A small Maine-based trucking firm has sued the U.S. Small Business Administration (SBA) for denying it a Paycheck Protection Program (PPP) loan. The suit, filed earlier this month in Portland, Maine, alleges that M.G. Transport’s request for a PPP loan was denied because the trucking company is currently operating under Chapter 11 bankruptcy proceedings.
M.G. Transport, which employs four people, and a companion company, A.S. & B.C. Gould & Sons, which employs five, sought $32,000 and $55,000, respectively, from the program. Gould & Sons operates a logging operation. Both companies are based in Cornville, Maine.
The suit names Jovita Carranza, an administrator for the SBA, as a defendant. The companies, along with a third company, Breda LLC, which operates a hotel in Camden, Maine, are seeking monetary damages for the loans they applied for as well as to bar SBA from denying businesses in bankruptcy access to PPP funds.
On Friday, the judge in the case set a pre-trial conference date of June 19. The lawsuit was first reported by the Portland Press Herald.
The PPP is targeted at companies with 500 workers or fewer. Under the terms, employers can borrow up to $10 million at a calculation of 2.5 times payroll at terms that are extremely generous to nonexistent. Specifically, there is no requirement to pay back the loan if certain criteria regarding keeping people employed are met. The program is designed to aid companies harmed by the current economy.
In the supporting documents, Tracy McKenney, representing the two trucking entities, emailed a representative of TD Bank on May 4, asking for guidance on applying for a PPP loan. The bank’s representative, Joel Johnson, replied with a link to the application. McKenney replied, asking about the bankruptcy filing.
“I have a question – we are currently under Chapter 11 – Can we still apply?,” McKenney wrote.
“Unfortunately no. The first question on the application asks about bankruptcy and the app states if you answer yes, it will not be approved,” Johnson replied.
It is unclear if M.G. Transport actually applied for a PPP loan. The lawsuit was filed on May 6.
An email request for comment sent to Adam Prescott, an attorney for Bernstein Shur Sawyer & Nelson, PA, representing M.G. Transport, has not been returned.
M.G. Transport filed for bankruptcy protection on Feb. 25, and as of the filing of the lawsuit on May 6, was still in operation, the document states. According to court documents, payroll and related employee expenses range from $2,000 to $3,000 per week, depending on seasonality.
Prescott is also representing M.G. Transport in its bankruptcy proceedings.
M.G. Transport hauls wood and lumber products related to Gould & Son’s business, delivering the products throughout Maine and Canada.
In the complaint, M.G. Transport argues it needs the PPP loan to help sustain business due to declining “demand for lumber.” The Canadian government, it said, is considering ways to “prop up the Canadian wood products industry, which could further diminish the demand for wood products from Maine.”
An explosion and subsequent destruction of the Androscoggin Mill in Jay, Maine, on April 15, further disrupted the company’s business, it said, as has the “mud season” in Maine, which results in decreased demand for truck logging services.
“The impact of COVID-19 and the decreased demand for the debtor’s transportation services, coupled with the reduced logging production expected during the ‘mud season,’ has negatively affected the debtor’s cash flow in the short-term,” the lawsuit states.
M.G. Transport is arguing that despite the fact that PPP paperwork states a business in bankruptcy is not eligible for a loan, the process is discriminatory against businesses in bankruptcy. The suit states that at least five other businesses in Maine have been denied loans due to their bankruptcy status.
It notes that an April 24 interim final rule issued by 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.”
“Based on the plain language of the application form and the April 24 rule, the administrator intended to and is discriminating against bankruptcy debtors by refusing to permit debtors an opportunity to participate in the PPP solely because a company is presently a debtor in a case under Title 11,” the lawsuit states, calling Question 1 on the form [whether a company is in bankruptcy proceedings] “discriminatory.”
M.G. Transport argues that it is merely trying to retain workers during a national pandemic, and that is “consistent with Congress’ purpose in passing the PPP.”
“The PPP grant, if approved, will provide the debtor with critical money to maintain operations in the short-term, keep people employed, and successfully reorganize. The debtor is the exact type of small business that the PPP was intended to protect, and the debtor will be irreparably harmed if the PPP runs out of money before the SBA’s discriminatory practice of excluding debtors is stopped and the debtor’s PPP application is allowed to be processed like other qualified businesses,” the suit states.
In its bankruptcy filing in February, M.G. Transport listed no more than 49 creditors. It estimated assets between $500,001 and $1 million and liabilities between $500,001 and $1 million.