to file its opposition papers for consideration

before this ruling. MLZ, Inc. v. Fourco Glass Co., 470 F. Supp. 273, 275 (E.D. Tenn. 1978) (if

an adverse party is present at and participates in the hearing, a court may treat the request as one

for a preliminary injunction).

The movant bears the burden of proof. FED. R. BANKR. P. 7065(b). To issue a temporary restraining order, the bankruptcy court weighs the same factors it considers for a preliminary injunction. Contech Casting, LLC v. ZF Steering Sys., LLC, 931 F. Supp. 2d 809, 814 (E.D.

Mich. 2013) (citing Monaghan v. Sebelius, 916 F.Supp.2d 802, 807 (E.D. Mich. 2012)). The

factors a court must consider are: (1) the likelihood of the Plaintiff's success on the merits; (2)

2

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whether the Plaintiff will suffer irreparable injury without the injunction; (3) the harm to others if

the injunction is granted; and (4) whether the injunction would serve the public interest. In re

Eagle-Picher Indus., Inc., 963 F.2d 855, 858 (6th Cir. 1992) (citing Unsecured Creditors' Comm.

of DeLorean Motor Co. v. DeLorean (In re DeLorean Motor Co.), 755 F.2d 1223, 1228 (6th Cir.

1985)). Issuance of a temporary restraining order is within the discretion of the court. Id. at 859.

Based on the record in this adversary proceeding, the main case, and the following

analysis, the Plaintiff will suffer immediate and irreparable harm without issuance of this

temporary relief. The Plaintiff is entitled to issuance of a temporary restraining order.

A. Substantial Likelihood of Success.

The likelihood of success is not guaranteed to either side, but initially the balance favors

the Plaintiff. The Administrator is starting at a disadvantage. Several courts have recently required the relief requested by the Plaintiff. See Springfield Hosp. Inc. v. Carranza (In re

Springfield Hosp. Inc.), Case No. 19-10283, Adv. No. 20-1003, 2020 WL 2125881 (Bankr. D.

Vt. May 4, 2020); Roman Catholic Church of the Archdiocese of Santa Fe v. United States of

America Small Business Administration (In re Roman Catholic Church of the Archdiocese of

Santa Fe), Case No. 18-13027 t11, Adv No. 20-1026 t, 2020 WL 2096113 (Bankr. D.N.M. May

1, 2020); Calais Reg’l. Hosp. v. Carranza (In re: Calais Reg’l Hosp.), Case No. 19-10486, 2020

WL 2201947 (Bankr. D. Me., May 1, 2020); Penobscott Valley Hosp. v. Carranza (In re

Penobscot Valley Hosp.), Case No. 19-10034, 2020 WL 2201943 (Bankr. D. Me., May 1, 2020);

Hidalgo Cty. Emergency Serv. Found. v. Jovita Carranza (In re Hidalgo Cty Emergency Serv.

Found.), Case No. 19-20497; Adv No. 20-2006, (Bankr. S.D. Tex.) (transcript of oral ruling

rendered April 24, 2020). During argument at the May 7 hearing, the only distinction made was

that these cases were wrongly decided.

3

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The Administrator argues that the bankruptcy limitation exists because the PPP was added as part of existing authority under Section 7(a) of the Small Business Act (codified in 15

U.S.C. § 636(a)). There is some support for this argument.

The PPP was created through a new part 36 to § 636(a). Part (a)(36)(B) provides for PPP loans: “Except as otherwise provided in this paragraph, the Administrator may guarantee covered loans under the same terms, conditions, and processes as a loan made under this subsection.” Part 636(a)(1)(A)(ii) addresses liquidity:

On and after October 1, 2015, the Administrator may not guarantee a loan under this subsection if the lender determines that the borrower is unable to obtain credit elsewhere solely because the liquidity of the lender depends upon the guaranteed portion of the loan being sold on the secondary market.

The Administrator’s claims the bankruptcy restriction is necessary based on higher risk seems to lack a foundation. In many situations, an entity in bankruptcy might suggest a higher risk. But there is no doubt any PPP loan carries significant risk to the federal government due to a slide into bankruptcy. It seems likely PPP loan beneficiaries will make up a sizeable number of the massive surge in bankruptcy cases predicted to start later this year.

In addition, § 1106(b) of the CARES Act deals with forgiveness of the PPP loan if the funds are used in the manner prescribed for ordinary business expenses such as payroll costs.

See also 15 U.S.C. § 636(a)(36)(F). The Administrator argued that a chapter 11 debtor was more likely to fail to comply with the conditions that allow forgiveness. That assertion is not credible.

The Plaintiff has over 300 employees and the papers filed indicate any loan proceeds are dedicated to the expenses that will justify loan forgiveness. It is much more likely that an entity under the care of a bankruptcy court will comply with the forgiveness rules than violate them.

That conclusion is even more likely in this case because an independent trustee was appointed months ago.

4

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The CARES Act was scrutinized to determine if there is some authority for the

Administrator’s actions. There is a section that is specifically titled, “Bankruptcy.” This section

makes changes to the Bankruptcy Code unrelated to this issue. An additional provision

excluding PPP loans to entities going through chapter 11 reorganization, a simple demand, was

not included by Congress.

Further, provisions in § 636 suggest this Court should resolve doubts in favor of a

borrower. For example, the Administrator is allowed to make loans to small businesses that are

harmed by the loss of a Department of Defense contract or started by a veteran. 15 U.S.C.

§ 21A(i). The statute specifically recognizes the greater risk with such loans, but still provides

that “any reasonable doubts concerning the firm’s proposed business plan for transition to

nondefense-related markets shall be resolved in favor of the loan applicant when making any

determination regarding the sound value of the proposed loan in accordance with paragraph (6).”

Id. See also id. at § 636(a)(6).

The Administrator suggests there was a violation of sovereign immunity, but that is not

clear at this stage. Section 106 of the Bankruptcy Code abrogates sovereign immunity regarding

§ 525(a), which protects chapter 11 debtors from discriminatory treatment. 11 U.S.C. §§ 106 and 525. Application of the statute suggests the Administrator has exceeded her statutory authority by requiring lenders to discriminate against the Plaintiff by excluding it from the PPP loan application process. Consider In re Rose, 23 B.R. 662, 666-67 (D. Conn. 1982) (preventing the government from excluding a debtor from certain benefits of mortgage financing solely because of bankruptcy and without taking into account present financial capability). See also 11

U.S.C. § 105(a).2

2 This order does not decide whether the Plaintiff qualifies for a PPP loan. 5

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The Administrator also appeared to push for action through administrative channels.

This is the usual first recourse for aggrieved parties. But when an aggrieved party cannot obtain

relief before it is forced out of business by delays or lack of action, courts have stepped in.

There is also contrary authority, but this relief is only temporary and the Administrator will have

the opportunity to press this position when more permanent relief is considered.

At this point, the Plaintiff has met its burden to show a likelihood of success on the

merits. There is no doubt more information is required to reach a definitive conclusion.

B. Irreparable Harm to the Plaintiff and Harm to the Defendant.

The Plaintiff contends that closure of the Hospital and its other properties would be

devastating both from a patient health and an economic perspective. The record bears out the

fact that the Plaintiff will suffer irreparable harm if relief is not granted.

The Plaintiff operates property of the Debtor in two locations. The primary location, St.

Alexius Hospital, is located at 3933 S. Broadway, St. Louis, Missouri. It has served the St. Louis community since 1869. The Hospital offers 24/7 services in the south St. Louis area in a zip code with 28,000 residents whose annual median household income is less than $33,000. It offers an emergency department, intensive care unit, and radiology, cardiology, therapy, and psychiatric services as well as a senior care center. The Hospital employs over 300 employees most of whom live paycheck to paycheck. It primarily treats uninsured patients, and patients who rely on

Medicare and Medicaid.

The Plaintiff also operates another property located at 3535 S. Jefferson Avenue, St.

Louis, Missouri. The other property which houses the St. Alexius Primary Care Office and the

Psychiatric Intensive Outpatient Program, in addition to the Lutheran School of Nursing, which

6

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has been training nurses for over 100 years. A medical pavilion at this location also serves as a

medical office building for area physicians.

The State of Missouri has been under a “stay at home” order since April 6, 2020, which

may or may not still apply. A significant portion of the Plaintiff’s collective revenue is derived

from outpatient procedures and non-essential office visits or medical procedures. Following the

issuance of Missouri’s stay at home orders, non-essential medical procedures and office visits were postponed, rescheduled or canceled. These cancellations and deferrals have had—and are expected to continue to have— at least a 25% reduction in the Plaintiff’s cash receipts alone.

This is the type of harm the PPP loan program was intended to address, and it is particularly devasting to a hospital.

On April 27, 2020, Missouri issued guidelines for a slow reopening of certain businesses

until May 31, 2020. However, significant delays in scheduling elective procedures and

emergency room visits will occur due to, among other things, nursing home lockdowns and the population’s wariness to seek medical care in light of the COVID-19 pandemic.

The Plaintiff is in urgent need of the funds provided under the PPP to pay nurses,

physicians, and other clinical personnel critical to the safe and secure operations of its properties,

and the treatment and care of patients, including those with the COVID-19 virus. The PPP funds

are critical to the Plaintiff’s payroll obligations at this unprecedented historical time created by

COVID-19.

But the PPP funds available are finite and diminishing. The money available for the first

round of financing was gone quickly, although the argument suggested there are funds in a

second tranche. No doubt, those funds will go quickly and will not survive until this dispute is

fully litigated. So there is an urgent need to apply for the funds now.

7

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In comparison, the Defendant will suffer little harm by the issuance of 14-day restraining

order. Allowing the Plaintiff to file an application does not guarantee loan approval or that funds will be immediately distributed or used.

The Administrator suggests a ruling in favor of the Plaintiff would interfere with the difficult process of administering the PPP loan program. That argument is without merit. This

Order only applies to the Plaintiff.3 Further, the initial analysis suggests the Administrator has

overstepped her authority and possibly endorsed discrimination. So any hardship is brought on

by the administration’s own actions.

The Administrator argues the Plaintiff lacks standing because it checked a second box that would exclude it from the PPP loan program. If that is the case, then this ruling has no

detrimental effect.

The risk of harm to the Plaintiff outweighs the harm to the Defendant if the relief is granted.

C. Public Interest

Issuance of this temporary restraining order is in the public interest. The lack of this source of liquidity risks the Plaintiff’s survival and the health and treatment of patients. The

Plaintiff needs the PPP loan to shore up the Hospital’s finances and keep it a viable health care provider in an underserved and depressed community. This service is particularly critical as the nation and the local community come out of pandemic-driven closures.

The continued gainful employment of the Plaintiff’s approximately 300 healthcare employees also benefits the community and the public interest as a whole. The Plaintiff operates a “front line” health care business that is vitally important, even in normal times, and even more

3 Further, by the time this Order is addressed, the Administrator will have already dealt with the other debtors that received similar relief cited supra. So little additional work is required by this Order. 8

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so now. It is important to maintain a responsible and knowledgeable team capable of serving the

depressed Missouri region in which the hospital businesses reside. The public interest is clearly

served by the Plaintiff’s ability to take steps to maintain 100% of its usual staffing levels in the

midst of the COVID-19 pandemic.

Based on the findings and conclusions set forth above, it is hereby ORDERED:

1. The Plaintiff’s Emergency Motion for Temporary Restraining Order and Request for

Hearing Date and Briefing Schedule with Respect to the Debtor’s Request for a

Preliminary Injunction [ECF No. 2] is GRANTED.

2. A temporary restraining order is issued, with notice, and directed to Jovita Carranza in

her capacity as Administrator for the United States Small Business Administration, and

all agents, servants, employees, and any parties acting in concert with any of the

foregoing parties (collectively the “Restrained Parties”).

3. Until the expiration of this temporary restraining order, its scope is as follows:

a. The Plaintiff is hereby authorized to submit a PPP loan application to any lender

with the words “or presently involved in any bankruptcy” stricken from any

requisite form.

b. If the Plaintiff satisfies all the other conditions in question #1 to the loan

application form and it still must mark a box indicating it is in bankruptcy, it may

mark the box “no.”

c. The Restrained Parties shall consider the PPP application and fully implement all

aspects of the PPP program with respect to the Plaintiff without any consideration

of the involvement of the Plaintiff or any of the other Debtors in any related

proceedings in any bankruptcy proceedings.

9

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d. To the extent any bank requires the Plaintiff to execute any other forms,

applications, or other documents for a PPP loan that include any language about

whether the entity or any of the Debtors are involved in any bankruptcy

proceedings, the Plaintiff is authorized to strike the portion of such language

about involvement in any bankruptcy and the Restrained Parties shall process the

forms, applications, or other documents without any consideration of the

involvement of the parties in any bankruptcy proceedings.

e. The Restrained Parties shall not make or condition the approval of any PPP loan

guaranty to the Debtor contingent on the Debtor’s not being “presently involved

in any bankruptcy.”

4. The Plaintiff is not required to post a bond. FED. R. BANKR. P. 7065; In re Hidalgo

County Emergency Service Foundation, Case No. 19-20497, 2020 WL 2029252, at *2

(Bankr. S.D. Tex. Apr. 25, 2020). Any question of sanctions or damages is reserved for

further action and will depend on the Administrator’s compliance with this Order.

5. The Court will conduct a telephonic evidentiary hearing on Plaintiff’s request for a

preliminary injunction at 9:00 on May 21, 2020. Parties shall call in approximately 10

minutes prior to the start of the hearing using the following: Toll-free: 1-888-363-

4749; Access Code: 9735709.

6. This temporary restraining order shall expire within 14 days from entry of this Order

unless otherwise ordered by the Court.

10

______The affixing of this Court's electronic seal below is proof this document has been signed by the Judge and electronically entered by the Clerk in the official record of this case.

Signed By: Gregory R. Schaaf Bankruptcy Judge Dated: Friday, May 8, 2020 (grs) Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 191 of 263

EXHIBIT B Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 192 of 263

UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF KENTUCKY OWENSBORO DIVISION

IN RE: Chapter 11 HARTSHORNE HOLDINGS, LLC, et al. Jointly administered

1 Debtors. Case No. 20-40133

HARTSHORNE MINING, LLC, and HARTSHORNE MINING GROUP, LLC

Plaintiffs, Adversary No. 20-______

v.

JOVITA CARRANZA, in her capacity as Administrator for the U.S. Small Business Administration,

Defendants

TEMPORARY RESTRAINING ORDER

On May __, 2020, the Court considered Plaintiffs’ Emergency Application for Temporary

Restraining Order and Preliminary Injunction (the “Application”), and the request in the

Application for issuance of a temporary restraining order; and having considered certain facts set forth in the verified Application; and having considered the text and purpose of the Coronavirus

Aid, Relief and Economic Security Act (the “CARES Act”) and the Paycheck Protection Program

1 The Debtors in these chapter 11 cases and the last four digits of each Debtor’s taxpayer identification number are as follows: Hartshorne Holdings, LLC (3948); Hartshorne Mining Group, LLC (0063); Hartshorne Mining, LLC (1941); and Hartshorne Land, LLC (5582). The Debtors’ headquarters are located at 373 Whobry Road, Rumsey, Kentucky 42371.

010-9063-1685/1/AMERICAS

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(“PPP”) in § 1102 of the CARES Act; and having considered the arguments of the Parties, the

Court finds and concludes that Plaintiffs would suffer immediate and irreparable harm without issuance of the temporary restraining order.

It is hereby ORDERED and ADJUDGED:

1. The Court hereby issues this temporary restraining order, with notice, and directed to Jovita

Carranza in her capacity as Administrator for the U.S. Small Business Administration

(“Administrator”), all agents and employees of the U.S. Small Business Administration

(“SBA”) and anyone acting in concert with the SBA (collectively the “Restrained Parties”).

Any commercial lender participating in the PPP enacted in § 1102 of the CARES Act shall

become one the Restrained Parties upon actual notice of this order being provided to such

bank. This order does not restrain the Restrained Parties to the extent any of them takes

action on an application under the PPP for persons or entities other than Plaintiffs.

2. The Restrained Parties shall not deny or cause any commercial lender to deny any

application of Plaintiffs under PPP solely on the basis that Plaintiffs are debtors in

bankruptcy or “presently involved in any bankruptcy” as described by the official PPP

application promulgated by the Administrator (the “Loan Application”).

3. The Retrained Parties shall not refuse to guaranty a loan sought by Plaintiffs under the PPP

solely on the basis that Plaintiffs are debtors in bankruptcy or “presently involved in any

bankruptcy” as described by the Loan Application.

4. The Administrator shall not authorize, guarantee or disburse funds appropriated for loans

under the PPP without reserving sufficient funds or guaranty authority within the scope of

the second appropriation to fund the PPP to provide Plaintiffs with access to funds under

the PPP if Plaintiffs are eligible after implementation of the terms of this restraining order.

010-9063-1685/1/AMERICAS

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The Administrator shall ensure she has sufficient authority within the scope of the amounts

appropriated for PPP as of May __ 2020, to guaranty a loan to Plaintiffs in the amount

Plaintiffs have applied for, $2,274,400, in the event Plaintiffs are eligible to obtain that

amount subject to the terms of this order and after consideration of any administrative and

judicial appeals and resolution of the claims in Plaintiffs complaint.

5. Plaintiffs shall be authorized to submit a PPP Loan Application to a participating lender of

their choosing—with the words “or presenting involved in bankruptcy” stricken from the

Application and, if Plaintiffs satisfy all other conditions in Question 1 of the Loan

Application to mark the box answering Question 1 “no” or, with respect to any pending

application, for the participating lender to treat Question 1 as if it were answered “no”. The

Restrained Parties shall consider the application submitted by Plaintiffs and fully

implement all aspects of PPP program with respect to Plaintiffs without any consideration

of the involvement of Plaintiffs in bankruptcy. The application shall be considered an initial

application of the submission if a subsequent application would adversely impact

Plaintiffs’ ability to qualify for a PPP loan.

6. To the extent any lender participating in the PPP program requires Plaintiffs to execute

other forms, applications, or other documents for a PPP loan that would include any

language about whether Plaintiffs are involved in bankruptcy, Plaintiffs are authorized to

strike the portion of such language about the involvement in bankruptcy and the Restrained

Parties shall process the forms, applications, or other documents without any consideration

or the involvement of Plaintiffs in bankruptcy.

7. To the extent the approval of this Court is required for Plaintiffs to obtain a PPP loan,

Plaintiffs shall file a motion and seek entry of an order authorizing such relief. Plaintiffs

010-9063-1685/1/AMERICAS

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must file any such motion within ten days after the date of this order. Any deadline under

the PPP program requiring disbursement of PPP loan proceeds is hereby extended in order

to allow consideration of a motion by Plaintiffs seeking authority to obtain a PPP loan.

8. The Court will consider a telephonic status conference on Plaintiffs’ request for a

preliminary injunction consistent with the terms of this order on May __, 2020 at _____.

At the status conference the Administrator must be prepare to describe, in reasonable detail,

the steps she has taken to comply with this order.

9. This temporary restraining order shall remain in full force and effect until it expires on

May __, 2020 unless further extended by applicable law, by order of the Court, or by

written agreement Plaintiffs and the Administrator.

10. The Court finds that, given the nature of the relief ordered herein, there is no significant

risk of damage to Defendant from entry of this Order and that no security is required.

