Court filing

Opinion and Order Granting Plaintiffs’ and Intervenors’ Motions for a Preliminary Injunction — DV Diamond Club of Flint, LLC v. United States Small Business Administration (Dkt. 42, E.D. Mich.)

Summary

An opinion and order by United States District Judge Matthew F. Leitman granting the plaintiffs' and intervenors' motions for a preliminary injunction (ECF Nos. 12, 23) in DV Diamond Club of Flint, LLC, et al. v. United States Small Business Administration, et al., Case No. 20-cv-10899, in the U.S. District Court for the Eastern District of Michigan, filed May 11, 2020 as ECF No. 42. The plaintiffs are businesses that present lawful entertainment deemed of a prurient sexual nature and were barred from Paycheck Protection Program loans by the SBA's PPP Ineligibility Rule. The opinion reviews the CARES Act, Pub. L. No. 116-136, and the SBA rule at 120.110(p), and grants the preliminary injunction as to the plaintiffs and intervenors in this action. It runs 45 pages.

Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used

Filed May 11, 2020 in DV Diamond Club of Flint, LLC v. United States Small Business Administration; one of 3 filings from this case.

Record facts

Court	U.S. District Court for the Eastern District of Michigan
Filed	2020-05-11

Cite this document

“Opinion and Order Granting Plaintiffs’ and Intervenors’ Motions for a Preliminary Injunction — DV Diamond Club of Flint, LLC v. United States Small Business Administration (Dkt. 42, E.D. Mich.).” U.S. District Court for the Eastern District of Michigan, No. 4:20-cv-10899, Doc. 42, filed 2020-05-11. Archived at Pandemic Darlings, https://pandemicdarlings.com/court-filings/dv-diamond-club-of-flint-llc-v-united-states-small-business-administration/2020-05-11-opinion-and-order-granting-plaintiffs-and-intervenors-motion-dkt-42/, SHA-256 74454d412d86b1642f37908e7fa34cd373dda90faa90447814c3d5f7396944c0.

Search CourtListener for this docket number

Full text

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 1 of 45

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

DV DIAMOND CLUB
OF FLINT, LLC, et al.,

Plaintiffs, Case No. 20-cv-10899
Hon. Matthew F. Leitman
v.

UNITED STATES SMALL BUSINESS
ADMINISTRATION, et al.,

Defendants.
__________________________________________________________________/

OPINION AND ORDER GRANTING PLAINTIFFS’ AND INTERVENORS’
MOTIONS FOR A PRELIMINARY INJUNCTION (ECF Nos. 12, 23)

In order to mitigate the economic devastation caused by the COVID-19

pandemic, the United States Congress passed, and President Trump signed, the

Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), Pub. L.

No. 116-136, 134 Stat. 281 (2020). A primary purpose of the CARES Act is

ensuring continued employment and income for employees of American small

businesses. To that end, Congress created the Paycheck Protection Program (the

“PPP”) as part of the CARES Act. That program authorizes the Small Business

Administration (the “SBA”) to guarantee hundreds of billions of dollars in loans to

small businesses. The loans are to be made by private lenders, and they may be

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 2 of 45

forgiven if, among other things, the businesses use the funds to continue to pay their

employees’ wages. See 15 U.S.C. § 636(a)(36); 15 U.S.C. §§ 9005, 9006.

Congress intended that the SBA would make the PPP loan guarantees widely

available to small businesses across the commercial spectrum. Indeed, Congress

was aware that the SBA had historically declared certain classes of businesses

ineligible for SBA lending, and Congress set about to “[i]ncrease[] [e]ligibility” for

PPP loan guarantees. 15 U.S.C. § 636(a)(36)(D). Congress did that by establishing

only two criteria for PPP loan guarantee eligibility and providing that “any business

concern … shall be eligible” for a PPP loan guarantee if it met those criteria. 15

U.S.C. § 636(a)(36)(D)(i) (emphasis added).

Despite this direction from Congress, the SBA adopted a rule excluding from

PPP loan guarantee eligibility a wide range of businesses – including banks, political

lobbying firms, certain private clubs with restrictive admissions practices, and

sexually oriented businesses that present entertainment or sell products of a

“prurient” (but not unlawful) nature (the “PPP Ineligibility Rule”). While Congress

may once have been willing to permit the SBA to exclude these businesses from its

(the SBA’s) lending programs, that willingness evaporated when the COVID-19

pandemic destroyed the economy and threw tens of millions of Americans out of

work. Simply put, Congress did not pick winners and losers in the PPP. Instead,

through the PPP, Congress provided temporary paycheck support to all Americans

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 3 of 45

employed by all small businesses that satisfied the two eligibility requirements –

even businesses that may have been disfavored during normal times. Thus, the

SBA’s PPP Ineligibility Rule is invalid because it contravenes the PPP.

The Plaintiffs in this case are primarily businesses that provide lawful

“clothed, semi-nude, and/or nude performance entertainment.” (Mot., ECF No. 12,

PageID.475.) They have been shuttered by the COVID-19 pandemic and the “stay

at home” orders issued in response to the pandemic. They applied for PPP loans and

intended to use the borrowed funds primarily to pay their displaced employees. But

because their lawful entertainment was deemed to be of a “prurient sexual nature,”

the PPP Ineligibility Rule prevented them from obtaining PPP loans and/or from

fully participating in the PPP.

Plaintiffs contend, among other things, that the PPP Ineligibility Rule is

invalid because it contravenes the PPP. (See Am. Compl., ECF No. 11.) They have

now filed a motion seeking a preliminary injunction barring the SBA from enforcing

against them the provisions of the PPP Ineligibility Rule that prohibit sexually

oriented businesses from obtaining PPP loan guarantees. (See Mot., ECF No. 12.)

For the reasons explained below, the motion is GRANTED.

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 4 of 45

The SBA is “a government agency established by § 204 of the Small Business

Act of 1953, 67 Stat. 233 (codified in 1958 at 15 U.S.C. § 633).” United States v.

Peoples Household Furnishings, Inc., 75 F.3d 252, 253 (6th Cir. 1996). Among

other things, the SBA “aid[s], counsel[s], assist[s], and protect[s] … the interests of

small-business concerns.” Small Bus. Admin. v. McClelan, 364 U.S. 446, 447 (1960).

The Small Business Act provides the SBA and its Administrator “extraordinarily

broad powers to accomplish these important objectives, including [the ability to

lend] money to small businesses whenever [those businesses] could not get

necessary loans on reasonable terms from private lenders.” Id. In addition to directly

lending money to small businesses, the SBA may guarantee loans made by private

lenders. See id. The SBA may also “establish general policies” governing the

“granting and denial” of the financial assistance it provides. 15 U.S.C. § 633(d).

On January 31, 1996, the SBA first declared certain types of businesses

ineligible to participate in SBA lending programs (the “Original SBA Ineligibility

Rule”). The Original SBA Ineligibility Rule is codified at 13 C.F.R. § 120.110. The

rule prohibits “banks,” “[l]ife insurance companies,” “businesses primarily engaged

in political or lobbying activities,” “[b]usinesses deriving more than one-third of

gross annual revenue from legal gambling activities,” and “[p]rivate clubs and

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 5 of 45

businesses which limit the number of memberships for reasons other than capacity,”

among others, from receiving SBA-backed loans. 13 C.F.R. §§ 120.110(b), (f), (g),

(i), and (r). In addition, and most relevant here, the Original SBA Ineligibility Rule

prohibits certain sexually oriented businesses from participating in SBA lending

programs. More specifically, it provides that the following businesses are barred

from receiving SBA financial assistance:

(p) Businesses which:

(1) Present live performances of a prurient sexual
nature; or

(2) Derive directly or indirectly more than de minimis
gross revenue through the sale of products or
services, or the presentation of any depictions or
displays, of a prurient sexual nature;

120.110(p)(1)-(2).

