In the

United States Court of Appeals

For the Seventh Circuit ____________________ 

No. 21-2589 

CAMELOT BANQUET ROOMS, INC., et al., 

Plaintiffs-Appellees, 

v. 

UNITED STATES SMALL BUSINESS ADMINISTRATION, et al.,

Defendants-Appellants. 

____________________ 

Appeal from the United States District Court for the

Eastern District of Wisconsin. 

No. 2:21-CV-00447-LA — Lynn Adelman, Judge. 

____________________ 

ON MOTION FOR STAY PENDING APPEAL

DECIDED SEPTEMBER 15, 2021 

Before KANNE, ROVNER, and HAMILTON, Circuit Judges. 

PER CURIAM. Plaintiffs in this case are about fifty businesses all over the country that offer live adult entertainment 

in the form of nude or nearly nude dancing. They seek to obtain loans under the second round of the Paycheck Protection 

Program enacted by Congress to address economic disruption caused by the Covid-19 pandemic. By statute, Congress 

excluded plaintiffs and several other categories of businesses 
2 No. 21-2589

from the second round of the Program. See 15 U.S.C. 

§ 636(a)(37)(A)(iv)(III)(aa), incorporating 13 C.F.R. § 120.110, 

with two exceptions. 

Plaintiffs assert that their exclusion from the Program violates their constitutional rights, primarily under the Free 

Speech Clause of the First Amendment. The district court 

agreed. It issued a preliminary injunction that enjoins the 

United States Small Business Administration (SBA) from 

denying plaintiffs eligibility for the loan program based on 

the statutory exclusion that incorporates 13 C.F.R. § 120.110. 

Camelot Banquet Rooms, Inc. v. U.S. Small Business Admin., — F. 

Supp. 3d —, 2021 WL 3680369 (E.D. Wis. Aug. 19, 2021). The 

SBA has appealed and seeks a stay of the injunction pending 

appeal. The district court denied a stay on August 31. Camelot 

Banquet Rooms, Inc. v. U.S. Small Business Admin., — F. Supp. 

3d —, 2021 WL 3878977 (E.D. Wis. Aug. 31, 2021). Later that 

day we issued a temporary stay pending expedited briefing 

on the stay issue, which was completed on September 9. 

We now grant the government’s stay of the preliminary 

injunction and expedite briefing on the merits of this appeal. 

The government’s merits brief shall be filed no later than September 29, 2021; plaintiffs shall file their brief no later than 

October 13, 2021; and the government shall file any reply brief 

no later than seven days after plaintiffs file their brief. The 

court will contact counsel to schedule oral argument 

promptly.

I. Applicable Legal Standards

Plaintiffs who seek a preliminary injunction must show 

that (1) they will suffer irreparable harm in the absence of an 

injunction, (2) traditional legal remedies are inadequate to 
No. 21-2589 3

remedy the harm, and (3) they have some likelihood of success on the merits. If those elements are shown, the court must 

then balance the harm the moving parties would suffer without an injunction against the harm the opposing parties 

would suffer if one is granted, and the court must consider 

the public interest, which takes into account the effects of a 

decision on non-parties. E.g., Courthouse News Service v. 

Brown, 908 F.3d 1063, 1068 (7th Cir. 2018). 

On the merits, the district court concluded that plaintiffs 

are likely to succeed on their free speech claim. The court 

viewed the exclusion of plaintiffs from the Program as an “attempt to suppress a dangerous idea” and a classification that

was not rationally related to a legitimate government purpose. The court found that the other factors also supported an 

injunction. Receiving funds under the Program only at the 

end of the lawsuit would likely come too late for plaintiffs’ 

businesses to survive, and they would have no viable damages remedy against the government or any official. The court 

saw little harm to the government from an injunction, which 

it thought would also serve the public interest by aiding 

struggling businesses, consistent with the aims of the broader 

Covid relief legislation. 

On appeal, we review the district court’s issuance of a preliminary injunction for an abuse of discretion, though an error 

of law can often produce an abuse of discretion. E.g., Cooter & 

Gell v. Hartmarx Corp., 496 U.S. 384, 405 (1990); Ty, Inc. v. Jones 

Group, Inc., 237 F.3d 891, 896 (7th Cir. 2001); Abbott Labs. v. 

Mead Johnson & Co., 971 F.2d 6, 13 (7th Cir. 1992).