010-9063-1685/1/AMERICAS

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EXHIBIT C Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 197 of 263

OHIO VALLEY ELECTRIC CORPORATION 01/EcjlKEC INDIANA-KENTUCKY ELECTRIC CORPORATION P. 0. Box 16631 Columbus OH 43216 Fuel Purchase Order: 31-10-18-003

Effective Date: August 31, 2018

Seller: Hartshorne Mining Group, LLC 373 Buyer: Indiana-Kentucky Electric Whobry Rd Corporation. P.O. Box 468 Rumsey, KY 42371 Piketon, OH 45661 Attn: Accounting Supervisor Attn: Adam Anderson Phone: (314) 422-4150 Email: [email protected] m Primary Plant: Clifty Creek Email: [email protected] m Commodity: Crushed, bituminous Coal, partially washed, containing no synthetic fuels, substantially free from any extraneous material, with no intermediate sizes to be added or removed and otherwise meeting the specifications of this Contract.

Term: April 1, 2019 through December 31, 2020 ("Term"), unless earlier terminated as provided for herein.

The Term shall include an inilial test burn period between April 1, 2019 and May 31, 2019 (the "Test Burn Period"). Within thirty (30) days upon the conclusion of the Test Bum Period, Buyer shall provide a written notice to Seller regarding the suitability of the Test Burn Tons (defined below) at the Plant. If Buyer confirms in its notice that the Test Bum Period was successful, then delivery of lhe Delivery Period Tons (defined below) shall begin on July 1, 2019 and continue through December 31, 2020 (the "Delivery Period"). If Buyer identifies in its notice any conditions making the Coal unsuitable for use al the Plant, then Seller shall have thirty (30) days from receipt of Buyer's notice to cure any unsuitable conditions noted by Buyer. In the event Seller is (a) able to cure any unsuitable conditions of the Coal to the satisfaction of Buyer, then the "Delivery Period" shall be defined to begin upon the date that Seller receives written notice from Buyer confirming such acceptance of Seller's cure and continuing through December 31, 2020, or (b) unable to cure the unsuitable conditions of the Coal, then Buyer shall have an immediate right to terminate this Fuel Purchase Order and neither party shall have any liability to the other partyfor the Delivery Period and the Delivery Period Tons

Quantity: During the Test Bum Period, a total of 50,000 Tons of Coal ("Test Burn Tons") to be delivered FOB barge at Delivery Point (defined below) (each barge shall constitute a "Shipment") on a mutually agreeable shipping schedule.

During the Delivery Period, a total of 600,000 Tons of Coal ("Delivery Period Tons") to be delivered FOB barge at Delivery Point (each barge shall constitute a "Shipment") on a mutually agreeable shipping schedule.

Price: The Contract Price for the Test Burn Tons and the first 200,000 Tons of the Delivery Period Tons is $36.85 per Ton FOB at the Delivery Point, except as set forth hereafter in Quality Adjustments.

The Contract Price for the remaining 400,000 Tons of the Delivery Period Tons is $38.00 per Ton FOB at the Delivery Point, except as set forth hereafter in Quality Adjustments.

Quality: As received basis, in accordance with ASTM standards ("Standards") for each Shipment, as follows:

Highly Sensitive & Confidential Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 198 of 263

Contracted Shipment Characteristic: Half-Month: Reiection Limit: Heating Value (Btu/lb.)· 11,300 < 11,000 minimum SOi (lbs. SO2/mmBtu): 4.80 > 5.20 maximum Moisture(%): 12.0 > 14.0 maximum Ash(%): 10.0 > 12 0 maximum Volatile Matter(%): 38 25 mlnimum Hardgrove Grindability: 57 NIA Chlorine(%): 0.10 > 0.18 maximum Ash Fusion Temperature 2210 N/A (H=1/2w)°F Red Atln.:

Sizing: No more than 10% to exceed 2 X O inches topsize, nominal, with maximum 55% passing one-quarter Inch square wire cloth sieve to be determined on the basis of the primary cutterof the mechanical sampling system

Source: Seller's Poplar Grove mine, from the West Kentucky No. 9 and No. 11 seams of coal located in McLean County, Kentucky Delivery FOB barge at Buck Creek Dock. M.P. 61.0. Green River Point: Weighing Seller shall be the weighing party. The weighing party shall weigh the Coal in accordance Party: with Section 3 of the OVEC/IKEC Fuel Purchase Order Terms and Conditions Effective 5/1/16 and attached hereto as Exhibit A (the "Terms & Conditions").

Sampling & Seller shall be the sampling party. The sampling party shall sample and analyze the Coal Analysis in accordance with Section 4 of the Terms & Conditions attached. Party:

Quality If Coal delivered under this Fuel Purchase Order varies from the Quality specifications Adjustments: above (the "Specifications"), but Buyer does not exercise its rejection rights under Section 5, Rejection and Suspension of the Terms & Conditions, quality adjustments shall be calculated pursuant to the formulas set forth in this section using the weighted averages by Purchase Order. All adjustment calculations shall be carried out four decimal places.

(A) If the weighted average heating value (Btu/lb.) of all Coal unloaded and taken Into account hereunder in a Half-Month is not equal to the Contracted Half-Month Btu/lb., then there shall be an amount added to the Contract Price (if the calculated number is positive) or subtracted from the Contract Price (if such number is negative), as determined by the following formula, to arrive at the adjusted price for such Coal:

Amount Per Ton of Increase =

However, no premium will be paid for Btu/lb. which exceeds the Contracted Half-Month Btu/lb. by 750 Btu/lb.

(8) If the weighted average SO2 content of all Coal unloaded and taken into account hereunder in a Half-Month is tested to have an SO2 content is not equal to the SO2 Contracted Half-Month Specification, the Contract Price for such Coal will be increased (if the calculated number Is positive) or decreased (ifthe calculated number is negative) by an amount per Ton of Coal determined in accordance with the following formula

((Contracted SO2 - Actual lbs. SOJmmBtu) x Actual Btu/lb. x SC) 1,000,000

SC = The actual variable cost, Including limestone and sorbent costs but not including Highly Sensitive & Confidential Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 199 of 263

normal operating costs such as power or capital costs, for the prior year for Buyer to remove one ton of SO2 from the applicable Plant's emissions (the "Scrubbing Cost"). The Scrubbing Cost shall be provided to Seller by March 1 of the current Year and shall be applicable for all SO2 adjustments in the current Contract Year. Upon request of Seller, detailed data for the Scrubbing Cost will be provided to Seller by Buyer.

In addition to the above price adjustment formula, for each Shipment of Coal having an SO2 value greater than the Shipment Rejection Limit, should Buyer choose not to elect its rejection rights under Section 5, Rejection and Suspension of the Terms & Conditions, a price discount shall be negotiable, with a minimum amount of three dollars ($3.00) per Ton to be deducted from the Contract Price.

Payment: Seller shall submit to Buyer invoices for Coal shipped from the first (111) calendar day through the fifteenth (1511) calendar day of each month and from the sixteenth (161h) calendar day through the last calendar day of each month, which shall include the weighted average analytical, and pricing data, as well as the above-referenced Fuel Purchase Order number and the applicable transport vehicle numbers. Buyer shall make payment to Seller on or before the tenth (101h) calendar day following the Half-Month period, provided Seller's invoice is submitted In compliance with the preceding sentence Buyer shall not be obligated to make payment to Seller for Shipments of Coal until the analytical results have been provided to Buyer.

Payment shall be made by wire transfer or electronic means in immediately available United States funds for all Coal received, unloaded, taken into account, and accepted hereunder. If not already provided In this Contract, Seller shall provide Buyer all pertinent remittance instructions in a letter {containing the bank name, account name, ABA number, and account number, as well as Seller's federal tax identification number} which shall be signed by a duly authorized representative of Seller. Any change In the remittance instructions shall be provided in the same manner. Overdue payments shall accrue interest {the prime rate of interest for United States Dollars as published fromtime to time during such period under the section titled, "Money Rates• by The Wall Street Journal, plus two percent per annum but not to exceed the maximum applicable lawful interest rate [hereinafter "Interest Rate'1) from the due date until paid.

SEND INVOICE TO: REMIT PAYMENT TO: Indiana-Kentucky Electric Corporation Bank: Bank of New York Mellon P.O. Box 468 New York Piketon, OH 45661 SWIFT Code: IRVTUS3N Attn: Accounting Supervisor ABA Routing#: 021000018 Email: [email protected] Beneficiary. Macquarie Bank Ltd SWIFT Code: MACQAU2S

Final Beneficiary: HartshorneMining Group, LLC Account#: 10456688 If any party in good faith reasonably disputes an invoice, It shall provide a written explanation to the other party specifying in detail the basis for the dispute and pay any undisputed portionno later than the due date. Upon resolution of any dispute involving an invoice, any additional amount owing by one party to the other party shall be paid with interest at the Interest Rate If any party fails to pay amounts under this Contract when due, unless such amount is the subject of a dispute as provided above, or is excused by a Force Majeure Event, in addition to the rights and remedies provided in this Contract, the aggrieved party shall have the right to suspend performance under this Contract until such amounts plus interest have been paid, and/or exercise any remedy available at law or in equity to enforce payment of such amount plus interest at the Interest Rate defined herein.

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Seller Coinciding with Seller's execution of this Purchase Order, Seller shall deliver to Buyer a Performance Guaranty similar in form to that of Exhibit B. attached hereto and incorporated herein. Assurance: Notwithstanding any other provision to the contrary in this Fuel Purchase Order or the Terms and Conditions attached hereto, the Guaranty referenced herein shall be the only Performance Assurance that Buyer shall require or that Seller or its affiliates shall give hereunder.

Other Terms: The following are changes to the attached OVEC/IKEC Fuel Purchase Order Terms and Conditions Effective 5/1/16:

The third sentence of Subpart (A) of Section 2, SCHEDULING, DELIVERY & TITLE AND RISK OF LOSS, is modified to delete "From time to time, and at" and insert "At"

The first sentence of Subpart(B) of Section 2, SCHEDULING, DELIVERY & TITLE AND RISK OF LOSS, is replaced with the following in lleu thereof: "Seller shall cause Coal sold hereunder to be properly loaded into the transport vehicle (i.e. railcars, barges, trucks, etc.) for delivery to Buyer, provided that Buyer has supplied transport vehicles free of excess water or debris and ready for loading, and has provided Seller with applicable loading instructions (including minimum and maximum weights) no less than twenty-four (24) hours prior to the arrival of Buyer's transportvehicle "

The second sentence of Subpart (C) of Section 2, SCHEDULING, DELIVERY & TITLE AND RISK OF LOSS, is replaced with the following in lieu thereof: "Title to and risk of loss of Coal supplied under this Contract shall pass to Buyer as follows··

The first sentence of Subpart (E) of Section 2, SCHEDULING, DELIVERY & TITLE AND RISK OF LOSS. shall startwith : "Solely with respect to its obligations and activities under this Contract,"

Subpart (A) of Section 4, SAMPLING AND ANALYSIS, is revised to delete reference to "sodium and•.

Subpart(C) of Section 5, REJECTION AND SUSPENSION, is deleted in its entirety and replaced with the following in lieu thereof: "(C) NOT USED."

The second sentence of Subpart (D) of Section 5, REJECTION AND SUSPENSION, is replaced with the following in lieu thereof: "In such event, Buyer shall provide Seller with written notice thereof, specifying the specific basis of such unsatisfactory performance. Upon receipt of such notice, Seller shall have thirty (30) days to cure the specified deficiency and upon Buyer's reasonable satisfaction of Seller's cure then Buyer's termination action shall be voided."

Subpart (C) of Section 7, FORCE MAJEURE EVENT, is deleted In its entirety and replaced with the following in lieu thereof:

"(C) If there is a Force Majeure Event, delivery of the affected quantity of Coal shall be made up at the sole discretion of the non-Claiming Party •

Section 9, FINANCIAL RESPONSIBILITY, the third sentence is deleted in its entirety

Item (Ill) under Subpart (B) of Section 10, EVENT OF DEFAULT AND DAMAGES, is replaced with the following in lieu thereof· "(iii) failure to provide adequate Performance Assurance or other assurances Highly Sensitive & Confidential Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 201 of 263

satisfactory to the Non-Defaulting Party of its ability to perform its further obligations under this Contract within three (3) Business Days by the Non­Defaulting Party"

The second sentence of Section 13, HOLDING AND USE OF PERFORMANCE ASSURANCE, is replaced with the followingI n lieu thereof: ulf an Event of Default has occurred and is continuing with respect to a party or its guarantor (if any) or If a party or Its guarantor (if any) is not rated or has a rating below the credit rating referred lo in the immediately preceding sentence, then, if it holds Performance Assurance In the form of cash, it shall be required to immediately place all such cash in an escrow account with an Independent third party financial institution mutually acceptable to each of the parties."

The frrst paragraph of Section 20, NOTICES, is replacedwith the following in lieu thereof. PNotices provided for or required under lhis Contract may be provided verbally. but shall be confirmed in writing as soon as practicable. The parties shall be legally bound from the date the notification is provided. Notices provided for or requlred In writing herein shall be delivered by hand or generally accepted electronic means or sent by certified man. postage prepaid, return receipt requested. or by overnight courier."

Section 20, NOTICES, is modified by inserting Seller's notification addressas follows "For all notices. other than shipping notices. to Seller and/or its Affiliates HartshorneMinin g Group Attn: Adam Anderson POBox449 Calhoun, KY 42327 Emall. aanderson@paringaresources com cc to. [email protected]"

Section 22, DEFINITIONS, is modified by inserting the fol!oirling ""Associated companies" shall mean the owners of Ohio Valley Electric Corporation, currently consisting of American cBe tric Power Company, Inc .. Buckeye Power Generating Inc., Duke Energy Ohio, Inc., Peninsula Generation Cooperative Inc., Louisville Gas and Electric Company, The Dayton Power and Light Company, Ohio Power Company, The Toledo Edison Company, Allegheny Energy, Inc., Kentucky Utilities Company, Southern Indiana Gas and Electric Company, Ohio Edison Company, and their respective successors in interest in the 01,vnershlp of Buyer:

""Replacement Price" has the meaning given in Section 11(8)."

""Settlement Amount" has the meaning given in Section 10(0)"

"Force Majeure Event" Item (2) under Section 22, DEANmONS, is replaced by the followingin lieu thereof:

"(2} reasonably forseeable adverse geological or mining conditions;·

"Performance Assurance" under Section 22, DEFINITIONS, is replaced by the following in lieu thereof: ""Performance Assurance" means collateral in the form of either cash or Letter of Credit."

[Signature page foflows.J

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Except as set forth above, this Fuel PurchaseOrder shall be governed by the Terms & Conditionsattached hereto and Incorporated herein by specific reference

Seller: Buyer:

HartshorneMining Group, LLC Indiana-Kentucky ElectricCorporellon

Signature Signature

Adam D. Anderson RobertA Osborne Name (Print) Vice Presidentand COO Senior Vice President, Marketing/Sales Indiana-KentuckyElectric Corporation Tttle

Date October 1, 2018 Date

Highly Sensitive & Confidential Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 203 of 263 DVEC/IKEC

EXHIBIT A OVEC/IKEC FUEL PURCHASE ORDER TERMS AND CONDITIONS EFFECTIVE -5/1/16

1. AGREEMENT The attached Fuel Purchase Order together with these OVEC/IKEC Fuel Purchase Order Terms and Conditions shall constitute the "Contract." Any changes or modifications to this Contract shall be made in writing and signed by both parties. In the event that any provision(s) of these OVEC/IKEC Fuel Purchase Order Terms and Conditions are conflicting or inconsistent with the Fuel Purchase Order, the provision(s) of the Fuel Purchase Order shall control.

2. SCHEDULING, DELIVERY & TITLE AND RISK OF LOSS (A) Unless otherwise provided in the Fuel Purchase Order, Buyer shall advise Seller of its desired loading dates and delivery schedule. The parties will work together in good faith to agree on a reasonable and mutually acceptable delivery schedule within the Term and within each month during the Term. Unless otherwise specified in the Fuel Purchase Order, Buyer shall designate to Seller the scheduling, routing and method of Shipments of Coal purchased under this Contract. From time to time, and at any time, Buyer shall have the right, but not the obligation, to have all or any part of the Coal hereunder reconsigned for delivery to any destination, and/or to make all or any part of the Coal hereunder available for purchase by any person(s), whether or not affiliated with Buyer, through Buyer's purchase and subsequent resale to others of such Coal.

(B) Seller shall cause Coal sold hereunder to be properly loaded into the transport vehicle (i.e. railcars, barges, trucks, etc.) for delivery to Buyer, provided that Buyer has provided Seller with applicable loading instructions (including minimum and maximum weights) no less than twenty-four (24) hours prior to the arrival of Buyer's transport vehicle. The delivery schedule specified in the Fuel Purchase Order or as designated by Buyer in absence of such in the Fuel Purchase Order is binding on both Buyer and Seller and may only be changed by mutual written agreement.

(C) Seller represents and warrants that it has title to all Coal sold hereunder and the same is shipped free and clear of all liens, encumbrances, and claims prior to the transfer of title to Buyer. Title to and risk of loss of Coal conforming to this Contract shall pass to Buyer as follows:

(1) For barge deliveries, as the loaded barges are pulled from the Delivery Point. (2) For rail deliveries, as the loaded unit train or single car Shipment is pulled from the Delivery Point. (3) For truck deliveries, upon the Coal being delivered and dumped at the plant or other consigned destination. (4) For all Non-Conforming Shipments (as hereinafter defined) title to and risk of loss of Coal shall revert back to Seller immediately upon any rejection or nonacceptance by Buyer as provided elsewhere in this Contract.

(D) Seller and Buyer shall each indemnify, defend, and save harmless the other party, and its Affiliates, Associated Companies (relative to the Buyer), and their respective officers, directors, agents, and employees from and against any liabilities, expenses, losses, claim, damages, penalties, causes of action, or suits arising out of or in connection with its failure to comply with its obligations under this Contract.

E) Seller shall indemnify, save harmless, and defend Buyer and its Affiliates, Associated Companies, and their officers, directors, agents, and employees (all referred to in this sentence as "Buyer") from and against any liabilities, expenses, losses, claims, damages,

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penalties, causes of action, or suits, and all other obligations whatsoever, including without limitation, all judgments rendered against and all fines and penalties imposed upon Buyer (whether severally, or in combination with others) and any reasonable attorneys' fees and any other costs of litigation (all of which are hereinafter referred to as "Liabilities") arising out of injuries or death to any person(s), or damage to any property, caused by or related to, in whole or in part the railcars (or barges, if applicable) furnished hereunder (as applicable), between the time that such railcars (or barges, if applicable) are delivered to Seller or Seller's agent and the time that custody thereof is properly returned to Buyer (or to Buyer's agent carrier, if applicable), or if deliveries are by truck, arising out of injuries or death to any person(s), or damage to any property, caused by or related to, in whole or in part, to trucking of Coal, whether such Coal is trucked by Seller or Seller's trucking contractor(s). Any injury or death to person(s) or damage to property as hereinbefore described shall be reported to Buyer by Seller immediately upon the occurrence thereof, and confirmed in writing as soon as possible.

(F) FOR TRUCK DELIVERIES Seller, at its expense, shall have coverage of the insurance specified below, which shall be placed with insurance carrier(s) acceptable to Buyer, and shall maintain this insurance at all times during performance of this Contract:

(1) Certificate of Insurance: (a) Commercial general liability insurance with a limit of not less than $1,000,000 each occurrence and aggregate. !b) Commercial automobile liability insurance with a limit for bodily injury and property damage of not less than $5,000,000 each accident. (2) Excess or Umbrella Liability: (a) Commercial Excess or Umbrella liability with not less than $5,000,000 each occurrence and aggregate limit. (3) Worker's Compensation Certificate: (a) Coverage for the legal liability of Seller and its subcontractors under the worker's compensation laws of the state in which the work is to be performed. (b) Employer's liability coverage in an amount not less than $1,000,000 for each accident shall be included.

