Opinion ID: 6112665
Heading Depth: 1
Heading Rank: 2

Heading: The Paycheck Protection Program

Text: No one 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 low- 4 No. 21-2589 interest 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. The ﬁrst round of legislation was drafted and enacted in just a few weeks. That 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. See 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 loans to businesses that: (1) Present live performances of a prurient sex- ual nature; or (2) Derive directly or indirectly more than de minimis gross revenue through the sale of prod- ucts or services, or the presentation of any de- pictions or displays, of a prurient sexual na- ture…. 13 C.F.R. § 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 No. 21-2589 5 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 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 was drafted with more time, and it took a diﬀerent approach to eligibility. Congress adopted statutory language to exclude several categories of businesses, including plaintiﬀs’ adultentertainment 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 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. 6 No. 21-2589 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 are unlikely to be able to make that showing.