Reyes v. Small Business Administration

Background

Ismael A. Reyes, representing himself and proceeding without paying filing fees, sued the Small Business Administration, its Administrator Isabel Guzman in her official capacity, Treasury Secretary Janet Yellen in her official capacity, and the United States. He brought the action under the Administrative Procedure Act, seeking review of the SBA’s denial of his application for a COVID-19 Economic Injury Disaster Loan for his business.

Reyes applied for the loan on April 21, 2021. The SBA first denied the application because it determined that his business was not located in a low-income community. After Reyes submitted additional materials, the SBA issued another denial on June 20, 2021, citing insufficient documentation of an eligible business activity. Reyes identified himself as a marketing consultant and later submitted business records, amended tax returns, and other documents. The SBA eventually informed him that his revised application was not accepted because of discrepancies involving the Internal Revenue Service and that it was no longer reviewing previously denied applications after ending the program.

Reyes filed a five-count complaint. The court understood four counts as challenging the SBA’s denial under the Administrative Procedure Act and the fifth as seeking a court order requiring the defendants to administer and process his applications under the Coronavirus Aid, Relief, and Economic Security Act. He sought declaratory and injunctive relief, including restoration of his place in the application queue and payment of funds he claimed he would receive if approved.

Motion and Analysis

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(1), which concerns the court’s authority to hear a case, and Rule 12(b)(6), which concerns whether a complaint states a legally sufficient claim. The court granted the motion under Rule 12(b)(6) because Reyes failed to state a claim. The court did not decide the defendants’ argument that statutory sovereign immunity barred Reyes’s requests for an injunction and a court order compelling agency action. It instead proceeded to the merits of the claims, explaining that the claims were plainly deficient and that the sovereign-immunity issue was complex.

The court held that Reyes had not plausibly alleged that the SBA abused its discretion or improperly interpreted the CARES Act. The SBA’s correspondence indicated that its decisions were based on inadequate or inconsistent documentation concerning Reyes’s business activity and tax information, not on a conclusion that marketing consultants were categorically ineligible. The court also noted that the CARES Act allowed the SBA to use IRS information to confirm an applicant’s eligibility and the accuracy of an application.

The court further held that the statutes did not require the SBA to award an EIDL whenever an application facially satisfied the eligibility criteria. The Small Business Act authorized the SBA to make loans it determined were necessary or appropriate, and the CARES Act allowed the SBA to use IRS information in evaluating applications. The court concluded that these provisions placed the evaluation and allocation of EIDL funds within agency discretion that the Administrative Procedure Act does not permit courts to review. Accordingly, Reyes failed to state an Administrative Procedure Act claim.

Because Reyes had not shown that the SBA acted unlawfully, the court also concluded that he was not entitled to the requested court order compelling agency action. The court separately held that Reyes had not alleged facts sufficient to support a claim against Secretary Yellen.

Amendment and Disposition

The court declined to grant Reyes permission to amend his complaint. Reyes had declined an earlier opportunity to amend and had not requested amendment in his opposition papers. The court found that amendment would be futile because nothing in his submissions suggested that he could add allegations addressing the defendants’ grounds for dismissal.

The court granted the defendants’ motion to dismiss, directed the Clerk of Court to terminate pending motions and close the case, and denied permission to proceed without paying filing fees for an appeal after certifying that an appeal would not be taken in good faith.