(G) Seller also warrants that it is in compliance with the Federal and State Motor Carrier Safety Acts (Financial Responsibility is USDOT 387.9).

3. WEIGHING All Deliveries: The weighing party shall determine the weight of the Coal delivered hereunder at its expense using its rail, truck, or belt scales, as applicable.

(A) The accuracy of the weighing party's rail scale(s), truck scale(s), or batch weighing system, as applicable, shall be maintained to within plus or minus two tenths of one percent (± 0.20%) accuracy. The weighing party's rail scale(s), truck scale(s), or batch weighing system, as applicable, shall be tested and calibrated semiannually by the appropriate certifying agency in accordance with the guidelines outlined in the National Institute of Standards and Technology Handbook #44, or other procedures which shall be mutually acceptable to Seller and Buyer. At the non-weighing party's request, which may be made from time to time, the weighing party shall inform the non-weighing party of the results of such testing and calibration. It shall be the responsibility of the weighing party to arrange and schedule scale calibrations when required.

(B) The accuracy of the weighing party's belt scales shall be maintained to within plus or minus one-quarter of one percent (± 0.25%) accuracy. The weighing party's belt scales shall be tested and calibrated once each month in accordance with the guidelines outlined in the National Institute of Standards and Technology Handbook #44 or other procedures which shall be mutually acceptable to Seller and Buyer. At the non-weighing party's 2 HIGHLY SENSITIVE AND CONFIDENTIAL Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 205 of 263

request, which may be made from time to time, the weighing party shall inform the non­ weighing party of the results of such testing and calibration. It shall be the responsibility of the weighing party to arrange and schedule scale calibrations when required.

(C) If the weighing party's scales are discovered to be outside of acceptable tolerance ranges (± 0.20% for rail scale(s), truck scales, or batch weighing system, and ± 0.25% for conveyor belt scales), then an appropriate adjustment will be made to the tonnage and invoiced retroactively to the date of the most recent calibration or thirty (30) calendar days prior to the calibration which was found in error, whichever is later.

(D) Buyer shall have no obligation to pay for any Coal being delivered via truck that Buyer determines is in excess of the maximum number of Tons of Coal that is legally deliverable to the plant or other consigned destination by such truck at the time of such delivery in accordance with applicable law.

(E) If there is no certified belt scale system at the Delivery Point, and if the parties specifically agree that weights shall be determined hereunder by draft survey taken at the Delivery Point, then all such draft surveys to determine weight shall be conducted by an independent surveyor (certified commercial marine surveyor for vessels) experienced in the conduct of draft surveys selected by mutual agreement of the parties. In cases where (i) there is no certified belt scale system at the Delivery Point and a draft survey is not taken at the Delivery Point or (ii) the Delivery Point is the ultimate destination, weights and where available, sampling, shall be determined at the destination by Buyer.

(F) Weights determined in accordance with this section shall be deemed accepted as correct (absent manifest error) and shall govern all invoicing and payments hereunder. Unless otherwise specified, the costs of weighing shall be for the account of the weighing party. The weighing party shall notify the other party if its scales are inoperable at any time.

(G) Irrespective of which party's weights govern for payment hereunder, Seller shall properly weigh each Shipment hereunder and report such weights to Buyer within twenty­ four (24) hours after the Coal has been loaded for shipment. Seller's weights shall be reported to the recipients designated by and in the manner specified by Buyer. If Seller's scales are inoperable, Seller shall notify Buyer.

(H) Exclusive of Section 3(E), during any period when weighing party's scales are inoperable then both the determination of the quantities of Coal delivered and the manner for sampling and analysis for such period shall be based on the following order of precedence, as applicable: (i) if the non-weighing party is able to use a scale system that is certified in accordance with the requirements of Section 3(A) above and the non-sampling party has a sampling system that is operable, then the non-weighing party shall become both the weighing party and the sampling and analysis party and the non-weighing party shall weigh the Coal in accordance with the weighing provisions of Section 3 and sample and analyze the Coal in accordance with the sampling and analysis provisions of Section 4, or (ii) if the non-weighing party is not able to use a certified scale system, then determination of the quantities of Coal delivered shall be made by a procedure to be established at such time by agreement of Buyer and Seller.

4. SAMPLING & ANAL VSIS The sampling party, except as otherwise provided for pursuant to Section 3(H), shall perform all sampling and analysis of Coal for payment hereunder.

(A) Whether or not Seller is the sampling party, if able, Seller shall sample the Coal or shall provide for the Coal to be sampled as it is loaded, analyze the sample(s) so obtained, and, as provided in Section 20, notify the other party and the consigned destination of such short proximate (Btu/lb., percent moisture, percent ash, percent sulfur, and with respect to 3 HIGHLY SENSITIVE AND CONFIDENTIAL Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 206 of 263

Illinois Basin Coal, the sodium and chlorine content) average analytical results of each Shipment.

(B) If Buyer is sampling party, Coal hereunder shall be sampled during the unloading process prior to its commingling with other coals.

(C) Sampling party shall immediately notify the other party if either its sampling system or its analysis laboratory becomes unavailable or unable, for any reason, to provide the short proximate analysis. Upon such occurrence(s), Buyer and Seller shall follow the procedures identified in Section 3(H) (i) for sampling and/or analyzing the Coal shipped hereunder during such time that sampling party's sampling system is unable to provide the short proximate analysis for such Coal. In the event Section 3(H)(i) is not applicable, then for Coal received, unloaded, and taken into account that is not sampled or is sampled but not analyzed, it shall be taken into account as follows: (i) if during any Half-Month period at least fifty percent (50%) (by weight) of Coal delivered at a respective consigned destination during such period has been sampled and analyzed, then the weighted average analytical results of such samples shall be applicable to all Coal delivered to such consigned destination during such Half-Month period, or (ii) if more than fifty percent (50%) (by weight) of Coal delivered at a consigned destination during any such Half-Month period has not been sampled and analyzed, then the weighted average analytical results of the portion of sampled and analyzed Coal shall apply to such portion, and the weighted average analytical result of the last preceding Half-Month period in which at least fifty percent (50%) (by weight) of the Coal delivered to such consigned destination was sampled and analyzed shall be applicable to such portion of the Coal delivered which was not sampled and/or was not analyzed for such Half-Month period.

(D) All sampling and analysis performed hereunder shall be performed by the sampling party at its expense and shall comply with the governing ASTM procedures and specifications in effect at the time of such sampling and analysis. The Coal samples collected shall be prepared and analyzed by (i) Buyer's laboratory or by an independent commercial laboratory, if Buyer is the sampling party, or (ii) by an independent commercial laboratory if Seller is the sampling party. The non-sampling party may observe the sampling, sample preparation and analysis hereunder. All sampling shall be performed using a mechanical sample system that has been certified within the previous sixty (60) calendar months to be free of significant bias and that is properly operated and maintained. Any independent commercial laboratory used for analysis shall be mutually agreed upon by the parties.

(E) Each Coal sample collected by the sampling party shall be properly divided into at least three (3) subsamples. One subsample shall be immediately analyzed by the applicable laboratory for the governing contractual analysis. The second subsample is to be sealed in an airtight container and sent to the non-sampling party. The third subsample is to be sealed in an airtight container and held by the sampling party for a period of at least thirty (30) days (hereinafter the "Referee Sample").

(F) The non-sampling party may request analysis of the Referee Sample by an independent laboratory mutually agreed upon by the parties. If the results of the Referee Sample analysis and the governing contractual analysis are within ASTM Reproducibility Limits, the original governing analysis shall control and the cost of analyzing the Referee Sample shall be borne by the party requesting the Referee Sample analysis. If the results are outside such ASTM Reproducibility Limits, then the results of the Referee Sample analysis shall be used for payment, and the cost of analyzing the Referee Sample shall be borne by the sampling party.

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(G) The sampling party's analysis shall be reported to the recipients designated by and in the manner specified by the other party. For purposes of determining moisture hereunder, the two-stage procedure as defined in ASTM D3302 shall be used.

5. REJECTION AND SUSPENSION (A) If any Shipment of Coal fails to conform to any requirement specified in the Fuel Purchase Order (a "Non-Conforming Shipment"), Buyer shall have the option, exercisable by notice to Seller of either (i) rejecting such Non-Conforming Shipment at the Delivery Point or en route, but prior to unloading from Transporter's equipment or (ii) accepting any Non-Conforming Shipment with a Contract Price adjustment agreed to between Seller and Buyer. Should Buyer exercise such right of rejection, it shall notify Seller by E-mail or verbally upon discovery of the nonconformance, any verbal notification to be promptly confirmed in writing. If Buyer fails to exercise its rejection rights hereunder as to a Non­ Conforming Shipment, Buyer shall be deemed to have waived such rights with respect to that Non-Conforming Shipment only. If Buyer rejects the Non-Conforming Shipment, Seller shall be responsible for promptly transporting the rejected Coal to an alternative destination determined by Seller and, if applicable, promptly unloading such Coal, and shall reimburse Buyer for all reasonable costs and expenses associated with the transportation, storage, handling and removal of the Non-Conforming Shipment. Seller shall, at Buyer's request, replace the rejected Coal as soon as possible, provided that Buyer gives written notice to Seller of Buyer's desire for replacement Coal within thirty (30) days after rejection of the Non-Conforming Shipment.

(B) If there are three (3) Non-Conforming Shipments, whether rejected or not, under this Contract in any three (3) month period or if two (2) out of four (4) consecutive Shipments under this Contract are Non-Conforming Shipments, then Buyer may upon notice to Seller suspend the receipt of future Shipments (except Shipments already loaded or in transit to Buyer) under this Contract. A waiver by Buyer of the suspension right for any one period shall not constitute a waiver for subsequent periods. If Seller, within ten (10) days of its receipt of such notice, provides reasonable assurances in writing to Buyer that future Shipments under this Contract will conform to the Specifications and Buyer has accepted such assurances (such acceptance not to be unreasonably withheld), Shipments shall resume and any tonnage deficiencies shall be made up within the Term at Buyer's option. If (i) Seller fails to provide such acceptable assurances within such ten (10) day period, or (ii) after such assurances are provided and for a period of three (3) months thereafter, any Shipment of Coal fails to meet any of Buyer's rejection rights under this section for the Rejection Limit parameter for which there was a prior suspension under this Contract, then such event shall constitute an Event of Default as provided in Section 10.

(C} If any of the Half-Month weighted average Coal qualities fail to conform to the Half­ Month Suspension specifications, then Buyer may suspend the receipt of future Shipments (except Shipments already loaded or in transit to Buyer} under this Contract. A waiver by Buyer of the suspension right for any one period shall not constitute a waiver for subsequent periods. If Seller, within ten (10) days of its receipt of such notice, provides reasonable assurances in writing to Buyer that future Shipments under this Contract will conform to the Specifications and Buyer has accepted such assurances (such acceptance not to be unreasonably withheld), Shipments shall resume and any tonnage deficiencies shall be made up within the Term at Buyer's option. If (i) Seller fails to provide such acceptable assurances within such ten (10) day period, or (ii) after such assurances are provided and for a period of six (6) months thereafter, any Shipment of Coal fails to meet any of the Suspension limits under this section for any of the Half-Month Suspension limits for which there was a prior suspension under this Contract, then such event shall constitute an Event of Default as provided in Section 10.

(D} Buyer may terminate this Contract or terminate deliveries from the Source if Buyer in its reasonable judgment determines through operating experience that the Coal therefrom

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causes unsatisfactory performance at the Plant of consignment, even if such Coal meets the requirements and specifications of this Contract. In such event, Buyer shall provide Seller with written notice thereof, specifying the basis of such unsatisfactory performance.

6. ASSIGNMENT (A) This Contract shall inure to the benefit of and be binding upon the Parties hereto and their respective successors and assigns and shall not be assigned or otherwiseconveyed, in whole or in part, by either party without the prior written consent of the other, except as provided in (B) and (C) below.

(B) Either party may without the written consent of the other partyassign to any financing institution or institutions this Contract or any monies due or to become due hereunder.

(C) Either party may, without the prior written consent of the other party, assign or convey any and/or all of its interest in this Contract to an Affiliate, provided, that if this Contract is assigned or otherwiseconveyed to an Affiliate, the assignor or conveying party shall take all necessary actions, and shall require its affiliated assignee or Affiliate receiving entity, and any subsequent affiliated assignee(s) and affiliated receiving entity(ies), to take all necessary actions to prevent a non-Affiliate from acquiring the assignor's or conveying party's rights and obligations pursuant to this Contract.

(D) No assignment under this Section 6 or conveyance of any interest in this Contract shall in any way relieve the assignor or the conveying partyfrom liability for full performance under this Contract. Any such affiliated assignee, or other entity to whom an interest is conveyed (which conveyance must be with the prior written consent of the other party), shall assume and agree to be bound by the terms and conditions of this Contract.

(E) Written consent to one or more assignments shall not be construed as waiving the necessity of obtaining written consent to other and/or additional assignments.

7. FORCE MAJEURE EVENT (A) To the extent either party is prevented by a Force Majeure Event from carrying out, in whole or part, its obligations under this Contract and such party (the "Claiming Party'') gives notice and details, orally and confirmed promptly in writing, of such Force Majeure Event to the other party as soon as practicable (but in no event later than thirty (30) days after the occurrence thereof), then the Claiming Party shall be excused from the performance of its obligations during such Force Majeure Event. The Claiming Party shall remedy the Force Majeure Event with all reasonable dispatch. The non-Claiming Party shall not be required to perform or resume performance of its obligations to the Claiming Party corresponding to the obligations of the Claiming Party that are excused by the Force Majeure Event. Failure to give such notice and furnish such information within the time specified shall be deemed a waiver of all rights under this section for such period of time during which notice was not given. Buyer and Seller shall exercise reasonable efforts to mitigate or eliminate the conditions which have caused the Force Majeure Event, provided, however, nothing herein contained shall be construed as requiring Seller or Buyer to accede to any demands of labor, or labor unions, or suppliers, or other parties which Seller or Buyer considers unacceptable. The Claiming Party shall furnish the non-Claiming Party a monthly statement by the fifteenth (15th) day of the calendar month setting forth the amount of tonnage not shipped or to be reduced because of a Force Majeure Event asserted during the second preceding calendar month.

(B) Except as set forth in this paragraph, no suspension or reduction by reason of a Force Majeure Event shall invalidate the remainder of this Contract but, on the removal of the cause, therefore, Shipments shall resume at the specified rate. If a Force Majeure Event persists for (i) a continuous period of sixty (60) days or (ii) an aggregate of seventy-

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five (75) days during the Term of the Fuel Purchase Order or in any twelve month rolling period (if the Term is more than twelve (12) months), then, at any time thereafter during the Force Majeure Event, the non-Claiming Party shall have the option, upon three (3) days' prior written notice, to terminate this Contract and the obligations of the partieshereunder.

(C) If there is a Force Majeure Event, delivery of the affected quantity of Coal shall not be made up except at Buyer's sole discretion.

(D) If Seller claims a Force Majeure Event under this Contract and has obligations to provide coal of a similar type and quality as the Coal under other coal sales agreements, or if Buyer claims a Force Majeure Event and has obligations to purchase coal of a similar type and quality as the Coal under other coal sales agreements, then any reductions in Seller's deliveries or Buyer's purchases (as applicable) shall be allocated by the party claiming the Force Majeure Event on a pro rata basis among this Contract and such other coal purchase or sales agreements involving coal of a similar type and quality as the Coal, to the extent contractually permitted by such agreements. Without limiting the generality of this section, if there is a Force Majeure Event that causes a partial or total curtailment of electrical generation from or electrical generating capacity at the consigned destination or partial or total curtailment of transmission or distribution of electricity therefrom, Buyer shall at its option, be relieved under this section from its obligation to accept up to the pro rata (based on such partial curtailment) quantity or entire (based on such total curtailment) quantity of Seller's Coal scheduled for delivery for the period of the Force Majeure Event.

8. WAIVER The failure of Buyer or Seller to insist in any one or more instances upon strict performance of any of the provisions of this Contract or to take advantage of any of its rights hereunder shall not be construed as a future waiver of any such provisions or the relinquishment of any such rights, but the same shall continue and remain in full force and effect for the term of this Contract.

9. FINANCIAL RESPONSIBILITY Either party shall have the right, but not the obligation, to request from the other party or its guarantor, as applicable, audited annual financial statements and unaudited quarterly financial statements. In the event a party's financial statements are filed with the Securities and Exchange Commission and are available at www.sec.gov, then such party has fulfilled its obligations hereunder. In the event the performance, creditworthiness or financial condition of either party becomes unsatisfactory to the other party, in its reasonable judgment, at any time during which this Contract is in effect, that party may demand Performance Assurance before further deliveries or receipts are made by it under this Contract.

10. EVENT OF DEFAULT AND DAMAGES (A) If an Event of Default (as hereafter defined) occurs with respect to a party or its guarantor (the "Defaulting Party") at any time during the term of this Contract, the other party (the "Non-Defaulting Party'') may, in its sole discretion, do any or all of the following: (i) establish a date (which date shall be no earlier than the date that such notice is given to the Defaulting Party and no later than twenty (20) days from notice) ("Early Termination Date") on which this Contract shall terminate, (ii) withhold any payments due in respect of this Contract, (iii) suspend performance under this Contract and/or (iv) exercise such other remedies as may be provided in this Contract.

(B) An event of default with respect to any party ("Event of Default") shall mean any of the following: (i) the failure of either party or its guarantor to make when due, any payment required hereunder if such failure is not remedied within two (2) Business Days after notice of such failure is given to the Defaulting Party by the Non-Defaulting Party; (ii) the failure of either party or its guarantor to comply with any or all of its other respective obligations in

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good faith as herein set forth and such noncompliance is not cured within five (5) Business Days after notice thereof to Defaulting Party; or (iii) failure to provide adequate Performance Assurance or other assurances satisfactory to the Non-Defaulting Party of its ability to perform its further obligations under this Contract within forty-eight (48) hours, but at least within one (1) Business Day of a reasonable written request by the Non-Defaulting Party; (iv) either party (a) filing a petition in bankruptcy, (b) having such a petition filed against it, (c) becoming otherwise insolvent or unable to pay its debts as they become due; (v) the failure of a party's guarantor, if any, to perform any covenant set forth in its guaranty, or such guaranty shall expire or be terminated or shall cease to guarantee the obligations of such party hereunder, or such guarantor shall become subject to any of the events specified in (iv) (a), (b) or (c); or (vi) an event described in the last sentence of subsections (B) and (C) of Section 5, Rejection & Suspension, shall have occurred.

(C) If this Contract terminates on an Early Termination Date, the Non-Defaulting Party shall calculate, in a good faith commercially reasonable manner, the Settlement Amount as of the Early Termination Date as soon as is reasonably practicable and shall promptly notify the Defaulting Party of the amount thereof.

(D) "Settlement Amount" means the present value of the single net aggregate amount for the remaining Term, including any exercised option period, of any Losses, Costs and Gains, expressed in United States dollars, which the Non-Defaulting Party incurs as a result of the early termination of this Contract in accordance with this Section 10, including, but not limited to, Losses or Gains based upon the current Replacement Price of this Contract, the amounts of any unpaid invoices, and the amount for Coal delivered but not yet billed. In calculating the Settlement Amount, the Non-Defaulting Party shall set off all amounts that are due to the Defaulting Party against such Settlement Amount so that the Settlement Amount shall be netted to a single liquidated amount. Any collateral being held by the Non­ Defaulting Party shall be setoff against the amount owed to the Non-Defaulting Party. If the Defaulting Party is holding collateral posted by the Non-Defaulting Party, then the Non­ Defaulting Party will have the right to set off that amount against any payment to be made to the Defaulting Party.

