Prestige Transportation, Inc. v. U.S. Small Business Admin.

• Court: Court of Appeals for the Ninth Circuit
• Decided: February 17, 2023
• Docket: 21-56129
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS FEB 17 2023 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

PRESTIGE TRANSPORTATION, INC.; et No. 21-56129 al., D.C. No. Plaintiffs-Appellants, 2:20-cv-08963-SB-RAO

v. MEMORANDUM* U.S. SMALL BUSINESS ADMINISTRATION; et al.,

Defendants-Appellees.

Appeal from the United States District Court for the Central District of California Stanley Blumenfeld, Jr., District Judge, Presiding

Argued and Submitted October 20, 2022 Pasadena, California

Before: HIGGINSON,** CHRISTEN, and BUMATAY, Circuit Judges.

Plaintiffs challenge the Small Business Administration’s (“SBA”) responses

to their applications for emergency disaster loans under the CARES Act. The

district court dismissed plaintiff STAM Properties LLC’s (“STAM”) claims for

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The Honorable Stephen A. Higginson, United States Circuit Judge for the U.S. Court of Appeals for the Fifth Circuit, sitting by designation. lack of standing under Rule 12(b)(1) and dismissed plaintiff corporations Prestige

Transportation Inc., Superior Overnight Services Inc., and Amerilogistics Group

Inc.’s (“Corporate Plaintiffs”) claims under Rule 12(c). We have jurisdiction under

28 U.S.C. § 1291. We review de novo. Diaz v. First Am. Home Buyers Protection

Corp., 732 F.3d 948, 951 (9th Cir. 2013) (12(b)(1) standard); Fleming v. Pickard,

581 F.3d 922, 925 (9th Cir. 2009) (12(c) standard). We vacate and remand for

further proceedings.

1. STAM. In this facial attack on subject matter jurisdiction, we must accept

all allegations in STAM’s complaint as true and draw all reasonable inferences in

STAM’s favor. Mecinas v. Hobbs, 30 F.4th 890, 896 (9th Cir. 2022); Leite v.

Crane Co., 749 F.3d 1117, 1121 (9th Cir. 2014). STAM’s complaint alleges it

applied to the SBA for an Economic Injury Disaster Loan (“EIDL”) after the

CARES Act was signed into law in March of 2020. It soon realized it needed to

amend its application to receive a more favorable loan and a higher nonrepayable

advance. But STAM alleges that it was unable to amend its application despite

many attempts over a four-month period. STAM further alleges that it received

conflicting information regarding the status of its loan application and attempts to

amend it, including a denial letter.

On July 16, 2020, while the news of the denial was in the mail, STAM spoke

with an SBA agent who emailed instructions on how to request an increased loan

2 amount. But STAM did not pursue those instructions because it received the

SBA’s denial letter (dated July 15) the next day, on July 17. On July 31, STAM

reached an SBA agent who “confirmed that its application had been withdrawn

because the company ‘failed to proceed’ and that no option to reopen or reactivate

exists.”

STAM then filed suit alleging that the SBA denied its application, and never

provided the loan offer or advance to which STAM was entitled, because the SBA

applied an illegal “de facto policy prohibiting amendments to filed applications,”

which STAM dubs the “no amendment policy.” STAM deduces the existence of

this policy from (1) its inability to file an amended application online or over the

phone; (2) the automatic withdrawal of its second application; (3) the failed

attempts of multiple SBA agents to make amendments to STAM’s application

despite one agent’s claim to have inputted the amendments and a second agent’s

confirmation that they had been updated in the SBA’s system; (4) the denial of

STAM’s application without consideration of the amendments; and (5) the SBA

agent’s July 31 statement that there is no option to reopen an application.

Defendants moved for dismissal under Rule 12(b)(1), which the district

court granted. The district court suggested that STAM’s complaint repeatedly

contradicts its allegation that the SBA had a no amendments policy because the

complaint recounts instances in which SBA representatives “inputted the requested

3 changes” to the application and “confirmed” information “had been updated.” But

the complaint also recounts, immediately after, that those changes were never

reflected on STAM’s application, that the application was denied and never

evaluated as amended, and that the SBA told STAM, in its final communication

before STAM filed suit, that “no option to reopen or reactivate exists.” STAM’s

complaint is difficult to parse and subject to different plausible interpretations.

Construed in STAM’s favor, the complaint alleges the existence of a no

amendments policy. We nevertheless remand to the district court to determine if

STAM sufficiently alleged an injury traceable to that policy. On appeal, the SBA

argues that any allegation of injury traceable to the policy is conclusory and

implausible or that STAM’s injury was “self-inflicted” due to its failure to follow

the instructions provided by the SBA’s July 16 email. In considering whether any

injury was “self-inflicted,” the district court should apply the Supreme Court’s

recent decision in Federal Election Commission v. Cruz, 142 S. Ct. 1638, 1647

(2022). We thus take no position on STAM’s standing at this time and remand for

consideration by the district court in the first instance.

2. Corporate Plaintiffs. Corporate Plaintiffs’ applications for EIDLs were

denied in 2020 based on the SBA’s so-called “immigration status policy.” For the

Corporate Plaintiffs to be eligible for EIDLs under this policy, their shareholders

must be “qualified aliens” under the Immigration and Nationality Act, see 8 U.S.C.

4 § 1641(b), and it is uncontested that Corporate Plaintiffs’ shareholders are not

“qualified aliens.”

In their complaint, Corporate Plaintiffs allege that this immigration status

policy is ultra vires, inconsistent with the CARES Act, and constitutes an illegal

policy change implemented sub silentio. In its motion to dismiss under Rule 12(c),

the SBA points out that its 2018 Standard Operating Procedure (“SOP”) already

contained the policy and argues the policy is longstanding and traceable to the

Personal Responsibility and Work Opportunity Reconciliation Act of 1996

(“PRWORA”).1 See 8 U.S.C § 1611(a) (“Notwithstanding any other provision of

law . . . , an alien who is not a qualified alien . . . is not eligible for any Federal

public benefit.”). In response and on appeal, Corporate Plaintiffs argue that

PRWORA’s prohibition applies to aliens—that is, individuals, not corporations—

and that the SBA’s argument ignores that Corporate Plaintiffs and their

shareholders are distinct entities.

The district court granted the SBA’s 12(c) motion. It found that the CARES

Act did not displace PRWORA, and it reasoned that “unless the CARES Act

displace[d] PRWORA, Plaintiffs were statutorily ineligible to receive EIDL loans

1 Corporate Plaintiffs claim that prior versions of the SBA’s SOP did not include this PRWORA requirement. We leave it to the district court to consider whether these alleged changes in policy bear on the instant case.

5 under PRWORA, and the SBA was not only authorized but required to deny their

applications.”

The district court assumed that PRWORA prohibits federal aid to Corporate

Plaintiffs but did not explain its reasoning. Because this is a significant issue of

first impression, we remand to the district court to analyze it in the first instance.

3. We VACATE the portion of the district court’s July 26, 2021 order

dismissing STAM’s claims, the September 9, 2021 order dismissing Corporate

Plaintiffs’ claims, and the September 9, 2021 final judgment. We REMAND for

consideration consistent with this memorandum.2

VACATED and REMANDED. The parties shall each bear their own costs.

2 Plaintiffs filed a “Motion for Judicial Notice” before this court. We grant it to the extent it asks us to notice the existence of public documents on official websites. City & County of San Francisco v. Garland, 42 F.4th 1078, 1083 (9th Cir. 2022). We do not endorse Plaintiffs’ characterization of these documents or any claims they make in that filing.