By Hailey Konnath

Law360 (April 6, 2020, 11:35 PM EDT ) Colorado-based law firm Godfrey Johnson PC urged a federal court Friday to immediately block the Small Business Administration from enforcing a rule in the coronavirus relief bill, lambasting the provision as "catastrophic" for tens of thousands of small businesses.

The firm is taking issue with a rule guiding a provision of the Coronavirus Aid, Relief and Economic Security Act that excludes payments to independent contractors from loans intended to help small businesses cover payroll costs during the pandemic. SBA Administrator Jovita Carranza issued the final rule on independent contractor payments April 2.

But the payroll for many businesses, like Godfrey Johnson, consists mostly or entirely of payments to independent contractors, the firm said in an ex parte motion Friday, requesting a temporary restraining order against Carranza. The firm asked the court to accept the motion as its complaint due to the "extreme time constraints" and "sheer magnitude of the damage" associated with the final rule.

"The fate of many of America's small businesses — and quite [possibly] its entire economy — hangs in the balance," the firm said.

However, also on Friday, U.S. District Judge R. Brooke Jackson immediately shot down the request, ruling that the motion doesn't satisfy the requirements of the Federal Rules of Civil Procedure. The firm must file a complaint to commence an action, the judge said.

"Nor is it conceivable that this court would consider a nationwide [temporary restraining order] of the magnitude you have requested on an ex parte basis, if any basis," Judge Jackson wrote in a docket entry order. "These are indeed strange and difficult times, but in such times the rule of law is particularly important."

J. Kirk McGill, the Godfrey Johnson attorney handling the matter, told Law360 on Monday that Judge Jackson has essentially ruled out a judiciary solution to the issue with the SBA loans, meaning a political solution will be required.

"And I think we'll see that," he said.

However, McGill emphasized that many small businesses can't wait weeks while the matter is debated in committee. 

"We have clients that are days away from running out of cash," he said. 

And with the "utter chaos" surrounding the implementation of the SBA loans, McGill said many employers will feel more inclined to lay off or furlough employees so those workers will at least be guaranteed unemployment checks rather than waiting for the government to send payroll checks that may never come. 

Representatives with the SBA didn't immediately return a request for comment late Monday.

On March 27, President Donald Trump signed into law the $2 trillion CARES Act, aimed at helping millions of American workers and businesses survive the effects of the novel coronavirus pandemic. The legislation provides roughly $250 billion in rebate checks to most Americans, helps struggling businesses meet payrolls and props up state and local relief efforts.

Under the act's Paycheck Protection Program, small businesses can get loans to cover payroll costs "for employees and/or payments to independent contractors," according to Friday's motion.

But six hours before the program officially opened, Carranza issued the final rule excluding payments to independent contractors from the definition of "payroll costs," Godfrey Johnson said in its motion.

According to the firm, the final rule is in "direct contravention of the plain language of the statute and the unmistakable intent of Congress for the act to support America's small businesses through the COVID-19 crisis by covering two months of their payroll costs without distinction between employee and independent contractors."

Godfrey Johnson added that the rule will result "in immediate material financial harm to plaintiff and many of its clients."

"Time is of the essence," the firm said in the motion. "[Defendant's] last-minute changing of the rules of the game — in direct contravention of the plain language of the act and Congress' express intent in passing it — will, without swift intervention by this court, likely cause an economic disaster for a large swath of America's small businesses."

Godfrey Johnson is represented in-house by Joshua Kirk McGill.

Counsel information for Carranza wasn't immediately available Monday.

The case is Godfrey Johnson PC v. Jovita Carranza, case number 1:20-cv-00920, in the U.S. District Court for the District of Colorado.

—Additional reporting by Stephen Cooper. Editing by Michael Watanabe.

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