Carmen’s Corner Store, et al. v. U.S. Small Business Administration, et al.

CASE SUMMARY

The New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group filed the complaint, Carmen’s Corner Store, et al. v. U.S. Small Business Administration, et al., in the U.S. District Court for the District of Maryland. NCLA represents Altimont Mark Wilks, a small business owner from Hagerstown, Md., who was unlawfully barred from applying for PPP loans because he is still on probation. The suit challenges unlawful portions of the agency’s Interim Final Rule that purports to implement the Paycheck Protection Program (“PPP”) under the CARES Act.

Congress tasked SBA with managing the PPP loans—$659,000,000,000 in total—for businesses with fewer than 500 employees. Under the CARES Act, Mr. Wilks, who owns two such businesses, is fully eligible to receive the loans. However, SBA excluded certain types of businesses from being eligible—including enterprises owned by persons with a criminal history. When Mr. Wilks applied for much-needed federal assistance, SBA’s PPP “Criminal History Rule” unlawfully disqualified him, completely disregarding the intent of Congress to make loans available to all small businesses expeditiously during a national crisis.

Mr. Wilks has worked hard to redeem himself and become a contributing member of society with his enterprising spirit. In fact, community leaders throughout Maryland have recognized his successes. Local officials have repeatedly emphasized the positive impact that his business, Carmen’s Corner Store, has had on its low-income neighborhood by providing affordable goods. And his second business, Retail4Real, is a logistics company that trains ex-offenders to become bondable and dependable delivery drivers.

Due to the COVID-19 pandemic, both of Mr. Wilks’s businesses have suffered significant financial losses.

SBA’s Criminal History Rule is an arbitrary and capricious exercise of power that exceeds the statutory authority that Congress delegated to the agency. NCLA asks the court to declare SBA’s administrative actions unlawful and ensure that PPP loans are available to all small businesses that meet the criteria Congress set.

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CASE STATUS: Active

CASE START DATE: June 10, 2020

DECIDING COURT: The U.S. District Court for the District of Maryland

ORIGINAL COURT: The U.S. District Court for the District of Maryland

CASE DOCUMENTS

September 9, 2020 | Plaintiffs’ Memorandum of Law in Opposition to Defendants’ Motion to Dismiss & in Support of Plaintiffs’ Motion for Summary Judgment
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June 29, 2020 | Order to Grant the Motion for Preliminary Injunction in Part and the Accompanying Memorandum
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June 26, 2020 | Plaintiffs’ Memorandum in Reply to Defendants’ Opposition to Injunctive Relief
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June 17, 2020 | Memorandum of Law in Support of Plaintiffs’ Emergency Motion for Temporary Restraining Order and Preliminary Injunction
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June 10, 2020 | Complaint for Declaratory and Injunctive Relief
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PRESS RELEASES

June 30, 2020 | NCLA Court Win Keeps SBA from Rewriting CARES Act to Exclude Small Biz Owners on Probation

Washington, DC (June 30, 2020) – The New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group today is celebrating a victory in the case of Carmen’s Corner Store, et al. v. U.S. Small Business Administration, et al. A federal judge granted a lifeline yesterday to Carmen’s Corner Store and Retail4Real, both businesses of Mr. Altimont Mark Wilks from Hagerstown, MD, who is desperately trying to keep its doors open. Judge Catherine C. Blake for the U.S. District Court for the District of Maryland enjoined the Small Business Administration (“SBA”) and extended the deadline for Carmen’s Corner Store and Retail4Real to obtain the non-recourse loans Congress backed through the Paycheck Protection Program (“PPP”). 

The program was set to end today, but Mr. Wilks challenged the ever-changing regulations SBA had issued that unlawfully precluded small businesses whose owners were still on probation from obtaining much-needed funds. This prohibition was found nowhere in the statute. The Court further ordered the SBA to reserve and pre-approve $31,500 in funds for Mr. Wilks’s two businesses while his applications were processed.

Judge Blake ruled that SBA had behaved “arbitrarily and capriciously” in failing to explain its actions in constantly revising the regulations. After the suit was filed three weeks ago, SBA amended its regulations twice. The final change happened on June 24th when SBA shortened the (still unlawful) prohibition to no longer apply to Mr. Wilks. The Court also relieved the Plaintiffs from posting a bond for the extraordinary relief of an injunction as it would defeat the purpose of the PPP.

