Last month, a federal court in North Carolina held Karanik et al. v. Cape Fear Academy, Inc., No. 7: 21-CV-169D (EDNCJune 17, 2022), that a private high school’s receipt of a Paycheck Protection Program (PPP) loan pursuant to Coronavirus Aid, Relief, and Economic Security Act (CARES) was seen as an acceptance of federal financial assistance. As a result, the court held that the school was subject to Title IX obligations throughout the life of the loan.

As we noted in our legal update on independent schools and PPP loans, the Small Business Administration (SBA) previously confirmed that recipients of PPP loans are considered recipients of federal financial assistance, imposing thus obligations under many federal laws and regulations.

We now know from this recent federal court ruling, which is consistent with SBA guidelines, that courts can conclude that private and independent schools that have received PPP loans will be required to comply with Title IX and other federal civil rights laws for the life of the loan. However, the ruling also suggests that once PPP loans are paid or cancelled, independent schools may no longer be required to comply.

Although private and independent schools already have non-discrimination policies and procedures in place, these practices do not necessarily meet the specific requirements of Title IX and the law’s prescriptive regulations that came into effect in 2020. The consequences of non-compliance may result in the suspension or denial of financial assistance. or acceleration of loan maturity. Additionally, individuals who believe they have been discriminated against based on gender, including with respect to a school’s response to sexual misconduct allegations, could rely on Title IX to pursue legal action. against the school.

We recommend that schools seek legal advice about whether their receipt of CARES Act funding, including PPP loans, has triggered obligations to comply with Title IX and other civil rights laws. We continue to follow these developments closely.

Theresa Lane is a summer associate at Robinson+Cole and is not yet admitted to practice.