Court filing
Notice of Motion, Defendants’ Motion to Dismiss Plaintiffs’ First Amended Complaint in Part and to Strike Jury Demand, and Memorandum of Supporting Points and Authorities — Gold Club SF, LLC v. United States Small Business Administration (Dkt. 28, N.D. Cal.)
Summary
Defendants' 52-page Motion to Dismiss Plaintiffs' First Amended Complaint in Part and to Strike Jury Demand in Gold Club SF, LLC, et al. v. United States Small Business Administration, et al., Case 3:24-cv-04241-LJC (Document 28, N.D. Cal.), filed January 29, 2025 before The Honorable Lisa J. Cisneros and noticed for May 13, 2025. Through Trial Attorney Ross Slaughter (NC Bar No. 58086), Defendants argue that Counts IV through XI and XVI (the APA challenge to the prurience regulation, the affiliation-rule claims and the challenge to the bar on injunctive relief against SBA) are not ripe, and that only Gold Club's second-draw loan claims are ripe. They also call the prurient business exclusion in 13 C.F.R. 120.110 a permissible limit on a government subsidy, say no Fifth Amendment violation is plausibly alleged, and ask to dismiss Counts I, II, XV and XVIII and strike the jury demand.
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 January 29, 2025 in Gold Club SF, LLC v. United States Small Business Administration; one of 8 filings from this case.
Record facts
| Court | U.S. District Court for the Northern District of California |
|---|---|
| Filed | 2025-01-29 |
Cite this document
“Notice of Motion, Defendants’ Motion to Dismiss Plaintiffs’ First Amended Complaint in Part and to Strike Jury Demand, and Memorandum of Supporting Points and Authorities — Gold Club SF, LLC v. United States Small Business Administration (Dkt. 28, N.D. Cal.).”
U.S. District Court for the Northern District of California, No. 3:24-cv-04241, Doc. 28, filed 2025-01-29. Archived at Pandemic Darlings, https://pandemicdarlings.com/court-filings/full-docket-united-states-small-business-administration-cand-432603/2025-01-29-gov-uscourts-cand-432603-28-0-doc-28/
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Case 3:24-cv-04241-LJC Document 28 Filed 01/29/25 Page 1 of 52
1 BRETT A. SHUMATE
Acting Assistant Attorney General
2 JOSEPH E. BORSON
Assistant Branch Director
3 ROSS SLAUGHTER
Trial Attorney (NC Bar No. 58086)
4 U.S. Department of Justice
Civil Division
5 Federal Programs Branch
1100 L Street NW
6 Washington, DC 20005
202-616-8185
7 ross.m.slaughter@usdoj.gov
8 Counsel for Defendants
9 UNITED STATES DISTRICT COURT
10 NORTHERN DISTRICT OF CALIFORNIA
11 SAN FRANCISCO DIVISION
12 GOLD CLUB SF, LLC, et al., ) CASE NO. 3:24-cv-4241-LJC
)
13 Plaintiffs, )
) NOTICE OF MOTION, DEFENDANTS’
14 v. ) MOTION TO DISMISS PLAINTIFFS’
) FIRST AMENDED COMPLAINT IN PART
15 UNITED STATES SMALL BUSINESS ) AND TO STRIKE JURY DEMAND, AND
ADMINISTRATION, et al., ) MEMORANDUM OF SUPPORTING
16 ) POINTS AND AUTHORITIES
Defendants. )
17 ) Date: May 13, 2025
) Time: 10:30 a.m.
18 ) Place: San Francisco Courthouse, Courtroom G
)
19 ) The Honorable Lisa J. Cisneros
20
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26
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28
MOTION TO DISMISS PLAINTIFFS’ FIRST AMENDED COMPLAINT IN PART AND TO STRIKE JURY DEMAND
CASE NO. 3:24-CV-4241-LJC
Case 3:24-cv-04241-LJC Document 28 Filed 01/29/25 Page 2 of 52
1
TABLE OF CONTENTS
2
INTRODUCTION .......................................................................................................................................1
3
ISSUES TO BE DECIDED .........................................................................................................................3
4
BACKGROUND .........................................................................................................................................4
5
I. Legal Framework .............................................................................................................................4
6
A. SBA’s § 7(a) Loan Program ................................................................................................4
7
B. The CARES Act and the PPP ..............................................................................................6
8
C. The First PPP IFR ................................................................................................................7
9
D. The Economic Aid Act ........................................................................................................7
10
E. Forgiveness and Review of PPP Loans ...............................................................................8
11
II. This Litigation................................................................................................................................10
12
STANDARD OF REVIEW .......................................................................................................................14
13
ARGUMENT .............................................................................................................................................15
14
I. Plaintiffs’ Claims Related to SBA’s Affiliation Rules (Counts V to XI) Are Not Ripe. ..............15
15
A. Plaintiffs’ Affiliation Claims Are Not Fit For Decision. ...................................................16
16
B. Plaintiffs Will Experience No Cognizable Hardship From Delay. ....................................19
17
II. Plaintiffs’ APA Claims Related to SBA’s Affiliation Rules (Counts VII , VIII, X, and
18 XI) Do Not Challenge Final Agency Action. ................................................................................20
19 III. Only Gold Club’s Challenges Related to the Denial of Forgiveness on Its Second-
Draw Loan Are Ripe. .....................................................................................................................22
20
IV. Plaintiffs Fail to Plausibly Allege that the Exclusion of Prurient Businesses from the
21 PPP Violates the First Amendment................................................................................................24
22 A. The Prurient Business Exclusion Is Not a Content- or Viewpoint-Based
Regulation of Speech. It Is a Permissible Limit on The Scope of a
23 Government Subsidy..........................................................................................................25
24 B. The Prurient Business Exclusion Is Not an Unconstitutional Condition. ..........................27
25 C. The Prurient Business Exclusion Is Not a Prior Restraint. ................................................29
26 D. Congress Had a Rational Basis for the Prurient Business Exclusion. ...............................29
27 E. The Prurient Business Exclusion Need Not Conform to The Constitutional
Standard for Obscenity. .....................................................................................................31
28
MOTION TO DISMISS PLAINTIFFS’ FIRST AMENDED COMPLAINT IN PART AND TO STRIKE JURY DEMAND
CASE NO. 3:24-CV-4241-LJC i
Case 3:24-cv-04241-LJC Document 28 Filed 01/29/25 Page 3 of 52
1 F. The Prurient Business Exclusion Is Not Unconstitutionally Vague. .................................31
2 G. Plaintiffs Have Not Plausibly Alleged that the Prurient Business Exclusion Is
Being Applied to Plaintiffs in a Retaliatory Manner. ........................................................33
3
V. Plaintiffs Have Not Plausibly Alleged the Prurient Business Exclusion Violates the
4 Fifth Amendment.. .........................................................................................................................36
5 VI. Plaintiffs’ Challenge to the Statutory Bar on Injunctive Relief Against SBA Is Not
Ripe. ...............................................................................................................................................37
6
VII. Counts XV and XVIII Should be Dismissed Because Requests for Attorneys’ Fees
7 and Injunctive Relief Are Not Causes of Action. ..........................................................................38
8 VIII. The Court Should Strike Plaintiffs’ Jury Demand. ........................................................................39
9 CONCLUSION ..........................................................................................................................................39
10
11
12
13
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15
16
17
18
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24
25
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28
MOTION TO DISMISS PLAINTIFFS’ FIRST AMENDED COMPLAINT IN PART AND TO STRIKE JURY DEMAND
CASE NO. 3:24-CV-4241-LJC ii
Case 3:24-cv-04241-LJC Document 28 Filed 01/29/25 Page 4 of 52
1 TABLE OF AUTHORITIES
2 Cases
3 Abbott Laboratories v. Gardner,
387 U.S. 136 (1967) .............................................................................................................................. 15
4
5 Acura of Bellevue v. Reich,
90 F.3d 1403 (9th Cir. 1996) .......................................................................................................... 18, 21
6
Agency for Int’l Dev. v. Alliance for Open Soc’y Int’l, Inc.,
7 570 U.S. 205 (2013) ........................................................................................................... 27, 28, 29, 32
8
Alaska Right to Life Pol. Action Comm. v. Feldman,
9 504 F.3d 840 (9th Cir. 2007) .......................................................................................................... 15, 16
10 Alexander v. United States,
509 U.S. 544 (1993) .............................................................................................................................. 29
11
12 Ameren Servs. Co. v. FERC,
893 F.3d 786 (D.C. Cir. 2018) .............................................................................................................. 18
13
Ariz. Students’ Ass’n v. Ariz. Bd. of Regents,
14 824 F.3d 858 (9th Cir. 2016) ................................................................................................................ 34
15 Ashcroft v. Iqbal,
16 556 U.S. 662 (2009) .............................................................................................................................. 14
17 Ass’n of Am. Med. Colleges v. United States,
217 F.3d 770 (9th Cir. 2000) ......................................................................................................... passim
18
Bell Atl. Corp. v. Twombly,
19 550 U.S. 544 (2007) .............................................................................................................................. 14
20
Bennett v. Spear,
21 520 U.S. 154 (1997) .............................................................................................................................. 20
22 Boquist v. Courtney,
32 F.4th 764 (9th Cir. 2022) ..................................................................................................... 11, 34, 35
23
24 Brewster v. Bd. of Educ. of Lynwood Unified Sch. Dist.,
149 F.3d 971 (9th Cir. 1998) ................................................................................................................ 23
25
California Dep’t of Water Res. v. FERC,
26 361 F.3d 517 (9th Cir. 2004) ................................................................................................................ 18
27
Camelot Banquet Rooms, Inc. v. U.S. Small Bus. Admin.,
28 24 F.4th 640 (7th Cir. 2022) .......................................................................................................... passim
MOTION TO DISMISS PLAINTIFFS’ FIRST AMENDED COMPLAINT IN PART AND TO STRIKE JURY DEMAND
CASE NO. 3:24-CV-4241-LJC iii
Case 3:24-cv-04241-LJC Document 28 Filed 01/29/25 Page 5 of 52
1 Cammarano v. United States,
358 U.S. 498 (1959) .............................................................................................................................. 25
2
Carr v. Saul,
3
593 U.S. 83 (2021) ................................................................................................................................ 18
4
City & Cnty. of San Francisco v. Garland,
5 42 F.4th 1078 (9th Cir. 2022) ............................................................................................................... 37
6 City of Renton v. Playtime Theatres, Inc.,
475 U.S. 41, (1986) ............................................................................................................................... 30
7
8 Clapper v. Amnesty Int’l USA,
568 U.S. 398 (2013) .............................................................................................................................. 19
9
Clinton v. Acequia, Inc.,
10 94 F.3d 568 (9th Cir. 1996) .................................................................................................................. 37
11
Colwell v. HHS,
12 558 F.3d 1112 (9th Cir.2009) ............................................................................................................... 15
13 Cota v. United States, No. C,
13-00576 JSW, 2013 WL 6234574 (N.D. Cal. Dec. 2, 2013) .............................................................. 38
14
15 Ctr. for Fair Pub. Policy v. Maricopa Cty.,
336 F.3d 1153 (9th Cir. 2003) .............................................................................................................. 30
16
Cunningham Energy, LLC v. Vesta O&G Holdings, LLC,
17 578 F. Supp. 3d 798 (S.D.W. Va. 2022) ............................................................................................... 38
18 D. Houston Inc. v. U.S. Small Bus. Admin.,
19 579 F. Supp. 3d 959 (S.D. Tex. 2020) .................................................................................................. 26
20 Darby v. Cisneros,
509 U.S. 137 (1993) ........................................................................................................................ 18, 21
21
Davenport v. Wash. Educ. Ass’n,
22
551 U.S. 177 (2007) .............................................................................................................................. 26
23
Deja Vu-San Francisco LLC v. U.S. Small Bus. Admin.,
24 No. 20-CV-03982-LB, 2020 WL 6260010 (N.D. Cal. Sept. 11, 2020)......................................... passim
25 DSE, Inc. v. United States,
169 F.3d 21 (D.C. Cir. 1999) .................................................................................................................. 5
26
27 Engquist v. Or. Dep’t of Agr.,
553 U.S. 591 (2008) .............................................................................................................................. 37
28
MOTION TO DISMISS PLAINTIFFS’ FIRST AMENDED COMPLAINT IN PART AND TO STRIKE JURY DEMAND
CASE NO. 3:24-CV-4241-LJC iv
Case 3:24-cv-04241-LJC Document 28 Filed 01/29/25 Page 6 of 52
1 EVIG, LLC v. Natures Nutra Co.,
685 F. Supp. 3d 991 (D. Nev. 2023) ..................................................................................................... 38
2
FCC v. Beach Commc’ns, Inc.,
3
508 U.S. 307 (1993) .............................................................................................................................. 30
4
Franklin v. Massachusetts,
5 505 U.S. 788 (1992) .............................................................................................................................. 16
6 Gallinger v. Becerra,
898 F.3d 1012 (9th Cir. 2018) ........................................................................................................ 30, 36
7
8 Gammoh v. City of La Habra,
395 F.3d 1114 (9th Cir. 2005) .............................................................................................................. 30
9
General Media Commc’ns v. Cohen,
10 131 F.3d 273 (2d Cir. 1997)............................................................................................................ 27, 33
11
Grayned v. City of Rockford,
12 408 U.S. 104 (1972) .............................................................................................................................. 31
13 Gulf Oil Co. v. Bernard,
452 U.S. 89 (1981) ................................................................................................................................ 22
14
15 Hartman v. Moore,
547 U.S. 250 (2006) .............................................................................................................................. 34
16
Haynie v. Veneman,
17 272 F. Supp. 2d 10 (D.D.C. 2003) ........................................................................................................ 39
18 Heller v. Doe,
19 509 U.S. 312 (1993) ........................................................................................................................ 30, 37
20 Horning v. SEC,
570 F.3d 337 (D.C. Cir. 2009) .............................................................................................................. 24
21
In re Aiken Cnty.,
22
645 F.3d 428 (D.C. Cir. 2011) .............................................................................................................. 15
23
In re Gateway Radiology Consultants, P.A.,
24 983 F.3d 1239 (11th Cir. 2020) .......................................................................................................... 4, 6
25 Indus. Customers of Nw. Utilities v. Bonneville Power Admin.,
767 F.3d 912 (9th Cir. 2014) ................................................................................................................ 24
26
27 Jackson Water Works, Inc. v. Pub. Utilities Comm’n of State of Cal.,
793 F.2d 1090 (9th Cir. 1986) .............................................................................................................. 30
28
MOTION TO DISMISS PLAINTIFFS’ FIRST AMENDED COMPLAINT IN PART AND TO STRIKE JURY DEMAND
CASE NO. 3:24-CV-4241-LJC v
Case 3:24-cv-04241-LJC Document 28 Filed 01/29/25 Page 7 of 52
1 Jones v. L.A. Cent. Plaza LLC,
74 F.4th 1053 (9th Cir. 2023) ............................................................................................................... 14
2
Kahawaiolaa v. Norton,
3
386 F.3d 1271 (9th Cir. 2004) .............................................................................................................. 37
4
Keyishian v. Bd. of Regents Univ.,
5 385 U.S. 603– (1967) ............................................................................................................................ 32
6 Keyser v. Sacramento City Unified Sch. Dist.,
265 F.3d 741 (9th Cir. 2001) ................................................................................................................ 35
7
8 Leathers v. Medlock,
499 U.S. 439 (1991) .............................................................................................................................. 26
9
Lee v. Oregon,
10 107 F.3d 1382 (9th Cir. 1997) .............................................................................................................. 19
11
Lehman v. Nakshian,
12 453 U.S. 156 (1981) .............................................................................................................................. 39
13 Lorona v. Ariz. Summit L. Sch., LLC,
151 F. Supp. 3d 978 (D. Ariz. 2015) .................................................................................................... 39
14
15 Lujan v. Defs. of Wildlife,
504 U.S. 555 (1992) .............................................................................................................................. 38
16
Matal v. Tam,
17 582 U.S. 218 (2017) .............................................................................................................................. 22
18 Mendocino Env’t Ctr. v. Mendocino Cnty.,
19 192 F.3d 1283 (9th Cir. 1999) .............................................................................................................. 34
20 Miller v. California,
413 U.S. 15 (1973) ................................................................................................................................ 31
21
Mont. Env’t Info. Ctr. v. Stone-Manning,
22
766 F.3d 1184 (9th Cir. 2014) .............................................................................................................. 15