Congress tasked SBA with managing the PPP loans—$659,000,000,000 in total—for businesses with fewer than 500 employees. But the agency disqualified Mr. Wilks from applying because he is still on probation. In doing so, SBA disregarded the design of Congress to make loans available to all small businesses expeditiously during a national crisis. NCLA argued that SBA exceeded the statutory authority that Congress delegated to the agency. The lawsuit challenged unlawful portions of SBA’s Interim Final Rule that purport to implement PPP, and it called out the agency’s Criminal History Rule as an arbitrary and capricious exercise of power.

NCLA will continue to press for regulations that adhere to the statute as written by Congress, and NCLA will urge courts not to defer to SBA’s interpretation of the CARES Act (Coronavirus Aid, Relief, and Economic Security Act). Among other problems, as explained in NCLA’s brief, giving Chevron deference to SBA’s Interim Final Rule would offend the requirement for judicial independence in Article III of the Constitution as well as violate the Fifth Amendment’s due process protections, which prohibit judges from displaying bias toward the litigation position of SBA over other litigants (e.g., by according it Chevron deference).

NCLA released the following statements:

I am grateful to NCLA for their commitment to making this right. SBA was wrong to deny business owners like myself much-needed loans as intended by Congress during this time of crisis. This lifeline will allow me to keep the doors of my businesses open to service my community and keep my employees employed.”

— Altimont Mark Wilks, Plaintiff in Carmen’s Corner Store v. U.S. Small Business Administration

“SBA changed these rules so often that it was impossible for banks and small businesses to keep up. We’re happy that Judge Blake’s ruling recognized the real-world cost that our clients have had to endure due to SBA’s lawless and erratic rulemaking.”

— Jared McClain, Staff Counsel, NCLA

“We are of course pleased with the Court’s extraordinary and quick action in this matter, as are our clients, but the Court should also have declared that the SBA has acted unlawfully and in contravention of the CARES Act in its administration of this important statute.”

— John J. Vecchione, Senior Litigation Counsel, NCLA

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ABOUT NCLA

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

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June 26, 2020 | NCLA Lawsuit Forces Change in SBA Regulation to Make Hundreds of PPP Loan Applicants Eligible

Washington, DC (June 26, 2020) – Altimont Mark Wilks, a small business owner from Hagerstown, Md., who was unlawfully barred from applying for a much-needed Paycheck Protection Program (“PPP”) loan, can finally breathe a sigh of relief. The New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group, filed a motion for a temporary restraining order and preliminary injunction against the Small Business Administration (SBA) on Mr. Wilks’s behalf on June 17. The Government’s opposition brief was due Wednesday, June 24. But in response to NCLA’s lawsuit, SBA once again amended its Criminal History Rule just hours before filing its opposition brief. The new changes vastly expand the number of businesses that are eligible for PPP loans under the CARES Act. The new Rule will allow our client Mr. Wilks and other small business owners with criminal records to apply for much-needed funds that should have never been denied in the first place.

In our memorandum in reply to the Government’s opposition to the injunctive relief filed today in the U.S. District Court for the District of Maryland, NCLA argues that SBA’s eleventh-hour amendments to the Criminal History Rule are unlawful and do not deprive the court of jurisdiction to determine the legality of SBA’s latest change to the challenged rule. The agency has amended the Criminal History Rule twice since Mr. Wilks filed his complaint in Carmen’s Corner Store, et al. v. U.S. Small Business Administration, et al. NCLA believes that SBA’s “erratic rulemaking” substantiates the risk that the agency will change the rules once more before Plaintiffs secure the PPP loans that the CARES Act provides.

Congress tasked SBA with managing the PPP loans—$659,000,000,000 in total—for businesses with fewer than 500 employees. But the agency disqualified Mr. Wilks from applying because he is still on probation. In doing so, SBA disregarded the intent of Congress to make loans available to all small businesses expeditiously during a national crisis. NCLA argues that SBA exceeded the statutory authority that Congress delegated to the agency. The lawsuit challenges unlawful portions of SBA’s Interim Final Rule that purport to implement PPP, and it calls out the agency’s Criminal History Rule as an arbitrary and capricious exercise of power.