In deciding whether to stay an injunction pending appeal, 

we apply a standard that parallels the preliminary injunction 

standard but also keeps in mind the district court’s exercise of 
4 No. 21-2589

equitable discretion. A party seeking a stay must show a likelihood of success on the merits and a threat of irreparable 

harm absent a stay. If those criteria are satisfied, we must consider the balance of harms, primarily in terms of the balance 

of risks of irreparable harm in case of a judicial error, and we 

must consider the public interest, which refers primarily to 

the interests of those who are not parties to the suit. See generally Nken v. Holder, 556 U.S. 418, 426 (2009); Whole Woman’s 

Health Alliance v. Rokita, — F.4th —, 2021 WL 4077549 (7th Cir. 

Sept. 8, 2021) (granting stay pending appeal); Illinois Republican Party v. Pritzker, 973 F.3d 760, 762–63 (7th Cir. 2020) (noting earlier denial of injunction pending appeal).

We conclude that the SBA has satisfied the demanding 

standard for a stay of an injunction pending appeal. As we 

explain below, at this preliminary stage, the SBA has shown a 

strong likelihood of success on the merits. The other factors 

are essentially a wash, so the final result is driven by the likelihood of success on the merits. 

II. The Paycheck Protection Program

No American who has lived through the Covid-19 pandemic will forget its devastating consequences for lives and 

health or the massive economic disruption it has caused. Congress responded with several rounds of massive economic assistance, including the Paycheck Protection Program. Under 

the Program, many small businesses became eligible for lowinterest loans that would be guaranteed by the federal government and even eligible for forgiveness if the businesses 

used them, in essence, to keep employees on the payroll during the economic downturn. 
No. 21-2589 5

The first round of legislation gave the SBA considerable 

discretion to decide eligibility for the Program. In doing so, 

the SBA borrowed from a regulation that identifies categories 

of businesses that are not eligible for all or nearly all SBA loan 

programs. 13 C.F.R. § 120.110. The list includes non-profit enterprises, banks and other financial companies, life insurance 

companies, businesses located in foreign countries, pyramid 

sale distribution plans, casinos and other gambling businesses, loan packagers, political or lobbying businesses, and 

speculative businesses. 

Subsection (p) of that regulation excludes plaintiffs. It 

bars: 

Businesses which:

(1) Present live performances of a prurient sexual nature; or

(2) Derive directly or indirectly more than de minimis 

gross revenue through the sale of products or services, 

or the presentation of any depictions or displays, of a 

prurient sexual nature.... 

§ 120.110(p).

In the first round of Paycheck Protection Program loans, 

the SBA made an exception for non-profits, which the statute 

expressly deemed eligible. See 85 Fed. Reg. 20811, 20812 (Apr. 

15, 2020). In an earlier related case brought by plaintiff Camelot Banquet Rooms in the Eastern District of Wisconsin, the 

district court issued a preliminary injunction barring denial of 

eligibility for the Program based on the regulation. That decision relied on statutory, administrative law, and constitutional grounds. Camelot Banquet Rooms, Inc. v. U.S. Small Business Admin., 458 F. Supp. 3d 1044 (E.D. Wis. 2020). We denied 
6 No. 21-2589

a stay of that injunction in a conclusory order, and the government soon dismissed the appeal. But see Pharaohs GC, Inc. 

v. U.S. Small Business Admin., 990 F.3d 217 (2d Cir. 2021) (affirming denial of injunction in similar first-round case 

brought by adult-entertainment club); American Ass’n of Political Consultants v. U.S. Small Business Admin., 810 F. App’x 8, 

9–10 (D.C. Cir. 2020) (affirming denial of injunctive relief in 

similar First Amendment challenge to first-round exclusion of 

lobbying and political consulting businesses). 

The second round of the Paycheck Protection Program 

took a different approach to eligibility. Congress adopted 

statutory language to exclude several categories of businesses, including plaintiffs’ adult-entertainment venues. It 

did so by incorporating into the statute the terms of 13 C.F.R. 

§ 120.110, the regulation that the SBA had used on its own

initiative for the first round. 15 U.S.C. 

§ 636(a)(37)(A)(iv)(III)(aa).1

Accordingly, in this second round, the earlier issues of 

statutory interpretation and administrative law have fallen 

away. Plaintiffs can prevail only if denying them a subsidized 

loan under the Program violates the Constitution. Plaintiffs 

seem unlikely to be able to make that showing.

