Government's Emergency Motion to Stay Pending Appeal — Camelot v. SBA (E.D. Wis.) (7th Cir.)

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UNITED STATES DISTRICT COURT 
EASTERN DISTRICT OF WISCONSIN 
  
 
Camelot Banquet Rooms, Inc.;  
Downtown Juneau Investments, LLC; 
Midrad, LLC; and  
PPH Properties I, LLC; 
 
 
Plaintiffs, 
 
v. 
 
 
 
 
 
 
Case No. 20-cv-601 
 
United States Small Business Administration;  
Jovita Carranza, in her official capacity as 
Administrator of the Small Business 
Administration; United States of America; and 
Steven Mnuchin, in his official capacity as 
United States Secretary of Treasury, 
 
Defendants. 
  
 
J.R. Schuster, LLC; 
 
Plaintiff, 
 
v. 
 
 
 
 
 
 
Case No. 20-cv-634 
 
United States Small Business Administration;  
Jovita Carranza, in her official capacity as 
Administrator of the Small Business 
Administration; United States of America; and 
Steven Mnuchin, in his official capacity as 
United States Secretary of Treasury, 
 
Defendants. 
  
 
GOVERNMENT’S EMERGENCY MOTION FOR STAY OR, IN THE ALTERNATIVE 
FOR THIRTY-SIX ADDITIONAL HOURS FOR COMPLIANCE 
  
 
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INTRODUCTION 
 
 
Last Friday, May 1, this Court entered a preliminary injunction that requires defendants, 
“[b]y Monday, May 4, 2020, at 12:00 p.m.,” to “transmit guarantee authority” to lenders so that 
plaintiffs—businesses that operate “Gentlemen’s Clubs” that present live erotic dancing—may 
receive loans under the Paycheck Protection Program. The Government intends to appeal that 
decision, and respectfully asks that this Court stay its order pending the outcome of that appeal. In 
the alternative, because the Government’s is also seeking a stay from the Seventh Circuit, the 
Government asks that this Court extend the compliance deadline by thirty-six hours to allow the 
Court of Appeals additional time to rule on the Government’s motion for a stay.  
Absent a stay, or at least a short extension to the compliance deadline to allow the Seventh 
Circuit to rule on the motion for a stay, SBA will be forced to obligate taxpayer funds to underwrite 
loans to businesses that the SBA and Congress have determined are not entitled to such funds, to 
the detriment of other eligible Paycheck Protection Program borrowers who are entitled to those 
funds under the law.   
ARGUMENT 
 
In determining whether to grant a stay, this Court considers “the moving party’s likelihood 
of success on the merits, the irreparable harm that will result to each side if the stay is either granted 
or denied in error, and whether the public interest favors one side or the other.”  In re A & F 
Enterprises, Inc. II, 742 F.3d 763, 766 (7th Cir. 2014).  Each of these considerations weighs in 
favor of staying the district court’s remand orders pending appeal.  
A. The Government Is Likely To Succeed On the Merits 
1. The SBA Has Statutory Authority to Promulgate Its Regulation and Apply it to 
the Paycheck Protection Program 
 
