A Mississippi trucking company owner has been ordered to repay a fraudulently obtained loan aimed to offset payroll expenses during the pandemic.
Judge Glen Davidson ordered Xavier Bailey, owner of Bailey’s Trucking, to repay more than $455,000 in loan processing fees and interest in addition to $27,000 in civil penalties in a summary judgment filed Sept. 15.
The case centered on claims that Bailey fraudulently obtained a loan through the Coronavirus Aid, Relief and Economic Security Act, dubbed the CARES Act, and its Paycheck Protection Program (PPP) enacted by Congress in March 2020. Businesses receiving funds from the program were required to use those funds on certain expenses, such as payroll, mortgage and rent, to name a few.
Interest on the loans was forgiven if businesses used the money on the specified expenses within a defined period of time, with a specifically outlined amount spent on payroll.
Bailey applied for and received a PPP loan of more than $143,700 in April 2021. There was a $7,000 processing fee and more than $800 in interest that both were forgiven, according to the summary judgment.
According to Davidson’s opinion, evidence in the case showed the loan application contained “multiple instances of false information.” Examples of the false information include Bailey’s application stating his motor carrier was operating before February 2020, when he later admitted in deposition testimony that the date was not accurate. The trucking company was not registered as a business until December 2020.
Bailey also claimed his truck drivers were “employees,” but in reality, they were Form 1099-MISC independent contractors. The CARES Act does not permit Form 1099 contractors to be considered employees.
“The evidence establishes that Bailey did not have qualified employees or an eligible payroll as his application certified,” Davidson’s opinion states.
The opinion adds that rather than paying employees and utilities, Bailey used the PPP loan to cover maintenance, fuel, insurance and truck payments.
Bailey attempted to dodge the charges by blaming and filing suit against the bank through which he filed the PPP loan application.
He filed a third-party complaint against Blue Ridge Bank, National Association and Blue Ridge Corporation in December 2022.
The gist of Bailey’s counterclaim lawsuit is that Blue Ridge Bank failed to request pertinent documents or to verify compliance with loan requirements before processing the PPP loan.
In addition, the bank “used automated systems to change applications to obtain easier approvals and higher payouts, which benefited the bank financially,” Bailey’s lawsuit claims.
In so doing, Bailey argues the bank breached its fiduciary responsibility to him, meaning the bank acted in its own interests rather than those of the loan applicant.
“Blue Ridge Bank breached a fiduciary duty to Mr. Bailey when approving Bailey’s Trucking LLC for funds it knew or should have known the company was ineligible to receive by failing to request proper documents and paperwork – since it knew the standards required by the Small Business Administration,” Bailey’s attorneys say in the counterclaim.
Blue Ridge Bank filed a declaration in the case claiming that the PPP loan would not have been issued to Bailey and his trucking company if truthful information had been on the application.
“Bailey submitted information that he now admits was false, information that was used to calculate the dollar amount of PPP loans to be issued,” the opinion states. “It is obvious from the evidence presented to the court that the false submissions by the defendants directly led to the improper loan and following forgiveness to be approved, as the information led to the defendants falsely appearing to qualify under the CARES Act.”
Facts aside, Bailey’s counterclaim against the bank was tossed because he failed to file the proper paperwork with the court for a third-party complaint, and the deadline for filing that paperwork has passed.
Those two things resulted in Judge Roy Percy ordering that the third-party complaint be stricken from the case. LL
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