The Restaurant Revitalization Fund (RRF) was a Congressionally-created program, administered by the U.S. Small Business Administration (SBA), under which financial grants were issued to restaurants, food stands, caterers, bars, food trucks, food carts, breweries, wineries, and other food and beverage businesses to help those companies navigate the restrictions imposed by the COVID-19 pandemic. In March 2024, the SBA Office of Inspector General issued a report, SBA’s Restaurant Revitalization Fund Program Award Practices, which suggested that approximately $6.7 Billion of the $28.6 Billion in grants issued under the program were awarded to ineligible entities. In response to the OIG report, SBA management committed to seeking recovery of excess funds paid to allegedly ineligible recipients by May 30, 2025. SBA appears to have missed that deadline, because, recently, SBA issued letters to some recipients of grants rescinding their eligibility for the program and demanding full or partial repayment of the grants. In many cases, the notices were a shock to grant recipients who went through the grant approval process and submitted their post-award report over two years ago. Now, they face a daunting 30-day deadline for repayment of hundreds of thousands or even millions of dollars the company no longer has. Companies that received grants under the RRF program should be prepared to timely appeal and, if necessary, litigate SBA rescission letters in order to preserve the companies’ rights to the funds and the companies’ financial bottom line.
Background
The RRF program was enacted by Congress in 2021 to provide emergency assistance to the food and beverage industry and to mitigate the financial impact of the COVID-19 pandemic. Congress recognized that these businesses play important roles as central gathering places of our communities, employers, and drivers of economic activity. It allocated grants of up to $10,000,000 to eligible applicants to help those businesses survive the pandemic when patrons were unable to eat or drink in person because of quarantine and stay-at-home orders.
Grant recipients could use RRF funds on eligible expenses incurred from February 15, 2020, through March 11, 2023. The program required recipients to spend any RRF grant funds by March 11, 2023, or return unused funds. By early 2023, most grant recipients spent all grant-related funds to keep their companies afloat, meaning grant recipients no longer have the funds available to repay SBA.
The RRF program awarded over 100,000 grants in about two months before it allocated all available funds. Over 40% of the grants went to small businesses with $500,000 of revenue or less in 2019. Most grants were for between $50,000 and $350,000. About 15% of recipients received at least $500,000, and about 5% received at least $1,000,000 in funds. These awards offered a lifeline to struggling restaurants, bars, and similar food-industry businesses during an unprecedented time.
After the RRF program shut down, the SBA OIG scrutinized the program’s application review process and found indications that ineligible businesses may have received awards.
In response, SBA issued rescission letters to certain grant recipients claiming they were never eligible to receive the grants in the first place, or they had received excess grant funds, and demanding full or partial repayment within 30 days. The letter is heavy on threats and light on detail, referring to the basis for rescission only generally. In many cases, after approving the recipient’s application, SBA never indicated that the recipients might have been ineligible for RRF grants and never offered them a chance to demonstrate their eligibility. Additionally, the basis cited in many rescission letters is often incorrect, imposing strict eligibility criteria that were not intended for a program designed to benefit a very broad subset of businesses or misinterpreting eligibility criteria.
These businesses now face demands to repay up to $10,000,000 in previously-spent and no-longer-available funds. These demands, if paid, would cripple these companies, further damage an industry that still has not recovered from the pandemic, and negatively impact the greater American economy.
Remedies
All is not lost for companies facing SBA rescission decisions. There are avenues for appeal that each company should follow in order to ensure the best opportunity to retain the funds SBA now seeks to claw back.
- Appeal to SBA. Each SBA letter discloses the recipient’s right to request reconsideration of SBA’s decision to rescind the RRF funds. This appeal process is critical because in any future litigation arising out of SBA’s decision, the recipient is very likely going to be limited to the arguments and evidence submitted to the SBA as part of the original grant application process and through the appeal. If an argument is not made or evidence is not presented to the SBA at this stage, it may be lost forever, hampering a future court’s ability to rule in the recipient’s favor. Grant recipients who have received rescission letters should, without fail, exercise their rights of direct appeal within the 30-day period in order to challenge the decision. This process should be completed with the help of an attorney. Retaining competent counsel that understands the RRF program’s standards and requirements is important to preserving the recipient’s best chances for success. As noted above, SBA’s interpretation of the RRF program requirements is, in some respects, incorrect. Pointing to the analytical flaws in SBA’s rescission decision will help avoid recoupment.
- Litigation Under the Administrative Procedure Act. Even if SBA denies a direct appeal, a grant recipient can seek neutral third-party review in federal court. Decisions on RRF grants and appeals are considered “final agency actions,” and thus, they are subject to judicial review under the Administrative Procedure Act (APA). In any APA suit, the recipient must prove that SBA’s rescission decision was arbitrary, capricious, contrary to law, an abuse of discretion, or not supported by substantial evidence. This is a high burden for a recipient to meet, as the standard provides substantial deference to the agency’s decision-making. However, federal courts have been somewhat receptive to arguments attacking SBA decisions under the RRF program to date. Courts also may be skeptical of SBA’s decision to rescind hundreds of grants years after award, with little explanation, after previously deeming those companies eligible for the program. Where grant recipients can prove their eligibility, including through documentation previously submitted to SBA, or their reliance on SBA’s prior eligibility decision, they will give the court strong reasons to overturn SBA’s rescission.
- Class Action Litigation. Grant recipients facing recoupment of RRF awards are not alone. Hundreds of RRF grant recipients are in some phase of the recoupment process. And SBA’s attempt to recoup money after all these years is questionable at best. If you are interested in participating in potential class action litigation to try to prevent SBA from recouping RRF grants, while limiting the cost of seeking that relief, contact the authors of this blog to determine whether class action litigation may be a solution for you.
To be sure, SBA’s rescission letters are a significant threat to the financial well-being of grant recipients. Knowing and exercising appeal rights can help grant recipients confirm they are and always have been eligible for the RRF program and avoid a sizable repayment obligation that could put the company in serious jeopardy.
If you have questions about this development and potential impacts on your business or are interested in participating in a potential class action to stop SBA from recouping RRF grants, please contact Matt Feinberg, Scott Stemetzki, or another member of PilieroMazza’s Litigation & Dispute Resolution Group.
