The court denied the federal government’s motion to dismiss a lawsuit brought by Susman Godfrey on behalf of the non-profit community hospital.
Susman Godfrey secured a favorable ruling in a tax case seeking Employee Retention Credits (ERC) under the Coronavirus Aid, Relief, and Economic Security (CARES Act) on behalf of Tri-State Memorial Hospital (Tri-State). Today, the United States District Court for the Eastern District of Washington denied the federal government’s motion to dismiss the non-profit hospital’s $11.5 million ERC claims.
In its decision dated May 28, 2026, the Court rejected the government’s argument that Tri-State does not qualify for tax refunds under the “Suspension Test” of the CARES Act. The government argued that the Suspension Test requires taxpayers to “allege cessation of a significant portion of its operations” from a governmental order that “was the proximate, independent and sufficient cause of the suspension of its operations.” The Court disagreed with the government’s interpretation of the CARES Act. In a 21-page opinion, the Court held that the Suspension Test requires taxpayers to show “a temporary delay, interruption, or termination of a more than nominal portion of an employer’s business.” The Court also held that the Suspension Test requires taxpayers to meet a but-for causation requirement.
In May 2025, Susman Godfrey filed suit on behalf of Tri-State against the federal government, seeking tax refunds under the CARES Act after it partially suspended operations due to governmental orders relating to COVID. In its complaint, Tri-State detailed steps the hospital took because of government mandates in response to COVID, including canceling non-urgent procedures, reallocating resources because of vaccination and testing requirements, and implementing quarantining and cleaning protocols that resulted in fewer beds for patients. Although Tri-State timely filed its ERC claims with the Internal Revenue Service, it never received the full credits.
In January 2026, the federal government sought to dismiss the case, arguing that Tri-State was not eligible for relief because it had not shown it was partially suspended by a government order.
“We are pleased with the Court’s careful interpretation of the CARES Act,” said Weston O’Black, a partner at Susman Godfrey representing the hospital. “The government argued for a strict and narrow application of the Suspension Test that we believed was inconsistent with the statute’s plain language. Now that we’ve moved past the government’s threshold arguments about how to interpret the Suspension Test, we look forward to preparing the case for trial to help Tri-State receive the relief Congress intended.”
“This is an important win, not just for Tri-State but for all companies who are fighting with the government on Employee Retention Credit issues. This decision establishes an important precedent and rejects the government’s attempt to limit the scope of the CARES Act,” said Justin Nelson, a partner at Susman Godfrey representing the hospital. “Like other health care providers, Tri-State was on the front lines of the pandemic and many parts of its operations were suspended by governmental orders.”
Partners Justin Nelson and Weston O’Black are representing Tri-State alongside Kaholi Kiyonami, Daniel Wilson, and Anna Haddad.
The case is Tri-State Memorial Hospital v. United States of America, No. 2:25-cv-00181, in the U.S. District Court for the Eastern District of Washington.