At the outset, the Government is likely to ultimately succeed on the merits.   
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The Small Business Act “empower[s]” the SBA “to make loans to any small business 
concern,” 15 U.S.C. § 636(a), and to “make such rules and regulations as [it] deems necessary to 
carry out the authority vested in” it, and to “take any and all actions . . . [that] [it] determines . . . 
are necessary or desirable in making . . . loans,” id. § 634(b)(6), (7); see also 15 U.S.C. § 633(d) 
(authorizing Loan Policy Board to establish general policies regarding SBA loan assistance 
eligibility “particularly with reference to the public interest involved”); see 5 U.S.C. App., Reorg 
Plan No. 4 of 1965, §§ 11(b), 13(a) (transferring functions of Loan Policy Board to the SBA 
Administrator).  The Supreme Court has recognized that the Act grants the SBA “extraordinarily 
broad powers.” Small Business Admin. v. McClellan, 364 U.S. 446, 447 (1960). 
Pursuant to that broad authority, the agency has promulgated numerous regulations 
specifying the terms and conditions of SBA loans.  See, e.g., 13 C.F.R. §§ 120.100, 120.101, 
120.150.  And the agency has long specified certain businesses that are ineligible to receive SBA 
loans.  13 C.F.R. § 120.110 (listing 18 categories of businesses that are ineligible).  The agency 
promulgated the restriction at issue here—on businesses that present live entertainment of a 
prurient sexual nature—in 1996.  See 60 Fed. Reg. 64356, 654360 (Dec. 15, 1995) (proposed rule).  
As the agency explained in the notice and comment process, the SBA had determined it would 
“not provide financial assistance to small businesses which present live performances of a prurient 
sexual nature,” such as businesses that feature “nude dancing,” because it considered such a 
restriction “to be consistent with [the SBA’s] obligation to direct its limited resources and financial 
assistance to small businesses in ways which will best accomplish SBA’s mission, serve its 
constituency, and serve the public interest.”  60 Fed. Reg. at 654360.   
The regulation is comfortably within the SBA’s statutory authority to establish restrictions 
that the agency considers “necessary or desirable in making . . . loans” to fulfill the public purposes 
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of the Small Business Act in light of the agency’s limited resources.  15 U.S.C. § 634(b)(6), (7); 
see id. § 636(a).  
In holding that the Small Business Act does not authorize the agency’s restriction here, this 
Court relied on the fact that the “the Small Business Act authorizes the SBA to make loans to any 
small business concern.”  Order 16.   To the contrary, however, the fact that the Small Business 
Act “authorizes” or “empowers” the agency to issue loans to any small business concern in no way 
suggests that the agency must issue loans to any type of small business, or that the agency cannot 
promulgate regulations to specify certain types of businesses the agency believes it would not be 
in the public interest to subsidize in light of the agency’s resources.  Congress in the SBA gave the 
agency extremely broad authority to issue regulations to implement the loan programs that it 
administers.  See City of Arlington, Tex. v. F.C.C., 569 U.S. 290, 296 (2013) (“Congress knows to 
speak in plain terms when it wishes to circumscribe, and in capacious terms when it wishes to 
enlarge, agency discretion.”). 
            This Court also found that the SBA lacks the authority to apply its regulation to Paycheck 
Protection Program loans created by the CARES Act.  See Order 14-15.  However, contrary to this 
finding, Congress in the CARES Act chose to place the Paycheck Protection Program under the 
SBA’s existing Section 7(a) loan program, and provided that Paycheck Protection loans are to be 
provided “under the same terms, conditions, and processes” as other Section 7(a) loans unless 
otherwise specified.  15 U.S.C. § 636(a)(36)(B).  Congress specified several conditions that, 
although they apply to ordinary Section 7(a) loans, do not apply to Paycheck Protection Program 
loans. See, e.g., id. at § 636(a)(36)(D) (“increas[ing] eligibility for certain small businesses and 
organizations”).  But Congress did not amend or alter the SBA’s longstanding restriction on 
providing small-business loans to businesses engaged in live performances of a prurient sexual 
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nature.   “[I]t is generally presumed that Congress acts intentionally and purposefully in the 
disparate inclusion or exclusion” of statutory provisions, particularly in the same Act.  Russello v. 
United States, 464 U.S. 16, 23 (1983) (quotation marks omitted). 
 
This Court expressed doubt that Congress had “combed through all SBA regulations 
applicable to § 7(a).”  Order 15.  But regardless of whether Congress did, in fact, “comb[] through” 
all of the SBA’s regulations, the text of the statute clearly applies those regulations to the Paycheck 
Protection Program, unless otherwise specified.  See 15 U.S.C. § 636(a)(36)(B); see also Russello, 
464 U.S. at 23.  And in any event, it is reasonable to assume that Congress was aware of the 
restriction at issue here, as it is contained in the same regulation as other restrictions that Congress 
explicitly chose to amend for purposes of the Paycheck Protection Program.  Compare 13 C.F.R. 
§ 120.110(a) (excluding non-profits from SBA loans), with 15 U.S.C. § 636(a)(36)(D)(i) (allowing 
Paycheck Protection loans to various non-profits). 
2. The Restriction Applies to Plaintiffs’ Businesses 
 