1 Congress made exceptions for two categories of businesses in the 

regulation, not-for-profit businesses and businesses engaged principally 

in teaching, instructing, counseling, or indoctrinating religion or religious 

beliefs. 15 U.S.C. § 636(a)(37)(A)(iv)(III)(aa). The new exception for religious businesses is easy to understand in light of Trinity Lutheran Church 

v. Comer, 137 S. Ct. 2012 (2017) (religious school could not be excluded 

from government program to assist school playground construction). The 

Supreme Court has shown no indication that it would extend the Free Exercise Clause reasoning of Trinity Lutheran to cases like this one.
No. 21-2589 7

III. Plaintiffs’ First Amendment Theory

Plaintiffs’ core claim is under the Free Speech Clause of 

the First Amendment. They contend that excluding them 

from the Program penalizes them for engaging in expressive 

activity protected by the First Amendment. See generally 

Barnes v. Glen Theatre, Inc., 501 U.S. 560, 565–66 (1991) (plurality opinion) (treating nude dancing as “marginally” within 

outer perimeters of First Amendment protection; affirming 

local ban on completely nude dancing). 

The problem with plaintiffs’ First Amendment claim and 

the preliminary injunction here is that Congress is not trying 

to regulate or suppress plaintiffs’ adult entertainment. It has 

simply chosen not to subsidize it. Such selective, categorical 

exclusions from a government subsidy do not offend the First 

Amendment. 

The Supreme Court has repeatedly drawn a line between 

government regulation of speech, on one hand, and government subsidy of speech on the other. Its decisions show that 

the government is not required to subsidize activity simply 

because the activity is protected by the First Amendment. 

E.g., Ysursa v. Pocatello Education Ass’n, 555 U.S. 353, 358–59 

(2009) (“While in some contexts the government must accommodate expression, it is not required to assist others in funding the expression of particular ideas, including political 

ones”; state could choose not to carry out payroll deductions 

for political contributions to labor unions); Rust v. Sullivan, 

500 U.S. 173, 193 (1991) (“The Government can, without violating the Constitution, selectively fund a program to encourage certain activities it believes to be in the public interest, 

without at the same time funding an alternative program 

which seeks to deal with the problem in another way. In so 
8 No. 21-2589

doing, the Government has not discriminated on the basis of 

viewpoint; it has merely chosen to fund one activity to the exclusion of the other.”); Regan v. Taxation With Representation, 

461 U.S. 540, 549 (1983) (“[A] legislature’s decision not to subsidize the exercise of a fundamental right does not infringe 

the right....”); accord, e.g., Wisconsin Education Ass’n Council 

v. Walker, 705 F.3d 640, 646–47 (7th Cir. 2013).

To avoid the controlling line of subsidy cases, plaintiffs focus on language in Regan suggesting that a selective subsidy 

program may violate the First Amendment if it is “aim[ed] at 

the suppression of dangerous ideas.” 461 U.S. at 548. To take 

an easy example, even if Congress can exclude lobbyists entirely from the Program’s subsidies, it could not choose to 

subsidize Democratic lobbyists while excluding Republicans. 

Plaintiffs’ theory here is that Congress chose to exclude their 

businesses from the subsidy program because it deemed their 

“ideas” about sexuality to be dangerous.

This theory does not seem to distinguish between government suppression of protected activity and denial of a subsidy. 

Plaintiffs’ theory seems to be that the denial of a subsidy is

itself the act of suppression. That theory loses sight of the difference between regulation and denial of a subsidy—the difference at the heart of Regan, Rust, Ysursa, and the rest of the selective-subsidy line of cases. The only sign we see here of a 

supposed effort to “suppress” is the choice not to subsidize.

Whatever door Regan left open—and as far as we can tell, the 

Supreme Court has never struck down a denial of subsidy on 

this ground—it surely requires something more, like viewpoint discrimination, than denial of the subsidy itself. See 

Wisconsin Education Ass’n, 705 F.3d at 650–52, and id. at 664–
No. 21-2589 9

70 (Hamilton, J., dissenting in relevant part) (majority and dissent debating evidence of viewpoint discrimination in state’s

choice to subsidize payroll deductions for dues for some public employee unions but not others).

IV. Rational-Relation Review

Like any statutory classification, the statutory boundaries 

of the Paycheck Protection Program are subject to rational-relation review. See, e.g., Ysursa, 555 U.S. at 359, citing Regan, 

461 U.S. at 546–51. The district court found here that the exclusion of plaintiffs’ adult-entertainment businesses fails the 

rational-relation test. 

The district court appears to have applied an erroneous 

and unduly rigorous form of judicial review, second-guessing 

legislative decisions and compromises on policy grounds, 

and concluding that the Program was over- and under-inclusive in various respects. See Camelot Banquet Rooms, Inc., — F. 

Supp. 3d at —, 2021 WL 3680369, at *8–11. A government 

spending program, especially one responding to an economic 

emergency, is subject to the least rigorous form of judicial review. In enacting such legislation, Congress must respond 

quickly to an emergency and must hammer together a coalition of majority votes in both houses. The need for compromises and trade-offs is never greater. 