(E) The Non-Defaulting Party shall provide the Defaulting Party with an explanation of how it calculated the Settlement Amount, as well as supporting calculations and documentation reasonably requested by the Defaulting Party. The Non-Defaulting Party shall use Commercially Reasonable Efforts to mitigate any Costs or Losses it is entitled to hereunder. The Defaulting Party shall have the right to audit (through a third party independent auditor mutually agreed to by the parties) the calculation of all of the Non­ Defaulting Party's Gains, Losses and Costs.

(F) If the present value of the Non-Defaulting Party's aggregate Losses and Costs (net of any amounts due to the Defaulting Party) exceed the present value of its aggregate Gains, all as finally determined in accordance with the preceding provisions of this section, the Defaulting Party shall, within five (5) Business Days of such final determination, pay the Settlement Amount to the Non-Defaulting Party, including interest thereon at the Interest Rate from the Early Termination Date until paid in full. If the Defaulting Party disputes the Non-Defaulting Party's calculation of the Settlement Amount, the Defaulting Party will provide its calculations to the Non-Defaulting Party within two (2) Business Days of receipt of calculation from the Non-Defaulting Party. The Defaulting Party shall nevertheless pay to the Non-Defaulting Party the undisputed portion of the Settlement Amount and provide Performance Assurance for the remaining amount.

(G) Notwithstanding any provision to the contrary contained in this Contract, the Non­ Defaulting Party shall not be required to pay the Defaulting Party any amount under this Section 10, until the Non-Defaulting Party receives confirmation satisfactory to it, in its reasonable discretion (which may include an opinion of its counsel), that all other obligations

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of any kind whatsoever of the Defaulting Party to make any payments to the Non-Defaulting Party under this Contract (or otherwise) have been fully and finally performed.

11. QUANTITY SHORTFALL DAMAGES (A) Unless excused by a Force Majeure Event, by written agreement of Buyer and Seller, or Seller's failure to perform, if Buyer fails to accept all or any part of the quantity of Coal to be delivered under this Contract, Buyer shall pay Seller for each Ton of Coal of such deficiency an amount equal to the positive difference, if any, obtained by subtracting the Sales Price from the Contract Price plus (i) any additional transportation costs incurred by Seller due to such failure and (ii) reasonable legal costs incurred by Seller in enforcement and protection of its rights under this Contract. usales Price" means the price, determined by Seller in a commercially reasonable manner, at which Seller resells (if at all) the Coal, or, absent such a sale, the market price for such quantity of Coal FOB Delivery Point.

(B) Unless excused by a Force Majeure Event, by written agreement of Buyer and Seller, or Buyer's failure to perform, if Seller fails to deliver all or any part of the quantity of Coal to be delivered under this Contract, Seller shall pay Buyer for each Ton of Coal of such deficiency an amount equal to the positive difference, if any, obtained by subtracting the Contract Price from the Replacement Price plus (i) any additional transportation costs incurred by Buyer due to such failure, and (ii) reasonable legal costs incurred by Buyer in enforcement and protection of its rights under this Contract. "Replacement Price" means the price, determined by Buyer in a commercially reasonable manner, at which Buyer purchases (if at all) substitute Coal for the deficiency or, absent such a purchase, the market price for such quantity of Coal at the consigned destination.

(C) Each party hereby stipulates that the payment obligations set forth in (A) and (B) above are reasonable in light of the anticipated harm and each party hereby waives the right to contest such payments as an unreasonable penalty or otherwise.

(D) Payment of amounts, if any, determined under this Section 11 shall be made in accordance with the applicable Payment .provision of this Contract; provided, that payment of any such amounts shall be made on the 201h calendar day of the month following such failure to deliver or accept Coal, as applicable. All such determinations shall be made in a commercially reasonable manner. The Non-Defaulting Party shall not be required to enter into any actual replacement transaction in order to determine the Replacement Price or Sales Price, as appropriate, provided, however, that the Non-Defaulting Party shall take all reasonable steps to mitigate its damages.

12. GRANT OF SECURITY INTEREST For the avoidance of doubt, the following grant of a security interest does not cover the general assets of either party, but is limited solely to any Performance Assurance delivered by a party to the other party under this Contract, and is not intended to be read as inconsistent with the lending arrangements of a party hereunder as this is not a general grant of a security interest, but only a grant of security interest with respect to any Performance Assurance delivered hereunder. Accordingly, to secure its obligations under this Contract and only to the extent either or both parties deliver Performance Assurance hereunder, each party as a pledger hereby grants to the other party (the "Secured Party") a present and continuing first priority secured interest in, and lien on (and right of recoupment and setoff against), and assignment of, all such Performance Assurance, including, any such cash collateral delivered as Performance Assurance and cash equivalent collateral delivered as Performance Assurance and any and all proceeds resulting therefrom or the liquidation thereof, whether now or hereafter held by, on behalf of, or for the benefit of, such Secured Party, and each party agrees to take such action as the other party reasonably requires in order to perfect the Secured Party'sfirst-priority security interest in, and lien on (and right of recoupment and/or setoff against), such collateral and any and all proceeds resulting therefrom or from the liquidation thereof. 9 HIGHLY SENSITIVE AND CONFIDENTIAL Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 212 of 263

13. HOLDING AND USE OF PERFORMANCE ASSURANCE Each partywill be entitled to hold Performance Assurance in the form of cash so long as the credit rating of the senior unsecured debt obligation of the entity or its guarantor is rated at least BBB- by S&P's and Baa3 by Moody's and further provided that an Event of Default has not occurred and is not continuing with respect to the party. If an Event of Default has occurred and is continuing with respect to a party or its guarantor (if any) or if a party or its guarantor (if any) is not rated or has a rating below the aforesaid standard, then, if it holds Performance Assurance in the form of cash, it shall be required to immediately place all such Performance Assurance in the form of cash in an escrow account with an independent third party financial institution mutually acceptable to the parties.

14. FORWARD CONTRACT Buyer and Seller each acknowledge that it is a "forward contract merchant" and that this Contract constitutes a "forward contract" within the meaning of the United States Bankruptcy Code.

15. NETTING AND SETOFF If Buyer and Seller are required to pay any amount in the same month, then such amounts with respect to each party may be aggregated and the parties may discharge their obligations to pay through netting, in which case the party, if any, owing the greater aggregate amount shall pay to the party owed the difference between the amounts owed. Each party reserves to itself all rights, setoffs, counterclaims, combination of accounts, liens and other remedies and defenses which such party has or may be entitled to (whether by operation of law or otherwise). The obligations to make payments under this Contract and/or any other contract between the parties hereto may be offset against each other, set off or recouped therefrom.

16. CONFIDENTIALITY The parties and their respective Affiliates, and Associated Companies, co-owners, lenders, counsel, accountants or others who agree to the confidentiality of the matters contained here, shall keep confidential any and all matters relating to this Contract, except those readily obtainable from public information, requested by a regulatory commission, or otherwise required by law to be disclosed.

17. ENTIRE AGREEMENT; MODIFICATION This Contract, together with any attachments or exhibits specifically referenced herein, constitutes the entire contract between the Seller and the Buyer with respect to the subject matter hereof, supersedes all prior oral or written representations and contracts, and may be modified only by a written amendment signed by Buyer and Seller.

18. COMPLIANCE WITH LAW Seller and Buyer shall make good faith efforts to comply with the provisions of all applicable federal, state, and other governmental laws and any applicable order and/or regulations, or any amendments or supplements thereto, which have been, or may at any time be, issued by a governmental agency.

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19. GOVERNING LAW; WAIVER OF JURY TRIAL; UCC; VENUE, GOVERNMENT CONTRACTOR COMPLIANCE This Contract shall be construed, enforced, and performed in accordance with the laws of the State of New York, including New York General Obligation Law Sections 5-1401 and 5- 1402. Each party waives its respective right to any jury trial with respect to any litigation arising under or in connection with this Contract. Except as otherwise provided for herein, the provisions of the Uniform Commercial Code ("UCC") of the State of New York shall govern this Contract and Coal provided hereunder shall be deemed to be "goods" for purposes of the UCC. Each party hereby submits to the exclusive jurisdiction of state or federal courts located in Franklin County, Ohio and all appellate courts therefrom and waives any objection which it may have at any time to the laying of venue of any proceedings brought in such court, waives any claim that such proceedings have been brought in an inconvenient forum, and further waives the right to object, with respect to such proceedings, that such court does not have jurisdiction over such party.

Unless exempted, Seller shall comply with the equal employment opportunity clause in Section 202 of Executive Order 11246 and all applicable rules, regulations, and relevant orders pertaining to Executive Order 11246, Section 503 of the Rehabilitation Act of 1973, and Section 4212 of the Vietnam Era Readjustment Assistance Act of 1974, as amended.

20. NOTICES

Notices provided for or required under this Contract may be exercised verbally, but shall be confirmed in writing as soon as practicable. The parties shall be legally bound from the date the notification is exercised. Notices provided for or required in writing herein shall be delivered by hand or electronic means or sent by certified mail, postage prepaid, return receipt requested, or by overnight mail or courier.

Unless Seller otherwise notifies Buyer in writing, notices to Seller shall be sent to the Seller using such contact information as provided on page one of this Contract.

Following each Shipment, Seller shall provide Buyer with a shipping notice that includes: (i) the applicable Fuel Purchase Order number; (ii) the Plant destination; (iii) the short proximate (Btu/lb., percent moisture, percent ash, percent sulfur, sodium content where included in Quality specifications and with respect to Illinois Basin Coal, the chlorine content) average analytical results of each Shipment; (iv) Seller's weight determination and the identifying number(s) of each Shipment; and (v) the date the Coal was loaded into the railcars or barges, with the starting and stopping times of the loading. If the Coal is to be sold FOB rail, then the notice shall also include the transportation agreement number, the origin station, and the train number. If the Coal is to be sold FOB barge, then the notice shall also include the shipping origin (dock name and milepost number) and barge number. Such notice shall be provided within twenty-four (24) hours after the Coal is loaded for shipment, or within thirty-six {36) hours should the Shipment be loaded on a Saturday. Seller's analysis shall be reported to the recipients designated by and in the manner specified by Buyer.

Shipping notices shall be sent to [email protected], and the Primary Plant (or other Plant as requested by Buyer).

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For all notices, other than shipping notices, to OVEC/IKEC and/or its Affiliates:

American Electric Power Service Corporation Attn: Fuel Contract Administration 303 Marconi Boulevard; Suite 300 Columbus, OH 43215 Email: F [email protected]

Notices hand delivered or delivered by electronic means, shall be deemed delivered by the close of the Business Day on which it was hand delivered or delivered by electronic means (unless hand delivered or transmitted by electronic means after the close of the Business Day in which case it shall be deemed received by the close of the next Business Day). Notices provided by certifiedmail, postage prepaid, return receiRt requested, or by overnight mail or courier shall be deemed delivered upon mailing.

21) RIGHT OF AUDIT Buyer and its designated representatives and/or agents including but not limited to its auditors, engineers, and geologists, shall at Buyer's discretion, have access to the mine(s) producing Coal under this Contract, to all support facilities, and to all records pertaining to the coal reserves covered by this Contract; to the production and cost of production records of coal produced at the production sources providing Coal under this Contract; and to all records pertaining to the cost of transporting Coal (where applicable), to the extent necessarily required for purposes of administering this Contract; and to all records pertaining to this Contract.

22) DEFINITIONS The following definitions and any terms defined internally in this Contract shall apply to this Contract and all notices and communications made pursuant to this Contract.

"Affiliate" means with respect to any entity, any other entity that directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, such entity. For this purpose, "control" means the direct or indirect ownership of 35% or more of the outstanding capital stock or other equity• interests having ordinary voting power. "ASTM" means ASTM International, formerly known as the American Society for Testing and Materials. "Business Day" means any day on which Federal Reserve member banks in New York, New York are open for business, and a Business Day shall open at 8:00 a.m. and close at 5:00 p.m. Eastern Prevailing Time. "Coal' means crushed, bituminous coal to be sold by Seller and purchased by Buyer, the quality of which shall conform to the Quality Specifications set forthin the Quality Item of the attached Fuel Purchase Order, and which does not trigger Buyer's rejection rights under Section, REJECTION AND SUSPENSION, or is otherwise acceptable by Buyer under this Agreement. Such Coal shall (a) be substantially free from any extraneous materials (including, but not limited to mining debris, synthetic fuels, bone, slate, iron, steel, petroleum coke, earth, rock, pyrite, wood or blasting wire), (b) be substantially consistent in quality throughout a Shipment, (c) meet the size required, and (d) have no intermediate sizes (including fines) added or removed. "Commercially Reasonable Efforts"means the taking by a party of such action as would be in accordance with reasonable commercial practices as applied to the particular matter in question to achieve the result as expeditiously as practicable; provided, however, that such action shall not require that such party incur unreasonable expense.

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"Contract Price" means the price in United States dollars per Ton of Coal to be paid by Buyer to Seller for purchase of Coal and any other proper charges pursuant to this Contract. "Costs" means any brokerage fees, commissions and other transactional costs and expenses reasonably incurred either by the Non-Defaulting Party as a result of terminating any hedges or other risk management contracts and/or entering into new arrangements in order to replace the Contract Quantity not delivered by Seller or not accepted by Buyer, as the case may be, and legal costs incurred by the Non-Defaulting Party. "Eastern Prevailing Time" means Eastern Standard Time or Eastern Daylight Saving Time in effect in New York, New York, as the case may be on the relevant date. "FOB" shall have the meaning given to such term as provided in the Uniform Commercial Code of the State of New York. "Force Majeure Event" means an event or circumstance which prevents one party (the "Claiming Party'') from performing its obligations under this Contract, which is not within the reasonable control of, or the result of the negligence of, the Claiming Party, and which by the exercise of due diligence, the Claiming Party is unable to overcome or avoid or cause to be avoided. A Force Majeure Event includes, but is not limited to, an event or occurrence beyond the control of Claiming Party, such as without limitation, acts of God, war, insurrection, riots, terrorism, nuclear disaster, strikes, labor disputes, threats of violence, labor and material shortages, fires, explosions, floods, river freeze-ups, breakdowns or damage to mines, plants, equipment, or facilities (including a forced outage or an extension of a scheduled outage of equipment or facilities to make repairs to avoid breakdowns thereof or damage thereto), interruptions to or slowdowns in transportation, railcar shortages, barge shortages, embargoes, orders, or acts of civil or military authority, laws, regulations, or administrative rulings, or total or partial interruptions of either party's operations which are due to any enforcement action or other administrative or judicial action arising from an environmental law or regulation. A Force Majeure Event shall not be based on: (1) Buyer's inability economically to use or resell the Coal purchased hereunder; (2) adverse geological or mining conditions; (3) the Seller's ability to sell the Coal at a price greater than the Contract Price; or (4) Seller's inability to economically produce or obtain the Coal. "Gains" means, with respect to a party, an amount equal to the present value of the economic benefit, if any, (exclusive of Costs) to it resulting from the termination of its obligations with respect to this Contract, determined in a commercially reasonable manner. "Half-Month" means, with respect to any calendar month, both (a) the period from and including the first day of such month through and including the fifteenth (15th) day of such month and (b) the period from and including the sixteenth (16th) day of such month through and including the last day of such month. "Letter of Credit" means an irrevocable, standby letter of credit, issued by a major United States commercial bank or the United States branch office of a foreign bank, reasonably acceptable to the beneficiary with, in either case, a senior unsecured credit rating of at least (a) "A-" by S&P and "A3" by Moody's, if such entity is rated by both S&P and Moody's or (b) "A" by S&P or "A3" by Moody's, if such entity is rated by either S&P or Moody's but not both. "Losses" means, with respect to a party, an amount equal to the present value of the economic loss, if any, (exclusive of Costs) to it resulting from the termination of its obligations with respect to this Contract, determined in a commercially reasonable manner. "Moody's" means Moody's Investors Service, Inc. or its successor. "NIST" means the National Institute of Standards and Technology Handbook #44. "OVEC-IKEC means Ohio Valley or Indiana-Kentucky Electric Corporation, as applicable.

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"PerformanceAssurance" means collateral in the form of either cash or Letter of Credit or such other security of the type and amount requested by the party demanding Performance Assurance. "S&P" means the Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. or its successor. "Shipment" means, as applicable;: (a) one (1) unit trainload of Coal or at Buyer's election a composite of two (2) or more unit trainloads of Coal; or (b) the aggregate of single railcars of Coal loaded on any one (1) day (only where single car rates apply); or (c) one (1) barge of Coal or at Buyer's election a composite of two (2) or more barges of Coal, or vessel load of Coal; or (d) the aggregate of the truckloads of Coal that are unloaded at the Delivery Point on any one (1) day in accordance with the applicable transportationspecifications. "Ton" means 2,000 pounds avoirdupois weight. "Transporter"means the entity or entities transporting Coal on behalf of Seller to and at the Delivery Point or on behalf of Buyer or Buyer's designee from the Delivery Point.

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EXHIBIT B CORPORATE GUARANTY

TO: INDIANA-KENTUCKY ELECTRIC CORPORATION, its successors and assigns, and any of its and their affiliates and subsidiaries ("IKEC").

FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which are hereby acknowledged, and to induce IKEC to enter into that certain Fuel Purchase Order No. 31-10-18-003 with an effective date of August 31, 2018 for the purchase and sale of physical coal (the "Agreement") with Hartshorne Mining Group, LLC, a Delaware limited liability company and an affiliate of the Guarantor ("Debtor"), the undersigned , Paringa Resources Limited ("Guarantor"), hereby unconditionally and absolutely guarantees the full and prompt payment of all present and future obligations of Debtor to IKEC, arising from IKEC's sales and or purchases of coal and related services with Debtor, under the Agreement, whether such obligations are due or to become due, secured or unsecured, absolute or contingent.joint or several (collectively, the "Obligations"). GUARANTOR SHALL HAVE NO OBLIGATION TO PERFORM UNDER THE AGREEMENT. GUARANTOR'S OBLIGATION UNDER THIS CORPORAT E GUARANTY ("GUARANTY") IS A GUARANTY OF PAYMENT AND NOT OF COLLECTION. SHOULD ANY PRESENT OR FUTURE OBLIGATIONS INCURREDBY DEBTOR NOT BE PAID WHEN DUE, IKEC MAY PROCEED AGAINSTTHE GUARANTOR FOR SUCH OBLIGATIONS AT ANY TIME,WITHOUT NOTICE AND WITHOUT ANY PROCEEDING OR ACTION AGAINST DEBTOR, AND GUARANTOR HEREBY WAIVES ANY DEMAND FOR PAYMENT. This Guaranty is a primary obligation of Guarantor and shall be construed as an unconditional, absolute and continuing guaranty, irrespective of the validity or enforceability of the IKEC Agreement, the absence of any action to enforce the same or any circumstances which might otherwise constitute a legal or equitable discharge or defenseo f a guarantor.

Guarantor hereby waives notice of acceptance of this Guaranty, of the creation or existence of any of the guaranteed Obligations and of any action by IKEC in reliance hereon or in connection herewith; notice of the transactions between IKEC and Debtor, notice of the execution and delivery, amendment, extension or renewal of any present or future instrument pertaining to Obligations, diligence, presentment, demand for payment, protest, notice of default by Debtor, and any other notice not expressly required by this Guaranty. Guarantor further consents, without further notice, to any extension or extensions of the time or times of payment of said Obligations, or any portion thereof, and to any change in form or amount, or renewal at any time, of such Obligations, or any portion thereof.