Section 120.110(p) makes SBA loans unavailable to “[b]usinesses which . . . [p]resent live 
performances of a prurient sexual nature.”  13 C.F.R. § 120.110(p).  Plaintiffs here are businesses 
that are “licensed . . . to present erotic entertainment,” Camelot Compl. ¶ 305; see also Schuster 
Compl. ¶¶ 39, 41.. Dancers perform erotic dancing at plaintiffs’ establishments either nude or 
semi-nude.  See Camelot Compl. ¶¶ 305, 402-03; Schuster Compl. ¶¶ 39, 41.  Businesses that 
feature live dancing explicitly intended to be “erotic” undoubtedly falls within the plain language 
of the regulation.  
This Court faulted the government for not “paus[ing] to address the threshold issue of 
whether the” SBA’s regulation applies to plaintiffs.  See Order 13.  But no “pause” is necessary, 
as plaintiffs’ conduct falls within the heart of the regulation.  Indeed, plaintiffs themselves did not 
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argue that they are entitled to Paycheck Protection Program loans because the regulation by its 
terms does not apply to them; rather, plaintiffs argued that the regulation should be invalidated as 
applied to them because it violated their First and Fifth Amendment rights, or because the SBA 
lacked authority to promulgate its regulation.  See Camelot Compl. ¶¶ 501-03; Schuster Compl. ¶¶ 
71-79.   
 
