Kaya v. United States Small Business Administration

Background

Aydin Kaya and A-K Entrepreneurship, LLC operated a horse-drawn carriage tour business. They received a $40,000 loan through the Small Business Administration’s COVID-19 Economic Injury Disaster Loan program. They later sought an additional $310,000, bringing their requested total to $350,000. The agency denied the increase after stating that it could not verify the existence of an eligible business.

The plaintiffs sued the Small Business Administration and its Administrator under the Administrative Procedure Act, a federal law that permits courts to review certain agency actions. They alleged that the denial was arbitrary and capricious and contrary to law. They sought a declaration, an order requiring approval and funding of the loan increase, money for business losses, attorney’s fees, and other relief.

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(1), which addresses the court’s subject-matter jurisdiction, and Rule 12(b)(6), which addresses whether a complaint states a legally sufficient claim. The plaintiffs opposed dismissal and moved for leave to file an amended complaint.

Subject-Matter Jurisdiction

The court held that it lacked subject-matter jurisdiction because the COVID-19 Economic Injury Disaster Loan program’s appropriation had lapsed and its funds had been exhausted. The agency’s authority to pay out these loans ended on December 31, 2021, the agency stopped accepting new applications on January 1, 2022, and the appropriated loan funds were exhausted on May 15, 2022. The Fiscal Responsibility Act of 2023 permanently rescinded any remaining unobligated funds.

The court explained that the plaintiffs’ request for money damages was outside the Administrative Procedure Act, which generally permits relief other than money damages. Although an order requiring the government to disburse appropriated funds can qualify as specific relief, the court could not order payment from a program whose funds were exhausted and whose remaining funds had been rescinded. The plaintiffs’ suggestion that funds from canceled loans might still be available was, in the court’s view, speculation rather than proof of a source of funding.

Failure to State a Claim

The court addressed the defendants’ alternative argument that the complaint failed to state a claim. It concluded that, even if funding had been available, the plaintiffs’ claims would fail because the agency’s loan decision was committed to agency discretion by law. The relevant statutes authorized the Small Business Administration to make loans as it determined necessary or appropriate and allowed it to use specified methods to evaluate applicants and verify eligibility.

Because the statutes used discretionary language and the program involved allocating funds from a general appropriation, the court held that the decision to deny the loan increase was not reviewable under the Administrative Procedure Act. The court also rejected the plaintiffs’ argument that the agency’s earlier approval of a $40,000 loan prevented it from later finding that the plaintiffs were not eligible for the additional $310,000.

The court did not decide the defendants’ sovereign-immunity arguments because it resolved the case on other grounds.

Leave to Amend and Disposition

The court found that amendment would be futile because the proposed amended complaint did not cure either fundamental problem: the lack of available program funds or the discretionary and unreviewable nature of the agency’s decision.

Judge Vernon S. Broderick granted the defendants’ motion to dismiss and denied the plaintiffs’ motion for leave to file an amended complaint. The clerk was directed to terminate the pending motions and close the case.