23
Moody v. NetChoice, LLC,
24 603 U.S. 707 (2024) .............................................................................................................................. 25
25 Nat’l Endowment for the Arts v. Finley,
524 U.S. 569 (1998) .................................................................................................................. 26, 32, 33
26
27 Nat’l Park Hosp. Ass’n v. Dep’t of Interior,
538 U.S. 803 (2003) .............................................................................................................................. 15
28
MOTION TO DISMISS PLAINTIFFS’ FIRST AMENDED COMPLAINT IN PART AND TO STRIKE JURY DEMAND
CASE NO. 3:24-CV-4241-LJC vi
Case 3:24-cv-04241-LJC Document 28 Filed 01/29/25 Page 8 of 52
1 Nieves v. Bartlett,
587 U.S. 391, (2019) ....................................................................................................................... 34, 35
2
Ohio Forestry Ass’n v. Sierra Club,
3
523 U.S. 726 (1998) .................................................................................................................. 15, 19, 22
4
Ostrom v. O’Hare,
5 160 F. Supp. 2d 486 (E.D.N.Y. 2001) .................................................................................................. 33
6 Paris Adult Theatre I v. Slaton,
413 U.S. 49 (1973) ................................................................................................................................ 30
7
8 Perry v. Sindermann,
408 U.S. 593 (1972) .............................................................................................................................. 34
9
Pham v. Jaddou,
10 No. 23-CV-1058-W-KSC, 2024 WL 436351 (S.D. Cal. Feb. 5, 2024) ................................................ 38
11
Pharaohs GC, Inc. v. U.S. Small Bus. Admin.,
12 990 F.3d 217 (2d Cir. 2021)................................................................................................ 25, 29, 30, 31
13 PMG Int’l Div. L.L.C. v. Rumsfeld,
303 F.3d 1163 (9th Cir. 2002) .............................................................................................................. 27
14
15 Radio Servs. Co. v. U.S. Forest Serv.,
578 F.3d 1116 (9th Cir. 2009) .............................................................................................................. 39
16
Ramos v. Chase Home Fin.,
17 810 F. Supp. 2d 1125 (D. Haw. 2011) .................................................................................................. 38
18 Reed v. Town of Gilbert, Ariz.,
19 576 U.S. 155 (2015) .............................................................................................................................. 25
20 Regan v. Taxation With Representation of Wash.,
461 U.S. 540 (1983) ....................................................................................................................... passim
21
Reichle v. Howards,
22
566 U.S. 658 (2012) .............................................................................................................................. 34
23
Ridley v. Mass. Bay Transp. Auth.,
24 390 F.3d 65 (1st Cir. 2004) ................................................................................................................... 33
25 Rust v. Sullivan,
500 U.S. 173 (1991) ............................................................................................................ 26, 28, 31, 32
26
27 S. Cal. All. of Publicly Owned Treatment Works v. U.S. Env’t Prot. Agency,
8 F.4th 831 (9th Cir. 2021) ............................................................................................................. 20, 22
28
MOTION TO DISMISS PLAINTIFFS’ FIRST AMENDED COMPLAINT IN PART AND TO STRIKE JURY DEMAND
CASE NO. 3:24-CV-4241-LJC vii
Case 3:24-cv-04241-LJC Document 28 Filed 01/29/25 Page 9 of 52
1 Safe Air for Everyone v. Meyer,
373 F.3d 1035 (9th Cir. 2004) .............................................................................................................. 14
2
San Francisco Herring Ass’n v. Dep’t of the Interior,
3
946 F.3d 564 (9th Cir. 2019) .......................................................................................................... 20, 22
4
SBA v.McClellan,
5 364 U.S. 446 (1960) ................................................................................................................................ 4
6 Schultz v. Harry S. Truman Scholarship Found.,
No. 20-CV-04058-MMC, 2023 WL 2456714 (N.D. Cal. Mar. 10, 2023) ........................................... 39
7
8 Shinault v. Hawks,
782 F.3d 1053 (9th Cir. 2015) .............................................................................................................. 24
9
Snoqualmie Indian Tribe v. Washington,
10 8 F.4th 853 (9th Cir. 2021) ................................................................................................................... 15
11
Spector Motor Serv., Inc. v. McLaughlin,
12 323 U.S. 101 (1944) .............................................................................................................................. 22
13 Stavrianoudakis v. U.S. Fish & Wildlife Serv.,
108 F.4th 1128 (9th Cir. 2024) ...................................................................................................... passim
14
15 Stormans, Inc. v. Selecky,
586 F.3d 1109 (9th Cir. 2009) ........................................................................................................ 16, 19
16
Thomas v. Anchorage Equal Rts. Comm’n,
17 220 F.3d 1134 (9th Cir. 2000) .................................................................................................. 15, 23, 38
18 Thomas v. City of New York,
19 143 F.3d 31 (2d Cir. 1998).................................................................................................................... 24
20 Thomas v. Paulson,
507 F. Supp. 2d 59 (D.D.C. 2007) ........................................................................................................ 38
21
Twitter, Inc. v. Paxton,
22
56 F.4th 1170 (9th Cir. 2022) ......................................................................................................... 15, 38
23
Underwood v. Mackay,
24 614 F. App’x 871 (9th Cir. 2015) ......................................................................................................... 16
25 United Pub. Workers of Am. v. Mitchell,
330 U.S. 75 (1947) ................................................................................................................................ 37
26
27 United States v. Am. Library Ass’n,
539 U.S. 194 (2003) .................................................................................................................. 26, 27, 31
28
MOTION TO DISMISS PLAINTIFFS’ FIRST AMENDED COMPLAINT IN PART AND TO STRIKE JURY DEMAND
CASE NO. 3:24-CV-4241-LJC viii
Case 3:24-cv-04241-LJC Document 28 Filed 01/29/25 Page 10 of 52
1 United States v. Hatcher,
922 F.2d 1402 ....................................................................................................................................... 24
2
United States v. Lanier,
3
520 U.S. 259 (1997) .............................................................................................................................. 32
4
United States v. Nat’l Training & Info. Ctr., Inc.,
5 532 F. Supp. 2d 946 (N.D. Ill. 2007) .................................................................................................... 33
6 US W. Commc’ns v. MFS Intelenet, Inc.,
193 F.3d 1112 (9th Cir. 1999) .............................................................................................................. 18
7
8 Ysursa v. Pocatello Educ. Ass’n,
555 U.S. 353 (2009) ............................................................................................................ 26, 29, 30, 36
9
Statutes
10
5 U.S.C. § 553 ............................................................................................................................................. 7
11
12 5 U.S.C. § 702 ........................................................................................................................................... 21
13 5 U.S.C. § 704 ..................................................................................................................................... 20, 21
14 15 U.S.C. § 631 ........................................................................................................................................... 4
15 15 U.S.C. § 634 .................................................................................................................................. passim
16
15 U.S.C. § 636 .................................................................................................................................. passim
17
15 U.S.C. § 636m.................................................................................................................................. 8, 29
18
15 U.S.C. § 9012 ......................................................................................................................................... 6
19
20 Pub. L. No. 85–536, 72 Stat. 384 ............................................................................................................... 4
21 Pub. L. No. 116-139, 134 Stat. 620 ............................................................................................................ 7
22 Pub. L. No. 116-147, 134 Stat. 660 ............................................................................................................ 7
23
Pub. L. No. 116-136, 134 Stat. 281 .................................................................................................... 5, 6, 8
24
Pub. L. No. 116-260, 134 Stat. 1182 .......................................................................................................... 7
25
Pub. L. No. 117-2, 135 Stat. 4 .................................................................................................................... 8
26
Rules
27
Fed. R. Civ. P. 12 .................................................................................................................................. 2, 14
28
MOTION TO DISMISS PLAINTIFFS’ FIRST AMENDED COMPLAINT IN PART AND TO STRIKE JURY DEMAND
CASE NO. 3:24-CV-4241-LJC ix
Case 3:24-cv-04241-LJC Document 28 Filed 01/29/25 Page 11 of 52
1 Regulations
2 13 C.F.R. § 120.110 ................................................................................................................................ 5, 8
3 13 C.F.R. § 121.103 .................................................................................................................................... 5
4
13 C.F.R. § 121.107 ................................................................................................................................. 17
5
13 C.F.R. § 121.301 .................................................................................................................................... 5
6
13 C.F.R. § 134.1201 ...................................................................................................................... 9, 18, 21
7
8 13 C.F.R. § 134.1202 .............................................................................................................. 10, 18, 19, 21
9 13 C.F.R. § 134.1207 .................................................................................................................................. 9
10 13 C.F.R. § 134.1209 .................................................................................................................................. 9
11
13 C.F.R. § 134.1210 .................................................................................................................................. 9
12
60 Fed. Reg. 64356 (Dec. 15, 1995) ........................................................................................................... 5
13
61 Fed. Reg. 3226 (Jan. 31, 1996) .............................................................................................................. 5
14
85 Fed. Reg. 20811 (Apr. 15, 2020) ........................................................................................................... 6
15
16 85 Fed. Reg. 33010 (June 1, 2020) ............................................................................................................. 9
17 85 Fed. Reg. 38304 (June 26, 2020) ........................................................................................................... 8
18 85 Fed. Reg. 80581 (Dec. 14, 2020) ........................................................................................................... 5
19
86 Fed. Reg. 3692 (Jan.14, 2021) ......................................................................................................... 9, 19
20
86 Fed. Reg. 8283 (Feb. 5, 2021) ......................................................................................................... 9, 19
21
88 Fed. Reg. 21074 (Apr. 10, 2023) ........................................................................................................... 5
22
Other Authorities
23
24 SBA, Paycheck Protection Program (PPP) Report 2 (May 30, 2020) ........................................................ 7
25 SBA Press, Release No. 20-30.................................................................................................................... 7
26 SBA Press, Release No. 20-32.................................................................................................................... 7
27
28
MOTION TO DISMISS PLAINTIFFS’ FIRST AMENDED COMPLAINT IN PART AND TO STRIKE JURY DEMAND
CASE NO. 3:24-CV-4241-LJC x
Case 3:24-cv-04241-LJC Document 28 Filed 01/29/25 Page 12 of 52
1 NOTICE OF MOTION AND MOTION
2
PLEASE TAKE NOTICE Defendants, the United States Small Business Administration
3
(“SBA”), Acting SBA Administrator Everett Woodel, 1 SBA’s Office of Hearings and Appeals (“OHA”),
4
OHA Chief Hearing Officer Kimberly McLeod, and the United States of America, by and through
5 undersigned counsel, hereby move for an order dismissing in part Plaintiffs’ First Amended Complaint,
6 ECF No. 18, for lack of subject matter jurisdiction and for failure to state a claim pursuant to Rule 12(b)(1)
7 and 12(b)(6) of the Federal Rules of Civil Procedure and striking Plaintiffs’ jury demand. A hearing on
8 the motion is set for May 13, 2025, at 10:30 a.m. See Order, ECF No. 27. Undersigned counsel conferred
9 via telephone with counsel for Plaintiffs, who intend to oppose this motion.
10 RELIEF REQUESTED
11
Defendants seek an order (1) dismissing Counts IV, V, VI, VII, VIII, IX, X, XI, and XVI under
12
Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction, (2) dismissing Counts I,
13
II, III, XII, XIII, XIV, XV, and XVIII under Federal Rule of Civil Procedure 12(b)(1) for lack of subject
14
matter jurisdiction to the extent they raise challenges or seek relief unrelated to Plaintiff Gold Club SF,
15 LLC’s second-draw PPP loan, (3) dismissing Counts I, II, XV, and XVIII under Federal Rule of Civil
16 Procedure 12(b)(6) for failure to state a claim upon which relief may be granted with respect to Gold Club
17 SF, LLC’s second-draw loan, and (4) striking Plaintiffs’ jury demand.
18
19
20
21
22
23
24
25
26
27 1
Everett Woodel is currently the acting SBA Administrator and is the proper defendant for the
28 official capacity claims brought against former Administrator Guzman. See Fed. R. Civ. P. 25(d).
MOTION TO DISMISS PLAINTIFFS’ FIRST AMENDED COMPLAINT IN PART AND TO STRIKE JURY DEMAND
CASE NO. 3:24-CV-4241-LJC xi
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1 MEMORANDUM OF POINTS AND AUTHORITIES
2 INTRODUCTION
3 In the throes of the economic crisis induced by the COVID-19 pandemic, Congress issued a
4 mandate to the Small Business Administration (“SBA”) to promptly make hundreds of billions of dollars
5 in Paycheck Protection Program (“PPP”) loans available to millions of American small businesses. SBA
6 rose to the occasion and disbursed almost $350 billion in PPP loans in less than two weeks’ time, and
7 ultimately disbursed more than $800 billion in PPP loans. In creating the PPP, Congress instructed SBA
8 that PPP loans could be made available under the same terms and conditions as the agency’s traditional
9 “Section 7(a)” business loans, except insofar as Congress had by legislation directed otherwise. One way
10 that Congress modified the traditional Section 7(a) program was by waiving, for businesses in the
11 accommodation and food services industries, SBA’s normal rules for determining whether two or more
12 entities are “affiliated” for the purpose of determining the applicant’s size (SBA’s “affiliation rules”). One
13 of the traditional Section 7(a) terms and conditions that Congress did not modify—and that it later
14 expressly incorporated into the eligibility requirements for “second-draw” PPP loans—was SBA’s
15 decades-old rule against providing loans to businesses that present “live performances of a prurient sexual
16 nature” or that “derive . . . more than de minimis gross revenue” from products, services, depictions or
17 displays “of a prurient sexual nature” (collectively, the “prurient business exclusion”).
18 Plaintiffs are fifteen nightclubs and bars—eleven of which present “female performance dance
19 entertainment” or “male and female performance dance entertainment” 2—with PPP loans in various stages
20 of the forgiveness process. Of the twenty-four loans discussed in the First Amended Complaint, Plaintiffs
21 allege that two were forgiven pursuant to settlement agreements, fourteen have been forgiven (of which
22 twelve are alleged to be undergoing post-payment review), seven are awaiting a final forgiveness
23 determination from SBA, and one—Gold Club SF, LLC (“Gold Club”)’s second draw loan—has been
24 denied forgiveness based on the statutory exclusion of prurient businesses from the second-draw loan
25 program. Despite the fact that only one of these loans has been denied forgiveness, Plaintiffs seek to raise
26
27 2
Plaintiffs allege that the other four businesses are karaoke bars or bars that present no live
28 entertainment.
MOTION TO DISMISS PLAINTIFFS’ FIRST AMENDED COMPLAINT IN PART AND TO STRIKE JURY DEMAND
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1 a host of challenges not just to the statutory prurient business exclusion, but to SBA’s application of its
2 affiliation rules, to the regulatory exclusion of prurient businesses from the “first-draw” loan program,
3 and to SBA’s administrative appeals process.
4 Most of the claims in this case are premature and should be dismissed for lack of jurisdiction under
5 Rule 12(b)(1). To begin with, Plaintiffs’ claims related to SBA’s affiliation rules—Counts V to XI—are
6 not ripe. These claims are not fit for decision because no Plaintiff is the subject of a final decision denying
7 loan forgiveness based in whole or in part on SBA’s affiliation rules, and Plaintiffs will suffer no
8 cognizable hardship from delaying review until there is a final agency action. In addition, the Court lacks
9 subject matter jurisdiction over Plaintiffs’ APA claims challenging the interpretation and application of
10 SBA’s affiliation rules to Plaintiffs (Counts VII, VII, X, and XI) because there has been no final agency
11 action on which these claims could be based.
12 Moreover, with the exception of Gold Club’s claims regarding its second-draw loan, Plaintiffs’ as-
13 applied challenges to the prurient business exclusion, their challenges to SBA’s administrative appeals
14 process, their estoppel claims, and their requests for attorneys’ fees and injunctive relief are also unripe.
15 Only Gold Club’s claims regarding its second-draw loan are ripe, so Counts I–III , XII, XIII, XIV, XV,
16 and XVIII should be limited to the claims Gold Club can bring and Count IV, which only challenges
17 SBA’s regulatory exclusion of prurient businesses under the APA, not the statutory exclusion that was
18 applied to Gold Club, should be dismissed.
