Court filing
Reply in Support of Defendants’ Motion to Dismiss and to Strike Jury Demand — Gold Club SF, LLC v. Small Business Administration (Dkt. 33, N.D. Cal.)
Summary
This 23-page filing is Defendants' Reply in Support of Motion to Dismiss and to Strike Jury Demand in Gold Club SF, LLC, et al. v. Small Business Administration, et al., No. 3:24-cv-04241-LJC (Document 33, N.D. Cal.), filed April 5, 2025 before Hon. Lisa J. Cisneros and noticed for May 6, 2025. Submitted by Senior Trial Counsel David M. Glass (DC Bar 544549) for SBA and Administrator Kelly Loeffler, it responds to Plaintiffs' March 12, 2025 opposition (ECF No. 32) on the First Amended Complaint (ECF No. 18). Defendants argue that the challenge to SBA's affiliation rules (13 C.F.R. 121.103(a)) is unripe because the sole final action is SBA's January 30, 2024 decision finding Gold Club ineligible for its second-draw PPP loan under 13 C.F.R. 120.110(p)(1). Defendants also contend that 13 C.F.R. 120.110(p) is constitutional and ask to strike the jury demand under Fed. R. Civ. P. 39(a)(2).
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 April 5, 2025 in Gold Club SF, LLC v. Small Business Administration; one of 8 filings from this case.
Record facts
| Court | U.S. District Court for the Northern District of California |
|---|---|
| Filed | 2025-04-05 |
Cite this document
“Reply in Support of Defendants’ Motion to Dismiss and to Strike Jury Demand — Gold Club SF, LLC v. Small Business Administration (Dkt. 33, N.D. Cal.).”
U.S. District Court for the Northern District of California, No. 3:24-cv-04241, Doc. 33, filed 2025-04-05. Archived at Pandemic Darlings, https://pandemicdarlings.com/court-filings/full-docket-united-states-small-business-administration-cand-432603/2025-04-05-gov-uscourts-cand-432603-33-0-doc-33/
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Case 3:24-cv-04241-LJC Document 33 Filed 04/05/25 Page 1 of 23
YAAKOV M. ROTH
1
Acting Assistant Attorney General
2 JOSEPH E. BORSON
Assistant Branch Director
3 DAVID M. GLASS, DC Bar 544549
Senior Trial Counsel
4
Department of Justice, Civil Division
5 Federal Programs Branch
1100 L Street, N.W., Room 12020
6 Washington, D.C. 20530
7 Tel: (202) 514-4469
Email: david.glass@usdoj.gov
8 Attorneys for Defendants
9 UNITED STATES DISTRICT COURT
10 NOTRHERN DISTRICT OF CALIFORNIA
SAN FRANCISCO DIVISION
11
) No. 3:24-cv-04241-LJC
12 GOLD CLUB SF, LLC, et al., )
13 ) REPLY IN SUPPORT OF
Plaintiffs, ) DEFENDANTS’ MOTION TO
14 ) DISMISS AND TO STRIKE JURY
v. ) DEMAND
15 )
16 SMALL BUSINESS ADMINISTRATION, ) Hearing Date: May 6, 2025
et al., ) Time: 10:30 a.m.
17 ) Place: San Francisco Courthouse, Courtroom G
Defendants. )
18
____________________________________ ) Hon. Lisa J. Cisneros
19
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Reply Supp. Def. Mot. Dis. 1
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TABLE OF CONTENTS
1
Page
2 INTRODUCTION ...........................................................................................................................1
3 LEGAL BACKGROUND ...............................................................................................................2
4
ARGUMENT ...................................................................................................................................3
5
I. PLAINTIFFS HAVE NOT SHOWN THAT THEIR CLAIM CONCERNING
6 THE POSSIBLE APPLICATION OF THE AFFILIATION RULES TO THEIR
7 LOANS UNDER PPP IS RIPE............................................................................................3
8 II. PLAINTIFFS HAVE NOT SHOWN THAT THEIR CLAIM CONCERNING
THE POSSIBLE APPLICATION OF THE AFFILIATION RULES TO THEIR
9 LOANS UNDER PPP IS REVIEWABLE, EVEN ASSUMING, ARGUENDO,
10 THAT THE CLAIM IS RIPE ..............................................................................................8
11 III. PLAINTIFFS HAVE NOT SHOWN THAT PPP IS A BENEFIT PROGRAM ................9
12 IV. PLAINTIFFS HAVE NOT SHOWN THAT 13 C.F.R. § 120.110(P) IS A PRIOR
13 RESTRAINT ON SPEECH ...............................................................................................11
14 V. PLAINTIFFS HAVE NOT SHOWN THAT 13 C.F.R. § 120.110(P) IS A
CONTENT-BASED OR VIEWPOINT-BASED RESTRICTION ON SPEECH.............12
15
16 VI. PLAINTIFFS HAVE NOT SHOWN THAT 13 C.F.R. § 120.110(P) IS TOO
VAGUE TO BE CONSTITUTIONAL .............................................................................13
17
VII. PLAINTIFFS HAVE FAILED TO STATE A CLAIM THAT DEFENDANTS
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ARE COMMITTING ACTS OF RETALIATION AGAINST THEM ............................ 15
19
VIII. PLAINTIFFS HAVE NOT SHOWN THAT THEY ARE ENTITLED TO A JURY
20 IN THIS ACTION .............................................................................................................17
21
CONCLUSION ..............................................................................................................................18
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TABLE OF CASES
1
Page
2 Alexander v. United States, 509 U.S. 544 (1993) ....................................................................11, 12
3 Camelot Banquet Rooms v. SBA, 458 F. Supp. 3d 1044 (E.D. Wis. 2020) .............................11, 13
4
Camelot Banquet Rooms v. SBA, 24 F.4th 640 (7th Cir. 2022) ...............................9, 10, 11, 13, 16
5
D. Houston Inc. v. SBA, 579 F. Supp. 3d 959 (S.D. Tex. 2020) ..............................................10, 13
6
7 Deja Vu-SF v. SBA, 2020 WL 6260010 (N.D. Cal. Sept. 11, 2020)....................................2, 10, 15
8 DiManni v. R.I. Army Nat’l Guard, 62 F. App’x 937 (Fed. Cir. 2003) .........................................16
9 FDA v. Wages & White Lion Invs., 2025 WL 978101 (S. Ct. Apr. 2, 2025) ...........................17, 18
10
FTC v. Standard Oil Co. of Cal., 449 U.S. 232 (1980) ...............................................................7, 9
11
Jet Inv., Inc. v. Dep’t of the Army, 84 F.3d 1137 (9th Cir. 1996) ..........................................8, 9, 18
12
