Small businesses continue legal battle over denied pandemic aid

“I’ve always said our fries beat every other competitor,” Sangha said, “if we serve them correctly.” 

Sangha’s father opened this Wendy’s franchise, in a shopping center on the outskirts of the small Lewis County town of Chehalis, in 2004 after immigrating from Fiji. Growing up, Sangha would do homework with his twin brother at the fast-food tables after school, he recalled.  

“I remember being probably 5 or 6 and asking my dad how to use the computer that he would use for filings,” Sagha said. “He would get us up to speed on the technology and stuff, and he would show me how he would input his Quickbooks data.” 

Sangha took over the family business, which had grown to three restaurants, in 2019 after his father suffered a stroke. Months later, COVID-19 hit, forcing him to both learn the ropes and navigate an economic crisis without hands-on guidance from his father, who required months of inpatient rehab.  

This story is a part of Cascade PBS’s WA Recovery Watch, an investigative project tracking federal dollars in Washington state.

One bit of relief came from the Paycheck Protection Program, the government’s first and largest effort to bail out businesses shuttered by the pandemic. Sangha applied through the Small Business Administration, the federal agency tasked with standing up what became an $800 billion relief effort more or less overnight. Sangha’s company received just under $333,000, which he said helped him avoid laying off any employees or cutting hours at their three locations. 

Then the SBA asked for the money back. 

“It seemed like a no-brainer for us that we would utilize this to help our employees and our team,” Sangha said, adding that the SBA’s denial of forgiveness “inhibits us from continuing to grow, continuing to hire, reinvest in the business.” 

Sangha filed a lawsuit in federal court earlier this year seeking to have the loan forgiven, as 96% of PPP loan funds nationwide have been. In a recent conversation in the dining room of his Chehalis location, he pointed out that he spent most of the money on paying employee wages while other recipients were granted forgiveness despite inflating payrolls or defrauding the program with fictitious companies. 

“It’s not like some of those people who have been egregious with their loans and fraudulent, saying, ‘We’re going to pretend we have this many employees and we are going to keep the money or whatever,’” Sangha said. “We’re not keeping any of the money.”

Businesses left ‘hanging’ 

Congress ultimately pumped more than $1 trillion directly into businesses devastated by pandemic lockdowns, part of an unprecedented stimulus that dwarfed the response to the 2008 financial crisis. PPP alone reached more than 11 million businesses.  

But more than four years after the outbreak of COVID-19, a contingent of small businesses across the country – from concert halls to taco shops – continue to file lawsuits against the Small Business Administration claiming they were wrongly denied aid. 

Among the aggrieved: escape rooms, a Paralympics museum, the Michigan State Fair, even the Harlem Globetrotters. In one local case, a Seattle rideshare driver was denied a loan after the SBA confused him with another man whose name appeared on a terrorist watch list. The agency ultimately paid a $62,500 settlement. 

Companies with the resources to fight back in court have been the most successful. 

A British Columbia-based company that stages a Christmas “Winter Wonderland” at Seattle’s T-Mobile Park was quickly awarded $10 million after filing a complaint in federal court in 2021, despite employing a largely Canadian workforce. Other successful litigants include a St. Louis-based cruise operator, a municipal arena in a Texas border town and a former MAD TV cast member. In at least 19 other cases, the SBA has written off millions in loans as part of settlement agreements, largely with financial and real estate development firms. 

But many small businesses can hardly afford to launch what often become time-consuming multiyear legal battles, and those who prevail in court have no guarantee they will get paid.  

The SBA granted Cascade PBS’ request for an interview, but only on the condition that the SBA official not be named. The SBA official emphasized that the economy has added millions of small-business jobs since the Biden-Harris administration took over in 2021 and program changes helped correct lending disparities that marked the first round of PPP, which heavily favored rural businesses in largely white counties. 

“On the whole, especially after the changes in 2021,” the official said, “underserved businesses and the smallest of the small got the relief they needed.” 

The SBA pointed to a Government Accountability Office report that found businesses in high-minority counties and those with fewer than 10 employees received a significantly larger cut of PPP loan funds in rounds two and three, although those smallest businesses' share remained disproportionately low across all rounds. 

The SBA official said that rampant fraud under the previous administration required the agency to reinstitute more rigorous screening protocols, such as the Treasury Department’s “Do Not Pay” list, and fraud concerns meant they could not always tell businesses why they were denying their application. For those eligible businesses left out, the SBA official said the agency offers other loan programs, technical assistance and free counseling. 

Yet dissatisfied businesses continue to file suit, while other yearslong cases remain unresolved. In April, an attorney for New York’s “only undefeated basketball team” filed a new complaint that began, in an uncommonly dramatic flourish, with a quote attributed to Albert Einstein: “Bureaucracy is the death of all sound work.”  

Attorneys representing spurned applicants said the SBA has been slow to revisit faulty denials, even after years of litigation and in cases where a judge has ruled that the SBA’s denial was wrong. 

“It is pretty shocking that the agency, after it had to have noticed the systemic nature of these flaws, is really dragging its feet on making the corrections,” said Caroline Wolverton, a D.C. attorney whose firm has brought more than 70 cases against the SBA, mostly on behalf of independent live event venues and operators.  

“It’s leaving these small businesses that are in pretty dire straits, it’s just leaving them hanging.”