19 The Court should also dismiss Plaintiffs’ First and Fifth Amendment challenges to the statutory
20 prurience exclusion (Counts I and II) for failure to state a claim under Rule 12(b)(6). While Plaintiffs
21 invoke a bevy of legal doctrines in their First Amendment challenge to the prurience exclusion, Plaintiffs’
22 theories all ultimately rest on the mistaken notion that because their speech is not obscene, the Government
23 is constitutionally obligated to subsidize it. But the First Amendment does not compel Congress to
24 subsidize speech of any kind, on any topic, that Congress does not wish to promote, and Plaintiffs fail to
25 plausibly allege that in choosing to exclude prurient businesses from the PPP, Congress aimed to suppress
26 a particular viewpoint. Plaintiffs’ Fifth Amendment challenge fails because the prurience exclusion is
27
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1 subject only to rational basis review, which it easily satisfies. Congress could have rationally determined
2 it did not want to encourage the undesirable secondary effects associated with prurient businesses.
3 Finally, the Court should dismiss Plaintiffs’ claim challenging the statutory bar on injunctive relief
4 against SBA (Count XVI), dismiss their claims seeks attorneys’ fees and injunctive relief (Counts XV and
5 XVIII), and strike Plaintiffs’ jury demand. Plaintiffs’ claim challenging the statutory bar on injunctive
6 relief is unripe because it is entirely speculative whether this provision will ever be applied in a way that
7 injures Plaintiffs. Plaintiffs’ claims for attorneys’ fees and injunctive relief should be dismissed because
8 attorneys’ fees and injunctive relief are forms of relief, not independent causes of action. And Plaintiffs’
9 jury demand is improper because no statute provides a jury right for APA, constitutional, or estoppel
10 claims against the United States.
11 In sum, the Court should decline to exercise jurisdiction over Counts IV through XI and Count
12 XVI (the APA challenge to prurience regulation, the claims related to SBA’s affiliation rules, and the
13 challenge to the statutory bar on injunctive relief against SBA) because those claims are not ripe, and limit
14 further proceedings on Counts I–III, XII, XIII, XIV, XV, and XVIII (the APA challenge to SBA’s
15 interpretation of the prurience exclusion, the challenges to SBA’s administrative appeals process from
16 PPP loans, the estoppel claims, and the claims for attorneys’ fees and injunctive relief) to only claims that
17 Gold Club can assert based on SBA’s decision to deny it forgiveness on its second-draw loan. The Court
18 should then dismiss Counts I, II, XV and XVIII (the First and Fifth Amendment challenges to the prurience
19 regulations and the claims for attorneys’ fees and injunctive relief) with respect to Gold Club’s second-
20 draw loan for failure to state a claim. And it should strike Plaintiffs’ jury demand for any claims that
21 survive the motion to dismiss.
22 ISSUES TO BE DECIDED
23 1. Whether Plaintiffs’ challenges regarding SBA’s affiliation rules (Counts V through
24 XI) should be dismissed as unripe;
25 2. Whether Plaintiffs’ APA challenges regarding SBA’s affiliation rules (Counts VII,
26 VIII, X, and XI) should be dismissed for lack of final agency action;
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1 3. Whether Plaintiffs’ claims (other than Gold Club’s claims regarding its second-
2 draw loan) challenging SBA’s interpretation of the prurient business exclusion,
3 challenging SBA’s administrative appeals process from PPP loans, alleging that
4 SBA is estopped from denying their loans, and seeking attorneys’ fees and
5 injunctive review (Counts I–III, XII, XIII, XIV, XV, and XVIII) should be
6 dismissed as unripe;
7 4. Whether Plaintiffs’ First Amendment challenge to the prurient business exclusion
8 (Count I) should be dismissed for failure to state a claim;
9 5. Whether Plaintiffs’ Fifth Amendment challenge to the prurient business exclusion
10 (Count II) should be dismissed for failure to state a claim;
11 6. Whether Plaintiffs’ challenge to the statutory bar on injunctive relief (Count XVI)
12 should be dismissed as unripe;
13 7. Whether Plaintiffs’ claims for attorneys’ fees and injunctive relief (Counts XV and
14 XVIII) should be dismissed for failure to state a claim.
15 BACKGROUND
16 I. Legal Framework
17 A. SBA’s § 7(a) Loan Program
18 The Small Business Act of 1958, Pub. L. No. 85–536, 72 Stat. 384, confers “extraordinarily broad
19 powers” on SBA to provide a wide variety of assistance to small-business concerns. 15 U.S.C. § 631(a);
20 SBA v. McClellan, 364 U.S. 446, 447 (1960). As pertinent here, Section 7(a) of the Act, 15 U.S.C.
21 § 636(a), “empower[s]” SBA to guarantee general-purpose loans to small businesses. In performing this
22 function, SBA is further empowered to “establish general policies” governing the “granting and denial”
23 of financial assistance; to “make such rules and regulations as [it] deems necessary to carry out the
24 authority vested in [it];” and to “take any and all actions … [it] determines … are necessary or desirable
25 in making … loans.” Id. §§ 633(d); 634(b)(6), (7). Typically, SBA guarantees loans by private lenders
26 rather than disbursing funds directly. See In re Gateway Radiology Consultants, P.A., 983 F.3d 1239,
27 1248 (11th Cir. 2020).
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1 To qualify for a traditional Section 7(a) loan, an applicant must (among other things) meet the size
2 standards for a “small” business set forth in the Small Business Act and SBA regulations. The Small
3 Business Act “grants the SBA broad authority to craft general criteria for establishing which entities
4 qualify as small business concerns, as well as to make particularized size assessments.” DSE, Inc. v.
5 United States, 169 F.3d 21, 25 (D.C. Cir. 1999). Those criteria include “affiliation rules” that determine
6 when an applicant is affiliated with another entity, such that the two are properly regarded as a single,
7 larger entity (in terms of number of employees or revenue) for the purpose of determining whether the
8 applicant qualifies as an eligible “small” business. See 13 C.F.R. §§ 121.103; 121.301(f). 3
9 SBA has also determined over time that Section 7(a) loans should not be available to certain types
10 of businesses. These seventeen categories of entities include non-profit businesses, legal gambling
11 establishments, government-owned entities, businesses owned or managed by persons with criminal
12 histories, businesses engaged in political activities or lobbying, and twelve others described under SBA’s
13 rule codified at 13 C.F.R. § 120.110. Most relevant here, among the rule’s exclusions is “[b]usinesses
14 which (1) [p]resent live performances of a prurient sexual nature; or (2) [d]erive . . . more than de minimis
15 gross revenue through the sale of products or services, or the presentation of any depictions or displays,
16 of a prurient sexual nature.” Id. § 120.110(p).
17 SBA first adopted § 120.110(p) over a quarter-century ago, in January 1996, see 61 Fed. Reg.
18 3226, 3229–40 (Jan. 31, 1996) (final rule); 60 Fed. Reg. 64356, 64359–60 (Dec. 15, 1995) (proposed
19 rule). When adopting the rule, SBA explained that it was exercising its discretion to deny financing to
20 businesses of an “obscene, pornographic, or prurient” character, and, by way of example, explained that
21 under the rule “an establishment featuring nude dancing . . . would not be eligible for SBA financial
22 assistance[.]” 60 Fed. Reg. at 64360 (emphasis added).
23
24
3
SBA revised its affiliation rules in early 2020, but those revisions were rescinded by the CARES
25 Act. See CARES Act § 1102(e), 134 Stat. 281, 294; see also Express Loan Programs; Affiliation
Standards – Rescission, 85 Fed. Reg. 80581, 80581 (Dec. 14, 2020). The version of the affiliation rules
26
that appears in the 2020 edition of the Code of Federal Regulations was in effect during the Paycheck
27 Protection Program. The SBA significantly revised its affiliation rules again in 2023, after the PPP ended.
See Affiliation and Lending Criteria for the SBA Business Loan Program, 88 Fed. Reg. 21074 (Apr. 10,
28 2023). The revised affiliation rules are not at issue in this case.
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1 B. The CARES Act and the PPP
2 The CARES Act became law on March 27, 2020, providing emergency assistance to individuals,
3 families, businesses, and health-care providers coping with the coronavirus pandemic. See 85 Fed. Reg.
4 20811, 20811–12 (Apr. 15, 2020). Among the Act’s many measures was the PPP, CARES Act § 1102,
5 which was enacted to extend relief to small businesses experiencing economic hardship due to the
6 pandemic. See 85 Fed. Reg. at 20,811.
7 In particular, CARES Act § 1102(a)(2) temporarily expanded SBA’s business-loan authority by
8 adding a new paragraph (36) to § 7(a), 15 U.S.C. § 636(a)(36). See Gateway, 983 F.3d at 1249 (“[T]he
9 PPP was not created as a standalone program; instead it was added into § 7(a)[.]”). Subparagraph
10 636(a)(36)(B) stated that “[e]xcept as otherwise provided in this paragraph, the [SBA] may guarantee
11 [PPP] loans,” issued by private lenders, “under the same terms, conditions, and processes as [other] loan[s]
12 made under” § 7(a). 15 U.S.C. § 636(a)(36)(B); see id. § 636(a)(36)(F)(ii). The statute then detailed the
13 specific ways in which PPP loans were to differ from other § 7(a) loans. Id. § 636(a)(36)(D)–(W).
14 Among those differences, the CARES Act relaxed size limitations to allow businesses with as
15 many as 500 employees (or more, in certain industries) to receive assistance, id. § 636(a)(36)(D)(i)(I), and
16 expanded access to loans by waiving, “with respect to eligibility for a covered loan,” SBA’s pre-existing
17 affiliation-based eligibility rules for certain categories of businesses and non-profits, §636(a)(36)(D)(iv),
18 and enlarged the $5,000,000 cap applicable to other § 7(a) loans, providing that the “maximum amount”
19 of a PPP loan was to be “the lesser of” (1) the borrower’s average monthly payroll costs for the preceding
20 year, multiplied by 2.5, plus the balance of the borrower’s eligible SBA disaster loans or (2) $10,000,000.
21 Id. § 636(a)(36)(E).
22 Congress initially authorized SBA to guarantee up to $349 billion in PPP loans by June 30, 2020.
23 CARES Act § 1102(b)(1); 15 U.S.C. § 636(a)(36)(A)(ii)-(iii), (B). To ensure that SBA could make such
24 an enormous sum available to small businesses in so short a time, Congress instructed SBA to issue rules
25 implementing the PPP “[n]ot later than 15 days after” the CARES Act’s enactment, 15 U.S.C. § 9012,
26 described as “warp speed for regulatory action,” Gateway, 983 F.3d at 1262. To make that feat possible,
27 Congress also instructed SBA to issue these rules without regard to APA notice-and-comment procedures.
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1 15 U.S.C. § 9012 (citing 5 U.S.C. § 553(b)). Congress also directed that additional non-§ 7(a) lenders be
2 allowed to participate in the PPP and mandated that all PPP lenders be given “delegated authority” to
3 make and approve PPP loans without prior SBA review. Id. § 636(a)(36)(F)(ii)(I), (iii).
4 C. The First PPP IFR
5 Pursuant to Congress’s directive, SBA (in conjunction with the Department of the Treasury) issued
6 the First PPP IFR less than a week after the CARES Act’s March 27, 2020, enactment, posting the rule
7 on its website on April 2, 2020. Generally speaking, the First PPP IFR set forth borrower eligibility and
8 application requirements for PPP loans, 85 Fed. Reg. at 20812–15, and lenders’ responsibilities under the
9 streamlined PPP underwriting process, id. at 20815–16. As relevant here, the rule stated also that
10 businesses “identified in 13 CFR 120.110” are “not eligible for PPP loans[,]” with the exception of
11 “nonprofit organizations authorized by the [CARES] Act [15 U.S.C. § 636(a)(36)(D)(i)].” Id. at 20812.
12 SBA launched the PPP on April 3, 2020. SBA Press Release No. 20-30 (available here). Although
13 the program’s termination date was to be June 30, 2020, CARES Act § 1102(b), so great was the demand
14 for PPP financing that the entire $349 billion authorized by Congress was exhausted in less than two
15 weeks’ time, by April 16, 2020. See SBA Press Release No. 20-32 (available here); see also SBA,
16 Paycheck Protection Program (PPP) Report 2 (May 30, 2020) (available here) (showing PPP lenders
17 processed nearly 4.5 million loans in just the first two months of the program). Congress authorized
18 another $310 billion in PPP loans on April 24, 2020. Pub. L. No. 116-139, 134 Stat. 620, § 101(a)(1).
19 D. The Economic Aid Act
20 The PPP expired on August 8, 2020, see Pub. L. No. 116-147, 134 Stat. 660, but the Economic
21 Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, (Consolidated Appropriations Act, 2021,
22 Div. N, Title III, Pub. L. No. 116-260, 134 Stat. 1182, 1993-2052) (Dec. 27, 2020)) (the “Economic Aid
23 Act,” or “EAA”), reauthorized and extended the program to March 31, 2021, and added another $147.5
24 billion in loan authority. EAA § 323(a)(1). The EAA also authorized SBA to guarantee so-called
25 “second-draw” PPP loans to certain businesses that obtained “first-draw” PPP loans under the CARES
26 Act, EAA § 311(a) (adding 15 U.S.C. § 636(a)(37)), under the same terms and conditions as first-draw
27 loans, except as the EAA otherwise provided. 15 U.S.C. § 636(a)(37) (B). The EAA expressly excluded
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1 certain categories of businesses from eligibility for second-draw loans, see 15 U.S.C.
2 § 636(a)(37)(A)(iv)(III), including those that are disqualified for SBA loans under 13 C.F.R. § 120.110,
3 with specific exceptions including certain non-profit and faith-based concerns described in 13 C.F.R.
4 § 120.110(a) and (k). See 15 U.S.C. § 636(a)(37)(A)(iv)(III)(aa)). Thus, Congress expressly directed that
5 businesses of a “prurient sexual nature” within the meaning of 13 C.F.R. § 120.110(p), as well as many
6 other categories of businesses, are statutorily ineligible for second-draw PPP loans.
7 Congress ultimately authorized SBA to guarantee more than $813 billion in PPP loans, Pub. L.
8 No. 117-2, 135 Stat. 4, § 5001(d)(1), and nearly 12 million PPP loans were approved.
9 E. Forgiveness and Review of PPP Loans
10 Section 1106 of the CARES Act sets out the process for PPP loan forgiveness, see CARES Act,
11 Pub. L. No. 116-136 § 1106, 134 Stat. at 297 (codified at 15 U.S.C. § 636m), and allows “eligible
12 recipient[s]” of PPP loans to obtain loan forgiveness on the portions of the loan used for certain
13 enumerated purposes, such as payroll costs and payments for rent, utilities, and mortgage interest, 15
14 U.S.C. §§ 636m(b)(1)-(8), (d); Apr. 2020 IFR, 85 Fed. Reg. at 20813. “The amount of loan forgiveness
15 can be up to the full principal amount of the loan and any accrued interest,” so long as, among other
16 requirements, “the borrower uses all of the loan proceeds for forgivable purposes” and certain “employee
17 and compensation levels are maintained.” Apr. 2020 IFR, 85 Fed. Reg. at 20813; see also 15 U.S.C.
18 § 636m(d)(1) (“The amount of loan forgiveness . . . shall not exceed the principal amount of the financing
19 made available under the applicable covered loan.”). Loans that are not forgiven are to be repaid at a fixed
20 one-percent interest rate. Apr. 2020 IFR, 85 Fed. Reg. at 20813.
21 To obtain forgiveness, a borrower must submit a PPP loan forgiveness application and supporting
22 documentation to its lender. See 15 U.S.C. § 636m(e)–(f). The lender then determines if the borrower is
23 entitled to forgiveness under the Act, and, if so, submits a request for payment to SBA. Id. § 636m(g);
24 Business Loan Program Temporary Changes; Paycheck Protection Program—Revisions to Loan
25 Forgiveness and Loan Review Procedures Interim Final Rules, 85 Fed. Reg. 38304, 38306 (June 26,
26 2020). SBA then remits the appropriate amount to the lender—subject, however, to any SBA review of
27 the loan. 15 U.S.C. § 636m(c)(3); 85 Fed. Reg. at 38306. If a PPP borrower applies for forgiveness in a
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1 timely manner, all principal and interest payments are deferred until SBA grants forgiveness or
2 “determines that the loan is not eligible for forgiveness (in whole or in part).” 86 Fed. Reg. 8283, 8288
3 (Feb. 5, 2021); see also 86 Fed. Reg. 3692, 3703 (Jan. 14, 2021).
