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Paycheck Protection Program Loan & Qui Tam Lawsuits

Paycheck Protection Program Loan & Qui Tam Lawsuits

Following the Coronavirus outbreak, many employees were terminated or furloughed. However, as an incentive for small businesses to keep their employees working, the federal government enacted the Paycheck Protection Program ("PPP") loan. The U.S. Small Business Administration ("SBA") will forgive a PPP loan if all employees of the business are kept on payroll for twenty-four (24) weeks and the loan is used towards payroll, rent, mortgage interest, and/or utilities.

False Claims Act & Qui Tam Lawsuits

The False Claims Act ("FCA") is the first whistleblower law to be enacted in the United States. Among other things, the FCA allows a private person to file suit on behalf of the government for violations of the FCA. These private suits are referred to as Qui Tam actions. When a Qui Tam action is filed with the court, it is filed under seal and pursued by the local U.S. Attorney. During the first sixty (60) days of the Qui Tam action, the government investigates the allegations and decides whether to pursue the action itself or declines the action and allows the private person to proceed without government involvement.

FCA Violations & PPP Loans

If a small business inappropriately received a PPP loan, it should be ready to defend itself in a Qui Tam lawsuit. A private individual may bring a Qui Tam lawsuit by asserting that the business violated the FCA when it applied for and/or utilized the PPP loan. For example, an individual may claim that the business was not eligible for the PPP loan, the business did not spend the PPP loan funds on payroll, rent, mortgage interest, and/or utilities, or the loan was not necessary for the business to stay afloat during the Coronavirus pandemic.

There are several reasons why an individual may initiate a Qui Tam action against a business. In fact, an employee of a business may pursue a Qui Tam action against his/her employer to secure "whistleblower" status. If an employee is a legitimate whistleblower, he/she will be protected against employer retaliation including, but not limited to, termination, demotion, and/or suspension. In addition, an employee may feel the need to penalize his/her employer for applying for and/or receiving a PPP loan. For example, an employer may have received a PPP loan, but utilized the loan funds for nonpayroll related business activities.

Although there may be legitimate Qui Tam actions pursued regarding PPP loans, businesses should be aware of the possibility that meritless claims will be pursued by employees who have lost their jobs and/or suffered wage cuts as a result of the Coronavirus pandemic.

In addition, employees are not the only private individuals that may pursue a Qui Tam action against a business. In fact, any person or entity, including, but not limited to, competitors, public interest groups, and contractors, with personal knowledge of a FCA violation may file suit.

SBA & PPP Loan Review

The SBA has determined that all PPP loans with an original principal amount exceeding $2 million, with be subject to SBA review. The SBA also has discretion to review loans for less than $2 million, if it deems a review is necessary. The SBA will not pursue administrative action if a business had an inadequate basis for the PPP loan, but the business repaid the loan in its entirety.

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