Gordon College could be on the hook to repay $7 million of COVID-19 relief funds. A federal court rejected eight of the evangelical school’s arguments that it should be eligible for loan forgiveness.
Gordon’s lawyers made the case that the religious liberty protections in the First Amendment and the Religious Freedom Restoration Act should allow the institution to count employees in a different way than the US Small Business Administration (SBA) said they had to be counted. The US district court in Washington, DC, rejected the argument, citing a lack of evidence.
“Plaintiff alleges no facts connecting its number of employees to any religious practice,” Judge Beryl A. Howell wrote in a ruling handed down in July. “Plaintiff fails to identify any ‘exercise of religion’ that has been burdened, and thus plaintiff’s claims can be dismissed on this basis alone.”
According to the government, Gordon has 639 employees on its wooded campus on the North Shore of Boston. Some of those people only work part time, however. So the school calculated the full-time equivalent, which is a common way to track enrollment in higher education. If you don’t tally individual people working at the school, but instead count units of time worked, Gordon only has 495.67 employees.
Organizations with fewer than 500 employees are eligible for loan forgiveness.
The government gave out nearly $800 billion as part of the Coronavirus Aid, Relief, and Economic Security Act passed by Congress and signed into law by President Donald Trump in 2020. The vast majority of recipients have since had their debt waived. Gordon is an exception.
“Gordon College followed the procedures given at the time of the loan application,” the school said in a statement, “and most importantly, used these funds completely in the manner in which they were presented by the SBA: to avoid layoffs of employees and continue to provide them with a paycheck even though the College was forced to shut down operations for months.”
In court filings, the law firm Gammon and Grange said the SBA’s decision not to forgive the school’s $7 million loan was “legally erroneous and arbitrary and capricious on the merits.” It was also, the attorneys claim, religious discrimination.
Gordon, which has about 1,300 students enrolled in undergraduate programs, requested a Paycheck Protection Program (PPP) loan in April 2020. The application form asked for a count of employees, and Gordon gave the number: 495.67. The school’s lawyers say the method of counting the full-time equivalent was clearly indicated.
According to Gordon, more than 25 other colleges and universities also used the full-time equivalent to calculate loan eligibility. Most applicants, however, just counted people.
No one was sure if there was a “right” way, at the time.
“There was widespread confusion,” Gordon’s lawsuit says, “about what method to determine the number of employees should be used.”
At the end of April, the SBA put out a statement on its FAQ page about full-time equivalent counts. The government agency said the number of employees should be determined by a simple head count, treating full- and part-time employees equally. The SBA also clarified that the 500-employee cap only applied to loan forgiveness. Organizations with more employees than that would still be considered eligible for funding but would be required to pay the money back.
By that time, though, Gordon had already gotten its loan from Citizens Bank, a PPP partner, and was using the money to keep the 639 people who worked at the school employed.
Court records indicate that the school didn’t learn of the issue with its eligibility for loan forgiveness until November 2021, when Citizens Bank said in an email that the SBA needed an “employee count per location.” The school responded within a few days, giving the government a new number, based on a head count: 639.
In April 2022, the SBA notified Gordon that its application for loan forgiveness was denied.
Gordon appealed and then appealed again, taking the SBA to court.
The lawyers claimed that the “SBA Court refused to even consider an exemption or other relief from a cramped and unconstitutional interpretation of the ‘500 employee’ threshold.” Even worse, the SBA “discriminated against Plaintiff-Petitioner, an evangelical Christian college with religiously and socially conservative views, by treating other, similarly situated religious colleges better than it has Plaintiff-Petitioner.”
Gordon alleges that 25 other schools that counted employees the same way were forgiven loans of $5 to $10 million each.
Judge Howell ruled, however, that Gordon did not back up that claim with sufficient evidence. Many of the other schools that Gordon pointed to were, in fact, also Christian institutions. The lawyers mentioned Wheaton College, Trevecca Nazarene University, Drew University, and St. Mary’s College Notre Dame.
Gordon, Howell wrote, “offers no facts to support its conclusory allegation that these 25 other colleges are similarly situated—much less similarly situated in all respects except religious affiliation.”
Howell also found there wasn’t evidence to show that counting employees was connected to religion at all.
“No allegation is made that the 500-employee cap or SBA’s methods for counting employees were enacted to target or single out any religious conduct or institutions,” the judge wrote, “nor that the cap or employee-counting methodology employed have an adverse impact on religion.”
And according to Howell, there isn’t even evidence that SBA officials knew Gordon was a Christian school.
The Massachusetts college is not the only PPP loan recipient that has been told it will have to pay the money back. The SBA has manually audited about 2 percent of all PPP loans and denied forgiveness to about 0.2 percent. That works out to around 21,000 organizations that will have to pay back relief money.
According to some experts, the approval process was rushed in response to the fear of financial crisis brought on by the pandemic. That allowed for a lot of fraud—as well as many honest mistakes.
“A lot of the details were very unclear to businesses and banks,” Eric Lichatin, a commercial loan officer who handled PPP applications for a bank in Rhode Island, told NPR.
Steven Mnuchin, who was treasury secretary under Donald Trump and oversaw the program design, had said that the needs of small businesses were too urgent to set up a lengthy loan review process in 2020. But he assured a House oversight committee in 2020 that there would be more careful scrutiny when it came time to forgive loans.
“We are going to have a very robust process,” he said. “People will be required to provide much more data.”
One lawyer who advises PPP borrowers for a New Jersey law firm said that has happened, and now the SBA is “playing hardball” on loan forgiveness.
Some borrowers—including a car dealership in New Jersey and a fitness club in Missouri—are fighting back in court. Gordon appears to be the only one, however, making religious liberty claims for loan forgiveness.
Those arguments were rejected. The school’s other arguments will go forward, with lawyers arguing the decision to deny the loan was a legal error, “made in excess of SBA’s statutory authority, and constituted an abuse of discretion (to the extent it had discretion),” and that it was in violation of the Fourteenth Amendment’s guarantee of due process.
“We believe those do provide sufficient grounds for the Court to reverse the SBA’s denial of forgiveness,” Gordon said in a statement, “and hope to see a favorable resolution of this issue in the future. “
This story was updated with quotes from a statement from Gordon that was unavailable at time of publicaiton.