In 2019, the SBA issued its “Standard Operating Procedure for Lender and

Development Company Loan Programs 50 10 5(K)” (the “2019 SOP”). (See the

2019 SOP, ECF No. 12-11.) This publication provides guidance to lenders

concerning how to administer and apply the SBA’s rules and regulations, including

the Original SBA Ineligibility Rule. (See id.) In relevant part, the 2019 SOP explains

that “certain business types” may be “ineligible” to participate in SBA loan

programs. (Id., PageID.570.) With respect to businesses that present entertainment

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 6 of 45

or sell products of a “prurient sexual nature,” the 2019 SOP instructs lenders as

follows:

a. A business is not eligible for SBA assistance if:

i. It presents live or recorded performances of a
prurient sexual nature; or

ii. It derives more than 5% of its gross revenue,
directly or indirectly, through the sale of products,
services or the presentation of any depictions or
displays of a prurient sexual nature.

b. SBA has determined that financing lawful activities of
a prurient sexual nature is not in the public interest. The
Lender must consider whether the nature and extent of the
sexual component causes the business activity to be
prurient.

c. If a Lender finds that the Applicant may have a business
aspect of a prurient sexual nature, prior to submitting an
application to the LGPC (non-delegated) or requesting a
loan number (delegated), the Lender must document and
submit the analysis and supporting documentation to the
Associate General Counsel for Litigation at
PSMReview@sba.gov for a final Agency decision on
eligibility. Upon approval by SBA, the Lender may submit
the application to the LGPC or may proceed to process the
loan under its delegated authority. A non-delegated
Lender must submit a copy of SBA’s approval with the
application to the LGPC. A delegated Lender must retain
its analysis, supporting documentation, and evidence of
SBA’s approval in its loan file and must submit the
analysis and supporting documentation to SBA with any
request for guaranty purchase. SBA also may review such
documentation when conducting Lender oversight
activities.

(Id., PageID.571.)

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 7 of 45

In March 2020, Congress passed the CARES Act in order to “provide an

economic stimulus for our nation’s businesses and citizens” affected by the COVID-

19 pandemic. Am. Ass’n of Political Consultants v. U.S. Small Bus. Admin., 2020

WL 1935525, at *1 (D.D.C. Apr. 21, 2020). Title I of the CARES Act focuses on

supporting displaced American employees. It is titled the “Keeping American

Workers Paid and Employed Act.” See Pub. L. No. 116-136, 134 Stat. 281 (2020) at

Title I. The PPP is within Title I of the CARES Act. See 15 U.S.C. § 636(a)(36).

Another federal court recently provided the following succinct and helpful

explanation concerning how the PPP operates:

The PPP is a new loan program to be administered by the
SBA under Section 7(a) of the Small Business Act
(codified at 15 U.S.C. § 636(a)). Its purpose is to assist
small businesses during the COVID-19 crisis by
immediately extending them loans on favorable terms.
The loans are made by the SBA’s participating banks and
guaranteed by the SBA itself. Section 1106 of
the CARES Act provides that a borrower’s indebtedness
under a PPP loan will be forgiven to the extent that the
borrower uses the funds to pay expenses relating to
payroll, mortgage interest, rent, and utilities during the
eight-week period following the loan’s
origination. CARES Act § 1106. If a borrower qualifies
for loan forgiveness, the SBA must pay the lender an
amount equal to the amount forgiven, plus any interest
accrued through the date of payment. Id. § 1106(c)(3).
However, the SBA has determined that not more than 25%
of the loan forgiveness amount may be attributable to non-
payroll costs. See Business Loan Program Temporary

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 8 of 45

Changes; Paycheck Protection Program, 85 Fed. Reg.
20,811, 20,813–14 (April 15, 2020).

Camelot Banquet Rooms, Inc. v. U.S. Small Bus. Admin., --- F. Supp. 3d ---, 2020

WL 2088637, at *2 (E.D. Wis. May 1, 2020).

Congress initially “provided the SBA with $349 billion” in PPP loan

guarantees for “small businesses struggling to make ends meet during the COVID-

19 crisis.” Am. Ass’n of Political Consultants, 2020 WL 1935525, at *1; see also

Business Loan Program Temporary Changes; Paycheck Protection Program, 85 Fed.

Reg. at 20812. The SBA quickly exhausted the initial $349 billion in loan

guarantees, and Congress then appropriated an additional $310 billion for loan

guarantees under the PPP. See The Paycheck Protection and Health Care

Enhancement Act, Pub. L. No. 116-139, --- Stat. ---, § 101(a)(1). The PPP loan

guarantees are made on a “first-come, first-serve[]” basis. Business Loan Program

Temporary Changes; Paycheck Protection Program, 85 Fed. Reg. at 20813

One section of the PPP is intended to broaden the class of businesses that are

eligible to receive SBA financial assistance. That section is titled “Increased

Eligibility for Certain Small Businesses and Organizations.” 15 U.S.C.

§ 636(a)(36)(D). The section provides, in relevant part, that “[d]uring the covered

period, in addition to small business concerns, any business concern … shall be

eligible to receive a covered [i.e., SBA-guaranteed] loan” if the business employs

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 9 of 45

less than 500 employees or, “if applicable,” less than “the size standard in number

of employees established by the Administration for the industry in which the

business concern … operates.” 15 U.S.C. § 636(a)(36)(D)(i)(I)-(II) (emphasis

added).

Shortly after the enactment of the PPP, the SBA adopted a set of rules

governing the implementation and administration of PPP loan guarantees. See

Business Loan Program Temporary Changes; Paycheck Protection Program, 85 Fed.

Reg. 20811 (Apr. 15, 2020). The PPP Ineligibility Rule is one of those new rules.

See id. at 20812 (stating rule).

The PPP Ineligibility Rule provides that businesses that “are identified” in the

Original SBA Ineligibility Rule and “described further” in the 2019 SOP “are not

eligible for PPP loans.” Id. As noted above, the Original SBA Ineligibility Rule and

the 2019 SOP deem ineligible for SBA financing businesses that (1) “[p]resent live

performances of a prurient sexual nature” and/or (2) “[d]erive directly or indirectly

more than de minimis gross revenue through the sale of products or services, or the

presentation of any depictions or displays, of a prurient sexual nature.” 13 C.F.R.

§ 120.110.(p)(1)-(2). (See also 2019 SOP, ECF No. 12-11, PageID.571.1) Thus,

1
The 2019 SOP refers to the Original SBA Ineligibility Rule, but it states slightly
different ineligibility criteria. As quoted above, the 2019 SOP provides that “a
business is not eligible for SBA assistance” if it (1) presents either live “or recorded”

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 10 of 45

these sexually oriented businesses are ineligible to receive PPP loan guarantees

under the PPP Ineligibility Rule.

Plaintiffs own and operate “venues that present clothed, semi-nude, and/or

nude performance entertainment,” adult novelty stores, and “businesses that service

those establishments.” (Mot., ECF No. 12, PageID.475.) Each Plaintiff alleges that

“[n]one of the live performances” at the Plaintiff’s establishment – or, for the

Plaintiffs that provide services to entertainment establishments, none of the

performances at the establishments that Plaintiffs provide services to – are “unlawful

or obscene.” (Am. Compl. at ¶147, ECF No. 11, PageID.275.) The Plaintiffs that

own or operate entertainment establishments further allege that none of the

“entertainers who have performed on [their] premises have ever been charged, let

alone convicted, of any crimes of obscenity.” (Id. at ¶134, PageID.272.) Finally, the

establishment-owning Plaintiffs maintain that they “present[] lawful entertainment

in conformity with [their] various licenses, permits, or government approvals.” (Id.

at ¶135, PageID.272.)

performances of a prurient sexual nature or (2) derives “more than 5% of its gross
revenue” from “the sale of products, services or the presentation of any depictions
or displays of a prurient sexual nature.” (2019 SOP, ECF No. 12-11, PageID.571;
emphasis added.)

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 11 of 45

Plaintiffs have each had to cease operations for a substantial period of time

and/or have lost significant business due to the ongoing COVID-19 pandemic and

the various “stay at home” orders issued in the states in which they operate. Due to

their financial hardships, they have each sought loans under the PPP. They seek the

loans “in order to mitigate [their] business losses and to provide monetary relief to

[their] employees.” (Id. at ¶79, PageID.257.) They intend to spend at least “75% of

[the] PPP loans” on “employee wages and salaries.” (Id.)

Plaintiffs have had different experiences in the PPP loan application process.

