SBA Authority to Impose a Corporate-Group Cap on PPP Guarantees and Forgiveness Under Emergency Rulemaking

1. Introduction

Parkshore Estates Nursing and Rehab Center v. United States Small Business Administration (captioned in the opinion as Oak Lawn Respiratory and Rehabilitation Center, LLC, et al. v. United States Small Business Administration, et al.) is a Seventh Circuit decision addressing whether the Small Business Administration (“SBA”) lawfully limited Paycheck Protection Program (“PPP”) benefits for a network of affiliated nursing homes under common control.

The plaintiffs were among 203 nursing homes under common control that collectively received more than $41 million in PPP loans. When they later sought loan forgiveness, the SBA applied its Corporate Group Rule (published at 85 Fed. Reg. 26,324 (May 4, 2020)) to cap forgiveness at $20 million across the entire corporate group, leaving the remainder repayable to lenders.

The key issues were: (1) whether the Corporate Group Rule is invalid under the CARES Act’s routing of PPP through 15 U.S.C. §636(a); (2) whether the rule was arbitrary and capricious; (3) whether the plaintiffs were properly treated as one corporate group; and (4) whether applying the rule to Oak Lawn’s loan was impermissibly retroactive.

2. Summary of the Opinion

The Seventh Circuit affirmed summary judgment for the SBA. It held that:

  • The Corporate Group Rule does not make any entity “ineligible” for a PPP loan guarantee; it limits the amount the government will guarantee/forgive across commonly controlled affiliates, a subject left to SBA discretion under the statutory scheme.
  • The CARES Act and §7(a) do not compel a “first-come, first-served maximum-guarantee race” in which early applicants must receive the maximum and later applicants receive nothing.
  • The rule was not arbitrary and capricious because the SBA offered a cogent conservation rationale—spreading limited funds to the largest number of borrowers.
  • Substantial evidence supported the agency’s finding that the 203 nursing homes were controlled by a partnership (Gubin Enterprises and Michael Blisko) with majority power, qualifying them as a single “corporate group.”
  • Application was not retroactive where the relevant disbursement occurred after the rule’s effective date and the limitation affected only future forgiveness, not the past guarantee.

3. Analysis

A. Precedents Cited

The opinion’s doctrinal foundation is that federal law may treat affiliated entities as a single unit for regulatory purposes, even where state law recognizes separate formal entities. The court reinforced that point through several cited decisions:

  • Esmark, Inc. v. NLRB, 887 F.2d 739, 755-57 (7th Cir. 1989) (labor law): cited for the proposition that agencies may aggregate affiliated entities for regulatory responsibility and compliance—supporting the SBA’s ability to look past formal separateness.
  • McCleskey v. CWG Plastering, LLC, 897 F.3d 899, 901-03 (7th Cir. 2018) (pension law): used to illustrate that common control and affiliated operations can justify treating multiple nominal entities as one regulated enterprise for statutory administration.
  • Teed v. Thomas & Betts Power Solutions, L.L.C., 711 F.3d 763 (7th Cir. 2013) (Fair Labor Standards Act): reinforces that corporate form does not always determine regulatory treatment; functional integration and control can be determinative in applying federal policy.
  • United States v. Bestfoods, 524 U.S. 51 (1998): invoked to acknowledge that, absent a regulation, reliance on common-law corporate separateness is typical—but the Seventh Circuit emphasized it found no general rule forbidding an agency from adopting a contrary aggregation regulation when empowered to do so.

The court also noted the administrative track record against the nursing homes, including Forest View Rehabilitation and Nursing Center, LLC, No. PPP-6431697306 (SBA Office of Hearings & Appeals Oct. 16, 2023), reflecting consistent agency adjudication applying the Corporate Group Rule.

B. Legal Reasoning

1) Eligibility vs. amount of guarantee/forgiveness.
A central move in the opinion is the distinction between statutory eligibility for a PPP guarantee and the extent of the guarantee/forgiveness. Oak Lawn argued that §7(a) applies “to any qualified small business concern,” and that 15 U.S.C. §636(a)(36)(D) says “any” qualified small business “shall” be eligible for guarantees if conditions are met. The court responded that the Corporate Group Rule does not declare any entity ineligible; it constrains how much is guaranteed/forgiven across a corporate group.