This Guaranty shall remain in full force and effect with respect to the Obligations until finally and irrevocably paid in ful I. No termination of this Guaranty shall affect any Obligations outstanding or contracted or committed for at the time of termination, and this Guaranty shall remain in full force and effect with respect to such Obligations until finally and irrevocably paid in full. In the event that any payment by Debtor in respect of the Obligations is rescinded or must otherwise be returned or rejected for any reason whatsoever, Guarantor shall remain liable hereunder in respect of such Obligations as if such payment had not been made. Guarantor reserves the right to assert defenses that Debtor may have with respect to any Obligation other than defenses arising from the bankruptcy or insolvency of Debtor or similar proceedings affecting Debtor and other defenses expressly waived hereby.

Guarantor's obligations hereunder with respect to the Obligations shall not be affected by the existence, validity, enforceability, perfection or extent of any collateral for such Obligations covered hereunder, nor by any extension, or the acceptance of any sum or sums on account of Debtor, or of any note or draft of Debtor and/or any third party, or security from Debtor. IKEC shall not be obligated to file any claim relating to the Obligations owing to it in the event that Debtor becomes subject to bankruptcy, insolvency, reorganization, liquidation, dissolution, or similar proceedings affecting Debtor (whether voluntary or involuntary), and the failure of IKEC to so file shall not affect Guarantor's obligations hereunder. 1 HIGHLY SENSITIVE AND CONFIDENTIAL Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 218 of 263

Should any present or future Obligations incurred by Debtor not be paid when due or at the time to which the same may be extended, IKEC may proceed against Guarantor for such Obligations at any time, without notice and without any proceeding or action against Debtor. Guarantor agrees that IKEC may resort to Guarantor for payment of any of the Obligations, whether or not IKEC shall have resorted to any collateral security, or shall have proceeded against any other debtor principally or secondarily obligated with respect to any of the Obligations or any other guarantor thereof.

Guarantor shall be subrogated to all rights of IKEC against Debtor in respect of any amounts paid by Guarantor to AEPCS pursuant to this Guaranty, provided that Guarantor shall not exercise any rights which it may have or acquire by way of subrogation until all of the Obligations are fulfilled or compensation is otherwise provided in full to IKEC. If any amounts are paid to Guarantor in violation of the foregoing limitation, then such amounts shall be held in trust for the benefit of lKEC and shall forthwith be paid to lKEC by Guarantor to reduce the amount due to outstanding Obligations, whether matured or unmatured. Subject to the foregoing, upon all of the Obligations to IKEC being fulfilled, Guarantor shall be subrogated to the rights of IKEC against Debtor, and IKEC agrees, to take at Guarantor's expense such actions as Guarantor may reasonably require to implement such subrogation.

The obligations of Guarantor hereunder shall not be subject to any counterclaim, setoff, deduction, or abatement upon any claim Guarantor or the Debtor may have against IKEC.

The obligations of Guarantor hereunder shall not be affected by (a) any lack of validity or enforceability of or defect or deficiency in any agreement or any other documents executed in connection with any agreement; (b) any modification, extension or waiver of any of the terms of any agreement; (c) any change in the time, manner, terms or place of payment of or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to departure from any agreement or any other agreement or instrument executed in connection therewith; (d) any sale, exchange, release or non- perfection of any property standing as security for the liabilities hereby guaranteed or any liabilities incurred directly or indirectly hereunder or any setoff against any of said liabilities, or any release or amendment or waiver of or consent to departure from this Guaranty or any other guaranty, for all or any of the Obligations; (e) except as to applicable statutes of limitation, failure, omission, delay, waiver or refusal by IKEC to exercise, in whole or in part, any right or remedy held by IKEC with respect to any Agreement or any transaction under any Agreement; or (f) any change in the existence, structure or ownership of Guarantor or any Debtor, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting any Debtor or its assets.; or (g) except as otherwise provided in this Guaranty, any other circumstance that might otherwise constitute a defense available to, or a discharge of, any Debtor or any other individual, partnership, joint venture, corporation, association, trust or other enterprise that is a party to any agreement, or any other agreement or instrument (including any guarantor) in respect of the Obligations, other than payment in full of the Obligations.

This Guaranty shall not be affected by any change in the entity status or business structure of Debtor. If Debtor's assets or a major portion thereof are transferred to any other party or parties otherwise than by operation of law, and if IKEC enters into any transaction wherebyt such ransferee or transferees become indebted to IKEC, this Guaranty, subject to all the other terms hereof, shall apply to any Obligations or balance of Obligations of such other transferee or transferees to IKEC

This Guaranty shall inure to and be binding upon the parties, their representatives, successors and assigns, provided that Guarantor may not assign or otherwise transfer any of its obligations under this Guaranty, whether by operation of law or otherwise, without the prior written consent of IKEC, which consent may be arbitrarily withheld. IKEC may assign this Guaranty in its sole discretion. This Guaranty shall not be deemed to benefit any person except IKEC. No provision of this Guaranty may be amended or waived except by a written instrument executed by Guarantor and Beneficiary.

2 HIGHLY SENSITIVE AND CONFIDENTIAL Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 219 of 263

Any demand, notice, request, instruction, correspondence, or other document to be given hereunder by any party to another (herein collectively called "Notice") shall be in writing and delivered personally or mailed by certified mail, postage prepaid and return receipt requested, or by electronic mail, as follows:

To Guarantor: To Beneficiary:

Paringa Resources Limited Indiana-Kentucky Electric Corporation 373 Whobry Road 303 Marconi Blvd., 3rd Floor Rumsey, Kentucky 42371 Columbus, Ohio 43215 (Name) Attn: Credit Risk Management

(Address) Attn: President (Title) Phone Number: ______

With courtesy copy to:

Paringa Resources Limited 28 West 44thStreet, Suite 810 New York, New York I 0036 Attn: Bruce Czachor

However, notices provided only to Guarantor shall be deemed to be in compliance with the terms of this Corporate Guaranty.

Notice given by personal delivery or mail shall be effective upon actual receipt. Notice given by electronic mail shall be effective upon actual receipt if received during the recipient's normal business hours, or at the beginning of the recipient's next business day after receipt if not received during the recipient's normal business hours. Any party may change any address to which Notice is to be given to it by giving notice as provided above of such change of address.

In the event IKEC engages in litigation to enforce this Guaranty, Guarantor agrees to pay, in addition to any amounts due to Debtor's nonpayment which Guarantor has otherwise guaranteed to pay hereunder, any and all costs and expenses incurred by IKEC (including reasonable attorneys' fees) in enforcing this Guaranty.

Guarantor represents and warrants that, at the time of execution and delivery of the Guaranty, nothing (whether financial condition or any other condition or situation) exists to impair in any way the obligations and liabilities of Guarantor to IKEC under this Guaranty. Guarantor further represents and warrants to IKEC that: (a) it is an Australian company duly organized, validly existing and in good standing in its jurisdiction of incorporation, with full power and authority to make and deliver this Guaranty; (b) that the execution, delivery and performance of this Guaranty by Guarantor have been duly authorized by all requisite corporate action of Guarantor, and does not and will not violate provisions of any applicable law or Guarantor's certificate of incorporation or bylaws; and (c) that the person signing this Guaranty on Guarantor's behalf has been properly autho1ized by corporate action to do so.

3 HIGHLY SENSITIVE AND CONFIDENTIAL Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 220 of 263

This Guaranty constitutes the entire agreement among the parties and supersedes and cancels any prior agreements, undertakings, declarations and representations, whether written or oral, regarding the subject matter of this Guaranty. If any provision of this Guaranty is found by a court of competent jurisdiction to be void, illegal or otherwise unenforceablein that jurisdiction, such provision, to the extent of its invalidity, shall be severed from this Guaranty and be ineffective in that jurisdiction; provided, however, that such finding shall not affect the validity, legality or enforceability of such provision in any other jurisdiction or the validity, legality or enforceabilityof any other provision of this Guaranty.

The rights and duties of Guarantor and Beneficiary under this Guaranty shall be construed and enforced in accordance with and governed by the laws of the State of New York, U.S.A. exclusive of choice of law rules. Guarantor and Beneficiary further hereby submit to the exclusive jurisdiction of the state and federal courts located in the Borough of Manhattan, New York City, New York, U.S.A. for purposes of all legal proceedings arising out of or relating to this Guaranty and for no other purpose. Guarantor and Beneficiary hereby irrevocably waive, to the fullest extent permitted by law, any objection which either here to party may now or hereafter have to the laying of venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. GUARANTOR AND BENEFICIARY HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY. Nothing in this Guaranty precludes either party here to from bringing proceedings in any other jurisdiction in order to enforce any judgment obtained in any proceeding referred to in this paragraph, nor will the bringing of such enforcement proceedings in any one or more jurisdictions preclude the bringing of enforcement proceedings in any other jurisdiction.

Guarantor hereby irrevocably and unconditionally appoints Hartshorne Mining Group, LLC, with offices at 373 Whobry Road, Rumsey, Kentucky 42371 ("SOP Agent") as its fully appointed agent for the sole purpose of being empowered and directed to accept service of process of any summons or other legal process in any action or proceeding arising out of or relating to this Guaranty on behalf of Guarantor. Guarantor shall at all times maintain SOP Agent or another person to act as its SOP agent to receive service of process and shall provide written notice to Beneficiary of any change to the SOP Agent set forth herein.

IN WITN{:SS WHEREOF, the Guarantor has duly executed this Guaranty on this /4fday of Ocf ob(r , 2018.

Guarantor's Address: 373 Whobry Road Rumsey, Kentucky 42371

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Rules and Regulations Federal Register Vol. 85, No. 73

Wednesday, April 15, 2020

This section of the FEDERAL REGISTER ADDRESSES: You may submit comments, and authority through the Act to modify contains regulatory documents having general identified by number SBA–2020–0015 existing loan programs and establish a applicability and legal effect, most of which through the Federal eRulemaking Portal: new loan program to assist small are keyed to and codified in the Code of http://www.regulations.gov. Follow the businesses nationwide adversely Federal Regulations, which is published under instructions for submitting comments. impacted by the COVID–19 emergency. 50 titles pursuant to 44 U.S.C. 1510. SBA will post all comments on Section 1102 of the Act temporarily The Code of Federal Regulations is sold by www.regulations.gov. If you wish to permits SBA to guarantee 100 percent of the Superintendent of Documents. submit confidential business 7(a) loans under a new program titled information (CBI) as defined in the User the ‘‘Paycheck Protection Program.’’ Notice at www.regulations.gov, please Section 1106 of the Act provides for SMALL BUSINESS ADMINISTRATION send an email to [email protected]. forgiveness of up to the full principal Highlight the information that you amount of qualifying loans guaranteed 13 CFR Part 120 consider to be CBI and explain why you under the Paycheck Protection Program. [Docket No. SBA–2020–0015] believe SBA should hold this A more detailed discussion of sections information as confidential. SBA will 1102 and 1106 of the Act is found in RIN 3245–AH34 review the information and make the section III below. final determination whether it will Business Loan Program Temporary II. Comments and Immediate Effective publish the information. Changes; Paycheck Protection Date Program FOR FURTHER INFORMATION CONTACT: Call Center Representative at 833–572–0502, The intent of the Act is that SBA AGENCY: U.S. Small Business or the local SBA Field Office; the list of provide relief to America’s small Administration. offices can be found at https:// businesses expeditiously. This intent, ACTION: Interim final rule. www.sba.gov/tools/local-assistance/ along with the dramatic decrease in districtoffices. economic activity nationwide, provides SUMMARY: This interim final rule good cause for SBA to dispense with the SUPPLEMENTARY INFORMATION: announces the implementation of 30-day delayed effective date provided sections 1102 and 1106 of the I. Background Information in the Administrative Procedure Act. Coronavirus Aid, Relief, and Economic On March 13, 2020, President Trump Specifically, small businesses need to be Security Act (CARES Act or the Act). declared the ongoing Coronavirus informed on how to apply for a loan and Section 1102 of the Act temporarily Disease 2019 (COVID–19) pandemic of the terms of the loan under section 1102 adds a new product, titled the sufficient severity and magnitude to of the Act as soon as possible because ‘‘Paycheck Protection Program,’’ to the warrant an emergency declaration for all the last day to apply for and receive a U.S. Small Business Administration’s states, territories, and the District of loan is June 30, 2020. The immediate (SBA’s) 7(a) Loan Program. Section 1106 Columbia. With the COVID–19 effective date of this interim final rule of the Act provides for forgiveness of up emergency, many small businesses will benefit small businesses so that to the full principal amount of nationwide are experiencing economic they can immediately apply for the loan qualifying loans guaranteed under the hardship as a direct result of the with a full understanding of loan terms Paycheck Protection Program. The Federal, State, and local public health and conditions. This interim final rule Paycheck Protection Program and loan measures that are being taken to is effective without advance notice and forgiveness are intended to provide minimize the public’s exposure to the public comment because section 1114 of economic relief to small businesses virus. These measures, some of which the Act authorizes SBA to issue nationwide adversely impacted under are government-mandated, are being regulations to implement Title 1 of the the Coronavirus Disease 2019 (COVID– implemented nationwide and include Act without regard to notice 19) Emergency Declaration (COVID–19 the closures of restaurants, bars, and requirements. This rule is being issued Emergency Declaration) issued by gyms. In addition, based on the advice to allow for immediate implementation President Trump on March 13, 2020. of public health officials, other of this program. Although this interim This interim final rule outlines the key measures, such as keeping a safe final rule is effective immediately, provisions of SBA’s implementation of distance from others or even stay-at- comments are solicited from interested sections 1102 and 1106 of the Act in home orders, are being implemented, members of the public on all aspects of formal guidance and requests public resulting in a dramatic decrease in the interim final rule, including section comment. economic activity as the public avoids III below. These comments must be DATES: malls, retail stores, and other submitted on or before May 15, 2020. Effective date: This interim final rule businesses. The SBA will consider these comments is effective April 15, 2020. On March 27, 2020, the President and the need for making any revisions Applicability date: This interim final signed the Coronavirus Aid, Relief, and as a result of these comments. rule applies to applications submitted Economic Security Act (the CARES Act III. Temporary New Business Loan under the Paycheck Protection Program or the Act) (Pub. L. 116–136) to provide Program: Paycheck Protection Program through June 30, 2020, or until funds emergency assistance and health care made available for this purpose are response for individuals, families, and Overview exhausted. businesses affected by the coronavirus The CARES Act was enacted to Comment Date: Comments must be pandemic. The Small Business provide immediate assistance to received on or before May 15, 2020. Administration (SBA) received funding individuals, families, and businesses

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affected by the COVID–19 emergency. 501(c)(3) of the Internal Revenue Code c. How do I determine if I am ineligible? Among the provisions contained in the (IRC), a tax-exempt veterans Businesses that are not eligible for CARES Act are provisions authorizing organization described in section PPP loans are identified in 13 CFR SBA to temporarily guarantee loans 501(c)(19) of the IRC, Tribal business 120.110 and described further in SBA’s under a new 7(a) loan program titled the concern described in section 31(b)(2)(C) Standard Operating Procedure (SOP) 50 ‘‘Paycheck Protection Program.’’ Loans of the Small Business Act, or any other 10, Subpart B, Chapter 2, except that guaranteed under the Paycheck business; and nonprofit organizations authorized Protection Program (PPP) will be 100 ii. You were in operation on February under the Act are eligible. (SOP 50 10 percent guaranteed by SBA, and the full 15, 2020 and either had employees for can be found at https://www.sba.gov/ principal amount of the loans may whom you paid salaries and payroll document/sop-50-10-5-lender- qualify for loan forgiveness. The taxes or paid independent contractors, development-company-loan-programs.) following outlines the key provisions of as reported on a Form 1099–MISC. the PPP. You are also eligible for a PPP loan if d. I have determined that I am eligible. How much can I borrow? 1. General you are an individual who operates under a sole proprietorship or as an Under the PPP, the maximum loan SBA is authorized to guarantee loans independent contractor or eligible self- under the PPP through June 30, 2020. amount is the lesser of $10 million or employed individual, and you were in an amount that you will calculate using Congress authorized a program level of operation on February 15, 2020. $349,000,000,000 to provide guaranteed a payroll-based formula specified in the You must also submit such Act, as explained below. loans under this new 7(a) program. The documentation as is necessary to intent of the Act is that SBA provide establish eligibility such as payroll e. How do I calculate the maximum relief to America’s small businesses processor records, payroll tax filings, or amount I can borrow? expeditiously, which is expressed in the Form 1099–MISC, or income and Act by giving all lenders delegated The following methodology, which is expenses from a sole proprietorship. For authority and streamlining the one of the methodologies contained in borrowers that do not have any such requirements of the regular 7(a) loan the Act, will be most useful for many documentation, the borrower must program. For example, for loans made applicants. provide other supporting under the PPP, SBA will not require the i. Step 1: Aggregate payroll costs documentation, such as bank records, lenders to comply with section 120.150 (defined in detail below in f.) from the sufficient to demonstrate the qualifying ‘‘What are SBA’s lending criteria?.’’ SBA last twelve months for employees whose will allow lenders to rely on payroll amount. principal place of residence is the certifications of the borrower in order to SBA intends to promptly issue United States. determine eligibility of the borrower additional guidance with regard to the ii. Step 2: Subtract any compensation and use of loan proceeds and to rely on applicability of affiliation rules at 13 paid to an employee in excess of an specified documents provided by the CFR 121.103 and 121.301 to PPP loans. annual salary of $100,000 and/or any borrower to determine qualifying loan b. Could I be ineligible even if I meet the amounts paid to an independent amount and eligibility for loan eligibility requirements in (a) above? contractor or sole proprietor in excess of forgiveness. Lenders must comply with $100,000 per year. the applicable lender obligations set You are ineligible for a PPP loan if, for iii. Step 3: Calculate average monthly forth in this interim final rule, but will example: payroll costs (divide the amount from be held harmless for borrowers’ failure i. You are engaged in any activity that Step 2 by 12). to comply with program criteria; is illegal under Federal, state, or local iv. Step 4: Multiply the average remedies for borrower violations or law; monthly payroll costs from Step 3 by fraud are separately addressed in this ii. You are a household employer 2.5. interim final rule. The program (individuals who employ household v. Step 5: Add the outstanding requirements of the PPP identified in employees such as nannies or amount of an Economic Injury Disaster this rule temporarily supersede any housekeepers); Loan (EIDL) made between January 31, conflicting Loan Program Requirement iii. An owner of 20 percent or more 2020 and April 3, 2020, less the amount (as defined in 13 CFR 120.10). of the equity of the applicant is of any ‘‘advance’’ under an EIDL incarcerated, on probation, on parole; COVID–19 loan (because it does not 2. What do borrowers need to know and presently subject to an indictment, have to be repaid). do? criminal information, arraignment, or The examples below illustrate this a. Am I eligible? other means by which formal criminal methodology. You are eligible for a PPP loan if you charges are brought in any jurisdiction; i. Example 1—No employees make more have 500 or fewer employees whose or has been convicted of a felony within than $100,000 principal place of residence is in the the last five years; or Annual payroll: $120,000 United States, or are a business that iv. You, or any business owned or Average monthly payroll: $10,000 operates in a certain industry and meet controlled by you or any of your Multiply by 2.5 = $25,000 the applicable SBA employee-based size owners, has ever obtained a direct or Maximum loan amount is $25,000 standards for that industry, and: guaranteed loan from SBA or any other ii. Example 2—Some employees make i. You are: Federal agency that is currently more than $100,000 A. A small business concern as delinquent or has defaulted within the Annual payroll: $1,500,000 defined in section 3 of the Small last seven years and caused a loss to the Subtract compensation amounts in Business Act (15 U.S.C. 632), and government. excess of an annual salary of subject to SBA’s affiliation rules under The Administrator, in consultation $100,000: $1,200,000 13 CFR 121.301(f) unless specifically with the Secretary of the Treasury (the Average monthly qualifying payroll: waived in the Act; or Secretary), determined that household $100,000 B. A tax-exempt nonprofit employers are ineligible because they Multiply by 2.5 = $250,000 organization described in section are not businesses. 13 CFR 120.100. Maximim loan amount is $250,000