4 Under Congress’s directive to meet the immediate economic needs of PPP applicants as quickly
5 as possible, SBA set forth a highly streamlined application and underwriting process for obtaining PPP
6 loans. See Apr. 2020 IFR, 85 Fed. Reg. at 20,812–15. The simplified PPP loan application and
7 underwriting process created a heightened risk of loans being erroneously approved by lenders. To
8 maintain the program’s fiscal integrity and to “ensure that PPP loans are directed to the entities Congress
9 intended” and “used for the purposes Congress required,” SBA established a series of “procedures and
10 criteria” through which SBA can, after the loans are disbursed, review a borrower’s eligibility for a PPP
11 loan, calculation of the loan amount, use of loan proceeds, and entitlement to loan forgiveness. See
12 Business Loan Program Temporary Changes; Paycheck Protection Program-SBA Loan Review
13 Procedures and Related Borrower and Lender Responsibilities, 85 Fed. Reg. 33010, 33012 (June 1, 2020).
14 If, in this review process, “SBA determines that a borrower is ineligible for the PPP loan, SBA will direct
15 the lender to deny the loan forgiveness application.” Id. In the event a borrower mistakenly received loan
16 forgiveness, SBA has reserved the right to claw back such loan forgiveness. See id.
17 If SBA determines that a borrower’s forgiveness application should be denied in whole or in part,
18 the borrower can appeal that decision — known as a “Final Loan Review Decision” or “FLRD” — to
19 SBA’s Office of Hearings and Appeals (OHA). See 13 C.F.R. § 134.1201(b). This administrative appeals
20 process “must be exhausted before judicial review of a final SBA loan review decision may be sought.”
21 Id. § 134.1201(d). A borrower appealing an FLRD to OHA must demonstrate that SBA committed a
22 “clear error or fact or law” in issuing the FLRD. 13 C.F.R. § 134.1210. Discovery is not permitted. Id.
23 § 134.1209(b). Instead, OHA’s review is limited to (1) the administrative record that was before SBA
24 when it issued the FLRD, (2) the borrower’s appeal petition, (3) any response, reply, or supplemental
25 pleading, and (4) “filings related to [an] objection to the administrative record.” Id.; see 13 C.F.R.
26 § 134.1207(b) (describing the contents of the administrative record). “[A] timely appeal by a PPP
27
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1 borrower of a final SBA loan review decision will extend the deferment period of the PPP loan until a
2 final decision is issued” by OHA. 13 C.F.R. § 134.1202(d).
3 II. This Litigation
4 Plaintiffs are fifteen businesses that received PPP loans during the pandemic. Eleven of those
5 businesses—Gold Club S.F., LLC (“Gold Club”); Dallas Food & Beverage, LLC (“Dallas Food”); 2345
6 Meacham, LLC (“Meacham”); 11000 Reeder, LLC (“Reeder”); S.A.W. Entertainment, Ltd. (“SAW”);
7 Smithville Bistro, LLC (“Smithville”); Deja Vu Showgirls of Las Vegas, LLC (“Deja Vu”); Jamme
8 Holdings, LLC (“Jamme”); 90’s Minneapolis (“90’s”); Las Vegas Bistro (“LVB”) and Stockton
9 Enterprises, LLC (“Stockton”)—operate nightclubs that present either “female performance dance
10 entertainment” or “male and female performance dance entertainment.” FAC ¶¶ 61, 112, 130, 160, 176,
11 203, 217, 286, 302, 318, 330. Two others—Cats Meow of Vegas, LLC (“Cats Meow”) and Cats 701
12 Bourbon, LLC (“Cats Bourbon”)—operate nightclubs that present karaoke and “other live performance
13 entertainment including singing and dancing.” Id. ¶¶ 242, 258. And two Plaintiffs—Office Minneapolis,
14 LLC (“Office”) and Pole Position at Tacoma, LLC (“Pole Position’”)—are bars that do not present any
15 live performances. Id. ¶¶ 231–32; 272–73. Each Plaintiff has applied to have its first- and/or second-
16 draw loan(s) forgiven.
17 Of the twenty-four PPP loans discussed in the First Amended Complaint, fourteen loans were
18 initially forgiven by SBA: Dallas Food’s first-draw loan, Meacham’s first-draw loan, Reeder’s first- and
19 second-draw loan, Office’s first-draw loan, Cats Meow’ first- and second-draw loans, Cats Bourbon’s
20 first-draw loan, Pole Position’s second-draw loan, Jamme’s first-draw loan, 90’s first- and second-draw
21 loan, LVB’s first-draw loan, and Stockon’s first-draw loan. FAC ¶¶ 120, 135, 170, 172, 239, 255, 268,
22 282, 296, 312, 315, 327, 339. Plaintiffs allege that SBA later informed them that SBA would conduct
23 post-payment reviews of twelve of these loans (all except Meacham’s first-draw loan and 90s’ second-
24 draw loan). Id. ¶¶ 121, 173, 240, 256, 269, 283–84, 297, 313, 328, 340.4 Two other loans—Smithville’s
25
26
4
With respect to Cats Meow, Plaintiffs allege that SBA “conducted a [post-payment] review” of
27 SBA’s first- and second-draw loan, FAC ¶ 256, but do not allege that SBA has concluded Cats Meow is
28 ineligible for forgiveness (or has reached any conclusions at all) as a result of that review.
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1 first-draw loan and Deja Vu’s second-draw loan—were partially forgiven as part of a prior settlement
2 between those Plaintiffs and SBA. Id. ¶¶ 210, 224.
3 Of the eight remaining loans discussed in the First Amended Complaint, SBA has not finally
4 determined whether to forgive seven of them. In three instances—Gold Club’s first-draw loan, Dallas
5 Food’s second-draw loan, and SAW’s first-draw loan—SBA issued an FLRD denying forgiveness but
6 subsequently withdrew the FLRD to conduct further review. 5 See id. ¶¶ 73, 82, 128, 187, 193, 195, 198.
7 These now-withdrawn FLRDs were based either on (1) a determination that the borrower, combined with
8 its affiliates, was too big to receive a PPP loan, (2) a determination that the business was ineligible on
9 prurience grounds, or (3) both. Id. ¶ 73, 128, 187, 198. In two other cases—Smithville’s and Deja Vu’s
10 second-draw loans—Plaintiffs allege that SBA’s decision denying forgiveness is currently pending before
11 OHA. Id. ¶¶ 215, 229. In the sixth case, SBA issued an FLRD denying Meacham’s second-draw loan on
12 prurience grounds, id. ¶ 146, but OHA remanded the decision to SBA to re-review Meacham’s application,
13 id. ¶ 158; see also id,. Ex. R, ECF No. 18-1 at 1928–30. Finally, SBA has yet to issue any decision at all
14 regarding Jamme’s second-draw loan. FAC ¶ 299.
15 There is an OHA-affirmed decision denying forgiveness for only one of the twenty-four loans
16 discussed in the First Amended Complaint: Gold’s Club’s second-draw loan. See id. ¶¶ 93, 105. On
17 January 30, 2024, SBA issued an FLRD denying forgiveness for Gold Club’s second-draw loan because
18 SBA determined that Gold Club was ineligible for PPP loans under SBA’s prurient business exclusion.
19 Id. ¶ 93. Gold Club appealed that denial to OHA, which affirmed SBA’s decision on May 14, 2024. Id.
20 ¶ 105. That decision is now final. Id. ¶ 108; see also id., Ex. K, ECF No. 18-1 at 1838–1847. 6
21 The chart on the following pages summarizes the status of each Plaintiffs’ loans, as alleged in the
22 First Amended Complaint:
23
24
25
5
26 SAW has had two FLRDs withdrawn. Id. ¶¶ 187, 193, 195, 198.
6
Courts may consider documents attached to or incorporated by reference into the complaint
27 “without converting the motion to dismiss into a motion for summary judgment.” Boquist v. Courtney,
28 32 F.4th 764, 772 (9th Cir. 2022).
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1
2 Loan No FLRD FLRD Relevant
Plaintiff Draw Settled Initially Outstanding Appealed Affirmed Allegations
3 Forgiven FLRD to OHA by OHA
4 First X ¶¶ 73, 82
5 Gold Club
Second X ¶¶ 93, 105
6
7 First X ¶¶ 120–21
Dallas
8 Food
Second X ¶ 128
9
10 First X ¶ 135
11 Meacham
Second X ¶¶ 146, 158
12
13 First X ¶¶ 170, 173
14 Reeder
Second X ¶¶ 172–73
15
16 ¶¶ 195, 198,
SAW First X 200
17
First X ¶ 210
18
Smithville
19 Second X ¶ 215
20
21 First X ¶ 224
Deja Vu
22
Second X ¶ 229
23
24 Office First X ¶¶ 239–40
25
First X ¶¶ 255–56
26 Cats
Meow
27 Second X ¶¶ 255–56
28
MOTION TO DISMISS PLAINTIFFS’ FIRST AMENDED COMPLAINT IN PART AND TO STRIKE JURY DEMAND
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1 Loan No FLRD FLRD Relevant
Plaintiff Draw Settled Initially Outstanding Appealed Affirmed Allegations
2 Forgiven FLRD to OHA by OHA
3 Cats First X ¶¶ 268–70
Bourbon
4
Pole Second X ¶¶ 282–84
5 Position
6 First X ¶¶ 296–97
7 Jamme
Second X ¶ 299
8
9 First X ¶¶ 312–13
10 90s
Second X ¶ 315
11
12 LVB First X ¶¶ 327–28
13
Stockton First X ¶¶ 339–40
14
15 The First Amended Complaint contains eighteen counts against the United States Small Business
16 Administration (“SBA”), Acting SBA Administrator Everett Woodel, SBA’s Office of Hearings and
17 Appeals (“OHA”), OHA Chief Hearing Officer Kimberly McLeod, and the United States of America.
18 Counts I through IV relate to SBA’s prurient business exclusion. Count I alleges that the SBA’s prurient
19 business exclusion (and Congress’s explicit incorporation of that exclusion into the second-draw loan
20 program) violates the First Amendment. FAC ¶ 629. Count II alleges that the prurient business exclusion
21 and the incorporating statute violate the Fifth Amendment. Id. ¶ 635. Count III alleges that SBA’s
22 interpretation of the prurient business exclusion and the incorporating statute is invalid under the APA.
23 And Count IV alleges that the prurient business exclusion is itself invalid under the APA. Id. ¶¶ 644, 646.
24 Counts V through XI relate to SBA’s affiliation rules. Count V alleges that SBA used its affiliation
25 regulations to retaliate against Plaintiffs for their protected speech. Id. ¶¶ 657–58. Counts VI and IX
26 allege that SBA’s application of its affiliation rules (or, in the alternative, the rules themselves) violate the
27
28
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1 Fifth Amendment. Id. ¶¶ 662, 679. Counts VII, VIII, X, and XI allege that SBA’s affiliation rues and
2 SBA’s application of those regulations are invalid under the APA. Id. ¶¶ 668, 673, 685, 690.
3 Counts XII through XVIII are more varied. Count XII alleges that SBA’s rules governing
4 administrative appeals of final PPP loan review decisions violate the Fifth Amendment, id. ¶ 695, and
5 Count XIII alleges that those rules are invalid under the APA, id. ¶ 701. Count XIV asserts that SBA
6 should be estopped from denying plaintiffs loan forgiveness. Id. ¶ 715. Count XI seeks attorneys’ fees,
7 Count XVI alleges that 15 U.S.C. § 634(b)(1), which bars injunctive relief against SBA, is
8 unconstitutional, Count XVII seeks APA review of SBA’s decision to deny forgiveness for Gold Club’s
9 second draw loan, and Count XVII seeks injunctive relief against SBA. FAC ¶¶ 719, 723, 732, 744.
10 STANDARD OF REVIEW
11 A motion to dismiss under Rule 12(b)(1) challenges the Court’s subject matter jurisdiction. Fed.
12 R. Civ. P. 12(b)(1). A challenge to subject matter jurisdiction may be either facial or factual. Safe Air for
13 Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). In a facial attack, “the challenger asserts that
14 the allegations contained in a complaint are insufficient on their face to invoke federal jurisdiction.” Id.
15 Courts resolve facial attacks under the same standards that apply to motions to dismiss under Rule
16 12(b)(6). Jones v. L.A. Cent. Plaza LLC, 74 F.4th 1053, 1056 n.1 (9th Cir. 2023).
17 “To survive a [Rule 12(b)(6)] motion to dismiss, a complaint must contain sufficient factual matter,
18 accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662,
19 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Although “detailed factual
20 allegations” are not necessary to withstand a motion to dismiss, a plaintiff must provide the “grounds” of
21 “entitle[ment] to relief,” which requires “more than labels and conclusions” or “a formulaic recitation of
22 the elements of a cause of action.” Twombly, 550 U.S. at 555. “Nor does a complaint suffice if it tenders
23 ‘naked assertion[s]’ devoid of ‘further factual enhancement.’” Iqbal, 556 U.S. at 678 (citation omitted).
24 A complaint fails to state a claim for to relief when its well-pleaded facts do not enable a court, “draw[ing]
25 on its judicial experience and common sense,” “to infer more than the mere possibility of misconduct.”
26 Id. at 679.
27
28
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1 ARGUMENT
2 I. Plaintiffs’ Claims Related to SBA’s Affiliation Rules (Counts V to XI) Are Not Ripe.
3 A claim must be “ripe for court review” to be justiciable. Ohio Forestry Ass’n v. Sierra Club, 523
4 U.S. 726, 732 (1998). The purpose of the ripeness doctrine is to “prevent the courts, through avoidance
5 of premature adjudication, from entangling themselves in abstract disagreements.” Thomas v. Anchorage
6 Equal Rts. Comm’n, 220 F.3d 1134, 1138 (9th Cir. 2000) (en banc) (quoting Abbott Laboratories v.
7 Gardner, 387 U.S. 136, 148 (1967)). There are both constitutional and prudential elements to ripeness.
8 Twitter, Inc. v. Paxton, 56 F.4th 1170, 1173 (9th Cir. 2022).
9 “A dispute is ripe in the constitutional sense if it ‘present[s] concrete legal issues, presented in
10 actual cases, not abstractions.’” Mont. Env’t Info. Ctr. v. Stone-Manning, 766 F.3d 1184, 1188 (9th Cir.
11 2014) (quoting Colwell v. HHS, 558 F.3d 1112, 1123 (9th Cir.2009)). The Ninth Circuit has held that the
12 “constitutional component of ripeness is synonymous with the injury-in-fact prong of the standing
13 inquiry.” Twitter, 56 F.4th 1173. Prudential ripeness, by contrast, concerns “(1) the fitness of the issues
14 for judicial decision and (2) the hardship to the parties of withholding court consideration.” Nat’l Park
15 Hosp. Ass’n v. Dep’t of Interior, 538 U.S. 803, 808 (2003).
16 Plaintiffs bring seven counts related to SBA’s affiliation rules. Plaintiffs allege that SBA has
17 applied its affiliation rules to them in retaliation for a lawsuit brought by a related PPP borrower (Count
18 V), that SBA’s application of the affiliation rules violates the Fifth Amendment (Count VI), that SBA’s
19 application of those rules to Plaintiffs is invalid under the APA (Count VII, VIII, X, XI), and that the
20 affiliation rules themselves violate the Fifth Amendment (Count IX). See FAC ¶¶ 655, 662, 668, 673,
21 679, 685, 690. These claims are not prudentially ripe because no Plaintiff is subject to a final decision
22 denying loan forgiveness based on the application of SBA’s affiliation rules and Plaintiffs will suffer no
23 cognizable hardship from delayed review—if, indeed, any Plaintiff is ever ultimately denied loan
24 forgiveness on this basis. The Court should therefore decline to exercise jurisdiction over them. 7 See
25
7
The Court may dismiss Plaintiffs’ claims as prudentially unripe without determining whether
26
they are constitutionally ripe where, as here, it “less burdensome” to do so. Snoqualmie Indian Tribe v.
