Court filing

Plaintiffs’ Supplemental on Standing Regarding the Affiliation Rules Affiliation Exception Submitted Pursuant to Court Order (Doc. 39) — Gold Club - SF, LLC v. United States Small Business Administration (Dkt. 41, N.D. Cal.)

Summary

Plaintiffs' Supplemental Memorandum on Standing Regarding the Affiliation Rules and Affiliation Exception, submitted under Court Order (Doc. 39), in Gold Club - SF, LLC, et al. v. United States Small Business Administration, et al., Case No. 3:24-cv-04241-LJC, in the U.S. District Court for the Northern District of California, filed May 30, 2025. The plaintiffs respond to the defendants' argument that they lack Article III standing because the SBA has not made a final determination of ineligibility under the Affiliation Rules. They argue that they already suffer present injuries, including active Post-Payment Reviews, previously issued FLRDs, repeated demands for affiliation information and financial harms. The memorandum is filed by counsel including Zachary M. Youngsma of Shafer & Associates, P.C.

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

Filed May 30, 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	2025-05-30

Cite this document

“Plaintiffs’ Supplemental on Standing Regarding the Affiliation Rules Affiliation Exception Submitted Pursuant to Court Order (Doc. 39) — Gold Club - SF, LLC v. United States Small Business Administration (Dkt. 41, N.D. Cal.).” U.S. District Court for the Northern District of California, No. 3:24-cv-04241, Doc. 41, filed 2025-05-30. Archived at Pandemic Darlings, https://pandemicdarlings.com/court-filings/full-docket-united-states-small-business-administration-cand-432603/2025-05-30-gov-uscourts-cand-432603-41-0-doc-41/, SHA-256 6d44e1469438376cc50ee134a9b7b55a05b5e19f4f1f288874694fc803a8bf29.

Full text

Case 3:24-cv-04241-LJC Document 41 Filed 05/30/25 Page 1 of 8

1 DOUGLAS J. MELTON, Bar No. 161353
SHANE M. CAHILL, Bar No. 227972
2 LONG & LEVIT LLP
465 California Street, Suite 500
3 San Francisco, California 94104
Telephone: (415) 397-2222
4 Facsimile: (415) 397-6392
Email: dmelton@longlevit.com
5 scahill@longlevit.com

6 BRADLEY J. SHAFER (MI P36604)*
ZACHARY M. YOUNGSMA (MI P84148)*
7 SHAFER & ASSOCIATES, P.C.
3800 Capital City Blvd., Suite 2
8 Lansing, Michigan 48906
Telephone: (517) 886-6560
9 Facsimile: (517) 886-6565
Email: Brad@BradShaferLaw.com
10 Zack@BradShaferLaw.com

11 *Admitted Pro Hac Vice

12 Attorneys for Plaintiffs

13 UNITED STATES DISTRICT COURT

14 FOR THE NORTHERN DISTRICT OF CALIFORNIA

15
GOLD CLUB - SF, LLC, et al., Case No.: 3:24-cv-04241-LJC
16
Plaintiffs, PLAINTIFFS’ SUPPLEMENTAL
17 MEMORANDUM ON STANDING
v. REGARDING THE AFFILIATION RULES
18 AND AFFILIATION EXCEPTION
UNITED STATES SMALL BUSINESS SUBMITTED PURSUANT TO COURT
19 ADMINISTRATION, et al., ORDER (DOC. 39)
20 Defendants.
Hon. Lisa J. Ciscneros
21

28
Case No. 3:24-cv-04241-LJC
PLAINTIFFS’ SUPPLEMENTAL MEMORANDUM ON STANDING REGARDING THE AFFILIATION RULES
AND AFFILIATION EXCEPTION

Case 3:24-cv-04241-LJC Document 41 Filed 05/30/25 Page 2 of 8

1 Defendants argue that Plaintiffs lack Article III standing because SBA has not made a final

2 determination of ineligibility based on the Affiliation Rules. 1, 2 That argument fails. As detailed
3 below, Plaintiffs are already suffering here-and-now injuries—including active Post-Payment

4 Reviews (“PPRs”), previously issued FLRDs, repeated demands for burdensome affiliation

5 information, and financial harms. These are not hypothetical injuries—they are traceable to SBA’s

6 ongoing application of the Affiliation Rules and Affiliation Exception Provisions. Plaintiffs also

7 clearly have pre-enforcement standing to challenge these provisions.