13 Johnson v. City of Shelby, 574 U.S. 10 (2014) ................................................................................1
14 Kim v. Kang, 154 F.3d 996 (9th Cir. 1998) .....................................................................................9
15 Lozman v. City of Riviera Beach, 585 U.S. 87 (2018) ...................................................................15
16
Miller v. California, 413 U.S. 15 (1973) .......................................................................................15
17
Mt. Healthy City. Sch. Dist. Bd. of Educ. v. Doyle, 429 U.S. 274 (1977) .....................................15
18
19 Multistar Indus. v. Dep’t of Transp., 707 F.3d 1045 (9th Cir. 2013) ..............................................8
20 Nat’l Endowment for the Arts v. Finley, 524 U.S. 569 (1998) ......................................................15
21
N.B. v. United Stat1es, 552 F. Supp. 3d 387 (E.D.N.Y. 2021) ................................................17, 18
22
Nieves v. Bartlett, 587 U.S. 391 (2019) ...................................................................................16, 17
23
24 Oksner v. Blakey, 347 F. App’x 290 (9th Cir. 2009) .......................................................................8
25 Pharaohs GC, Inc. v. SBA, 990 F.3d 217 (2nd Cir. 2021) .....................................................3, 9, 12
26 Rizzo v. City of Phoenix, 2016 WL 11602424 (D. Ariz. Apr. 11, 2016) .......................................16
27
Seattle Pacific Univ. v. Ferguson, 104 F.4th 50 (9th Cir. 2024) .....................................................8
28
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Shop Rite, Inc. v. SBA, 2024 WL 5183329 (W.D. La. Dec. 19, 2024) ............................................2
1
2 Sokol World Entertainment v. SBA, 2025 WL 870323 (D.D.C. Mar. 20, 2025) .......................3, 14
3 Stavrianoudakis v. Fish & Wildlife Serv., 108 F.4th 1138 (9th Cir. 2024)......................................4
4
United States v. Am. Library Ass’n, 539 U.S. 194 (2003) .............................................................10
5
W. Radio Servs. v. Forest Serv., 578 F.3d 1116 (9th Cir. 2009)..............................................17, 18
6
7
8
9
10
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12
13
14
15
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INTRODUCTION
1
2 Plaintiffs are 15 corporations or limited liability companies, eleven of which present adult
3 performance dance entertainment.1 Plaintiffs make two basic claims in this action. First,
4 plaintiffs challenge the possible application of the affiliation rules of the Small Business
5
Administration (SBA), which limit the ability of certain related enterprises to secure certain loan
6
benefits, to the first or second draw loans plaintiffs have obtained under the Paycheck Protection
7
8 Program (PPP).2 Second, plaintiffs challenge the constitutionality of 13 C.F.R. § 120.110(p), a
9 long-established regulation of SBA that prohibits “prurient” enterprises from receiving SBA
10 loans.3 Defendants are SBA, its Administrator, its Office of Hearings and Appeals (OHA), its
11
Assistant Administrator for OHA, and the United States.4
12
Defendants have moved to dismiss this action and to strike plaintiff’s jury demand. The
13
14 Court should grant defendants’ motion. None of plaintiffs’ PPP loans, except one, has received a
15 final SBA determination and that determination did not involve application of the affiliation
16
rules. SBA, accordingly, may never apply the affiliation rules to any of plaintiffs’ loans, and
17
even if it will, it will do so under factual circumstances not yet established. Plaintiffs’ challenge
18
19
20 1
Verified First Am. Compl. for Decl. & Inj. Rel. [etc.] (Oct. 10, 2024) (1st Am. Compl.), ECF
21 No. 18, ¶¶ 38-52, 61, 112, 130, 160, 176, 203, 217, 286. 302, 318, 330, 573. But see id. ¶ 272
(stating that one plaintiff, Pole Position at Tacoma, “permanently closed its door in March of
22 2023”).
Plaintiffs tout the fact that the first amended complaint consists of “160 pages and 745
23
paragraphs,” Pl. Opp’n Def. Mot. Dis. (Pl. Opp’n) (Mar. 12, 2025), ECF No. 32, at 1, but
24 plaintiffs ignore the fact that “[f]ederal pleading rules call for ‘a short and plain statement of the
claim showing that the pleader is entitled to relief.’” Johnson v. City of Shelby, 574 U.S. 10, 11
25 (2014) (quoting Fed. R. Civ. P. 8(a)(2)).
2
26 See 1st Am. Compl. ¶ 604.
3
See id. ¶ 22.
27 4
Id. ¶¶ 53-54, 56-58. Kelly Loeffler, the current Administrator of SBA, is substituted for her
28 predecessor pursuant to Fed. R. Civ. P. 25(d).
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to the possible application of the affiliation rules to their loans thus is unripe. Nor would the
1
2 challenge be reviewable assuming, arguendo, that it was ripe, because SBA has not taken any
3 final agency action with respect to any of plaintiffs’ loans as to which SBA might apply the
4
affiliation rules.
5
Plaintiffs’ challenge to the constitutionality of 13 C.F.R. § 120.110(p), the prurient
6
7 establishment rule, should also be dismissed and their jury demand be stricken. Multiple courts
8 have upheld § 120.110(p) against First Amendment challenge on the ground that the government
9 is entitled to condition the uses to which federal funds used as subsidies are put. Plaintiffs thus
10
have not shown that PPP is a benefit program, as opposed to what it really is: a subsidy program.
11
Plaintiffs have also failed to show that § 120.110(p) is a prior restraint on speech, a content-
12
13 based or viewpoint-based restriction on speech, or too vague to be constitutional. Plaintiffs
14 likewise have failed to state a claim that defendants are committing acts of retaliation against
15 them. SBA, to the contrary, would have taken the actions involving plaintiffs that it has taken –
16
applying well established law – regardless. Plaintiffs have failed to show, finally, that they are
17
entitled to a jury in this action. This action involves APA claims for non-monetary relief that the
18
19 caselaw uniformly establishes are not subject to a jury right.