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iii. Example 3—No employees make h. Do independent contractors count as loan you should consider applying for more than $100,000, outstanding employees for purposes of PPP loan the maximum amount. While the Act EIDL loan of $10,000. calculations? does not expressly provide that each Annual payroll: $120,000 No, independent contractors have the eligible borrower may only receive one Average monthly payroll: $10,000 ability to apply for a PPP loan on their PPP loan, the Administrator has Multiply by 2.5 = $25,000 own so they do not count for purposes determined, in consultation with the Add EIDL loan of $10,000 = $35,000 of a borrower’s PPP loan calculation. Secretary, that because all PPP loans Maximum loan amount is $35,000 must be made on or before June 30, iv. Example 4—Some employees make i. What is the interest rate on a PPP 2020, a one loan per borrower limitation more than $100,000, outstanding loan? is necessary to help ensure that as many EIDL loan of $10,000 The interest rate will be 100 basis eligible borrowers as possible may Annual payroll: $1,500,000 points or one percent. obtain a PPP loan. This limitation will Subtract compensation amounts in The Administrator, in consultation also help advance Congress’ goal of excess of an annual salary of with the Secretary, determined that a keeping workers paid and employed $100,000: $1,200,000 one percent interest rate is appropriate. across the United States. Average monthly qualifying payroll: First, it provides low cost funds to l. Can I use e-signatures or e-consents if $100,000 borrowers to meet eligible payroll costs Multiply by 2.5 = $250,000 and other eligible expenses during this a borrower has multiple owners? Add EIDL loan of $10,000 = $260,000 temporary period of economic Yes, e-signature or e-consents can be Maximum loan amount is $260,000 dislocation caused by the coronavirus. used regardless of the number of f. What qualifies as ‘‘payroll costs?’’ Second, for lenders, the 100 basis points owners. offers an attractive interest rate relative m. Is the PPP ‘‘first-come, first-served?’’ Payroll costs consist of compensation to the cost of funding for comparable to employees (whose principal place of maturities. For example, the FDIC’s Yes. residence is the United States) in the weekly national average rate for a 24- form of salary, wages, commissions, or n. When will I have to begin paying month CD deposit product for the week principal and interest on my PPP loan? similar compensation; cash tips or the of March 30, 2020 is 42 basis points for equivalent (based on employer records non-jumbo and 44 basis points for You will not have to make any of past tips or, in the absence of such jumbo (https://www.fdic.gov/ payments for six months following the records, a reasonable, good-faith regulations/resources/rates/). Third, the date of disbursement of the loan. employer estimate of such tips); interest rate is higher than the yield on However, interest will continue to payment for vacation, parental, family, Treasury securities of comparable accrue on PPP loans during this six- medical, or sick leave; allowance for maturity. For example, the yield on the month deferment. The Act authorizes separation or dismissal; payment for the Treasury two-year note is approximately the Administrator to defer loan provision of employee benefits 23 basis points. This higher yield payments for up to one year. The consisting of group health care coverage, combined with the fact that the loans Administrator determined, in including insurance premiums, and are 100 percent guaranteed by the SBA consultation with the Secretary, that a retirement; payment of state and local and the fact that lenders will receive a six-month deferment period is taxes assessed on compensation of substantial processing fee from the SBA appropriate in light of the modest employees; and for an independent provide ample inducement for lenders interest rate (one percent) on PPP loans contractor or sole proprietor, wages, to participate in the PPP. and the loan forgiveness provisions commissions, income, or net earnings contained in the Act. from self-employment, or similar j. What will be the maturity date on a PPP loan? o. Can my PPP loan be forgiven in compensation. whole or in part? The maturity is two years. While the g. Is there anything that is expressly Act provides that a loan will have a Yes. The amount of loan forgiveness excluded from the definition of payroll maximum maturity of up to ten years can be up to the full principal amount costs? from the date the borrower applies for of the loan and any accrued interest. Yes. The Act expressly excludes the loan forgiveness (described below), the That is, the borrower will not be following: Administrator, in consultation with the responsible for any loan payment if the i. Any compensation of an employee Secretary, determined that a two year borrower uses all of the loan proceeds whose principal place of residence is loan term is sufficient in light of the for forgiveable purposes described outside of the United States; temporary economic dislocations below and employee and compensation ii. The compensation of an individual caused by the coronavirus. Specifically, levels are maintained. The actual employee in excess of an annual salary the considerable economic disruption amount of loan forgiveness will depend, of $100,000, prorated as necessary; caused by the coronavirus is expected to in part, on the total amount of payroll iii. Federal employment taxes abate well before the two year maturity costs, payments of interest on mortgage imposed or withheld between February date such that borrowers will be able to obligations incurred before February 15, 15, 2020 and June 30, 2020, including re-commence business operations and 2020, rent payments on leases dated the employee’s and employer’s share of pay off any outstanding balances on before February 15, 2020, and utility FICA (Federal Insurance Contributions their PPP loans. payments under service agreements Act) and Railroad Retirement Act taxes, dated before February 15, 2020, over the and income taxes required to be k. Can I apply for more than one PPP eight-week period following the date of withheld from employees; and loan? the loan. However, not more than 25 iv. Qualified sick and family leave No. The Administrator, in percent of the loan forgiveness amount wages for which a credit is allowed consultation with the Secretary, may be attributable to non-payroll costs. under sections 7001 and 7003 of the determined that no eligible borrower While the Act provides that borrowers Families First Coronavirus Response may receive more than one PPP loan. are eligible for forgiveness in an amount Act (Pub. L. 116–127). This means that if you apply for a PPP equal to the sum of payroll costs and

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any payments of mortgage interest, rent, vii. refinancing an SBA EIDL loan t. What certifications need to be made? and utilities, the Administrator has made between January 31, 2020 and On the Paycheck Protection Program determined that the non-payroll portion April 3, 2020. If you received an SBA application, an authorized of the forgivable loan amount should be EIDL loan from January 31, 2020 representative of the applicant must limited to effectuate the core purpose of through April 3, 2020, you can apply for certify in good faith to all of the below: 1 the statute and ensure finite program a PPP loan. If your EIDL loan was not i. The applicant was in operation on resources are devoted primarily to used for payroll costs, it does not affect February 15, 2020 and had employees payroll. The Administrator has your eligibility for a PPP loan. If your for whom it paid salaries and payroll determined in consultation with the EIDL loan was used for payroll costs, taxes or paid independent contractors, Secretary that 75 percent is an your PPP loan must be used to refinance as reported on a Form 1099–MISC. appropriate percentage in light of the your EIDL loan. Proceeds from any ii. Current economic uncertainty Act’s overarching focus on keeping advance up to $10,000 on the EIDL loan makes this loan request necessary to workers paid and employed. Further, will be deducted from the loan support the ongoing operations of the the Administrator and the Secretary forgiveness amount on the PPP loan. applicant. believe that applying this threshold to iii. The funds will be used to retain loan forgiveness is consistent with the However, at least 75 percent of the workers and maintain payroll or make structure of the Act, which provides a PPP loan proceeds shall be used for mortgage interest payments, lease loan amount 75 percent of which is payroll costs. For purposes of payments, and utility payments; I equivalent to eight weeks of payroll (8 determining the percentage of use of understand that if the funds are weeks/2.5 months = 56 days/76 days = proceeds for payroll costs, the amount knowingly used for unauthorized 74 percent rounded up to 75 percent). of any EIDL refinanced will be included. purposes, the Federal Government may Limiting non-payroll costs to 25 percent For purposes of loan forgiveness, hold me legally liable such as for of the forgiveness amount will align however, the borrower will have to charges of fraud. As explained above, these elements of the program, and will document the proceeds used for payroll not more than 25 percent of loan also help to ensure that the finite costs in order to determine the amount proceeds may be used for non-payroll appropriations available for PPP loan of forgiveness. While the Act provides costs. forgiveness are directed toward payroll that PPP loan proceeds may be used for iv. Documentation verifying the protection. SBA will issue additional the purposes listed above and for other number of full-time equivalent guidance on loan forgiveness. allowable uses described in section 7(a) employees on payroll as well as the dollar amounts of payroll costs, covered p. Do independent contractors count as of the Small Business Act (15 U.S.C. 636(a)), the Administrator believes that mortgage interest payments, covered employees for purposes of PPP loan rent payments, and covered utilities for forgiveness? finite appropriations and the structure of the Act warrant a requirement that the eight week period following this No, independent contractors have the borrowers use a substantial portion of loan will be provided to the lender. v. Loan forgiveness will be provided ability to apply for a PPP loan on their the loan proceeds for payroll costs, own so they do not count for purposes for the sum of documented payroll consistent with Congress’ overarching of a borrower’s PPP loan forgiveness. costs, covered mortgage interest goal of keeping workers paid and payments, covered rent payments, and q. What forms do I need and how do I employed. As with the similar covered utilities. As explained above, submit an application? limitation on the forgiveness amount not more than 25 percent of the forgiven The applicant must submit SBA Form explained earlier, the Administrator, in amount may be for non-payroll costs. 2483 (Paycheck Protection Program consultation with the Secretary, has vi. During the period beginning on Application Form) and payroll determined that 75 percent is an February 15, 2020 and ending on documentation, as described above. The appropriate percentage that will align December 31, 2020, the applicant has lender must submit SBA Form 2484 this element of the program with the not and will not receive another loan (Paycheck Protection Program Lender’s loan amount, 75 percent of which is under this program. Application for 7(a) Loan Guaranty) equivalent to eight weeks of payroll. vii. I further certify that the electronically in accordance with This limitation on use of the loan funds information provided in this application program requirements and maintain the will help to ensure that the finite and the information provided in all forms and supporting documentation in appropriations available for these loans supporting documents and forms is true its files. are directed toward payroll protection, and accurate in all material respects. I as each loan that is issued depletes the understand that knowingly making a r. How can PPP loans be used? appropriation, regardless of whether false statement to obtain a guaranteed The proceeds of a PPP loan are to be portions of the loan are later forgiven. loan from SBA is punishable under the used for: law, including under 18 U.S.C. 1001 i. payroll costs (as defined in the Act s. What happens if PPP loan funds are and 3571 by imprisonment of not more and in 2.f.); misused? than five years and/or a fine of up to ii. costs related to the continuation of $250,000; under 15 U.S.C. 645 by group health care benefits during If you use PPP funds for unauthorized purposes, SBA will direct you to repay imprisonment of not more than two periods of paid sick, medical, or family years and/or a fine of not more than leave, and insurance premiums; those amounts. If you knowingly use the funds for unauthorized purposes, you $5,000; and, if submitted to a federally iii. mortgage interest payments (but insured institution, under 18 U.S.C. not mortgage prepayments or principal will be subject to additional liability such as charges for fraud. If one of your 1014 by imprisonment of not more than payments); thirty years and/or a fine of not more shareholders, members, or partners uses iv. rent payments; than $1,000,000. v. utility payments; PPP funds for unauthorized purposes, SBA will have recourse against the vi. interest payments on any other 1 A representative of the applicant can certify for debt obligations that were incurred shareholder, member, or partner for the the business as a whole if the representative is before February 15, 2020; and/or unauthorized use. legally authorized to do so.

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viii. I acknowledge that the lender institution, or the BSA requirements of the comparable federally regulated will confirm the eligible loan amount an equivalent federally regulated institution, such a program may include using tax documents I have submitted. financial institution; has been operating a customer identification program (CIP), I affirm that these tax documents are since at least February 15, 2019, and has which includes identifying and identical to those submitted to the originated, maintained, and serviced verifying their PPP borrowers’ identities Internal Revenue Service. I also more than $50 million in business loans (including e.g., date of birth, address, understand, acknowledge, and agree or other commercial financial and taxpayer identification number), that the Lender can share the tax receivables during a consecutive 12 and, if that PPP borrower is a company, information with SBA’s authorized month period in the past 36 months, or following any applicable beneficial representatives, including authorized is a service provider to any insured ownership information collection representatives of the SBA Office of depository institution that has a contract requirements. Alternatively, if available, Inspector General, for the purpose of to support such institution’s lending entities may rely on the CIP of a compliance with SBA Loan Program activities in accordance with 12 U.S.C. federally insured depository institution Requirements and all SBA reviews. 1867(c) and is in good standing with the or federally insured credit union with appropriate Federal banking agency. an established CIP as part of its AML 3. What do lenders need to know and iv. Qualified institutions described in program. In either instance, entities do? 3.a.iii.I. and II. will be automatically should also understand the nature and a. Who is eligible to make PPP loans? qualified under delegated authority by purpose of their PPP customer relationships to develop customer risk i. All SBA 7(a) lenders are the SBA upon transmission of CARES profiles. Such entities will also automatically approved to make PPP Act Section 1102 Lender Agreement generally have to identify and report loans on a delegated basis. (SBA Form 3506) unless they currently certain suspicious activity to the U.S. ii. The Act provides that the authority are designated in Troubled Condition by Department of the Treasury’s Financial to make PPP loans can be extended to their primary Federal regulator or are Crimes Enforcement Network (FinCEN). additional lenders determined by the subject to a formal enforcement action If such entities have questions with Administrator and the Secretary to have by their primary Federal regulator that regard to meeting these requirements, the necessary qualifications to process, addresses unsafe or unsound lending they should contact the FinCEN close, disburse, and service loans made practices. Regulatory Support Section at FRC@ with the SBA guarantee. Since SBA is b. What do lenders have to do in terms fincen.gov. In addition, FinCEN has authorized to make PPP loans up to of loan underwriting? created a COVID–19-specific contact $349 billion by June 30, 2020, the Each lender shall: channel, via a specific drop-down Adminstrator and the Secretary have i. Confirm receipt of borrower category, for entities to communicate to jointly determined that authorizing certifications contained in Paycheck FinCEN COVID–19-related concerns additional lenders is necessary to Protection Program Application form while adhering to their BSA obligations. achieve the purpose of allowing as issued by the Administration; Entities that wish to communicate such many eligible borrowers as possible to ii. Confirm receipt of information COVID–19-related concerns to FinCEN receive loans by the June 30, 2020 demonstrating that a borrower had should go to www.FinCEN.gov, click on deadline. employees for whom the borrower paid ‘‘Need Assistance,’’ and select iii. The following types of lenders salaries and payroll taxes on or around ‘‘COVID19’’ in the subject drop-down have been determined to meet the February 15, 2020; list. criteria and are eligible to make PPP iii. Confirm the dollar amount of Each lender’s underwriting obligation loans unless they currently are average monthly payroll costs for the under the PPP is limited to the items designated in Troubled Condition by preceding calendar year by reviewing above and reviewing the ‘‘Paycheck their primary Federal regulator or are the payroll documentation submitted Protection Application Form.’’ subject to a formal enforcement action with the borrower’s application; and Borrowers must submit such with their primary Federal regulator that iv. Follow applicable BSA documentation as is necessary to addresses unsafe or unsound lending requirements: establish eligibility such as payroll practices: I. Federally insured depository processor records, payroll tax filings, or I. Any federally insured depository institutions and federally insured credit Form 1099–MISC, or income and institution or any federally insured unions should continue to follow their expenses from a sole proprietorship. For credit union; existing BSA protocols when making borrowers that do not have any such II. Any Farm Credit System institution PPP loans to either new or existing documentation, the borrower must (other than the Federal Agricultural customers who are eligible borrowers provide other supporting Mortgage Corporation) as defined in 12 under the PPP. PPP loans for existing documentation, such as bank records, U.S.C. 2002(a) that applies the customers will not require re- sufficient to demonstrate the qualifying requirements under the Bank Secrecy verification under applicable BSA payroll amount. Act and its implementing regulations requirements, unless otherwise (collectively, BSA) as a federally indicated by the institution’s risk-based c. Can lenders rely on borrower regulated financial institution, or approach to BSA compliance. documentation for loan forgiveness? functionally equivalent requirements II. Entities that are not presently Yes. The lender does not need to that are not altered by this rule; and subject to the requirements of the BSA, conduct any verification if the borrower III. Any depository or non-depository should, prior to engaging in PPP lending submits documentation supporting its financing provider that originates, activities, including making PPP loans request for loan forgiveness and attests maintains, and services business loans to either new or existing customers who that it has accurately verified the or other commercial financial are eligible borrowers under the PPP, payments for eligible costs. The receivables and participation interests; establish an anti-money laundering Administrator will hold harmless any has a formalized compliance program; (AML) compliance program equivalent lender that relies on such borrower applies the requirements under the BSA to that of a comparable federally documents and attestation from a as a federally regulated financial regulated institution. Depending upon borrower. The Administrator, in

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consultation with the Secretary, has SBA. Agents may not collect fees from borrower since the loan was disbursed determined that lender reliance on a the borrower or be paid out of the PPP that the lender used to determine the borrower’s required documents and loan proceeds. The total amount that an expected forgiveness amount, which attestation is necessary and appropriate agent may collect from the lender for should include the same documentation in light of section 1106(h) of the Act, assistance in preparing an application required to apply for loan forgiveness which prohibits the Administrator from for a PPP loan (including referral to the such as payroll tax filings, cancelled taking an enforcement action or lender) may not exceed: checks, and other payment imposing penalties if the lender has i. One (1) percent for loans of not documentation; and any additional received a borrower attestation. more than $350,000; information the Administrator may ii. 0.50 percent for loans of more than d. What fees will lenders be paid? require to determine whether the $350,000 and less than $2 million; and expected forgiveness amount is SBA will pay lenders fees for iii. 0.25 percent for loans of at least $2 reasonable. The Administrator, in processing PPP loans in the following million. consultation with the Secretary, The Act authorizes the Administrator amounts: determined that seven weeks is the i. Five (5) percent for loans of not to establish limits on agent fees. The minimum period of time necessary for more than $350,000; Administrator, in consultation with the a lender to reasonably determine the ii. Three (3) percent for loans of more Secretary, determined that the agent fee than $350,000 and less than $2,000,000; limits set forth above are reasonable expected forgiveness amount for a PPP and based upon the application req loan or pool of PPP loans, since the PPP iii. One (1) percent for loans of at least uirements and the fees that lenders is a new program and the likelihood that $2,000,000. receive for making PPP loans. many borrowers will be new clients of the lender. The expected forgiveness e. Do lenders have to apply the ‘‘credit d. Can PPP loans be sold into the amount may not exceed the total elsewhere test’’? secondary market? amount of principal on the PPP loan or No. When evaluating an applicant’s Yes. A PPP loan may be sold on the pool of loans. The Administrator will eligibility lenders will not be required to secondary market after the loan is fully purchase the expected forgiveness apply the ‘‘credit elsewhere test’’ (as set disbursed. A PPP loan may be sold on amount of the PPP loan(s) within 15 forth in section 7(a)(1)(A) of the Small the secondary market at a premium or days of the date on which the Business Act (15 U.S.C. 636) and SBA a discount to par value. SBA will issue Administrator receives a complete regulations at 13 CFR 120.101)). guidance regarding any advance report that demonstrates that the 4. What do both borrowers and lenders purchase for loans sold in the secondary expected forgiveness amount is indeed need to know and do? market. reasonable. a. What are the loan terms and e. Can SBA purchase some or all of the 5. Additional Information conditions? loan in advance? All loans guaranteed by the SBA Loans will be guaranteed under the Yes. A lender may request that the pursuant to the CARES Act will be PPP under the same terms, conditions SBA purchase the expected forgiveness made consistent with constitutional, and processes as other 7(a) loans, with amount of a PPP loan or pool of PPP statutory, and regulatory protections for certain changes including but not loans at the end of week seven of the religious liberty, including the First limited to: covered period. The expected Amendment to the Constitution, the i. The guarantee percentage is 100 forgiveness amount is the amount of Religious Freedom Restoration Act, 42 percent. loan principal the lender reasonably U.S.C. 2000bb–1 and bb–3, and SBA ii. No collateral will be required. expects the borrower to expend on regulation at 13 CFR 113.3–1h, which iii. No personal guarantees will be payroll costs, covered mortgage interest, provides that nothing in SBA required. covered rent, and covered utility nondiscrimination regulations shall iv. The interest rate will be 100 basis payments during the eight week period points or one percent. apply to a religious corporation, after loan disbursement. At least 75 association, educational institution or v. All loans will be processed by all percent of the expected forgiveness lenders under delegated authority and society with respect to the membership amount shall be for payroll costs, as or the employment of individuals of a lenders will be permitted to rely on provided in 2.o. To submit a PPP loan certifications of the borrower in order to particular religion to perform work or pool of PPP loans for advance connected with the carrying on by such determine eligibility of the borrower purchase, a lender shall submit a report and the use of loan proceeds. corporation, association, educational requesting advance purchase with the institution or society of its religious b. Are there any fee waivers? expected forgiveness amount to the activities. SBA intends to promptly i. There will be no up-front guarantee SBA. The report shall include: the issue additional guidance with regard to fee payable to SBA by the Borrower; Paycheck Protection Program religious liberty protections under this ii. There will be no lender’s annual Application Form (SBA Form 2483) and program. service fee (‘‘on-going guaranty fee’’) any supporting documentation submitted with such application; the SBA may provide further guidance, if payable to SBA; needed, through SBA notices and a iii. There will be no subsidy Paycheck Protection Program Lender’s Application for 7(a) Loan Guaranty program guide which will be posted on recoupment fee; and SBA’s website at www.sba.gov. iv. There will be no fee payable to (SBA Form 2484) and any supporting SBA for any guarantee sold into the documentation; a detailed narrative Questions on the Paycheck Protection secondary market. explaining the assumptions used in Program 7(a) Loans may be directed to determining the expected forgiveness the Lender Relations Specialist in the c. Who pays the fee to an agent who amount, the basis for those assumptions, local SBA Field Office. The local SBA assists a borrower? alternative assumptions considered, and Field Office may be found at https:// Agent fees will be paid by the lender why alternative assumptions were not www.sba.gov/tools/local-assistance/ out of the fees the lender receives from used; any information obtained from the districtoffices.

