State’s ‘lawless’ expansion of business relief program invites corruption, plaintiffs argue

The Juneau Court House across the street from the Alaska State Capitol building. (Photo by gillfoto/Wikimedia Ccmmons)

The court must put a halt to the state’s “lawless” expansion of its small business relief program because it could open the door to “not just mischief but perhaps corruption,” plaintiffs argued today in court.

Juneau Superior Court Judge Phillip Pallenberg heard oral arguments in a case brought by Juneau resident Eric Forrer and attorney Joe Geldhof against the state that argues a plan to expand the Alaska CARES Act program should be halted because it runs contrary to the strict language drafted by the administration and approved by the Legislature.

A ruling is expected by Friday but could be issued as early as today.

[TWITTER: Live coverage of the day’s arguments, including several people who didn’t mute their phones]

Gov. Mike Dunleavy’s administration sought to distribute $290 million in federal funds to small businesses but that program has been an abject failure due to how the program was written by the administration and how the program has been administered since it was implemented.

A month into the program, and the state had distributed less than $7 million to small businesses and several businesses and business leaders argue the hastily created program should go back to the Legislature for durable fixes. The Legislature is holding an additional hearing with small businesses today and plans to hold another with state officials next week.

One of the biggest hang-ups identified by businesses and the state, which is now the subject of today’s oral arguments, is the program’s strict language that says no one who had received any federal aid can apply for the state-run program.

The state has argued that lifting that limit from zero dollars to $5,000 is permissible because it’s within the spirit of the program, but Geldhof says that sets a dangerous precedent even when judged against the backdrop of the pandemic.

“If this court elects not to require the administration to follow the standards they wrote as ratified (by the Legislature) in regards to the business relief, you will be inviting not just mischief but perhaps corruption,” Geldhof said. “Why do I say that? Think about the consequences of not issuing an injunctive relief in this limited case. … Where will it end? There will be no end to the amount of creativity, I guess, on the part of this or any other administration and they’ll just start spending money that in the end is just arbitrary. Who knows where it’ll end up?”

Geldhof said he and Forrer are seeking an injunction against the state distributing funds to businesses that have received any federal funds, calling on the courts to enforce the language that was in the program drafted by the governor’s administration and approved by the Legislature. He said money that would go out under the original plan should be unaffected.

The administration has previously testified to the Legislature that the $5,000 threshold was decided based upon discussions in a legislative committee. The Legislature never took formal action to approve such a figure, nor did it take public testimony at the time on that figure.

Chief Assistant Attorney General Margaret Paton-Walsh argued the case for the state. She argued that the state should be given leeway in administering the program, given the pandemic and the need to get money out to businesses quickly.

“The Alaska Supreme Court has said, ‘We will sometimes interpret a statute expansively if an expansive interpretation will accomplish beneficial results and serve the purpose for which the statute was enacted,'” she said. “If there was ever a time that was true, this is it. The RPL drafted in a hurry because we were in the middle of this incredible pandemic emergency and an economic catastrophe. Even if this court thinks the RPL was sloppily drafted and should have been drafted differently, it shouldn’t punish Alaska businesses who desperately need the relief here.”

Geldhof said that approach is preposterous.

“That is really setting up a standard where you might as well get the Ouija board out and decide you can do whatever you want based on Ouija board principles,” he said during his rebuttal.

The practical failure of the program—from its extremely slow approval rate to the lack of communication with businesses—was not a key issue in today’s oral arguments, though Geldhof also referenced an issue where commercial fishermen have been barred from applying for the grants because the state’s implementation of the program doesn’t count their commercial permits as business licenses.

Businesses have laid out a series of changes they believe are needed to salvage the program, which go well beyond what’s at issue in today’s arguments and would likely require legislative action. Geldhof has previously said that the Legislature should have a role in reviewing and approving changes to the program and until then public funds should not be spent without the backing of law.

“This is the place and this is the time to not allow an arbitrary expenditure of public funds,” Geldhof said, later adding, “Forrer is not asking you to close completely this $290 million spigot. … Forrer’s asking you to leave the spigot set where it is. The water can drip out or flow out, but it cannot just go out without any standards.”

Most of Paton-Walsh’s time was spent arguing that Forrer doesn’t have the proper ground to be able to argue for an injunction and that a business concerned that they may miss out on the money would be a more proper litigant.

To win an injunction, a plaintiff must be able to show that they will suffer irreparable harm if the court doesn’t act or are likely to prevail on the case.

“I think because Mr. Forrer is so far to that side of any kind of spectrum of harm, maybe you don’t need to finagle too much with whether it needs to be irreparable or really bad because it’s not even really bad, it’s not even bad, actually. Mr. Forrer is upset because he thinks the state has ignored a law,” she said. “He has no personal interest, no harm he’s been able to establish on him if he has to wait to be vindicated.”

Judge Pallenberg replied that it’s unrealistic to expect businesses who do not yet know they are at risk of harm to file a lawsuit over that harm.

“That hypothetical business doesn’t know that they’re harmed until their application is denied in whole or in part,” he said. “Maybe their application is denied in part because there isn’t enough money. … How does that plaintiff bring that challenge until they know their application is denied in whole and in part? And isn’t it going to be too late because that money is going to be gone?”

Paton-Walsh said that they could still bring a lawsuit now.

Geldhof argued that Forrer is bringing the case as a public interest litigant concerned with what appears to be a lawless attempt to spend public funds.

“I think equitable relief is completely justified here. Forrer is the appropriate person to bring this matter. When you think about it, the state is trying to preclude or even penalized Eric Forrer from bringing a matter of significant public interest to the attention of the judiciary instead of an after-the-fact matter that would require arguably forensic accounting,” Geldhof said. “For once, a public citizen is ahead of the curve and is trying to prevent an injustice in the form of a lawless allocation of public funds. He shouldn’t be punished by that; he should be rewarded with a limited grant of equitable relief.”

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