When pressed in this suit to justify the exclusion of plaintiffs from the Program’s subsidies, the government pointed to 

the “secondary effects” of sex-oriented businesses that can be 

used to justify time, place, and manner regulations of such 

businesses. See, e.g., City of Erie v. Pap’s A.M., 529 U.S. 277 

(2000) (plurality opinion); BBL, Inc. v. City of Angola, 809 F.3d 

317 (7th Cir. 2015). Plaintiffs and the district court responded 
10 No. 21-2589

by criticizing Congress for not having made a record on the 

subject at the time the legislation was enacted. 

Any expectation that Congress would have taken the time 

to make such a record would seem unrealistic, to put it mildly. 

Any expectation or demand that Congress must make such a 

record is contrary to constitutional doctrine. The rational-relation test requires a challenger in litigation to exclude any 

possible rational grounds that the legislature might have 

deemed sufficient grounds for the statutory distinction. E.g., 

Heller v. Doe, 509 U.S. 312, 319–20 (1993). It does not require 

the legislature to have made a contemporaneous record on 

the subject. Id. at 320–21, discussed in Wisconsin Education 

Ass’n, 705 F.3d at 653 (rational basis for limit on government 

subsidies need not be in the record “so long as it finds ‘some 

footing in the realities of the subject addressed by the legislation’”).

Similarly, plaintiffs’ and the district court’s assertion that 

the rationale for excluding plaintiffs is under-inclusive is not 

easy to reconcile with the rational-relation test. All sorts of 

legislative classifications, exclusions, and compromises pass 

muster even if they are over- or under-inclusive. “[C]ourts are 

compelled under rational-basis review to accept a legislature’s generalizations even when there is an imperfect fit between means and ends. A classification does not fail rationalbasis review because it ‘is not made with mathematical nicety 

or because in practice it results in some inequality,’” and 

“[t]he problems of government are practical ones and may 

justify, if they do not require, rough accommodations—illogical, it may be, and unscientific.” Heller, 509 U.S. at 321, first 

quoting Dandridge v. Williams, 397 U.S. 471, 485 (1970), and 
No. 21-2589 11

then quoting Metropolis Theatre Co. v. City of Chicago, 228 U.S. 

61, 69–70 (1913).

Plaintiffs also suggest that the government’s defense 

based on secondary effects of sex-oriented businesses actually 

serves to condemn their exclusion from the Program. They 

say the arguments show the government’s hostility to their

“dangerous ideas.” This argument seems to turn the rationalrelation test upside down. Those secondary effects are wellknown and widely recognized in First Amendment litigation 

and doctrine. See generally, e.g., City of Erie, 529 U.S. at 289–

301 (plurality opinion). Actual evidence of them can serve to 

justify time, place, and manner restrictions on businesses that 

are subject to “intermediate” constitutional scrutiny. Relying 

on those effects does not show animus toward any idea. If 

those effects can support time, place, and manner regulations, 

they surely provide a rational basis for Congress to choose not 

to subsidize this group of businesses. 

Plaintiffs’ arguments also seem to lose sight of the fact that 

they were not singled out for this exclusion, even among businesses primarily engaged in activity protected by the First 

Amendment. Congress also chose to exclude from the Program businesses “primarily engaged in political or lobbying 

activities.” 13 C.F.R. § 120.110(r). Such business activities are 

much closer to the core of the First Amendment than the 

dances at plaintiffs’ bars and clubs. Yet lobbyists and political 

consultants were also excluded. Congress chose not to require 

taxpayers to subsidize them. We do not see a plausible constitutional basis for requiring government subsidies of lobbyists, 

at least as long as there is no viewpoint discrimination. Accord, American Ass’n of Political Consultants, 810 F. App’x at 9–

10. 
12 No. 21-2589

Congress also excluded many other categories of businesses: banks, lenders, finance companies, and some pawn 

shops; life insurance companies; businesses located in foreign 

countries; pyramid sale distribution plans; businesses engaged in any illegal activity; private clubs; governmentowned businesses; loan packagers; businesses with an “Associate” who is in prison, on probation, on parole, or who has 

been indicted for a felony or crime of moral turpitude; and 

businesses that have previously defaulted on SBA or other 

federally assisted loans. See 15 U.S.C. 

§ 636(a)(37)(A)(iv)(III)(aa), incorporating 13 C.F.R. § 120.110, 

with two exceptions. 