The Plaintiffs fall into the following categories:

 33 Plaintiffs have submitted applications and had their applications denied by

their local lender because of the PPP Ineligibility Rule (Plaintiffs DB

Entertainment, Inc.; Millennium Restaurant Group, Inc.; T and N

Incorporated; Burch Management Company, Inc.; JCB of Gainesville, Inc.;

MAG Enterprises, Inc.; 2740 Corporation; Brookhurst Venture, LLC; City of

Industry Hospitality Venture, Inc.; Farmdale Hospitality Services, Inc.; Inland

Restaurant Venture I, Inc.; Midnight Sun Enterprises, Inc.; Olympic Avenue

Venture, Inc.; The Oxnard Hospitality Services, Inc.; Platinum SJ Enterprise;

Rouge Gentlemen’s Club, Inc.; Washington Management, LLC; PNM

Enterprises, Inc.; Rialto Pockets, Inc.; Santa Barbara Hospitality Services,

Inc.; Santa Maria Restaurant Enterprises, Inc.; The Spearmint Rhino Adult

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 12 of 45

Superstore, Inc.; High Expectations Hospitality, LLC; Kentucky Hospitality

Venture, LLC; K-Kel, Inc.; L.C.M., LLC; Nitelife, Inc.; Penn Ave

Hospitality, LLC; Sarie’s Lounge, LLC; World Class Ventures, LLC; W.P.B.

Hospitality, LLC; The Spearmint Rhino Companies Worldwide, Inc.; and

Spearmint Rhino Consulting Worldwide, Inc.);

 2 Plaintiffs have attempted to submit a loan application but their local lender

refused to accept or process the application because of the PPP Ineligibility

Rule (Plaintiffs Filosadelfia, LLC and Polmour, Inc.);

 6 Plaintiffs have submitted loan applications, have not received a decision on

their applications, and “reasonably believe” that – because of the PPP

Ineligibility Rule – their applications will be rejected and/or delayed until the

PPP funds are exhausted (Plaintiffs BDS Restaurant, Inc.; Benelux

Corporation; MAG Pitt LP; Stone Park Entertainment, Inc.; Seventy7, LLC;

and V.C. Lauderdale, Inc.); and

 1 Plaintiff has been told its application for a PPP loan will be approved (absent

a lack of funding or other unforeseen circumstance) but has also been told that

it may not qualify for loan forgiveness because of the PPP Ineligibility Rule

(Plaintiff DV Diamond Club of Flint, LLC).

While Plaintiffs’ PPP loan applications have been denied by lenders, rather

than by the SBA itself, the Plaintiffs have presented evidence that the lenders are

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 13 of 45

acting in accord with the SBA’s view of the PPP Ineligibility Rule. For instance,

Plaintiffs have presented evidence that at least one representative of the SBA has

opined that a “men’s club with strippers” is “definitely not eligible” for a PPP loan.

(ECF No. 31-2, PageID.1004.) Moreover, the Plaintiffs have presented evidence

that in parallel federal litigation in another district, the SBA has argued that

“businesses that feature live entertainment explicitly intended to be ‘erotic’” – as

most of the Plaintiffs do here – “undoubtedly fall within the plain language of” the

PPP Ineligibility Rule. (Motion for Stay filed in Camelot Banquet Rooms, supra,

ECF No. 39-3, PageID.1135.)

This action was initially filed on April 8, 2020, by Plaintiff DV Diamond Club

of Flint, LLC, an adult-entertainment establishment located in Flint, Michigan. (See

Compl., ECF No. 1.) On April 17, 2020, DV Diamond Club and 41 new co-Plaintiffs

from across the country filed an Amended Complaint. (See Am. Compl., ECF No.

11.) They name as Defendants the SBA, Jovita Carranza (the SBA’s Administrator),

the United States of America, and Steven Mnuchin (the United States Treasury

Secretary). (See id.)

In the Amended Complaint, Plaintiffs each broadly allege that:

 They are sexually oriented businesses engaged in lawful conduct;

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 14 of 45

 They have had to close and/or they have lost significant business due

to the ongoing COVID-19 pandemic;

 They meet the eligibility requirements identified in the PPP for a PPP

loan but have been denied such a loan, fear that they will be denied such

a loan, and/or fear that they will be denied loan forgiveness due to the

PPP Ineligibility Rule; and

 They plan to use at least 75% of the PPP loan to pay for the salaries and

wages of their employees.

Plaintiffs bring three claims in the Amended Complaint. In Count One,

Plaintiffs allege that the portions of the PPP Ineligibility Rule excluding sexually

oriented businesses from participating in the PPP violate the First Amendment

because they are “impermissible content-based restrictions on speech,” are

“unconstitutionally vague,” and “fail to conform to constitutional standards

regarding obscenity.” (Id. at ¶520, PageID.361-362.) In Count Two, Plaintiffs claim

that the portions of the PPP Ineligibility Rule excluding sexually oriented businesses

from participating in the PPP violate the Fifth Amendment because they “treat

establishments presenting certain forms of performance dance entertainment, such

as Plaintiff, differently from establishments presenting other forms of entertainment

or no entertainment, for no compelling, important, or rational reason” and because

they are “impermissibly vague.” (Id. at ¶523, PageID.363-364.) Finally, in Count

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 15 of 45

III, Plaintiffs seek to invalidate the PPP Ineligibility Rule under the Administrative

Procedures Act. (See id. at ¶¶ 526-527, PageID.364; see also id. at ¶4, PageID.239,

quoting the Administrative Procedures Act.) In this Count, Plaintiffs allege that the

SBA “lacked the authority to promulgate” the PPP Ineligibility Rule because that

rule conflicts with the provision of the PPP extending eligibility to any business

concern that satisfies the criteria in the statute. (Id. at ¶526, PageID.364)

On the same day that Plaintiffs filed their Amended Complaint, Plaintiffs also

filed a renewed emergency motion for a temporary restraining order and/or

preliminary injunction. (See Renewed Mot., ECF No. 12.) The arguments Plaintiffs

make in the renewed motion largely track the claims made in the Amended

Complaint. (See id.) Plaintiffs ask the Court, among other things, to bar the

Defendants from enforcing against them the portions of the PPP Ineligibility Rule

that prohibit sexually oriented businesses from obtaining PPP loan guarantees and/or

from having PPP loans forgiven. (See id., PageID.504.)

Following an on-the-record status conference with counsel for all parties, the

Court set an expedited briefing schedule on Plaintiffs’ renewed emergency motion.

(See Order, ECF No. 18.) Defendants filed their response to the motion on April 24,

2020 (see Resp. Br., ECF No. 25), and Plaintiffs filed a reply (see Reply Br., ECF

No. 28).

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 16 of 45

While Plaintiffs’ renewed emergency motion was being briefed, three new

parties, 689 Eatery Corp., 725 Eatery Corp., and GJJM Enterprises, Inc. (the

“Intervenors”) filed a motion to intervene as co-plaintiffs in this action. (See Mot. to

Intervene, ECF No. 22.) The Intervenors are sexually oriented businesses that are

“similarly situated” to the original Plaintiffs. (Id., PageID.648.) The Defendants did

not object to the Intervenors joining this action, and the Court orally granted the

motion to intervene on April 30, 2020. The Intervenors have filed their own

emergency motion seeking the same relief as Plaintiffs. (See Intervenors’ Mot., ECF

No. 23.) The Intervenors’ motion “adopt[ed] the arguments” made in Plaintiffs’

emergency motion. (Id., PageID.684-685.)

On April 30, 2020, the Court held a hearing on the emergency motions for a

preliminary injunction. It held a continuation of the hearing on May 5, 2020.

III

The Court begins with a threshold question: may the Court enter preliminary

injunctive relief against the SBA? Defendants say that the answer is “no.” They

insist that Section 634(b)(1) of the Small Business Act bars courts from entering

injunctions against the SBA and its Administrator. (See Resp. Br., ECF No. 24,

PageID.730, quoting 15 U.S.C. § 634(b)(1).) That statute provides that:

In the performance of, and with respect to, the functions,
powers, and duties vested in him by this chapter the
Administrator may sue and be sued in any court of record
of a State having general jurisdiction, or in any United

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 17 of 45

States district court, and jurisdiction is conferred upon
such district court to determine such controversies without
regard to the amount in controversy; but no attachment,
injunction, garnishment, or other similar process,
mesne or final, shall be issued against the
Administrator or his property.