20 LEGAL BACKGROUND
21
SBA has issued “size standards [to] define whether a business entity is small and, thus,
22
eligible for Government programs and preferences reserved for ‘small business’ concerns.” 13
23
24 C.F.R. § 121.101. “The SBA’s regulations . . . include ‘affiliation’ rules governing when related
25 businesses are grouped together for purposes of applying the size limits.” Shop Rite, Inc. v. SBA,
26 2024 WL 5183329, at *1 (W.D. La. Dec. 19, 2024). “Affiliation exists [under the affiliation
27
rules] when an entity can control another entity.” Deja Vu-SF v. SBA, 2020 WL 6260010, at *3
28
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(N.D. Cal. Sept. 11, 2020) (citing 13 C.F.R. § 121.103(a)). The Small Business Act, Pub. L. No.
1
2 85-536, 72 Stat. 384 (1958) (codified as amended at 15 U.S.C. § 631 et seq.), waives the
3 affiliation rules for certain businesses obtaining first draw loans under PPP, 15 U.S.C.
4
§ 636(a)(36)(D)(iv), and for certain businesses obtaining second draw loans under PPP. Id.
5
§ 636(a)(37)(E).
6
7 The Small Business Act authorizes the Administrator of SBA, “[i]n the performance of,
8 and with respect to, the functions, powers, and duties vested in him by this chapter,” to “sue and
9 be sued in any court of record of a State having general jurisdiction, or in any United States
10
district court.” Id. § 634(b)(1). Section 634(b)(1) confers jurisdiction on federal district courts
11
to determine controversies to which § 634(b)(1) applies, “without regard to the amount in
12
13 controversy,” but specifies that “no attachment, injunction, garnishment, or other similar process,
14 mesne or final, shall be issued against the Administrator or his property.”
15 The Small Business Act prohibits SBA, “[n]otwithstanding any other provision of law . . .
16
from providing any financial or other assistance to any business concern or other person engaged
17
in the production or distribution of any product or service that has been determined to be obscene
18
19 by a court of competent jurisdiction.” 15 U.S.C. § 633(e). 13 C.F.R. § 120.110(p), which SBA
20 issued in 1996, see Sokol World Ent. v. SBA, 2025 870323, at *7 (D.D.C. Mar. 20, 2025),
21
provides that a business that “[p]resent[s] live performances of a prurient sexual nature” shall be
22
ineligible for an SBA business loan, § 120.110(p)(1), and also provides that a business that
23
24 “[d]erive[s] directly or indirectly more than de minimis gross revenue through the sale of
25 products or services, or the presentation of any depictions or displays, of prurient sexual nature”
26 shall be ineligible for an SBA business loan. Sec. 120.110(p)(2). Section 120.110(p) has been
27
held applicable to first draw loans under PPP, Pharaohs GC, Inc. v. SBA, 990 F.3d 217, 226 (2nd
28
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Cir. 2021), and Congress made § 120.110(p) applicable to second draw loans under PPP by
1
2 adding 15 U.S.C. § 636(a)(37)(A)(iv)(III)(aa) to the Small Business Act.
3 ARGUMENT
4
Plaintiffs have filed an opposition to defendants’ motion to dismiss and to strike
5
plaintiffs’ jury demand. Plaintiffs have not shown, however, that their claim concerning the
6
7 possible application of the affiliation rules to their loans under PPP is ripe; that the above claim
8 is reviewable even assuming, arguendo, that the claim is ripe; that PPP is a benefit program; that
9 13 C.F.R. § 120.110(p) is a prior restraint on speech; that § 120.110(p) is a content-based or
10
viewpoint-based restriction on speech; that § 120.110(p) is too vague to be constitutional; that
11
plaintiffs have stated a claim that defendants are committing acts of retaliation against them; and
12
13 that plaintiffs are entitled to a jury in this action. Defendants’ motion should therefore be
14 granted.
15 I. PLAINTIFFS HAVE NOT SHOWN THAT THEIR CLAIM CONCERNING THE
16 POSSIBLE APPLICATION OF THE AFFILIATION RULES TO THEIR LOANS
UNDER PPP IS RIPE.
17
Article III of the Constitution “requires . . . a plaintiff’s claim [to] be ripe for
18
19 adjudication.” Stavrianoudakis v. Fish & Wildlife Serv., 108 F.4th 1128, 1138 (9th Cir. 2024).
20 “There are two ripeness considerations: constitutional and prudential.” Id. at 1139.
21
“Constitutional ripeness overlaps with the injury-in-fact element of Article III standing, and
22
‘therefore the inquiry is largely the same: whether the issues presented are definite and concrete,
23
24 not hypothetical or abstract.’” Id. (quoting Ass’n of Irritated Residents v. EPA, 10 F.4th 937, 944
25 (9th Cir. 2021)). “Prudential ripeness concerns ‘the fitness of the issues for judicial decision and
26 the hardship to the parties of withholding court consideration.’” Id. “‘A claim is fit for decision
27
if the issues raised are primarily legal, do not require further factual development, and the
28
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challenged action is final.’” Id. (quoting Stormans, Inc. v. Selecky, 586 F.3d 1109, 1126 (9th Cir.
1
2 2009)). “As to hardship, ‘a litigant must show that withholding review would result in direct and
3 immediate hardship and would entail more than possible financial loss.’” Id. (quoting US W.
4
Commc’ns v. MFS Intelenet, Inc., 193 F.3d 1112, 1118 (9th Cir. 2000)).
5
The sole action that SBA has taken with respect to any of plaintiffs’ loans under PPP that
6
7 is final and ripe for review is the final action that SBA has taken with respect to the second draw
8 loan of plaintiff Gold Club SF, LLC (Gold Club). SBA found by final loan review decision
9 (FLRD) dated January 30, 2024, that Gold Club was ineligible for that loan under 13 C.F.R.