8 To establish standing, a plaintiff must show “i) that “she has suffered or likely will suffer an

9 injury in fact, (ii) that the injury likely was caused or will be caused by the defendant, and iii) that

10 the injury likely would be redressed by the requisite judicial relief.” FDA v. All. for Hippocratic

11 Med., 602 U.S. 367, 380 (2024). An injury in fact must be “concrete,” “particularized,” and “affect

12 the plaintiff in a personal and individual way[.]” Id. at 381. It can be, among other things, “a monetary

13 injury, and injury to one’s property, or an injury to one’s constitutional rights[.]” Id. Plaintiffs “need

14 not show that ‘every application of a regulation’” will harm them to establish injury in fact. California

15 v. Bernhard, 460 F. Supp. 3d 875, 887 (N.D. Cal. 2020). “If a plaintiff faces a credible threat of

16 harm, and that harm is both real and immediate . . . the plaintiff has met the injury-in-fact

17 requirement[.]” Krottner v. Starbucks Corp., 628 F.3d 1139, 1141 (9th Cir. 2010) (emphasis added).

18 Pre-enforcement standing exists “before the government has enforced the challenged policy,” where

19 the court examines “[1] whether the plaintiffs have articulated a concrete plan to violate the law in

20 question, [2] whether the prosecuting authorities have communicated a specific warning or threat to

21 initiate proceedings, and [3] the history of past prosecution or enforcement under the challenged

22 statute.” Unified Data Servs., LLC v. FTC, 39 F.4th 1200, 1209–10 (9th Cir. 2022).

24
1
Capitalized terms not defined herein have the meanings assigned to them in Plaintiffs’
25 memorandum opposing Defendants’ motion to dismiss. [Doc. 23 (“Memo”)].
2
26 Defendants burn nearly two pages defending 13 C.F.R. § 121.103(a)(5) against Plaintiffs’
vagueness challenge—arguments they either failed to brief properly or neglected to raise at oral
27 argument, and which fall outside the scope of the Court’s order for supplemental briefing. [Doc. 39].
Plaintiffs stay on task and respond only to what the Court actually requested: supplemental briefing
28 on standing to challenge the Affiliation Rules and Affiliation Exception Provisions.
1 Case No. 3:24-cv-04241-LJC
PLAINTIFFS’ SUPPLEMENTAL MEMORANDUM ON STANDING REGARDING THE AFFILIATION RULES
AND AFFILIATION EXCEPTION

Case 3:24-cv-04241-LJC Document 41 Filed 05/30/25 Page 3 of 8

1 On a motion to dismiss, a plaintiff need only show that the facts alleged, if proven, would confer

2 standing. Id.; Warth v. Seldin, 422 U.S. 490, 501 (1975). Plaintiffs easily meet these standards as

3 virtually every one of them is currently subject to review, in one form or another, under the

4 Affiliation Rules (despite each being a NAICS code 72 business under the Affiliation Exception).

5 First, the Plaintiffs that don’t even present “adult” entertainment, the Karaoke bars Cats and Cats

6 NOLA, are currently subject to PPRs examining whether those businesses exceed, together with their

7 “affiliates,” the employee “size” standards, which is solely an Affiliation Rules/Affiliation Exception

8 issue. 3[FAC, Doc. 18; at ¶¶ 247-256, 264-269]. As shown in Exs. 1, 2 & 3, 4 these Plaintiffs received

9 5-, 8-, and 4-page PPRs (one for each of Cats’ PPP loans) demanding so much documentation on the

10 affiliation issue they can’t even be summarized here within the page limits. 5, 6 Nothing is different

11 for the two other non-adult businesses: Office (a simple bar and grill), and Pole Position (a now-

12 closed sports bar). [FAC at ¶¶ 231-240, 272-283; see also Ex. A (Office PPR, Doc. 18-1 at PgID.8-

13 14)], and Ex. 4 (Pole Position PPR; each a 7-page demand for production of voluminous materials