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Compliance With Executive Orders Section 1102 Lender Agreement), and unnecessary, or contrary to the public 12866, 12988, 13132, and 13771, the SBA Form 3507 (CARES Act Section interest. Small Business Paperwork Reduction Act (44 U.S.C. 1102 Lender Agreement—Non-Bank and Administration’s Office of Advocacy Ch. 35), and the Regulatory Flexibility Non-Insured Depository Institution guide: How to Comply with the Act (5 U.S.C. 601–612) Lender). The collection is approved for Regulatory Flexibility Ac. Ch.1. p.9. use until September 30, 2020. Accordingly, SBA is not required to E.O. 12866 and E.O. 13563 conduct a regulatory flexibility analysis. This interim final rule is Regulatory Flexibility Act (RFA) Authority: 15 U.S.C. 636(a)(36); economically significant for the The Regulatory Flexibility Act (RFA) Coronavirus Aid, Relief, and Economic purposes of Executive Orders 12866 and generally requires that when an agency Security Act, Public Law 116–136, 13563. SBA, however, is proceeding issues a proposed rule, or a final rule Section 1114. under the emergency provision at pursuant to section 553(b) of the APA or Jovita Carranza, Executive Order 12866 Section another law, the agency must prepare a 6(a)(3)(D) based on the need to move regulatory flexibility analysis that meets Administrator. expeditiously to mitigate the current the requirements of the RFA and [FR Doc. 2020–07672 Filed 4–10–20; 4:15 pm] economic conditions arising from the publish such analysis in the Federal BILLING CODE P COVID–19 emergency. This rule’s Register. 5 U.S.C. 603, 604. Specifically, designation under Executive Order the RFA normally requires agencies to SMALL BUSINESS ADMINISTRATION 13771 will be informed by public describe the impact of a rulemaking on small entities by providing a regulatory comment. 13 CFR Part 121 This rule is necessary to implement impact analysis. Such analysis must Sections 1102 and 1106 of the CARES address the consideration of regulatory [Docket No. SBA–2020–0019] Act in order to provide economic relief options that would lessen the economic RIN 3245–AH35 to small businesses nationwide effect of the rule on small entities. The adversely impacted under the COVID– RFA defines a ‘‘small entity’’ as (1) a Business Loan Program Temporary 19 Emergency Declaration. We proprietary firm meeting the size Changes; Paycheck Protection anticipate that this rule will result in standards of the Small Business Program substantial benefits to small businesses, Administration (SBA); (2) a nonprofit AGENCY: their employees, and the communities organization that is not dominant in its U.S. Small Business they serve. However, we lack data to field; or (3) a small government Administration. estimate the effects of this rule. jurisdiction with a population of less ACTION: Interim final rule. than 50,000. 5 U.S.C. 601(3)–(6). Except SUMMARY: Executive Order 12988 for such small government jurisdictions, Elsewhere in this issue of the Federal Register, the U.S. Small SBA has drafted this rule, to the neither State nor local governments are Business Administration (SBA) is extent practicable, in accordance with ‘‘small entities.’’ Similarly, for purposes publishing an interim final rule (the the standards set forth in section 3(a) of the RFA, individual persons are not Initial Rule) announcing the and 3(b)(2) of Executive Order 12988, to small entities. implementation of sections 1102 and minimize litigation, eliminate The requirement to conduct a 1106 of the Coronavirus Aid, Relief, and ambiguity, and reduce burden. The rule regulatory impact analysis does not Economic Security Act (CARES Act or has no preemptive or retroactive effect. apply if the head of the agency ‘‘certifies that the rule will not, if promulgated, the Act). Section 1102 of the Act Executive Order 13132 have a significant economic impact on temporarily adds a new program, titled SBA has determined that this rule a substantial number of small entities.’’ the ‘‘Paycheck Protection Program,’’ to will not have substantial direct effects 5 U.S.C. 605(b). The agency must, the SBA’s 7(a) Loan Program. Section on the States, on the relationship however, publish the certification in the 1106 of the Act provides for forgiveness between the National Government and Federal Register at the time of of up to the full principal amount of the States, or on the distribution of publication of the rule, ‘‘along with a qualifying loans guaranteed under the power and responsibilities among the statement providing the factual basis for Paycheck Protection Program. The various layers of government. Therefore, such certification.’’ If the agency head Paycheck Protection Program and loan SBA has determined that this rule has has not waived the requirements for a forgiveness are intended to provide no federalism implications warranting regulatory flexibility analysis in economic relief to small businesses preparation of a federalism assessment. accordance with the RFA’s waiver nationwide adversely impacted by the provision, and no other RFA exception Coronavirus Disease 2019 (COVID–19). Paperwork Reduction Act, 44 U.S.C. applies, the agency must prepare the This interim final rule supplements the Chapter 35 regulatory flexibility analysis and Initial Rule with additional guidance SBA has determined that this rule publish it in the Federal Register at the regarding the application of certain will impose recordkeeping or reporting time of promulgation or, if the rule is affiliate rules applicable to SBA’s requirements under the Paperwork promulgated in response to an implementation of sections 1102 and Reduction Act (‘‘PRA’’). SBA has emergency that makes timely 1106 of the Act and requests public obtained emergency approval under compliance impracticable, within 180 comment. OMB Control Number 3245–0407 for the days of publication of the final rule. 5 DATES: information collection (IC) required to U.S.C. 604(a), 608(b). Effective date: This interim final rule implement the program described Rules that are exempt from notice and is effective April 15, 2020. above. This IC consists of Form 2483 comment are also exempt from the RFA Applicability date: This interim final (Paycheck Protection Program requirements, including conducting a rule applies to applications submitted Application Form), SBA Form 2484 regulatory flexibility analysis, when under the Paycheck Protection Program (Paycheck Protection Program Lender’s among other things the agency for good through June 30, 2020, or until funds Application for 7(a) Loan Guaranty), cause finds that notice and public made available for this purpose are and SBA Form 3506 (CARES Act procedure are impracticable, exhausted.

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SMALL BUSINESS ADMINISTRATION

[Docket Number SBA-2020-0021]

13 CFR Parts 120 and 121

RIN 3245-AH37

Business Loan Program Temporary Changes; Paycheck Protection Program –

Requirements – Promissory Notes, Authorizations, Affiliation, and Eligibility

AGENCY: U. S. Small Business Administration.

ACTION: Interim Final Rule.

SUMMARY: On April 2, 2020, the U.S. Small Business Administration (SBA) posted

an interim final rule (the First PPP Interim Final Rule) announcing the implementation of

sections 1102 and 1106 of the Coronavirus Aid, Relief, and Economic Security Act

(CARES Act or the Act). Section 1102 of the Act temporarily adds a new program, titled

the “Paycheck Protection Program,” to the SBA’s 7(a) Loan Program. Section 1106 of

the Act provides for forgiveness of up to the full principal amount of qualifying loans

guaranteed under the Paycheck Protection Program (PPP). The PPP is intended to

provide economic relief to small businesses nationwide adversely impacted by the

Coronavirus Disease 2019 (COVID-19). SBA posted additional interim final rules on

April 3, 2020 and April 14, 2020. This interim final rule supplements the previously

posted interim final rules with additional guidance. This interim final rule supplements

SBA’s implementation of section 1102 and 1106 of the Act and requests public comment.

DATES: Effective Date: This rule is effective [INSERT DATE OF PUBLICATION IN

THE FEDERAL REGISTER].

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Applicability Date: This interim final rule applies to applications submitted under the

Paycheck Protection Program through June 30, 2020, or until funds made available for

this purpose are exhausted.

Comment Date: Comments must be received on or before [INSERT DATE 30 DAYS

AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER].

ADDRESSES: You may submit comments, identified by number SBA-2020-0021

through the Federal eRulemaking Portal: http://www.regulations.gov. Follow the

instructions for submitting comments. SBA will post all comments on

www.regulations.gov. If you wish to submit confidential business information (CBI) as

defined in the User Notice at www.regulations.gov, please send an email to ppp-

[email protected]. Highlight the information that you consider to be CBI and explain why you

believe SBA should hold this information as confidential. SBA will review the

information and make the final determination whether it will publish the information.

FOR FURTHER INFORMATION CONTACT: A Call Center Representative at 833-

572-0502, or the local SBA Field Office; the list of offices can be found at

https://www.sba.gov/tools/local-assistance/districtoffices.

SUPPLEMENTARY INFORMATION:

I. Background Information

On March 13, 2020, President Trump declared the ongoing Coronavirus Disease 2019

(COVID-19) pandemic of sufficient severity and magnitude to warrant an emergency

declaration for all States, territories, and the District of Columbia. With the COVID-19

emergency, many small businesses nationwide are experiencing economic hardship as a

direct result of the Federal, State, tribal, and local public health measures that are being

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taken to minimize the public’s exposure to the virus. These measures, some of which are

government-mandated, are being implemented nationwide and include the closures of

restaurants, bars, and gyms. In addition, based on the advice of public health officials,

other measures, such as keeping a safe distance from others or even stay-at-home orders,

are being implemented, resulting in a dramatic decrease in economic activity as the

public avoids malls, retail stores, and other businesses.

On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic

Security Act (the CARES Act or the Act) (Pub. L. 116-136) to provide emergency

assistance and health care response for individuals, families, and businesses affected by

the coronavirus pandemic. The Small Business Administration (SBA) received funding

and authority through the Act to modify existing loan programs and establish a new loan

program to assist small businesses nationwide adversely impacted by the COVID-19

emergency. Section 1102 of the Act temporarily permits SBA to guarantee 100 percent

of 7(a) loans under a new program titled the “Paycheck Protection Program.” Section

1106 of the Act provides for forgiveness of up to the full principal amount of qualifying

loans guaranteed under the Paycheck Protection Program.

II. Comments and Immediate Effective Date

The intent of the Act is that SBA provide relief to America’s small businesses

expeditiously. This intent, along with the dramatic decrease in economic activity

nationwide, provides good cause for SBA to dispense with the 30-day delayed effective

date provided in the Administrative Procedure Act. Specifically, it is critical to meet

lenders’ and borrowers’ need for clarity concerning program requirements as rapidly as

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possible because the last day eligible borrowers can apply for and receive a loan is June

30, 2020.

This interim final rule supplements previous regulations and guidance on several

important, discrete issues. The immediate effective date of this interim final rule will

benefit lenders so that they can swiftly close and disburse loans to small businesses. This

interim final rule is effective without advance notice and public comment because section

1114 of the Act authorizes SBA to issue regulations to implement Title I of the Act

without regard to notice requirements. This rule is being issued to allow for immediate

implementation of this program. Although this interim final rule is effective

immediately, comments are solicited from interested members of the public on all aspects

of the interim final rule, including section III below. These comments must be submitted

on or before [INSERT DATE 30 DAYS AFTER DATE OF PUBLICATION IN THE

FEDERAL REGISTER]. SBA will consider these comments and the need for making

any revisions as a result of these comments.

III. Paycheck Protection Program Requirements for Promissory Notes,

Authorizations, Affiliation, and Eligibility

Overview

The CARES Act was enacted to provide immediate assistance to individuals,

families, and organizations affected by the COVID-19 emergency. Among the

provisions contained in the CARES Act are provisions authorizing SBA to temporarily

guarantee loans under the Paycheck Protection Program (PPP). Loans under the PPP will

be 100 percent guaranteed by SBA, and the full principal amount of the loans and any

accrued interest may qualify for loan forgiveness. Additional information about the PPP

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is available in the First PPP Interim Final Rule (85 FR 20811), a second interim final rule

(85 FR 20817) (the Second PPP Interim Final Rule), and a third interim final rule (the

Third PPP Interim Final Rule) (85 FR 21747) (collectively, the PPP Interim Final Rules).

1. Requirements for Promissory Notes and Authorizations

This guidance is substantively identical to previously posted FAQ guidance.

a. Are lenders required to use a promissory note provided by SBA or may they use

their own?

Lenders may use their own promissory note or an SBA form of promissory note.

See FAQ 19 (posted April 8, 2020).

b. Are lenders required to use a separate SBA Authorization document to issue PPP

loans?

No. A lender does not need a separate SBA Authorization for SBA to guarantee a

PPP loan. However, lenders must have executed SBA Form 2484 (the Lender

Application Form - Paycheck Protection Program Loan Guaranty)1 to issue PPP

loans and receive a loan number for each originated PPP loan. Lenders may

include in their promissory notes for PPP loans any terms and conditions,

including relating to amortization and disclosure, that are not inconsistent with

Sections 1102 and 1106 of the CARES Act, the PPP Interim Final Rules and

guidance, and SBA Form 2484. See FAQ 21 (posted April 13, 2020). The

decision not to require a separate SBA Authorization in order to ensure that

critical PPP loans are disbursed as efficiently as practicable.

1 This requirement is satisfied by a lender when the lender completes the process of submitting a loan through the E-Tran system; no transmission or retention of a physical copy of Form 2484 is required.

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2. Clarification Regarding Eligible Businesses

a. Is a hedge fund or private equity firm eligible for a PPP loan?

No. Hedge funds and private equity firms are primarily engaged in investment or

speculation, and such businesses are therefore ineligible to receive a PPP loan.

The Administrator, in consultation with the Secretary, does not believe that

Congress intended for these types of businesses, which are generally ineligible for

section 7(a) loans under existing SBA regulations, to obtain PPP financing.

b. Do the SBA affiliation rules prohibit a portfolio company of a private equity fund

from being eligible for a PPP loan?

Borrowers must apply the affiliation rules that appear in 13 CFR 121.301(f), as

set forth in the Second PPP Interim Final Rule (85 FR 20817). The affiliation

rules apply to private equity-owned businesses in the same manner as any other

business subject to outside ownership or control.2 However, in addition to

applying any applicable affiliation rules, all borrowers should carefully review the

required certification on the Paycheck Protection Program Borrower Application

Form (SBA Form 2483) stating that “[c]urrent economic uncertainty makes this

loan request necessary to support the ongoing operations of the Applicant.”

c. Is a hospital owned by governmental entities eligible for a PPP loan?

A hospital that is otherwise eligible to receive a PPP loan as a business concern or

nonprofit organization (described in section 501(c)(3) of the Internal Revenue

Code of 1986 and exempt from taxation under section 501(a) of such Code) shall

2 However, the Act waives the affiliation rules if the borrower receives financial assistance from an SBA- licensed Small Business Investment Company (SBIC) in any amount. This includes any type of financing listed in 13 CFR 107.50, such as loans, debt with equity features, equity, and guarantees. Affiliation is waived even if the borrower has investment from other non-SBIC investors.

6 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 236 of 263

not be rendered ineligible for a PPP loan due to ownership by a state or local

government if the hospital receives less than 50% of its funding from state or

local government sources, exclusive of Medicaid.

The Administrator, in consultation with the Secretary, determined that this

exception to the general ineligibility of government-owned entities, 13 CFR

120.110(j), is appropriate to effectuate the purposes of the CARES Act.

d. Part III.2.b. of the Third PPP Interim Final Rule (85 FR 21747, 21751) is revised

to read as follows:

Are businesses that receive revenue from legal gaming eligible for a PPP Loan?

A business that is otherwise eligible for a PPP Loan is not rendered ineligible due

to its receipt of legal gaming revenues, and 13 CFR 120.110(g) is inapplicable to

PPP loans. Businesses that received illegal gaming revenue remain categorically

ineligible. On further consideration, the Administrator, in consultation with the

Secretary, believes this approach is more consistent with the policy aim of making

PPP loans available to a broad segment of U.S. businesses.

3. Business Participation in Employee Stock Ownership Plans

Does participation in an employee stock ownership plan (ESOP) trigger

application of the affiliation rules?

No. For purposes of the PPP, a business’s participation in an ESOP (as defined in

15 U.S.C. § 632(q)(6)) does not result in an affiliation between the business and

the ESOP. The Administrator, in consultation with the Secretary, determined that

this is appropriate given the nature of such plans. Under an ESOP, a business

concern contributes its stock (or money to buy its stock or to pay off a loan that

7 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 237 of 263

was used to buy stock) to the plan for the benefit of the company’s employees.

The plan maintains an account for each employee participating in the plan.

Shares of stock vest over time before an employee is entitled to them. However,

with an ESOP, an employee generally does not buy or hold the stock directly

while still employed with the company. Instead, the employee generally receives

the shares in his or her personal account only upon the cessation of employment

with the company, including retirement, disability, death, or termination.

4. Eligibility of Businesses Presently Involved in Bankruptcy Proceedings

Will I be approved for a PPP loan if my business is in bankruptcy?

No. If the applicant or the owner of the applicant is the debtor in a bankruptcy

proceeding, either at the time it submits the application or at any time before the

loan is disbursed, the applicant is ineligible to receive a PPP loan. If the applicant

or the owner of the applicant becomes the debtor in a bankruptcy proceeding after

submitting a PPP application but before the loan is disbursed, it is the applicant’s

obligation to notify the lender and request cancellation of the application. Failure

by the applicant to do so will be regarded as a use of PPP funds for unauthorized

purposes.