10
§ 120.110(p)(1) because “[o]pen-source research confirms” that “[Gold Club] operates as ‘an
11
upscale topless bar, adult entertainment spot, and gentleman’s club featuring live girls’” and
12
13 because the LinkedIn profile that Gold Club maintains states that Gold Club was the “‘Winner
14 of the 2015 Niteys Award [for] ‘Best Adult Entertainment and Gold Club will offer you the
15 ultimate strip club experience you won’t soon forget!’”5 SBA also found by the above FLRD
16
that Gold Club was ineligible under § 120.110(p)(2) for its second draw loan under PPP because
17
Gold Club’s interim financial statement for the period ending June 30, 2019, “report[ed] total
18
19 revenues of [redacted] with income from Dances being reported of [redacted] with additional
20 revenues from door admissions of [redacted].”6 OHA affirmed the FLRD by decision dated May
21
14, 2024.7
22
23 5
1st Am. Compl., Ex. C at 1-2. Plaintiffs contend that the FLRD based its finding that Gold
24 Club was a business within the purview of § 120.110(p)(1) on “Google Earth photos of the
outside of [Gold Club’s] building,” Pl. Mem. P. & A. Opp’n Def. Mot. Dis. [etc.] (Mar. 12,
25
2025) (Pl. Opp’n), ECF No. 32, at 2, but plaintiffs are mistaken, as explained above.
6
26 1st Am. Compl., Ex. C at 1-2. The redacted material showed that Gold Club’s “full-year 2019
‘dance’ revenues were about 48.2% of [Gold Club’s] total revenues for that year, and [Gold
27 Club’s] full-year 2020 ‘dance’ revenues were about 46.7% of [Gold Club’s] 2020 revenues.” Id.,
28 Ex. K at 8.
7
Id. at 1.
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Neither the above FLRD nor the decision of OHA affirming the FLRD discusses the
1
2 affiliation rules, much less finds that Gold Club was ineligible pursuant to the affiliation rules for
3 its second draw loan. Nor has SBA made a final determination as to any of plaintiffs’ other
4
loans, much less a final decision invoking the affiliation rules as to those plaintiffs.8 Fourteen
5
plaintiffs allege, nonetheless, that SBA may find them ineligible for their first or second draw
6
7 loans pursuant to the affiliation rules9; that SBA may do so because of their alleged affiliation
8 with two individuals “associated” with “‘adult’ businesses,” Harry and Jason Mohney10; and that
9 SBA is precluded by the statutory waivers to the affiliation rules from doing so.11
10
One of the grounds upon which defendants base their motion to dismiss this action is that
11
plaintiffs’ claim concerning the possible application of the affiliation rules to their loans under
12
13 PPP is unripe under the prudential ripeness doctrine.12 Opposing dismissal, plaintiffs contend
14 that the prudential ripeness doctrine is inapplicable to their claim because the issues that the
15 claim raises “are purely legal” and do not require any “further factual development.”13 Plaintiffs
16
are mistaken. The affiliation rules require SBA to determine whether a loan applicant is too
17
large to qualify as a small business because the applicant is controlled by another concern or
18
19 entity. See 13 C.F.R. § 121.103(a)(1). The extent, if any, to which the Mohneys control any
20 plaintiff is a question of fact appropriate for resolution in the first instance at the agency level, as
21
22
23
8
See Not. Mot., Def. Mot. Dis. Pl. First Am. Compl. [etc.] (Jan. 29, 2025) (Def. Mem.), ECF No.
24 28, at 10-13 (discussing the status of SBA’s determinations as to each of plaintiffs’ loans).
9
25 1st Am. Compl. ¶ 604. The plaintiff that does not so allege is 2345 Meacham, LLC. Id.
10
26 Id. ¶¶ 604, 607.
11
Pl. Opp’n at 2.
27 12
Def. Mem. at 15.
13
28 Pl. Opp’n at 23.
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is the extent, if any, to which plaintiffs qualify for the protection of the statutory waivers to the
1
2 affiliation rules.
3 Plaintiffs also contend that the prudential ripeness doctrine is inapplicable to their claim
4
concerning the possible application of the affiliation rules to their loans under PPP because
5
plaintiffs will experience “hardship” if the doctrine is applied to that claim.14 The sole allegation
6
7 of concrete hardship that plaintiffs make, however, is that SBA has
8 caused them economic damages in the form of the exorbitant professional fees
incurred as a result of . . . having to comply with SBA’s incessant demands for
9 more documentation . . . and . . . having to serially appeal FLRDs, because SBA
10 withdraws them on specious grounds to be replaced at a later date with a new
reason for denial, after having made payments on the loan.15
11
The above allegation is insufficient to render the prudential ripeness doctrine inapplicable
12
13 to plaintiffs’ claim concerning the possible application of the affiliation rules to their loans under
14 PPP because “the expense and disruption of defending [oneself] in protracted adjudicatory
15 proceedings [does not] constitute[] irreparable harm.” FTC v. Standard Oil Co. of Cal., 449 U.S.
16
232, 244 (1980). “‘[T]he expense and annoyance of litigation,” to the contrary, “is part of the
17
social burden of living under government,’” id. (quoting Petroleum Expl., Inc. v. Pub. Serv.
18
19 Comm’n, 304 U.S. 209, 222 (1938)), and “‘[m]ere litigation expense, even substantial and
20 unrecoupable cost, does not constitute irreparable injury.’” Id. (quoting Renegotiation Bd. v.
21
Bannercraft Clothing Co., 415 U.S. 1, 24 (1974)).
22
Plaintiffs also contend that the prudential ripeness doctrine is inapplicable to their claim
23
24 concerning the possible application of the affiliation rules to their loans under PPP because the
25 doctrine is “disfavored.”16 Any disfavor from which the doctrine suffers does not preclude its
26
14
27 Id. at 25.
15
Id. at 18 (emphasis omitted).
28 16
Id. at 8.
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application, however. The Ninth Circuit has recently said with respect to the doctrine that the
1
2 Supreme Court “appears to have walked up to the line but stopped short of abrogating it.”
3 Seattle Pacific Univ. v. Ferguson, 104 F.4th 50, 66 (2024) (discussing Susan B. Anthony List v.
4
Driehaus, 573 U.S. 149, 167 (2014)). The prudential ripeness doctrine thus remains a viable
5
doctrine that merits application in an appropriate case, like this one, where SBA has never made
6
7 a final determination that any plaintiff is ineligible under the affiliation rules for any loan the
8 plaintiff has obtained. Plaintiffs’ claim concerning the possible application of the affiliation
9 rules to their loans under PPP thus requests an advisory opinion on an issue that may never arise.
