Eastern Niagara Hospital, which was denied nearly $5.74 million in federal Paycheck Protection Program aid, announced Wednesday it has sued the U.S. Small Business Administration over the refusal.
The hospital's application was rejected because it filed for Chapter 11 bankruptcy protection in November, before the Covid-19 pandemic struck, according to the suit filed Tuesday in U.S. Bankruptcy Court.
The suit contends that the CARES Act, which established the PPP as of March 27, did not disqualify businesses already in bankruptcy from receiving money. The court filing points to court rulings against the SBA in other states over the issue.
Yet the first question on the application form asks if the applicant is involved in a bankruptcy proceeding and warns that if the answer is yes, the loan request will be denied.
Despite that, the Lockport hospital applied anyway, on April 7. It was rejected April 13 by Citizens Bank, which processed local PPP requests on behalf of the SBA.
Three days later, the hospital placed 60 employees on furlough.
"Had we obtained the PPP funding, I don't believe we would have had to reduce our workforce at that time," hospital President and CEO Anne E. McCaffrey said Wednesday.
At the time, the hospital blamed the furloughs on lost revenue from elective surgeries because of Gov. Andrew M. Cuomo's ban on the procedures, and did not mention its rejection by the SBA.
"I guess in my mind they go together. We had lost revenue. We had no elective surgeries," McCaffrey said. "There was no other source of funding to cover it."
On April 28, the elective surgery ban was lifted in Niagara County. About half of the furloughed workers have since been recalled, McCaffrey said.
Story topics: Covid-19