Gordon College may have to repay $7M PPP loan for violating guidelines, judge rules
Gordon College, a Christian academic institution in Massachusetts, may have to repay a $7 million COVID-19 relief loan for reportedly violating a federal regulation that limited the number of employees recipient organizations can employ.
During the COVID-19 pandemic, Gordon College received a $7.046 million Paycheck Protection Program loan as part of the Coronavirus Aid, Relief, and Economic Security Act passed by U.S. Congress in 2020 but was denied loan forgiveness by the U.S. Small Business Administration.
In a decision released last month, U.S. District Judge Beryl Howell of the District of Columbia, an Obama appointee, rejected claims from the Christian college of religious discrimination or deprivation of constitutional rights. The judge also granted the government's partial motion to dismiss.
Get Our Latest News for FREE
"[P]laintiff has failed to allege that having more than 500 employees is 'essential' to its 'central mission,' or to explain why the PPP's 500-employee cap or defendants' application thereof interfered with any 'matters of faith and doctrine,'" Howell wrote.
"SBA has a legitimate interest in supporting small businesses, and 'limiting eligible borrowers to those that employ no more than 500 employees is rationally related to the goal of assuring businesses receiving aid are indeed small,'" the judge added.
"Plaintiff has thus not plausibly stated that the PPP's 500-employee cap offends the Free Exercise or Equal Protection Clauses, and plaintiff's Free Exercise and Equal Protection claims are dismissed."
Howell dismissed eight of the 11 reasons Gordon College argued for why it should receive loan forgiveness, leaving three still to be considered, according to The Roys Report, which noted that Gordon can still say that loan denial was a legal error that exceeded the authority of the SBA and that the SBA violated the 14th Amendment guarantee of due process.
The Christian Post contacted Gordon College and the SBA for comment on this story. An SBA spokesperson told CP that the agency "does not comment on pending litigation matters."
Meanwhile, Gordon College said in a statement that it followed the procedures when it applied for the loan in 2020 and used the funds "completely in the manner in which they were presented by SBA," namely to avoid layoffs and pay its employees although the college was forced to close for months in 2020.
"We respect that the recent federal court decision on this case rejected arguments around the question of discrimination based on religion but allowed other aspects of this dispute to move forward," the Gordon College statement reads. "We believe those do provide sufficient grounds for the Court to reverse the SBA’s denial of forgiveness and hope to see a favorable resolution of this issue in the future."
Gordon applied for the PPP loan in April 2020 and for complete forgiveness in July 2021. The college's request was denied in 2022.
Although it employed a combined 639 part-time and full-time employees, the college argued that it had "495.67" employees, basing the number on the full-time equivalent employee methodology.
According to Indeed.com, this is reached via counting" 'hours worked' rather than the number of employees to budget, forecast, staff and calculate wages."
"For example, half-time workers are 0.5 because they work half the hours of full-time employees and they will receive 0.5 of a full-time salary," explained Indeed. "To calculate the FTE value for a specific position, simply divide the number of hours worked by the number of hours considered to be full-time. If you use 40 hours as full time, someone who works 35 hours has a 0.875 FTE. Someone who works 30 hours has a 0.75 FTE."
However, the SBA has maintained that loan-recipient employers are to count their employees by headcount, regardless of whether they are full-time or part-time.
After multiple appeals failed, Gordon filed a lawsuit in March 2023 against SBA, Isabella Casillas Guzman in her official capacity as an SBA administrator and the U.S. government.
The lawsuit argued that the denial of loan forgiveness "violate[s] Gordon College's constitutional and statutory rights under the First and Fifth Amendments to the United States Constitution and under federal statutes and regulations, including without limitation the federal Religious Freedom Restoration Act of 1993."
In the statement shared with CP, Gordon College states that when it applied for the loan in 2020, the SBA required the applicant to provide the lender with documentation on the number full-time equivalent employees on the payroll, which the school certified to be 495.67 at the time.
"By the time Gordon was required to apply for forgiveness of the loan (in July 2021), the SBA had changed the language to use a 'headcount' methodology," the statement adds. "This change by the SBA of the method of reporting employees is the basis for this dispute."
Gordon College is adamant that it followed the rules in place at the time and relied on the SBA's approval of the loan and the information it provided to the agency to expect that the loan would be forgiven.
"We had every reason to expect the loan forgiveness portion of the program would be fulfilled when applicable," the Gordon College statement reads. "Gordon seems to be an odd outlier for unforgiveness, which is why the question was raised in the College’s federal suit of any possible religious discrimination in applying a different standard to the decision."
Gordon College further notes that a detailed analysis of publicly available data shows that 32 other schools of comparable or larger size received PPP loans in excess of $5 million that were eventually forgiven and would have been "disqualified on a 'headcount' basis."
Founded as the Boston Missionary Training Institute in 1889, Gordon College developed into a liberal arts college with a graduate theological seminary. It sits on a 485-acre campus in Wenham, about an hour's drive north of Boston. Today, it has an enrollment of nearly 1,300 undergraduate students and over 300 graduate students.
