SBA Issues New Litigation Plan Requirements
The Small Business Administration has promulgated Litigation Tabs to guide lenders through preparing and submitting a Litigation Plan to the SBA. SBA SOP 50 57 requires that lenders submit and obtain prior approval of almost all Non-Routine litigation expenses. The Litigation Tabs tab set is in PDF format with drop down menu boxes and fillable fields for lenders to complete. Given the importance of submission and approval of a proper Litigation Plan as a condition of lenders being reimbursed for all non-routine litigation expenses, lenders need to familiarize themselves with the 7 tab set.
The SBA deems litigation to be “Non-Routine” where:
- Factual or legal issues are in dispute and require resolution through adjudication;
- Legal fees are estimated to exceed, in the aggregate, $10,000;
- The litigation involves a loan where the lender has an actual or potential conflict with the SBA (i.e., where the lender has foreclosed against collateral owned by the borrower that secured a separate loan to the same borrower or an affiliate of the same borrower); or
- The lender has made a separate loan to the same borrower that is not an SBA guaranteed loan.
Litigation Plans also must be submitted when routine litigation “morphs” into “Non-Routine Litigation.”
Additionally, where the lender’s counsel takes legal action or incurs expenses that materially deviate from the original approved Litigation Plan, lenders must submit an Amended Litigation Plan. A “material change” is one where previously approved legal fees are anticipated to increase by more than 15%. Additionally, for Receiverships, lenders must submit an Amended Litigation Plan for approval by the SBA prior to taking any action or incurring expenses approved in an original Litigation Plan.
In an instance where a Litigation Plan is required, the Litigation Plan must be approved before a lender may incur legal fees. A lender’s failure to obtain approval of a Litigation Plan prior to incurring the legal fees will jeopardize the lender’s right to reimbursement from the SBA for legal fees.
Arnold Spevack is a commercial lending attorney at Lerch, Early & Brewer who represents individuals, businesses, lenders and borrowers in financings, closings, negotiations and in the courts. Alison Rind is an attorney at Lerch, Early & Brewer in Bethesda, Maryland. She represents commercial lenders in loan transactions and other commercial matters, including participants in SBA and other government-guaranteed lending programs. For more information about the Litigation Tabs, contact Arnie at (301) 657-0749 or firstname.lastname@example.org or Alison at (301) 657-0750.