Judge rules strip clubs, other ‘disfavored’ businesses entitled to Paycheck Protection loans
A federal judge in Michigan ruled Monday that strip clubs that present live performances or sell products of a "prurient sexual nature" and other “disfavored” businesses, cannot be barred from the Small Business Administration’s Paycheck Protection Program.
The PPP is a loan designed to provide a direct incentive for small businesses, including faith-based organizations and other nonprofits, to keep their workers on the payroll during the coronavirus pandemic, the Small Business Administration says. "If all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest or utilities," these loans, which are administered by banks and other federally insured depository institutions, will be forgiven, the SBA explains.
In a preliminary injunction, U.S. District Judge Matthew Leitman said the SBA cannot exclude strip clubs and other businesses such as banks, political lobbying firms and restricted private clubs from the roughly $660 billion program.
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The injunction stems from a lawsuit filed against the SBA by DV Diamond Club of Flint LLC, which operates as Little Darlings. Little Darlings is a part of the national strip club empire overseen by businessman Jason Mohney, The Detroit News reported.
The lawsuit alleged that the SBA regulation discriminates against an $8 billion industry that includes thousands of strip clubs nationwide with more than 57,000 employees. With their discrimination, Little Darlings argued that the SBA violated the First and Fifth Amendments as they are businesses abiding by the law.
"Congress provided temporary paycheck support to all Americans employed by all small businesses that satisfied the two eligibility requirements — even businesses that may have been disfavored during normal times," Judge Leitman said, according to Law360.
“While Congress may have once been willing to permit the SBA to exclude these businesses from its … lending programs, that willingness evaporated when the COVID-19 pandemic destroyed the economy and threw tens of millions of Americans out of work," he continued.
"Simply put, Congress did not pick winners and losers in the PPP. It would ordinarily be absurd to conclude that Congress meant to provide financial assistance to, among others, certain sexually oriented businesses and private clubs that discriminate. But these are no ordinary times, and the PPP is no ordinary legislation,” Leitman further noted.
Bradley Shafer, attorney for the Little Darlings club, told The Detroit News that his team was “pleased with the result” of Leitman’s order.
Leitman noted, however, that his order wasn't a nationwide injunction and "does not affect in any ways actions that defendants may take in connection with applications for PPP loans by any entity other than the plaintiffs and intervenors in this action."
The SBA is facing a similar lawsuit from Chicago-based Admiral Theatre Inc., the largest and oldest adult entertainment complex in the Midwest that features hundreds of fully nude strippers. In that lawsuit filed in an Illinois federal court Friday, the Admiral Theatre argued that its application for a Paycheck Protection Program loan was unlawfully delayed because the SBA misinterpreted the nature of its business.
Of the nearly $660 billion that was used to fund the PPP, approximately $125 billion is left, The Detroit News said.