The Administrator, in consultation with the Secretary, determined that providing

PPP loans to debtors in bankruptcy would present an unacceptably high risk of an

unauthorized use of funds or non-repayment of unforgiven loans. In addition, the

Bankruptcy Code does not require any person to make a loan or a financial

accommodation to a debtor in bankruptcy. The Borrower Application Form for

PPP loans (SBA Form 2483), which reflects this restriction in the form of a

8 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 238 of 263

borrower certification, is a loan program requirement. Lenders may rely on an

applicant’s representation concerning the applicant’s or an owner of the

applicant’s involvement in a bankruptcy proceeding.

5. Limited Safe Harbor with Respect to Certification Concerning Need for PPP

Loan Request.

Consistent with section 1102 of the CARES Act, the Borrower Application Form

requires PPP applicants to certify that “[c]urrent economic uncertainty makes this

loan request necessary to support the ongoing operations of the Applicant.”

Any borrower that applied for a PPP loan prior to the issuance of this regulation

and repays the loan in full by May 7, 2020 will be deemed by SBA to have made

the required certification in good faith.

The Administrator, in consultation with the Secretary, determined that this safe

harbor is necessary and appropriate to ensure that borrowers promptly repay PPP

loan funds that the borrower obtained based on a misunderstanding or

misapplication of the required certification standard.

6. Additional Information

SBA may provide further guidance, if needed, through SBA notices that will be

posted on SBA’s website at www.sba.gov. Questions on the Paycheck Protection

Program may be directed to the Lender Relations Specialist in the local SBA Field

Office. The local SBA Field Office may be found at https://www.sba.gov/tools/local-

assistance/districtoffices.

9 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 239 of 263

Compliance with Executive Orders 12866, 12988, 13132, 13563, and 13771, the

Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory Flexibility Act (5

U.S.C. 601-612).

Executive Orders 12866, 13563, and 13771

This interim final rule is economically significant for the purposes of Executive

Orders 12866 and 13563, and is considered a major rule under the Congressional Review

Act. SBA, however, is proceeding under the emergency provision at Executive Order

12866 Section 6(a)(3)(D) based on the need to move expeditiously to mitigate the current

economic conditions arising from the COVID-19 emergency. This rule’s designation

under Executive Order 13771 will be informed by public comment.

Executive Order 12988

SBA has drafted this rule, to the extent practicable, in accordance with the standards

set forth in section 3(a) and 3(b)(2) of Executive Order 12988, to minimize litigation,

eliminate ambiguity, and reduce burden. The rule has no preemptive or retroactive effect.

Executive Order 13132

SBA has determined that this rule will not have substantial direct effects on the

States, on the relationship between the National Government and the States, or on the

distribution of power and responsibilities among the various layers of government.

Therefore, SBA has determined that this rule has no federalism implications warranting

preparation of a federalism assessment.

Paperwork Reduction Act, 44 U.S.C. Chapter 35

SBA has determined that this rule will not impose new or modify existing

recordkeeping or reporting requirements under the Paperwork Reduction Act.

10 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 240 of 263

Regulatory Flexibility Act (RFA)

The Regulatory Flexibility Act (RFA) generally requires that when an agency issues a

proposed rule, or a final rule pursuant to section 553(b) of the APA or another law, the

agency must prepare a regulatory flexibility analysis that meets the requirements of the

RFA and publish such analysis in the Federal Register. 5 U.S.C. 603, 604. Specifically,

the RFA normally requires agencies to describe the impact of a rulemaking on small

entities by providing a regulatory impact analysis. Such analysis must address the

consideration of regulatory options that would lessen the economic effect of the rule on

small entities. The RFA defines a “small entity” as (1) a proprietary firm meeting the

size standards of the Small Business Administration (SBA); (2) a nonprofit organization

that is not dominant in its field; or (3) a small government jurisdiction with a population

of less than 50,000. 5 U.S.C. 601(3)–(6). Except for such small government

jurisdictions, neither State nor local governments are “small entities.” Similarly, for

purposes of the RFA, individual persons are not small entities. The requirement to

conduct a regulatory impact analysis does not apply if the head of the agency “certifies

that the rule will not, if promulgated, have a significant economic impact on a substantial

number of small entities.” 5 U.S.C. 605(b). The agency must, however, publish the

certification in the Federal Register at the time of publication of the rule, “along with a

statement providing the factual basis for such certification.” If the agency head has not

waived the requirements for a regulatory flexibility analysis in accordance with the

RFA’s waiver provision, and no other RFA exception applies, the agency must prepare

the regulatory flexibility analysis and publish it in the Federal Register at the time of

promulgation or, if the rule is promulgated in response to an emergency that makes

11 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 241 of 263

timely compliance impracticable, within 180 days of publication of the final rule. 5

U.S.C. 604(a), 608(b). Rules that are exempt from notice and comment are also exempt

from the RFA requirements, including conducting a regulatory flexibility analysis, when

among other things the agency for good cause finds that notice and public procedure are

impracticable, unnecessary, or contrary to the public interest. SBA Office of Advocacy

guide: How to Comply with the Regulatory Flexibility Act, Ch.1. p.9. Accordingly, SBA

is not required to conduct a regulatory flexibility analysis.

Jovita Carranza, Administrator.

12 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 242 of 263

EXHIBIT F Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 243 of 263 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 244 of 263 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 245 of 263 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 246 of 263 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 247 of 263 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 248 of 263 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 249 of 263

EXHIBIT G Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 250 of 263 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 251 of 263 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 252 of 263 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 253 of 263 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 254 of 263 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 255 of 263 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 256 of 263

EXHIBIT H Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 257 of 263

From: Scott Henderson Sent: Wednesday, May 6, 2020 9:14 AM To: David Gay Cc: Shannon Gay ; Vanessa Wilkison ; Lindsey Gauthier ; Lerner, Stephen D. Subject: [EXT] RE: PPP Application Additional Documents

David & Shannon,

The PPP application was created by the SBA and not Old National Bank. Currently the application which the borrower applies for the PPP loan has to attest that they are not currently involved in a bankruptcy. ONB cannot make any changes to the wording on the application form, so the current SBA guidelines will not allow us to process your applications. If you have additional questions on this, your best contact would be your local SBA district office in Kentucky. I have listed their contact information below.

Kentucky District Office 600 Dr. Martin Luther King Jr Place Room 188 Louisville, KY Phone: 502-582-5971 Fax: 502-582-5009 https://www.sba.gov/offices/district/ky/louisville

Scott

SCOTT HENDERSON | SPECIAL ASSETS OFFICER II, AVP t: 812-468-1983 [email protected] Old National Bank 600 N Royal Ave | Evansville, IN 47715

From: David Gay Sent: Tuesday, May 5, 2020 8:44 PM To: Scott Henderson Cc: Shannon Gay ; Vanessa Wilkison ; Lindsey

1 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 258 of 263 Gauthier ; Stephen Lerner Subject: Re: PPP Application Additional Documents

Thanks Scott

Does this mean that Old National refuses to pass on to SBA?

Best

David Gay Hartshorne Mining Group M: (276) 791‐0677 O: (270) 499‐7405

On May 5, 2020, at 6:45 PM, Scott Henderson wrote:

Shannon, The feedback that I received was that being in a receivership automatically disqualifies Hartshorne from being eligible for a PPP loan.

Scott

SCOTT HENDERSON | SPECIAL ASSETS OFFICER II, AVP t: 812-468-1983 [email protected] Old National Bank 600 N Royal Ave | Evansville, IN 47715

From: Shannon Gay Sent: Tuesday, May 5, 2020 4:48 PM To: Scott Henderson Cc: Vanessa Wilkison ; David Gay ; Lindsey Gauthier Subject: RE: PPP Application Additional Documents

We worked with Vanessa. I’ll copied her on this email.

From: Scott Henderson Sent: Tuesday, May 5, 2020 4:47 PM To: Shannon Gay Subject: RE: PPP Application Additional Documents

2 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 259 of 263 I can’t kick this out to the SBA if the application is incomplete. I have to find out who reviewed your application internally to find out what was missing that caused the incomplete application.

SCOTT HENDERSON | SPECIAL ASSETS OFFICER II, AVP t: 812-468-1983 [email protected] Old National Bank 600 N Royal Ave | Evansville, IN 47715

From: Shannon Gay Sent: Tuesday, May 5, 2020 4:45 PM To: Vanessa Wilkison Cc: David Gay ; Lindsey Gauthier ; Scott Henderson Subject: RE: PPP Application Additional Documents

Can you kick it out to SBA for an official answer because we need information for the US bankruptcy court?

Thanks! Shannon

From: Vanessa Wilkison Sent: Tuesday, May 5, 2020 4:41 PM To: Shannon Gay Cc: David Gay ; Lindsey Gauthier Subject: RE: PPP Application Additional Documents

Good afternoon,

Sorry, I was waiting on an answer back from one of our senior processors. On the applications, Question #1 was answered with a “Yes” and it automatically disqualifies the company from this loan.

1. Is the Applicant or any owner of the Applicant 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?

If that is not correct or something has changed, please let me know ASAP.

Thank you,

Vanessa

VANESSA WILKISON | Marketing Operations Manager, AVP t: 812-461-9791 | c: 812-480-8614 [email protected] Old National Bank 3 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 260 of 263 One Main Street | Evansville, IN 47708

From: Shannon Gay Sent: Monday, May 4, 2020 10:55 AM To: Vanessa Wilkison Cc: David Gay ; Lindsey Gauthier Subject: RE: PPP Application Additional Documents

Vanessa,

Can you please provide us a status update on our PPP loan applications for Hartshorne Mining Group LLC & Hartshorne Mining LLC? If not, could you please provide me with a contact at Old National Bank about our applications?

Thank you! Shannon Gay

Accountant Paringa Resources Limited

NASDAQ: PNRL ASX: PNL

373 Whobry Road | Rumsey, KY 42371 Telephone: (812) 406‐4021 | Mobile: (276) 791‐0752 Web: www.paringaresources.com

From: Vanessa Wilkison Sent: Monday, April 27, 2020 4:58 PM To: Shannon Gay Subject: RE: PPP Application Additional Documents

So far, I have 26 separate documents, but I’m still getting emails.

VANESSA WILKISON | Marketing Operations Manager, AVP t: 812-461-9791 | c: 812-480-8614 [email protected] Old National Bank One Main Street | Evansville, IN 47708

4 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 261 of 263

From: Shannon Gay Sent: Monday, April 27, 2020 4:56 PM To: Vanessa Wilkison Subject: RE: PPP Application Additional Documents

Vanessa,

Do you receive 35 health benefit invoices?

Thanks, Shannon

From: Vanessa Wilkison Sent: Monday, April 27, 2020 4:52 PM To: Shannon Gay Subject: RE: PPP Application Additional Documents

It should let you upload as many documents as you like. Try dragging them over as one bundle.

VANESSA WILKISON | Marketing Operations Manager, AVP t: 812-461-9791 | c: 812-480-8614 [email protected] Old National Bank One Main Street | Evansville, IN 47708

From: [email protected] Sent: Monday, April 27, 2020 4:49 PM To: Vanessa Wilkison Subject: Re: PPP Application Additional Documents

One or more files have been sent to you. Visit the Workspace to retrieve files. You may be prompted to register an account if authentication is required. This link will expire on 5/4/2020 9:48:10 PM

5 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 262 of 263 It is not allowing me to upload more than one file.

Can you assist me?

‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ *********************************************************************** Information provided in this email or any attachments is not an official transaction confirmation or account statement. This message is intended only for the exclusive use of the intended recipient(s) named herein and may contain information that is PRIVILEGED and/or CONFIDENTIAL. If you are not the intended recipient, you are hereby notified that any use, dissemination, disclosure or copying of this communication is strictly prohibited. If you have received this communication in error, please destroy all copies of this message and its attachments and notify us immediately.

‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ *********************************************************************** Information provided in this email or any attachments is not an official transaction confirmation or account statement. This message is intended only for the exclusive use of the intended recipient(s) named herein and may contain information that is PRIVILEGED and/or CONFIDENTIAL. If you are not the intended recipient, you are hereby notified that any use, dissemination, disclosure or copying of this communication is strictly prohibited. If you have received this communication in error, please destroy all copies of this message and its attachments and notify us immediately.

‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ *********************************************************************** Information provided in this email or any attachments is not an official transaction confirmation or account statement. This message is intended only for the exclusive use of the intended recipient(s) named herein and may contain information that is PRIVILEGED and/or CONFIDENTIAL. If you are not the intended recipient, you are hereby notified that any use, dissemination, disclosure or copying of this communication is strictly prohibited. If you have received this communication in error, please destroy all copies of this message and its attachments and notify us immediately.

‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ *********************************************************************** Information provided in this email or any attachments is not an official transaction confirmation or account statement. This message is intended only for the exclusive use of the intended recipient(s) named herein and may contain information that is PRIVILEGED and/or CONFIDENTIAL. If you are not the intended recipient, you are hereby notified that any use, dissemination, disclosure or copying of this communication is strictly prohibited. If you have received this communication in error, please destroy all copies of this message and its attachments and notify us immediately.

‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ *********************************************************************** Information provided in this email or any attachments is not an official transaction confirmation or account statement. This message is intended only for the exclusive use of the intended recipient(s) named herein and may contain information that is PRIVILEGED and/or CONFIDENTIAL. If you are not the intended recipient, you are hereby notified that any use, dissemination, disclosure or copying of this communication is strictly prohibited. If you have received this communication in error, please destroy all copies of this message and its attachments and notify us immediately.

------*********************************************************************** 6 Case 20-40133-thf Doc 287 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 263 of 263 Information provided in this email or any attachments is not an official transaction confirmation or account statement. This message is intended only for the exclusive use of the intended recipient(s) named herein and may contain information that is PRIVILEGED and/or CONFIDENTIAL. If you are not the intended recipient, you are hereby notified that any use, dissemination, disclosure or copying of this communication is strictly prohibited. If you have received this communication in error, please destroy all copies of this message and its attachments and notify us immediately.

7 Case 20-40133-thf Doc 287-1 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 1 of 4

UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF KENTUCKY OWENSBORO DIVISION

IN RE: Chapter 11 HARTSHORNE HOLDINGS, LLC, et al. Jointly administered

1 Debtors. Case No. 20-40133

HARTSHORNE MINING, LLC, and HARTSHORNE MINING GROUP, LLC

Plaintiffs, Adversary No. 20-______

v.

JOVITA CARRANZA, in her capacity as Administrator for the U.S. Small Business Administration,

Defendants TEMPORARY RESTRAINING ORDER

On May __, 2020, the Court considered Plaintiffs’ Emergency Application for Temporary

Restraining Order and Preliminary Injunction (the “Application”), and the request in the

Application for issuance of a temporary restraining order; and having considered certain facts set forth in the verified Application; and having considered the text and purpose of the Coronavirus

Aid, Relief and Economic Security Act (the “CARES Act”) and the Paycheck Protection Program

1 The Debtors in these chapter 11 cases and the last four digits of each Debtor’s taxpayer identification number are as follows: Hartshorne Holdings, LLC (3948); Hartshorne Mining Group, LLC (0063); Hartshorne Mining, LLC (1941); and Hartshorne Land, LLC (5582). The Debtors’ headquarters are located at 373 Whobry Road, Rumsey, Kentucky 42371.

010-9063-1685/1/AMERICAS

Case 20-40133-thf Doc 287-1 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 2 of 4

(“PPP”) in § 1102 of the CARES Act; and having considered the arguments of the Parties, the

Court finds and concludes that Plaintiffs would suffer immediate and irreparable harm without issuance of the temporary restraining order.

It is hereby ORDERED and ADJUDGED:

1. The Court hereby issues this temporary restraining order, with notice, and directed to Jovita

Carranza in her capacity as Administrator for the U.S. Small Business Administration

(“Administrator”), all agents and employees of the U.S. Small Business Administration

(“SBA”) and anyone acting in concert with the SBA (collectively the “Restrained Parties”).

Any commercial lender participating in the PPP enacted in § 1102 of the CARES Act shall

become one the Restrained Parties upon actual notice of this order being provided to such

bank. This order does not restrain the Restrained Parties to the extent any of them takes

action on an application under the PPP for persons or entities other than Plaintiffs.

2. The Restrained Parties shall not deny or cause any commercial lender to deny any

application of Plaintiffs under PPP solely on the basis that Plaintiffs are debtors in

bankruptcy or “presently involved in any bankruptcy” as described by the official PPP

application promulgated by the Administrator (the “Loan Application”).

3. The Retrained Parties shall not refuse to guaranty a loan sought by Plaintiffs under the PPP

solely on the basis that Plaintiffs are debtors in bankruptcy or “presently involved in any

bankruptcy” as described by the Loan Application.

4. The Administrator shall not authorize, guarantee or disburse funds appropriated for loans

under the PPP without reserving sufficient funds or guaranty authority within the scope of

the second appropriation to fund the PPP to provide Plaintiffs with access to funds under

the PPP if Plaintiffs are eligible after implementation of the terms of this restraining order.

010-9063-1685/1/AMERICAS

Case 20-40133-thf Doc 287-1 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 3 of 4

The Administrator shall ensure she has sufficient authority within the scope of the amounts

appropriated for PPP as of May __ 2020, to guaranty a loan to Plaintiffs in the amount

Plaintiffs have applied for, $2,274,400, in the event Plaintiffs are eligible to obtain that

amount subject to the terms of this order and after consideration of any administrative and

judicial appeals and resolution of the claims in Plaintiffs complaint.

5. Plaintiffs shall be authorized to submit a PPP Loan Application to a participating lender of

their choosing—with the words “or presenting involved in bankruptcy” stricken from the

Application and, if Plaintiffs satisfy all other conditions in Question 1 of the Loan

Application to mark the box answering Question 1 “no” or, with respect to any pending

application, for the participating lender to treat Question 1 as if it were answered “no”. The

Restrained Parties shall consider the application submitted by Plaintiffs and fully

implement all aspects of PPP program with respect to Plaintiffs without any consideration

of the involvement of Plaintiffs in bankruptcy. The application shall be considered an initial

application of the submission if a subsequent application would adversely impact

Plaintiffs’ ability to qualify for a PPP loan.

6. To the extent any lender participating in the PPP program requires Plaintiffs to execute

other forms, applications, or other documents for a PPP loan that would include any

language about whether Plaintiffs are involved in bankruptcy, Plaintiffs are authorized to

strike the portion of such language about the involvement in bankruptcy and the Restrained

Parties shall process the forms, applications, or other documents without any consideration

or the involvement of Plaintiffs in bankruptcy.

7. To the extent the approval of this Court is required for Plaintiffs to obtain a PPP loan,

Plaintiffs shall file a motion and seek entry of an order authorizing such relief. Plaintiffs

010-9063-1685/1/AMERICAS

Case 20-40133-thf Doc 287-1 Filed 05/08/20 Entered 05/08/20 14:52:10 Page 4 of 4

must file any such motion within ten days after the date of this order. Any deadline under

the PPP program requiring disbursement of PPP loan proceeds is hereby extended in order

to allow consideration of a motion by Plaintiffs seeking authority to obtain a PPP loan.

8. The Court will consider a telephonic status conference on Plaintiffs’ request for a

preliminary injunction consistent with the terms of this order on May __, 2020 at _____.

At the status conference the Administrator must be prepare to describe, in reasonable detail,

the steps she has taken to comply with this order.

9. This temporary restraining order shall remain in full force and effect until it expires on

May __, 2020 unless further extended by applicable law, by order of the Court, or by

written agreement Plaintiffs and the Administrator.

10. The Court finds that, given the nature of the relief ordered herein, there is no significant

risk of damage to Defendant from entry of this Order and that no security is required.

010-9063-1685/1/AMERICAS