News Type: Media Mentions

LOS ANGELES, CA – The considerable backlash directed at the Paycheck Protection Program has been amplified with the filing of a lawsuit against U.S. Treasury Secretary Steven Mnuchin and the Treasury Department, as well as the U.S. Small Business Administration and its administrator, Jovita Carranza.

The federal court case against Mnuchin and his fellow defendants, filed today (Monday, May 4, 2020) in the Central District of California on behalf of three privately held tech companies, seeks to nullify recent guidance issued by the SBA in tandem with Treasury that ostensibly reimposes a so-called “credit elsewhere test” as a criteria for PPP loans.

The PPP is geared toward small businesses hit hard by the COVID-19 outbreak—those needing short-term money to stay afloat, retain their workforces, and position themselves to reopen when safe to do so. Toward that end, the SBA has been issuing PPP loans up to $10M.

Commenting on the lure of the PPP, Mona Hanna of Michelman & Robinson, LLP—the law firm representing the plaintiffs—explains, “A key feature of these loans is that they’re forgivable given the intent to keep ‘America working.’ The net effect is that PPP loans, if spent properly, are akin to grants critical to the survival of small businesses. For this reason, any ‘guidance’ that unlawfully places an obstacle in the way of PPP loan eligibility is unacceptable, especially given the dire circumstances that prompted the passage of the CARES Act in the first place.”

The obstacle Hanna refers to is the “credit elsewhere test.” Ordinarily, to qualify for an SBA loan, a would-be borrower must demonstrate that it does not have the ability to obtain some or all of the requested loan funds from alternative sources without causing undue hardship. And where such credit can be obtained elsewhere, the SBA will not extend financial assistance. That being said, the CARES Act, which established the PPP, specifically waives the “credit elsewhere test,” and it is this waiver that is at the heart of the lawsuit filed by Michelman & Robinson on behalf of San Clemente-based Zumasys, Inc., which provides software programming services, and IT companies jBASE International and Total Computing Solutions, LLC.

Since the PPP’s rollout, negative commentary has been fast and furious. Most recently, Mnuchin, Treasury, and the SBA have been on the receiving end of extensive criticism stemming from PPP loans going to large, publicly traded companies. In response, the SBA updated its “Paycheck Protection Program Loans Frequently Asked Questions” on April 23, 2020.

According to Todd Stitt, another Michelman & Robinson partner, “The FAQs, which are housed on Treasury’s website, are specifically intended to provide guidance to borrowers and lenders concerning the implementation of the PPP. In their most current form, two of the FAQs—numbers 31 and 37—acknowledge the suspension of the ‘credit elsewhere test’ for purposes of the PPP, yet go on to require borrowers to certify in good faith that they are unable ‘to access other sources of liquidity sufficient to support their ongoing operations.’ The upshot is that by way of their guidance, Treasury and the SBA are, in fact, implementing a ‘credit elsewhere test’ in contradiction of the CARES Act. In legal parlance, they have enacted an ‘underground regulation.’”

Adds Hanna, “This guidance, which essentially imposes new requirements upon PPP borrowers, is not in accordance with the law and damages companies to the extent it jeopardizes their eligibility for PPP loans and calls into question the good faith behind their certifications. At the same time, FAQs 31 and 37, as written, have a chilling effect on small businesses that need PPP money to weather the COVID-19 storm.”

The plaintiffs suing Mnuchin, et al., are asking for an injunction to stop Treasury and the SBA from making determinations of PPP ineligibility based upon the guidance imposed by way of the FAQs, as well as a declaration from the federal court that FAQs 31 and 37 are contrary to law and must be withdrawn.

Mona Hanna and Michelman & Robinson were mentioned in a Law360 article titled “Treasury, SBA Sued Over PPP Loan Eligibility Guidance.” As counsel for the plaintiffs, Mona Hanna explains that companies that followed the SBA and Treasury’s guidance may be forced to go into debt to pay back their PPP loans, making them worse off than before they received a PPP loan.

Mona Hanna was quoted in a Bloomberg article titled “Software Company Sues to Avoid Repaying $750,000 PPP Loan,” on May 6, 2020. She discussed the lawsuit she and other M&R attorneys have filed on behalf of clients against the SBA and U.S. Treasury.

Mona Hanna was quoted in a New York Times article titled “Small Businesses Counting on Loan Forgiveness Could Be Stuck With Debt,” on May 6, 2020. She discussed the lawsuit she and other M&R attorneys have filed on behalf of clients against the SBA and U.S. Treasury.

Mona Hanna was quoted in a Washington Post article titled “Strip clubs, payday lenders, lobbyists fight to get emergency federal loans,” on May 6, 2020. She discussed the lawsuit she and other M&R attorneys have filed on behalf of clients against the SBA and U.S. Treasury.

Mona Hanna was quoted in a Daily Journal article titled “Businesses sue over Paycheck Protection Program guidelines,” on May 6, 2020. She discussed the lawsuit she and other M&R attorneys have filed on behalf of clients against the SBA and U.S. Treasury.

On September 14, 2020, Michael Poster and Michelman & Robinson were mentioned in a Billboard article titled “Vine Investment Firm Acquires Publishing Catalog of Songwriter Sean Douglas.” The piece covers Vine Alternative Investment’s recent purchase of the rights to the 100-plus song publishing catalog of Sean Douglas, a producer and songwriter responsible for hits by Demi Lovato (“Sorry Not Sorry”), David Guetta (“Hey Mama”), Jason Derulo (“Talk Dirty”), Thomas Rhett (“Die a Happy Man”), and Lizzo (“Like a Girl”). Michael and M&R represented Vine in the deal.

Dana Kravetz was quoted in a Wall Street Journal article titled “Should You Consider Early Retirement in a Recession?” The piece, published on October 8, covers the growing trend of companies offering early retirement packages or “buyouts” to employees during the current economic downturn. Dana offered his insightful commentary and employment law expertise.

On October 22, 2020, Michael Poster and Michelman & Robinson were mentioned in a Variety article titled “Calvin Harris Sells Publishing Catalog to Vine Investments for ‘Around’ $100 Million.” The piece covers Vine Alternative Investment’s recent acquisition of the music catalog of Calvin Harris, renowned DJ, record producer, singer, and songwriter. The transaction, which comprised the worldwide music publishing rights and related royalty streams, was one of the largest such deals in the entire music industry in 2020.

On October 22, 2020, Michael Poster and Michelman & Robinson were mentioned in a Billboard article titled “Calvin Harris Sells Publishing Catalog to Vine Investment Firm for More Than $90 Million.” The piece covers Vine Alternative Investment’s recent acquisition of the music catalog of Calvin Harris, renowned DJ, record producer, singer, and songwriter. The transaction, which comprised the worldwide music publishing rights and related royalty streams, was one of the largest such deals in the entire music industry in 2020.