10
II. PLAINTIFFS HAVE NOT SHOWN THAT THEIR CLAIM CONCERNING THE
11 POSSIBLE APPLICATION OF THE AFFILIATION RULES TO THEIR LOANS
UNDER PPP IS REVIEWABLE, EVEN ASSUMING, ARGUENDO, THAT THE
12 CLAIM IS RIPE.
13
“Judicial review of the actions of [SBA] is governed by the Administrative Procedure Act
14
(APA), 5 U.S.C. §§ 701 et seq.” Jet Inv., Inc. v. Dep’t of the Army, 84 F.3d 1137, 1139 (9th Cir.
15
16 1996). Constitutional claims, like the ones that plaintiffs make with respect to 13 C.F.R.
17 § 120.110(p), are reviewable under the APA because “the [APA] “creates a remedy for seeking
18
judicial redress of alleged constitutional violations.” Oksner v. Blakey, 347 F. App’x 290, 292
19
(9th Cir. 2009); see 5 U.S.C. § 706(2)(B).17 Courts are limited under the APA “to reviewing
20
only the ‘final’ action taken by the agency.” Multistar Indus. v. Dep’t of Transp., 707 F.3d 1045,
21
22 1052 (9th Cir. 2013) (citing 5 U.S.C. § 704). “‘Generally, administrative orders are final and
23 appealable if they impose an obligation, deny a right, or fix some legal relationship as a
24
consummation of the administrative process.’” Id. (quoting Sierra Club v. Nuclear Regul.
25
Comm’n, 862 F.2d 222, 225 (9th Cir. 1988)). Administrative action that is “not ‘final agency
26
27 17
Section 706(2)(B), a provision of the APA, directs reviewing courts to “hold unlawful and set
28 aside agency actions, findings, and conclusions found to be . . . contrary to constitutional right,
power, privilege, or immunity.”
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action’ under [§ 704] . . . is not judicially reviewable before administrative adjudication
1
2 concludes.” Standard Oil, 449 U.S. at 246.
3 Plaintiffs’ claim concerning the possible application of the affiliation rules to their loans
4
under PPP does not involve final agency action because SBA has not finished reviewing any
5
loan that plaintiffs have obtained as to which SBA might apply the rules. Plaintiffs claim thus is
6
7 not reviewable under the APA even assuming, arguendo, that the claim is ripe.
8 Plaintiffs contend, notwithstanding the foregoing, that their claim is reviewable under 5
9 U.S.C. § 634(b)(1).18 Plaintiffs are mistaken. Section 634(b)(1) permits a district court to
10
entertain a claim against SBA “for damages . . . regardless of the amount sought,” Jet Inv., 84
11
F.3d at 1143 n.12, and “vests jurisdiction in [the] district courts over contract claims against
12
13 [SBA].” Kim v. Kang, 154 F.3d 996, 999 (9th Cir. 1998). Plaintiffs do not seek an award of
14 damages in this case or assert a contract claim – they seek relief under the APA.19
15 III. PLAINTIFFS HAVE NOT SHOWN THAT PPP IS A BENEFIT PROGRAM.
16
“The Supreme Court has repeatedly drawn a line between government regulation of
17
speech, on one hand, and government subsidy of speech, on the other.” Camelot Banquet Rooms
18
19 v. SBA, 24 F.4th 640, 646 (7th Cir. 2022) (Camelot II). The limitations on government subsidies
20 thus are much more limited than government regulation of private speech. Plaintiffs concede
21
that “the Government . . . is under no obligation to subsidize speech” but ask the Court to refrain
22
from “view[ing] the PPP as a mere subsidy program.” The Court should deny plaintiffs’ request
23
24 because numerous courts have properly held that PPP is a subsidy program and thus is valid
25 under the First Amendment. See, e.g., Pharaohs, 990 F.3d at 229 (holding that § 120.110(p) is
26 “part of a selective subsidy program” because it “excludes certain types of businesses from
27
18
28 Pl. Opp’n at 10.
19
See 1st Am. Compl. ¶¶ 22, 604 & Prayer for Relief, ¶¶ A-Z.
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eligibility for PPP loans – it does not directly regulate speech”); Camelot II, 24 F.4th at 646
1
2 (holding that the problem with the plaintiffs’ challenge under the First Amendment to
3 § 120.110(p) was that “Congress [was] not trying to regulate or suppress plaintiffs’ adult
4
entertainment” when it made § 120.110(p) applicable to second draw loans under PPP; Congress
5
“simply chose[] not to subsidize it”; Deja Vu-SF, 2020 WL 6260010, at *10 (holding that “[t]he
6
7 SBA’s decision not to fund prurient businesses” is “a selective subsidy, not impermissible
8 viewpoint discrimination aimed at the suppression of dangerous ideas”). See also United States
9 v. Am. Library Ass’n, 539 U.S. 194, 212 (2003) (stating that “[a] refusal to fund protected
10
activity, without more, cannot be equated with the imposition of a penalty on that activity’” and
11
that “‘[a] legislature’s decision not to subsidize the exercise of a fundamental right does not
12
13 infringe the right’”) (quoting Rust v. Sullvan, 500 U.S. 173, 193 (1991)).
14 Plaintiffs contend on the strength of D. Houston Inc. v. SBA, 579 F. Supp. 3d 959 (S.D.
15 Tex. 2020), that PPP is a benefit program, not a subsidy program.20 D. Houston states:
16
Federal district courts are split as to whether the PPP is a subsidy or a
17 benefit. Compare Pharaohs GC, Inc. v. [SBA], 20-CV-665, 2020 WL 3489404
(W.D.N.Y. June 26, 2020) (Vilardo, J.) (denying preliminary injunction) with
18
Camelot Banquet Rooms v. [SBA], 458 F. Supp. 3d 1044 (E.D. Wis. 2020)
19 (Adelman, J.) (granting preliminary injunction) [(Camelot I)]; see also Am. Ass’n.
of Political Consultants v. [SBA], 810 F. App’x 8, 9 (D.C. Cir. 2020) (per curiam)
20 (affirming the determination that the PPP is a subsidy in the context of a different
restriction, specifically, a small business loan limitation concerning political
21
lobbying.
