Gordon College might be on the hook to repay $7 million of COVID-19 relief funds. A federal court rejected eight of the evangelical school’s arguments that it must be eligible for loan forgiveness.
Gordon’s lawyers made the case that the religious liberty protections within the First Amendment and the Religious Freedom Restoration Act should allow the institution to count employees another way than the US Small Business Administration (SBA) said they’d to be counted. The US district court in Washington, DC, rejected the argument, citing an absence of evidence.
“Plaintiff alleges no facts connecting its variety of employees to any religious practice,” Judge Beryl A. Howell wrote in a ruling handed down in July. “Plaintiff fails to discover any ‘exercise of faith’ that has been burdened, and thus plaintiff’s claims will be dismissed on this basis alone.”
According to the federal government, Gordon has 639 employees on its wooded campus on the North Shore of Boston. Some of those people only work part time, nonetheless. So the college calculated the full-time equivalent, which is a typical method to track enrollment in higher education. If you don’t tally individual people working at the college, but as an alternative count units of time worked, Gordon only has 495.67 employees.
Organizations with fewer than 500 employees are eligible for loan forgiveness.
The government gave out nearly $800 billion as a part of the Coronavirus Aid, Relief, and Economic Security Act passed by Congress and signed into law by President Donald Trump in 2020. The overwhelming majority of recipients have since had their debt waived. Gordon is an exception.
In court filings, the law firm Gammon and Grange said the SBA’s decision to not forgive the college’s $7 million loan was “legally erroneous and arbitrary and capricious on the merits.” It was also, the attorneys claim, religious discrimination.
Gordon, which has about 1,300 students enrolled in undergraduate programs, requested a Paycheck Protection Program (PPP) loan in April 2020. The application form asked for a count of employees, and Gordon gave the number: 495.67. The school’s lawyers say the tactic of counting the full-time equivalent was clearly indicated.
According to Gordon, greater than 25 other colleges and universities also used the full-time reminiscent of calculate loan eligibility. Most applicants, nonetheless, just counted people.
No one was sure if there was a “right” way, on the time.
“There was widespread confusion,” Gordon’s lawsuit says, “about what method to find out the variety of employees must be used.”
At the top of April, the SBA put out an announcement on its FAQ page about full-time equivalent counts. The government agency said the variety of employees must be determined by a straightforward head count, treating full- and part-time employees equally. The SBA also clarified that the 500-employee cap only applied to loan forgiveness. Organizations with more employees than that will still be considered eligible for funding but could be required to pay the a refund.
By that point, though, Gordon had already gotten its loan from Citizens Bank, a PPP partner, and was using the cash to maintain the 639 individuals who worked at the college employed.
Court records indicate that the college didn’t learn of the problem with its eligibility for loan forgiveness until November 2021, when Citizens Bank said in an email that the SBA needed an “worker count per location.” The school responded inside a couple of days, giving the federal government a recent number, based on a head count: 639.
In April 2022, the SBA notified Gordon that its application for loan forgiveness was denied.
Gordon appealed after which appealed again, taking the SBA to court.
The lawyers claimed that the “SBA Court refused to even consider an exemption or other relief from a cramped and unconstitutional interpretation of the ‘500 worker’ threshold.” Even worse, the SBA “discriminated against Plaintiff-Petitioner, an evangelical Christian college with religiously and socially conservative views, by treating other, similarly situated religious colleges higher than it has Plaintiff-Petitioner.”
Gordon alleges that 25 other schools that counted employees the identical way were forgiven loans of $5 to $10 million each.
Judge Howell ruled, nonetheless, that Gordon didn’t back up that claim with sufficient evidence. Many of the opposite schools that Gordon pointed to were, in reality, also Christian institutions. The lawyers mentioned Wheaton College, Trevecca Nazarene University, Drew University, and St. Mary’s College Notre Dame.
Gordon, Howell wrote, “offers no facts to support its conclusory allegation that these 25 other colleges are similarly situated—much less similarly situated in all respects except religious affiliation.”
Howell also found there wasn’t evidence to indicate that counting employees was connected to religion in any respect.
“No allegation is made that the 500-employee cap or SBA’s methods for counting employees were enacted to focus on or single out any religious conduct or institutions,” the judge wrote, “nor that the cap or employee-counting methodology employed have an hostile impact on religion.”
And in accordance with Howell, there isn’t even evidence that SBA officials knew Gordon was a Christian school.
The Massachusetts college shouldn’t be the one PPP loan recipient that has been told it should should pay the a refund. The SBA has manually audited about 2 percent of all PPP loans and denied forgiveness to about 0.2 percent. That works out to around 21,000 organizations that could have to pay back relief money.
According to some experts, the approval process was rushed in response to the fear of monetary crisis brought on by the pandemic. That allowed for a variety of fraud—in addition to many honest mistakes.
“Quite a lot of the small print were very unclear to businesses and banks,” Eric Lichatin, a industrial loan officer who handled PPP applications for a bank in Rhode Island, told NPR.
Steven Mnuchin, who was treasury secretary under Donald Trump and oversaw this system design, had said that the needs of small businesses were too urgent to establish a lengthy loan review process in 2020. But he assured a House oversight committee in 2020 that there could be more careful scrutiny when it got here time to forgive loans.
“We are going to have a really robust process,” he said. “People shall be required to offer way more data.”
One lawyer who advises PPP borrowers for a New Jersey law firm said that has happened, and now the SBA is “playing hardball” on loan forgiveness.
Some borrowers—including a automobile dealership in New Jersey and a fitness club in Missouri—are fighting back in court. Gordon appears to be the just one, nonetheless, making religious liberty claims for loan forgiveness.
Those arguments were rejected, however the evangelical school could appeal. Otherwise, the case will go forward within the district court, where Gordon will argue that the choice to disclaim the loan was a legal error, “made in excess of SBA’s statutory authority, and constituted an abuse of discretion (to the extent it had discretion),” and that it was in violation of the Fourteenth Amendment’s guarantee of due process.