27 Washington, 8 F.4th 853, 861 (9th Cir. 2021); see also In re Aiken Cnty., 645 F.3d 428, 434 (D.C. Cir.
2011) (“[E]ven in its prudential aspect, [ripeness] is a threshold inquiry that . . . may be addressed prior
28 to consideration of other Article III justiciability doctrines.”); accord Alaska Right to Life, 504 F.3d at
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1 Alaska Right to Life Pol. Action Comm. v. Feldman, 504 F.3d 840, 849 (9th Cir. 2007) (holding that “the
2 district court should have declined to exercise jurisdiction on prudential ripeness grounds”); Underwood
3 v. Mackay, 614 F. App’x 871, 873 (9th Cir. 2015) (affirming dismissal under 12(b)(1) on prudential
4 ripeness grounds).
5 A. Plaintiffs’ Affiliation Claims Are Not Fit For Decision.
6 “A claim is fit for decision if the issues raised are primarily legal, do not require further factual
7 development, and the challenged action is final.” Stavrianoudakis v. United States Fish & Wildlife Serv.,
8 108 F.4th 1128, 1139 (9th Cir. 2024) (quoting Stormans, Inc. v. Selecky, 586 F.3d 1109, 1126 (9th Cir.
9 2009)). In cases against the government, “[t]he core question is whether the agency has completed its
10 decisionmaking process, and whether the result of that process is one that will directly affect the parties.”
11 Ass’n of Am. Med. Colleges v. United States, 217 F.3d 770, 780 (9th Cir. 2000) (quoting Franklin v.
12 Massachusetts, 505 U.S. 788, 797 (1992)). In answering that question, courts should consider “whether
13 the administrative action is a definitive statement of an agency’s position; whether the action has a direct
14 and immediate effect on the complaining parties; whether the action has the status of law; and whether
15 the action requires immediate compliance with its terms.” Stavrianoudakis, 108 F.4th at 1139 (quoting
16 Stormans, 586 F.3d at 1126). “[E]ven final agency rules may not be fit for review unless the rule has been
17 concretely applied to the plaintiff.” Ass’n of Am. Med. Colleges, 217 F.3d at 780.
18 Plaintiffs’ affiliation claims are not fit for decision because there is no loan for which SBA has (1)
19 completed its decision-making process regarding forgiveness and (2) denied forgiveness based on the
20 application of its affiliation rules. SBA partially forgave two loans pursuant to a settlement and has denied
21 forgiveness to one (Gold Club’s second-draw loan) based on the statutory exclusion of prurient businesses
22 from the second-draw loan program, not based on the borrower’s affiliations. FAC ¶¶ 93, 210, 224; FAC
23 Ex. C, ECF 18-1 at 21–23. Two additional loans (Meacham’s first-draw loan and 90’s second-draw loan)
24 were forgiven, and Plaintiffs do not allege that SBA has initiated post-payment review of those loans. See
25 FAC ¶¶ 135, 315. Those loans cannot plausibly serve as a basis for challenging SBA’s application of its
26 affiliation rules because Plaintiffs lack nonconclusory allegations that SBA will injure them in the future
27
28 849.
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1 by applying its affiliation rules to these loans. Of the nineteen other loans discussed in the First Amended
2 Complaint, twelve were initially forgiven and are now subject to post-payment review. Id. ¶¶ 121, 173,
3 240, 256, 269, 283–84, 297, 313, 328, 340. Plaintiffs allege that the seven others are pending before the
4 agency, either because SBA has not issued an FLRD, SBA has withdrawn an FLRD denying forgiveness,
5 OHA has remanded the FLRD to SBA, or Plaintiffs have appealed the SBA’s FLRD denying forgiveness
6 to OHA and that appeal remains pending. See id. ¶¶ 73, 82, 128, 158, 195, 198, 215. 229, 299. Because
7 SBA’s actions on these loans is not final, none of its conduct with respect to these still-in the-process-of-
8 being-reviewed loans represents “a definitive statement of an agency’s position,” much less one that has
9 an “immediate effect on the complaining parties.” Stavrianoudakis, 108 F.4th at 1139.
10 First, as SBA’s letters to Plaintiffs make clear, the mere fact that SBA is reviewing some Plaintiffs’
11 compliance with SBA’s affiliation rules does not mean that SBA has made a final determination that those
12 Plaintiffs violated those rules. See FAC ¶ 11, Ex. A, ECF 18-1 at 8 (offering as an “exemplar” a post
13 payment review letter that stresses that SBA’s concerns about“[p]otential affiliation issues” were merely
14 “preliminary” and would “undergo more processing before reaching a final decision”). “An investigation,
15 even one conducted with an eye to enforcement, is quintessentially non-final as a form of agency action.”
16 Ass’n of Am. Med. Colleges, 217 F.3d at 781. Plaintiffs do not allege that SBA has completed any of these
17 post-payment reviews, much less that it has finally determined based on those reviews that any of
18 Plaintiffs’ loans should be denied forgiveness based on the application of SBA’s affiliation rules.
19 Second, SBA has not reached a final decision with respect to any of the seven forgiveness
20 applications that are still pending before the agency. Plaintiffs allege that there is no outstanding decision
21 with respect to five of these applications, either because SBA’s previous decisions were withdrawn or
22 because no decision has yet been issued. But precisely because there is no outstanding decision, SBA
23 could decide to forgive these loans or deny them on a basis unrelated to the affiliation rule. And even if
24 SBA ultimately decided to base a denial on its affiliation rules, that decision would rest on SBA’s fact-
25 specific inquiry to determine each borrower’s primary NAICS Code. See 13 C.F.R. § 121.107 (“In
26 determining the primary industry in which a concern or a concern combined with its affiliates is engaged,
27 SBA considers the distribution of receipts, employees and costs of doing business among the different
28
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1 industries in which business operations occurred for the most recently completed fiscal year. SBA may
2 also consider other factors, such as the distribution of patents, contract awards, and assets.”) The validity
3 of any such decision would thus turn on an analysis and record SBA has yet to complete. In each of these
4 cases, SBA’s “actions are not final and their outcomes turn on contingencies which the court is ill-
5 equipped to predict.” Ass’n of Am. Med. Colls., 217 F.3d at 782; accord US W. Commc’ns v. MFS
6 Intelenet, Inc., 193 F.3d 1112, 1118 (9th Cir. 1999); Ameren Servs. Co. v. FERC, 893 F.3d 786, 792 (D.C.
7 Cir. 2018).
8 The same is true for the two forgiveness denials that Plaintiffs allege remain pending before OHA.
9 Claims based on these denials are not fit for decision because “the challenged action is [not] final.”
10 Stavrianoudakis, 108 F.4th at 1139; see Acura of Bellevue v. Reich, 90 F.3d 1403, 1407–08 (9th Cir. 1996)
11 (holding that an administrative appeal rendered a decision non-final for purposes of the APA and unfit for
12 judicial resolution). “Agencies may avoid the finality of an initial decision, first, by adopting a rule that
13 an agency appeal be taken before judicial review is available, and, second, by providing that the initial
14 decision would be ‘inoperative’ pending appeal.” Darby v. Cisneros, 509 U.S. 137, 152 (1993). Here,
15 SBA has adopted regulations requiring borrowers to appeal forgiveness denial to OHA, see 13 C.F.R.
16 § 134.1201(d), and provided that “a timely appeal by a PPP borrower of a final SBA loan review decision
17 will extend the deferment period of the PPP loan until a final decision is issued.” 13 C.F.R. § 134.1202(d).
18 Because both Smithville and Deja Vu timely appealed their forgiveness denials to OHA, FAC ¶¶ 215,
19 229, these decisions are not final and therefore are not fit for review. Acura, 90 F.3d at 1407–08; see also
20 Cal. Dep’t of Water Res. v. FERC, 361 F.3d 517, 521 (9th Cir. 2004) (“A party cannot seek agency
21 reconsideration and judicial review of the same issue at the same time.”). 8
22
23
24
8
Plaintiffs’ allegations regarding the supposed futility of the administrative appeals process, FAC
25 ¶¶ 417–422, do not change this analysis. “[T]he judicial doctrine of exhaustion of administrative remedies
is conceptually distinct from the doctrine of finality.” Darby, 509 U.S. at 144. And in any event, that
26
futility may have excused Plaintiffs from raising certain issues in the administrative process does not mean
27 they were excused from completing the process at all. See Carr v. Saul, 593 U.S. 83, 88 n.2 (2021) (“Issue
exhaustion should not be confused with exhaustion of administrative remedies.”).
28
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1 B. Plaintiffs Will Experience No Cognizable Hardship From Delay.
2 As to hardship, “a litigant must show that withholding review would result in direct and immediate
3 hardship and would entail more than possible financial loss.” Stavrianoudakis, 108 F.4th at 1139. Instead,
4 Plaintiffs must show that the challenged action “requires an immediate and significant change in the
5 plaintiffs’ conduct of their affairs with serious penalties attached to noncompliance.” Stormans, 586 F.3d
6 at 1126 (quoting Ass’n of Am. Med. Colls., 217 F.3d at 783). That is not the case here. SBA is not
7 regulating Plaintiffs’ current conduct, it is merely determining whether Plaintiffs are entitled to
8 forgiveness for loans they already received. Moreover, for those Plaintiffs who timely applied for loan
9 forgiveness, all principal and interest payments are deferred until SBA grants forgiveness or “determines
10 that the loan is not eligible for forgiveness (in whole or in part).” 9 86 Fed. Reg. 8283, 8288 (Feb. 5,
11 2021); see also 86 Fed. Reg. 3692, 3703 (Jan 14, 2021). And those payments remain deferred during the
12 pendency of an administrative appeal. See 13 C.F.R. § 134.1202(d). There is therefore no need to
13 adjudicate these issues before SBA has made a final determination with respect to Plaintiffs’ loans.
14 Plaintiffs “will have ample opportunity later to bring [their] legal challenge[s] at a time when harm is more
15 imminent and more certain.” Ohio Forestry Ass’n, Inc. v. Sierra Club, 523 U.S. 726, 734 (1998); accord
16 Lee v. Or., 107 F.3d 1382, 1392 (9th Cir. 1997).
17 For these reasons, Plaintiffs’ claims regarding SBA’s affiliation rules are not ripe, and the Court
18 should dismiss them.
19
20
21
22
23
9
Plaintiffs allege that “some Plaintiffs,” including SAW, are required to make payments on their
24
loans because they failed to apply for loan forgiveness in a timely manner. FAC ¶ 740. This allegation
25 is too conclusory to be credited for any Plaintiff other than SAW. Nor is there any conclusive action by
the SBA with respect to SAW, much less one based on the affiliation rule. See FAC ¶¶ 195, 198. And in
26 any event, an injury arising from Plaintiffs failure to file timely forgiveness applications is both self-
inflected and not traceable to SBA’s affiliation rules. See Clapper v. Amnesty Int’l USA, 568 U.S. 398,
27 412–13, 415–416 (2013). An injury insufficient to confer standing cannot demonstrate sufficient
28 hardship to justify early review of otherwise unripe agency action.
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1 II. Plaintiffs’ APA Claims Related to SBA’s Affiliation Rules (Counts VII, VIII, X, and XI) Do
Not Challenge Final Agency Action.
2
Plaintiffs’ APA claims challenging the application of SBA’s affiliation rules must be dismissed
3
for another reason: they do not challenge a final agency action. As a consequence, the Court lacks
4
jurisdiction over these claims.
5
“The APA authorizes district courts to review only ‘final agency action.’” S. Cal. All. of Publicly
6
Owned Treatment Works v. U.S. Env’t Prot. Agency, 8 F.4th 831, 836 (9th Cir. 2021) (quoting 5 U.S.C.
7
§ 704). “[T]he final agency action requirement ensures that courts do not intrude on the agency’s turf and
8
thereby meddle in the agency’s ongoing deliberations.” San Francisco Herring Ass’n v. Dep’t of Interior,
9
946 F.3d 564, 578 (9th Cir. 2019). Final agency action is a jurisdictional perquisite. Id. There are “two
10
requirements that must be satisfied for agency action to be deemed final.” S. Cal. All. of Publicly Owned
11
Treatment Works, 8 F.4th at 836. First, “the action must mark the ‘consummation’ of the agency’s
12
decisionmaking process—it must not be of a merely tentative or interlocutory nature. And second, the
13
action must be one by which ‘rights or obligations have been determined,’ or from which ‘legal
14
consequences will flow.’” Id. (quoting Bennett v. Spear, 520 U.S. 154, 177–78 (1997)). “An agency
15
action is not final when subsequent agency decision making is necessary to create any practical
16
consequences.” Id.
17
Four of Plaintiffs’ APA claims (Counts VII, VIII, X, and XI) challenge the manner in which SBA’s
18
affiliation rules have been applied to Plaintiffs. See FAC ¶¶ 668–69 (challenging the “application and
19
enforcement of the Affiliation Exception Provisions”); ¶¶ 673–74 (same); ¶ 686 (challenging SBA’s
20
affiliation rules “as applied by the SBA”); ¶ 691 (same). But, as explained above, no Plaintiff alleges a
21
final agency action involving the application of SBA’s affiliation rules—and thus those rules have not
22
been finally applied to Plaintiffs. To the extent SBA has taken any action with respect to Plaintiffs
23
involving the affiliation rules, it has not been the consummation of SBA’s decisionmaking process, nor
24
has it been an action by which rights or obligations have been determined or from which legal
25
consequences will flow.
26
First, with respect to six of the loans discussed in the First Amended Complaint, Plaintiffs allege
27
that SBA has either (1) partially forgiven the loan pursuant to a settlement, (2) forgiven the loan and not
28
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1 initiated post-payment review, (3) denied forgiveness based solely on the prurient business exclusion, or
2 (4) issued no decision at all. In each of these cases, Plaintiffs allege no “action” involving the affiliation
3 rules, much less a final action that adversely affected Plaintiffs. FAC ¶¶ 93, 135, 210, 224, 299, 315; see
4 also 5 U.S.C. § 702 (authorizing judicial review of agency action by persons “adversely affected or
5 aggrieved” by that action). Second, the mere initiation of post-payment review for twelve loans that SBA
6 initially forgave is a “quintessentially non-final . . . form of agency action,” Ass’n of Am. Med. Colls.,
7 217 F.3d at 78, and cannot be challenged under the APA even in the subset of those cases where SBA
8 mentioned affiliation issues as a possible basis for a future denial. Third, the four FLRDs that have been
9 withdrawn by or remanded to SBA are not final agency action because the agency has made no conclusive
10 determination about whether to deny any of these loans. See FAC ¶¶ 73, 82, 128, 158, 187, 193, 195, 198.
11 Finally, the two loans that Plaintiffs allege are on appeal to OHA are not final agency action
12 because SBA (1) adopted a rule requiring FLRDs to be appealed to OHA before a borrower may seek
13 judicial review, 13 C.F.R. § 134.1201(d), and (2) provided that borrowers’ loan payments remain deferred
14 during the pendency of a timely filed administrative appeal, 13 C.F.R. § 134.1202(d). Under such
15 circumstances, an initial agency decision like an FLRD is not final for the purposes of judicial review
16 under the APA. See Darby, 509 U.S. at 152; 5 U.S.C. § 704. Indeed, even if an appeal to OHA were not
17 mandatory, the fact that Plaintiffs did file administrative appeals would render the challenged FLRDs
18 nonfinal. See Acura, 90 F.3d at 1407.
19 Plaintiffs have alleged no instance in which SBA has finally determined that any Plaintiff must
20 repay its loans because it was ineligible for those loans under SBA’s affiliation rules. Instead their claims
21 are an improper “attempt[] to short-circuit agency adjudicatory processes that [are], at best, still in
22 process.” San Francisco Herring Ass’n, 946 F.3d at 581. The Court therefor lacks jurisdiction over
23 Plaintiffs’ APA claims challenging the affiliation rules, which are “appropriately adjudicated in the
24 context of individual [final] decisions.” S. Cal. All. of Publicly Owned Treatment Works, 8 F.4th at 839.
25 The Court should dismiss Counts VII , VII, X, and XI on this basis as well. 10
26
10
27 Moreover, the fact that the Court lacks jurisdiction to consider Plaintiffs’ APA challenges to the
application of SBA’s affiliation rules provides an additional reason to dismiss its constitutional challenges
28 regarding those rules (Counts V and VI) as unripe. “If there is one doctrine more deeply rooted than any
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1 III. Only Gold Club’s Challenges Related to the Denial of Forgiveness on Its Second-Draw
Loan Are Ripe.