14 and information relating solely to the affiliation issue). 7

15 Second, there are the Plaintiffs that have had FLRDs issued against them based upon both the

16
3
17 Though not authorized by the PPP, the SBA argues it may “reassign” a NAICS code to certain
“adult” Plaintiffs based on their supposed primary income source (e.g., dance income vs. food and
18 drink sales). While that argument is for another day that issue has no bearing on the NAICS code
designation for Affiliation Exemption purposes of businesses that offer no such—or any—
19 entertainment.
4
20 Exhibits to this supplemental filing are numbered; those to the FAC are lettered.
5
21 On a motion to dismiss for lack of standing, the Court may consider documents beyond the
complaint where, as here, they are referenced in the FAC, central to Plaintiffs’ claims, and their
22 authenticity cannot be questioned. Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006); Rothschild
v. Gildred, No. 23-cv-02105, 2025 U.S. Dist. LEXIS 38909, at **3-4 (N.D. Cal. Mar. 4, 2025)
23 (Cisneros, J.). The attached exhibits meet all three criteria and, as SBA-issued records, their
authenticity is not in doubt.
24
6
As pled, Plaintiffs are needlessly expending significant resources responding to these draconian
25 requests, which represent both an injury and irreparable harm in light of Plaintiffs’ inability to
recover damages against the SBA or attorneys’ fees under the EAJA. [FAC, ¶¶ 4, 7, 345, 403, 613;
26 see also Memo, at p. 18]. That alone constitutes an injury in fact to establish standing.
7
27 Incredulously, the SBA actually has the temerity to assert that it may deny forgiveness to Plaintiff
Office based on the “prurient sexual nature of the business,” [Ex. A (Doc. 18-1 at PgID.9)], even
28 though that bar offers no live entertainment whatsoever!
2 Case No. 3:24-cv-04241-LJC
PLAINTIFFS’ SUPPLEMENTAL MEMORANDUM ON STANDING REGARDING THE AFFILIATION RULES
AND AFFILIATION EXCEPTION

Case 3:24-cv-04241-LJC Document 41 Filed 05/30/25 Page 4 of 8

1 Affiliation Rules and the PR, where they have filed OHA appeals and where the appeals are still

2 pending (stayed pursuant to agreement of counsel pending resolution of this action). These include

3 Smithville and DVSG of LV. [FAC at ¶¶ 203-215, 217-229]; see also Exs. 5 & 6 (actual FLRDs,

4 based in part on the Affiliation Rules, for, respectively, Smithville and DVSG of LV).

5 Third, there are the other Plaintiffs that have received loan forgiveness but have now been served

6 with PPRs that purport to examine—by requesting the production of voluminous documentation,

7 much of which the targeted Plaintiff has no legal access to—whether certain Plaintiffs were entitled

8 to the loans in the first place. Most of these PPRs are based on both the Affiliation Rules and the PR,

9 but one, discussed at oral argument, is based solely on the Affiliation Rules. These include Plaintiffs

10 Reeder, Jamme, 90s, LVB, and Stockton. [FAC at ¶¶ 170-173, 296-297, 312-313, 327-328, 339-

11 340]. To document and further expand upon the allegations, Plaintiffs attach those PPRs as,

12 respectively, Exs. 7, 8, 9, 10, & 11, and it should be noted that the documents requested therein relate

13 exclusively to the Affiliation Rules and have nothing whatsoever to do with the PR.

14 The Reeder document (Ex. 7) is the document the undersigned discussed at argument (an

15 affiliation request not involving, as represented by Mr. Glass, Harry Mohney or Jason Mohney, but

16 rather an individual named Curtis Wise), which includes demands for voluminous documents from

17 numerous businesses that did not exist at the time of loan application (while affiliation is determined

18 at the time of loan application, see 13 C.F.R. § 121.302(a), recall that Mr. Glass offered no

19 explanation for SBA seeking affiliation documentation for businesses that did not even exist at the

20 time Reeder submitted its loan applications), and a number of entities that have no connection

21 whatsoever to Mr. Wise. How the SBA is coming up with this affiliation list is anyone’s guess.

22 Fourth, there are the Plaintiffs that had FLRDs issued where forgiveness was denied based on

23 the Affiliation Rules (either solely or together with the PR), who then filed OHA appeals, and then

24 the SBA withdrew the FLRDs and moved to dismiss the appeals (all such motions being virtually

25 instantaneously granted) because of the claimed necessity to conduct “further review” of the loan.