These exclusions are not difficult to understand in terms 

of policy and politics. They all help defuse potential “gotcha” 

criticisms of this generous emergency program that might be 

used to undermine political support for the Program and the 

overall legislation. Such tailoring of legislation to build and 

maintain political support is perfectly constitutional, at least 

in the absence of viewpoint or invidious discrimination, of 

which we see no signs here.2

V. Viewpoint Discrimination

The district court was persuaded to apply more stringent 

judicial review. The theory was that even if the exclusion of 

plaintiffs’ businesses from the Program was not “traditional 

2 The Constitution does not prohibit legislation on the basis of morality. Consider, for example, the possibility that Congress might choose to 

exclude from this or other subsidy programs alcoholic beverage makers, 

casinos and other gambling businesses, weapons makers, and so on. Such 

line-drawing is left to the legislature, absent viewpoint or invidious discrimination.
No. 21-2589 13

viewpoint discrimination,” the exclusion’s focus on “prurience” created a free speech problem. The exclusion, as the 

court saw the issue, depends on prurience, which the court 

saw as the expressive, “sexually arousing” “message” of the 

adult entertainment. Camelot Banquet Rooms, Inc., — F. Supp. 

3d at — & n.7, 2021 WL 3680369, at *9–10 & n.7. The court 

viewed the exclusion as thus an effort to use a subsidy exclusion to suppress a “dangerous idea,” which Regan suggested 

could violate the First Amendment. 461 U.S. at 548. 

Plaintiffs’ argument along these lines is creative but is not 

consistent with the role that prurience plays in the larger 

sweep of First Amendment doctrine. The statutory exclusion 

from the Program of businesses with prurient live entertainment is better understood not as viewpoint discrimination but 

as a permissible classification based on subject matter. The Supreme Court made this point in R.A.V. v. City of St. Paul: 

When the basis for the content discrimination 

consists entirely of the very reason the entire 

class of speech at issue is proscribable, no significant danger of idea or viewpoint discrimination exists. Such a reason, having been adjudged 

neutral enough to support exclusion of the entire class of speech from First Amendment protection, is also neutral enough to form the basis 

of distinction within the class. To illustrate: A 

State might choose to prohibit only that obscenity which is the most patently offensive in its 

prurience—i.e., that which involves the most lascivious displays of sexual activity. But it may 

not prohibit, for example, only that obscenity 

which includes offensive political messages. 
14 No. 21-2589

505 U.S. 377, 388 (1992), citing Kucharek v. Hanaway, 902 F.2d 

513, 517 (7th Cir. 1990). 

In effect, the Court was telling us, it would be a category 

mistake to think that prurience or lasciviousness reflects a 

“viewpoint” that the government may not discriminate 

against. The terms instead identify a category or subject matter 

of expressive conduct that may be subject to some forms of 

government regulation. That’s the point we made in the Kucharek case cited in R.A.V. We said that a statute could prohibit 

obscene (prurient) material entirely (a subject matter) but 

could not “distort the marketplace of erotic discourse by suppressing only that obscenity which conveys a disfavored message.” 902 F.2d at 517. 

Accordingly, excluding the entire category or subject matter of prurient live performances from a government subsidy 

program does not violate the Free Speech Clause. See Pharaohs

GC, 990 F.3d at 231 (term “prurient” in SBA regulation describes subject matter, not viewpoint, for exclusion from Program); PMG Int’l Division L.L.C. v. Rumsfeld, 303 F.3d 1163, 

1171 (9th Cir. 2002) (treating “lascivious” materials as articulating a “viewpoint” would “risk eviscerating altogether the 

line between content and viewpoint”); General Media Communications, Inc. v. Cohen, 131 F.3d 273, 282 (2d Cir. 1997) 

(“[H]ow, for example, would one go about discussing and 

considering the political issues of the day from a lascivious 

viewpoint?”).

VI. Other Factors for Stay Pending Appeal

Finally, the other factors for a stay pending appeal either 

favor the government or are neutral. Each side faces a threat 

of irreparable harm, depending on whether the injunction 
No. 21-2589 15

goes into effect or is stayed. If the government were erroneously required to guarantee subsidized loans to plaintiffs, 

there is no reason to expect that it could ever recover such 

funds. Because the government seems so likely to prevail on 

the merits, a stay serves the public interest by implementing 

the policy chosen by Congress. On the other hand, if the government were unlikely to prevail on the merits, denial of a 

stay would serve the public interest by enforcing constitutional rights and allowing plaintiffs to take advantage of a 

generous program of emergency economic relief. On balance, 

the government’s strong likelihood of success on the merits of 

this challenge to plaintiffs’ exclusion from a government subsidy program persuades us that we should stay the preliminary injunction and expedite briefing and decision on the 

merits of this appeal.

So ordered.