2
As the forgoing analysis shows, only Plaintiffs’ claims based on the denial of Gold Club’s second-
3
draw loan are ripe, because those are the only challenges where SBA’s determination is final and no
4
further factual development is required. See Stavrianoudakis, 108 F.4th at 1139. But the ripeness of Gold
5
Club’s claims regarding its second-draw loan does not give Plaintiffs license to raise similar claims that
6
are not themselves ripe. To the contrary, “[t]he ripeness doctrine reflects a judgment that the
7
disadvantages of a premature review that may prove too abstract or unnecessary ordinarily outweigh the
8
additional costs of—even repetitive—postimplementation litigation.” Ohio Forestry Ass’n, 523 U.S. at
9
735. Therefore, to the extent that Plaintiffs press other claims or seek relief beyond those that could be
10
raised or sought by Gold Club itself based on the denial of its second-draw loan, the Court should decline
11
to exercise jurisdiction over those claims as well. This includes the non-Gold Club Plaintiffs’ as-applied
12
First and Fifth Amendment challenges to the exclusion of prurient businesses from the PPP, Plaintiffs’
13
claims that are directed solely are the invalidity of regulatory exclusion of prurient businesses from the
14
PPP, Plaintiffs’ unripe due process and APA challenges to SBA’s administrative appeals process,
15
Plaintiffs’ unripe estoppel claims, and Plaintiffs’ unripe requests for attorneys’ fees and injunctive relief.
16
Plaintiffs assert both facial and as-applied challenges under the First and Fifth Amendment to the
17
exclusion of prurient businesses from the PPP. FAC ¶¶ 629, 635. But any as-applied claims regarding
18
loans other than Gold Club’s second-draw loan are not ripe because SBA has not finally determined that
19
any other loan should be denied, much less the specific grounds on which that decision will be based. An
20
as-applied constitutional challenge regarding the application of the regulatory or statutory prurient
21
business exclusions to those loans “requires an adequately developed factual record to render it ripe.”
22
23 other in the process of constitutional adjudication, it is that [courts] ought not to pass on questions of
24 constitutionality . . . unless such adjudication is unavoidable.” Spector Motor Serv., Inc. v. McLaughlin,
323 U.S. 101, 105 (1944). Therefore, “prior to reaching any constitutional questions, federal courts must
25 consider nonconstitutional grounds for decision.” Gulf Oil Co. v. Bernard, 452 U.S. 89, 99 (1981); cf.
Matal v. Tam, 582 U.S. 218 (2017) (addressing a forfeited statutory argument because it could “resolve
26 [the] case and leave the First Amendment question for another day”). The Court should not entertain
constitutional challenges that could be resolved on other grounds “at a time when harm is more imminent
27
and more certain.” Ohio Forestry Ass’n, 523 U.S. at 734.
28
MOTION TO DISMISS PLAINTIFFS’ FIRST AMENDED COMPLAINT IN PART AND TO STRIKE JURY DEMAND
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1 Thomas, 220 F.3d at 1142. That record does not exist, so Plaintiffs First and Fifth Amendment challenges
2 to the prurient business exclusion (Counts I and II) should be limited to facial challenges and to any as-
3 applied challenge arising from the application of the statutory exclusion to Gold Club’s second-draw loan.
4 Similarly, Plaintiffs’ claims regarding the regulatory invalidity of the prurient business exclusion
5 (Count IV and part of Count III) are not ripe and should be dismissed. 11 SBA denied Gold Club
6 forgiveness for its second-draw loan based on the statutory exclusion of prurient businesses from the
7 second-draw loan program. See 15 U.S.C. §636(a)(37)(A)(iv)(III). Whether or not SBA validly
8 promulgated and incorporated the prurient business exclusion into the first-draw program is immaterial to
9 the validity of Congress’s decision to do so for the second-draw program. SBA has yet to make a final
10 determination denying any Plaintiff forgiveness based on the application of the prurient business exclusion
11 to first-draw loans, so claims regarding the validity of that regulatory exclusion are not yet ripe. With
12 respect to these loans, “the agency has [not] completed its decisionmaking process, and . . . the result of
13 that process is [not yet] one that will directly affect the parties.” Ass’n of Am. Med. Colleges, 217 F.3d at
14 780. The Court should therefore decline to exercise jurisdiction over Count IV in its entirety and over
15 Count III to the extent it challenges the validity of the regulatory prurient business exclusion.
16 Plaintiffs’ due process and APA challenges to SBA’s administrative appeals process for PPP loans
17 should also be limited to those connected to SBA’s denial of Gold Club’s second-draw loan. Only Gold
18 Club’s challenges to these rules based on the denial of its second-draw loan are ripe. Review of Plaintiffs’
19 other due process challenges to SBA’s administrative appeals process would be premature for two reasons.
20 First, “[p]recisely what procedures the Due Process Clause requires in any given case is a function of
21 context.” Brewster v. Bd. of Educ. of Lynwood Unified Sch. Dist., 149 F.3d 971, 983 (9th Cir. 1998); see
22 also Shinault v. Hawks, 782 F.3d 1053, 1057 (9th Cir. 2015) (“[D]ue process varies depending on the
23
24 11
Moreover, to the extent that these APA challenges concern the manner in which SBA
25 interpreted and applied the prurient business exclusion to Plaintiffs, see FAC ¶ 642 (challenging the
prurient business exclusion “as applied” by SBA); ¶¶ 646(c), (d), (e), 647 (challenging the prurient
26 business exclusion “[a]s applied to Plaintiffs”), the Court lacks subject matter jurisdiction to consider
these claims other than with respect to Gold Club’s second-draw loan. For the reasons set out in Part II,
27 supra, the other loans at issue are not the subject of any final agency action, much less one based on the
28 prurient business exclusion.
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1 particularities of a case”). These claims should therefore be considered “in the context of a specific factual
2 setting,” not in the abstract. Thomas v. City of New York, 143 F.3d 31, 35 (2d Cir. 1998) (dismissing due
3 process claim as unripe). Second, a successful due process claim requires a showing that the plaintiff was
4 prejudiced by the alleged process failure. See Horning v. SEC, 570 F.3d 337, 347 (D.C. Cir. 2009). Until
5 SBA the administrative appeals process is complete, it is impossible to know whether any protected
6 property interest Plaintiffs may have will be prejudiced by the deficiencies they allege. The absence of a
7 final determination regarding Plaintiffs’ other loans also renders Plaintiffs’ APA challenges regarding the
8 application of SBA’s administrative appeals process to those loans unripe.
9 Finally, Plaintiffs’ estoppel cause of action is unripe with respect to any loan other than Gold
10 Club’s second-draw loan. A party claiming estoppel against the government must show, among other
11 things, “both (1) ‘affirmative misconduct’ on the part of the government and (2) that ‘the government’s
12 wrongful act will cause a serious injustice, and the public’s interest will not suffer undue damage.’” Indus.
13 Customers of Nw. Utilities v. Bonneville Power Admin., 767 F.3d 912, 928 (9th Cir. 2014) (quoting United
14 States v. Hatcher, 922 F.2d 1402, 1409, 1411 n. 12 (9th Cir.1991)). Without knowing whether and on
15 what basis SBA will deny forgiveness to any other loan, it is impossible to evaluate Plaintiffs’ other
16 estoppel claims. 12
17 Accordingly, the Court should dismiss Count IV, which is material only to the regulatory
18 exclusion of prurient businesses from the first-draw loan program, because there is no final SBA action
19 pursuant to that regulation, and limit Plaintiffs’ remaining claims to those that Gold Club can raise based
20 on SBA’s decisions to deny forgiveness on its second-draw loan.
21 IV. Plaintiffs Fail to Plausibly Allege that the Exclusion of Prurient Businesses from the PPP
Violates the First Amendment.
22
Plaintiffs list a number of purported ways that excluding prurient businesses from the PPP program
23
supposedly violated the First Amendment. See FAC ¶ 629(a)-(q). 13 No matter how Plaintiffs frame their
24
25 12
The same deficiencies also render Plaintiffs’ requests for attorneys’ fees and injunctive relief
26 unripe (though, as explained below, neither a request for attorneys’ fees nor a request for injunctive
relief is an independent cause of action).
27 13
For example, Plaintiffs claim that the prurience exclusion is an impermissible content- and
28 viewpoint-based regulation of speech, FAC ¶¶ 629(a)–(d), an unconstitutional condition on a
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1 challenge, however, Plaintiffs fail to plausibly allege any violation of the First Amendment. The
2 fundamental problem with Plaintiffs’ allegations is that Congress, in deciding not to extend PPP loans to
3 businesses of a prurient sexual nature, was not “trying to regulate or suppress . . . adult entertainment. It
4 has simply chosen not to subsidize it.” Camelot Banquet Rooms, Inc. v. U.S. Small Bus. Admin., 24 F.4th
5 640, 646 (7th Cir. 2022). “Such selective, categorical exclusions from a government subsidy do not offend
6 the First Amendment.” Id.
7 A. The Prurient Business Exclusion Is Not a Content- or Viewpoint-Based Regulation
of Speech. It Is a Permissible Limit on The Scope of a Government Subsidy.
8
Plaintiffs begin by asserting that the exclusion of prurient businesses from the PPP is an
9
impermissible content- and viewpoint-based regulation of speech. FAC ¶ 629(a)-(d). That is incorrect.
10
The First Amendment primarily applies to governmental restrictions on private speech. See, e.g.,
11
Reed v. Town of Gilbert, Ariz., 576 U.S. 155, 163 (2015) (explaining First Amendment standards
12
applicable to “government regulation of speech”); Moody v. NetChoice, LLC, 603 U.S. 707, 718 (2024)
13
(looking to whether challenged laws “regulate speech when applied to the parties below”). But the
14
statutory exclusion of prurient businesses from the second-draw loan program is not a prohibition or
15
restriction on speech. It simply embodies Congress’s decision not to subsidize businesses of a prurient
16
sexual nature. Camelot Banquet Rooms, 24 F.4th at 646; see also Pharaohs GC, Inc. v. U.S. Small Bus.
17
Admin., 990 F.3d 217, 229 (2d Cir. 2021) (concluding, in the context of a challenge to the regulatory
18
exclusion of prurient businesses from the first-draw loan program, that the “prurience restriction is . . .
19
part of a selective subsidy program” and that plaintiffs were unlikely to succeed on the permits of their
20
First Amendment claim).
21
“[A]lthough government may not place obstacles in the path of a person’s exercise” of
22
constitutional freedoms, “it need not remove those not of its own creation.” Regan v. Taxation With
23
Representation of Washington, 461 U.S. 540, 549–50 (1983) (cleaned up). The Government is thus “not
24
required by the First Amendment to subsidize lobbying”—or any other form of speech—and does not
25
restrict or penalize speech simply because it has “chosen not to pay for [it].” Id. at 546 (citing Cammarano
26
27 government benefit, id. ¶ 629(g), an unlawful prior restraint, id, ¶ 626(g), and unconstitutional because it
28 does not conform to the constitutional definition of obscenity, id. ¶ 629(j).
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1 v. United States, 358 U.S. 498, 513 (1959)); see also Ysursa v. Pocatello Educ. Ass’n, 555 U.S. 353, 358
2 (2009) (explaining that government “is not required to assist others in funding the expression of particular
3 ideas”); United States v. Am. Library Ass’n, 539 U.S. 194, 212 (2003) (plurality) (a “decision not to
4 subsidize the exercise of a fundamental right does not infringe the right.”) (quoting Rust v. Sullivan, 500
5 U.S. 173, 193 (1991)); Leathers v. Medlock, 499 U.S. 439, 450 (1991) (government “is not required to
6 subsidize First Amendment rights[.]”). Government does not penalize, prohibit, restrict, or otherwise
7 infringe on speech simply because it chooses not to pay for it.
8 The controlling principle is that “government can make content-based distinctions when it
9 subsidizes,” rather than regulates, speech. Davenport v. Wash. Educ. Ass’n, 551 U.S. 177, 188–89 (2007).
10 It has “broad discretion” “to make content-based judgments in deciding what private speech to make
11 available to the public.” Am. Library Ass’n, 539 U.S. at 204–05; see also Nat’l Endowment for the Arts
12 v. Finley, 524 U.S. 569, 587–88 (1998) (“[I]n the subsidy context,” the Government may allocate funding
13 “according to criteria that would be impermissible were direct regulation of speech . . . at stake[.]”).
14 Though content-based, the Government’s funding choices will be upheld unless they are shown to be “the
15 product of invidious viewpoint discrimination,” or “aim[ed] at the suppression of dangerous ideas.” Id.
16 at 586–87; Regan, 461 U.S. at 543–49; see also Leathers, 499 U.S. at 447, 450–51 (“[D]ifferential taxation
17 . . . is constitutionally suspect [only] when it threatens to suppress the expression of particular ideas or
18 viewpoints.”).
19 Plaintiffs present no nonconclusory allegations that the statutory exclusion of prurient businesses
20 from the second-draw loan programs is subject to invalidation under these standards. The policy against
21 loans to businesses of a prurient sexual nature is entirely viewpoint-neutral and singles out no particular
22 ideas for disfavorable treatment. The rule prohibits federally subsidized loans to these businesses without
23 regard to any ideas they wish to convey, promote, or oppose through the live performances they present. 14
24
25 14
Plaintiffs’ reliance on D. Houston Inc. v. U.S. Small Bus. Admin., 579 F. Supp. 3d 959, 967 (S.D.
Tex. 2020), see FAC ¶ 629(c), is misplaced. There, the court applied strict scrutiny after concluding that
26
“PPP loans are not a subsidy” but rather “a benefit the Government confers upon small businesses.” 579
27 F. Supp. 3d at 967. This distinction is illusory and immaterial. A subsidy clearly confers a benefit on the
recipient, and the Supreme Court’s cases have used the terms interchangeably. See Regan, 461 U.S. at
28 545, 550 (describing tax exemptions at issue as both a “subsidy” and “benefit”); Am. Libr. Ass’n, 539 U.S.
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1 Plaintiffs do not allege what viewpoint they believe the prurient business exclusion discriminates
2 against, but insofar as they assert that prurience or lasciviousness is itself a viewpoint, that argument is
3 foreclosed by binding Ninth Circuit precedent. In PMG Int’l Div. L.L.C. v. Rumsfeld, 303 F.3d 1163 (9th
4 Cir. 2002), the Ninth Circuit explicitly rejected the argument that a prohibition on the sale of lascivious
5 material on government property represented viewpoint discrimination, warning that viewing “lascivious”
6 materials as inherently expressing a viewpoint would “risk eviscerating altogether the line between content
7 and viewpoint.” Id. at 1171; accord General Media Commc’ns v. Cohen, 131 F.3d 273, 282 (2d Cir. 1997).
8 As the Seventh Circuit recently explained in rejecting an identical challenge, “it would be a category
9 mistake to think that prurience or lasciviousness reflects a ‘viewpoint’ that the government may not
10 discriminate against. The terms instead identify a category or subject matter of expressive conduct that
11 may be subject to some forms of government regulation.” Camelot Banquet Room., 24 F.4th at 649.
12 The decision to exclude prurient businesses from the second-draw loan program was a permissible
13 choice in defining “a selective subsidy, not impermissible viewpoint discrimination aimed at the
14 suppression of dangerous ideas.” Deja Vu-San Francisco LLC v. U.S. Small Bus. Admin., No. 20-CV-
15 03982-LB, 2020 WL 6260010, at *10 (N.D. Cal. Sept. 11, 2020). Accordingly, Plaintiffs allegations to
16 not plausibly state a First Amendment violation.
17 B. The Prurient Business Exclusion Is Not an Unconstitutional Condition.
18 Plaintiffs’ effort to recast their arguments as a challenge to unconstitutional conditions (FAC
19 ¶ 629(f)) fares no better. Congress’s “broad discretion” under the Spending Clause “to tax and spend for
20 the ‘general Welfare’” includes the authority “to impose limits on the use of [the] funds” it appropriates
21 for particular programs, “to ensure they are used in the manner Congress intends.” Agency for Int’l Dev.
