LOS ANGELES—Congress just passed and President Trump signed into law a bill providing additional funds for the Small Business Administration's (SBA) Paycheck Protection Program (PPP) loan program, but seeing the speed at which the original $349 billion loan fund was exhausted, four Wisconsin-based adult clubs are worried that the unconstitutional denial of their PPP loan applications will prevent them from taking advantage of the loan program before the latest influx of cash has run out—so they're suing.
The plaintiffs in the current suit, which was filed on April 13 in the Eastern District of Wisconsin, are Camelot Banquet Rooms, Inc., Downtown Juneau Investments, LLC, Midrad, LLC and PPH Properties I, IIC, and each owns a branch of the adult clubs that go by the name Silk Exotic Gentlemen's Club, and they're represented by prominent First Amendment attorney Jeff Scott Olsen, who also filed a Motion for Temporary Restraining Order which is intended to maintain the clubs' "place in line" for the loans, since the CARES Act mandates that loans be given to small businesses on a "first-come, first-served" basis.
In what is likely to be the basis for all adult industry lawsuits against the SBA, the agency has issued a number of guidelines and "standard operating procedures" (SOP) under which PPP loans are to be considered, and as pointed out in AVN's previous article, those guidelines prohibit PPP loans or any other type of SBA loans from being given by lender banks, which are acting as the SBA's "go-betweens," to any business which "Present live performances of a prurient sexual nature"; or "Derive directly or indirectly more than de minimis gross revenue through the sale of products or services, or the presentation of any depiction or display, of a prurient sexual nature."
Despite the fact that dancers at gentlemen's clubs, whether fully nude or who dance wearing bikinis (as do the dancers at three out of the four Silk Exotic plaintiffs), clearly do not present "performances of a prurient sexual nature" under the U.S. Supreme Court's definition of "prurient" ("a shameful, unhealthy or morbid interest in sex"), the SBA has tasked local banks with attempting to decide if a particular loan applicant's business meets that purely legal definition—and it's unquestionable that the vast majority of loan officers are unequipped to do that.
The SBA's solution? Part of its SOP reads, "If a Lender finds that the Applicant may have a business aspect of a prurient sexual nature, prior to submitting an application to the LGPC (non-delegated) or requesting a loan number (delegated), the Lender must document and submit the analysis and supporting documentation to the Associate General Counsel for Litigation at [email protected] for a final Agency decision on eligibility." As one might guess, running a loan application up the "chain of command" would be time-consuming, and considering how busy the SBA is these days, there's a good likelihood that the SBA's latest round of funding will run out before the Associate General Counsel for Litigation would get around to deciding whether a strip club provides "prurient" performances—meaning the clubs would be shit out of luck for receiving the loans to which they are clearly entitled.
That's why Olsen also filed for the TRO—and surprise, surprise, Judge Lynn Adelman granted it during a telephone conference on April 15! Better still, the judge ordered the SBA to "refrain from enforcing" the sections of the SBA Regulations and SOP that prohibited the clubs from being considered for the PPP, though those "restraints contained in the Court's order expire in 14 days."
Sadly, that wasn't enough, and Olsen had to filed a motion to clarify the judge's order, in which he noted that, "In sum, the Plaintiffs’ banks cannot fund the Plaintiffs’ PPP loans without loan authorization numbers from the SBA, and the SBA refuses to issue the numbers because of the very provisions the court has ordered it to ignore," even though Olsen had turned over the loan applications to one of the defense attorneys. That attorney later responded, according to Olsen's motion, "the SBA does not intend to give those loan authorization numbers to the lending bank unless and until a preliminary injunction is issued in this case, (which according to the briefing schedule, cannot take place until at least April 29, 2020) because it does not believe it is required to do so by the terms of the TRO."
Trouble is, it's clear that turning over the numbers is exactly what Judge Adelman ordered the SBA to do by telling it not to enforce the "prurient sexual nature" provisions of the Regulations and SOP, and the plaintiffs' loan applications can't be processed without those numbers.
On April 22, however, the government filed its response to Olsen's motion, claiming that, "To comply with that Order, the SBA set aside enough reserve authority for the PPP loans sought by Plaintiffs and prepared internal loan numbers that, if transmitted to Plaintiffs’ lender, would allow the bank to complete the loans." Just one problem, though: "If the Government is compelled to expend its guarantee authority by transmitting the loan numbers to Associated Bank, Plaintiffs represent that Associated Bank will issue the loans and disburse the money. In that case, the money may be spent by Plaintiffs before this Court can resolve the issues before it."
"The issues before it," of course, are whether the plaintiffs are running businesses of a "prurient sexual nature," and the government attorneys want to prevent the clubs from getting their PPP money until the court finally rules on whether the SBA's prohibition can withstand constitutional scrutiny. Sadly, in a telephone conference held that same day, Judge Adelman permitted the government to withhold the loan number sought—and that's where things stand now.
Pictured: One of the Silk Exotic Gentlemen's Clubs in Milwaukee