22 ....
23 Considering the basic purpose of the PPP loans, the SBA restrictions on
businesses that can receive business loans, and the waived restrictions, the court
24 determines the PPP loans are not a subsidy. [Citations omitted.] Rather, the PPP
loans are a benefit the Government confers upon small business.
25
26 Id. at 967-68 (cleaned up).
27
28
20
Pl. Opp’n at 29.
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D. Houston, which occurred in an emergency context, did not engage in significant
1
2 analysis of the relevant precedent. As the above excerpt shows, moreover, Camelot I was the
3 predicate for the holding of D. Houston that PPP is a benefit program, not a subsidy program.
4
Camelot I is no longer persuasive authority because the Seventh Circuit vacated and remanded
5
Camelot I in Camelot II, 24 F.4th at 651, and found that § 120.110(p) comported fully with the
6
7 First Amendment. See id. (stating that “[i]n the words of Regan, Congress ‘has not infringed any
8 First Amendment rights or excluded any First Amendment activity’ by excluding prurient
9 businesses from receiving Program funding”) (quoting Regan v. Taxation with Representation of
10
Wash., 461 U.S. 540, 546 (1983)). The reliance that plaintiffs place on D. Houston to show that
11
PPP is a benefit program thus is misplaced.
12
13 IV. PLAINTIFFS HAVE NOT SHOWN THAT 13 C.F.R. § 120.110(p) IS A PRIOR
RESTRAINT ON SPEECH.
14
“The term ‘prior restraint’ is used ‘to describe administrative and judicial orders
15
16 forbidding certain communications when issued in advance of the time such communications
17 occur.’” Alexander v. United States, 509 U.S. 544, 550 (1993) (quoting M. Nimmer, Nimmer on
18
Freedom of Speech § 403, p. 4-14 (1984)). “[C]ourt orders that actually forbid speech activities
19
. . . are classic examples of prior restraints.” Id.
20
Alexander delt with an order under the Racketeer Influenced and Corrupt Organizations
21
22 Act, 18 U.S.C. § 1961 et seq., requiring the owner of certain stores and theaters dealing in
23 sexually explicit materials to forfeit his businesses and to forfeit the money he had acquired
24
through the operation of those businesses. Holding that the order was not a prior restraint, the
25
Court said:
26
27 [T]he forfeiture order in this case imposes no legal impediment to – no prior
restraint on – [the owner’s] ability to engage in any expressive activity he
28 chooses. He is perfectly free to open an adult bookstore or otherwise engage in
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the production and distribution of erotic materials; he just cannot finance those
1
enterprises with assets derived from his prior racketeering offenses.
2
Id. at 551.
3
Plaintiffs contend that 13 C.F.R. § 120.110(p) is a prior restraint and, therefore,
4
5 unconstitutional.21 Plaintiffs are mistaken because the application of § 120.110(p) to plaintiffs’
6 first or second draw loans under PPP would not impose any “legal impediment to . . . [plaintiffs’]
7
ability to engage in any expressive activity [they] choose[],” see Alexander, 509 U.S. at 551; it
8
merely would not subsidize that activity with taxpayer dollars. Plaintiffs’ contention is thus
9
10 without merit.22
11 V. PLAINTIFFS HAVE NOT SHOWN THAT 13 C.F.R. § 120.110(p) IS A
CONTENT-BASED OR VIEWPOINT-BASED RESTRICTION ON SPEECH.
12
13 Plaintiffs contend that 13 C.F.R. § 120.110(p), violates the First Amendment because
14 § 120.110(p) is a content-based and viewpoint-based restriction on speech.23 Here, too, plaintiffs
15 ignore the decisions holding otherwise. See, e.g., Pharaohs, 990 F.3d at 231 (holding that “[t]he
16
word ‘prurient’ operates in [13 C.F.R. § 120.110(p)] to describe the subject matter – or content –
17
of businesses excluded from SBA loans”; that “[b]usinesses that present live performances are
18
19 excluded if the nature of those performances is prurient.”; and that “[t]he restriction does not
20 describe a viewpoint; one could not have a prurient view of American policy in the Middle East
21
22
21
23 Id. at 32.
22
Plaintiffs contend that “fully nude dancing is expression under the Constitution,” id. at 27
24 (citing Barnes v. Glen Theater, Inc., 501 U.S. 560, 565 (1991)), but the law is far more nuanced
25 than plaintiffs suggest. Nude dancing “‘falls only within the outer ambit of the First
Amendment’s protections,’” Pharaohs, 990 F.3d at 228-29 (quoting City of Erie v. Pap’s A.M.,
26 529 U.S. 227, 289 (2000)), and “thus involves ‘only the barest minimum of protected
expression.” Id. at 229 (quoting Doran v. Salem Inn, 422 U.S. 922, 932 (1975)).
27 23
Pl. Opp’n at 32-33.
28
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or antitrust regulation”); Camelot II, 24 F.3d at 649 (holding that “[t]he statutory exclusion from
1
2 [PPP] of businesses with prurient live entertainment is better understood not as viewpoint
3 discrimination but as a permissible classification based on subject matter”)
4
Plaintiffs rely on Camelot I and D. Houston to show that § 120.110(p) is a content-based
5
or viewpoint-based restriction on speech.24 The reliance that plaintiffs place on both cases is
6
7 misplaced. The reliance that plaintiffs place on Camelot I is misplaced because the Seventh
8 Circuit vacated and remanded Camelot I in Camelot II and held in Camelot II that § 120.110(p)
9 is not a viewpoint-based restriction on speech. 24 F.4th at 649, 651. The reliance that plaintiffs
10
place on D. Houston is likewise misplaced because “[b]oth parties agree[d]” in D. Houston that
11
§ 120.110(p) was “a content-based restriction.” 579 F. Supp. at 968. Camelot II and Pharaohs,
12
13 decided since D. Houston, make it clear that the defendants in D. Houston ought not to have so
14 agreed.