22
23 at 210–12 (discussing federal financial assistance to public libraries to provide Internet access as a
24 “benefit” and “subsid[y]”). Moreover, as explained in Agency for Int’l Dev. v. Alliance for Open Soc’y
Int’l, Inc., 570 U.S. 205 (2013), the difference in this context between permissible and impermissible
25 conditions on the receipt of federal funding is the difference “between conditions that define the limits of
the government spending program—those that specify the activities Congress wants to subsidize—and
26 conditions that seek to leverage funding to regulate speech outside the contours of the program itself[.]”
Id. at 213–15. That is so without regard to whether the underlying spending program is labeled a “subsidy”
27
or a “benefit.” See id.
28
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1 v. All. for Open Soc’y Int’l, Inc., 570 U.S. 205, 213 (2013). As a general matter, if a party objects to a
2 condition on the receipt of federal funding, its recourse is to decline the funds,” even where the condition
3 “may affect the recipient’s exercise of its First Amendment rights.” Id. at 214. “At the same time . . . the
4 Government may not deny a benefit to a [party] on a basis that infringes [its] constitutionally protected
5 . . . freedom of speech[.]” Id. The relevant distinction is between conditions that merely “define the limits
6 of [a] government spending program” by “specify[ing] the activities the [government] wants [or not] to
7 subsidize”—which are permissible—and conditions that “leverage[ ] federal funding to regulate
8 [recipients’] speech outside the scope of the program”—which are not. Id. at 214–17; see also Rust, 500
9 U.S. at 194, 197.
10 To illustrate the difference, Alliance for Open Society pointed to Regan. 570 U.S. at 215. There
11 the IRS had denied tax-exempt status to the plaintiff, a non-profit organization, because its intended use
12 of tax-deductible contributions to support its lobbying activities was prohibited by § 501(c)(3) of the
13 Internal Revenue Code. Regan, 461 U.S. at 542. The plaintiff challenged this prohibition as an
14 unconstitutional condition imposed on its receipt of tax-deductible contributions from donors. Id. The
15 Court rejected this claim. See id. at 545–46. Treating the tax-deductibility of contributions as “similar to
16 cash grants,” the Court concluded that the plaintiff could continue to receive tax-deductible contributions
17 for its non-lobbying activities by forming an affiliated tax-exempt entity, under § 501(c)(4) of the Code,
18 that could conduct lobbying activities using sources of funds other than tax-deductible (that is, federally
19 subsidized) contributions. Id. at 544–46. Thus, the plaintiff was not prohibited from using non-subsidized
20 contributions to engage in lobbying, nor denied other government benefits because of its intent to lobby;
21 “Congress ha[d] merely refused to pay for the lobbying out of public monies.” Id. at 545.
22 So too here. “The Paycheck Protection Program limits [on subsidizing loans to prurient businesses]
23 fit comfortably on the permissible Regan, Rust, and Ysursa side of the line as conditions that limit the
24 scope of the subsidy/loan program.” Camelot Banquet Rooms, 24 F.4th at 651. To be forgiven, PPP loans
25 had to be spent on payroll costs or other covered business expenses. See 15 U.S.C. § 636m(b).
26 Accordingly, in declining to extend forgivable PPP loans to these businesses Congress was making a
27 permissible choice about what it “want[ed] to subsidize.” All. for Open Soc’y Int’ , 570 U.S. at 213.
28
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1 Plaintiffs remained free to operate prurient businesses, just not on the Government’s dime. “Just as
2 Congress was not trying to require lobbyists to stop lobbying [by excluding them from the PPP], it was
3 not trying to pressure plaintiffs to change their adult entertainment.” Camelot Banquet Rooms., 24 F.4th
4 at 651 (7th Cir. 2022); Déjà Vu, 2020 WL 6260010, at *11-12 (concluding that a similar prurient
5 businesses exclusion “falls in the Regan and American Library category”).
6 Plaintiffs fail to plausibly allege that the statutory exclusion of prurient businesses from the
7 second-draw loan program “improperly leverages the subsidy to regulate speech” beyond the scope of the
8 program itself. Pharaohs, 990 F.3d at 229–30.
9 C. The Prurient Business Exclusion Is Not a Prior Restraint.
10 Plaintiffs’ invocation of the “prior restraint” doctrine (FAC ¶ 629(h)) is also mistaken. The “term
11 prior restraint is used to describe administrative and judicial orders forbidding certain communications
12 when issued in advance of the time that such communications are to occur.” Alexander v. United States,
13 509 U.S. 544, 550 (1993) (citation omitted). But in restricting access to subsidized PPP second-draw
14 loans, Congress “d[id] not forbid” Plaintiffs to “engage in any expressive activities in the future, nor d[id]
15 [Congress] require [them] to obtain prior approval for any expressive activities.” Id. at 550–51. Plaintiffs’
16 performers may dance as provocatively as Plaintiffs would like “without any risk” that the prurient
17 business exclusion would “impose[ ]” a “legal impediment to . . . [their] ability to engage in any expressive
18 activity [they] choose[ ].” Alexander, 509 U.S. at 551. Accordingly, the prurient business exclusions do
19 not impose a prior restraint on Plaintiffs’ speech.
20 D. Congress Had a Rational Basis for the Prurient Business Exclusion.
21 Plaintiffs also assert that the statute and regulation violate the First Amendment because “they do
22 not further any permissible and important governmental interest.” FAC ¶ 629(i); see also id. ¶ 629(m);(n).
23 But that is not the pertinent legal standard. Because the exclusion of prurient businesses from the PPP
24 does not infringe on Plaintiffs’ First Amendment rights, as explained above, the government “need only
25 demonstrate a rational basis to justify” the exclusion. Ysursa, 555 U.S. at 359 (citing Regan, 461 U.S. at
26 546–51); see also Camelot Banquet Rooms, 24 F.4th at 646–47; Pharaohs, 990 F.3d at 230; Deja Vu, No.
27 20-CV-03982-LB, 2020 WL 6260010, at *13 (N.D. Cal. Sept. 11, 2020). As the Seventh Circuit put it,
28
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1 “[a] government spending program, especially one responding to an economic emergency, is subject to
2 the least rigorous form of judicial review.” Camelot Banquet Rooms, 24 F.4th at 647.
3 Rational-basis review “is a paradigm of judicial restraint.” FCC v. Beach Commc’ns, Inc., 508
4 U.S. 307, 314 (1993). Under the rational-basis test, a court is required to uphold the classification “‘if
5 there is any reasonably conceivable state of facts that could provide a rational basis for the classification.’”
6 Gallinger v. Becerra, 898 F.3d 1012, 1017 (9th Cir. 2018) (quoting Heller v. Doe, 509 U.S. 312, 320
7 (1993)) (emphasis omitted); see also Beach Communc’ns, 508 U.S. at 313. “[I]t is entirely irrelevant for
8 constitutional purposes,” moreover, “whether the conceived reason for the challenged distinction actually
9 motivated” the adoption of the regulation. Beach Communc’ns, 508 U.S. at 315; see also Jackson Water
10 Works, Inc. v. Pub. Utilities Comm’n of State of Cal., 793 F.2d 1090, 1094 (9th Cir. 1986).
11 The prurient business exclusion clearly satisfies that standard. The adverse “secondary effects”
12 associated with sexually oriented adult-entertainment establishments are well known. They include
13 negative impacts on “crime rates, property values, and the quality of [a] city’s neighborhoods,” as well as
14 “unlawful public sexual activity, prostitution, and drug trafficking.” Ctr. for Fair Pub. Policy v. Maricopa
15 Cnty., 336 F.3d 1153, 1164–65, 1166 (9th Cir. 2003) (quotation omitted); see also Gammoh v. City of La
16 Habra, 395 F.3d 1114, 1124 (9th Cir. 2005) (discussing object of city ordinance to protect the public
17 welfare against the negative secondary effects of “adult businesses,” including “the protection of the city’s
18 retail trade, the prevention of blight in neighborhoods and . . . protecting and preserving the quality of the
19 city’s neighborhoods and the city’s commercial districts”). “If those secondary effects can support time,
20 place, and manner regulations [subject to intermediate security], they surely provide a rational basis for
21 Congress to choose not to subsidize this group of businesses.” Camelot Banquet Rooms, 24 F.4th at 648;
22 see also Pharaohs, 990 F.3d at 230 (citing City of Renton v. Playtime Theatres, Inc., 475 U.S. 41, 47–49,
23 (1986) and Paris Adult Theatre I v. Slaton, 413 U.S. 49, 63 (1973) for the proposition that “legitimate
24 interests may be served by the government’s decision not to subsidize adult-entertainment venues.”).
25 Plaintiffs fail to plausibly allege that there is no rational basis for the prurient business exclusion.
26
27
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1 E. The Prurient Business Exclusion Need Not Conform to The Constitutional Standard
for Obscenity.
2
3 Plaintiffs also allege that the prurient business exclusion violates the First Amendment because
4 the standard by which it identifies the type of performances, products, services, and presentations that the
5 SBA will not finance—that is, material of a “prurient sexual nature”—does not “conform to the
6 constitutional standards regarding obscenity.” FAC ¶ 629(j). But Miller v. California, 413 U.S. 15 (1973)
7 merely sets “the standards which must be used to identify obscene material that [government] may
8 regulate without infringing on the First Amendment.” Id. (emphasis added). As shown above, the
9 decision not to extend second-draw loans to prurient businesses does not “prohibit[ ]” or “regulate” speech
10 in any fashion. It simply embodies a determination by Congress that it would not offer federal financial
11 support for certain “sexually oriented” products, services, and activities—a decision that does not
12 “infring[e] on the First Amendment,” Miller, 413 U.S. at 20; see Library Ass’n, 539 U.S. at 212; Rust,
13 500 U.S. at 193. Accordingly, the Constitution did not require Congress to adopt the Miller test when
14 deciding, and describing, which products, services, and activities it will not finance. See Deja Vu, 2020
15 WL 6260010, at *11 (rejecting this argument). Plaintiffs’ allegations to the contrary do not state a claim.
16 F. The Prurient Business Exclusion Is Not Unconstitutionally Vague.
17 Plaintiffs also allege that the prurient business exclusion is “unconstitutionally vague on their face
18 and as applied by SBA. ¶ 629(o). These allegations are also implausible. The void-for-vagueness doctrine
19 is a due-process doctrine requiring that a law “give the person of ordinary intelligence a reasonable
20 opportunity to know what is prohibited, so that he may act accordingly.” Grayned v. City of Rockford,
21 408 U.S. 104, 108 (1972)). “[T]he vagueness doctrine bars enforcement of a statute which either forbids
22 or requires the doing of an act in terms so vague that men of common intelligence must necessarily guess
23 at its meaning and differ as to its application.” United States v. Lanier, 520 U.S. 259, 266 (1997). The
24 doctrine requires greater “precision of regulation” in areas touching on First Amendment rights.
25 Keyishian v. Bd. of Regents Univ., 385 U.S. 603–04 (1967) (emphasis added).
26 The prurient business exclusion, however, is not a prohibition or regulation of speech that forbids
27 or requires Plaintiffs to do anything. Rather, it merely sets the terms on which the Government will
28
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1 exercise its broad discretion to subsidize activities, or not. All. for Open Soc’y, 570 U.S. at 215; Rust, 500
2 U.S. at 192–94. Accordingly, the controlling standard comes from National Endowment for the Arts v.
3 Finley, 524 U.S. 569 (1998). In Finley, four performance artists and an artists’ association brought suit
4 contesting the validity of a federal law that required the NEA to “tak[e] into consideration general
5 standards of decency and respect for the diverse beliefs and values of the American public” when making
6 grant determinations. 524 U.S. at 572, 576–78. Congress enacted this “decency and respect” provision
7 following the public controversy that erupted after an NEA grant was used to fund an exhibition of
8 homoerotic photographs by Robert Mapplethorpe, and another was awarded to photographer Andres
9 Serrano, whose work, entitled “Piss Christ,” depicted a crucifix immersed in urine. Id. at 574–76. The
10 district court agreed with the plaintiffs’ contention that the “decency and respect” criteria were
11 unconstitutionally vague, stating that they “fail[ed] adequately to notify applicants of what is required of
12 them or to circumscribe NEA discretion.” Id. at 578. The court of appeals agreed with the district court,
13 “[c]oncluding that the decency and respect criteria [were] not susceptible to objective definition.” Id. at
14 579. The Supreme Court reversed.
15 The Court acknowledged that “[u]nder the First and Fifth Amendments, speakers are protected
16 from arbitrary and discriminatory enforcement of vague standards,” and that the terms of the “decency
17 and respect” provision were “undeniably opaque.” Id. at 588. “[I]f they appeared in a criminal statute or
18 regulatory scheme,” the Court allowed, “they could raise substantial vagueness concerns.” Id.
19 Nevertheless, the Court sustained the validity of the “decency and respect” provision because, in the
20 context of a grant program, “[i]t [was] unlikely . . . that speakers [would] be compelled to steer too far
21 clear of any ‘forbidden area.’” Id. And even if some artists “conform[ed] their speech to what they
22 believe[d] to be the decisionmaking criteria in order to acquire funding,” “when the Government is acting
23 as patron rather than as sovereign, the consequences of imprecision are not constitutionally severe.” Id.
24 Finley thus establishes that “the standard set in evaluating statutes related to subsidies for speech is less
25 demanding than the standard for statutes that impose penalties for speech.” Ostrom v. O’Hare, 160 F.
26 Supp. 2d 486, 496 (E.D.N.Y. 2001); see also Ridley v. Mass. Bay Transp. Auth., 390 F.3d 65, 94 (1st Cir.
27 2004); United States v. Nat’l Training & Info. Ctr., Inc., 532 F. Supp. 2d 946, 953-54 (N.D. Ill. 2007)
28
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1 (“[B]ecause there is no right to government subsidization of free speech, regulations relating to entitlement
2 programs are entitled to greater leniency in their construction.”).
3 Under Finley, the prurient business exclusion is plainly constitutional. As a standard by which the
4 Government makes funding decisions, “prurient sexual nature” is far less opaque than criteria like “general
5 standards of decency,” and “respect for the diverse beliefs and values of the American public,” which the
6 Court readily upheld in Finley. The prurient business exclusion n has governed SBA lending decisions
7 under the Section 7(a)program for nearly a quarter-century, and Plaintiffs do not allege that they or other
8 speakers like them have steered clear of “forbidden area[s],” or “conform[ed] their speech to what they
9 believe to be the decisionmaking criteria” in order to obtain SBA loans. See Finley, 524 U.S. at 588-89.
10 The Second Circuit’s decision in General Media reinforces the conclusion that the prurient
11 business exclusion is not impermissibly vague. There, the plaintiffs also maintained that the Act barring
12 sales or rental of “lascivious” sexually explicit material on military bases was unconstitutionally vague.
13 General Media, 131 F.3d at 286. Rejecting that argument, the Second Circuit observed that the “degree
14 of linguistic precision” required of a statute “varies with the nature—and in particular, with the
15 consequences of enforcement—of the statutory provision.” Id. “[A]bsolute linguistic precision” was not
16 required of the Act, therefore, because the sole “penalty” it applied to the plaintiffs was “losing the
17 government’s assistance in (re)selling their wares.” Id. Noting the flexibility accorded to Congress in
18 prescribing rules for the governance and regulation of the armed forces, the court held that many of the
19 terms used in the Act, including “lascivious,” had been found to be sufficiently clear for constitutional
20 purposes in the past, and that any remaining ambiguity or subjectivity was constitutionally tolerable under
21 applicable vagueness standards. Id. at 286–87. That reasoning is just as apt, if not more so, when applied
22 to a subsidy provision such as the prurience exclusion.
23 G. Plaintiffs Have Not Plausibly Alleged that the Prurient Business Exclusion Is Being
Applied to Plaintiffs in a Retaliatory Manner.
24
Plaintiffs also assert that the prurient business exclusion has been applied “in a discriminatory
25
fashion in retaliation for the nature of the speech and expression engaged in by some of these Plaintiffs
26
and for some of them and/or their principals having participated in other litigation against SBA arising
27
out of Pandemic funding programs.” FAC ¶ 629(e). This allegation is both conclusory and implausible.