15 U.S.C. § 634(b)(1) (emphasis added).

The United States District Court for the Eastern District of Wisconsin recently

held that this statute does not preclude the precise award of injunctive relief that

Plaintiffs seek against the SBA here. See Camelot Banquet Rooms, 2020 WL

2088637, at ** 3-4. That court explained:

I conclude that § 634(b)(1) does not preclude injunctive
relief against the SBA in a case such as this. Provisions
like it are found in other federal statutes creating agencies
that participate in commercial activity. These statutes
allow the agency to be sued but specifically provide that
“no attachment, injunction, garnishment, or other similar
process, mesne or final, shall be issued against the
[agency] or [its] property.” See 19 U.S.C. § 1920; 42
U.S.C. § 3211(a)(13); 15 U.S.C. § 714b(c); 19 U.S.C.
§ 2350; 7 U.S.C. 1506(d); 20 U.S.C. § 1082(a)(2). As the
United States Claims Court explained, see Related
Industries, Inc. v. United States, 2 Cl.Ct. 517, 522 (1983),
Congress began including such language in its statutes
after the Supreme Court decided Federal Housing
Administration v. Burr, 309 U.S. 242, 60 S.Ct. 488, 84
L.Ed. 724 (1940). In that case, the Court held that a clause
allowing the Federal Housing Administration to sue and
be sued rendered it subject to a state-law garnishment
action. The Court reasoned that “it must be presumed that
when Congress launched a governmental agency into the
commercial world and endowed it with authority to ‘sue
or be sued’, that agency is not less amenable to judicial
process than a private enterprise under like circumstances

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 18 of 45

would be.” Id. at 245, 60 S.Ct. 488. The Court indicated
that, if Congress intends to limit the kinds of relief
available against an agency that acts in commerce, it must
do so clearly. Id. Thus, after Burr, Congress began
specifying that certain agencies that participated in
commerce are not subject to attachment, injunction,
garnishment, and similar process.

As the First Circuit has recognized, this limitation on
garnishment and similar process was “intended to keep
creditors or others suing the government from hindering
and obstructing agency operations through mechanisms
such as attachment of funds.” Ulstein Maritime, Ltd. v.
United States, 833 F.2d 1052, 1056–57 (1st Cir. 1987). It
was not intended to render the agency immune from
injunctive relief in situations where the agency has
exceeded its statutory authority and where an injunction
would not interfere with the agency’s internal operations.
Id. at 1057. Indeed, if provisions such as § 634(b)(1) meant
that the agency could never be enjoined, then an agency
could adopt unconstitutional policies and continue to
follow them even after a court declared them
unconstitutional. For example, the SBA could adopt a
policy stating that it will extend small business loans only
to companies owned by white men. If § 634(b)(1) means
that the SBA may never be enjoined, then a court could
not enjoin this policy, even though it would be blatantly
unconstitutional.

In the present case, the plaintiffs only seek to set aside
unlawful agency action. They do not seek to attach the
SBA’s assets or otherwise interfere with its internal
operations. Under the injunction the plaintiffs seek, the
SBA would have to do no more than process the plaintiffs’
loan applications in the same manner that it processes the
applications of other small businesses. Section 634(b)(1)
does preclude the court from entering such an injunction.

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 19 of 45

Id.2

For the reasons cogently explained by the district court in Camelot Banquet

Rooms, the Court is persuaded that injunctive relief is available to Plaintiffs. As in

that case, the Plaintiffs here seek only “to set aside unlawful agency action. They do

not seek to attach the SBA’s assets or otherwise interfere with its internal

operations.” Id. at *4. Moreover, Defendants themselves candidly acknowledge that

courts “have held that [Section 634(b)(1)] does not necessarily bar injunctions

against the SBA in all circumstances.” (Resp. Br., ECF No. 24, PageID.730.)

Finally, as in Camelot Banquet Rooms, Plaintiffs have sued both the United States

and Steven Mnuchin in his official capacity as Secretary of the Treasury, and those

Defendants “do not claim to be immune from injunctive relief; nor do they claim

that they could not grant the plaintiffs access to the PPP unless the SBA were also

enjoined.” Camelot Banquet Rooms, 2020 WL 2088637, at *3. For all of these

reasons, the Court concludes that it may enter the requested injunctive relief against

the SBA.

2
In American Association of Political Consultants, supra, the plaintiffs sought an
injunction barring the SBA from excluding lobbying businesses from the PPP. The
district court in that case did not squarely decide whether it had the authority to issue
the requested injunction. But it did observe that the “D.C. Circuit … at a minimum
[] ‘strongly intimated that injunctive relief is available ... when the SBA exceeds its
statutory authority.’” Am. Ass’n of Political Consultants, 2020 WL 1935525, at *6
(quoting Elk Assocs. Funding Corp. v. U. S. Small Bus. Admin., 858 F. Supp. 2d 1,
20 (D.D.C. 2012)).

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 20 of 45

A preliminary injunction “is an extraordinary and drastic remedy.” S. Glazer’s

Distribs. of Ohio v. Great Lakes Brewing Co., 860 F.3d 844, 849 (6th Cir. 2017)

(quoting Munaf v. Geren, 553 U.S. 674, 689–90 (2008)). Although the movant “is

not required to prove his case in full at a preliminary injunction hearing,” Certified

Restoration Dry Cleaning Network, L.L.C. v. Tenke Corp., 511 F.3d 535, 542 (6th

Cir. 2007), a preliminary injunction should not “be granted lightly.” S. Glazer’s, 860

F.3d at 849.

A district court balances four factors when considering a motion for a

preliminary injunction or a temporary restraining order: “(1) whether the movant has

a strong likelihood of success on the merits; (2) whether the movant would suffer

irreparable injury absent the injunction; (3) whether the injunction would cause

substantial harm to others; and (4) whether the public interest would be served by

the issuance of an injunction.” Id. (quotations omitted). “The last two factors (the

balance of equities and public interest) ‘merge when the Government is the opposing

party.’” Am. Ass’n of Political Consultants, 2020 WL 1935525, at *2 (quoting Nken

v. Holder, 556 U.S. 418, 435 (2009)).

“[T]hese are factors to be balanced, not prerequisites to be met.” S. Glazer’s,

860 F.3d at 849. “[N]o one factor is controlling.” Gonzales v. Nat’l Bd. of Med.

Exam’rs, 225 F.3d 620, 625 (6th Cir. 2000).

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 21 of 45

The Plaintiffs have shown a strong likelihood that they will prevail on the

merits of their claim that the PPP Ineligibility Rule is invalid. As explained below,

Plaintiffs have demonstrated that the rule cannot stand because it directly conflicts

with the PPP.

The Administrative Procedures Act prohibits agencies from taking action “in

excess of statutory jurisdiction, authority, or limitations, or short of statutory

right.” 5 U.S.C. § 706(2)(C). This Court “review[s] the propriety of agency action

under the two-step framework set forth in Chevron, U.S.A., Inc. v. Natural

Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694

(1984).” Tenn. Hosp. Ass’n v. Azar, 908 F.3d 1029, 1037 (6th Cir. 2018).

At step one of a Chevron analysis, a court asks whether “Congress has directly

spoken to the precise question at issue.” Chevron, 467 U.S. at 842. To answer this

question, “courts must determine whether the statute is ambiguous, applying the

ordinary tools of statutory construction. If the statute is unambiguous, then the court

applies it as-written; that is the end of the matter.” Arangure v. Whitaker, 911 F.3d

333, 337-38 (6th Cir. 2018) (internal quotation marks and citation omitted). If

Congress has spoken to the precise question at issue, then “the reviewing court must

give effect to the will of Congress irrespective of any contrary agency

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 22 of 45

interpretation.” Mid–Am. Care Found. v. N.L.R.B., 148 F.3d 638, 642 (6th Cir.

1998). However, if the statute is ambiguous, then (and only then) does the court

move to step two of the Chevron analysis. At that step, a court must “defer to the

agency’s construction if it is ‘permissible’—i.e., ‘within the bounds of reasonable

interpretation.’” Arangure, 911 F.3d at 338 (quoting City of Arlington v. F.C.C., 569

U.S. 290, 296 (2013)).