NCLA will continue to press for regulations that adhere to the statute as written by Congress, and NCLA will plead with the Court not to defer to SBA’s interpretation of the CARES Act. Among other problems, as explained in NCLA’s brief, giving Chevron deference to SBA’s Interim Final Rule would offend the requirement for judicial independence in Article III of the Constitution as well as violate the Fifth Amendment’s due process protections, which prohibit judges from displaying bias toward SBA (e.g., by according it Chevron deference).

NCLA is also representing Michael Loughrey and his business MoveCorp in a similar complaint filed yesterday in the U.S. District Court for the District of Columbia against the SBA.

NCLA released the following statements:

“While Mr. Wilks and his employees are happy his lawsuit inspired changed in SBA’s regulatory position, to allow the agency to evade judicial review would be an incomplete victory for both the Plaintiffs and the rule of law.”

— Jared McClain, Staff Counsel, NCLA

“The Government has changed the regulations, for the same statute, at least four times in less than three months. As no American can be sure what the future will bring, we continue to press the Court to rule against the SBA’s unlawful seizure of legislative power from Congress.”

— John J. Vecchione, Senior Litigation Counsel, NCLA

ABOUT NCLA

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

Download the full document

June 11, 2020 | NCLA Sues Small Business Administration for Denying PPP Loans to Applicants with Criminal Histories

Washington, DC (June 11, 2020) – The New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group filed the complaintCarmen’s Corner Store, et al. v. U.S. Small Business Administration, et al., today in the U.S. District Court for the District of Maryland. NCLA represents Altimont Mark Wilks, a small business owner from Hagerstown, Md., who was unlawfully barred from applying for PPP loans because he is still on probation. The suit challenges unlawful portions of the agency’s Interim Final Rule that purports to implement the Paycheck Protection Program (“PPP”) under the CARES Act.

Congress tasked SBA with managing the PPP loans—$659,000,000,000 in total—for businesses with fewer than 500 employees. Under the CARES Act, Mr. Wilks, who owns two such businesses, is fully eligible to receive the loans. However, SBA excluded certain types of businesses from being eligible—including enterprises owned by persons with a criminal history. When Mr. Wilks applied for much-needed federal assistance, SBA’s PPP “Criminal History Rule” unlawfully disqualified him, completely disregarding the intent of Congress to make loans available to all small businesses expeditiously during a national crisis.

Mr. Wilks has worked hard to redeem himself and become a contributing member of society with his enterprising spirit. In fact, community leaders throughout Maryland have recognized his successes. Local officials have repeatedly emphasized the positive impact that his business, Carmen’s Corner Store, has had on its low-income neighborhood by providing affordable goods. And his second business, Retail4Real, is a logistics company that trains ex-offenders to become bondable and dependable delivery drivers.

Due to the COVID-19 pandemic, both of Mr. Wilks’s businesses have suffered significant financial losses.

SBA’s Criminal History Rule is an arbitrary and capricious exercise of power that exceeds the statutory authority that Congress delegated to the agency. NCLA asks the court to declare SBA’s administrative actions unlawful and ensure that PPP loans are available to all small businesses that meet the criteria Congress set.

NCLA released the following statements:

“Excluding Mr. Wilks’s businesses from the PPP loan process during a massive economic crisis is difficult to understand as a matter of policy. But where can someone go to cast a vote against the SBA bureaucrats who abused their power in this case?”

— Jared McClain, Staff Counsel, NCLA

“This legislation was passed by Congress to address an economic emergency. We cannot have unelected bureaucrats excluding businesses from the benefits Congress granted. Carmen’s Corner Store is run by a person who has far surmounted his past difficulties. An administrative agency should not be able to block what the representatives of the people have granted.”

— John J. Vecchione, Senior Litigation Counsel, NCLA

“Mr. Wilks and his businesses embody the important American values of entrepreneurship and second chances.  Small businesses like Carmen’s Corner Store and Retail4Real are the cornerstone of our communities. Congress passed the CARES Act to help entrepreneurs like Mr. Wilks and did not grant SBA bureaucrats the power to arbitrarily prevent him from obtaining this critical financial assistance.”

— Jessica Thompson, Litigation Counsel, NCLA

ABOUT NCLA

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

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