This Court questioned whether the regulation encompasses “semi-nude dancing,” because 
at least some of plaintiffs’ businesses are required by local ordinance to wear “at least pasties and 
G-strings.”  Order 13 (emphasis added); see Camelot Compl. ¶¶ 501-03.  But the regulation does 
not make any distinction between “fully” and “semi” nude dancing; it prohibits SBA small-
business loans to businesses that “[p]resent live performances of a prurient sexual nature.”  13 
C.F.R. § 120.110(p).  Even if dancers at some of the plaintiffs’ establishments wear certain 
materials in accordance with local law to make the dancing “slightly less graphic,” plaintiffs’ 
businesses are nonetheless licensed to offer live performances that are explicitly intended to be 
“erotic,”  Barnes v. Glen Theater, Inc., 501 U.S. 560, 571 (1991), and the regulation applies. 
3. The Restriction Is Constitutional 
The regulation at issue is fully consistent with the Constitution, and this Court’s contrary 
holding is inconsistent with the precedent of both the Supreme Court and the Seventh Circuit.   
a.  The First Amendment “protects the right to be free from government abridgement of 
speech.” Ysursa v. Pocatello Educ. Ass’n, 555 U.S. 353, 358 (2009).  The First Amendment does 
not require, however, that government “assist others in funding the expression of particular 
ideas.”  Id.; see Davenport v. Washington Educ. Ass’n, 551 U.S. 177, 190 (2007) (“[T]he First 
Amendment does not require the government to enhance a person’s ability to speak.”).  Because 
“a legislature’s decision not to subsidize the exercise” of First Amendment speech “does not 
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infringe the right,” Regan v. Taxation With Representation of Washington, 461 U.S. 540, 549-50 
(1983), the “government can make content-based distinctions when it subsidizes speech,” 
Davenport, 551 U.S. at 188-89, and its decision “is not subject to strict scrutiny,” but rather 
rational-basis review.  Regan, 461 U.S. at 549-50; Ysursa, 555 U.S. at 359.   Under rational-basis 
review, the government may not “aim at the suppression of dangerous ideas,” Regan, 461 U.S. at 
543-49, but lawmakers otherwise have “broad discretion” “to make content-based judgments in 
deciding what private speech to” fund,  United States v. American Library Ass’n, Inc., 539 U.S. 
194, 204-05 (2003) (plurality op.); accord Rust v. Sullivan, 500 U.S. 173, 194 (1991) (Congress 
may “define the limits of [a] Government spending program” by “specif[ying] the activities the 
[government] wants [or does not want] to subsidize”). 
Applying these principles, the Supreme Court has repeatedly upheld under rational-basis 
review laws that deny government subsidies, or their equivalents, to businesses engaged in 
activities that are protected by the First Amendment, but that the government has chosen as a 
matter of policy not to fund.  In Regan, for example, the Supreme Court rejected a First 
Amendment Free Speech and Fifth Amendment Equal Protection challenge to a statute that denied 
tax-exempt status to organizations engaged in substantial lobbying activities.  461 U.S. at 542.  
The Court explained that Congress had not restricted or regulated “any First Amendment activity,” 
it “ha[d] merely refused to pay for the lobbying out of public monies,” which did not violate the 
Constitution.  Id. at 545-46; accord Cammarano v. United States, 358 U.S. 498, 513 (1959) 
(upholding regulation denying business expense deductions for lobbying activities).  “Although 
[the plaintiff] [did] not have as much money as it want[ed], and therefore [could not] exercise its 
freedom of speech as much as it would like, the Constitution ‘does not confer an entitlement to 
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such funds as may be necessary to realize all the advantages of that freedom.’”  Regan, 461 U.S. 
at 549-50 (quoting Harris v. McRae, 448 U.S. 297, 318 (1980)).   
Similarly, in Ysursa v. Pocatello Education Association, the Supreme Court upheld a state 
law that prohibited payroll deductions for political purposes.  The Court acknowledged that 
“unions face[d] substantial difficulties in collecting funds for political speech without using payroll 
deductions,” but made clear that the State was “under no obligation to aid the unions in their 
political activities.” Id. at 359.  And the Court concluded that it was “plainly reasonable” for the 
State to choose not to do so.  Id. at 359-60; see Wisconsin Educ. Ass’n Council v. Walker, 705 F.3d 
640, 645-46 (7th Cir. 2013) (applying Regan, Ysursa, and similar cases to reject a challenge to a 
state law that “subsidize[d] the speech of one group, while refraining from doing so for another”).    
b.  This precedent forecloses plaintiffs’ challenge.  The Paycheck Protection Program is a 
government subsidy to small businesses, which makes available billions of dollars in special loans 
that have a capped interest rate, do not require collateral, are guaranteed by the government, see 
15 U.S.C. § 636(a)(36)(H)-(L), and are eligible for loan forgiveness up to the full principal amount 
borrowed, see CARES Act, § 1106(b)-(c), 134 Stat. at 298.  Although plaintiffs may be 
experiencing economic difficulties as a result of the COVID-19 pandemic, and may “face 
substantial difficulties” pursuing their First Amendment activities in the absence of a Paycheck 
Protection Program loan, the government “is under no obligation to aid” plaintiffs by providing 
them such a loan.  See Ysursa, 555 U.S. at 359; Regan, 461 U.S. at 549-50.  The government has 
not restricted or regulated plaintiffs’ First Amendment activities, and plaintiffs are “free to engage 
in such speech as they see fit.”  Ysursa, 555 U.S. at 359.  Congress and the SBA have “merely 
refused to pay for” plaintiffs’ activities “out of public monies.”  Regan, 461 U.S. at 546; see Ysursa, 
555 U.S. at 359; Wisconsin Educ. Ass’n Council, 705 F.3d at 646-47.    
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That choice is “plainly reasonable.”  Ysursa, 555 U.S. at 359.  The SBA has restricted 
government-backed small-business loans to businesses engaged in live erotic performances for 
nearly twenty-five years.  The restriction does not “[a]im at the suppression of” any idea.  See 
Regan, 461 U.S. at 550.  Rather, it reflects longstanding SBA policy that it would not be in the 
agency or the public’s interest for the SBA to direct its “limited resources and financial assistance” 