Alleged discrimination 

In the hurry to get money out the door, pandemic business loan programs often failed to take into account whether recipients actually needed the money. Companies controlled by celebrities like Kanye West, Post Malone, and Tom Brady claimed millions, while some small independent firms were left empty-handed. 

Congress did attempt to build equity into programs like the Restaurant Revitalization Fund, which initially prioritized owners of color, but those efforts were foiled after white restaurant owners sued, claiming discrimination.  

And while small businesses like Sangha’s Wendy’s franchise have struggled to access relief they argue they are plainly eligible for, some more rarefied firms have succeeded in convincing courts to undo rules that initially excluded them. 

A Columbus, Ohio, developer got its $2.9 million loan forgiven after bringing a lawsuit challenging an SBA rule that said “passive” businesses were ineligible. A coterie of strip clubs muscled their way into eligibility for the Restaurant Revitalization Fund after contesting their exclusion in court. 

A Freedom of Information Act request filed by Cascade PBS unearthed settlements from 19 lawsuits the SBA settled with businesses who claimed they had been wrongly denied forgiveness of PPP loans. The agency wrote off more than $9 million for those litigants, many of them financial and real estate corporations.  

Find tools and resources in Cascade PBS’s Follow the Funds guide to track down federal recovery spending in your community.

Other applicants faced more unique obstacles. While many litigants complained that the SBA never provided a reason for their denial, Seattle rideshare driver Mohamed Said received a very specific reason from the SBA when they denied his application for an Economic Injury Disaster Loan: Officials claimed his name appeared on a federal “Do Not Pay” sanction list targeting criminals and terrorists. 

Said, a United States citizen who migrated from East Africa as a young child, said he tried to explain that the SBA had mixed him up with someone else, but to no avail. They wouldn’t even tell him which list his name supposedly appeared on, he told Cascade PBS. 

According to a lawsuit Said later filed, the agency failed to perform basic cross-checks for information like middle name and birth date, which would have indicated he was a different person from the man on the list.  

“I was like, ‘What does that even mean?’” he said. “I’m an American, I’ve lived here most of my life. … I actually did the work for SBA and explained, ‘Hey, you guys are wrong.’” 

He said he eventually contacted U.S. Rep. Pramila Jayapal’s office, and shortly thereafter an SBA liaison contacted him and admitted the agency had the wrong guy – but by then the loan program had run out of money. The SBA settled Said’s lawsuit for $62,500, somewhat less than he qualified for under the loan program, according to his lawsuit. 

Said told Cascade PBS that he knew other rideshare drivers from similar backgrounds who were discriminated against by the SBA, but he declined to share their contact information. He said that like him, they are not surprised by racially discriminatory treatment and do not feel that federal bureaucracies can be improved.  

“Being Black, an African immigrant, and Muslim, Mr. Said knows he will not always be treated fairly,” his attorney wrote in the lawsuit complaint. “But to be wrongfully treated as a terrorist by the United States government — and for the government to refuse to consider his proof that it was wrong — was a new low.” 

‘Do the right thing’ 

Back at the Wendy’s in Lewis County, Sangha had commandeered a high-top table in the corner, where he spread his backpack, tablet, some tax forms, a tall Starbucks coffee and instructions for installing a new spray head on the coffee maker.  

He had just returned the day prior from a Wendy’s franchisee convention in Orlando. On the plane back, the Centralia restaurant lost internet, so he texted and emailed with delivery app vendors from the sky to ensure orders got filled. 

“You’re always on the clock,” Sangha said. “You can’t afford to not be.” 

More than two years after the $333,000 loan was approved, the SBA issued a decision denying forgiveness, arguing that the business was ineligible because Sangha’s father had been suspended by the agency in 2018. According to Sangha’s lawsuit, the suspension arose from a misunderstanding after his father applied for a loan to lease a retail space that included both a cannabis shop and storage for restaurant equipment. (Though legal in Washington, SBA loans could not be used for cannabis businesses under federal rules.)  

His father was forced to repay the loan and charged with misdemeanor attempted theft, to which he pleaded guilty. 

Sangha said his family disagreed with the charges brought against his father but pled guilty to avoid a drawn-out legal battle with the federal government. When the younger Sangha applied for the PPP loan years later, shortly after taking over the business, he said he did not know his father had been suspended by the SBA, and it never crossed his mind that something his father had already been punished for could create further difficulties. 

“We should never have been in this [situation] in the first place,” Sangha said. “We think [the denial] is unjust and not in the spirit of the what the program was intended for.” 

Having to repay the full loan now could require cutting jobs, Sangha said. And the uncertainty has taken the wind out of longer-term plans to expand to more Wendy’s locations. (They closed one location during the pandemic and are now down to two.) He said he has also put off replacing aging grills and investing in more energy-efficient dishwashers as he awaits the case’s outcome. 

Faced with the legal firepower of the United States government, he has, like many small-business owners in his position, considered giving in and paying the money back. But Sangha, who is fond of quoting Wendy’s founder Dave Thomas, feels protective of his father’s legacy and confident in the righteousness of his argument. 

“We’re stacking up legal fees like crazy, and it’s one of those things where I’m like, ‘Would it be easier?’ Absolutely,” Sangha said. 

“But it hearkens back, you know, Dave Thomas used to say, ‘Do the right thing.’ And the right thing from my opinion is, there was a publicly available option to help mitigate financial risk and it was solely dependent on reinvesting into the business. … We are doing exactly what the whole purpose behind the loan was.”