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Law360 (April 8, 2020, 10:56 PM EDT ) A Michigan strip club sued the Small Business Administration in federal court on Wednesday, claiming the agency violated the Constitution by implementing regulations barring COVID-19 relief loans for establishments that have "live performances of a prurient sexual nature."
DV Diamond Club of Flint LLC, which operates as Little Darlings, said the ban on loans for strip clubs runs afoul of the First and Fifth amendments because it discriminates against businesses that are abiding by the law.
"All of the entertainment provided by DV is non-obscene, appeals to healthy human interests and desires, and is in full compliance with the numerous licenses and permits held by DV," the club said.
DV said it has been closed since March 23, when Michigan Gov. Gretchen Whitmer issued an order suspending "activities that are not necessary to sustain or protect life" and ordering all employees not designated as critical infrastructure workers to stay home.
The strip club said it applied for a loan from the $349 billion Paycheck Protection Program included in last month's $2 trillion Coronavirus Aid, Relief and Economic Security, or CARES, Act.
DV hasn't heard back yet about its loan application, but it said "numerous other similar businesses ... have had their applications for PPP loans rejected by their SBA lending banks, or derailed, on their bank's belief that the business is disqualified by the regulations."
The strip club applied for a temporary restraining order to block the SBA from enforcing the regulations, citing a danger of "permanent ruination of its business" if the loan application is rejected or delayed, as the loans are given out on a first-come, first-served basis. The club is seeking to permanently strike down the regulations, and it also wants costs and attorney fees.
The CARES Act, which President Donald Trump signed into law March 27, injects $2 trillion into an economy reeling from the effects of virus-related shutdowns. In addition to boosting benefit amounts for the unprecedented number of workers now filing unemployment claims, it allocates about $850 billion across two loan programs geared toward small and midsize employers.
In addition to the $349 billion Paycheck Protection Program, another provision called the Coronavirus Economic Stabilization Act of 2020 empowers the Treasury Department to fund $500 billion in loans to larger businesses that have not "otherwise received adequate economic relief" through the act.
DV's attorney Bradley J. Shafer of Shafer & Associates PC told Law360 on Wednesday that the loan applications from similar businesses have been handled in a "completely haphazard" way.
"Having some exceptions when you're dealing with regular SBA loans is one thing," he said. "This is a financial catastrophe for the entire country. There are employees at these businesses who could benefit from these type of [loans] just like every other employee at every other small business throughout the country."
The SBA didn't respond on Wednesday to a request for comment.
The club is represented by Bradley J. Shafer and Matthew J. Hoffer of Shafer & Associates PC.
Counsel information for the SBA and Treasury Department wasn't immediately available Wednesday.
The case is DV Diamond Club of Flint LLC v. Small Business Administration et al., case number 4:20-cv-10899, in the U.S. District Court for the Eastern District of Michigan.
--Additional reporting by Emma Cueto, Linda Chiem and Braden Campbell. Editing by Jay Jackson Jr.
For a reprint of this article, please contact reprints@law360.com.
