Background
Oak Lawn Respiratory and Rehabilitation Center and two other nursing homes sought forgiveness for Paycheck Protection Program loans received under the CARES Act. The facilities were part of a group of 203 nursing homes under common control through a partnership between Gubin Enterprises (wholly owned by Moishe Gubin) and Michael Blisko, which held majority interests in all entities. When demand for PPP loans exceeded available funds, the Small Business Administration adopted the Corporate Group Rule, effective May 4, 2020, limiting individual businesses to $10 million in loans and corporate groups to $20 million aggregate.
Oak Lawn received approximately $1 million on May 18, 2020. By that date, other nursing homes in the corporate group had already received more than $20 million in loans. When Oak Lawn and 60 other facilities in the group sought loan forgiveness in 2021, the SBA limited total forgiveness to $20 million, leaving the group liable for approximately $21 million in unpaid principal. The facilities appealed after administrative judges and the district court ruled against them.
The Court’s Holding
The Seventh Circuit affirmed the SBA’s authority to adopt and apply the Corporate Group Rule. Judge Easterbrook held that while the Small Business Act’s §7(a) does not explicitly authorize aggregate lending limits, nothing in the statute forbids them. The statute grants the SBA discretionary authority to establish loan guarantees up to specified amounts but does not mandate guarantees for every applicant. The SBA’s emergency rulemaking authority under the CARES Act provided adequate legal foundation for the rule.
The court rejected Oak Lawn’s argument that each limited liability company must be treated as a separate business concern. The SBA permissibly interpreted “business concern” to encompass affiliated entities under common control, a practice consistent with regulations predating the pandemic and common across federal agencies. The Gubin-Blisko partnership, with majority control over all 203 nursing homes, validly constituted a corporate parent, making all facilities part of a single corporate group. The court emphasized that partnerships qualify as entities under law and can serve as corporate parents, distinguishing the rule from hypothetical scenarios with fractional cross-ownership.
On the retroactivity claim, the court found no retroactive application. The rule became effective May 4; Oak Lawn’s loan was disbursed May 18. Oak Lawn could have withdrawn its application or declined to draw funds after the rule was published. Because forgiveness determinations inherently postdate the loan disbursement, and Oak Lawn received the full $1 million it borrowed with the SBA’s guarantee intact, no penalty for pre-May 4 conduct occurred. The rule merely limited the subsidy Oak Lawn hoped to receive.
Key Takeaways
- The SBA may impose aggregate lending limits on corporate groups as a conservation measure during emergency programs, even if the underlying statute does not explicitly authorize such limits.
- Federal agencies retain broad discretion to define “business concern” at the level of management or investment affiliation, departing from purely state-law incorporation analysis.
- A legitimate conservation rationale—ensuring limited funds reach the maximum number of borrowers—satisfies the arbitrary-and-capricious test and cannot be challenged absent a showing of waste or overallocation.
- Application of a rule published in the Federal Register is not retroactive when borrowers had opportunity to reject it before drawdown and when benefits were contingent on future performance (loan forgiveness).
Why It Matters
This decision resolves a significant dispute affecting 61 nursing homes and approximately $21 million in contested loan forgiveness. It reaffirms the SBA’s regulatory authority and provides a model for how federal agencies may impose group-level limits in lending programs to prevent circumvention by commonly controlled entities. The ruling will influence other PPP borrowers asserting similar separate-entity arguments and sets precedent for emergency lending regulation generally.
The opinion also stands for the principle that administrative agencies possess substantial discretion in emergency programs and that conservative construction of statutory language—requiring explicit authorization for agency action—does not apply when statutes grant discretionary rulemaking power. Absent statutory language explicitly mandating individual treatment or forbidding aggregate limits, courts will defer to reasonable agency interpretations that advance statutory purposes.