Tapestry Senior Housing Management, LLC v. United States of America
- Laura Provinzino
- 0:25-cv-03419
- U.S. District Court · District of Minnesota
- 16
In Tapestry Senior Housing Management v. United States, Judge Provinzino dismissed the company's lawsuit seeking over $3 million in COVID-19 employee retention tax credits for failing to identify the specific government orders that allegedly suspended its operations.
Businesses that applied for COVID-19 Employee Retention Credits under the CARES Act and are seeking to litigate ERC denials or non-processing in federal district court. This opinion signals that such plaintiffs must identify specific qualifying government orders — including their substance, dates, and connection to the business's suspended operations — to survive a motion to dismiss. Senior living facilities, healthcare providers, and other essential businesses that claim partial suspension of operations under COVID-19 orders may be particularly affected.
What happened
In Tapestry Senior Housing Management, LLC v. United States of America, a Minnesota senior living company sued the federal government seeking $3,046,106 in employee retention tax credits under the CARES Act — a COVID-19 relief law that allowed businesses to claim credits if government orders forced them to fully or partially suspend operations. Tapestry claimed that orders from Pennsylvania and Ohio required it to block visitors, suspend communal activities, and impose quarantine protocols at its facilities during the first two quarters of 2021, but it never identified those orders by name, date, or specific content.
The United States moved to dismiss, arguing that Tapestry's complaint failed to state a plausible legal claim because it never described the actual government orders it was relying on. Tapestry responded that it should not be required to name specific orders at this early stage and that the orders were public records the government could look up. The court rejected that argument, finding that Tapestry's vague references to unnamed orders amounted to little more than a recitation of the statute itself, which is not enough to survive a motion to dismiss under federal pleading rules.
Judge Laura M. Provinzino granted the United States' motion to dismiss and dismissed Tapestry's complaint without prejudice — meaning Tapestry is not permanently barred from refiling but would need to provide a more detailed complaint. The court noted that Tapestry had the opportunity to amend its complaint after the motion to dismiss was filed but chose instead to argue the motion, and that it is a plaintiff's burden to plead enough facts to give the opposing party fair notice of the specific claims and their basis.
The detailed version
- Tapestry Senior Housing Management, LLC v. United States of America · No. 0:25-cv-03419
- Laura M. Provinzino
- June 25, 2026
Background
The Employee Retention Credit (ERC) was created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted in 2020 in response to the COVID-19 pandemic, and codified at 26 U.S.C. § 3134. The ERC allows an eligible employer to claim a tax credit equal to 70 percent of qualified wages per employee per calendar quarter. To qualify, a business must show it was either (1) fully or partially suspended by orders from a governmental authority limiting commerce, travel, or group meetings due to COVID-19, or (2) experienced a gross receipts decline below 80 percent of the same quarter in 2019. The court describes the ERC as a "presumption-out" statute — meaning businesses must affirmatively demonstrate they fall within its eligibility requirements.
The IRS issued Notice 2021-20 to clarify key undefined statutory terms. Under that guidance, qualifying governmental orders must be legally binding orders (not merely statements or press conference remarks from officials), must limit commerce, travel, or group meetings, and must relate to the suspension of the employer's actual business operations. A reduction in demand caused by an order does not qualify. A "partial" suspension occurs only when more than a nominal portion — defined as at least 10 percent of gross receipts or employee hours — of the business is suspended.
Tapestry Senior Housing Management, LLC is a Minnesota company providing senior living, assisted living, and memory care services, with relevant locations in Ohio, Pennsylvania, and Florida. Tapestry applied for ERCs for the first two quarters of 2021, claiming that orders from the Governor of Pennsylvania (requiring social distancing and enhanced cleaning) and the Ohio Department of Health (requiring social distancing and sanitization) caused it to: block visitors and prospective residents from entering facilities; suspend communal activities such as group dining, group activities, and social outings; and impose isolation, quarantine, and COVID testing protocols. Tapestry further alleged that gross receipts or employee hours attributable to the suspended activities exceeded 10 percent of its 2019 totals for those quarters. The complaint does not specify whether the IRS denied the application outright or simply has not processed it.