The Sixth Circuit recently emphasized that a district court must work hard at

Chevron’s first step to determine a statute’s meaning before finding that a statute is

ambiguous and deferring to an agency’s interpretation:

Chevron’s first step is grounded in a recognition that “[t]he
judiciary is the final authority on issues of statutory
construction.” Chevron, 467 U.S. at 843 n.9, 104 S.Ct.
2778. This means courts must do their best to determine
the statute’s meaning before giving up, finding ambiguity,
and deferring to the agency. When courts find ambiguity
where none exists, they are abdicating their judicial
duty. Cf. Kent Barnett & Christopher J. Walker,
Chevron in the Circuit Courts, 116 Mich. L. Rev. 1, 33–
34 (2017) (concluding that circuit courts find ambiguity
at Chevron step one 70% of the time, based on a sample of
over 1,000 cases). This abdication by ambiguity
impermissibly expands an already-
questionable Chevron doctrine. See Voices for Int’l Bus.
& Educ., Inc. v. NLRB, 905 F.3d 770, 780–81 (2018) (Ho,
J., concurring) (“Finding ambiguity where it does not
exist—granting deference where it is not warranted ...
misuse[s] Chevron” and “abrogates separation of powers
without even the fig leaf of Congressional
authorization.”). Unsurprisingly, when courts neglect their
duty, the Supreme Court has not hesitated to reverse. See,
e.g., Pereira, 138 S.Ct. at 2113–14 (“[T]he Court need not

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 23 of 45

resort to Chevron deference, as some lower courts have
done, for Congress has supplied a clear and unambiguous
answer to the interpretive question at hand.”); id. at 2120
(Kennedy, J., concurring) (chiding lower courts for
“engag[ing] in cursory analysis” in Chevron step one and
rushing to “reflexive deference”); Kingdomware Techs.,
Inc. v. United States, ––– U.S. ––––, 136 S.Ct. 1969, 1979,
195 L.Ed.2d 334 (2016) (reversing lower
court’s Chevron-based decision because the statute was
unambiguous); United States v. LaBonte, 520 U.S. 751,
762, 117 S.Ct. 1673, 137 L.Ed.2d 1001 (1997) (same). In
short, Chevron’s first step is not a free pass.

Arangure, 911 F.3d at 337-38 (internal footnote omitted).

The Court begins its Chevron step one analysis by identifying the “precise

question” presented. Here, that question is:

May the SBA exclude from eligibility for a PPP loan
guarantee a business concern that (1) during the covered
period (2) has less than 500 employees or less than the size
standard in number of employees established by the
Administration for the industry in which the business
operates?

For the reasons explained below, the Court finds that Congress has

unambiguously answered: no.

First, the text of the PPP makes clear that every business concern meeting the

statutory criteria is eligible for a PPP loan during the covered period. Congress

identified in the PPP only two criteria that a business concern must satisfy in order

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 24 of 45

to qualify for loan guarantee eligibility: (1) during the covered period (2) it must

have less than 500 employees or less than the size standard in number of employees

established by the Administration for the industry in which the business operates.

Under the settled expressio unius exclusio alterius rule of statutory construction,

Congress’s express listing of these two eligibility criteria indicates that Congress did

not intend there to be any other criteria for loan guarantee eligibility. See, e.g., Terry

v. Tyson Farms, Inc., 604 F.3d 272, 283 (6th Cir. 2010) (explaining in the context

of statutory interpretation that “the germane maxim expressio unius est exclusio

alterius” means “the expression of one thing is the exclusion of others”). After

establishing only two criteria for loan guarantee eligibility, Congress provided that

“any business concern … shall be eligible to receive a covered [i.e., SBA

guaranteed] loan” if it meets those criteria. 15 U.S.C. § 636(a)(36)(D)(i) (emphasis

added). “[T]he word ‘any’ naturally carries ‘an expansive meaning.’” SAS Inst., Inc.

v. Iancu, --- U.S. ---, 138 S. Ct. 1348, 1354 (2018) (quoting United States v.

Gonzales, 520 U.S. 1, 5 (1997)). And “[w]hen used (as here) with a ‘singular noun

in affirmative contexts,’ the word ‘any’ ordinarily ‘refer[s] to a member of a

particular group or class without distinction or limitation’ and in this way

‘impl[ies] every member of the class or group.’” Id. (emphasis in original) (quoting

Oxford English Dictionary (3d ed., Mar. 2016), www.oed.com/view/Entry/8973

(OED)). Thus, when Congress said that “any business concern” employing the

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 25 of 45

requisite number of Americans during the covered period “shall be eligible” for a

PPP loan guarantee, it meant that all such businesses are eligible for a loan

guarantee.

The Supreme Court reached a similar conclusion in SAS Institute, supra. In

that case, the Supreme Court was called upon to interpret a statute concerning “inter

partes review” of a challenged patent by the United States Patent Office. That

statute, 35 U.S.C. § 318(a), provided in relevant part that “[i]f an inter partes review

is instituted and not dismissed under this chapter, the [Board] shall issue a final

written decision with respect to the patentability of any patent claim challenged by

the petitioner....” SAS Inst., 138 S. Ct. at 1354 (emphasis in original) (quoting

§ 318(a)). Notwithstanding this language, the Patent Office contended that it had

discretion to render a decision on less than all of the claims challenged by a

petitioner. The Supreme Court disagreed:

We find that the plain text of § 318(a) supplies a ready
answer. It directs that “[i]f an inter partes review is
instituted and not dismissed under this chapter, the
[Board] shall issue a final written decision with respect to
the patentability of any patent claim challenged by the
petitioner....” § 318(a) (emphasis added). This directive is
both mandatory and comprehensive. The word “shall”
generally imposes a nondiscretionary duty. See Lexecon
Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S.
26, 35, 118 S.Ct. 956, 140 L.Ed.2d 62 (1998). And the
word “any” naturally carries “an expansive
meaning.” United States v. Gonzales, 520 U.S. 1, 5, 117
S.Ct. 1032, 137 L.Ed.2d 132 (1997). When used (as here)
with a “singular noun in affirmative contexts,” the word

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 26 of 45

“any” ordinarily “refer[s] to a member of a particular
group or class without distinction or limitation” and in this
way “impl[ies] every member of the class or group.”
Oxford English Dictionary (3d ed., Mar. 2016),
www.oed.com/view/Entry/8973 (OED) (emphasis added)
(all Internet materials as last visited Apr. 20, 2018). So
when § 318(a) says the Board’s final written decision
“shall” resolve the patentability of “any patent claim
challenged by the petitioner,” it means the
Board must address every claim the petitioner has
challenged.

Id. at 1354. The Supreme Court further held that because the statute unambiguously

required the Patent Office to review all challenged claims, the Office’s contrary

construction was not entitled to any deference under Chevron. See id. at 1358.

SAS Institute guides the way here. The PPP, like the inter partes review

statute at issue in SAS Institute, combines the expansive term “any” with the

mandatory directive “shall.” And, just as Congress’s use of those terms in the inter

partes review statute required the Patent Office to review every challenged patent

claim, Congress’s use of those terms in the PPP requires the SBA to deem eligible

for a PPP loan guarantee every business concern that employed the specified number

of Americans during the covered period. This reading of the PPP effectuates

Congress’s two stated intentions (as reflected in the name of Title I of the CARES

Act and in the caption of the relevant section of the PPP): to “Keep[] American

Workers Paid and Employed” and to “[i]ncrease[] [e]ligibility” for businesses to

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 27 of 45

participate in the PPP. See Pub. L. No. 116-136, 134 Stat. 281 (2020) at Title I; see

also 15 U.S.C. § 636(a)(36)(D).

The Court recognizes that the Supreme Court has not always adopted the

construction of “any” that it employed in SAS Institute. The Supreme Court has

noted that “‘[a]ny’ can and does mean different things depending on the setting” and

has explained that, at times, in order “[t]o get at Congress’s understanding [of ‘any’],

what is needed is a broader frame of reference.” Nixon v. Mo. Mun. League, 541

U.S. 125, 132 (2004).3 In these instances, “[i]t helps if we ask how Congress could

have envisioned” the statutory provision at issue “actually working” if “any” is given

its natural broad meaning. Id. Taking this approach to understanding “any,”

however, yields the same result as the SAS Institute approach to the term. Indeed,

construing the term broadly, as the Court has done, results in the PPP “actually

working” in the manner that Congress, by all indications, intended – as providing

3
One “setting” that has led the Supreme Court to depart from the SAS Institute
construction of “any” is when neighboring statutory terms demand a narrower
construction. See, e.g., Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 115-16
(2001) (applying narrow construction of “any other class of workers engaged in …
commerce” in light of Court’s previous interpretation of “in commerce” as a term of
art with a narrower meaning). No neighboring term here demands such a
construction.

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 28 of 45

temporary paycheck support to as many displaced and suffering American workers

as possible.4

For all of these reasons, the plain language of the PPP makes clear that any

business concern is eligible for a PPP loan if it employed the requisite number of

Americans during the covered period. Thus, the Defendants may not exclude

Plaintiffs from participating in the PPP on the ground that they present entertainment

or sell products of a “prurient sexual nature.”