26 These include Plaintiffs Dallas Food & Beverage (second draw loan) and Gold Club (first draw).

27 [FAC at ¶¶ 73-83, 127-128]; see also Exs. 12 & 13, p. 2 and the Declarations of Jason Frulla, at ¶ 4

28
3 Case No. 3:24-cv-04241-LJC
PLAINTIFFS’ SUPPLEMENTAL MEMORANDUM ON STANDING REGARDING THE AFFILIATION RULES
AND AFFILIATION EXCEPTION

Case 3:24-cv-04241-LJC Document 41 Filed 05/30/25 Page 5 of 8

1 of each (withdrawing FLRD to “complete a further review of the Loan”). This even applies to

2 Plaintiff SAW, which had its first FLRD denying forgiveness based on the Affiliation Rules

3 withdrawn for “further review” and its OHA appeal dismissed, with the SBA then issuing a second

4 FLRD, this time basing forgiveness denial on the PR, which led to SAW filing a second OHA appeal,

5 which was also dismissed after SBA withdrew the second FLRD for yet another “further review,”

6 setting up its third bite of the apple. [FAC at ¶¶ 187-200; see also Ex. EE (Doc. 18-2 at PgID.3614

7 & 3617) (withdrawing for “further review”)], and Ex. 14, pp. 2 & 5, ¶ 4 (same). Certainly, the

8 “further review” for these three Plaintiffs can include (even for SAW, given the first FLRD based

9 upon affiliation) additional analysis under the Affiliation Rules.

10 Plaintiffs also face potential civil liability under the False Claims Act, 31 U.S.C. § 3729, et seq.

11 (“FCA”). The PPP loan and forgiveness applications both require an applicant to certify that it is

12 eligible to obtain the loan and/or forgiveness. [See, e.g., Exs. CCC (Doc. 18-3 at PgID.1730) (noting

13 that by signing the application, the applicant is certifying that it “is eligible to receive a loan under

14 the rules in effect at the time this application is submitted”), and DDD (Doc. 18-3 at PgID.1737)

15 (same)]. Under the FCA, an applicant that submits false information—such as a misrepresentation

16 in its eligibility certification—may face civil penalties ($5,000 to $10,000, adjusted by inflation),

17 treble damages, and the government’s litigation costs. 31 U.S.C. § 3729(a)(1) & (3); [see also FAC

18 at ¶¶ 4, 346, 734]. In fact, the undersigned has represented numerous adult entertainment industry

19 clients in FCA Civil Investigative Demands tied to PPP loans; none yet involving any of these

20 Plaintiffs or others in their supposed “affiliated groups,” but given how the SBA is acting here, that

21 concern is certainly not speculative.

22 And to establish that point, there are the SBA’s threats—if the Plaintiffs do not provide, among

23 other things, every scrap of requested affiliation information—to refer both the Plaintiffs and their

24 lending banks to, among others, “the Office of Inspector General,” [see Exs. A and B (Doc. 18-1, p.

25 8, 16)], which “investigates allegations of possible criminal violations and other wrongdoing” and

26 which has the statutory responsibility to “[r]eport violations of the law to the U.S. Attorney General.”

27 See https://www.sba.gov/about-sba/oversight-advocacy/office-inspector-general/about-office-

28
4 Case No. 3:24-cv-04241-LJC
PLAINTIFFS’ SUPPLEMENTAL MEMORANDUM ON STANDING REGARDING THE AFFILIATION RULES
AND AFFILIATION EXCEPTION

Case 3:24-cv-04241-LJC Document 41 Filed 05/30/25 Page 6 of 8

1 inspector-general (last visited May 19, 2025), pp. 3, 4. Compare Memo at Pg.ID.47, n.20 (citing

2 SBA online documents that list the possible criminal penalties associated with making a false

3 statement on a loan application). [See also FAC, ¶¶ 4, 346, 734]. Given SBA’s direct threats,

4 Plaintiffs’ civil and criminal exposure is real—not conjectural or hypothetical.

5 Finally, regardless of Mr. Glass’s “interpretation” of the bank letters, [Docs. 35-2 & 35-3], Gold

6 Club has been demanded to repay its first draw loan, [Doc. 35-2]—with no known process of

7 recovery even if it prevails in this matter—after SBA issued an FLRD denying forgiveness of that