On August 29, 2025, Tapestry filed this refund lawsuit under 26 U.S.C. § 7422, seeking $3,046,106. The United States moved to dismiss under Federal Rule of Civil Procedure 12(b)(6) (failure to state a claim upon which relief can be granted), arguing the complaint did not identify the specific orders that allegedly caused the suspension of operations.
Legal Standard
Under Rule 12(b)(6), the court must accept the complaint's factual allegations as true and draw reasonable inferences in the plaintiff's favor. A complaint must plead facts sufficient to make a claim "plausible on its face" — not merely possible. Legal conclusions and formulaic recitations of statutory elements are not entitled to any presumption of truth. The court cites the governing standards from Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009).
For ERC claims specifically, the court adopted the three-part framework from In re JSmith Civil, LLC, 674 B.R. 207 (Bankr. E.D.N.C. 2025): a claimant must show (1) it was subject to a compulsory governmental mandate limiting commerce, travel, or group meetings issued because of COVID-19; (2) it stopped a meaningful portion of its operations during the relevant quarter; and (3) the reason it stopped operating was that the governmental mandate directly required it. This framework also requires both factual and proximate causation — the order must have been the but-for and foreseeable cause of the suspension.
Analysis and Holding
The court found that Tapestry's complaint failed to satisfy this standard. Of its five relevant allegations, the first three were purely legal conclusions — essentially a restatement of the statute — that receive no presumption of truth at the pleading stage. The remaining two allegations provided some factual content (describing the operational impacts and vaguely referencing orders from Pennsylvania and Ohio), but still fell short.
The court identified three critical deficiencies:
Failure to Identify Specific Orders Tapestry did not name, describe, or date any specific order from either Pennsylvania or Ohio. Without this information, the court could not determine whether the orders were legally binding (as opposed to press conference statements or recommendations), what they actually required, or when they were in effect. The "due to" causation requirement demands a direct connection between a specific qualifying order and the suspension of operations — a connection Tapestry failed to draw.
Rejection of the "Figure It Out" Argument Tapestry argued it was not required to name orders at the pleading stage because COVID-19 orders are public records that the government could look up, and because the applicable orders were identifiable "by inference." The court rejected this, noting that there were numerous orders from various governmental entities in Ohio and Pennsylvania during the pandemic, making it impossible to determine — without guesswork — which specific order Tapestry had in mind. The court noted this approach is antithetical to Rule 8's notice pleading requirements and that a plaintiff cannot "plead first and discover later."
Rejection of Rule 12(e) Argument Tapestry argued that if its complaint was too vague, the United States should have filed a Rule 12(e) motion for a more definite statement rather than a 12(b)(6) motion to dismiss. The court disagreed, explaining that Rule 12(e) is intended to remedy unintelligible pleadings, not cure a lack of detail. The court also noted that Tapestry had the opportunity to amend its complaint as of right under Rule 15(a)(1) after the motion to dismiss was filed but chose instead to argue the motion.
Supplemental Authority The court declined to follow Plastic Film, LLC v. United States, No. 5:25-cv-30-DCB-LGI, 2026 WL 144343 (S.D. Miss. Jan. 20, 2026), which had held that a plaintiff need not identify a specific governmental order at the pleading stage. The court found Plastic Film unpersuasive and also factually distinguishable. The court similarly found that a supplemental Supreme Court authority submitted by Tapestry, Berk v. Choy, 607 U.S. 187 (2026), simply restated established pleading standards and did not help Tapestry's position.
Disposition
The court granted the United States' motion to dismiss and dismissed Tapestry's complaint without prejudice.
Read the full 16-page opinion on CourtListener, the free public archive maintained by the Free Law Project.