Ninth Circuit Revives PPP Fraud Lawsuit Against California Staffing Companies

In a significant legal development, two California staffing companies are facing renewed scrutiny over allegations they misrepresented information to obtain Paycheck Protection Program loans during the COVID-19 pandemic. The Ninth Circuit Court of Appeals has reversed a lower court’s dismissal of the case, sending it back for further proceedings.

The appeals court determined that a federal district court in California incorrectly dismissed claims brought by Relator LLC against iLink Employers Company and iLink Business Management Inc., along with their CEO. According to court documents, the lawsuit alleges the companies falsely certified their eligibility for the federal pandemic relief funds.

The case, filed under the False Claims Act, represents one of many legal challenges that have emerged in the wake of the $800 billion Paycheck Protection Program (PPP), which was established in 2020 to help businesses maintain their workforce during the economic disruption caused by COVID-19.

The PPP, administered by the Small Business Administration (SBA), provided businesses with potentially forgivable loans to cover payroll costs and certain other expenses. To qualify, applicants had to certify that they met specific eligibility criteria and that loan funds would be used for approved purposes.

The original dismissal came earlier in 2024 when the district court found Relator LLC’s allegations insufficient to proceed with the case. However, the Ninth Circuit’s non-precedential decision has given the lawsuit new life, determining that the plaintiff adequately alleged that the staffing companies made false statements to the government regarding their eligibility.

Staffing companies like iLink occupy a complex position in the PPP landscape. These businesses typically provide temporary workers to other companies, creating potential questions about how employee counts and payroll calculations should be determined when applying for pandemic relief.

False Claims Act cases like this one allow private parties, known as relators, to file lawsuits on behalf of the government against individuals or companies alleged to have defrauded federal programs. If successful, these whistleblowers can receive a percentage of any recovered funds.

The Department of Justice has made investigating PPP fraud a priority since the program’s inception. In December 2023, the agency reported it had charged over 3,200 defendants with crimes related to COVID-19 relief fraud and seized more than $1.4 billion in misappropriated funds.

California has been a particular hotspot for PPP fraud investigations, with numerous cases emerging from the state’s business sector. The staffing industry as a whole has faced heightened scrutiny due to the nature of its operations and employee arrangements.

Legal experts note that this reversal by the Ninth Circuit could signal increased judicial willingness to allow PPP fraud cases to proceed to trial, potentially exposing more businesses to liability for their pandemic-era loan applications.

The case will now return to the district court, where iLink Employers Company and iLink Business Management Inc. will have to mount a defense against the allegations that they falsely obtained government funds intended to support businesses during the economic crisis.

For businesses that participated in the PPP, this case serves as a reminder that their loan applications remain subject to review and potential legal challenge, even years after the program has ended. The statute of limitations for False Claims Act cases typically extends to six years, meaning that investigations into pandemic relief programs will likely continue for several more years.

Neither the companies nor Relator LLC have issued public statements regarding the Ninth Circuit’s decision. The case will now proceed through the discovery phase as the district court reconsiders the merits of the allegations.