2) Statutory discretion and emergency rulemaking.
The court emphasized that 15 U.S.C. §636(a)(36)(B) uses “may” as to guarantees up to specified amounts, and that Congress granted emergency rulemaking authority in 15 U.S.C. §9012. Even if §7(a) does not expressly authorize aggregate limits, the court held it also does not forbid them, and the statutory structure leaves the SBA substantial administrative discretion.

3) “Business concern” and affiliation.
The court rejected the premise that state-law separateness (each nursing home being a distinct LLC) necessarily defines the federal “business concern.” It pointed to pre-pandemic affiliation regulation, 13 C.F.R. §121.301(f), and to the broader federal practice of aggregating affiliates. The court also used the law-firm example to show that formal entity multiplication should not permit evasion of programmatic caps.

4) APA arbitrary-and-capricious review.
The SBA’s stated rationale—“promot[ing] the availability of PPP loans to the largest possible number of borrowers”—was accepted as reasonable. The court stressed the factual context (finite appropriations; enormous demand; nearly 12 million loans totaling nearly $800 billion) and found no showing that the rule produced irrational outcomes like unused funds. The court also rejected an incompleteness attack: the rule’s lack of guidance for complex fractional-ownership edge cases did not make it arbitrary, because agencies may address pressing issues first.

5) Corporate-group status and evidence of control.
On the record, the administrative judge found that a partnership (Gubin Enterprises and Michael Blisko) held and controlled majority voting interests across the 203 LLCs, satisfying the rule’s definition of a corporate group as affiliates “majority owned, directly or indirectly, by a common parent.” The court held substantial evidence supported that finding and rejected the argument that the “common parent” must be a single corporation/LLC; partnerships qualify as entities.

6) Retroactivity.
The court held there was no impermissible retroactivity where Oak Lawn’s funds were disbursed on May 18, 2020—after the May 4 effective date—and where the rule affected future forgiveness rather than undoing the existing guarantee. It also noted the Federal Register guidance required borrowers to notify lenders before a draw if the draw would exceed the cap (85 Fed. Reg. at 26,325), undermining any claim of unavoidable reliance.

C. Impact

This decision strengthens several propositions likely to matter in future SBA and emergency-relief litigation:

  • Aggregate caps across affiliates are permissible tools where Congress grants broad implementation discretion and emergency rulemaking authority, even if the core lending statute speaks in terms of “any” qualified small business.
  • Federal program administration may adopt functional “enterprise” views (common control/affiliation) rather than formal state-law entity boundaries, limiting the ability of corporate structures to multiply statutory maxima.
  • Forgiveness limitations are treated as forward-looking subsidies rather than retroactive penalties when applied to post-effective-date disbursements, narrowing retroactivity challenges to PPP-related rules.
  • APA challenges face headwinds when the agency articulates a conservation rationale tied to finite appropriations and broad distributional goals.

4. Complex Concepts Simplified

  • PPP loan guarantee vs. forgiveness: a guarantee means the government backs repayment to the lender; forgiveness means the borrower does not have to repay (turning the loan into a grant). The court treated forgiveness as a future benefit not fixed at the moment of application.
  • Corporate Group Rule: an SBA rule capping total PPP lending/forgiveness across affiliates “majority owned” by a common parent—intended to spread limited funds.
  • Affiliation/common control: the concept that separate entities can be treated together when a person or entity has majority ownership or voting control across them.
  • Arbitrary and capricious: under administrative law, a rule fails if the agency lacks a reasoned explanation or ignores important aspects of the problem. The court found the SBA’s explanation—preventing a small number of groups from consuming funds—sufficiently reasoned.
  • Retroactivity: a rule is retroactive if it changes the legal consequences of past, completed actions. The court found no retroactivity because the disbursement and forgiveness decision came after the rule, and the guarantee was not revoked.
  • Substantial evidence: a deferential standard asking whether the administrative record contains enough relevant evidence that a reasonable decision-maker could reach the agency’s conclusion.

5. Conclusion

The Seventh Circuit’s decision affirms that the SBA could, under the CARES Act’s PPP framework and its emergency rulemaking authority, impose an across-affiliates $20 million corporate-group cap on PPP benefits to prevent concentrated consumption of limited funds. It further clarifies that corporate-group determinations may rest on functional majority control (including by a partnership), and that limiting future forgiveness for post-effective-date disbursements is not impermissibly retroactive. In practical terms, the opinion reinforces that federal relief programs may police aggregation and control to preserve broad access, even when underlying eligibility is framed in “any qualified small business” language.