WASHINGTON (Legal Newsline) – Protection from certain lawsuits will help lenders who want to be quick to help small businesses handle the economic impacts of the coronavirus, a national legal reform group is saying.
As the Small Business Administration receives comments regarding an interim final rule, the U.S. Chamber Institute for Legal Reform, owner of Legal Newsline, is worried lender activity could be slowed if they are forced to consider potential False Claims Act lawsuits.
The False Claims Act punishes companies that submit wrongful claims to federal and state governments for reimbursement while incentivizing whistleblowers who are entitled to a large portion of the recovery.
Most False Claims Act lawsuits are brought in the health care field over reimbursement claims for Medicaid and Medicare services.
The “broad” wording in the statute “has opened lenders to potential claims for loans that go bad or that are used by the recipient for purposes other than those allowed” in the past, the ILR says in comments submitted April 8.
The Trump Administration is no fan of abusive litigation brought under the FCA, which allows federal and state governments to review the allegations made by the whistleblower then decide whether to join the case.
In 2018, Trump’s Department of Justice took the unusual step of asking federal judges hearing 11 False Claims Act cases to throw them out, claiming the lawyers involved had concocted a scheme to sue the health care industry by creating shell companies to act as whistleblower plaintiffs.
The DOJ argued that reviewing the cases wasted 1,500 hours of the staff’s time, costing taxpayers. Judges and the plaintiffs dismissed the lawsuits.
A memo earlier in 2018 noted that 12 whistleblower cases were filed per week in 2017 and promised action on the “parasitic” among them.
At issue in the Small Business Administration’s interim rule is a section of the Coronavirus Aid, Relief and Economic Security (CARES) Act that allows for forgiveness of up to the full principal amount of qualifying loans guaranteed under the Paycheck Protection Bureau.
The CARES Act authorizes up to $349 billion for PPP loans and loan forgiveness to provide paycheck protection. Businesses with up to 500 employees that have a principal place of residence in the United States are eligible.
A portion of the rule states that lenders will be held harmless for borrowers’ failure to comply with program criteria. But the ILR thinks it should go a step further and address possible False Claims Act litigation.
To fulfill the SBA’s goals of “expeditiously” helping businesses, lenders must also be able to act quickly, the ILR says.
It proposes an agreement between the SBA and the Department of Justice that requires the DOJ to consult with the SBA before pursuing any False Claims Act litigation arising from the program.
If whistleblowers initiate litigation, the ILR says, the DOJ must be allowed to move to dismiss those lawsuits – as it did with the aforementioned health care cases. If not, the lending process will be slowed.
“This delay could be especially substantial, and contrary to congressional intent, given the CARES Act’s waiver of certain creditworthiness requirements for eligibility,” the ILR says.
From Legal Newsline: Reach editor John O’Brien at john.obrien@therecordinc.com.