The context in which Congress enacted the PPP further confirms the Court’s

reading of the PPP loan guarantee eligibility provisions. By the time Congress

created the PPP, the SBA had been applying the Original SBA Ineligibility Rule –

and excluding numerous business from receiving SBA financial assistance – for

nearly 25 years. And just one year before Congress enacted the PPP, the SBA

reiterated – in the 2019 SOP – the exclusions it had been applying through the

Original SBA Ineligibility Rule.

Congress is “presumed to [have been] aware of” the Original SBA

Ineligibility Rule and the 2019 SOP “when it passe[d]” the PPP. Patel v. U.S.

4
The Court further acknowledges that “any” should not be construed broadly where
such a construction would lead to an “absurd result.” Nixon, 541 U.S. at 138 (citing
United States v. Am. Trucking Ass’n, Inc., 310 U.S. 534, 543 (1940)). But as
explained in detail below (see Section (V)(C)(2), infra), the Court’s construction of
“any” here does not cause such a result.

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 29 of 45

Citizenship & Immigration Servs., 2016 WL 795925, at *13 (E.D. Mich. Mar. 1,

2016) (citing Goodyear Atomic Corp. v. Miller, 486 U.S. 174, 184-85 (1988)).5

Congress nonetheless provided in the PPP that “any business concern … shall be

eligible” for a loan guarantee if it employed the requisite number of Americans

during the covered period. 15 U.S.C. § 636(a)(36)(D)(i) (emphasis added). That is

a clear indication that Congress did not want the SBA’s existing eligibility

limitations to be imported wholesale into the PPP. Indeed, if Congress had intended

to permit the SBA to apply its existing eligibility limitations, Congress could easily

have provided that “any otherwise eligible business concern” employing the

requisite number of Americans during the covered period would be eligible for a

PPP loan. It did not. This confirms that the SBA may not apply to the PPP its

historical limitation against supporting businesses of a “prurient sexual nature.”

5
See also Reasonable Consideration, 2A Sutherland Statutory Construction § 45:12
(7th ed.) (confirming that courts may “presume[e]” that Congress is “aware of
existing … relevant … administrative decisions” when passing legislation).
Defendants themselves have acknowledged this point. In parallel litigation in
another district, the Defendants have argued that it is “reasonable to assume that
Congress was aware of” the SBA Ineligibility Rule when it enacted the PPP. (Motion
for Stay filed in Camelot Banquet Rooms, supra, ECF No. 39-3, PageID.1135.)

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 30 of 45

The Defendants resist the Court’s conclusion that the PPP Ineligibility Rule

conflicts with the PPP. While the Defendants’ arguments are thoughtful and

effectively presented, they do not persuade the Court that the PPP Ineligibility Rule

may stand.

The Defendants begin with a series of textual arguments. They contend that

several provisions of the PPP demonstrate Congress’s intent to allow the SBA to

apply its existing eligibility limitations to the PPP. The Court respectfully declines

to adopt the Defendants’ reading of these provisions.

Defendants first cite the provision of the PPP that states: “Except as otherwise

provided in this paragraph, the [SBA] may guarantee covered loans under the same

terms, conditions, and processes as a loan made under this subsection.” (Resp. Br.,

ECF No. 24, PageID.729; quoting 15 U.S.C. § 636(a)(36)(B) (emphasis in

Defendants’ response).) Defendants contend that (1) the SBA’s historical

limitations on eligibility for financial assistance (i.e., the eligibility limitations in the

Original SBA Ineligibility Rule and the 2019 SOP) are part of the “terms, conditions,

and processes” that apply to PPP loan guarantees and (2) no provision of the PPP

“otherwise provide[s]” that the SBA may not apply these limitations to PPP loan

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 31 of 45

guarantees. Thus, Defendants conclude, the SBA may continue to apply these

eligibility limitations to PPP loan guarantees.

The flaw in this argument is that another provision of the PPP does “otherwise

provide[]” that the SBA may not import its historical eligibility limitations into the

PPP. As explained in detail above, the provision of the PPP that specifically

addresses eligibility bars the SBA from doing so. Again, that section provides that

“any business concern” employing the requisite number of Americans during the

covered period “shall be eligible” for a loan guarantee. 15 U.S.C. § 636(a)(36)(D)(i)

(emphasis added). Through that language, Congress “otherwise provide[d]” that the

SBA may not apply to PPP loan guarantees the eligibility limitations from the

Original SBA Ineligibility Rule and/or the 2019 SOP.

Defendants next cite a provision of the PPP that specifically references certain

SBA regulations and deems those regulations inapplicable to the PPP. The provision

to which Defendants refer, 15 U.S.C. § 636(a)(D)(iv), says:

During the covered period, the provisions applicable to
affiliations under section 121.103 of title 13, Code of
Federal Regulations, or any successor regulation, are
waived with respect to eligibility for a covered loan for—

(I) any business concern with not more than 500
employees that, as of the date on which the covered
loan is disbursed, is assigned a North American
Industry Classification System code beginning with
72;

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 32 of 45

(II) any business concern operating as a franchise that is
assigned a franchise identifier code by the
Administration; and
(III) any business concern that receives financial
assistance from a company licensed under section
681 of this title.

15 U.S.C. § 636(a)(D)(iv)(I)-(III) (emphasis added). The regulations waived by this

provision – i.e., the regulations found in “section 121.103 of title 13, Code of Federal

Regulations” – concern how to determine the size of a business concern. More

specifically, the waived regulations, among other things, (1) explain how to

determine whether two entities are “affiliates” and (2) provide that affiliates will be

a treated as a single entity when “determining [a] concern’s size.” 13 C.F.R. §§

121.103(a)(1) and (a)(6). Defendants contend that under the expressio unius canon

of statutory construction, Congress’s express waiver of these size-determination

regulations indicates Congress’s intent that the SBA could incorporate other existing

regulations – such as the Original SBA Ineligibility Rule and the 2019 SOP – into

the PPP program. (See Resp. Br., ECF No. 24, PageID.729.)

Defendants stretch the expressio unius canon too far. They apply it to a

statutory provision that has nothing to do with the substantive criteria for PPP loan

eligibility in an effort to overcome Congress’s clear expression of those criteria in

another provision. Simply put, Congress’s statement in one provision that size-

determining regulations do not apply to PPP loan guarantees does not – by virtue of

the expressio unius canon – overcome Congress’s unambiguous statement in another

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 33 of 45

provision that the sole requirements for PPP loan guarantee eligibility are that (1)

during the covered period (2) a business concern has less than the specified number

of employees.

Finally, during the continued hearing on Plaintiffs’ injunction motion, the

Defendants argued that the provision of the PPP on which the Court rested its

analysis actually supports their view that the SBA may exclude from the PPP

businesses that present entertainment or sell products of a “prurient sexual nature.”

This argument is easiest to understand when broken down into the following steps:

Step 1: Before Congress enacted the PPP, the Original SBA
Ineligibility Rule excluded from SBA financial assistance programs (1)
nonprofit organizations and (2) a variety of businesses, including, for
instance, banks, political lobbying firms, certain private clubs with
restrictive admissions practices, and businesses that present
entertainment or sell products of a “prurient sexual nature.”

Step 2: In the PPP provision cited by the Court, Congress
specifically provided that “nonprofit organization[s]” are eligible for
PPP loan guarantees if, during the covered period, they employed the
requisite number of employees. See 15 U.S.C. 636(a)(36)(D)(i). This
shows that Congress was aware of the Original SBA Ineligibility Rule
and knew how to extend eligibility to the entities excluded by that rule
if it wished to do so.

Step 3: In the PPP provision cited by the Court, Congress did
not specifically say that any other businesses excluded by the Original
SBA Ineligibility Rule are eligible for PPP loan guarantees.

Step 4: If Congress had intended to make any of the other
previously excluded businesses eligible for PPP loan guarantees, it

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 34 of 45

would have specifically said so – just as it did with nonprofit
organizations.

Step 5: Because Congress did not specifically say that any
of the other previously excluded businesses are eligible for PPP loan
guarantees, it necessarily follows that Congress did not intend to extend
eligibility to any of those businesses, including businesses that present
entertainment or sell products of a “prurient sexual nature.”

