As we mentioned on the blog last week, some businesses in Michigan are suing for how the U.S. Small Business Administration is handing out SBA loans to small businesses. DV Diamond Club and other complainants alleged that the SBA and the U.S. Secretary of Treasury are essentially ignoring the requests of loans for certain businesses that they may have a problem with. DV Diamond Club and other strip clubs allege that they are being passed over for loans even though they qualify and are supposed to have their application approved on a first-come, first-serve basis because the government would rather provide payments to less seedy franchises.
The government hit back earlier this week with a response to the claims.
“As the Supreme Court held in Regan v. Taxation With Representation of Washington… and has repeatedly reaffirmed ever since, the Government is not required to remove obstacles in the path of a person’s exercise of free speech that are not of the Government’s own creation,” the government stated in its brief. “Therefore, as also held in Regan, the First Amendment does not compel the Government to subsidize speech of any kind, on any topic, that the Government does not wish to promote.”
Restraining Order and Injunction Sought
The plaintiffs are seeking an emergency order for a temporary restraining order and preliminary injunction. They fear that even if they can prove they are entitled to funds that the funds for the program will be drained and they won’t be able to collect what they believe they are rightfully owed.
The government states that the plantiffs’ cases rests “entirely on the notion that the Government is constitutionally obligated to subsidize their speech,” going further to say that this notion “couldn’t be more wrong.”
The government also argued that they believe none of the plantiffs’ constitution claims are “likely to succeed on the merits.”
“As the Supreme Court has explained, government does not ban, penalize or otherwise infringe on speech simply by deciding not to fund it, and is entitled to make content-based judgments about the speech it will and will not fund so long (as is the case here) it does not engage in invidious viewpoint discrimination, or attempt to suppress the expression of particular ideas,” the government argues, adding that the SBA policies do not “violate the doctrine of unconstitutional conditions, constitutional standards concerning obscenity, the rule against prior restraints, or the vagueness doctrine, because it merely prohibits the use of SBA loans to fund private speech that the Government does not wish to subsidize, while leaving businesses of a prurient sexual nature entirely free to use their own financial resources to engage in any speech they wish.”
The response continued.
“As Plaintiffs acknowledge, the economic obstacles to the exercise of their First Amendment freedoms were placed in their path by the COVID-19 pandemic and their State governments’ efforts to contain it… those obstacles are not of the Federal Government’s creation. Thus, the Government has no constitutional obligation to remove them.”
The plaintiffs responded, saying that the SBA is basically acting as judge and jury for who gets a piece of the pie, and that they are not following the basic criteria they laid out at the outset, which stated that as long as a business qualifies and applies in time, they should have funds allocated to them.
“This necessarily means that an SBA administrator or bank official, both of whom likely have little-to-no training on what ‘prurient’ means, must decide which presentations are loan-qualified and which are not,” the plaintiffs argue. “It also means that the SBA has taken one side of the debate when it comes to the presentation of erotic entertainment. The SBA freely funds companies that advocate against the message of eroticism while barring only those which favor that message and viewpoint.”
This is certainly an interesting case. While the government would probably rather fund Bill and Susie’s Bakery, if a strip club meets the qualification guidelines and applies before the bakery, they should be entitled to that money like anyone else. Once you start picking and choosing who gets funds based on the merits of the business, we could see major problems or conflicts of interest arise. The SBA should have either been more strict at the outset over who qualifies for the loan (which they may not even be able to legally do), or they should accept the fact that they may not love every business who is going to be paid under the loan.
