Cusano Smith PLLC, a Bedford Hills law firm, has sued the U.S. Small Business Administration for not forgiving a $40,625 Paycheck Protection Program loan.
The SBA declined to forgive 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 complaint filed Sept. 21 in U.S. District Court, White Plains, because he had no knowledge of any delinquent federal loan and because the firm had never applied for any business loans.
Congress created the PPP loan program in the early days 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, businesses could ask the SBA to forgive the 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 firm applied for full forgiveness.
The firm certified that no owner, or any business owned or controlled by any owner, was delinquent or had defaulted on any federal agency loan and “caused a loss to the government” within the previous seven years.
The SBA flagged the application. The agency had charged off $3,311.50 from a 2015 loan to Smith and $20,000 from a 2016 loan to Smith, according to SBA records.
The SBA ruled last December that Cusano Smith was ineligible for forgiveness.
The firm petitioned the SBA Office of Hearings and Appeals to overturn the decision.
The PPP loan was used “exactly as intended by Congress: to protect the continued employment of its employees,” Cusano Smith states in the federal court complaint, and Chase had approved the application.
The sole basis for denial was a purported default or delinquency on a federal loan for which no individual or loan was identified.
Cusano Smith has not obtained a loan from a federal agency,” the firm stated, and has “absolutely no knowledge as to which loan from a federal agency was delinquent.”
SBA administrative judge Betty J. Barbeito rejected the appeal on May 9. Cusano Smith petitioned for reconsideration, and on July 20 she affirmed her ruling.
Smith’s arguments are misguided and irrelevant, Barbeito stated in one of her rulings. The issue is not whether Smith has knowledge of a delinquent federal loan or whether Cusano Smith ever applied for loans. The issue is whether Smith or his partner had caused a loss to the government in the seven years before the PPP loan.
The agency had matched Smith’s Social Security number on previous defaulted loans to the PPP loan.
“Smith was identified to have a delinquent or defaulted federal debt,” Barbeito found, and his denial of knowledge “does not appear credible.”
Smith argues in the federal court complaint that the firm established overwhelming evidence that it should have been granted loan forgiveness and that the SBA decision should be set aside as arbitrary and capricious or as an abuse of discretion.