This argument ignores that Congress had no need to individually identify the

previously excluded businesses in the PPP because it conferred eligibility on “any

business concern” – a term that encompasses all of those businesses. Indeed, using

the general term “any business concern” was a much more efficient way of

conferring eligibility on previously excluded businesses than specifically listing

each of those businesses one-by-one. Moreover, it made sense for Congress to

specifically confer eligibility on “nonprofit organizations” at the same time it used

the broad term “any business concern” to confer eligibility on the previously

excluded businesses. It was necessary to separately and specifically identify

nonprofit “organizations” because not all such organizations would fall within the

broad category of “any business concern.” For all of these reasons, the fact that

Congress did not specifically confer PPP eligibility on businesses that present

entertainment or sell products of a “prurient sexual nature” does not mean that the

SBA deny PPP loan guarantees to those businesses.

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 35 of 45

In addition to their textual arguments, Defendants contend that the Court’s

construction of the PPP will lead to absurd results that Congress could not have

intended. The Defendants insist, for instance, that Congress could not possibly have

intended to support the businesses that have historically been denied SBA financing

under the Original SBA Ineligibility Rule – including certain sexually oriented

businesses, private clubs that discriminate, and political lobbying firms. While this

argument has some initial surface appeal, it does not withstand closer scrutiny.

Defendants are correct that it would ordinarily be absurd to conclude that

Congress meant to provide financial assistance to, among others, certain sexually

oriented businesses and private clubs that discriminate. But these are no ordinary

times, and the PPP is no ordinary legislation. The COVID-19 pandemic has

decimated the country’s economy, and the PPP is an unprecedented effort to undo

that financial ruin. More importantly, the PPP is an effort to protect American

workers – as noted above, it is located within a Title of the CARES Act named the

“Keeping American Workers Paid and Employed Act” – and Congress could

rationally have concluded that those workers need protection no matter the line of

business in which they work. From this perspective, Congress’s decision to expand

funding to previously ineligible businesses is not an endorsement or approval of

those businesses. Instead, it is a recognition that in the midst of this crisis, the

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 36 of 45

workers at those businesses have no viable alternative options for employment in

other, favored lines of work and desperately need help. It is not absurd to conclude

that in order to support these workers, Congress temporarily permitted previously

excluded businesses to obtain SBA financial assistance.6

Notably, the SBA itself seems to recognize that Congress is willing to extend

PPP loan guarantees to businesses that were previously excluded from receiving

SBA financial assistance. The Original SBA Ineligibility Rule deemed ineligible

for SBA funding any business that “deriv[es] more than one-third of gross annual

revenue from legal gambling activities.” 13 C.F.R. § 120.110(g). Yet, on April 28,

2020, the SBA decided to allow these businesses to receive PPP loan guarantees.

See Business Loan Program Temporary Changes; Paycheck Protection Program –

Requirements – Promissory Notes, Authorizations, Affiliation, and Eligibility, 85

Fed. Reg. 23450, 23451 (Apr. 28, 2020). The SBA explained that it would allow

gambling businesses to participate in the PPP because it “believes this approach is

more consistent with the policy aim of making PPP loans available to a broad

segment of U.S. businesses.” Id. (emphasis added). Thus, even the SBA recognizes

Congress’s willingness to support employees in lines of business that were

previously disfavored. This further undercuts the Defendants’ argument that the

6
The PPP is a short-term program. The “covered period” during which SBA
guaranteed loans are available began on February 15, 2020, and ends on June 30,
2020. See 15 U.S.C. § 636(a)(36)(A)(iii).

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 37 of 45

Court’s construction of the PPP here would lead to an absurd result that Congress

could not have intended.

For all of these reasons, the Court’s construction of the PPP does not yield an

absurd result.7

For all of the reasons explained above, the Court concludes under step one of

Chevron that the PPP Ineligibility Rule conflicts with the PPP and is therefore

invalid.8 Accordingly, Plaintiffs have shown a substantial likelihood of success on

7
The PPP Ineligibility Rule bars “businesses engaged in illegal activity” and
“businesses located in a foreign country” from obtaining PPP loans. See Business
Loan Program Temporary Changes; Paycheck Protection Program, 85 Fed. Reg.
20811, 20812 (April 15, 2020) (stating illegibility rule and incorporating 13 C.F.R.
§§ 120.110(e), (h)). Though the Court deems the rule invalid, these two eligibility
limitations from the rule are inherent in the PPP itself and do not depend upon the
continued validity of the rule. First, all federal spending statutes – including the PPP
– necessarily limit spending to lawful pursuits even without specifying that
limitation. Second, the term “any business concern” in the PPP is naturally read in
light of the “ordinary assumption” that a statute passed by Congress “applies
domestically, not extraterritorially.” Small v. United States, 544 U.S. 385, 391
(2005) (holding, in light of that “ordinary assumption,” that the term “convicted in
any court” does not include convictions in foreign courts). Thus, the Court’s
conclusion that the PPP Ineligibility Rule may not be enforced does not lead to the
absurd result that PPP loans must be extended to businesses committing crimes or
businesses located outside the United States.
8
The Plaintiffs have consistently argued that the PPP Ineligibility Rule is invalid
because it purports to establish limits on PPP loan guarantee eligibility that conflict
with the eligibility provisions of the PPP. (See, e.g., Am. Compl. at ¶¶ 526-27, ECF
No. 11, PageID.364.) When Plaintiffs first made that argument, they identified the
eligibility provisions of the PPP as those set forth in 15 U.S.C.
§ 636(a)(36)(F)(ii)(II). That section provides: “In evaluating the eligibility of a

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 38 of 45

their claim that the SBA may not enforce against them the provision of the rule

excluding from eligibility for a PPP loan businesses that present entertainment or

sell products of a “prurient sexual nature.”9

The Court now turns to the remaining preliminary injunction factors –

irreparable harm, the balance of harms, and the public interest. Each factor favors

the issuance of preliminary injunctive relief here.

To begin, Plaintiffs have established that they will suffer irreparable harm in

the absence of an injunction. Indeed, Plaintiffs have shown that if the Court does

borrower for a covered loan with the terms described in this paragraph, a lender shall
consider whether the borrower – (aa) was in operation on February 15, 2020; and
(bb)(AA) had employees for whom the borrower paid salaries and payroll taxes; or
(BB) paid independent contractors, as reported on a Form 1099-MISC.” 15 U.S.C.
§ 636(a)(36)(F)(ii)(II)(aa)-(bb)(AA)-(BB). The Court does not believe that this
section establishes the substantive eligibility criteria for a PPP loan. This section is
best understood as directing lenders as to what they should consider in determining
whether the eligibility factors – which are set forth in 15 U.S.C. § 636(a)(36)(D)(i)
– have been satisfied. During the continuation of the hearing on May 5, 2020, the
Court discussed with Defendants’ counsel its view that the PPP eligibility criteria
are set forth in 15 U.S.C. § 636(a)(36)(D)(i) and offered counsel the opportunity to
respond to that view.
9
The United States District Court for the Eastern District of Wisconsin reached the
same conclusion in Camelot Banquet Rooms, supra. However, the court in Camelot
Banquet Rooms rested its holding on a different statutory provision than the one
discussed at length by the Court above. See Camelot Banquet Rooms, 2020 WL
2088637, at *7 (citing 15 U.S.C. § 636(a)). While the Court agrees with and finds
the reasoning of the Wisconsin district court persuasive, the Court chooses to rest its
analysis primarily on the statutory provision discussed at length above.

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 39 of 45

not grant preliminary injunctive relief, there may be no relief at all available to them.

The PPP is a short-term program with limited loan guarantees that are offered “on a

first-come, first-served basis. Once the funds Congress appropriated for the PPP are

exhausted, the SBA will be unable to guarantee further loans.” Camelot Banquet

Rooms, 2020 WL 2088637, at *11. Because PPP loan guarantees are being

exhausted so quickly, there is a substantial likelihood that without injunctive relief,

the Plaintiffs will be “permanently excluded from the PPP.” Id. And Plaintiffs would

have no monetary remedy for such an exclusion because Defendants have sovereign

immunity from any claim for monetary damages. As the federal district court

explained in Camelot Banquet Rooms, “the inability to obtain damages implies that

any harm the plaintiffs suffer between now and the end of the case will be

irreparable”:

I note that the government does not concede that it could
be held liable for damages at the end of this case.
Ordinarily, the federal government and its officials sued in
their official capacities (as they are sued here) have
sovereign immunity from damages. See, e.g., FDIC v.
Meyer, 510 U.S. 471, 475, 114 S.Ct. 996, 127 L.Ed.2d 308
(1994). No party has suggested that the federal
government has waived its sovereign immunity from
damages under the present circumstances. Moreover, the
Tenth Circuit has held that the Small Business Act’s sue-
and-be-sued clause, 15 U.S.C. § 634(b)(1), does not render
the SBA liable for damages in a suit involving the SBA’s
refusal to guarantee a small business loan. See Ascot
Dinner Theatre, Ltd. v. Small Bus. Admin., 887 F.2d 1024,
1027–28 (10th Cir. 1989). Thus, I assume for purposes of
this motion that the plaintiffs could not obtain damages for

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 40 of 45

any harm caused by the SBA’s refusal to guarantee their
loans. The plaintiffs therefore lack an adequate remedy at
law. Moreover, the inability to obtain damages implies
that any harm the plaintiffs suffer between now and the
end of the case will be irreparable. See Smith v. City of
Hammond, Ind., 388 F.3d 304, 307 (7th Cir. 2004) (noting
that in some cases “a defendant’s immunity from damages
liability might constitute irreparable harm entitling the
plaintiff to preliminary relief”).

