Cusano Smith PLLC, a Bedford Hills law firm, sued the US Small Business Administration for failing to forgive a $40,625 Paycheck Protection Program loan.
The SBA refused to cancel the loan, according to court records, because it found evidence that law firm partner Stephen M. Smith was delinquent or had defaulted on a previous loan.
Smith called the decision erroneous, according to a September 21 lawsuit filed in U.S. District Court in White Plains, because he was unaware of any delinquent federal loans and because the company had never requested commercial loan.
Congress created the PPP loan program at the start of the pandemic, as part of the Coronavirus Aid, Relief and Economic Security Act. Small businesses could use the loans for payroll and operating expenses. Later, companies could ask the SBA to forgive debts if at least 60% of the loans were used for payroll expenses.
Cusano Smith, founded in 2018 by Gary A. Cusano and Stephen Smith, received a $40,625 PPP loan through Chase Bank in May 2020, to support five employees.
In April 2021, the company requested a full pardon.
The company certified that no owner, or owner-owned or owner-controlled business, was delinquent or defaulted on a federal agency loan and “caused loss to the government” during the of the previous seven years.
The SBA reported the request. The agency had debited $3,311.50 from a 2015 loan to Smith and $20,000 from a 2016 loan to Smith, according to SBA records.
The SBA decided last December that Cusano Smith was not eligible for a pardon.
The company asked the SBA’s Office of Hearings and Appeals to overturn the decision.
The PPP loan was used “exactly as Congress intended: to protect the continued employment of its employees,” Cusano Smith says in the federal court suit, and Chase had approved the request.
The only reason for denial was an alleged default or default on a federal loan for which no individual or loan was identified.
Cusano Smith did not obtain a federal agency loan,” the company said, and has “absolutely no knowledge of which federal agency loan was in default.”
SBA Administrative Judge Betty J. Barbeito denied the appeal on May 9. Cusano Smith requested a reconsideration, and on July 20, she upheld her decision.
Smith’s arguments are flawed and irrelevant, Barbeito said in one of his rulings. The question is not whether Smith knows of a delinquent federal loan or whether Cusano Smith has ever applied for loans. At issue is whether Smith or his partner had caused any loss to the government in the seven years preceding the PPP loan.
The agency had matched Smith’s social security number on previous defaulted loans to the PPP loan.
“Smith has been identified as having overdue or defaulted federal debt,” Barbeito found, and his denial of knowledge “does not seem credible.”
Smith argues in the Federal Court complaint that the company has established overwhelming evidence that it should have received loan forgiveness and that the SBA’s decision should be overturned as arbitrary and capricious or an abuse of power.
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