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Law360 (April 24, 2020, 6:03 PM EDT) -- The U.S. Small Business Administration violated the terms of a coronavirus relief bill when it barred tribal casinos and lenders from applying to the COVID-19 Paycheck Protection Program, a trio of tribes told a South Dakota court Friday.
The Coronavirus Aid, Relief, and Economic Security Act signed in March states that any "tribal business concern" with fewer than 500 employees is PPP-eligible, according to the amended complaint. A subsequent SBA rule excluding lenders and casinos "contravene[d] the law it purports to implement" in violation of the federal Administrative Procedure Act.
Friday's complaint coincided with a new interim SBA rule extending PPP eligibility to tribal casinos, just as President Donald Trump signed a relief bill injecting $310 billion into the PPP program. The first $350 billion was exhausted in less than two weeks.
But counsel for one of the tribes told Law360 Friday that the suit will proceed to ensure the tribes get a piece of the pie.
"Being that ... funding is limited, the tribe is continuing with the litigation to preserve its right to participate in the program," Seth Pearman, attorney general of the Flandreau Santee Sioux Tribe of South Dakota, told Law360.
The new SBA rule does not extend PPP eligibility to tribal lenders, which is still of concern to the tribes, he added.
The other two plaintiff tribes are the Santee Sioux Nation in Nebraska and the Big Sandy Rancheria of Western Mono Indians in Central California. All three have had to close their casinos and furlough workers, according to the complaint.
The Flandreau tribe also has two lending businesses, FSST Financial Services LLC and FSST Management Services LLC, that have had to lay off some staff, the complaint says.
Friday's complaint asks the court to preliminarily enjoin the SBA and the U.S. Department of the Treasury to "set aside and reserve sufficient funds from the moneys that Congress appropriated for the PPP expressly for the purpose of funding PPP loans for the plaintiffs' tribal businesses."
About 60% of tribal casinos have fewer than 500 employees, according to Thursday's complaint. There are 527 tribal casinos in the U.S., according to the National Indian Gaming Commission.
The Flandreau tribe furloughed 225 workers after closing its Royal River Casino and Hotel in the southern part of South Dakota on March 31 and is still covering their health insurance.
"The tribe has a limited amount of cash reserves which will be completely depleted if the casino does not reopen," they wrote, adding that the PPP funds would help workers buy groceries and pay their bills.
The SBA's general rule excluding casinos and lenders has been in place since 1954, according to the complaint.
Friday's rule changed course, stating that "a business that is otherwise eligible for a PPP loan is not rendered ineligible due to its receipt of legal gaming revenues."
Federal legislators, including the Congressional Native American Caucus, submitted letters to SBA Administrator Jovita Carranza and Treasury Secretary Steven Mnuchin this month, urging them to extend PPP eligibility to all tribal businesses with fewer than 500 employees.
"Tribal businesses, including tribal gaming, are significant employers for tribal reservations and their surrounding communities, especially in rural areas," the delegation wrote April 3. "While tribal businesses are closed to protect their employees and the public from the spread of the pandemic, it is vital that all tribal concerns under 500 employees have access to PPP loans."
The SBA declined to comment on pending litigation Friday. The Treasury Department, a co-defendant, did not immediately respond to a request for comment.
The Flandreau are represented in-house by Seth Pearman, and by Rebecca L. Kidder of Fredericks Peebles & Patterson LLP.
The Big Sandy are also represented by Rebecca L. Kidder of Fredericks Peebles & Patterson LLP.
The Sioux Nation is represented by Reece M. Almond of Davenport Evans Hurwitz & Smith LLP.
Counsel information for the SBA and the Treasury Department was not immediately available.
The case is Flandreau Santee Sioux Tribe v. Carranza et al., case number 4:20-cv-04070 in the U.S. District Court for the District of South Dakota.
--Additional reporting by Andrew Kragie.
For a reprint of this article, please contact reprints@law360.com.