28
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1 “[A]s a general matter the First Amendment prohibits government officials from subjecting an
2 individual to retaliatory actions for engaging in protected speech.” Nieves v. Bartlett, 587 U.S. 391, 398,
3 (2019) (quoting Hartman v. Moore, 547 U.S. 250, 256 (2006)). To state a First Amendment retaliation
4 claim, a plaintiff must plausibly allege that “(1) he engaged in constitutionally protected activity; (2) as a
5 result, he was subjected to adverse action by the defendant that would chill a person of ordinary firmness
6 from continuing to engage in the protected activity; and (3) there was a substantial causal relationship
7 between the constitutionally protected activity and the adverse action.” Boquist v. Courtney, 32 F.4th 764,
8 775 (9th Cir. 2022). Plaintiffs must also show that the defendant “‘intended to interfere’ with [Plaintiffs’]
9 First Amendment rights and that [they] suffered some injury as a result.” Ariz. Students’ Ass’n v. Ariz.
10 Bd. of Regents, 824 F.3d 858, 867 (9th Cir. 2016) (quoting Mendocino Env’t Ctr. v. Mendocino Cnty., 192
11 F.3d 1283, 1300 (9th Cir. 1999)).
12 Of course, the retaliation analysis must account for the reality that the Government’s “decision not
13 to subsidize the exercise of a fundamental right does not infringe the right.” Regan, 461 U.S. at 549.
14 Where, as here, Congress “has simply chosen not to subsidize” certain expressive activities, Camelot, 24
15 F.4th at 646, merely examining whether an applicant engaged in those activities is not evidence of
16 retaliation. Cf. Nieves, 587 U.S. at 403 (noting that “protected speech is often a legitimate consideration
17 when deciding whether to make an arrest”); accord Reichle v. Howards, 566 U.S. 658, 668 (2012). Regan
18 illustrates this point. In upholding a statute that forbid the use of tax-deductible funds for political
19 lobbying, the Court distinguished Perry v. Sindermann, 408 U.S. 593 (1972), a First Amendment
20 retaliation case, by explaining that, in the case before it, Congress had not denied “Plaintiffs any
21 independent benefit on account of its intention to lobby,” it “merely refused to pay for the lobbying out of
22 public monies.” Regan, 461 U.S. at 545 (emphasis added). Plaintiffs cannot show that SBA “‘intended
23 to interfere’ with [their] First Amendment rights,” simply by alleging that SBA has concluded that (or
24 merely investigated whether) Plaintiffs are businesses of a prurient sexual nature. Plaintiffs must show
25 that SBA retaliated against them for some expression “independent” of the basis on which Congress chose
26 not to subsidize its activities.
27
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1 They have not done so. Indeed, despite its length (and Plaintiffs’ many issues with SBA’s
2 application of the prurient business exclusion) the First Amended Complaint lacks any nonconclusory
3 allegation that the statutory exclusion was applied to Gold Club “in a discriminatory fashion” with the
4 desire to retaliate against Plaintiffs for their expressive activities. To the contrary, Plaintiffs allege that
5 “SBA . . . has selected any business the SBA alleges to be an adult entertainment business for additional
6 scrutiny.” FAC ¶ 655. That scrutiny is “wholly legitimate,” Nieves 587 U.S. at 392, because, under SBA
7 regulations (for first-draw loans) and by statute (for second-draw loans), such businesses may not have
8 been eligible for PPP funding.
9 Plaintiffs’ other asserted basis for this retaliation claim is also conclusory and underdeveloped.
10 Plaintiffs allege that SBA may have applied the prurient business exclusion in retaliation for the
11 participation of some unidentified subset of Plaintiffs “and/or their principals . . . in other litigation against
12 SBA arising out of Pandemic funding programs.” FAC ¶ 629(e). But Plaintiffs do not plausibly allege a
13 “substantial causal relationship between the constitutionally protected activity and the adverse action.”
14 Boquist, 32 F.4th at 775. The lawsuits discussed in the First Amendment Complaint involving Gold Club
15 and other similarly situated entities took place years before the denial of Gold Club’s loan, see FAC ¶¶
16 85, 651–655; ¶ 655(a), and Plaintiffs lack nonconclusory allegations that the decision to deny Gold Club’s
17 second-draw loan on prurience grounds was based on this earlier litigation concerning other pandemic
18 relief programs or other plaintiffs. See Keyser v. Sacramento City Unified Sch. Dist., 265 F.3d 741, 752
19 n.4 (9th Cir. 2001) (finding that a lapse of one-and-a-half years between the protected activity and the
20 alleged retaliation was too long to suggest a causal connection). Moreover, the fact that SBA initially
21 forgave the majority of Plaintiffs’ loans during the same period severely undercuts the plausibility of any
22 link between the litigation and SBA’s later decision to deny Gold Club’s loan on prurience grounds. In
23 any event, this conclusory allegation has nothing to do with whether the prurient business exclusion itself
24 violates the First Amendment, which is the allegation in Count I.
25 Plaintiffs have not plausibly alleged that prurient business exclusion violates the First Amendment.
26 Count I should be dismissed.
27
28
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1 V. Plaintiffs Have Not Plausibly Alleged the Prurient Business Exclusion Violates the Fifth
Amendment.
2
Plaintiffs Fifth Amendment challenge to the prurient business exclusion fares no better. Plaintiffs
3
contend that the prurient business exclusion violates the Fifth Amendment guarantees of equal protection
4
and “occupational liberty.” 15 FAC ¶ 634. Neither contention has met.
5
First, Plaintiffs’ equal protection argument is foreclosed by Regan and Ysursa. In Regan the
6
plaintiff, in addition to raising a First Amendment challenge, also “contend[ed] that the equal protection
7
component of the Fifth Amendment render[ed] the [section 501(c)(3)] prohibition against substantial
8
lobbying invalid.” 461 U.S. at 546. The Supreme Court disagreed. Because prohibiting the use of
9
federally subsidized contributions for lobbying purposes did not violate the First Amendment rights of
10
non-profit organizations, and because the law was not evidently aimed at suppressing particular ideas, the
11
Court concluded that it was subject only to rational-basis review, not strict scrutiny, under the Fifth
12
Amendment. Id. at 548-49. The lobbying restriction easily withstood review under this standard, because
13
it was “not irrational” of Congress to decide that the public interest in promoting additional lobbying by
14
charities would not be worth the taxpayer expense. Id. at 550; see also Ysursa, 555 U.S. at 359–60 (“Given
15
that the State has not infringed the unions’ First Amendment rights” by refusing to make public employee
16
payroll deductions for union political activities, “the State need only demonstrate a rational basis to justify
17
[its decision].”).
18
The prurient business exclusion must be upheld on the same grounds, largely for the reasons
19
discussed above. Because the exclusion restricts only the use of federally subsidized funds, not a firm’s
20
own monies, to engage in business of a prurient sexual nature, and because the rule is neither viewpoint-
21
based nor aimed at suppressing particular ideas, the rule is subject only to rational-basis review under the
22
Fifth Amendment. Regan, 461 U.S. at 550; see Gallinger, 898 F.3d at 1016 (“[R]ational-basis review is
23
the appropriate standard” of review when a law “implicates neither a suspect classification nor a
24
fundamental right.”); Kahawaiolaa v. Norton, 386 F.3d 1271, 1279–80 (9th Cir. 2004) (“If the
25
classification at issue does not involve fundamental rights or suspect classes, it must be upheld ‘if there is
26
27 15
Plaintiffs also assert in passing that the prurience exclusion violates procedural due process,
28 FAC ¶ 635(d), but allege no facts to support this assertion.
MOTION TO DISMISS PLAINTIFFS’ FIRST AMENDED COMPLAINT IN PART AND TO STRIKE JURY DEMAND
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1 a rational relationship between the disparity of treatment and some legitimate governmental purpose.’”)
2 (quoting Heller v. Doe, 509 U.S. 312, 319–20 (1993)). As explained above, the prurient business
3 exclusion easily satisfies this standard.
4 Plaintiffs’ “occupational liberty” argument also lacks merit. To state an occupational liberty claim
5 in the Ninth Circuit, a plaintiff must show that she is “is unable to pursue an occupation and this inability
6 is caused by government actions that were arbitrary and lacking a rational basis.” Engquist v. Oregon
7 Dep’t of Agric., 478 F.3d 985, 997 (9th Cir. 2007), aff’d sub nom. Engquist v. Oregon Dep’t of Agr., 553
8 U.S. 591, (2008). Put another way, occupational liberty claims are subject only to rational basis review,
9 which the prurient business exclusion clearly survives. See Deja Vu-San Francisco, 2020 WL 6260010,
10 at *14. Plaintiffs’ due process claim should be dismissed.
11 VI. Plaintiffs’ Challenge to the Statutory Bar on Injunctive Relief Against SBA Is Not Ripe.
12 Count XVI alleges that 15 U.S.C. § 634(b)(1), which bars injunctive relief against SBA, is
13 unconstitutional if interpreted as “an absolute bar to the issuance of any injunction against the SBA.”
14 FAC ¶ 723. But any challenge to § 634(b)(1) is not ripe, because “the existence of the dispute itself
15 hangs on future contingencies that may or may not occur.” Clinton v. Acequia, Inc., 94 F.3d 568, 572
16 (9th Cir. 1996). Courts may only “pass upon the constitutionality of acts of Congress . . . when the
17 interests of litigants require the use of this judicial authority for their protection against actual
18 interference.” City & Cnty. of San Francisco v. Garland, 42 F.4th 1078, 1086 (9th Cir. 2022) (quoting
19 United Pub. Workers of Am. v. Mitchell, 330 U.S. 75, 89–90 (1947)). That is not the case here.
20 Whether Plaintiffs will be ever be injured by the statutory bar on injunctive relief depends on (1)
21 SBA issuing a final decision denying loan forgiveness to Plaintiffs that (2) the Court finds to have been
22 unlawful, but (3) cannot be remedied because of the statute’s bar on injunctive relief against SBA. As
23 explained above, only one Plaintiff, Gold Club, has a reviewable decision denying it forgiveness on a
24 PPP loan, and the Court has not yet considered the merits of Gold Club’s challenges to that decision.
25 Until this Court determines that SBA’s denial of forgiveness to Gold Club was unlawful and that the
26 statutory bar on injunctive relief prohibits any remedy, any possible injury from the bar on injunctive
27 relief remains “conjectural [and] hypothetical,” not “actual or imminent.” Twitter, 56 F.4th at 1174 (9th
28
MOTION TO DISMISS PLAINTIFFS’ FIRST AMENDED COMPLAINT IN PART AND TO STRIKE JURY DEMAND
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1 Cir. 2022) (quoting Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992)). This is especially true because
2 other relief—including remand to the agency—may be sufficient to address any material errors SBA’s
3 review of Plaintiffs’ loans. “The possibility of some future unconstitutional application” of the bar on
4 injunctive relief does not “entitle Plaintiffs to dispositive judgments on the provision’s
5 constitutionality.” City & Cnty. of San Francisco, 42 F.4th at 1086–87. The Court should therefore
6 dismiss Plaintiffs’ claim challenging § 634(b)(1) for lack of subject matter jurisdiction. 16
7 VII. Counts XV and XVIII Should be Dismissed Because Requests for Attorneys’ Fees and
Injunctive Relief Are Not Causes of Action.
8
The Court should also dismiss “Count XV” and “Count XVIII” because neither a request for
9
attorneys’ fees under the Equal Access to Justice Act nor injunctive relief are independent causes of action.
10
Count XV seeks attorneys’ fees and costs under the Equal Access to Justice Act. FAC ¶719. But the
11
“EAJA does not provide an independent cause of action for litigants in federal court; instead, it simply
12
‘authorizes the payment of fees to the prevailing party in an action against the United States.’” Pham v.
13
Jaddou, No. 23-CV-1058-W-KSC, 2024 WL 436351, at *7 (S.D. Cal. Feb. 5, 2024) (quoting Thomas v.
14
Paulson, 507 F. Supp. 2d 59, 62 n.2 (D.D.C. 2007)); accord Cota v. United States, No. C 13-00576 JSW,
15
2013 WL 6234574, at *7 (N.D. Cal. Dec. 2, 2013), aff’d, 628 F. App’x 500 (9th Cir. 2015). Accordingly,
16
Count XV should be dismissed for failure to state a claim.
17
“Count XVIII – Injunctive Relief” should be dismissed for the same reason. “[A] claim for
18
‘injunctive relief’ standing alone is not a cause of action.” Ramos v. Chase Home Fin., 810 F. Supp. 2d
19
1125, 1132 (D. Haw. 2011) (collecting cases); accord EVIG, LLC v. Natures Nutra Co., 685 F. Supp. 3d
20
991, 996 (D. Nev. 2023) (“[I]njunctive relief is not an independent, free-standing cause of action.”);
21
Lorona v. Ariz. Summit L. Sch., LLC, 151 F. Supp. 3d 978, 997 (D. Ariz. 2015); Cunningham Energy,
22
LLC v. Vesta O&G Holdings, LLC, 578 F. Supp. 3d 798, 819 (S.D.W. Va. 2022). The Court may consider
23
Plaintiffs’ requests for injunctive relief “to the extent they are proper forms of relief for claims that survive
24
25 16
Of course, Plaintiffs’ arguments regarding the constitutionality of § 634(b)(1) may become
ripe if the Court concludes that SBA’s denial of Gold Club’s second-draw loan was unlawful but that
26 relief is barred by § 634(b)(1). But the fact that Plaintiffs may have occasion to challenge the
constitutionality of § 634(b)(1) later does not mean they can assert a claim challenging the statute now.
27 Ripeness is, after all, “peculiarly a question of timing” Thomas, 220 F.3d at 1138 (quoting Regional Rail
28 Reorg. Act Cases, 419 U.S. 102, 140 (1974)).
MOTION TO DISMISS PLAINTIFFS’ FIRST AMENDED COMPLAINT IN PART AND TO STRIKE JURY DEMAND
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1 the motion to dismiss,” 17 but it should not entertain a separate count seeking that relief. Lorona, 151 F.
2 Supp. 3d at 997.
3 VIII. The Court Should Strike Plaintiffs’ Jury Demand.
4 Plaintiffs demand a jury “for any issues so triable.” FAC at 161. But this case presents none.
5 “[S]overeign immunity precludes demands for jury trials on claims against the federal government unless
6 Congress has clearly waived that immunity and expressly granted a right to a jury trial.” Haynie v.
7 Veneman, 272 F. Supp. 2d 10, 20 (D.D.C. 2003) (citing Lehman v. Nakshian, 453 U.S. 156, 164-65 &
8 n.13 (1981)). In other words, “if Congress waives the Government’s immunity from suit . . . the plaintiff
9 has a right to a trial by jury only where that right is one of the terms of the Government’s consent to be
10 sued.” Lehman, 453 U.S. at 160. The APA does not “provide a right to a trial by jury,” Radio Servs. Co.
11 v. U.S. Forest Serv., 578 F.3d 1116, 1123 (9th Cir. 2009), and Plaintiffs have identified no express right
12 to a jury on their constitutional or estoppel claims either. Accordingly, the Court should strike Plaintiffs’
13 request for a jury trial. See Schultz v. Harry S. Truman Scholarship Found., No. 20-CV-04058-MMC,
14 2023 WL 2456714, at *7 (N.D. Cal. Mar. 10, 2023) (striking jury demand for APA and constitutional
15 claims).
16 CONCLUSION
17 For the forgoing reasons, the Court should decline to exercise jurisdiction over Counts IV through
18 XI and Count XVI because those claims are not ripe, limit further proceedings on Counts I–III, XII, XIII,
19 XIV, XV, and XVIII to only those claims that Gold Club can assert based on SBA’s decision to deny it
20 forgiveness on its second-draw loan, dismiss Counts I, II, XV and XVIII with respect to Gold Club’s
21 second-draw loan for failure to state a claim, and strike Plaintiffs’ jury demand for any claims that survive
22 the motion to dismiss.
23 Dated: January 29, 2025 Respectfully Submitted,
24 BRETT A. SHUMATE
Acting Assistant Attorney General
25 Civil Division
26
17
Plaintiffs have not moved for a preliminary injunction and would not be entitled to one if they
27 did. Defendants reserve all arguments and defenses they might raise to oppose such a motion, if one is
28 filed.
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2 Assistant Branch Director
3 /s/ Ross Slaughter
ROSS SLAUGHTER
4 Trial Attorney
U.S. Department of Justice
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Counsel for Defendants
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