Id.

And even if Defendants did not enjoy sovereign immunity, it would appear

that Plaintiffs would still lack an adequate remedy. There is a substantial risk that

Plaintiffs will lose their businesses if they do not obtain PPP loans now. Plaintiffs’

businesses involve relatively close contact between (1) certain staff (i.e., servers, bus

staff, bartenders, valet team, etc.) and patrons and (2) groups of patrons. Thus,

Plaintiffs’ businesses will almost certainly be the last ones to be permitted to return

to anything close to normal operations. In the meantime, they will continue to suffer

large – and potentially unsustainable – losses. Indeed, “as a general matter, it is

reasonable to infer that any small business, regardless of the services and/or products

it provides, would have trouble surviving if forced to close its doors for two months

followed by a limited, piecemeal reopening.” Id. at *12 (emphasis in original). And

“[t]he loss or destruction of an entire business” that Plaintiffs face here has “widely

been held to constitute irreparable harm, at least when the business has been in

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 41 of 45

operation for some time.” Truglia v. KFC Corp., 692 F. Supp. 271, 279 (S.D.N.Y.

1988), aff’d, 875 F.2d 308 (2d Cir. 1989).

Next, the balance of harms and public interest factors also favor the granting

of a preliminary injunction here. As explained above, the purpose of the PPP is to

protect the employment and livelihood of employees who, through no fault of their

own, have found their places of employment closed due to the COVID-19 pandemic.

That purpose would be frustrated if the Court did not grant the requested preliminary

injunction. “Guaranteeing the plaintiffs’ loans now, rather than months from now

when this case is over, furthers the public interest in helping all small businesses and

their employees get through the pandemic.” Camelot Banquet Rooms, 2020 WL

2088637, at *12. The Defendants counter that a preliminary injunction is not in the

public interest because “Congress did not deem it in the public interest to compel the

SBA to make PPP loans available to businesses of a prurient sexual nature.” (Resp.

Br., ECF No. 24, PageID.701.) But for all of the reasons explained in detail above,

the Court disagrees and concludes that Congress did intend to include Plaintiffs in

the PPP. Thus, granting preliminary relief is fully consistent with Congress’s intent

and is in the public interest. Finally, Defendants argue that others may be harmed

by the issuance of an injunction because “PPP financing allocated to Plaintiffs

necessarily would come at the cost of denying it to others seeking the same

assistance.” (Id., PageID.733.) The Defendants made the same argument in the

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 42 of 45

Camelot Banquet Rooms litigation, and the court there rejected it. It concluded that

“the plaintiffs’ high likelihood of success on the merits makes up for this potential

harm. That is, because the plaintiffs have shown that they likely should have received

PPP loans when they applied, any harm to the third parties who applied after them

and who would have received loans if the plaintiffs’ applications were denied” is too

speculative. Camelot Banquet Rooms, 2020 WL 2088637, at *12. This Court agrees.

Because each of the injunction factors favors issuing a preliminary injunction

in this action, the Court will issue such an injunction as set forth below.

VII

As explained above, Plaintiffs have advanced several constitutional

arguments in support of their request for injunctive relief. The Court does not reach

those constitutional claims because “[i]t is well settled that if a case may be decided

on either statutory or constitutional grounds, [courts], for sound jurisprudential

reasons, [should] inquire first into the statutory question. This practice reflects the

deeply rooted doctrine that [courts] ought not to pass on questions of

constitutionality . . . unless such adjudication is unavoidable.” Harris v. McRae, 448

U.S. 297, 306-07 (1980) (internal quotation marks omitted); see also Camreta v.

Greene, 563 U.S. 692, 706 (2011) (noting that “a longstanding principle of judicial

restraint requires that courts avoid reaching constitutional questions in advance of

the necessity of deciding them”). Here, because the Court has concluded that the

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 43 of 45

SBA exceeded its statutory authority when it adopted the PPP Ineligibility Rule, the

Court need not address Plaintiffs’ constitutional challenges.

VIII

Finally, the Court must consider whether to require Plaintiffs to post a bond.

Under Federal Rule of Civil Procedure 65(c), a court may issue a preliminary

injunction “only if the movant gives security in an amount that the court considers

proper to pay the costs and damages sustained by any party found to have been

wrongfully enjoined.” However, notwithstanding that provision, “the rule in [the

Sixth] [C]ircuit has long been that the district court possesses discretion over

whether to require the posting of security.” Motan Co. v. Eagle-Picher Indus., Inc.,

55 F.3d 1171, 1176 (6th Cir. 1995); see also Concerned Pastors for Social Action v.

Khouri, 220 F. Supp. 3d 823, 829 (E.D. Mich. 2016) (same). And courts have

“significant discretion to waive the bond requirement in light of the public interest.”

Khouri, 220 F. Supp. 3d at 829.

Here, the Court declines to require a bond. Forcing Plaintiffs to post a bond

would frustrate the purpose of the PPP and the purpose of the injunction – to get

essential PPP loans to struggling small businesses as soon as possible so that the

businesses may use the funds to pay displaced employees. If the Court forced the

Plaintiffs to expend funds by posting a bond, that would divert money that could be

used to pay employees and that are needed to help secure Plaintiffs’ financial

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 44 of 45

survival. Moreover, with the PPP loans, Plaintiffs stand an increased chance of

surviving and being able to repay the loans in full in the event that Defendants

ultimately prevail on the merits. That further weighs against requiring a bond here.

For all of the reasons explained above, IT IS HEREBY ORDERED that

Plaintiffs’ Motion for Preliminary Injunction is GRANTED AS FOLLOWS:

1. By 5:00 p.m. Eastern Time on Monday, May 11, 2020, Plaintiffs and

Intervenors shall transmit to counsel for Defendants the name and full

contact information (including email addresses) for the employee of their

lenders who has responsibility for their applications for PPP loans.

2. By 12:00 p.m. Eastern time on Thursday, May 14, 2020, the SBA shall

notify the identified lender representatives in writing that (a) the

applications by Plaintiffs and Intervenors for PPP loans shall not be denied

based on the “prurient sexual nature” provisions of the Original SBA

Ineligibility Rule, the 2019 SOP, and/or the PPP Ineligibility Rule, and (b)

in the event that Plaintiffs and Intervenors otherwise meet the eligibility

requirements for PPP loans, the SBA will guarantee the loans for which

Plaintiffs and Intervenors have applied or attempted to apply.

Case 4:20-cv-10899-MFL-DRG ECF No. 42, PageID.<pageID> Filed 05/11/20 Page 45 of 45

3. In the event that Plaintiffs and Intervenors otherwise meet the eligibility

requirements for PPP loans, the SBA shall guarantee the loans for which

Plaintiffs and Intervenors have applied or attempted to apply.

4. This is not a “nationwide injunction” and does not affect in any way actions

that Defendants may take in connection with applications for PPP loans by

any entity other than the Plaintiffs and Intervenors in this action.

IT IS SO ORDERED.

s/Matthew F. Leitman
MATTHEW F. LEITMAN
UNITED STATES DISTRICT JUDGE
Dated: May 11, 2020

I hereby certify that a copy of the foregoing document was served upon the
parties and/or counsel of record on May 11, 2020, by electronic means and/or
ordinary mail.

s/ Holly A. Monda
Case Manager
(810) 341-9764

File and source

File: mied-4-20-cv-10899-1.pdf
Size: 319,473 bytes
SHA-256: 74454d412d86b1642f37908e7fa34cd373dda90faa90447814c3d5f7396944c0
Our copy: mied-4-20-cv-10899-1.pdf