Judge dismisses Buffalo Diocese’s attempt to get $1.7M Covid-19 loan
By Jay Tokasz
A federal judge in Rochester has ruled against the Buffalo Diocese’s efforts to secure a $1.7 million loan through the Small Business Administration’s national Paycheck Protection Program.
U.S. District Court Judge Elizabeth A. Wolford on Wednesday dismissed the diocese’s lawsuit against the federal agency that runs the loan program and refused to grant a preliminary injunction that would have forced the SBA into considering the diocese’s loan request.
Wolford said in a written summary judgment the “SBA did not exceed its statutory authority” in adopting a policy that excluded entities in bankruptcy from qualifying for the loans.
The diocese’s lawyers had argued that the SBA illegally excluded the diocese from applying for a share of the $659 billion Congress made available to businesses that keep employees on their payrolls during social distancing shutdown measures prompted by the coronavirus pandemic.
The Buffalo Diocese joined with the Rochester Diocese in asking the U.S. District Court for a preliminary injunction that would prohibit the SBA from denying the loan based on their bankruptcy statuses.
The Rochester Diocese sought $1.1 million from the SBA’s Paycheck Protection Program and was ineligible because it filed for Chapter 11 bankruptcy protection last September. The Buffalo Diocese filed for bankruptcy in February.
Government lawyers explained in court that the SBA adopted the bankruptcy exclusion to speed up loan processing and to ensure lenders that it wasn’t approving unacceptably high-risk loans.
Without the PPP loans, the dioceses argued that they “will be forced to lay off or furlough essential employees which will have a permanent effect” on how their Chapter 11 bankruptcy cases are administered.
The Buffalo Diocese in March eliminated the jobs of 21 employees, a fifth of its workforce, due in part to the “anticipated financial impact of the pandemic.” The cutbacks followed a 2019 fiscal year loss of $5 million for the diocese.
With Catholic Masses suspended during the pandemic, area parishes have been unable to bring in offertory collections. In turn, the parishes have been unable to meet their financial obligations to the diocese, the diocese’s lawyers said in court papers.
With stay at home directives in effect, the diocese “will struggle to continue making payroll payments,” which is the main eligibility requirement for the Paycheck Protection Program, lawyers argued.
Wolford said in her ruling that she was not convinced. She called the diocese’s explanations about the financial impact of the pandemic ban on church gatherings “vague.”
The diocese’s lawyers “point out that offerings have dropped off precipitously, but they do not state what percentage of their funding comes from parish assessments versus other sources,” Wolford wrote. “Plaintiffs further have not claimed that they need PPP funds in order to make payroll—indeed, there is no indication in plaintiffs’ papers that they have not paid their employees’ salaries or that failure to obtain PPP funds would somehow cause Plaintiffs to cease to operate.”
Lawyers for the dioceses also said that the SBA added the bankruptcy rule arbitrarily, even though nothing in the CARES Act passed by Congress and signed by President Trump limits the diocese’s eligibility for the funds.
Wolford’s decision said the CARES Act was “silent regarding the eligibility of debtors in bankruptcy to participate in the PPP” and nothing in the legislation required a bankrupt debtor be eligible.
“This detail was left by Congress for determination by the SBA,” she wrote.
Small businesses and other entities – including churches and religious organizations – that employ up to 500 people are eligible for the Paycheck Protection Program, which provides loans to cover payroll costs, rent, mortgages and utilities.
The loan, which requires no fees or collateral, is fully forgiven as long as at least 60% of it is used for payroll. If that requirement isn’t met, the loan must be repaid over five years at a 1% interest rate.
Several other dioceses around the country and some Catholic parishes in Western New York have applied for and received loans through the Paycheck Protection Program.