8 loan based on the Affiliation Rules, the PR, and its failure to apply the Affiliation Exception

9 Provision. [FAC at ¶¶ 67, 73, 597-99]. That’s an additional injury tied to these provisions.

10 All of the above are the quintessential “here-and-now” injuries where the Court has made clear

11 that aggrieved parties need not undergo, before seeking relief in the courts, administrative

12 proceedings that themselves are alleged to be unconstitutional. Axon Enterprise, Inc. v. FTC, 598

13 U.S. 175, 185-96 (2023). And, by the above, Plaintiffs are not asserting any form of “third party”

14 standing; virtually every Plaintiff is currently subject to some form of proceeding by or with the SBA

15 involving the Affiliation Rules and/or the Affiliation Exception. These are not, in the words of the

16 Court in All. for Hippocratic Med., mere “generalized grievance[s].” 602 U.S. 381 (emphasis added).

17 Obviously, the actions set forth herein were initiated by, or could be initiated by, the SBA. Even

18 if the lack of a final determination placed Plaintiffs in pre-enforcement territory, standing is still

19 present. 1) Plaintiffs have already undertaken the activity by obtaining loans and seeking forgiveness,

20 2) the SBA has initiated proceedings, 3) the issuance of the FLRDs demonstrate a history of

21 enforcement regardless of whether the SBA considers it a “final determination,” and 4) liability fears

22 under the FCA and criminal law are real. And, of course, the SBA has not withdrawn the PPRs

23 seeking excessive materials regarding affiliation or disclaimed intent to use the FCA or criminal law.

24 Consequently, in light of the above, to assert that these Plaintiffs do not have standing to

25 challenge the Affiliation Rules and the SBA’s application of the Affiliation Exception is nothing

26 short of absurd, with a capital “A.” But it does nevertheless further the SBA’s underlying goal of

27 wasting as much time and money of the Plaintiffs, and their counsels, as is possible.

28
5 Case No. 3:24-cv-04241-LJC
PLAINTIFFS’ SUPPLEMENTAL MEMORANDUM ON STANDING REGARDING THE AFFILIATION RULES
AND AFFILIATION EXCEPTION

Case 3:24-cv-04241-LJC Document 41 Filed 05/30/25 Page 7 of 8

1 Dated: May 30, 2025 Respectfully Submitted,

2
SHAFER & ASSOCIATES, P.C.
3

4 /s/ Bradley J. Shafer
Bradley J. Shafer (MI P36604)*
5 Zachary M. Youngsma (MI P84148)*
SHAFER & ASSOCIATES, P.C.
6 3800 Capital City Blvd., Ste. 2
Lansing, Michigan 48906
7 T: 517-886-6560
F: 517-886-6565
8 E: Brad@BradShaferLaw.com
E: Zack@BradShaferLaw.com
9

10 LONG & LEVIT LLP
11
DOUGLAS J. MELTON, Bar No. 161353
12 SHANE M. CAHILL, Bar No. 227972
LONG & LEVIT LLP
13 465 California Street, Suite 500
San Francisco, California 94104
14 Telephone: (415) 397-2222
Facsimile: (415) 397-6392
15 Email: dmelton@longlevit.com
scahill@longlevit.com
16
*Admitted Pro Hac Vice
17
Attorneys for All Plaintiffs
18

28
6 Case No. 3:24-cv-04241-LJC
PLAINTIFFS’ SUPPLEMENTAL MEMORANDUM ON STANDING REGARDING THE AFFILIATION RULES
AND AFFILIATION EXCEPTION

Case 3:24-cv-04241-LJC Document 41 Filed 05/30/25 Page 8 of 8

1
CERTIFICATE OF SERVICE
2
I certify that on May 30, 2025, I electronically filed the foregoing document, along with any
3
accompanying declarations and exhibits, with the Clerk of the Court using the CM/ECF system,
4
which will send notification of such filing to all counsel of record.
5

6
/s/ Zachary M. Youngsma
7 Zachary M. Youngsma (MI P84148)
SHAFER & ASSOCIATES, P.C.
8