Background
Oak Lawn, one of 203 nursing homes under common control via the Gubin-Blisko partnership, applied for loans under the CARES Act’s Paycheck Protection Program (PPP). The CARES Act imposed a $10 million cap per business and authorized the Small Business Administration to forgive portions of the loans. As demand exceeded available funds, the SBA issued the “Corporate Group Rule,” which added a $20 million aggregate cap on loans to all businesses in a single corporate group, defined as those majority-owned by a common parent.
By the time Oak Lawn applied, other nursing homes in its group had already received more than $20 million in PPP loans. Oak Lawn’s lender, unaware of this cap, disbursed approximately $1 million. When Oak Lawn sought loan forgiveness in 2021, the SBA limited it to the $20 million group cap, leaving Oak Lawn owing the remainder. Oak Lawn and other affiliated nursing homes sued, arguing the Corporate Group Rule was invalid and applied retroactively. The district court granted summary judgment for the SBA, and Oak Lawn appealed.
The Court’s Holding
The Seventh Circuit affirmed the SBA’s authority to enforce the Corporate Group Rule. The court held that the statute’s language—granting the SBA discretion to guarantee loans “up to” specified amounts and authorizing emergency rulemaking authority—does not require the agency to issue maximum guarantees to every applicant or forbid aggregate limits on affiliated businesses. The court rejected Oak Lawn’s argument that only separately incorporated entities qualify as independent “business concerns,” noting that federal agencies routinely treat affiliated entities as single units for regulatory purposes and that the statute does not define “business concern” exclusively by state law of incorporation.
The court further held the rule is not arbitrary and capricious; the SBA’s stated rationale—to ensure limited resources reach the broadest number of borrowers—is rationally connected to the program’s goals, and the agency’s success in guaranteeing nearly 12 million loans worth $800 billion supports the rule’s reasonableness. The court concluded Oak Lawn was part of a single corporate group because the Gubin-Blisko partnership held majority voting interests and investment interests exceeding 55% in all 203 nursing homes. Regarding the retroactivity claim, the court found no violation because Oak Lawn could have declined the funds after the rule’s publication, and forgiveness was prospective, not retroactive.
Key Takeaways
- Federal agencies possess broad discretion to regulate affiliated businesses as single units, even when separately incorporated under state law.
- The SBA lawfully applied aggregate lending caps to corporate groups to distribute limited PPP funds equitably rather than on a first-come, first-served basis.
- A partnership can constitute a “common parent” controlling a corporate group; control need not vest in a single corporation or LLC.
- No retroactivity violation occurs when a rule applies prospectively to future forgiveness determinations, even if a loan was disbursed before the rule’s effective date.
Why It Matters
This decision significantly reinforces agency authority in administering emergency lending programs and distinguishing between regulatory eligibility (who may apply) and loan amount decisions (how much will be guaranteed). For nursing homes and other multi-entity operators, the ruling confirms that corporate structure alone does not shield affiliated businesses from aggregate lending limits when common ownership or control exists. It reflects courts’ deference to agency interpretations during national emergencies when rapid policy implementation is necessary.
The decision also has broader implications for how federal agencies regulate “business concerns” in various statutory contexts (labor law, pension law, etc.). By allowing agencies to define business concerns beyond mere state-law incorporation, the court provides regulatory flexibility in future crises while rejecting the argument that statutes implicitly require entities to be evaluated in isolation based solely on their legal form.