Pine Mountain Lake Association settles lawsuit over unlawful PPP loans | News

“The United States and relator alleged that PMLA was not eligible for PPP loans because PMLA is a non-profit entity organized under section 501(c)(4) of the Internal Revenue Code,” the letter stated.

The Paycheck Protection Program, or PPP, was a nearly $1 trillion business loan program established through the Coronavirus Aid, Relief, and Economic Security Act under the Trump administration in 2020.

Eligible businesses and nonprofit organizations could qualify for PPP loans that were roughly equal to 2.5 times their average monthly payroll to cover payroll, costs, rent, interest and utilities, amid government-mandated lockdowns in response to the pandemic. The loans would be forgiven if they used them for the appropriate purposes and maintained employee counts and wages.

Joe Powell, general manager of PMLA, did not respond Friday to questions from The Union Democrat.

While the letter doesn’t state the amount of the loans that PMLA received, the U.S. government’s PandemicOversight.gov website shows that it received one for $687,500 approved on April 14, 2020, and another for $950,000 approved on Feb. 3, 2021.

Both loans were listed on the site as being forgiven in amounts that exceeded what was originally borrowed. The amount forgiven for the first loan was $692,045, while the amount forgiven for the second was $953,431.

The website showed all of the first loan was spent on payroll, while the $949,999 of the second loan was spent on payroll and $1 on utilities. Both had the number of jobs reported at 95. Mechanics Bank was listed as the lender for both.

“We are very disappointed that the federal government decided to take this action as PMLA used the PPP loans for their intended purpose,” the association’s Dec. 22 letter to members stated. “If we had not utilized the PPP loans back in 2020 and 2021, we would have been in a position where we may have been forced to lay off up to 30% of our workforce, and taken other actions that would have had a severe negative effect on the membership as a whole.”

According to the association’s website, it oversees an 18-hole golf course, restaurant and lounge, horse stables and campground located within the private, gated community east of downtown Groveland.

Natale said he’s been told there are approximately 3,200 members, who each pay about $3,100 in annual dues to the association.

The association’s Dec. 22 letter doesn’t give the exact settlement amount, though states that it was “very close to the amount PMLA estimated it would have spent in legal fees to litigate the case through trial and repay the PPP loans it received.”

“Had PMLA litigated the case and lost, it stood to lose well over $5 million, and would have spent $500,000 in legal fees,” the letter stated.

The letter further stated that the board has authorized borrowing from the association’s reserve fund to repay the PPP loans and doesn’t anticipate needing to levy a special assessment on members to replenish the fund.

Despite settling the lawsuit, the association stated it was confident that the U.S. government wouldn’t have been able to prove that it knew 501(c)(4) nonprofit organizations were not eligible for PPP loans when it applied for them.

A 501(c)(4), the only type of nonprofit excluded from receiving PPP loans, is considered a “social welfare organization” defined by the IRS as “civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare.”

The association stated that it specifically informed its bank and the Small Business Administration, which administered the loans, that it was a 501(c)(4) mutual benefit corporation when it applied.

“The PPP was implemented in a chaotic fashion, with contradictory and confusing information that changed daily,” the association’s letter stated. “It was implemented during the period where the entire country was locked down due to COVID-19. But the overriding message was that all organizations that met the size requirements, including non-profit entities, were eligible for the loans.”

A town hall meeting has been scheduled for 10 a.m. to noon Saturday at the PML Lake Lodge to discuss the settlement and other association matters. The PMLA board also plans to discuss it at its next meeting on Jan. 20.