15 VI. PLAINTIFFS HAVE NOT SHOWN THAT 13 C.F.R. § 120.110(p) IS TOO VAGUE
16 TO BE CONSTITUTIONAL.
17 Dictionary definitions of the term “prurient” abound. See, e.g., 2 New Shorter Oxford
18
English Dictionary 2396 (1993) (“Having or characterized by an unhealthy concern with sexual
19
matters; encouraging such a concern”); Webster’s New College Dictionary 1156 (4th Ed. 2010)
20
(“[T]ending to excite lust; lascivious; lewd”); Black’s Law Dictionary (12th Ed. 2024)
21
22 (“Characterized by, exhibiting, or arousing inappropriate, inordinate, or unusual sexual desire;
23 having or showing too much interest in sex < films appealing to prurient interests >”).
24
Plaintiffs contend that the term “prurient” as used in 13 C.F.R. § 120.110(p) is
25
“unconstitutionally vague under the First and Fifth Amendments” because the term “does not
26
27
24
28 Id. at 33-34.
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provide common persons with notice as to what [§ 120.110(p)] prohibits” and “does not provide
1
2 clear standards to govern the actions of enforcement officials.”25 That contention is baseless in
3 view of the number of definitions of the term “prurient” that dictionaries provide and the
4
fundamental similarity among those definitions.
5
Plaintiffs also contend that § 120.110(p) is unconstitutional because SBA does not
6
7 interpret the term “prurient” for purposes of § 120.110(p) as the Supreme Court has defined the
8 term “obscene.”26 Rejecting the same contention in a case involving 15 U.S.C. § 9009a(1)(B), a
9 provision having the same text and purpose as § 120.110(p), the court in Sokol World
10
Entertainment. v. SBA, 2025 WL 870323 (D.D.C. Mar. 20, 2025), said:
11
The court first considers what “prurient” means under § 9009a, which
12 does not provide a definition. Merriam-Webster Dictionary defines “prurient” as
13 “marked by or arousing an immoderate or unwholesome interest or desire;
especially, marked by, arousing, or appealing to sexual desire” – the same
14 definition the SBA cited in its December 14, 2022, denial decision.
15 It is true that, in obscenity jurisprudence, “prurient” is generally defined as
16 involving an unhealthy or abnormal interest in sex or nudity. In Roth v. United
States, the Supreme Court defined “prurient” as “having itching, morbid, or
17 lascivious longings,” similar to [the plaintiff’s] interpretation of “prurient,” but it
also defined “prurient” as “uneasy with desire or longing,” which is more akin to
18
the SBA’s interpretation of “prurient” as lascivious, lustful, or erotic. See 354
19 U.S. at 487 n.20. “Prurient” is also not exclusively a term of art. Cf. Miller v.
California, 413 U.S. at 18 n.2 (noting how the definition of “obscene,” as used in
20 that case, has a specific judicial meaning derived from Roth and “does not reflect
the precise meaning of ‘obscene’ as traditionally used in the English language”).
21
Like “obscene,” “prurient” has a broader meaning outside of legal contexts, such
22 as the one Merriam-Webster.
23 Id. at *7 (citations omitted & cleaned up).
24
Sokol makes clear that 13 C.F.R. § 120.110(p) is not unconstitutional because SBA does
25
not interpret the term “prurient” for purposes of § 120.110(p) as the Supreme Court has defined
26
27 25
Id. at 36-37.
26
28 Id. at 36.
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the term “obscene.” Plaintiffs’ contention to the contrary should therefore be rejected. See also
1
2 Deja Vu-SF, 2020 WL 6260010, at *6 (rejecting the contention that plaintiffs make here, see Pl.
3 Opp’n at 3, that 15 U.S.C. § 633(e) speaks to “the only type of sexual expression that the SBA
4
can exclude from its programs”; holding that “the overall statutory scheme – with its delegation
5
of authority to the SBA to make loans, considering the public interest – does not compel the
6
7 conclusion that the SBA cannot prohibit loans to businesses that are prurient but not obscene”);
8 Miller, 413 U.S. at 20 (stating that “the key” to the Court’s holding in Roth “was the Court’s
9 rejection of the claim that obscene materials were protected by the First Amendment”). Indeed,
10
the fact that this is a government subsidy program is itself dispositive: the Supreme Court has
11
made clear that First Amendment vagueness concerns do not apply in such contexts. See Nat’l
12
13 Endowment for the Arts v. Finley, 524 U.S. 569, 589 (1998) (holding that, “when the
14 Government is acting as patron rather than as sovereign, the consequences of imprecision are not
15 constitutionally severe.”).
16
VII. PLAINTIFFS HAVE FAILED TO STATE A CLAIM THAT DEFENDANTS ARE
17 COMMITTING ACTS OF RETALIATION AGAINST THEM.
18
“The First Amendment prohibits government officials from retaliating against individuals
19
for engaging in protected speech.” Lozman v. City of Riviera Beach, 585 U.S. 87, 90 (2018). A
20
plaintiff who alleges retaliation in violation of the First Amendment fails to state a claim,
21
22 however, if the acts of alleged retaliation occurred “in a civil, not criminal, context,” id. at 96,
23 and the government can “show[] by a preponderance of the evidence that it would have reached
24
the same decision . . . even in the absence of the protected conduct.” Mt. Healthy City. Sch. Dist.
25
Bd. of Educ. v. Doyle, 429 U.S. 274, 287 (1977). In such a case, accordingly, “[t]he First
26
27 Amendment ‘principle at stake is sufficiently vindicated if [the plaintiff] is placed in no worse a
28
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position than if he had not engaged in the [protected speech].’” Nieves v. Bartlett, 587 U.S. 391,
1
2 399 (2019) (quoting Mt. Healthy, 429 U.S. at 285-86).
