Judge Orders SBA to Facilitate PPP Loans to Wisc. Strip Clubs

MILWAUKEE — The Small Business Administration on Friday was ordered to start facilitating emergency loans to five Wisconsin adult entertainment clubs by Monday. In a 33-page decision, U.S. District Judge Lynn Adelman blocked the agency from denying federal coronavirus relief loans to the clubs under the Paycheck Protection Program, a component of the $2.2 trillion CARES Act, to the clubs based on their businesses’ sexual nature. Operators of three Milwaukee clubs and one Middleton, Wisc., club — all operating as Silk Exotic Gentlemen’s Club — initially sued on April 13 before the operator of The Vegas Gentlemen’s Club in Darien, Wisc., filed a claim eight days later. The SBA denied the clubs’ loan applications under a 1996 regulation stating that businesses that “present live performances of a prurient sexual nature” are not eligible to take part in federal loan programs. Adelman’s order gives the SBA and Secretary of the Treasury Steven Mnuchin until noon on Tuesday to give the Wisconsin clubs’ lenders the guarantee authority to process their Paycheck Protection Program applications and immediately fund the loans. In her decision, Adelman found that the Wisconsin strip clubs would have a likelihood of success proving the SBA regulation regarding “prurient sexual nature” violates the First Amendment and the equal protection clause of the Fifth Amendment. “The plaintiffs contend that the erotic dance entertainment they offer is not ‘prurient.’” Adelman wrote. “More specifically, they allege that their entertainment is nonobscene (and not prurient), appeals to healthy human interests and desires, and is in full compliance with the numerous licenses and permits that they must hold under local law. “Thus, one of the central issues in this case is whether the plaintiffs’ entertainment is of a ‘prurient sexual nature.’ If it is not, then the plaintiffs are certain to succeed on the merits of their claims, for the regulation would not disqualify them from loan eligibility. “Oddly, however, the government states in its brief that it takes no position at this time regarding whether the performances offered by plaintiffs is [sic] obscene, prurient—or, as plaintiffs put it, ‘erotic but not obscene[.]’ But if the government takes no position on whether the plaintiffs’ entertainment is ‘prurient,’ then it cannot take the position that the regulation disqualifies them from participation in the Paycheck Protection Program. Unless their entertainment is prurient, the regulation does not apply. “Perhaps what the government meant to say was that it believes the plaintiffs’ entertainment is at least prurient, but it takes no position on whether the plaintiffs’ entertainment is also obscene. (Obscenity receives no First Amendment protection),” Adelman wrote. “Still, the government makes no attempt to show that the entertainment the plaintiffs offer is of a prurient sexual nature. Not one sentence of the government’s brief is used to disagree with the plaintiffs’ assertion that the entertainment they offer is not prurient. “The government does not, for example, contend that all forms of nude and semi-nude dancing are prurient or that the kinds of nude and seminude performances the plaintiffs offer are prurient,” Adelman wrote. “Nor does the government respond to the plaintiffs’ contention that, to be prurient, a work or performance must appeal to a shameful, morbid, and unhealthy interest in sex, as opposed to a normal, healthy sexual desire.”