Feds Have No Duty to Subsidize Strip Clubs in a Pandemic, Judge Rules

SAN FRANCISCO (CN) — Strip clubs cannot force the Trump administration to make them eligible for pandemic relief loans because the government has no legal obligation to provide financial aid to erotic dance clubs, a federal judge ruled Friday.

“The [Small Business Administration]’s decision to not subsidize a business does not infringe on constitutional rights,” U.S. Magistrate Judge Laurel Beeler wrote in a 28-page ruling.

Déjà vu-San Francisco and 14 other affiliated strip clubs in four Western states sued the Small Business Administration in June, challenging the agency’s finding that a 1998 regulation makes businesses that offer “live performances of a prurient sexual nature” ineligible for disaster loans.

They claimed the government’s reliance on that rule violates their free speech and freedom of association rights under the First Amendment, and equal protection and occupational liberty rights under the Fifth Amendment.

The strip clubs asked Beeler for a preliminary injunction to stop the government from enforcing the regulation.

Beeler denied the motion, finding the Small Business Administration has broad authority to create lending rules on how it allocates scarce resources.

The judge found that denying financial aid to a business is not the same as restricting that business’s freedom of expression. Citing the 2007 Supreme Court ruling in Davenport v. Washington Education Association, Beeler concluded that the government “can make content-based distinctions when it subsidizes speech.”

The regulation that makes “prurient” businesses ineligible for loans “does not prohibit or regulate speech or require the plaintiffs do anything,” Beeler wrote. “Instead, it embodies the SBA’s policy not to subsidize the prurient businesses’ speech.”

Beeler did not buy arguments that the regulation targets strip clubs with less favorable treatment based on their views. She found the rule is based on content, not viewpoints, and content-based restrictions are allowed when the government is providing financial assistance.

She also rejected claims that the policy contradicts the intent of Congress to make emergency loans available to all small businesses with 500 or fewer employees through the CARES Act, passed in March. Splitting with other courts that have granted preliminary injunctions on that basis, Beeler concluded that the CARES Act “does not unambiguously compel the interpretation that Congress meant to eliminate all other criteria for eligibility for disaster loans.”

Federal judges in Wisconsin and Michigan temporarily blocked the Small Business Administration from enforcing the regulation against strip clubs in May, but courts in Maryland and the Western District of New York have ruled in favor of the government in similar lawsuits.

The strip clubs also argued that Congress never intended to restrict loans for erotic dance establishments when it passed a 1994 law prohibiting federal financial assistance for “obscene” businesses.

The plaintiffs say the Small Business Administration went a step further by creating rules in 1996 and 1998 that make “prurient” businesses ineligible for loans. Prurient covers a broader category of sexually themed businesses compared to “obscene,” which typically means portrayals of sex that are considered offensive or immoral, according to the strip clubs.

Beeler found nothing in that law prevents the Small Business Administration from passing stricter lending rules as long as those rules are rationally connected to a legitimate government purpose.

The law “does not compel the conclusion that the SBA cannot prohibit loans to businesses that are prurient but not obscene,” Beeler wrote.

The 15 strip clubs that sued over the Small Business Administration’s loan eligibility rules are located in California, Colorado, Oregon and Washington state.

Plaintiffs’ attorneys Douglas Melton of Long & Levit in San Francisco and Bradley Shafer in Lansing, Michigan, did not immediately return emails and phone calls seeking comment Friday.

A Small Business Administration spokesperson declined to comment.

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