to “businesses engaging in lawful activities of an obscene, pornographic, or prurient sexual 
nature.”  60 Fed. Reg. at 64360.  And Congress chose not to alter that longstanding restriction in 
creating the temporary Paycheck Protection Program, and making substantial but nonetheless 
limited public funds available to subsidize certain small businesses during the COVID-19 
pandemic.  As the Supreme Court explained in Regan, the “selection of particular entities or 
persons for entitlement to this sort of largesse is obviously a matter of policy and discretion,” and 
the political branches are well positioned to “determine whether the advantage the public would 
receive from” subsidizing particular activity is “worth the money.”  Regan, 461 U.S. at 549, 551. 
c.  This Court’s contrary holding is inconsistent with Regan, Ysursa, and similar cases.  
This Court concluded that the regulation likely fails rational-basis review because it is “aimed at 
suppressing what the government deems to be a dangerous” idea.  Order 21.  This Court’s only 
basis for that conclusion, however, was the fact that the government has chosen to subsidize some 
types of business during the COVID-19 pandemic, but not others.  See Order 21-24.  The Supreme 
Court has long made clear, however, that “[a] refusal to fund protected activity, without more, 
cannot be equated with the imposition of a ‘penalty’ on that activity.”  Harris v. McRae, 448 U.S. 
297, 318 & n. 19 (1980); accord Rust v. Sullivan, 500 U.S. 173, 193-94 (1991) (same).   
Moreover, the SBA has not, contrary to this Court’s suggestion, “singled out” plaintiffs’ 
businesses “for unfavorable treatment,” while providing funds to every other type of small 
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business.  Order 18.  As discussed, the SBA’s restrictions generally restrict Section 7(a) loans to 
several different types of businesses, and Congress left several of those restrictions in place with 
respect to CARES Act funds, including, for example, the restriction on providing Paycheck 
Protection loans to businesses primarily engaged in political and lobbying activities.  See 13 C.F.R. 
§ 120.100(r).  There is no basis to conclude that the government’s restriction on providing special, 
small-business loans to these businesses is an attempt to “suppress[]” any speech.  Order 21.  
Rather, these businesses can “exercise their freedoms” as they see fit, “and obtain any other aid 
available to them,” as the SBA explained in promulgating its regulation.  See 60 Fed. Reg. at 
64360.  The government has merely chosen as a matter of policy that it is not the best use of its 
limited resources to subsidize these businesses out of the public fisc.  See 60 Fed. Reg. at 64360; 
Regan, 461 U.S. at 545-46.  
B. The Remaining Factors Also Favor a Stay 
The balance of the harms and consideration of the public interest also weigh in favor of a 
stay.  Absent a stay, SBA will be forced to obligate taxpayer funds to underwrite loans to 
businesses that are ineligible for those loans under the SBA’s longstanding regulation and the 
CARES Act.  The government has a significant interest in not “allow[ing] taxpayer dollars to be 
spent” in a manner that both Congress and the SBA have determined is not in the public interest.  
California v. Azar, 927 F.3d 1068, 1080 (9th Cir. 2019) (per curiam).   
That concern is particularly pronounced here.  As plaintiffs and this Court acknowledge, 
the demand for Paycheck Protection Program funds is likely to far surpass the amount of money 
that Congress has appropriated.  Thus, any allocation of funds to plaintiffs will necessarily be at 
the cost of denying it to other businesses—restaurants, hotels, retail stores, and others.  And as this 
Court recognized, “it is reasonable to infer that any small business” is struggling during this time, 
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and that their livelihoods may be threatened.  Order 29.  Even assuming the government later 
prevails in this litigation and recoups the funding—though it is far from clear that recoupment is 
either legally or practically feasible in these circumstances—that relief may come too late for 
eligible businesses that would have received these funds but for the district court’s erroneous order.   
The Government’s and the public’s interest outweighs plaintiffs’ interests in these 
circumstances.  Plaintiffs assert that they will suffer irreparable harm because “the loss of First 
Amendment Freedoms is presumed to constitute irreparable injury for which money damages are 
inadequate.”  Order 26-27.  But as explained, the government has not restricted or regulated 
plaintiffs’ First Amendment activities, and plaintiffs remain free to present erotic dance 
entertainment using funds other than Paycheck Protection loans.  And although plaintiffs may be 
suffering financial hardships, plaintiffs are long-accustomed to operating without access to 
government-backed small-business loans, as the SBA’s restriction has been in place for nearly 
twenty-five years. 
C. In the Alternative, this Court Should Extend the Government’s Deadline by 
Thirty-Six Hours. 
If this Court denies the Government’s request for a stay pending appeal, the Government 
respectfully requests that the Court extend the current compliance deadline by thirty-six hours, 
until May 6, 2020 at 12:00 a.m.  Today, the Government will ask the Seventh Circuit to stay the 
preliminary injunction issued in this case.  The Court of Appeals is unlikely to rule on that motion 
prior to the current deadline for compliance. Accordingly, the Government respectfully asks that 
this Court briefly extend the deadline contained in its preliminary injunction so that the Seventh 
Circuit will have time to rule on the motion.   
 
 
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CONCLUSION 
 
For the foregoing reasons, the Court should stay its preliminary injunction pending 
appeal.  In the alternative, the Court should extend the Government’s compliance deadline by 
thirty six hours.  
Dated this 4th day of May, 2020.   
MATTHEW D. KRUEGER 
United States Attorney 
 
 
 
 
 
 
 
 
By: s/Emily A. Constantine  
 
 
EMILY A. CONSTANTINE 
Assistant United States Attorney 
Wisconsin Bar No. 1087257 
CARTER B. STEWART 
Wisconsin Bar No. 1117543 
Office of the United States Attorney 
517 E. Wisconsin Avenue, Room 530 
Milwaukee, Wisconsin 53202 
Phone: (414) 297-1700 
Fax: 
(414) 297-4394 
emily.constantine@usdoj.gov 
 
 
 
 
 
 
 
carter.stewart@usdoj.gov 
 
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