A federal judge late Wednesday said Wisconsin strip club owners whose applications for emergency federal loans were rejected should be allowed back in line for the funding while he reviews their lawsuit.
But high demand for the relief loans — meant to help small businesses survive the economic shutdown caused by the coronavirus pandemic — may make the judge’s temporary order moot.
Exotic dancers need paycheck protection, too, the club owners say. Their lawsuit against the U.S. Small Business Administration claims a regulation excluding strip clubs from the $350 billion Paycheck Protection Plan discriminates against them, in violation of their First Amendment rights.
The plaintiff companies — Camelot Banquet Rooms, Inc.; Downtown Juneau Investments, LLC; Midrad, LLC; and PPH Properties I, LLC — own Silk Exotic Gentleman’s Clubs in three Milwaukee locations and in Middleton.
The suit names the SBA, its administrator, U.S. Treasury Secretary Steven Mnuchin and the United States as defendants.
During a telephone hearing Wednesday afternoon, government lawyers argued the SBA’s loan program is not infringing on the strip club’s right of expression, and that while the government may not censor some kinds of expression, it is not required to fund it.
But U.S. District Judge Lynn Adelman seemed to side with clubs at the start of the discussion.
“You clearly are punishing them,” he said. “You’re saying, ‘We don’t like adult entertainment, so you don’t get the money everyone else does.’ How can that not be punitive?”
Assistant U.S. Attorney Carter Stewart said other businesses are also excluded, like political consultants and religious schools. He cited a Supreme Court case upholding the National Endowment for the Arts’ right to discriminate among artists in its funding.
The PPP, part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, is meant to cover small businesses’ payrolls for eight weeks, and some other expenses, until the anticipated end of stay-at-home orders allows them to restart normal operations. If employers do not fire or cut their workers’ pay, the loans are forgiven.
It’s unclear whether the exotic dancers would get paid even if the owners win. Most strip clubs consider dancers to be independent contractors, not employees.
Adelman said he wanted more time to consider the claims from both sides, and granted a temporary restraining order in favor of the clubs, essentially returning them to the position in line for the loans they would have had if their April 2 applications had not been denied.
It might be too late for that. The Wall Street Journal reported Wednesday that the PPP funds were expected to be gone by the end of the day.
The program operates on a “first-come, first-served” basis.
On top of that, government lawyers at Wednesday’s hearing warned Adelman they weren’t confident there was any way to put the plaintiffs in line for processing ahead of many others trying to get in on the program.
The clubs’ suit claims that their “employees, and the entertainers who perform on Plaintiffs’ premises have suffered and will continue to suffer irreparable injuries including but not limited to financial ruin and business ruination.”
The government’s lawyers disputed that without the PPP loans the clubs would suffer irreparable harm, one of the requirements for a temporary restraining order. But Adelman said the harm was clearly greater than any that might befall the SBA if it began processing the clubs’ PPP applications.
The judge also noted that any infringement on First Amendment rights is presumed to be irreparable harm.
The club owners’ lawsuit contends that the clubs’ erotic entertainment is lawful and protected by the First Amendment.
But the SBA’s regulations governing the PPP exclude certain businesses from eligibility, including those that “present live performances of a prurient sexual nature.”
Local banks, which administer the PPP, have read that regulation to deny applications from strip club owners, according to the suit, filed in federal court in Milwaukee on Tuesday.
“All of the entertainment provided by Silk is non-obscene (and not prurient), appeals to healthy human interests and desires, and is in full compliance with the numerous licenses and permits that are held by the Plaintiffs and have been reviewed by municipal authorities and renewed annually,” the suit states.
The separate businesses that own the four Silk Exotic clubs use the same bookkeeper who applied for the PPP program funds through Associated Bank on April 3, and was informed April 6 that all four applications were being denied.
According to the suit, owners of other strip clubs have had their PPP applications denied, with the same SBA regulation cited. While the lawsuit — and similar ones by strip club owners in other states — sought to broadly suspend the PPP’s strip club exclusion, Adelman said his order applies only to the four Silk Exotic applications.
Even if the suit were successful, it’s unclear whether exotic dancers would get paid.
Jeff Scott Olson, the attorney for the Silk clubs’ owners, said he couldn’t estimate the total payroll for the clubs, or say how many dancers might be considered employees as opposed to independent contractors who would have to make their own application to the Paycheck Protection Program.
But if the clubs go out of business, the dancers would have no venues at which to earn money through erotic dancing.
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