3 Plaintiffs allege that Eric Benderson, Associate General Counsel for Litigation and
4
Claims, SBA, stated during a settlement conference in 2023 that “clients of [plaintiffs’ counsel]
5
should not be receiving SBA monies because they are . . . merely ‘fronts for prostitution’” and
6
7 that, “with regard to second draw loans, SBA would not even negotiate with [clients of plaintiffs’
8 counsel] that present ‘adult’ entertainment.”27 Plaintiffs contend that these comments “explain
9 the vindictive, harassing, discriminatory, and retaliatory” manner in which SBA allegedly is
10
treating them.28 That contention fails to state a claim, however, because the comments that
11
plaintiffs attribute to Mr. Benderson are not evidence of retaliatory animus even assuming,
12
13 arguendo, that Mr. Benderson made those comments. No party is “required to settle [a] case or
14 even to make a settlement offer,” see Rizzo v. City of Phoenix, 2016 WL 11602424, at *1 (D.
15 Ariz. Apr. 11, 2016), and the “secondary effects of sex-oriented businesses” are so “well known
16
and widely recognized in First Amendment litigation and doctrine” that “relying on those effects
17
shows [no] animus toward any idea.” Camelot II, 24 F.3d at 648.
18
19 Questions of animus aside, public employees have “a duty of preventing incidents of
20 fraud, waste, and abuse of Government funds.” DiManni v. R.I. Army Nat’l Guard, 62 F. App’x
21
937, 938 (Fed. Cir. 2003) (involving National Guard technician). The efforts of SBA to enforce
22
13 C.F.R. § 120.110(p), a duly-promulgated regulation, against businesses that obtained loans
23
24 under PPP despite their ineligibility for those loans are not acts of retaliation in violation of the
25 First Amendment, notwithstanding any comments about those businesses that Mr. Benderson
26
27
27
1st Am. Compl. ¶ 614.
28 28
Id.
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may have made, because SBA would be obligated to make those efforts, irrespective of the
1
2 personal views of Mr. Benderson. The comments that plaintiffs attribute to Mr. Benderson thus
3 left plaintiffs “‘in no worse position’” than they would have been if he had not made those
4
comments, see Nieves, 587 U.S. at 399 (quoting Mt. Healthy, 429 U.S. at 285-86), and are not
5
actionable as alleged acts of retaliation.29
6
7 VIII. PLAINTIFFS HAVE NOT SHOWN THAT THEY ARE ENTITLED TO A JURY
IN THIS ACTION.
8
“The APA does not provide for monetary damages, though it does allow ‘specific relief,’
9
10 including the payment of money to which a plaintiff is entitled.” W. Radio Servs. v. Forest Serv.,
11 578 F.3d 1116, 1123 (9th Cir. 2009) (quoting Bowen v. Massachusetts, 487 U.S. 879, 895
12 (1988)). “Nor does the APA allow claims against individuals or provide a right to a trial by
13
jury.” Id.; see N.B. v. United States, 552 F. Supp. 3d 387, 396 (E.D.N.Y. 2021) (holding that
14
“[t]here is no right to trial by jury for APA claims, which are equitable in nature”). “Both the
15
16 Supreme Court and this court have concluded . . . that remedial schemes lacking such features
17 may be adequate alternatives, provided that the absence of such procedural protections was not
18
inadvertent on the part of Congress.” W. Radio Servs., 578 F.3d at 1123. “With respect to
19
agency action and inaction, we conclude that Congress ‘has considered the universe of harms
20
that could be committed in the program’s administration and has provided what Congress
21
22 believes to be adequate remedies.’” Id. (quoting Adams v. Johnson, 355 F.3d 1179, 1185 (9th
23 Cir. 2004)).
24
25
29
26 Plaintiffs have made repeated attempts to depose Mr. Benderson. See 1st Am. Compl. ¶¶ 76,
87, 99, 150, 189. Those attempts are inappropriate because “‘[j]udicial inquiry into executive
27 motivation represents a substantial intrusion into the working of another branch of Government
28 and should normally be avoided.’” FDA v. Wages & White Lion Invs., 2025 WL 978101, at * 18
(S. Ct. Apr. 2, 2025) (quoting Dep’t of Commerce v. New York, 588 U.S. 752, 781 (2019)).
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Plaintiffs do not identify any issues in this action that they consider suitable for a jury,
1
2 saying only that “more jury-triable issues may emerge” as “the case progresses.”30 Plaintiffs
3 nonetheless request a jury in this action.31 “Judicial review of the actions of [SBA] is governed
4
by the [APA],” however, Jet Inv., 84 F.3d at 1139, and the APA does not “provide a right to a
5
trial by jury.” W. Radio, 578 F.3d at 1123; accord N.B., 552 F. Supp. 3d at 396. Plaintiffs’ jury
6
7 demand should therefore be stricken.32
8 CONCLUSION
9 Defendants’ motion to dismiss and to strike plaintiffs’ jury demand should be granted for
10
the reasons set forth in the memorandum in support of the motion that defendants have filed and
11
for the reasons set forth above.
12
13 Dated: April 5, 2025 Respectfully Submitted,
14 YAAKOV M. ROTH
Acting Assistant Attorney General
15
16 JOSEPH E. BORSON
Assistant Branch Director
17
18
19
20
21
22 30
Pl. Opp’n at 40.
31
23 1st Am. Comp., Cover Page.
32
Fed. R. Civ. P. 39(a)(2) provides that “[t]he trial on all issues so demanded must be by jury
24
unless . . . the court, on motion or on its own, finds that on some or all of those issues there is no
25 federal right to a jury trial.” Plaintiffs complain that defendants moved to strike their jury
demand pursuant to Fed. R. Civ. 12(b)(6) instead of Rule 39(a)(2). Def. Opp’n at 39. “‘[T]he
26 rule of prejudicial error . . . ordinarily applies in civil cases,’” however. Wages & White Lion,
27 2025 WL 978101, at *22 (quoting Shinseki v. Sanders, 556 U.S. 396, 406 (2009)). Defendants
therefore ask the Cout to deem their motion to strike plaintiffs’ jury demand to be a motion under
28 Rule 39(a)(2) or, in the alternative to find “on its own” that “there is no federal right to a jury
trial” in this action. See id.
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s/ David M. Glass
1
DAVID M. GLASS, DC Bar 544549
2 Senior Trial Counsel
Department of Justice, Civil Division
3 Federal Programs Branch
1100 L Street, N.W., Room 12020
4
Washington, D.C. 20530
5 Tel: (202) 514-4469
Email: david.glass@usdoj.gov
6 Attorneys for Defendants
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