Camelot Banquet Rooms, Inc. v. U.S. Small Bus. Admin.

557 F.Supp.3d 880

CAMELOT BANQUET ROOMS, INC., et al., Plaintiffs,

v.UNITED STATES SMALL BUSINESS ADMINISTRATION, et al., Defendants.

Case No. 21-C-0447

United States District Court, E.D. Wisconsin.

Signed August 31, 2021

Bradley J. Shafer, Zachary Youngsma, Shafer & Associates PC, Lansing, MI, Jeff Scott Olson, Jeff Scott Olson Law Firm SC, Madison, WI, for Plaintiffs Camelot Banquet Rooms Inc., Downtown Juneau Investments LLC, Midrad LLC, PPH Properties I LLC, Heritage Management Services Inc., Vonch LLC, East Coast Restaurant & Nightclubs LLC, Benelux Corporation, Filosadelfia LLC, MAG Pitt LP, MAG Enterprises Inc., 2740 Corporation, MAG Entertainment LLC, Oasis On Essington LLC, Burch Management Company Inc., BDS Restaurant Inc., DB Entertainment Inc., T and N Inc., Millennium Restaurants Group Inc., Club Sinrock LLC (Alaska), Club Sinrock LLC (Washington), Club Sinrock LLC (Oregon), Club Sinrock DT LLC, Kimmico Inc., Polmour Inc., Sisyphian LLC, Syzygy LLC.

Bradley J. Shafer, Zachary Youngsma, Shafer & Associates PC, Lansing, MI, Jennifer M. Kinsley, Kinsley Law Office, Cincinnati, OH, Jeff Scott Olson, Jeff Scott Olson Law Firm SC, Madison, WI, for Plaintiff 689 Eatery Corp.

Bradley J. Shafer, Zachary Youngsma, Shafer & Associates PC, Lansing, MI, Peter E. Garrell, Fortis LLP, Costa Mesa, CA, Jeff Scott Olson, Jeff Scott Olson Law Firm SC, Madison, WI, for Plaintiffs Brookhurst Venture LLC, City of Industry Hospitality Venture Inc., Farmdale Hospitality Services Inc., High Expectations Hospitality LLC, Inland Restaurant Venture I Inc., Kentucky Hospitality Venture LLC, LCM LLC, Midnight Sun Enterprises Inc., Nitelife Inc., Olympic Ave Venture Inc., The Oxnard Hospitality Services Inc., Penn Ave Hospitality LLC, Platinum SJ Enterprise, PNM Enterprises Inc., Rialto Pockets Inc., Rouge Gentlemens Club Inc., Santa Barbara Hospitality Services Inc., Santa Maria Restaurant Enterprises Inc., Saries Lounge LLC, Spearmint Rhino Companies Worldwide Inc., Spearmint Rhino Consulting Worldwide Inc., Washington Management LLC, WPB Hospitality LLC, K-Kel Inc.

Carter Bryan Stewart, United States Department of Justice (ED-WI) Office of the US Attorney, Milwaukee, WI, James J. Gilligan, United States Department of Justice, Washington, DC, for Defendants.

ORDER

LYNN ADELMAN, United States District Judge On August 19, 2021, I granted the plaintiffs’ motion for a preliminary injunction and enjoined the U.S. Small Business Administration ("SBA") from applying a regulation excluding businesses that present "live performances of a prurient sexual nature" from the "second draw" Paycheck Protection Program ("PPP"). See Camelot Banquet Rooms, Inc. , 555 F.Supp.3d 598 (E.D. Wis. 2021). I ordered the SBA to authorize the plaintiffs’ banks to fund the loans by Monday, August 23, 2021. At the government's request, I modified the injunction to give the SBA until September 2, 2021 to comply. The government has since filed a notice of appeal, and it asks me to stay the injunction pending appeal.

To determine whether to grant a stay, I must consider the moving party's likelihood of success on the merits, the irreparable harm that will result to each side if the stay is either granted or denied in error, and whether the public interest favors one side or the other. In re A&F Enters., Inc. , 742 F.3d 763, 766 (7th Cir. 2014). This standard "mirrors that for granting a preliminary injunction." Id. As with a motion for a preliminary injunction, a "sliding scale" approach applies; the greater the moving party's likelihood of success on the merits, the less heavily the balance of harms must weigh in its favor, and vice versa. Id.

I begin with the government's likelihood of success on appeal. In its motion for a stay, the government repeats the arguments it made in its brief in opposition to the motion for preliminary injunction. For the reasons explained in my order granting the injunction, I conclude that these arguments are unlikely to succeed on appeal. However, I acknowledge that the Second Circuit reached different conclusions in a similar case involving the original PPP (not the second-draw program). See Pharaohs GC v. U.S. Small Bus. Admin. , 990 F.3d 217 (2d Cir. 2021). In granting the preliminary injunction, I concluded that excluding businesses that present erotic expression from a loan program made available to virtually every other form of business in the United States amounted to an attempt to suppress a "dangerous idea," as that phrase is used in Supreme Court cases involving government funding decisions. See, e.g., Regan v. Taxation with Representation of Washington , 461 U.S. 540, 548, 103 S.Ct. 1997, 76 L.Ed.2d 129 (1983). In contrast, the Second Circuit found "no indication that the [SBA regulation] ‘was intended to suppress’ protected conduct." Pharaohs , 990 F.3d at 229–30. But the court did not provide any explanation for its conclusion. The Pharaohs court also rejected the plaintiff's argument that "the only apparent purpose for this regulation is to exclude small businesses that express a disfavored message from programs that were created to assist all small businesses." Id. at 230. But it did so without much analysis. It only asserted that "legitimate interests may be served by the government's decision not to subsidize adult-entertainment venues" and then cited two Supreme Court cases, one involving a zoning ordinance and another involving obscene materials that receive no First Amendment protection. Id. (citing City of Renton v. Playtime Theatres, Inc. , 475 U.S. 41, 47–49, 106 S.Ct. 925, 89 L.Ed.2d 29 (1986) and Paris Adult Theatre I v. Slaton , 413 U.S. 49, 63, 93 S.Ct. 2628, 37 L.Ed.2d 446 (1973) ). The Second Circuit emphasized that it based its decision on "the limited record" before it, id. at 231, and this might explain the brevity of its legal analysis. In any event, while I acknowledge that Pharaohs provides some support for the government's position, I find that the government is unlikely to succeed on appeal in the Seventh Circuit.

I also find that the plaintiffs are likely to suffer greater harm from a stay granted in error than the government is likely to suffer from a stay denied in error. In granting the preliminary injunction, I found that the plaintiffs were likely to suffer two kinds of irreparable harm: (1) permanent exclusion from the PPP because, without an injunction, the government would release its "hold" on the appropriations necessary to fund the plaintiffs’ loans and thus be unable to fund the loans at the end of the case, and (2) irreparable financial harm from being unable to use the funds during the pandemic. In its motion for a stay, the government states that it will continue to set aside funds for the plaintiffs on appeal. See Mot. at 9. This somewhat mitigates the first form of irreparable harm. But Congress is considering legislation that would rescind $4.7 billion in PPP...